New York State College of Agriculture At Cornell University Ithaca, N. Y. Library Cornell University Library HD9036.A51914 Grain exchanges-Hearings before the Co""" 3 1924 013 862 234 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013862234 G-I?,.A.I DSr,, lEfc^C IHI^^nSTG-IES HEARINGS BEFORE THE COMMITTEE ON RULES HOUSE OF REPKESENTATIVES SIXTY-THIRD CONGRESS Second Session ON H. RES. 424 MARCH 3-7, 1914 W4SHIKGTON GOVERNMENT PRINTING OTFICK 1914 GRAIN EXCHANGES. Committee on Rules, House of Representatives, Tuesday, March 3, 1914- The committee met at 10 o'clock a. m., Hon. Robert L. Henry (chairman) presiding. There were present before the committee Hon. James Manahan, ^ Representative in Congress from the State of Minnesota; Hon. Charles H. Dillon, a Representative in Congress from the State of South Dakota; and Mr. Samuel H. Greeley, of Chicago, 111. The Chairman. The committee will be in order. The committee has met this morning for the purpose of considering House resolu- tion 424, introduced by Mr. Manahan, which will be printed in the record. [H. Res. 424, Sixty-tlurd Congress, second session.] Whereas the world's demand for wheat and the conBumption thereof so closely balance its production from year to year that there is no legitimate occasion for violent fluctuations in the price of that necessity; and Whereas it is charged and generally believed that the price of wheat paid the farmers as well as the cost of flour to the consumers is largely controlled by the Board of Trade of Chicago, the Chamber of Commerce of Minneapolis, and the Board of Trade of Dulum, acting in combination; that the Board of Trade of Chicago is a monopoly and has and exercises complete control over the buying and selling of wheat and the prices paid therefor in that market; that the Chamber of Commerce of Minneapolis is a monopoly dominating and controlling that market and controlling the prices paid for wheat from day to day; that the Board of Trade of Duluth controls the market at Duluth and operating in conjunction with the Board of Trade of Chicago and the Chamber of Commerce of Minneapolis makes the price of wheat for the Northwest; that each of these organizations is created under State laws that make them self-governing and enable them to exercise arbitrary and tyrannical control over all traders operating in their respective jurisdictions; that each of said organizations operates under rules and by-laws that enable the few members thereof controllir^ the public warehouses in Chicago and the terminal elevators and mills in Minnesota to control not only the said organizations themselves but the price of wheat; that it is the common practice of these controlling members by concerted action in these three great markets, offering or withdrawing enormous quantities of wheat of the public warehouses and terminal elevators and by concerted bidding and betting in the pit on futures, to depress or raise the price of wheat to suit the purpose of their gambling operations; that the prices are by such combination and manipulation depressed while the farmers are compelled to market the heavy portion of each crop and raised and manipulated so as to tempt speculative investors after the bulk of each crop is in the control of the combination; that for each bushel of real ^eat actually sold and handled in each of these terminal markets at least one hundred bushels are bought and sold in so-called future trading; that the multiplied expense of all such future trading as well as most of the profita thereof must come out of the real wheat actually marketed; that the only part of the gains of gambling in wheat not borne by the farmer or buyer of bread is borne by men tempted to speculate in the pit; that the number of embezzlements, bankruptcies, and wrecks 4 GEAIN EXCHANGES. caused by gambling in wheat futures is appalling; that the members of the Chicago Board of Trade, the Minneapolis Chamber of Commerce, and the Duluth Board of Trade through whom such gambling operations are made cover and hide the record of the losses sustained by speculators and refuse to exhibit their books to the State officials whose duty it is to protect the public; that the Chamber, of Commerce of Minneapolis and the Board of Trade of Chicago by virtue of a large membership of wealthy men closely allied with banking institutions, transportation companies, and with certain daily newspapers of their communities, exercise and control an unwholesome influence in local government and public opinion; and Whereas it is charged and generally believed that the business of the Chicago Board of Trade and its operations are controlled by memberships which are owned by a few large operators, particularly Armour, Peavey, J. Jlosenbaum, J. C. Shaffer and Com- pany, Bartlett, Frazer and Carrington, who not.only direct said board of trade as an exchange, making such rules and by-laws as serve their purpose, but acting in conjunction with the leading members of the Minneapolis Chamber of Commerce and controlling most of the terminal elevators and public warehouses of both cities, exercise and have an unreasonable and unlawful control over the prices paid for wheat in these great terminal markets and therefore in the whole coimtry, and unduly control and restrain the movement, purchase, and sale of wheat to suit their speculative purposes; and Whereas it is generally charged and believed that wheat arriving at the terminal markets from country points is in the first instance graded with unfair severity and on such grading sold in large quantities by commission companies to whom it is con- signed to terminal elevator companies owned by themselves; that a commission is charged to the shipper for such sale; that the wheat thus sold to themselves is taken by such commission companies to their terminal elevators and there mixed and doctored in such a manner as to be afterwards shipped out of such elevators or public warehouses at a grade from one to two points higher and applied, when necessary,- in filling future trades at such higher grades; and that over twenty-five million bush-, els of wheat are thus doctored annually in Chicago and Minneapolis and raised in grade on an average of two points ; and Whereas such combination of dealers operating as members of the Chicago Board of ' Trade, and such combination of dealers operating as members of the Minneapolis •Chamber of Commerce, and such combination of dealers operating as members of •the Duluth Board of Trade, and such combinations between these respective groups of dealers and between such corporations as such, under the by-laws, rules and practices now in force in respect to the marketing of wheat and the grading, inspec- tion, and mixing thereof, as well as in the making and publication of the price thereof, and in the future dealing therein, are in violation of the Sherman antitrust law and operate as an unreasonable and unlawful restraint of trade and commerce among the States: Now therefore be it Resolved, That a select committee of seven members be appointed by the' Speaker to investigate the foregoing statements and charges, to ascertain whether any combina- tion in restraint of trade exists between the Chicago Board of Trade, the Minneapolis ■Chamber of Commerce, and the Duluth Board of Trade, or either of them, or between the members of any or all of said corporations, which in effect restrains or controls the price of wheat or the sale thereof, or in any manner limits the free marketingand Belling of wheat shipped- from the Dakotas or elsewhere to the terminal markets at Ohicago, Minneapolis, or Duluth. That said committee shall specifically inquire into the organization and method of operation of the Chicago Board of Trade, the Minneapolis Chamber of Commerce, and the Duluth- Board of Trade, and each of them, to ascertain from their organiza- tion, by-laws, and method of operation whether or not they, or any of them, exercise any unlawful restraint or control over the buying or selling of grain coming to said terminal markets, or any of them, from Iowa, Nebraska, the Dakotas, or any other State, or over the prices thereof. That said committee shall also specifically inquire into the organization, methods, and practices of the public warehouses and terminal elevators of Chicago, Minneapolis, and DuMth, and into the connection and control of such public warehouses and ter- minal elevators, and each of them, with the Chicago Board of Trade, the Minneapolis Chamber of Commerce, and the Duluth Board of Trade, and with the individual members of each of said organizations. That said committee shall also specifically inquire into the methods and practices of grading wheat in vogue in Illinois and Minnesota in and out of said public ware- houses and terminal elevators, and the connection and relation of such grading to tiie buying and selling of wheat and the prices paid therefor. GBAIN EXCHANGES. 5 That said committee shall also specifically inquire into the practice, method, and control of the mixing and blending of the different grades and kinds of wheat pre- vailing in Chicago, Minneapolis, and Duluth, and the relation of such mixing, grading, blending, and curing to the grading and inspection thereof and the buying and selling thereof and the prices paid on each of said terminal markets. That said committee shall also specifically inquire into the ownership and control of each of the separate memberships in each of said organizations, the Chicago Board of Trade, the Minneapolis Chamber of Commerce, and the Duluth Board of Trade, with the view of ascertaining the extent of the practice of the members of said organi- zations in selling grain consigned to them to subsidiary corporations or dummies. That said committee shall also specifically inquire into all privileges, concessions, or advantages enjoyed by any member of the Chicago Board of Trade or Minneapolis Chamber of Commerce, or any owners of public warehouses or terminal elevators, from any railroad company by way of rebate or otherwise, or from any demurrage association, transfer company, bank, or newspaper allied witb or in any manner exer- cising control, by way of membership or otherwise, in said board of trade or chamber of commerce. That said committee shall also specifically inquire into the method, extent, and effect of buying and selling wheat in the future, and operations ' ' in the pit, ' ' and espe- cially into the profits resulting therefrom to members of the said Chicago Board of Trade, Minneapolis Chainber of Commerce, and Duluth, Board of Trade, and into the losses suffered and sustained by speculators and investors outside of the membership of such organizations. That said committee shall in such investigation inquire into and enumerate such other rules, by-laws, and practices of the Chicago Board of Trade, the Minneapolis Chamber of Commerce, and the Duluth Board of Trade, and of the members of such oi^nizations, respectively, as may be deemed by the committee prejudicial to the free marketing of wheat or detrimental to the interests of the producers of wheat or the consumers of bread. That such committee as a whole, or by subcommittee, is authorized to sit during the sessions of the House and during the recess of Congress; that its hearings shall be open to the public; that the committee as a whole or by subcommittee is authorized to employ counsel, experts, clerical, and other assistants, to summon and comi)el attend- ance of witnesses and the production of books and papers, and may administer oaths to witnesses. That said committee as a whole or by subcommittee shall have the authority to send for persons and papers and to take testimony in Washington, District of Columbia, or elsewhere. That said committee shall report to the House of Representatives all of the facte ascertaiaed by it and the testimony taken by it under the investigation herein pro- vided, with such recommendations as it may deem advisable for legislation, and if at any time during such investigation the committee ascertains facts that in its judgment warrant criminal prosecution the committee is authorized to make representation of such facta to the Attorney General of the United States for such action a* he may deem advisable to take. The Chairman. We will now proceed with the hearing. The committee will be glad to hear you, Mr. Manahan. STATEMEIfT OF HON. JAMES MANAHAIT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA. Mr. MInahan. Mr. Chairman, and gentlemen, I will not take the time to read the resolution, which goes into considerable detail, but will introduce the evidence which we desire to submit in support of it by a brief preliminary statement. At the outset I wish to assure the co^nmittee that I have no pride of authorship or personal interest in this resolution. I make this statement because of some of the comments appearing in the press purporting to be statements by representatives of the Board or Trade of Chicago, and the Chamber of Commerce of Minneapolis, to the effect that I have a personal interest or personal ambition in this matter, due doubtless to the fact that I was the attorney for the committee of the lower house of the Min- 6 GBAIN EXCHANGES. iiesota Legislature during its last session, which committee made an investigation, so far as the facilities would permit, of the Chamber of Commerce of Minneapolis; and to the fact that also, about the time the legislature met shortly before — and possibly in a few small matters since — I have had nominal connection with what is known as the Equity Cooperative Exchange of Minneapolis, which was at- tempting—and is, as I understand it, still attempting — to get a part of the business and trade of that city in opposition to the chamber of commerce members. In order to reUeve this investigation from any possibility of being diverted from the real issue, I wish the com- mittee from the outset to eliminate me in the matter and hear the question upon its merits. I make this statement because I know that the committee otherwise might be subjected to an attempt on the part of those concerned to divert the investigation into some sort of a question as to my motives in introducing the resolution. I would have no fear of such an in- vestigation or inquiry, because, as I say, 1 have no personal interest in a real and legal sense in the Equity Cooperative Exchange, this rival concern. I have been nominally their lawyer, and my sym- pathies are of course with them in their struggles, but I never received a dollar ot fee from them and never had any interest in that corpora- tion — any ownership or interest of any land. My connection has been nominal and in sympathy. I wish to read from a letter that I received this morning from the Farm, Stock and Home. I read this because it so clearly expresses the importance of the matter, and so aptly states my own views. This letter is written by Mr. H. J. Hughes, the editor oJ the Farm, Stock and Home, one of the leading agriculture papers ot the North- west: The Farm, Stock and Home wishes you to emphasize in every possible way the importance of the investigation of grain exchanges which you have proposed. It wants to point out the fact that only by such an investigation, made by aboard of abso- lutely unprejudiced and fearless men, men who will go down the line and investigate thoroughly all sides of the question, can we arrive at the solution of the present un- satisfactory arrangement, misunderstanding, and business anarchy surrounding matters relative to the grain trade of the world. That very tersely and aptly expresses my personal opinion in the matter. Before introducing those who will speak for this resolution, I wish to call the attention of the committee to one or two of the facts, as I understand them, which impelled me to introduce this resolution. In the first place, the openmg paragraph of the resolution states: "Whereas the world demand for wheat and the consumptioiji thereof so closely balance its production from year to year that there is no legitimate occasion for violent fluctuations in the price of that necessity." Now, in that connection I make this deUberate statement to the committee, that the price of wheat in Chicago and in Minneapolis is not made by the so-called world supply and demand. Nor is it made by the amount of the so-caUed cash wheat arriving at those markets. It is made by the operators in future options. I call the attention of the committee to statistics taken from the United States Statistical Abstract and from the Tfibmie Almanac of 1914, the last edition, GRAIN EXCHANGES. 7 which is a compilation of tables taken from the same source, and I ask the attention of the committee and of those who appear for these grain exchanges — ^if they take an opposite veiw of this matter — to a comparison of the production and price of wheat for the years 1909 and 1911. In 1909 the production of wheat, the world production, according to these tables, was 3,581,519,000 bushels. In 1911 it was 3,540,717,00 bushels, or 40,802,000 bushels less than in 1909. The same Statistical Abstract and almanac shows that in the United States for those years the 1909 production was 737,189,000 and the 1911 production 621,338,000, which was 115,851,000 bushels less in 1911 than in 1909. So that the world production of wheat and the production in the United States also for the year 1909 was largely in excess of that for 1911. And yet, in spite of that fact, the price of wheat as given in this Statistical Abstract — rather, the value of wheat on December 1, 1909 — was 99 cents a bushel, and in 1911, the year of less production, it was only 87.4 cents per bushel. Mr. Leneoot. Where is that value ? Mr. Manabcan. That is the value on the farm, according to the Statistical Abstract, taking into consideration the cost of marketing, etc., made by the statisticians of the department. Mr. PoTj. I would like to ask a question there, if it will not inter- rupt you. Mr. Manahan. Certainly. Mr. Pou. You say, in 1911, I believe, that wheat was 87 cents a bushel and that the crop in that year was less than in 1909 ? Mr. Manahan. Yes. Mr. Pou. At that time, when it was 87 cents a bushel or 97 cents a bushel, whichever it was, in Chicago, what was the price of it in Europe ? Mr. Manahan. This is the price given in the United States on the farm as prepared by the Statistical Abstract of the United States, my proposition being that the price of wheat to the farmers of this country, as shown by the statisticians of your Government, is not controlled at all by the world supply nor the Nation's supply, because the world supply in 1909, when the price was 99 cents upon the American farm was much larger than the world supply in 1911; and also the Nation's supply in 1909 was much larger — 115,000,000 larger than it was in 1911, when the price was over 11 cents lower than it was in 1909. Mr. Pou. If you have the figures of what the price was in Europe, I would like to have them. Mr. Manahan. I have not the figures of the price in Em-ope. Mr. Leneoot. Is the difference in quality an important factor there? Mr. Manahan. This was the price of the standard grade of wheat. I did not take into consideration the off grades, but the regular grades, which is subject to future trading, which I think is No. 1 and No. 2. That is supposed, of course, to be the average price of standard-grade wheat. , . . Now, it occurred to me that possibly this enhanced price m 1909 over 1911, although there was a larger crop in 1909, was due to failure 8 GIVVIlSr EXOHAKGBS. in some other crops, some other staple articles like com, oats, barley, or something like that, so I consulted the statistics and I foimd that the production of corn in 1909 exceeded the production of 1911 by 102,396,000,000 bushels in the world supply, and by 240,888,000 bushels in the supply of this country. The production of oats and other staple articleis of food was also larger m 1909 by 527,076,000 b\ishels than it was in 1911, in the world supply, and m the United States it was 850,551,000 bushels larger than was the production of 1911. In 1909 the excess of barley over 1911 was 182,852,000 bushels. For rye, the excess of 1909 over 1911, was 168,576,000 bushels. I call the attention of the committee to these figures, to show, so far as such figures wiU show, that the price of these three articles — the price of these grains in the Unitea States on the farm is not con- trolled at aU by the world supply, nor the supply of the Nation, but results solely from the so-called future tradnig of speculators and gamblers in the pit. These grains — wheat, corn, and oats — are subject to future trading, and it is my beUef that the thorough investigation of future trading will show that prices for the world are made by the traders in the pit at Chicago, MinneapoUs, and other markets operating more or less in concert and combination. I hardly think it necessary, but possibly it might make clear the testimony to follow if I briefly stated to the coiiimittee the way in which the grain in the Northwest is handled by these exchanges. I say "grain," because while this resolution refers to wheat alone, any legislation controlling the marketing and dealing in wheat would necessarily cover that of corn, oats, and other staple articles. If the marketing of grain in the Northwest was simply a matter of marketing, uninfluenced and uncontrolled by the machinery for dis- tribution in the great terminals, the machinery for inspection jading, elevation, storage, etc., it would be quite a simple proposi- tion. But it is not a simple proposition, gentlemen; it is greatly coin- pHcated, because it is impossible to consider any one of these things alone and come to an intelhgent conclusion as to the effect upon the market of aU the. conditions in the aggregate. Minnesota markets in the neighborhood of 200,000,000 bushels of wheat annually. Not aU — not one-half - of that wheat is raised in Minnesota. Montana and the Dakotas produce much of the wheat that is marketed in Minnesota, and any legislation in Minnesota affecting markets could not be participated in by those interested in the Dakotas. Some of our wheat goes to Chicago, and a small part of what we use comes from Canada. Wheat is raised all over that Northwest country, in Iowa, Nebraska, Minnesota, the Dakotas, Montana, Ilhnois, Wis- consin. We were confronted in our investigation in Minnesota, when con- sidering the effect of future trading, by the difficulty of learning the scope and the significance of that trading, for two reasons. In the first place, those engaged in the business would not exhibit their books to the committee, to show with whom they were dealing in futures and th« magnitude of the deals made and the character of them, saying that they would not disclose the business of their cus- tomers, and so forth. Furthermore, any legislation in Minnesota forbidding future trading in wheat and grain would be futile unless GRAIN EXCHANGES. 9 Similar legislation was had in Chicago, because a large pa,rt of the future trading of Minnesota was done by wire in Chicago, the great center of wheat speculation. It would simply divert business from Minnesota to Chicago. So no successful attempt was made to legis- late in ]S|Iinnesota on futures — an attempt was made to pass a law, but it was not successful, because it was recogi^zed that it would not accomplish the purposes desired if passed in that State alone. Now, if all the wheat coming into Minneapolis from the Dakotas was graded by the ingroection department of the State, inspected and graded and placed on the floor of the chamber, or any other market, for sale upon that inspection and grade and sample, and sold to the millers upon those samples and grades there would be no occasion to find fault probably on the prmcipal lines laid down in this resolution. But the conditions are very different from that simple merchandising. Let me make a brief statement which will serve two purposes, that of making clear to the committee the machinery by which the grain is handled, as well as the points we urge ajgainst the present methods. I am going to say that five carloads of wheat, approximately 5,000 bushels, are prepared for shipment in Dakota to Minneapolis. These five carloads are owned by five separate farmers, cooperating together. When these cars arrive in Minneapolis, they are mspected by the State inspection department, samples are taken, and a record is made of the grade by that department, a public record. These five car- loads of wheat are consigned, let us say, to one of the commission firms of Minneapolis — for illustration, say Van Dusen & Harrington. This company the next morning, as soon as the chamber of commerce opens, have samples from the five cars, with cards showing the inspec- tion of the State department. We wiH say that one of these cars grades No. 1 Northern; the next car is No. 2 Northern; the next car is No. 3; the next grades "rejected" — it does not get any grade at all; it is poor stock — and the next grades "no grade." It is wheat that is too damp, possibly. Now, these five carloads, so graded, are by sample on the floor of the chamber nf commerce for sale. Within 10 minutes after the market opens the cars graded No. 1 and No. 2 are bought, let us say, by the Pioneer Steel Elevator Co.", a terminal elevator owned by Van Dusen & Harrington, who are, as commission merchants, seUing the grain. The farmers are charged a commission of 1 cent a bushel. It is bought, I say, within 10 minutes after the market opens by one of the commission merchants' own buyers — that is, a buyer for the Pioneer Steel Elevator Co. — at a shade of a cent less than the price then prevaihng for the same grade of wheat upon the market in the wheat pit. Later in the day, let us say, the same buyer for the subsidiary corporation buys, at very much reduced rates, the No. 3 and the rejected ano no-grade cars of whe'at. Let us assume that he buys these last three cars in competition with other buyers — assuming that there was competition — at prices rang- ing from 5 to 7 and 10 cents below the price of No. 1. The farmers are also charged a commission for seUing this wheat, 1 cent a bushel, although it was sold to a corporation owned by the company charging the commission. Now, this corporation, the sub- sidiary company, takes all of these five carloards of wheat and empties them into its terminal elevator and mixes and doctors — treats scien- tifically as they claim — the whole mass, so that whenever they feel 10 GBAIN EXCHANGES. like putting that wheat out of their elevator it wUl grade No. 1 and 2, every bushel of it. In the meantime, as soon as the subsidiary company bought that 5,000 bushels of wheat, the owner who at once sold and bought it immediately went into the market and hedged agaiQst it by a sale for future delivery; that is, they made a 5,000 bushel sale of May wheat on the same basis they had bought the car of ]So. 1 in order that they might be protected on the highest price that they paid, considering carrying charges, insurance, storage, and everything else. So that they are protected in that hedge, as they say, on not losing a dollar, even if they had paid for the full 5,000 bushels No. 1 and No. 2 prites. Now, the farmers were paid on the basis of No. 1, No. 2, No. 3 rejected, and no grade prices on that grain, a spread of 8 or 10 cents. They were paid on that basis and charged a commission for the sale. The subsidiary corporation has on han(r5,000 bushels of wheat which it had contracted and doctored, and which it can apply to satisfy its future contract if it wants to. If the parties they sold to in May want the wheat, they can apply it on that contract. Mr. Garrett. You speak of taking this low grade wheat — rejected and no grade, I beHeve, are the ones you mention ? Mr. Manahan. Yes. Mr. Garrett. And "doctoring" it so as to bring it up to first-class wheat. What sort of "doctoring" do you mean by that ? Mr. Manahan. Well, I mean — perhaps that was an unhappy choice of words. Mr. Garrett. The original grading of it, I understand, was by State officials, who were wholly unconnected with any grain exchange ? Mr. Manahan. Presumably so, and, I say, I tmnk so. Mr. Garrett. Graded by a disinterested official. He makes and fixes those grades. . Now, how do they get that wheat ? Mr. Manahan. How do they put it into condition to carry it to the higher grade? Mr. Garrett. Yes. Mr. Manahan. Well, I wiU explain that in this way. Of course I can not explain it as a scientist — like the expert in the elevator com- panies would explain it; but I know this, that they do something to it after it gets in there that makes it come up to a better grade. I prefer to say that what they do is a result of their skill in treating the wheat, and the method itself, rather than the oversight or care- lessness, of the State officials in making a more liberal inspection — grading out. I prefer to take this position, because it is more credit- able to the officials of my State to assume that its inspectors are honest, but its system wrong. I have here some testimony and figures that I want to give to the committee in this connection. Mr. Kelly. What is the percentage of loss in treating that wheat ? There is some loss there, is there not ? Mr. Manahan. In what ? Mr. Kelly. Ifi the wheat. Mr. Manahan. Oh, no; there is no loss. You mean in quantities ? Mr. Kelly. Yes. Mr. Manahan. No ; there is not any loss, because the figures of the railroad and warehouse commission department, showing every day, month, and year the amount put into the terminal elevators and the amount taken out, shows each year that there is more wheat taken out of the terminal elevators than is put in them. This gain is made GRAIN EXCHANGES. 11 in two or three different ways. Possibly the dockage allowance for dirt in many cars was a little too stiff. Another gain might result from the cleamng of coaser grains, oats, and barley. Wheat taken out of those grains in cleamng would be to the gain of the terminal elevator. Then, in the case of damp wheat, that is dried by simply mixing it with dry wheat, and the moisture that is in the wet wheat, in the wet kernels, would simply go into the dry kernels; so that whatever the wet kernels lose in weight, the dry kernels would gain in proportion. Of course, if it were very wet there would be some loss if they had to put it through a dryer, but a large part of it is cured by simply mixing the damp wheat with dry wheat. They mix it and treat it and the result is a higher grade of wheat, although it is the same wheat. It may possibly be that these large terminal elevators, when the wheat is bemg inspected out of them, sometimes ingratiate themselves with the local inspectors and that the inspec- tors are not as severe on them as they are on the wheat coming in from the farm. That may be a possible explanation of it. The facts regarding the higher grade out are incontrovertable. This question was asked at the hearing which we had in Minne- sota, as shown by volume 4, page 1607, of the house committee's report to the Legislature of Minnesota. Mr. W. E. Thomson, the chief clerk, was testifying with reference to a statistical table pre- pared by the conmaission, showing the amounts of the various grades of, grain received by the terminal elevators operating in Minnesota for the period from September 1, 1910, and ending August 31, 1912. Mr. Elmquist had asked the witness in regard to the amount of wheat received and dehyered, and the answer was: "The number of bushels of hard wheat received amounted to 586,600, and the hard wheat shipped amounted to 276,484." I want to make an explanation there. No. 1 hard is sort of a supergrade above No. 1 northern, the standard No. 1 hard on the board of trade. No. 1 hard is sold only by samples. It is a very superior wheat grown in that country and Canada, and is not subject to future trading at all (reading) : No. 1 northern wheat received amounted to 15,571,575 bushels. No. 1 northern shipped out amounted to 19,978,777 bushels, and they had on hand on August 31, 1912, 114,454 bushels, an average in No. 1 northern ot 4,521,555 bushels. Mr. Lenroot. That 15,000,000 bushels; was that received? Mr. Manahan. Yes; they received 15,571,575 bushels of No. 1 northern wheat; they shipped out from that same elevator 19,978,777 bushels during the same period. Mr. Lenkoot. Now, have you the amount on hand at the begin- ning of this period ? Mr. Manahan. There was not any on hand at the beginning. Mr. Campbell. There was less of No. 1 hard than of No. 1 northern ? Mr. Manahan. Yes; 200,000 odd. I have given them credit for that. Mr. Campbell. That No. 1 hard probably went into the No. 1 northern. Mr. Manahan. It helped to bring up the low grade, and so forth [reading] : Average No. 1 northern, 4,521,555 bushels; No. 2 northern, receipts amounted to 20,413,584 bushels. No. 2 northern shipments amounted to 22,242,410 bushels. And they had on hand August 31, 1912, 51,864 bushels. 12 GEAIN EXCHANGES. Now, adding together the increase of No. 1 northern, the No. 2 northern, and the amount on hand at the end of the time, makes, as I figure, 6,401,245. The loss of No. 1 hard, 310,116 bushels, deducted from that leaves 6,091,129 bushels from inferior grades, made avail- able to be apphed on future contracts, in settlement of contracts. Now, to carry my illustration just one step farther, I will say tKs, tjhat although this wheat coming in the 5 carloads was sold at the Uiferior grade by the farmers and received by the elevators and Soctored and sold at, or applied on contracts, as No. 1 and No. 2, at whatever prices prevailed at the time the sale was made, that did not stop the selling of that 5,000 bushels. And herein, to my mind, lies the chief evil of the grain market. That $5,000^ contract — or that 5,000 bushels, I do not care which way you put it— was probably used 100 times more in the future trading. The statistics of the hearing in Minneapolis showed — the statistics of the men who run the clearing house for the chambers there, and who charge a very small percentage for clearing the contracts on future trades, that are cleared, show that it was probably 30 times that amount — that 30 times as much wheat was sold in the future as was actually sold in grain from day to day. That is a very conservative estimate from the figures. The clearing- house records covered only a part of the future trading contracts. As I have stated, the members of the chamber of commerce refused to disclose their books and show the transactions in futures, but I am advised — although I am not assuming to speak for Chicago, because we have a witness here who can speak much better about the Chicago situation than I C9,n — but I understand that in Chicago the future sales amount in one day to probably as much wheat as they get in a year; maybe more than that. I will make a conservative statement that the sales of futures on these markets amount to 1 00 times as much as the actual sales of grain, and I think that is very conservative. Now, the cost of these sales of imaginary wheat is borne by the actual wheat, of course. It comes out of either the producer of wheat or the consumer, or by the unsuspecting pubUc who are incHiied to speculate — and to my mind this is one of the greatest evils of this whole system. It tempts many men to ruin, and I have, since I filed this petition, received letters from all over the country, telling of instances of men who have been ruined by buying and selhng in the pit. I have no doubt but that the books of the Chicago Board of Trade and the Minneapolis Chamber of Commerce, if they were opened to the pubhc, would show many famihes absolutely ruined; they would show names of men guilty of embezzlement trying to cover their losses; men sent to the penitentiary because of their losses in going up against the game of betting on the future price of wheat, a future price which is absolutely controlled, not by the supply and demand of wheat the world over, but by the heavy operators on the board of trade of Chicago in particular. The Chairman. Let me ask you a question there. You say you had an investigation in Minnesota, a State investigation of this matter ? Mr. Manahan. We had a partial investigation, as far as we could go- GRAIN EXCHANGES. 13 The Chairman. Why could not you go any further ? Why did not the gentlemen produce the books and records, and what objection did they urge to the production of the books and records ? Mr. Manahan. They refused to produce them, and the objection they gave to producing them was that they would not disclose who were dealing in futures, nor the magnitude of their deals. That was the excuse given to the committee for refusing. I tried as hard as I could to force the issue, as the attorney for the committee, to force them to produce the books and show who was deahng in futures. I was anxious particularly to show what concert there was, if any, between the large dealers in making their future trades. But as soon as I began to inquire into the matter, I found I was confronted by this insuperable difficulty, even if they had produced their books, that some of the heaviest traders in Minneapolis were simultaneously trading in Chicago, and some of their customers were trading in Chicago by wire at the same time, and without an opportunity to compare the record of the Chi- cago deals in futures at the same time, the same minute, of the records of the Minneapolis deals, you could not ascertain what concert, if any there was between them — and I beHeve there is — for the purpose of controlling the business and making the market go up or down to suit the purposes of their trading.' Mr. Campbell. Are these associations, or whatever you designate them, incorporated or voluntary associations ? Mr. Manahan. They are incorporated imder the State laws of Minnesota. The Chamber of Commerce of Minneapolis and the Board of Trade of Duluth are incorporated under the State law, which enables them to operate as closed corporations, which they do, absolutely exercising control over their members and keeping out the public. Mj. Campbell. Being chartered by the State of Minnesota, are they not peculiarly within the jurisdiction of the laws of the State of Minnesota and amenable to the State of Minnesota? Mr. Manahan. They are. Mr. Campbell. Why, then, could not the officers, whose duty it would be to enforce the law of the State of Minnesota, get at these books and all the facts connected with the operations of the chamber of commerce ? Mr. Manahan. We did show in this hearing that wheat coming into Minneapolis was sold by the dealers to themselves and the rail- road and warehouse commissions of Minnesota — having jurisdiction over elevators— did make an order forbidding them to do that thing. I understand they have since been making an attempt to get the commission to vacate that order, but I do not know whether they have succeeded. The legislature did not pass any law to stop that practice because the commission undertook immediately to make that rule. Mr. Campbell. Were any further laws necessary on that ? Mr. Manahan. Not on that point. It is possible that the com- mission might relax the rule, and there is an attempt to get it relaxed, as I understand, right now. _ ■ t i ■ - i • I desire to impress on this committee, and it is a vital thing m this hearing, that even assuming — and it is a violent assumption — that you can get legislation in the face of a determined opposition by the most powerful operators in Minnesota, keeping in mmd the fact that 14 GRAIN EXCHANGES. the Chamber of Commerce of Minnesota has an imposing, powerful, and interlocking membership — the meat mills of Minneapolis, the great terminal elevators of Minneapolis, the leading banks of Minne- apoUs, and active and wealthy politicians as members — it is pretty difficult to argue, and more than you can reasonably expect to say, that the legislature of the Uttle State of Minnesota wiU be able — it never has been able yet — to legislate iu a way to protect the producers in their rights. Keeping in mind, too, that Mmneapolis has a local pride Ln her great mills, her great chamber of commerce, and great wheat industry — and Duluth has also — keeping that in mind, and keeping in mind the fact that these terminal cities wish to control the marketing of the two htmdred-odd miUion bushels of wheat grown in the Dakotas and Montana and Minnesota and expect to control it through the powerful agency of the chamber of commerce, it is imreasonable to expect that the farmers, most of whom live in Dakota, who are trjdng to get proper legislation through the Legis- lature of Minnesota, will succeed. What will you say of the people in Dakota, who have no voice in the Legislature of Minnesota ? Mr. Campbell. Is any further legislation necessary now to enable the officers of the State of Minnesota to make an inquiry into the conditions of which you complain, if the officers would do what they are empowered to do ? Mr. Manahan. That is the difficulty I suggested a moment ago, the difficulty of properly investigating the real violation of the law. The key to the situation is the pit trading, the future trading, and I say that you must investigate the boards of trade where they are located, and it is not much of value if you investigate in one State and not in the other, because you can not get to the bottom of it. You can not legislate against future trading m Minnesota alone with any success, because the same members of the chamber of commerce would operate over the wire in Chicago, and it would simply be a great boom for Chicago. The Chairman. Do you contend that the producers have lost by this future trading, or benefited ? Mr. Manahan. Most emphatically I contend that they have lost. The Chairman. What do you estimate that they have lost under the circumstances that you were referring to just now ? Mr. Manahan. I estimate it this way — and I have studied it con- cientiously — and I say the loss has been stupendous to the people of the Northwest when you consider the prices that have prevailed foryears in Minnesota. The Chairman. Have you any figures as to what that loss is annu- ally ? Or what do you estimate that it has been annually ? Mr. Manahan. I estimate that the Chamber of Commerce of Min- neapolis and the Board of Trade of Chicago have been able to depress the price to the farmer annually, especially during the months of heaviest movement, on an average of 10 cents a bushel on most all of 200,000,000 bushels. The Chairman. Two hundred million bushels annually ? Mr. Manahan. Yes; at 10 cents a bushel, one-tenth of ,that would be $20,000,000 annually. I believe that is absolutely so. Mr. Campbell. Do you contend that those who operate these exchanges make that $20,000,000 for themselves or their clients ? GEAIBT EXCHANGES. 15 Mr. Manahan. I claim that it is made by the big dealers, not by the small operators, m the Chicago Board of Trade, by the great, big dealers, the big termmal elevator men, the warehousemen ofChicago. hke Armour and men of that type. They are the men that rake off the biggest part of this thmg and freeze out the small operators and speculators. But we have another witness here who is better quali- fied to speak on that than I am. Mr. Garrett. Cf course, in my section of the country we are familiar with the cotton-future dealing, and give more attention to that than gram deabng. What is the argument made in behalf of the ettect of the abuity to "hedge" on grain? Mr. Manahan. The argument is that it makes it safer for them. Mr. Garrett. For whom? Mr. Manahan. The dealer. They claim that they can sell at closer margins because of the safety. But they are not willing to prove that by the figures. When we put those men on the stand who were dealing in wheat and barley on the Chamber of Commerce in Minneapolis, I put to those dealers the proposition to produce their books, and show whether or not they made a wider margin of profit in wheat by hedging than they did in barley where they had to sell by sample only, but they did not take up my challenge. They were not willing to show by the actual figures that they made more on wheat by hedging and pit trading than they did on barley, which is sold only by sample. Mr. Campbell. What we really need, from your standpoint, then, is not an investigation by Congress, but a law enacted by Congress prohibiting deaHng in futures in grain. Mr. Manahan. I am inclined to think you are right about that. If we could get it without an Investigation, so much the better. Mr. Campbell. An investigation can be made under the State laws of Minnesota and the books of this chamber of commerce reached, can they not ? Mr. Manahan. So far as the inspection rules go it may be done, but I think the inspection ought to be national, because it ought to be uniform in all places. The future trading can not be handJed by any State alone. Mr. Campbell. Do we need any legislation to enable us to make an investigation ? Mr. Manahan. You mean an investigation to make legislation ? Mr. Campbell. No; any legislation to enable us to get at the books of these chambers of commerce. Mr. Manahan. Oh, no; your committee would have a perfect right to make them produce their books, because it is interstate commerce, Mr. Campbell. But a like committee from the Legislature of the State of Minnesota could do the same thing under the laws of the State of Minnesota ? Mr. Manahan. If the lobby in Minnesota v/as not too powerful. For instance, let me give you an example. Last winter this investi- gation in the house was started by one of the representatives of the farmers, Mr. Tigen, who started an investigation in the house, and made a motion for a committee of five to investigate the chamber of commerce. The motion was carried and the committee was ap- pointed. This committee hired me as their lawyer and we started 16 GEAIN EXCHANGES. an investigation in the house. Then the Chamber of Commerce of Minneapohs got busy through the pohticians in control of the senate and appointed another committee in the senate to investigate the chamber of commerce and the Equity Cooperative Exchange,^ and we were confronted with the spectacle or the house committee, representing the farmers, making an investigation, and the senate committee, with a majority of it representing the chamber of com- merce, also making an investigation. Mr. Campbell. That does not differ very widely from what we have been doing here. Mr. Manahan. No; and it might happen again. Mr. Campbell. I think we had a Senate committee and a House committee during this Congress investigating exactly the same subject. Mr. Manahan. Well, I do not know what the Senate committee has been doing, but I know this, that legislation is imperatively needed — that is the fact that I stand upon — legislation that will give us fair inspections and grades, national inspection of grain, and which will also give us public warehouse for grain storage, and which will destroy gambling in this food product. It ought to be done away with, and prohibited, altogether by legislation. It is impor- tant in regard to cotton; it is more important in regard to wheat, in my opinion. The Chairman. Can we not get at the facts on both sides of this controversy ? You could present fully here all that you could by a full investigation ? Mr. Manahan. Very likely. The Chairman. Can't we get these gentlemen to give us all the facts, their side of the controversy, in the course of several days here, and get at the facts to see whether we ought to legislate or not ? Mr. Manahan. That is perfectly satisfactory to me. The Chairman. I hope the hearing will proceed with that in view. Mr. Manahan. I believe there are men right here in this room representing both sides who are sufficiently posted. The represen- tative of the Chicago Board of Trade and the Minneapolis Chamber of Commerce are here, or will be here, and while, of course, the pro- ducers are only represented in a sense, weakly, I believe that their side can be put up to this committee fully enough to justify legisla- tion. Mr. Campbell. If the hearings should take that turn, would it not be proper for this committee to refer your resolution and every- thing connected with it, to the committee on Agriculture, which, has jurisdiction in these matters ? The Chairman. We might do that later on. Mr. Manahan. If it appears to the committee that this is a prima facie case it might be done later on. Mr. Campbell. This committee has no jurisdiction to report bills for legiilation. Mr. Manahan. Yes; I understand that. Now, Mr. Chairman, before I call the principal witness we have here Irom Chicago, I believe, Mr. Dillon, representing the first district o^ south Dakota, wishes to say a few words to the committee. Mr. Leneoot. On the theory that the chairman has just suggested' that this hearing might be conducted with a view of legislation rather GBAIN EXCHANGES. 17 than investigation, what have you in mind for controlling the situ- ation "i Mr. Manahan. Public warehouses at all great terminal points; Federal inspection and Federal grading — not supervision; that would not get anywhere. There are some bills providing for supervision, but that does not mean anything. We must have actual inspection. This would not be a very elaborate department, because there are only a few great terminals, but there should be public -warehouses, where everybody would have equal show — a fair chance to store thair grain at a fair rate of storage — and where it would be protected, where it would be properly inspected and properly graded. That is one thing. Then besides Federal mspeCtion and public warehousing there should be elimination of this future trading. Let wheat sell as wheat to the men who want to make flour. Mr. Lenroot. Now, as to wheat raised' in Minnesota and shipped to Minneapohs, is it your idea that the Federal Government would have jurisdiction over that wheat for grad.iag and inspection ? Mr. Manahan. No ; but the Federal Government would have juris- diction in Minneapohs at the public elevator, the public warehouse, of wheat coming from the Dakotas, where the bulk of the wheat comes from, and the effect of that would be to protect Minnesota wheat as well as Dakota wheat. It would establish a standard for all points. It will protect the man who resides in Minnesota as well as the man who resides in the Dakotas. STATEMENT OF HON. CHARLES H. DIILON, A REPRESENTA- TIVE IN CONGRESS FROM THE FIRST DISTRICT OF SOUTH DAKOTA. Mr. Dillon. Mr. Chairman, the electors of the first district of South Dakota, which I have the honor to represent, are deeply in- terested in the Manahan resolution. According to the United States census of 1910, the value of the cereal crops of South Dakota in 1910 was $98,953,050. The value of the cereals produced in my district in 1909 was $38,834,946. My congressional district in 1909 produced 40,090,348 bushels of corn, 22,320,421 bushels of oats, and 8,978,002 bushels of wheat. The farmers of my district are not satisfied with the manner in which the terminal elevators are now operated. They claim that the members of the chamber of commerce are bound by rules and regula- tions that prevent their open competition in the products _ of the farm. It is said that no outsider can buy upon samples of grain until the sale is first made to some member of the chamber, and that some members of the chamber of commerce have elevators and are making sales for themselves while acting as commission agents for the pro- ducers. The claim is generally made that the farmer is badly cheated by a system of grading and mspection, and that by comparing the amount of grain received as No. 1 and No. 2 with the amount of grain of the same grade sent out it will be' found that the farmer loses millions of bushels each year. It is also alleged that the farmer's grain is often doctored and mixed with inferior grades and the price is thus lowered to the oper- ators; that the system of weighing is not fair to the farmer and that 37214—14 2 18 GKAIN EXCHANGES. switching and demurrage fees have been charged, where no fees ha,ve been actually paid. I am also iuformed that the big mills in Min- neapolis refuse to bay the farmer's wheat when shipped to the Far- mer s Cooperative Exchange of Mumeapolis, which would indicate that the large milling industry and the terminal elevators have formed a combination whereby they control local prices of the farm products. Now, Mr. Chairman, I want briefly to allude to the fight that has been going on for the last eight or ten years to my knowledge in the State of South Dakota. Tliese farmer elevators sprung up some eight or ten years ago, and wherever one was organized we found the old elevator companies that maintained numerous elevators in the various towns, at once started to put them out of business. Their method in doing so was to lower the price where there was no com- petition and increase the price where competition existed. By that method they put many a farmer elevator out of business. But that time is past now, until almost every town has a farmer elevator, ele- vators that are conducted in the interest of the farmer. But the struggle now going on is at the terminal facilities where the farmers are unrepresented, and where their grain is not, as we think, properly weighed, and is not properly graded, and in which they are sustaming serious losses. To my certain knowledge, I have seen in South Dakota many law- suits growing out of this chamber of commerce in which farmers and operators have been sued. I have seen the cases tried, and I have known of cases in which those who were operating the elevators have been indicted for embezzlement fbr operation in futures with the grain in these elevators. Personally, I believe the trading in future options is a national disgrace, and I think the time has come in which there should be laws passed which wUl put it out of business. We have here from South Dakota Hon. John E. KeUey, who was at one time a Member of Congress, in the Fifty-fifth Congress, I believe, and who is now a farmer; and Mr. S. G. Solon, of Minndiaha, men that are familiar with the subject and will go into more details than I can possibly do. I only want to express the thought, Mr. Chairman, that this committee will have a full, ample, and complete investigation of this important subject. In my country the agricultural interest is everything. The farmers have struggled along there until they have produced a magnificent State raising the immense amount of grain that I have just mentioned, and I trust that there will be no make- shift in reference to the investigation, that it may be complete and efiicient, and that some remedy may be found that will give relief to the country upon these great questions. The Chairman. Let me ask you this question. Have you ever called these things to the attention of the Attorney General of the United States ? Mr. Dillon. Not to my knowledge, no. The Chairman. So the matter has not been before the Department of Justice, so far as you know ? Mr. Dillon. Not to my knowledge. Mr. Manahan. Mr. Chairman, I will ask Mr. Greeley, of Chicago to address you. GBAIN EXCHANGES. 19 STATEMENT OF MR. SAMUEL H. GREELEY, OF CHICAGO, ILL. Mr. Manahan. Mr. Greeley, what experience have you had in the grain business ? Mr. Geeelet. I have been in the ^ain business ever since I was 17 years old, in the Chicago market, until the 10th day of last month. I nave been a member of the board of trade ever since I was 22 years old, for 28 years and over. I have been in all kinds of business con- nected with that market, and at this time I am representing a number of farmers' organizations before this committee. I think it very proper that the farmers of this country should make a statement explaining the situation to this committee so that their Eosition and the arguments advanced in sustaining that position may e clearly understood, and for about 10 minutes I will ask your patience that I may explain their attitude on some of these questions. Representing various organizations of farmers throughout the United States, we herewith petition that you use every legitimate means to secure Federal legislation to prevent the so-called "trading in grain futures" as at present conducted on the board of trade of the city of Chicago and all other exchanges conducting a business of similar nature. As a basis of this request we submit certain allegations which, to the best of our belief, are true, and subject to verification. 1. Grain is the most necessary natural product of this country. 2. It is, the greatest income-producing product of this country. 3. Grain is transferable into money. Therefore any condition which tends to depreciate the value of grain tends to lessen the purchasing power of grain producers. 4. Grain producers and those directly dependent upon such pro- ducers form a larger proportion of our population than any other industry. 5. The vastness of this industry and its necessary participation in interstate commerce, subject to transportation, inspection, and ware- housing, makes it a proper subject for Federal rather than simply State or local investigation. Therefore, recognizing the importance of crops as related to the feneral welfare, it is self-evident that large terminal markets should e so equipped and conducted that, as far as organized society is con- cerned through its public functions of management, every safeguard should be guaranteed the individual producer, consumer, shipper, receiver, carrier, warehouseman, transporter, and even speculator, which safeguard should be based on fair, equitable, and open competi- tion to any individual, firm, or corporation which may legitimately store or compete for grain; and ail monopoHstic or unreasonable advantages should be abolished. We claim that the crops of this country at Chicago are not subject to such fair and open coraipetition because — 1. The systems of grain inspection are incompetent, inadequate, lack similarity, and are not generally standardized or understandable. 2. The public warehousing of grain in Chicago is conducted openly and brazenly in violation of State law, without any organized opposi- tion of State legal authorities, or any commercial exchange or board of trade which receives a State charter for its existence. 20 GBAIH- EXCHANGES. 3. That on account of such open and brazen violation of law and the usurpation of a pubKc function by private . parties, who, as licensed-by-the-State custodians and trustees use their State privileges to crush private enterprise, fair, open crop competition is destroyed. 4. That this destruction of competition not only invades grain but "grain future" trading, or trading in "grain futures"; that it is a factor in what is known as "option trade." 5. That this unfair competition and the systems and methods resulting therefrom deprive the cash and future markets of much substantial legitimate support. 6. That this lack of support is an injury to grain values. 7. That this usurpation of public warehouses by proprietor- merchandisers creates larger volumes of grain in public storage than would otherwise exist, the same being created illegally and held ille- gally to the detriment of crop values. 8. That this system of warehouse prostitution largely enters into the manipulations, fluctuations, artificial sky-rocket and diving per- formances in "futures" or "options," which are neither legitimate nor conducive to the soimd, rational courses of values, as more natural circumstances would direct them. 9. That it is recognized that "futures" or "options" enter la,rgely into the regulation of cash grain values; that "futures" or "options ' are largely dealt in and often controlled by the illegal forces under public warehouse control and that 95 per cent at least of the cash grain which has entered public storage for many years past, has been stored by and controlled by the illegally operating warehouse pro- prietors referred to. 10. That the joint control of the deliverable public warehouse grain receipts and manipulation of "futures," together with ques- tionable inspection systems and practices, closely related thereto, and apparently friendly therewith, all tend to absorb the money of unwary investors. 11. That the enormous solicitation of "margin" deposits from those unfamiliar with these conditions, such" deposits to be paid in case the "long" or "short" side of the market suffers an advance or a decline from a given price sufficient to absorb such deposits, em- bodies a system so manifestly injurious to such large numbers of innocent chance takers, that in the interests of public policy the system should be abolished. 12. That such innocent individuals are subject to many hardships or "odds" or "percentages" in the "game" which are correspond- ingly in 'favor of the combined warehouseman-speculator or mer- chandiser; that such odds and advantages have already been declared illegal; and that such hardships thus handicapping such individuals are almost insurmountable in the ordinary and average course of the business as now conducted, and almost invariably result in loss. 13. That the warehousemen usually take "the other end" of trades made for grain held in public storage as against outside investors, such grain being held and controlled by such warehouse- men; that such possession is a great leverage in causing what is known in the trade as "freeze outs" or "exhausts of margins" in the "pit," and in the culmination and settlement by the payment of "differences" through a clearing house established and maintained for the purpose. GRAIN EXCHANGES. 21 14. That such warehousemen to evade the law have and do com- pensate "dummy" substitutes to assist them in the monopolization of cash grain and in the collection of such differences in "futures" or "options." 15. That leased telegraph facilities from public-service corpora- tions are now used to aid and abet the warehousemen in the conduct of their business, in that such wires are used to solicit orders in small towns through the use of blackboard quotations and other means, which are transmitted through such leased telegraph service, the result of which prevails upon unsophisticated traders to "invest in grain," but which really invites and actually does cause them to take a chance on market fluctuations, and the consequent absorp- tion of their margins in the payment of the differences between two quotations, the settlement being made through the clearing house above referred to and the so-called trades in grain for future delivery, subject to the conditions heretofore described. 16. That such leased-wire service in many instances is interstate, and much of the business connected therewith in reference to con- firmations and written matter is carried through the mails, and therefore subject to Federal investigation. 17. That certain boards of trade or chambers of commerce permit such trading in "futures" or "options" which is subject to such warehouse domination and control and on w'hich boards of trade such warehousemen are amon^ the largest clearing house users and "difference" collectors, and, mdeed, are frequently the absolutely dominating factor in control of the deliverable property which may settle contracts in grain "futures" or "options" under the rules and regulations of such boards of trade or chambers of commerce. 18. ITiat the allegations herein set forth in most instances are not based upon surmises or inferences of suspicion, but many of them have already been tested in court, which makes sworn testimony available, which sets forth clearly the bold methods of market usur- pation and law violation, which are "running daily with the doors wide open." We therefore respectfully petition the President and Congress of the United States to use every means possible to enact such legis- lation as will abolish the present system of monopoUstically con- trolled or influenced future trading in grain as a necessary require- ment of the general public welfare. And, furthermore, we wiU agree to assist in securing information which win guide in properly shaping such legislation. And we ask the support of all Senators and Representatives in securing this necessary legislation. Note No. 1. — It slioTild be distinctly understood that the organizations subscribing to this petition are not opposed to legitipiate trades in cash grain which are unhampered by illegal influences. The necessity for such trades is apparent, but when countless millions of bushels in contracts are made and tied up with marginal cash backing, which contracts are largely dominated and manipulated by illegal control of those forces which vitally enter into "artificial" inanipulation of values, then all "settle- ment by differences" systems should be abolished. Note No. 2.— The relation of "speculation" or "trading in futures" or ''options" to cash grain is more or less intricate to the casual observer, and hence not quite under- standable; and it is this intricate relationship or marriage which, as a noted writer remarked, "has begat many bad brats," and has permitted the system to grow to its present large proportions. 22 GRAIN EXCHAJSTGES. It is not difficult, however, to determine what should be done to eliminate from each of them the dominating forces of evil, when men will be fair enough to give suffi- cient scope to an honest and impartial investigation of all the facts from all sources. Note No. 3. — Many students of market conditions believe that agricultural pros- perity will be best conserved by some method of elimination of all ' future " trading which does not carry with it a fulfillment of the contract by an actual delivery of grain. We concur in this belief as a general proposition as long as any other "settlement" Slan may exist in the nature of a payment based upon differences in prices and such ifferences "forced" and "margins" absorbed by the usurpation and control of the facilities and goods held in the hands of a monopoly, which should be normally avail- able and scattered among the general trade in a free and open market. It is. the power of control lodged in the hands of the few, exercising State powers, which, in the inter- state business of the country, demands, to say the least, Federal investigation. Note No. 4. — Pertinent to this subject matter the question arises as to the expe- diency of the Government exercising the operatioii, management, and control in grain ihspection at terminal markets as well as the operation, management, and control of public warehouses. We submit that these questions ^ould be carefully investigated. Note No. 5. — Closely associated with the questions herein involved should be con- sidered the manufacture of so-called "contract" grades of grain from mixtures of the lower grades with better grades in "hospitals" or mixing houses, not public but con- trolled by State-licensed public custodians. Such mixtures, illegally placed in public storage by various subterfuges, are easily discovered and understood, and no doubt are known to exist by our State authorities, who should but do not properly control the warehouse business of IlUnois. The effect of such mixtures, carried indefinitely in public storage, as related to general crop values; the relation of such mixtures to the exhaust of margin" or "liquidation of futures" or selling out of "options" or dis- couragement of truly legitimate market support, or the tendency to discourage capital from entering the grain trade and caring for the surplus arrivals at market points when temporary supply exceeds demand, are questions of vital moment. Note No. 6. — In a question of this magnitude, involving as it does the values of products annually running into the billions of dollars, we do not expect all to agree on all minor details as relatedKto the opinions or beliefs herein contained; but that an investigation will fully confirm in a general way the existence of the evils referred to, and the necessity for their correction, is firmly believed by your petitioners. Mr. Chairman. I believe that statement in a general way outlines a number of things which have been spoken of by Mr. Manahan. His natural modesty as a Member of this House no doubt leads him to speak in a very conservative manner, but when he teUs you they deal in one hundred times more futures in the Chicago market — if I heard hina mention Chicago — than cash wheat handled in Chicago, I volun- tarily make the assertion that there is not a day in the year goes by but what in these futures there are traded in, in the wheat pit alone, upon an average of 25,000,000 bushels a day, all told; and if there are 300 days in the year, the amount of future trades and speculations, as related to the cash grain received in Chicago— and I think the statistics will substantiate the fact — that although they trade in 25,000,000 bushels a day in futures, Chicago does not receive on an average over 25,000,000 bushels a year. The crops of this country, the aggregate of the wheat, com, and oats, is about 5,000,000,000 of bushels annually, and every cent per bushel fluctuation in the market value of grain on the Chicago Board of Trade sets the price in this country either up or down $50,000,000. Every one-eighth of a cent per bushel fluctuation in the price of train futures created by the Chicago Board of Trade creates a ifference in the values of the grain of this country — provided the crop equals 5,000,000,000 bushels— every one-eighth of 1 cent per bushel creates a di^erence in value to the producers of this countrv of over $6,000,000. -^ Mr. Campbell. Do you favor a Federal law that will effectually prohibit future gambling by anybody and everybody in grain ? GRAIN EXCHANGES. 23 Mr. Greeley. Yes; gambling, surely. Mr. Campbell. Or dealing in futures ? It is all gambling. Mr. Greeley. A distinction must be drawn as related to certain trades in grain. What you determine as future trading in grain might apply to my selling five carloads of No. 1 Northern wheat for delivery 10 days ahead. That is a future trade in grain, of course, which is permissible. That is the kind of future trading which is legitimate. But, as our petition states, when any system of future trading exists by which a large share of the settlements of the future trades are made by the payment of differences, and that these future trades are dom- inated largely by a monopolisticaUy controlled combine operating on the floor of the Chicago Board of Trade — any contracts thus made for future delivery, which are supposed to be and are intended to be set- tled by the payment of differences — any of these contracts which are controlled or influenced by illegal conditions whereby people are forced to lose money by artificial conditions, such contracts should be abolished. Now, in leading up to that question I want to say this Mr. Campbell (interposing). Let me understand your position. Mr. Geeeley. I will explain that to you as I go along. I am going to lead right into that. Mr. Campbell. I want to get your position. You are not object- ing to the dealing in futures, so long as the dealing is open to every- body alike? Mi. Greeley. No; I would not say that. Mr. Campbell. I wish you would make clear just what your posi- tion is. You speak of monopoly in deaUng in futures and of freezing out others who were dealing in futures. Mr. Greeley. It is that kind of business that I want to describe, and I am leading right into it. If you will permit me to go into that subject, I will explain it this way. There resides in Chicago the greatest monopoly in the world — the Chicago public warehouse grain monopoly. That grain monopoly handles 95 per cent of all the grain held in pubHc storage and going through public elevators in that market, and does and has controlled that grain for many years. That monopoly began its existence about the year 1887, and to show its present position as related to our markets, the men who control their methods of operation, its relation to future trading and its rela- tion to cash grain, I will go very rapidly from 1887 to date, and ex- plain the growth and entrenchment of this monopoly. When Congress passed the interstate commerce law the original intention was to prevent railroad rebates. Grain was being shipped to Chicago and rebates were being extended to individual shippers all over the country. For my own employer I have made up many a rebate bill and received a check from the Kock Island road for it. It was customary to extend this to all large shippers. When that system was prevented and broken up by the interstate commerce law, then, in order to draw grain to Chicago on the different lines of railroads, the railroads evidently thought it necessary to secure one secret rebater on each line, to draw grain into Chicago against com- petition that might take it to another market. So an arrangement was made by which the public warehouse equipment of the city of Chicago was turned over to the chief railroad rebate getter for each' road, so that Armour had the St. Paul; Weare Commission Co. the 24 GKAIN EXCHANGES. Northwestern; Bartlett, Frazier & Co. on another road; Counsehnan on the Rock Island, etc., so that every Une of raih-oad had its rebater to bring the grain into Chicago. What happened when they brought grain there ? There must be some object m this rebater having this privilege to go out and handle the crop on a certain Une of railroad, so they arranged a plan whereby the puMc elevator system in Chicago should be dominated by jthe warehousemen. It was intended by the laws of the State of Illinois which were adopted at the constitutional convention in 1870 to furnish to Chicago an outlet, an opportunity for better faciUties for transferring and storing grain. That led up to the passage of what is known as the Illinois warehouse law. One of the important features of that law was to the effect that any man who was the pubhc custodian of grain of others could not him- self trade in grain m his warehouse. But these men primarily began trading in grain — — Mr. Campbell (interposing). That was the State law? Mr. Gkeelet. That was the State law; yes. Then they began trading in grain, and &ese men would meet at the close of the tradmg every afternoon — I have seen them time and time again myself — and take a lead pencil and prepare a price and that price they would bid that afternoon to drffiw grain to Chicago. They could afford to pay more than other buyers could, on account of their facihties, and they would bid on that grain and bring it to Chicago and run it down to the hospital. The hospital is a mixing house in which grain is doc^ tored and cured and put through the process to which Mr. Manahan referred a few minutes ago. When that grain comes into Chicago and is mixed in the private hospital, it is then put into the pubhc ele- vator, probably situated near by, perhaps some distance away, but within switchmg distance. When that mixture goes through the process in the hospital and the good grains are mixed with the poor ones they get it inspected and placed in pubhc storage, then sell a future against it at a price higher than cash probably, so that the man who buys that grain for future deUvery pays them a carrying charge for that mixture held in public storage, the carrying price being a part of the higher price in the "future." In the meantime the board of trade is skirmishing around the country to bring in the men who are bulls on the price, who expect the price to go up, and buy this mixture from these elevator men who so create this grain in storage. What has been the effect of that mixture, this process of mixing grain in hospitals and putting it in pubhc storage by the pro- prietor who is allowed imder the system to sell ahead for future delivery ? When the day of his future dehvery comes, the man who has bought the wheat fmds that the grain contained in the pubhc elevator was mixed to such a low level that he is afraid to take it and pay for it for fear that it might cause him much greater loss, and he would rather take his loss and seU the future back to the warehouse- men, of whom he had bought it, than to take a risk on the mixture which he receives in pubhc storage. This selling out of the future by the man who was a speculative buU in the market, the man who believed he was going to seU some- thing at a, higher price, this liquidation of futures causes millions and tens of millions and in some instances hundreds of miUions of bushels of a single future to be sold out, to be liquidated by speculative interests, until those forced liquidations or sales held in public storage GRAIN EXCHANGES. , 25 by a violator of the laws of the State of Ulinois caused what ? From 1887 for a period of 15 years thereafter these constant liquidations of grain held in pubHc storage and sold from month to month by specu- lators under conditions created by these warehousemen themselves have caused wheat in Chicago, previous to 1900 and about the panic times of 1893, to seU at 40 cents and corn on the Nebraska prairies at 8 cents a bushel. I sold the best grades-of corn on the Chicago market at that time for 19^ cents and oats at 15 cents a bushel. The Chairman. Let me ask you something right there, that I may understand your position clearly. You are an expert on this subject, and I am asking for information. Many good men have told me that " hedging" is necessary in. regard to cotton sales and grain sales. Now, what I would like to know is just exactly what is meant by "hedging"; I think I know, but I woidd Mke to know; what you say about it, and if there is such a thing as legitimate hedging. I wish you woTild explain that right here, because I want to understand it. Mr. Geeeley. No doubt the banker is perfectly willing for a man having 5,000 bushels of wheat in public storage, having sold it ahead for six months, to put up his security for that transaction and secured by a receipt to carry that stock in storage for deUvery at some future time. The Chairman. Is it necessary to protect the banker and to protect the trade for him to do it in that way ? Mr. Greelet. The wheat is the protection. In fact, the condition that exists to-day in the mixture of this grain in public storage, subject to the conditions to which I have referred, makes an undue risk to the banker on account of the quality of the mixture held in public storage. Mr. Garrett. May I ask you, is the trouble in the grading ? Mr. Greeley. Largely, yes; because it is illegally placed there and graded down to the line of the grade usually. Mr. Garrett. Of future deahng, where they deal in futures, of course, that prescribes the grain, I imagine; does it? Mr. Greeley. I have the mixing and grading and warehousing, all those situations, itemized in different groups, which I will reach in a few minutes. Mr. Garrett. I do not want to interfere with your remarks, of course. The Chairman. I will say this, that the committee wiU run until half past 12 and then take a recess until 2 o'clock and resume the hearing. Mr. Greeley. To get along to the Hquidations. The liquidations of these futures and the results caused thereby are only my personal opinion as to what existed in the market, and the conclusions I reach are not susceptible of proof by absolute facts. When the panic of 1893 came on, the result of 15 years of constant hquidation of these frain futures by the selling out of futures on the board of trade of undreds of millions of bushels of contracts, the basis, the controUing factor was fear of delivery of the warehouse receipts of grain doctored in these mixing houses, and this led up to the conditions m which these farms in the West were mortgaged, and it led up to the panic of 1893, until the people said, 'We wiU seat Bryan in Washington, if we do not seat nim in Denver" — a general cry of discontent. 26 GRAIN EXCHANGES. What are the facts in this liquidation process ? When this grain is first received from the farmer, the Illinois State inspection department grades it, and then it goes iato one of these mixing houses. When it goes into the mixing house it is mixed to the lowest grade it will stand, as shown by sworn proof of the elevator men. The history of the Chicago market is black with practices committed imder the Illinois warehouseman's supervision, and some of the men connected with it are so impHcated that if justice were done on that market to-day they would be serving time in the penitentiary. I will give illustrations of conditions that have existed, and I believe that it will appear that at least there is sufl&cient connection between the inter- ests operating that market to confirm the further belief that Federal inspection and Government elevators should be considered. This selling out of futm-es, month by month, and the profits obtained there by the men who hold and maintain a monopoly of this grain in public storage, when we consider the profits which they receive through the board of trade clearing house which they oper- ate — the profits which they receive as against the man who speculates against them — this is not the big factor involved in this investiga- tion. The big question is this, that if a man can sell, not only the train he holds in pubUc storage as a warehouseman and can collect y imdue charges his collections from others who are opposed to him in future contracts, if he can go into the open market through the power of the possession of warehouse receipts which he holds m his own control and can force the Mquidation and selling out of futures and collect the money, even that is not the great point at issue in this case. The main point at issue is that when they do create that condition they create a depreciation in the price of the value of all farm products in this country, and not only that held in their charge. It is that depreciation in price of the entire crop which decreases uie purchasing power of agriculture, because the great factor of grain speculation m this investigation is the power of monopoly of cash grain in the hands of four men, holding the power of delivery on the enormous contracts held in futures on that exchange. The power which they have by the virtue of the actual cash property in storage enables them to go into the future trading proposition, and this monopoly of trade makes their influence in the change of value of the crop an important point in the regulation of the price of grain for the world, and not only for Chicago. Chicago regulates, more than any other influeiice, the markets of the worid, and four men in Chicago to-day, it may be repeated, more than all influences in the world, control the values in the grain food markets, and those men are J. Ogden Armour, J. C. Shaffer, the Bartlett-Frasier outfit, and Joe Rosenbaum. Connected with the J. C. Shaffer outfit, Mr. Stream appears here to-day representing the Chicago Board of Trade in this investigation. Now, I want to say this, in order to substantiate the fact of the monopoly, that it does exist, that it does control and regulate prices of cash grain, that it does cause liquidation of futures and absorption of margms and the payment of differences by unsophisticated specu- lators, and in order to prove that proposition I want to start at once into the fact of an absolute proof of this monopoly, that it does exist, that it has existed for 20 years, and that the farmers of this country GRAIN EXCHANGES. 27 have had an uphill fight in their proceedings against it; that it controls 95 per cent of publicly-stored grain and has for over 20 years. It should be remembered in the consideration of this c[uestion by men who are passing judgment upon the large question in the com- merce of this country, that one fundamental prmciple always exists, and that is this : That when these men take this grain out of the hospitals and put it into pubUc storage and sell it ahead for future dehvery, that they hold th^t grain in the possession of themselves while it is in pubhc storage. Then pending the time of future delivery for which they have it sold on these future contracts, they borrow money to carry that actual cash property, and they borrow the money of the banks. They have it sold ahead to some man, for example, whom they expect wUl sell out again, and thus that grain will come back to them and they wiU coUect the difference through the clearing house and not relinquish possession of the grain, and having received the money which they collect from him, their idea is to perpetuate it in storage so that another new "bull" wiU buy another future month, and thus repeat the same process of forced sales and Hquidations, and thus form an endless chain of forced sales. Now, then, this warehouse system was in existence, I say, for 15 years, and it is a remarkable fact that for those 15 years wheat was selling in Chicago ftom 48 to 80 for the .best grades, and never ex- ceeded those figures for 15 consecutive years. It has been said that grain is money. W. T. Baker, a former president of the board of trade, said in his magnificent style, "Coin corn and give the producers of this country a purchasing power." That is what they needed. Now this condition becaipe apparent on the board of trade and finally led up to an investigation as to conditions which related to this monopoly, and the board of trade decided that there was a monopoly and instituted a suit through the Attorney General before Judge Tuley of the circuit court of Cook County, based upon this theory that any public warehouseman who held any grain for the public could not trade in grain in the public elevators where he was the custodian of the property of others. After a suit lasting six weeks, one of the most prominent lawsuits ever conducted in Cook County — conducted by one of the ablest lawyers this country ever produced, Mr. Henry S. Robbins, the present attorney of the board of trade, and sitting in this room at the present time — Judge Tuley decided that a monopoly in grain did exist, and the contention of the board of trade was sustained, the same position which I take to-day. If my position is correct, the same application of the decision of Judge Tuley would apply now, as applied then, and I would introduce as a part of the testimony in that case the two paragraphs of the decision of Judge Tuley, which I will refrain from reading at this time, but will turn over to the stenographer to be incorporated in the hearings. This is called Bulletin No. 2, and Judge Tuley's remarks appear on page 4. Mr. Manahan. What is the substance of it ? Mr. Greeley. This is the decision of the court granting an injunc- tion against this warehouseman from trading in grain. Here is the judge's opinion. Mr. Lenroot. Was that decision final ? 28 GRAIN EXCHANGES. Mr. Greeley. No, it went to the Supreme Court and Judge Tuley was sustained. [Extracts from decisions of Judge Tuly, in the ease of Adolph L. Liclistem v. J. Eosenbaum Grain Co. et al.J The great weight of the evidence is to the effect that the warehousemen of Chicago did not commence to so deal in grain to any general extent until about the year 1885, but the practice has grown so rapidly that now and for two or three years last past, they are the principal buyers and sellers on the Chicago market and upon the board of trade. That by reason of the advantages they possess and by reason of such changes in the grain trade they have practically driven out of business the class of men who were before engaged m buying and selling grain on the Chicago market. And it is admitted that they have dealt in grain to the extent that they now hold at least three-quarters of all the grain stored in the public warehouses of the city of Chicago, and it also appears by the evidence that they are fast monopolizing the business of dealing in grain in the Chicago market. The defendant is created and licensed to carry on the specific business of a public warehouse and to use its property for that purpose. Being licensed for one purpose, created by the Constitution and the law for a specific business, is it not opposed to public policy that this defendant should carry on in competition with the general public another business in which its interests must necessanly be brought in conflict with its duties in exercising this "sort of public office"? It is, however, contended that the warehouseman gets the grain because he pays more for it than other bidders, and the constitution of the State requires a law passed in pursuance thereof to be construed "in the interest of producers"; therefore it is to the interest of the producer that the warehouse be allowed to enter into the grain business. No monopoly in grain dealing can operate in the long run to the interest of the producer. There is no truer maxim in the economics than "competition is the life of trade." The warehouseman may be able topay more than the outside buyer until he has been driven out of the market. When he has succeeded in so doing (and the evidence shows that that time has nearly arrived) and he has no practicsu conipetition, then the producer must suffer. The law should not be so construed as to give the warehouseman the right to use his privilege, his public business as a warehouseman to crush out competition against himself as a dealer in grain. It is also contended that every man has a right to trade in grain. This may be true as to every individual, but he is exercising a kind of public employment and is licensed to carry on business improMed with a public use, witii certain duties and privileges by reason of such license. The question is, is it not, against public policy that he be permitted to use such public employment, such public business, and such privileges to aid him in carrying on in competition with the public another and different business and in such a way as to create in himself a virtual Inonopoly of such latter busiaess? It appears to the court that there can be but one answer to the question, and that is in the aflBrmative. I want to call your attention to the following, from an outside trader in the Chicago market: But even these dishonest practices have been but minor evils compared with the methods of that "brainy" elevator combine, who have accumulated a stock of over 20,000,000 bushels of a hybrid grade of so-called contract wheat in their houses, when less than 5,U00,000 would have been their stock under normal conditions. This interest uses its large storage capacity for mixing purposes. They mix, and when it suits their purpose to depress prices^ deliver on contracts, which is inspected as No. 1 northern spring wheat. It consists of about 40 per cent of the real article No. 1 northern, about 30 per cent of No. 2 soft Nebraska, and about 30 per cent No. 2 and No. 3 hard Kansas winter wheat. This mixture is run through cleaning machin- ery and delivered out as pure No. 1 northern spring wheat. Why should we pass laws to prevent the sale of oleomargarine and butterine as pure butter and still per- mit such a gigantic swindle as this to exist? By accumulating this immense stock of adulterated wheat and keeping control of it in their own hands, this elevator interest has been enabled to dictate prices not only for the producers of this country but practically for the markets of the world. Th3 system so long in vogue of trad- ing in distant futures and settling trades through a clearing house has given the market entirely into the hands of this elevator monopoly, and they seldom make deliveries on contracts when they know the wheat is actually wanted and will be GRAIN EXCHANGES. 29 taken away from them, but only to weak speculative holders, who they know will sell it out immediately, returning it back to their own hands. It is this system that made temporarily a 4J-cent carrying charge from the Decem- ber delivery to May, which frightened holders had to pay, not only on the amount of wheat in store, but on millions of "wind" wheat besides. It is this system which is ruining the legitimate receiving purchase, which has taken out of business entirely the old exporting interest that was formerly so largely represented in Chicago, and has taken millions of dollars annually out of the hands of our producers, correspondingly affecting all mercantile interests. It is a gigantic evil that should be suppressed at once, even by suitable and well-informed legislation, or by immediate and radical change: in the methods of trading of all grain exchanges. Compel actual delivery on all contracts. Inspect all mixed grain as mixed grain, and do not allow it in the con- tract grain for speculative purposes. This would forever remove the power of this elevator interest to scour the country for different kinds of wheat, pile it up in their Chicagb houses, turn it out by the millions and use it for a club to depress prices, and make exhorbitant carrying charges to put in their pockets, not only at the expense of the speculator but of the entire farming and business community. Mr. Lenroot. Can you give us that decision ? Mr. Greeley. Yes, sir. Mr. Campbell. What was the date of that decision of Judge Tuley ? Mr. Greeley. 1896. Mr. Campbell. May I ask right there if these facts have been called to the Department of Justice of the United States ? Mr. Greeley. Yes, sir; as to some of it. Mr. Campbell. Has there ever been any action by the depart- ment? Mr. Greeley. Not yet. Mr. Campbell. Is there not clearly a monopoly in restraint of trade under the terms of the Sherman Act ? Mr. Greeley. That is the theory on which the board of trade proceeds. Mr. Lenroot. Have you the citation of the decision of the Supreme Court in that case? Mr. Greeley. Yes; I have a copy of that. Mr. Campbell. What further action is necessary than to call this matter to the attention of the Attorney General and the Federal grand jury in Chicago, and have this hearing before the grand jury ? Mr. Greeley. That is a step in the right direction; yes. Mr. Campbell. Is it not the last step ? Mr. Greeley. There is an emergency that exists to-day in the grain business of this country where we can not wait. We want Federal warehouse inspection and relief, and we want speedy relief. Mr. Campbell. Would not that give you speedier rehef than to begin at this end in legislation, or mvestigation that would lead to investigation that would finaUj'- have to be sifted down through a decision of the courts ? Mr. Greeley. I do not believe a lawsuit in Chicago would build warehouses or establish a Federal inspection department or prevent monopoly futures. I think this investigation is leading up to an understanding of the conditions. In fact, we are hoping to produce sufficient evidence here to make this document the reliable document for any investigator. Mr. Campbell. Would not such a proposition as I have indicated stop the monopoly to which j'ou have referred ? Mr. Greeley. Possibly they could be prosecuted now under the antitrust law. They should be criminally prosecuted for what they have done. 30 GRAIN EXCHANGES. Mr. Campbell. Would not that be the proper step ? Mr. Greeley. I think that would be a step in the right direction to say the least. Mr. Campbell. Would it not give the kind of control ovey the warehouses which you are contending for ? Mr. Greeley. I suppose if a man were sent to the penitentiary for violation of the law, that that would simply be a punishment as to him. I do not think it would necessarily establish anythii^. Mir. Campbell. It would prevent the use of the warehonses in that way in the future. Mr. Greeley. That could be done, of course. The fact is that these men are doing business iu the State of Illinois every day in violation of that warehouse law and in violation of Judge Tufey's injunction. Am I right, Mr. Eobbins ? Mr. RoBBiNs. I do not know enough about the facts, Mr. Greeley, to answer that. Mr. (treelby. Now, we will try to go into this matter so that we need not put Mr. Robbins on record. Mr. Robbios won that lawsuit before Judge Tuley. As soon as that lawsuit was won before Judge Tuley, what did these men do ? I am giving the history of the pro- ceedmgs of this elevator trust up to this present time to show how it maintains its- supremacy and the conditions under which it exists. As soon as Judge Tuley gave the decision which was granted at the behest of the board of trade and the attorney general of the State, to the effect that a pubUc warehouseman could not deal in grain, and enjoined them — as soon as that decision was handed down the ware- housemen hastened to Springfield, and when they got to Springfield, had passed a law legalizing what Judge Tuley had declared was iflegal. These men at Springfield put through that law, and I understand that when the law was passed at Springfield it was said they took a flashUght photograph in the Senate, and when the smoke cleared away that law was supposed to have been put upon the records of that State, contrary to the decision as handed down by Judge Tuley. I desire to show the character of the men. Men make systems, and if the system is bad the men must be Hke the system, so let us show up the men. After they passed a State law permitting them to do what Judge Tuley had declared was illegal, Mr. Robbins, I beheve conducted the proceedings before the Supreme Court of the State of Ilhnois, and the supreme court sustained the contention of Mr. Robbins and the board of trade on that question; and although it took seven years to get a decision, a.nd that was in 1903, from 1903 up to the present time, every day, including Sundays, they have con- tinued to violate the laws of the State of Illinois in regard to the holding of grain in public elevators. That statement is made boldly and without fear of contradiction, and I defy any member of the Chicago board of trade, no matter who he is, to stand up and make a statement that any public warehouseman who conducts a public warehouse in the city of Chicago conducts it in conformity with the law. I wiU defy any man to stand in the presence of this committee and say that there is a pubHc warehouseman on the Chicago Board of Trade who is lawfully conducting a public elevator. There are none. It is absolutely true, and the facts do exist, and connected to that system, as I have explained, is the State authority having charge of the inspection department. We make the conten- GRAIN EXCHANGES. 31 tion in this brjef, in out introduction, that this condition tends to drive away legitimate support of the markets. I do not contend that Joe Leiter or George Phillips or Jack Cudahy, or any other men who have ever put their millions up against this combination were ever legitimate supporters of market values, nor do I defend the means and purposes which actuated them in buying those futures, and which in these cases put so much grain into their possession and occasioned their financial failures. It may have been that they in- tended corners, but nevertheless, the fact remains true, to show the tremenduous power residing in this elevator organization, in the possession of these public warehouses that even Leiter, with his S9,000,000 as reported was scattered to the four winds of heaven like a feather in a hurricane. Jack Cudahy went broke; the George Phillips contingent was scattered to the winds also by what'i! By the mixtures of grain in public elevators by warehousemen them- selves and the credit of this country suffered year after year by the low prices to which I have referred. To-day we see wheat selling in Dakota as low as 70 to 75 cents a bushel. Now, who says wheat shall be 75 cents a bushel in the Dakota fields, where these men toil and raise their grain year after year and conduct their business and raise their families ? Who says that wheat shall be 75 cents ? Why should it not be 85 cents ? Why should it not be 60 cents ? Who sets the price for his wheat ? Does the farmer set it himself ? No, sir; he does not. The price of wheat is set through the future trading, largely dominated by the elevator monopoly in the city of Chicago, and that price, the secret bid, goes out, day by day, from that monopoly. That price is largely the re- sult of the future transactions which are dealt in by the elevator trust on the floor of the Chicago Board of Trade, and I make the statement, without fear of contradiction, that the ownership of public warehouse receipts in the city of Chicago by a combination oi men acting, in a measure, in concert — or at least on similar lines — that these four men, acting in harmony^ trading in futures, selling quan- tities of futures day by day, do more at the present time — and for years during the course of oiir markets have done more — to reduce the price on the farm than aU the concerted actions of the world taken together, outside of panics and severe crop damage reports. Mr. Campbell. We have been told in political campaigns that the price of wheat is fixed in Liverpool. Mr. LoBECK. And we have been told that it went higher because we had a protective tariff. Mr. Greeley. Now, having touched a little upon the public ware- housing of grain, illegally controlled, I want to speak of their connec- tion with future trading. I desire to quote what an officer of the board of trade said in regard to this grain monopoly. This might be called a voice from the grave to the members of this committee to picture the atrocities perpetrated by this elevator combination — a statement by a grand man, formerly president of the Board of Trade of Chicago, W. T. Baker, who held that position for five years, and who was instru- mental, if I remember correctly, in starting Mr. Robbins on the Tuley lawsuit. Listen how these words «ome back to us as if by some spiritual magic in regard to that monopoly. I offer this complete statement to go into the record. 32 GRAIN EXCHANGES. Mr. Campbell. What is the statement ? Mr. Greeley. This is Extracts from Inaugural Addresses Delivered at the Annual Meetings of the Board of Trade of the City of Chicago, by William T. Baker, president of the board for the years 1890-91, 1895-96, and 1897. We make th« statement without fear of contra- diction that this same condition to which President Baker referred exists to-day, because in the lawsuit of Lichstern v. Eosenbaum, con- ducted by Mr. Robbins — and which I, as a sort of errand boy, helped in the preparation of — the same arguments I will produce from the testimony in the Lichstern case, as Siown by Mr. Robbins, are almost identical with the remarks of President Baker in former years. Mr. Manahan. When was that case tried? Mr. Gkeelet. Five years ago. President Baker, speaking as the president of the board of trade — see how he speaks to the country — said: [Extract from address delivered In Januarj, 1895.] Next to the incumbus of the bucket shops is the tyranny of the elevator monopoly, which, from a fair and legitimate beginning, has grown to such proportions withm your association as to threaten its very existence. And it is a broader question than the survival of the fittest among groups of business men and interests in this exchange. It concerns every merchant and every common carrier engaged in the great commerce of this city and every farmer who contributes to make that commerce possible. It seems almost ridiculous to state that since that address was de- livered it has taken at least 15 years for the farmers of this country to be educated up to the point where they can listen to those words [reading] : The warehousing of grain is only an incident in its transit from producer to consumer. Its natural and healthy function is an accepting on storage the overflow of the season of freest movement that the channels of commerce may not be clogged or obstructed, and safely carried for the same while awaiting a demand. But in Chicago the accu- mulation and storage of grain has come to be the chief end and aim of potential and dominating forces. He says that the storage and accumulating of grain, of holding it there, was for the purpose of bringing results in the future market similar to those which I have described [reading]: The alliance between railroads and elevators has resulted in reaching out after millions of bushels not naturally tributary to us, and when gathered here preventing by such tricks of trade as you are familiar with from ever getting away again as long as storage can be collected on it. This policy has resulted m such congestion of grain here that has depressed prices to the lowest point in history. For it is not the Chictigo stock alone that this market has to carry. Its very volume invites dealers in every market in the world to make sales here against holdings elsewhere which they would not care to do but for abnormal accumulations brought and held here by unnatural ineans. Cargoes of wheat bought on European account ia Australia, Russia, and Argen- tina, as well as stocks at all other points of accumula,tion, are sold again here, so that our market feels the weight of the entire world surplus. This condition is made possible only by the enormous and unnatural hoards brought and retained here to satisfy the avarice of halt a dozen corporations, the largest of which is owned in Lon- don. A system that permits the proprietors of public elevators, directly or indirectly, to deal in the property of which they are custodians is essentially immoral. The temptation to reserve for themselves the best of the grade is one that the law never contemplated that they should be subjected to. Indeed, the principal motive of the warehouse law was to prevent their ownership or control og grain in public ware- houses. Yet it is notorious that during the last year the proprietors of elevators have had for sale and have sold millions qf bushels of ^ain at a large premium, not one cejHt of which in equity belonged- to them. The grain bought elsewhere by elevator pro- prietors is promptly sold here to you for some future delivery, so they become the cus- todians of your property, which,/ however, you can only get on payment of such premiums as the exigency of the demand may enable them to exact. It is an unwel- GEAIN EXCHANGES. 33 come task for me to criticize the methods of any class of our members, but this is an occasion for plain speech and honest, earnest effort to restore to this association its vanishing glory and tradition. The elevator monopoly is the same fight on legitimate business that antioption legislation would have been if enacted. The old-time open cotoipetition of thousands has been superseded by new conditions under which each railroad termioating ia Chicago is practically controlled by a single buyer. Special rates are made to favored individuals who have the further advantage of elevator control, so that rates charged to the public are rebated to themselves, thus enabling them to outbid or undersell all competitors. This charge of three-quarters of a cent per bushel for the first term of storage is retained only as a protection to the elevator managers against competition by legitimate dealers in grain. It is a charge that you can not avoid, but which is ignored by them ia their own transactions, thus forcing everyone to sell to or buy of them. The fact that this charge is not bona fide but only a foil to competition proves that it is unjust and should be abolished. While elevator proprietors are willing to pay 1 cent per bushel more for grain "to go to store" in their own ware- houses than the market prices of the same grain in store (and subject to the charge of three-quarters of a cent per bushel), is conclusive that the first storage charge is not legitimate, and also that the subsequent terms of storage are unduly profitable. The charge for the transfer of grain from cars to vessel, a distance of perhaps 100 feet, is greater than the average rate of freight during the past season from Chicago to Buffalo. The same grain is transferred on track by the railroads themselves from western to eastern cars for nothing. A proper solution of our difficulties includes facilities by railroads entering here for the warehousing of grain on arrival, and their rates for storage are naturally acquired accumulations. The device of collecting storage in advance of delivery of the grain has supplied largely increased capital to elevator proprietors to be used against you in the unequal competition for business . There is no legal nor moral right in this practice and it should be terminated altogether. Warehouse receipts for grain are made current by your rules. These rules are absolutely binding on every buyer in your market whether he is a member of your board or not. It therefore behooves you to protect the innocent purchaser by every safeguard within your power. It is not only your right but your imperative duty to have such an oversight of elevator management as will assure to holders of warehouse receipts made regular by your rules that their receipts represent not only the property, but uncontammated grains and condition. In pro- viding the requisites for regular receipts, it may be possible to correct some of the abuses complained of, as well as give adequate security to holders of warehouse re- ceipts. But the legislature must be appealed to to so amend the warehouse law as to make it impossible for public warehousemen to be also dealers in grain; and railroad companies having terminals here should be required to warehouse lieir grain on arrival, as they do every other species of merchandise. With this purpose in view, I recommend the appointraent of a committee on legislation outside the board of direc- tors, to promote the necessary legislation at Springfield. [Extract from address delivered in January, 1896.] While something has been accomplished toward improving the status of the elevator question, there is much remaining to be done. If the law's delay has been invoked against you, not in the hope of ultimate success to weary youand tire you out. The recent court decision did not touch the merits of our cases, which will be pressed with such vigor as your directors are capable of, and an early decision is hoped for. There is no misapprehension apparent outside this board as to the relation of elevator com- panies to the general business of the city. They claim to be public benefactors, in that they bring grain in large amounts to this city that would otherwise go elsewhere. This is said to furnish employment to more banking capital and keep up the rate of interest and to give businpss to the railroads and insurance companies. But we know that half a dozen firms and corporations own a monopoly of the business. They can not bring here that which is not naturally tributary to us, except on such rates of freight as are denied the general public and prohibited by law. Nearly_ every railroad ter- minating here has some favorite elevator system under its protection, the proprietors of which are given such profitable concessions as to enable them to control the busi- ness. If the contention of this board is sustained, these railroads will have a host of competing patrons instead of one; bankers will have a thousand active accounts instead of the small group of large borrowers who are now able to combine and dictate rates, while the short-rate card of insurance offices will again come into use. But the real question is not whether they add to the traffic of railroads or increase the profits of banking or insurance capital, but whether it is right for public custodians 37214—14 3 34 GEAIN EXCHANGES. of grain to be at the same time dealers in grain, and thus enabled to select and set aside for their own purposes the best of what may come under their charge. No objection is made to all of the grain coming to Chicago that can be legitimately brought here, but it is against public policy, and it is not the legitimate function of a public warehouseman operating under a license from the State and the rules of this board to be so engaged. It is the dual capacity that we object to, and that is prohibited by law. Last spring the quality of millions of bushels of g^ain stored in pubfic warehouses was adversed by interested speculators. This board, through its officers, sought to have such an investigation made as would refute the slander against grain stored in public warehouses and restore the confidence of buyers and holders of property made regular by your rules. But every elevator proprietor in Chicago joined m refusing permission to your representatives to make that necessary and wholesome examination. They knew the grain was above the average in quality and condition, but were willing to have it inspected in order to increase the carrying charges. The present monopoly is against everything and everybody but theinselves. By the rankest and most brazen manipulation they seek to control the price and movement of our commodities and force every buyer and every seller to their terms. A year ago they were selling spring wheat at 5 or 6 cents premium. Now they are selling winter wheat at a like premium, while they have not been the owners of either. While they are nominally the custodians of your property, they are able, in violation of the laws of the State, to set aside and sell at a premium millions of bushels every year not owned by them, but in their custody as warehousemen. Would any court permit a trustee of an estate to thus handle trust funds for his own advantage? This gain is not the legitimate profit of a public warehouseman. It belongs to you, or who- ever owns the grain. The lawful profit of the business of public warehousing has been attractive enough to create an enormous system of elevators. If the business has been overdone, it has been due to the stupidity of those engaged in it. This board will cheerfully concede a fair return on capital actually employed in the operation of elevators, but will forever resist the use of its machinery for unjust or illegal practices. If it is possible to close the courts against us, we have remedies within our own asso- ciation that neither money nor influence can buy. The pulse of business is felt in the great exchanges of the country, and nowhere is it more sensitive than in this board of trade. What affects the weal or woe of the commerce of this country is immediately reflected here, so that no class of business men can have greater interest than we in the pending practices in national finances. [Extract from address delivered in January, 1897.] The question between the board and the elevator proprietors has reached a decision in the circuit court in our favor on every controverted point. The decision of Judge Tuley is so comprehensive and convincing that the elevator proprietors can hardly hope to have it reversed by the Supreme Court, though they have taken an appeal. I earnestly recommend that no backward step be taken by this board, if there has been nothing in the advance of the past year to make the elevator monopoly more incurable. Their control of the property of which they should be simply guardians or trustees, the property which does not belong to them, but to members of this board to whom they have sold it, has enabled them not only to manipulate prices, but to create intolerable obstruction to the free current of commerce which is the most important function of this board to foster. The legitimate storage charge is no longer a prime consideration with them. Their alliance with the railroads and the privileges and immunities enjoyed by them on this board enable them to levy tribute on the producer and consumer alike, while the centralization of the control of stocks of grain in store robs the banker and the common carrier of the legitimate advantage of competition that would come with the restoration of the natural order of business. This board has never questioned the right of any of its members to deal in grain an store it in their own warehouses, but when its members elect to do business they should not at the same time become public warehousemen with the stamp of regu- larity upon their warehouse receipts. The opportunity to select and sell at a premium the best of a grain while offering the holders of their receipts the poorest is a manifest injustice and contrary to pubhc policy. The market price is always based on the least desirable, while for the better quality such a premium as the necessities or desires of consumers may warrant is exacted by the custodian of the property, who do not even pretend to be its real owners. The wellrkwwn fact that the poorest qiiality that is deliverable on contracts established the price of the entiris stock in store, and to a certain extent the price of the general market is a^ constant injustice to producers for all the territory contributary to our market. It is' an application of the principles of the Gresham law to the familiar operations of the grain market that must be intel- ligible to anybody. GRAIN EXCHANGES. 35 The Chairman. The committee will stand adjourned at this point until 2 o'clock this afternoon. AFTER RECESS. The committee reassembled at 2 o'clock p. m. STATEMENT OF MR. SAMTJEl H. GREELEY— Continued. The Chairman. The committee will come to order. Mr. Greeley, you may proceed with your statement. Mr. Greeley. I would like to be certain, Mr. Chairman, that this introductory statement of this morning, with quotations from Presi- dent Baker, will be inserted in full in the record. The Chairman. They will be inserted, of course. You understand We do not want to crowd the record with any unessential matters, but if you deem it important to put in the rfull opinion there, that would be all right. Mr. Greeley. I want to. quote from the opinion of Judge Tuley and would Uke also to include that brief quotation from which I read from his opinion. The Chairman. There will be no objection to that at all. Mr. Greeley. The opinion of the supreme court sustaining the opinion of Judge Tuley is very important in the conduct of this investi- gation, to know that the Supreme Court of Illinois absolutely sus- tained the lower court in establishing the fact that a pubhc custodian could not himself deal in grain while he acted as trustee of the prop- erty of others in the same elevator. I did not, however, previous to the lunch hour, quote anything from the supreme court, and there are only two or three brief para- graphs here that I want to simply refer to, because I think it is very essential. The Supreme Court says, in one paragraph Mr. Manahan. Give the name of that case. Mr. Greeley. This is a supreme court decision, June 18, 1898, affirming Judge Tuley in the elevator cases. People v. Armour Elevator Co. and others, wherein Henry S. Robbins conducted the suit for the attorney general and the board of trade. The supreme court said in that decision: It is a finnly established rule that where one person occupies a relation in which he owes a duty to another he shall not place himself in any position which will expose him to temptation of acting contrary to that duty or bring his interest in conflict with his duty. This rule applies to every person who stands in such a situation that he owes a duty to another. And courts of equity have never fettered themselves by de- fining particular relations to which, alone, it will be applied. They have applied it to agents, partners, guardians, executors, administrators, directors, and managing officers of corporations, as well as to trustees, but have never fixed or defined its limit. The rule is founded upon the plain consideration that the one charged with duty shall act with regard to the discharge of that duty, and he will not be permitted to expose himself to temptation or be brought into a situation where his personal interests con- flict ynth his duty. The court is very broad on that, you will notice, that where a man fconductihg a public elevktor assumes custodianship of the property of others he should never for a moment, in accepting that position, permit himself to be placed to the temptation of deaUng in grain him-- 36 GRAIN EXCHANGES. self, or as to whether or not his own S3lf-interest shall be brought in conflict with his duty to the pubUc. In the mixing of grain the supreme court says : Such indiscriminate mixing gives an added quality of grain to all holders of ware- house receipts. Where the warehouseman is a buyer, the manipulation of the grain may result in personal advantage to him. Not only is this so, but the warehouse, proprietors often overbid other dealers as much as a quarter of a cent a bushel, and immediately jesell the same to a private buyer at a quarter of a cent leas than they paid, exacting storage, which more than balances their loss. In this way they use their business as warehousemen to drive out competition with them as buyers. • The warehouseman issues his own warehouse receipt to himself. As public ware- houseman he gives a receipt to himself as individual and is enable to use his own receipts for the purpose of trade and to build up a monopoly and destroy competition. From the strength of that language, when we come here and main- tain that there is a monopoly/ we are absolutely approved in our position by the decision of the supreme court : The defendants answer that the practice had a beneficial effect upon producers and shippers and naturally were able to prove that when, by reason of their advan- tages, they were overbidding other dealers there was benefit to sellers, but there was an entire failure to show that in the general average there was any public good to producers or shippers. The paragraphs quoted for reference are marked "Decision of supreme court," marked with red line and the word "quote." This I should like to have inserted in the record. (The paper referred to is as follows:) [Supreme court decision. (June 18, 1898.) Affirming Judge Tuley in Elevator ca.'ies. People ex rel. v. Armour Elevator Co., Central Elevator Co., Geo. A. Seavems, Chicago Railway Terminal Klevator Co., Nebraslca City Packing Co., Alex C. Davis & Co., Soutli Chicago Elevator Co., Charles Counselman, Chicago Elevator Co. John P. Wilson, John J. Herrick, Jacob R. Custer, Jas. E. Mimroe, solicitors for elevator companies. Edward C. Akin, attorney general, and Henry S. Robbins, for people.] It is a firmly established rule that where one person occupies a relation in which he owes a duty to another he shall not place himself in any position which will expose him to temptation of acting contrary to that duty or bring his interest in conflict with his duty. This rule applies to every person who stands in such a situation that he owes a duty to another, and courts of equity have never fettered themselves by defin- ii^ particular relations to which alone it will be applied. They have applied' it to agents, partners, guardians, executors, administrators, directors, and managing offi- cers of corporations, as well as to trustees, but have never fixed or defined its limits. The rule is founded upon the plain consideration that the one charged with duty shall act with regard to the discharge of that duty, and he will not b^ permitted to expose himself to temptation or be brought into a situation where his personal inter- ests conflict with his duty. Courts of equity have never allowed a person occupying such a relation to undertake the service of two whose interests are in conflict, and then endeavor to see that he does not violate his duty, but forbids such a course of dealing irrespective of his good faith or bad faith. If the duty of the defendants, as public warehousemen, stands in opposition to personal interest as buyers and dealers in graui storing the same in their own warehouses, then the law interposes a preventive check against any temptation to act from personal interest by prohibiting them from occupying any such position. The public warehouses established under the law are public agencies, and the defendants, as licensees, pursue a public employment. It is clothed with a duty toward the public. The evidence shows that defendants, as public warehousemen storing grain in their own warehouses, are enabled to, and do, overbid legitimate grain dealers by exacting from them the established rate for storage while they give up a part of the storage charges when they buy or sell for themselves. By this practice of buying and selling through their own elevators the position of equality between them and the public whom they are bound to serve is destroyed, and by the advantage of their position they are enabled to crush out, and have nearly crushed out, competitioi^ in the largest gram market of the world. The result is, that the warehousemen own three-fourths of all the grain stored in the public warehouses of Chicago, and upon some of the railroads the only buyers of grain are the warehousemen on that line. GEAIN EXCHANGES. 37 The grades established for different qualities of grain are such that the grain is not exacfly of the same quality in each grade, and the difference in market price in differ- ent qualities of the same grade varies from 2 cents per bushel in the better grades to 15 cents in the lower grades. The great bulk of grain is brought by rail and in car- loads and is inspected on the tracks, and the duty of the warehousemen is to mix the carloa,ds of grain as they come. Such indiscriminate mixing gives an average quality of grain to all holders of warehouse receipts. Where the warehouseman is a buyer the manipulation of the grain may result in personal advantage to him. Not only is this so, but the warehouse proprietors often overbid other dealers as much as a quarter of a cent a bushel and immediately resell the same to a private buyer at a quarter of a cent less than they paid, exacting storage which more than balances their loss . In this way they use their business as warehousemen to drive out competition with them as buyers. It would be idle to expect a warehouseman to perform his duty to the public as an impartial holder of the grain of the different proprietors if he is permitted to occupy a position where his self-interest is at variance with his duty. In exercising the public employment for which he is licensed he can not be permitted to use the advantage of his position to crush out competition and to combine in establishing a monopoly by which a great accumulation of grain is in the hands of the warehouse- men, liable to be suddenly thrown upon the market whenever they, as speculators, see profit in such course. The defendants are large dealers in futures on the Chicago Board of Trade and together hold an enormous supply of grain ready to aid their opportunities as speculators. The warehouseman issues his own warehouse_ receipt to himself. As public warehouseman he gives a receipt to himself as an individual, and is enabled to use his own receipts for the purpose of trade and to build up a monopoly and destroy competition. That this course of dealing is inconsistent with the full and impartial performance of his duty to the public seems clear. The defend- ants answer that the practice had a beneficial effect upon producers and shippers, and naturally were able to prove that when, by reason of their advantages, they were over- bidding other dealers there was benefit to sellers, but there was an entire failure to show that in the general average there was any public good to producers or shippers. The answers also set up, and it is claimed here, that there was, at the time of the passage of the warehouse act, a general custom of warehousemen to deal in grain and to store it in their warehouses, and that the law was passed with reference to that existing custom. The evidence fails to establish any such custom. The amount so bought and stored or dealt in up to the year 1885 was trifling, and the first time when there was any material increase was in 1890. Many witnesses who would have known if such a practice or usage existed united in denying all knowledge of it, and many of them testified that they never knew or heard of any elevator owner buying or selling grain prior to 1885. There was no such custom. Having obtained the decision of the Supreme Court, having settled this vital question, then we proceed further in the conduct of this warehouse business, and what do we find ? We find in the year 1908 a number of warehouses and public warehouses continuiag to do business and violating the law. In connection with the public houses as law violators, we see a number of private elevators, mixing houses or hospitals, used for the purpose of mixing grades, storing in public houses, and selling ahead for future dehvery on the system which I have previously described. And the list of these Cmcago public warehouses, including every pubhc elevator in the city, except one, in the grip of this combine, I wish to offer in evidence, in order to show that even at that time, 1908, there was in the grip of this monopoly every public elevator in the city of Chicago, licensed to do business by the Chicago Board of Trade under their rules to be "regular," which term I will explain in a short time. These private warehouses in this list are known as hospitals, where the poorly inspected grain may be doctored with grain of a higher grad^ and loaded into public houses, and the mixture loaded onto the public in future transactions. This is in control of the same five con- cerns which control the list of public elevators, page 2 in document "for reference called Bulletin No. 1." 38 GSAIN EXCHANGES. In 1908, to show how these men operated, and to show that a monopoly really did exist at that time and was discovered, I want to call attention to a pooling agreement whereby certain parties entered into an agreement and a working pool of public warehouses in Chicago. All public warehouses in Chicago, except one, were involved m an agreement to hold grain in Chicago, rob the public of storage, depreciate values, and generally debauch the grain trade. The essence of that agreement is as follows: A trustee handled the daUy reports, collected and disbursed the earnings, arbitrated disputes, etc. He received a salary and was provided with office help. Sixty per cent of the earnings was paid to the trustee, and by him distributed to all parties to the agreement. No party to the agreement could, except under heavy penalty, remove grain from the warehouse of any other party to the agreement and store it in his, its, or their warehouse. AU agreed to do all "lawful things" to prevent any "outside" warehouseman from removing grain from trust warehouses and stor- ing it in warehouses of said "outside" warehousemen. Should any "outside party" have withdrawn grata from the trust houses and stored it in his — the outside party's warehouse, "A memorandum of record" was provided for, and if said "outside party" wished to return similar grain to any trust house, it was pro- vided that the trust house accepting such grain from the ofifending !' outsider" -unless he returns all he has taken out- shall not receive its pro rata of the earnings. Warehouses partially or totally destroyed by fire were to continue to draw their pro rata of earnings from the pool on such grain as had been withdrawn prior to the fire. Severe penalties are provided in case of violation of the agreement Here are the parties to this pooling agreement : Peavey Grain Co., by James Pettit. The pool was signed by him. Central Elevator Co., by G. W. Patten, president. Calumet Elevator Co., by G. W. Patten, vice president. South Chicago Elevator Co., bv J. J. Stream, president. Armour Gram Co., by G. E. Marcy, president. J. Kosenbaum, by E. F. Rosenbaum, by power of attorney. Those people signed that Grain Trust pool which was unearthed in 1908, and when the pool was discovered they promptly discarded it and did not continue their working operations under that pool, fear- ing the results that might happen on account of its discovery. In order to remove any question of doubt as to the existence of this pool, and, if necessary, for the Representatives of the people of the United States to confirm the existence of this monopoly, I ask that the parties named as being interested in this working-trust pool or agreement be summoned to produce their records to show that they were imphcated in that monopoly. This system really constitutes the same organization which Judge Tuley, 12 years before, had decided was a monopoly and against the interests of the producers and shippers in that market. . i I offer in evidence, to be made a part c5f the record, pagej2, publiq warehouses in control of the trust and private warehouses in control, of the trust, contained in a paper called "Bulletin No. 1." The Chairman. Who prepared that bulletin ? Mr. Greeley. I did. GEAIN EXCHANGES. 39 (The paper referred to is in the words and figures following, to wit:) Chicago public warehouses in control of the trust. [Including every public elevator except one, in the grip of five concerns.] Name of warehouse. Operated by- Capacity. Armour elevator, comprisiag houses A, B and B annex. Armour elevator C -Calumet elevator C Central elevator A Chicago and St. Louis elevator and annex City elevator National elevator Peavey elevator B Eocfc Island A Rock Island B South Chicago elevator C and annex Union elevator and annex Armour Elevator Co. .do. Calumet Elevator Co Central Elevator Co Keith Elevator Co J. Eosenbaum Central Elevator Co Peavey Grain Co J. Eosenbaum do South Chicago Elevator Co. Armour Elevator Co Total capacity. Bushels. 6,000,000 1,000,000 1,600,000 900,000 2,000,000 1,000,000 1,000,000 1,550,000 1,250,000 800,000 3,000,000 2,000,000 21,000,000 Private warehouses in control of the trust. [Being known as "hospitals," where the poorly inspected grain may be doctored into poorly inspected ^aia of a higher grade, then loaded into their pubhc houses and "gmd bricked" onto the public. These m control of the same five concerns which control the above public elevators.] Name of warehouse*. Operated by- Capacity. Bushels. 800,000 Armnnr F Armour Grain Co . . . . 700,000 Calumet A Calumet Elevator Co 1,200,000 Calumet B do 1,500,000 Central B Central Elevator Co 2, 000, 000 City 1,000,000 TnffiaT»?v TTarl^or ^If^vator . . Bartlett, Frazier & Carrington 600,000 1,500,000 Irondale t J. Rosenbaum Grain Co 1,500,000 1,200,000 MinTiP.<5nt.a nTid n.TiTip-x' ... Armour Elevator Co 750, 000 1,000,000 South Chicago D- . South Chicago Elevator Co. Total capacity 13,600,000 Mr. CoNKOY. Would your argument against this pool here be construed as against the farmer's pool, to pool their own wheat and keep it in their own warehouses ? Mr. Geeeley. That is a distinction as to what this pool would be as related to any other pool. Our simple contention is that it did exist in restraint of trade, and that these parties were connected with it. Now, in relation to the methods of this monopoly and the character and nature of their business, I want to quote a statement of Mr. James A. Patten, a member of the firm of Bartlett, Frazier & Car- rington, at one time and now a prominent member of the board of trade, who has received some notoriety recently in the papers on account of his payment of a $4,000 fine in connection with a cotton deal. Mr. Patten, for many years, was a part of this monopoly in the city of Chicago, but before he joined this trust, and at a time in the Chicago market when he was a commission merchant and a grain shipper and did not enjoy the privileges of being a public warehouse- 40 GEAIN EXCHANGES. man, he made this statement, found at pages 299, 306-307, of the abstract of record to the Supreme Court in the Elevator Case. The following is Mr. Patten's testimony: I found difficulty in securing enough grain and found the elevator companies were going around amongst the tables liidding one-eighth to a quarter of a cent more than the prices bid in the car-lot market. He refers now to the same system of public warehouses to which I have referred. I also found they were willing to sell that grain to me at a quarter of a cent less than they were paying for it. In the course of time I found I couldn't buy anything in the car-lot market and that I had to buy all my grain from the elevators. Then, again, in the course of time I found that I couldn't buy anything from the elevator companies only when they pleased to sell. I found that they were offering grain in the East to my own customers at prices that they asked me. "There was no money in it for me to buy grain and sell it at the same price. It grew worse from 1890 down to the time I quit the business. There is no car-lot trade left now. Bear in mind, gentlemen, the fact that he is speaking as an inde- pendent shipper. I said something about competition of elevators in the eastern markets. He refers now to the public elevator system. I was affected by competition to a certain extent. The New England trade makes a specialty of yellow com. There are grades in our markets of 2 and 3 yellow. Those elevator companies also had private elevators which were not under the control of the State inspection. They would buy both grades to go to store and sell the No. 2 yellow in New England. I noticed from the inspection sheets that these companies very rarely inspected any 3 yellow corn out of store. It always came out No. 2. That is through their practices of mixing. And I noticed I had that competition to meet at the other end, from the elevator companies. "The other end" means when he shipped east to his customers. In other words, they adulterated their goods, to be plain. They didn't give the trade East what they claimed to, although they gave them the inspection certificate of out-inspection. Mr. Patten evidently thinks it better to get in the trust than stay out of it and pay tribute to it; and when he found that his interest could not be properly conserved as an independent grain merchant he went into the elevator business and has advised us, in his delib- erations and discussions of this matter in public meetings held in the city of Chicago, that if we wanted to meet the competition . of the elevator trust we ought to own an elevator and get in the same line of business. That is the statement of Mr. Patten. We want to give you the statement of Mr. John J. Stream, connected with and manager of and I presume a partner of J. C. Shaffer & Co., who are also at the present time and were at the time I have referred to in this connection, in 1908, a part of that elevator trust or combine, according to this trust agreement which was unearthed, given before the Interstate Com- merce Commission. The following is the testimony of Mr. Stream: Mr. Maeble (attorney for the commission, examining Mr. Stream). Explain what you mean by "forced" into the public elevators, i. i Mr. Stream. We generally buy grain on the basis of futures. That backs up the contention that I have made right along, that cash grain is based upon the course of these transactions, which we GEAIN EXCHANGES. 41 declare are nothing more nor less than illegitimate trades, and not backed up by real grain. The elevator monopoly itself does take the position : We generally buy grain on basis of futures. The price of tbe future is established on the floor, and we base the price of the cash on the future. That is the way the trust does business. They pay for cash busi- ness grain a price to the farmers of this country based upon the futures, which, in their monopolies, they make upon the floor of the exchange. So when we send out our bids to the country any acceptance we get we sell for future delivery. When the grain comes in if it grades we sell it out and buy back the future . ' ' If it grades means contract grades or better grade. If it does not grade we put it into the cleaning house, and if we can ship it to better advantage we ship it without putting it into the public house. If we can not — If it is not good enough to ship — that is, not a commercial demand for it that permits them to realize a profit — we make it into contract grade and sell to a member of the board to go into a public house, immediately buying back our future. That is the sworn statement by one of this elevator monopoly pres- ent here at this session at this moment, Mr. John J. Stream, as backing up the contention which I make that this grain is taken from the producers of the country, so mixed and hoarded and so dominated with a system of future trade that the markets of the world are estab- lished, not upon the basis of cash grain, but upon the basis of the future as outlmed by Mr. Stream himself. Now, then, as further evidence of the methods pursued by these men in the mixing of grain, I want to present to this bod^ a report of a committee which found on August 4, 5, 7, 8, and 9 a report of the committee of the board of trade appointed to investigate a cer- tain report in reference to a certain public warehouseman in the city of Chicago who was accused of this practice of indiscriminate doc- toring, mixing, hoarding, and selling futures, and that committee saw fit to bring back to the board of directors of the Chicago Board of Trade a report, a portion of which I wUl read, and all of which, to show the methods of these men, I desire to enter into the record. But before offering it for the record I desire to read a part of that, report : Mr. Manahan. What year was that ? Mr. Greeley. I do not believe I have here the exact date of that report, but I believe it was in 1908. Your committee finds that on August 4, 5, 7, 8, and 9 about 125 cars of wheat loaded from lie Irondale elevator, purporting to be No. 2 red winter wheat, and intended to be unloaded in Rock Island elevator B, were "plugged" — i This is from the private elevator, Irondale, to the public elevator, Rock Island elevator B, coming out of the hospital and going, for the "benefit" of the public, into public storage — were "plugged" with screenings of very low-grade wheat. The quantity of siich screenings or low-grade wheat in each car varied from less than 50 bushels to 250 bushels, according to the capacity of the car; that the screenings were loaded on the bottoms of the cars and loaded with so large a quantity of good wheat that about 100 cars were passed as No. 2 red by the State grain inspection and the board of trade grain samplers before this method of "plugged" was discovered. Another illustration of the very efficient State inspection depart- ment and board of trade regulation of Illinois : 42 GEAIN EXCHANGES. That of the cars so "plugged" about 60 were received and stored in Rock Island elevator B without protest from the superintendent thereof, and a like number (about 60) were returned to the Irondale elevator and taken back into that house, and from the bottom of the 60. cars so taken back into liie Irondale elevator there was recovered about 10,000 bushels of "screenings." The evidence appears con- clusive to your committee that the cars unloaded in the Rock Island elevator B contained an aggregate of at least 10,000 bushels of "screenings" or low-grade wheat. Neither of these employees of the Irondale elevator had control of the loading of grain other than to allow it to drop into a car when so notified from the loading floor, and to drop only such grain from such scales as these instructions name. Each ' ' plugged " car showed two drafts, one being the screenings or poor wheat in the bottom, showing about 10 per cent of the load, the other 9 per cent of the load being wheat supposed to pass the inspection department as No. 2 red. Now, then, that occurred under the direction of the management of Joseph Rosenbaum, a man whose name appears as one of this ele- vator combination, and controller of a public warehouse, or several of them, perhaps — at least one, at that time. Mr. Manahan. Was he a member of the board at that time ? Mr. Gkeeley. He was a member of the board of trade, and his elevator was licensed by the board of trade to be a regular house, where the public should have the privilege of receiving its grain on future contracts, and where the elevator men themselves delivered grain on future contracts. Mr. Stream stated that they mixed their grain in storage on a basis of the plan I have outlined. Mr. James Patten says that they adulterated their goods. They were caught in this pooling agree- ment, which became public. That has been known on the board of trade ever since the J. Rosenbaum Grain Co. was a party to the mix- ing of the grain, as referred to in the report which I have just read as an official*report of the board of trade, and still, with all this authority, coming from the elevator men themselves, and the knowledge of the conditions existing on the board of trade, the board of trade itself, as an institution, has loaned its approval to this method of doing _ business every year, constantly, without interruption, and in that manner has become a party to the present methods of general de- bauch in the grain business of this country. They have done that in this way: That every year, on the 1st day of July, or thereabouts, they make "regular" — which means that they have permitted a license to be issued whereby, in this licensing system, a privilege is granted to these public warehousemen that their elevators shall be used as public elevators on all contracts made for grain for future delivery on the floor of that exchange. The question arises if a monopoly exists La the pubhc warehousing of grain as outlined by Judge Tuley and sustained by the supreme court, and if these men continue to operate as law violaters, as out- lined by the supreme court of the State, and if the board of trade in the conduct of its business in the usual routine of its business, licenses, permits, aid, abets, and assists this monoply by the privileges extend- ed by that exchange, is not the board of trade itseli a party in inter- est in the creation and maintenance of this monopoly ? Now, am I talking dreams to the people in this Congress Hall when these hun- dreds of thousands of farmers represented here come to you and ask you that these methods prevalent in the market shall be published,' and that the strong arm of the Fedetal ' Government shall be in-' voked to enter these large market places and furnish for the shippers of this country protection for their products, as I have said, running GEAIN EXCHANGES. 43 into the billions of dollars a" year — offer to these producers and shippers the privilege and opportunity of nothing more nor less than a fair, honest, open market for grain, where producer, shipper, con- sumer, miller, exporter, and every one may be offered the oppor- timity of entering that market and using the pubHc warehouses where the rate of storage which I pay is the same rate of storage which is paid- by my competitor, the man in charge of the elevator. It is impossible for me to pay the same rate of storage that he pays, because he pays storage to himself, whUe I have to pay my competitor storage for the privilege of doing business in a what ? — a public elevator. Have we arrived at that point in the history of this country when the word "public" shall have attached to it everything that partains to private graft? I ask that all the testimony on page 5 of reference called "Bulletin No. 1" in regard to the mixing of grain by the J. Rosenbaum Grain Co. be entered into the record. (The paper referred to is in the words and figures following:) (The following illustrates how grain may be moved from a private mixing hoiise or "hospital, " mixed with inferior "stufi, " and unloaded into their public elevators, and "buncoed " onto the public. The foUow- ing is an exact copy of a portion of the report of a special committee appointed by the Chicago Board of Trade to investigate the alleged fraud perpetrated by the J. Rosenbaum "outfit." Read it carefully. The Irondale elevator is the "hospital. " The Rock Island elevator is the public house. Will millers and merchants have conjfidence in public ofhcials whose warehouse receipts stand for such rot as is repre- sented by from 50 to 250 bushels of screenings to the carload? Did the penitentiary ever yearn for rascals more than for such as would obtain money under such pretenses? Note what the board of trade com- mittee says in the closing paragraph: "The unsatisfactory quality of grain offered shippers, when draw- ing grain from public elevators, has been the subject of much unfavorable comment for years. " Who suzEered punishment for this rascality? Nobody.] Your committee finds that on August 4, 5, 7, 8, and 9, about 125 cars of wheat loaded from the Irondale elevator, purporting to be No. 2 red winter wheat and intended to be unloaded into Rock Island elevator B, were "plugged" with screenings or very low-grade wheat. The quantity of such screenings oi; low-grade wheat in each car varied from less than 50 bushels to 250 bushels according to the capacity of the car; that the screenings were loaded on the bottom of the cars and covered with so large a quantity of good wheat that about 100 cars were passed as No. 2 red by the State grain inspection and the board of trade grain samplers before this method of "plugging" was discovered; that of the cars so "plugged" about 60 were received and stored in Bock Island elevator B without protest from the superintendent thereof, and a like number (about 60) were returned to the Irondale elevator and taken back into that house, and from the bottom of the 60 cars so taken back into the Irondale elevator, there was recovered about 10,000 bushels of "screenings." The evidence appears conclusive to your committee that the cars unloaded into Rock Island elevator B contained an aggregate of at least 10,000 bushels of "screenings," or low-grade wheat. Neither of these employees of the Irondale elevator had control of the loading of grain other than to allow it to drop into a car when so notified from the loading floor, and to drop only such grain from such scales as these instructions, named. Each "plugged" car showed two drafts, one being the screening or poor wheat in the bot- tom, showing about 10 per cent of the load, the other 90 per cent of the load being wheat supposed to pass the inspection department as No. 2 red. The board of trade weighman was requested to make his reports show in a similar manner — that is, one draft instead of two — ^but upon consulting his superior officer he was ordered to keep a memorandum in his book showing exactly the number of drafts, etc., so that this committee was able, by reference to the records of the board of trade weighing department, to ascertain to ar pound just how much of this so-called dope was loaded out during the five days mentioned. While both Forsaith and Bevan knew that these cars were being "plugged, " they were simply following instructions of their superior officers, and as Supt. Sayre employed them, and they knew that he was cognizant of the "plugging," and both testified that it was a custom at the house not only to "plug" cars, but cargoes, they were in no wise to blame, in the opinion of the committee, for ttiis method of loading. Both Forsaith and Bevan wefre dischaVged on the Saturday afternoon following the discovery of the "plugging," and on the afternoon of August 18, when the first com- 44 GKAIN EXCHANGES. mittee having thismatter in chargecalledonMr. E. F. Rosenbauinfora3tateinent,and he appeared before it, he stated that those men had been discharged for "plugging" the cars, but as the evidence developed your committee was forced to the conclusion that these men were simply "scapegoats." Later on Mr. E. F. Rosenbaum appeared before this committee and qualified his statements as to the reasons for discharging these men in such a manner as to show that there was possibly other reasons for their discharge. Rock Island B, where the "plugged" cars were unloaded, is in the charge of one Peter McCarty, superintendent, who was appointed to that position in July, when thehouse was declared regular, and had previously been a tallyman holding about the Same position as Forsaith at the Irondale elevator. He had been an employee at elevators for a number of years as weighman, foreman,, and superintendent, holding the positioD at one time of superintendent of the Chicago Elevator Co.'s elevators, while Lloyd Smith was the manager. He appeared before both committees and denied that any "plugged" cars had been unloaded into Rock Island elevator B. He also denied knowledge of where cars that were being unloaded into this house were shipped from. As the evidence before your committee clearly shows that practically all of the grain received into Rock Island elevator B was from the Irondale house; that each morning the J. Rosenbaum Grain Co. sent to the Rock Island elevator B a list of the cars and kind of grain that was ordered to Rock Island elevator B to be unloaded; and as two of the board of trade weighmen who weighed grain into Rock Island elevator B during this period testified that Supt. McCarty told them where the cars were from and they made the notation "from Irondale" on their original tally sheets, which were in evidence before the committee; and as the board of trade grain samplers visited Rock Island elevator B for the purpose of sampling cars shipped from the Irondale house and received a list of those cars from Supt. McCarty; and as Mr. E. F. Rosenbaum testified; "He must know, it was a matter of common knowledge," your committee is forced to the conclusion that this witness was untruthful to say the least. It is significant that screenings had been accumulating for two years at the Irondale house, and that about 50,000 bushels were on hand when Rock Island elevator B was made regular and that an attempt should be made almost immediately to dispose of these screenings by first sending 150,000 bushels of good No. 2 red winter wheat to the Rock Island elevator B and then by endeavoring to get more than 20,000 bushels of the screenings into the house, by the "plugged " car route, with the brand of No. 2 red wheat on it, while it was worth about 25 cents per bushel less than that grade. This market has long suffered from a lack of public confidence in the integrity of the grades of grain held in public warehouses. X^Tiile this committee has no substan- tial evidence to bring forward, it has been led to believe that practices such as this report deals with have not been confined to the Irondale and Rock Island B, ele- vators. The unsatisfactory quality of grain offered shippers, when drawing grain from public elevators, has been the subject of much unfavorable comment for years. The mystery as to how such poor grain could have been inspected into the houses is possible of explanation if the "plugging" system has been in vogue in years gone by. [I>o you realize, that to a large extent, the values of your crops are based upon the quality and quantity of the grain thus prostituted?] There is one other method in vogue in the city of Chicago by this elevator monopoly which should be brought to the attention of the people of this country, and especially the strong arm of its Government. On page 6 of Bulletin No. 1 I offer a statement in regard to the methods employed by this grain elevator monopoly, or its repre- sentatives, and that you should know, the sworn testimony of a representative of the Chicago grain, trust, to which I have referred, and to which this pooling agreement also applies. Mr. George Marcy, also manager of country line elevators for the Armour Ele- vator Co., together with the testimony of some independent grain shipper in Iowa, Mr. Marble asking the questions, as attorney for the Interstate Commerce Commission. The Neola Co. referred to is under the control of Armour interests, Mr. Marble. How is the price determined -frhichiwill be paid by y&ur country elevators of the Neola Co. — who is that determined by? > Mr. Marcy. By myself largely. I make up the prices at the close of 'change for our bids and everything. GBAIN EXCHANGES, 45 He is one of the members that used to meet at the close of th§,. session and make out the bids that would go to country elevators. - They are passed over to the office. The people managing the Neola take those prices and figure off and send out their wires and card bids and instruct their agents. It is all done from my office. Mr. Makble. Have you any imderstanding with any of your competitors or did you at any time, or have you ever, as to the amount of these bids, so as to reach an agree; m.ent with them? Mr. Marcy. Not that I have heard of. Mr. Marble. You have heard of such devices? Mr. Marct. I have heard of them, but I have always endeavored to steer clear of them. Mr. Marble. You are familiar with the operation? Mr. Marcy. Yes, sir. Mr. Marble. Your company has not been engaged in them? Mr. Marcy. Not that I know of. Mr. Marble. You bid competitively then at every station? Mr. Marcy. I did not quite understand your question. Mr. Marble. You bid competitively at every station, you do not agree with your competitors as to what the price shall be at any station? Mr. Marcy. Certainly not. Here is the testimony of the independent buyer, Mr. Williams, of Madrid, Iowa, in sworn testimony before the Interstate Commerce Commission : Mr. Marble . Mr. Williams, do you operate a country elevator? Mr. Williams. I do. Mr. Marble. At what point? Mr. Williams. Madrid, Iowa. Mr. Marble. Have you, since you began the operation of that elevator, pooled business or been obliged to pool business with any of your competitors? Mr. Williams. I think so. Mr. Marble. And when? Mr. Williams. On about and from the 1st of November, 1903. Mr. Marble. Up to what time? Mr. Williams. About the 11th of September, 1906. Mr. Marble. What caused you to enter into that pool? Mr. Williams. The fact of the line elevators forcing prices beyond a point of mar- gin with me. Mr. Marble. Did you ask them to go into the pool, or did they ask you to go into, the pool? Mr. Williams. I was invited to Chicago to be investigated on application. Mr. Marble. Invited to Chicago by whom? Mr. Williams. Mr. Keely. Mr. Marble. Who is Mr. Keely? Mr. Williams. He was general freight agent at that time of the Chicago, Milwaukee & St. Paul, as I understood. Mr. Marble. For what purpose did Mr. Keely invite you to Chicago? Mr. Williams. To ascertain the condition of the grain business at Madrid. Mr. Marble. Did you go to his office? Mr. Williams. Yes, sir. Mr. Marble. Who else was present? Mr. Williams. Nobody. Mr. Marble. What did Mr. Keely say to you? Mr. Williams. He asked me to tell my story of the condition of affairs at Madrid and why the disturbance there in prices. Mr. Marble. By "disturbance" he meant why you were fighting on prices? Mr. Williams. Yes, sir. Mr. Marble. What did you tell him? Mr. Williams. I told bim as near as I remember that I had no story of woe to tell hiTTi except that my life had been spent in Madrid, and the people of the conmninity felt disposed to trade with me instead of the Neola Co. to a large extent, and for that reason prices were advanced to, an extent I could not reach. 1^ Mr. Marble. Then what did you do? 46 GBAIN EXCHANGES. Mr. Williams. I went to the Armour Co.'s office, where I met Mr. Marcy and Mr. Dillan, and sat alongside the table, and they said that they thought they were entitled to have the grain dipped from Madrid; that they expected that and were going to have it. Mr. Marble. What did you say? Mr. Williams. I asked tiiem on what basis they wanted it or had to have it. They said on an equal basis; that if I got more grain than they did I must underbid the market and otherwise make some excuse to the farmers until they got up to the amount of tonnage they were to have. Mr. Marble. Did you accede to that? Mr. Williams. I did not fully. Mr. Marble. Tell what arrangement you made as the result of this consultation. Mr. Williams. The result of mat meeting was they agreed to give me a half cent a bushel for the excess over 50 per cent of grain shipped from that station,- and I was to load it into cars for them — a half cent more than the cards showed. Mr. Marble. They loaded the grain into the cars? Mr. Williams. No, sir; into their elevator. Mr. Marble. You loaded it into the cars from their elevator? Mr. Williams. No; from my elevator, and it was shipped to their elevator. Mr. Marble. The excess bought by you you turned over to them and they paid you a half a cent a bushel over what you paid? Mr. Williams. Yes, sir. Mr. Marble. Did they ever get an excess? Mr. Williams. They have two or three times since that. Mr. Marble. Is there any provision in this arrangement for that state of affairs? Mr. Williams. That was to be loaded out to me. Mr. Marble. And you were to pay them a half cent a bushel for handling? Mr. Williams. Yes, sir. Mr. Marble. Who did you say this arrangement was made with? Mr. Williams. It was verbally made with Mr. Dillen and Mr. Marcy. Mr. Marble. Have you books and accounts showing these exchanges? Mr. Williams. Yes, sir. Mr. Marble. May I^see those? [Papers handed to Mr. Marble.] These papers which you show me, what are they? Mr. Williams. Those are supposed to be copies of those by the Neola elevator agent by which he gives me one and keeps one and sends one to his company. Mr. Marble. And his statement was that these were copies of the receipts exchanged by you each week, showing the surplus in either elevator and keeping track of it? Mr. Williams. Yes, sir. (A copy of the statement is then produced in evidence.) Commissioner Lane. The Mr. Marcy you referred to is the manager of the Armour elevator? Mr. Williams. Yes; I understand so. Mr. Marble (handing papers to witness). Read this and identity this as the true copy of the contract. Mr. Williams. I think so, to the best of my recollection. Mr. Marble (reading contract). "It is conceded that the purchases of grain shall be equally divided. "That the party receiving more than an equal share shall load out of his house the excess, for which he shall receive one-half cent per bushel on the basis ^f card price prevailing on day of delivery. "Receipts of grain for the previous week shall be compared on Monday. "Whenever the excess shall amount to 24,000 pounds or more, the party to whom this excess is due may demand delivery of the grain, and the price shown by the W. G. Case card shall govern in settlement, as stated above." The W. G. Case card was the card sent out all over Iowa, agreed to by these elevator men, and was the~one bid proposition to the entire State. The grades taken under consideration as shown by such cards. It is agreed that should the railroad company make a shipping charge that the expense will be divided equally. ' •""' This agreement to go into effect Pebruai-y 15,1904, and to continue unfal such tim'^ as either party shall become dissatisfied and gives the^other party 10 days' notice and settlement to be made in the proper manner as outlined above, at the expiration of this agreement. GRAIN EXCHANGES. 47 Do you realize what this testimony means? It certainly sug- gests that an agent of the St. Paul road requested Mr. Williams to go to Chicago to confer with the Armour crowd as to prices to be paid to farmers at Madrid, Iowa, or to divide the business at that point. Mr. J. Ogden Armour testified, page 767, "I should think I owned from 30,000 to 50,000 shares "' — referring to the ownership of stock in the St. Paul road. Madrid is on the St. Paul road. This also suggests how powerful stockholders in railroads can influence railroad officials to induce independent shippers to call and see the grain trust magnates for the purpose of exacting wider margins from the farmers on a certain stipulated agreement on prices, in this case an agreement whereby they were to divide the business equally. The Armour Co., through their system of establishment of line houses approaching a man at a point where he had been doing business as he says, all his lue, forced to go into Chicago into the Armour office, and make terms with him for the establishment of an elevator there by the Armour Co., with an agreement on behalf of the independent shipper that he would divide the business. Now, not only that, but they go further — this trust. I am show- ing, if I can, by degrees, the methods that are used in the gradual building up and growth of this monopoly up to its present powerful strong position as controller of the markets of the world, to a larger extent than any other force existing in normal times outside of- per- haps war scares or serious crop failures. Here is a part of the scheme by which two of the trusts get control of elevators, prostitute commerce, and violate laws. They are both public warehousemen. Pages 71 and 79, Interstate Commerce Reports, Mr. Marble, attor- ney for the commission, conducting the examination: John Charles Shaffer, called as a witness, being duly sworn, testified as follows; And, by way of parenthesis, I want to say that Mr. John 0. Shaffer is one of a part of this warehouse trust and a party to this pooling agreement, whose partner comes here to-day with representatives of board of trade members, probably arguing against the position taken by the farmers in this matter. Here is what Mr. Shaffer says: Called as a witness, being duly sworn, testified as follows: Mr. Mahble. You reside in Chicago, Mr. Shaffer? Mr. Shaffer. I reside in Evanston. Mr. Makble. Among other businesses you are engaged in the elevator and grain business? Mr. Shaffer. Yes, sir. Mr. Marble. You bought from the Counselman estate these South Chicago ele- vators, concerning which testimony has been given? Mr. Shaffer. Yes, sir. Mr. Marble. How much did you pay for them, $700,000? Mr. Counselman having died, having been one of the original warehouse combination, his elevators remained idle for a time until purchased by Mr. J. C. Shaffer. Mr. Marble. How much did you pay for them? Mr. Shaffer. $700,000. Mr. Marble. In cash? Mr. Shaffer. In cash. Mr. Marble. And then what did you do with them? Mr. Shaffer. I organized the company which my cashier spoke of, the Chicago. Eock Island' Elevator Co., and transferred- the elevators to the Chicago, Rock Island Elevator Co., taking in exchange for the elevators $1,000,000 in bonds and $1,000,000 in stock of that corporation. Mr. Marble. And then what became of the elevators? 48 GEAIN EXCHANGES. . Mr. Shafper. The elevators were then sold to the Chicago, Rock Island Elevator Co., subject to the million dollars of bonds. Mr. Marble. Which means exactly what? That when the bonds become due the railroad will pay them? Mr. Shaffer. The railroad will pay them; and the railroad provides in this fur- ther transaction that they will redeem part of the bonds, $50,000 worth of bonds each year, and also reserves the right to pay off all the bonds at any time, giving 30 or 60 days' notice — I have forgotten which — at the interest-bearing time the bonds come due. Mr. Marble. What interest do these bonds bear? Mr. Shaffer. Five per cent. Mr. Marble. Then what became of the elevators — ^how did they get back into the possession of the South Chicago Elevator Co.? This is awful interesting, gentlemen. Mr. Shaffer. The Rock Island Co., as a part of the consideration in purchaMng these bonds, agreed with J. C. Shaffer that he should have the use of the elevators until the bonds were paid off. Mr. Marble. Free of rent? Mr. Shaffer. Free of rent. Mr. Marble. Who pays the taxes? Mr. 'Shaffer. The railroad company. Mr. Marble. The railroad company pays the taxes? Mr. Shaffer. Yes, sir. Mr. Marble. And the insurance? Mr. Shaffer. Yes, sir. Mr. Marble. The raiRoad company pays the insurance? Mr. Shaffer. Yes, sir. Mr. Marble. And the repairs? Mr. Shaffer. The repairs of the exterior of the building. Mr. Marble. Are paid by the railroad company? Mr. Shaffer. Yes, sir. Mr. Marble. How about the repairs of machinery and operating? Mr. Shaffer. They are paid by J. C. Shaffer. Mr. Marble. Now, Mr. J. C. Shaffer, does the South Chicago Elevator Go. or does J. 0. Shaffer operate them? Mr. Shaffer. The South Chicago Elevator Co. Mr. Marble. You own practically all the stock? Mr. Shaffer. I own all the stock of the South Chicago Elevator Co. Mr. Marble. Of that corporation? Mr. Shaffer. Yes, sir. Mr. Marble. Do you get any elevation allowance? Mr. Shaffer. I do not know anything about that part of the transaction. Mr. Stream attends to that entirely. Mr. Marble. As I understand it you paid the estate $700,000 for these elevators; you sold them to your own corporation for a million dollars in bonds of that corporation and a million dollars of stock, and then your corporation sold them to the railroad company, the railroad company agreeing to pay these bonds, and 5 per cent interest up to the time it should be paid, and lease the elevators back to you, free of rent, the railroad company payings the taxes and the insurance and a portion of the repairs. That is correct, is it? Mr. Shaffer. You have stated it exactly. The Chairman. Will you let me ask you a question ? Mr. Geeelet. Certainly. The Chairman. Does the system of interlocking directors enter into that combination in any way ? Mr. Greeley. The Armour Grain Co. and the Armour Elevator Co., and J. C. Shaffer Co., the South Chicago Elevator Co. admitted — I am subject to correction — ^in the suit before Judge Tuley, and in other legal proceedings, I think they have all admitted that the officers in the same two grain concerns practically amounted to the elevator concerns, and admitted what you might term in the present nomenclature of the day, the interlocking directorate. GBAIN EXCHANGES. 49 The Chairman. That would be interlocking officers there. Mr. Greeley. Interlocking officers. Mr. RosENBAUM was called as a witness, and being duly sworn testified as follows: Mr. Marble. Mr. Rosenbaum, you reside in Chicago? Mr. Rosenbaum. I do. Mr. Marble. You are in the grain business? Mi. Rosenbaum. I am. Mr. Marble. What company are you connected with? Mr. Rosenbaum. J. Rosenbaum Grain Co. Mr. Marble. You own and operate public elevators in this city; your company does? Mr. Rosenbaum. I individually operate the public elevators. Mr. Marble. What public elevators are they? Mr. Rosenbaum. A and B, Rock Island. Mr. Marble. You individually operate them? Mr. Rosenbaum. Yes, sir; I am the lessee. Mr. Marble. And who owns these elevators? Mr. Rosenbaum. The Rock Island Railroad Co. Mr. Marble. And you leased from them? Mr. Rosenbaum. Yes, sir. Mr. Marble. On what terms do you lease from them? In fact you pay no rental? Mr. Rosenbaum. I pay no rental. Mr. Marble. How long have you had these elevators on these terms? Mr. Rosenbaum. I think we are in the second year. Mr. Marble. Who pays the taxes on these elevators? Mr. Rosenbaum. I think the Rock Island Railroad. Mr. Marble. And the insurance? Mr. Rosenbaum. Also. Mr. Marble. And the repairs? Mr. Rosenbaum. I pay the repairs to the machinery, and all that. I would have to refer to the leases to tell you just what each of us does, but I am not positive. The leases provide what I pay and what the Rock Island pays. Just consider for one moment the real fundamental principles in- volved in these disclosures. Did a liberty-loving, square-deal people ever witness such cold-blooded usurpation ? Here is the sworn testi- mony, the substance of which is that the Rock Island Railroad really buys elevator property of a man, gives him $300,000 profit on his investment, and then that railroad company turns it over to the man to use as a portion of raUroad property to engage in competition with the public in the handling of the crops. What chance has an independent elevator man ? Are you surprised that four firms con- trol almost the entire public storage of Chicago ? Are you startled to learn that this trust controls from one-half to three-fourths of all the grain storage in Chicago, both public and private ? There may be no rebates in effect, but what better rebate could be asked, if you may term it such, than $300,000 advance to a man, together with $50,000 per year interest money as a little side deal in the transac- tion ? And the grain business of Chicago to-day in public warehouses is, three-fourths of it at least, in control of this monopoly; as the state- ment has been advanced by Mr. Stream, as I shall show, and Mr. Pat- ten, those men had control from 95 to 98 per cent. And it is almost impossible for the public to compete for public warehouse storage and to do business at a profit. Mr. Lenroot. What was being investigated by the Interstate Commerce Commission in which this testimony was given ? Mr. Greeley. This public elevator system in Chicago. 37214—14 4 50 GRAIN EXCHANGES. Mr. Lenroot. And did the commission ever take any action of any kind with reference to it ? Mr. Greeley. They never have come to it. It was a dead letter. They never took any action, that I have ever found, that produced any relief. And there has never been any investigation, there has never been a trial in court, nor has the Cmcago Board of Trade ever placed the strong arm of its rules or the laws of the State of IQinois against this monopoly, and to-day, in violation of law, as stated before, they run with the doors wide open. In April, 1907, there was published a report by a committee of nine members of the Chicago Board of Trade in reference to what could be done to make an arrangement with the public elevator proprietors of the city of Chicago to prevent the conditions to which I have re- ferred, and to place that market upon equitable and just standing as related to the outside community which furnished business to the board of trade. That committee consisted of James H. Milne, chairman; John B. Adams, George R. Nichols, William N. Eckhardt, J. H. Ware, Frank B. Rice, Edwin S. Skillen. After investigating for some time in regard to whether or not these elevators should be "regular" at the first of the following July, the usual time in which the annual permission to be "regular" is granted by the board of trade — and I assume by this time that you gentle- men understand the meaning of the word "regular," meaning that these houses should be the only houses which should have the privilege of delivery of future contracts, by members of the board of trade. Mr. Lenroot. Do your State laws of the State of Illinois delegate to the board of trade that power ? Mr. Greeley. No ; they do that themselves under their own rules — declare this right to be "regular" for dehveries on the floor of their exchange. Mr. Lenroot. Yes; I understand. The Chairman. What requirements are imposed on the board of trade in order to OTant this hcense? Mr. Greeley. Those are all pubUshed. I am going to read some of them in a moment so we may distinctly understand. For instance, the elevator must be suitably located on both land and water; the proprietor must be under bond; it must have certain facihties, mean- ing the usual requirements of a grain elevator. Mr. Lenroot. Is there any distinction between regular elevators and public elevators ? Mr. Greeley. An elevator might be a public elevator that would not be declared regular by the board of trade; but, as I understand it, as a general rule in the market, that difference does not exist at all. The Chairman. Are they Hcensed by the State of Ilhnois ? Mr. Greeley. They are hcensed by the State of Illinois. The State hcense of a public warehouse was formerly granted by the circuit court of Cook County; but when the circuit court decided that a public warehouseman could not himself deal in grain, these people, fearing to apply to the circuit court of Cook County for their hcense, secured an arrangement whereby the Raih-oad and Warehouse Com- mission of the State of Illinois c'ould grant this license. Mr. Manahan. You mean they changed the laws ? GRAIN EXCHANGES. 51 Mr. Greeley. They changed the law, and that condition has existed ever since. That change took place, so that now the inspec- tion and warehousing of grain are both under the supervision of the railroad and warehouse commission, or were up to the time they recentljr did pass what is known as the pubHc utiHties act; and if I am familiar with that portion of the act relating to pubUc warehouses, from now on perhaps they may be imder the supervision of such a commission, but as related to the inspection of grain and the charge of the inspection and the conduct of pubhc warehouses, being both imder the same commission, the railroad and warehouse commis- sion, in case I should overlook it, I want to call attention to the fact that if anybody questions the merit of the grain inspection in Chicago, and takes any other position than that it has been very unsatisfactory and has met with liberal complaint by all classes of businessmen for many years past, we want to then ask the question: Is it Mkely that the inspection of Illinois would be decent and meet decent require- ments when public warehouses of the State of Illinois are permitted constantly by the railroad and warehouse commission to violate the railroad laws and warehouse laws ? Is it to be supposed that inspec- tion wiU be any better than the supervision of the raiboad and ware- house commission of the State of Illinois when the railroad and ware- house commission of the State of Illinois has sat quietly by, under all kinds of administrations for years past, and has absolutely refused to exercise the control which they should, in the proper performance of their duty to prevent a public warehouseman from dealing in grain ? Now, as to the report of this committee in April, 1907, page 6 of that report : By resolution of your committee, the present chairman was requested to wait upon the other managers of public elevators and ascertain if they maintained a similar attitude on this important question. That is in regard to being made regular. He did so and found that at that time J. Rosenbaum "would not go out of the busi- ness of public warehouseman unless legislated out," that Walter Keith said "his warehouse was for sale and that whenever a purchaser was found it was his intention to retire from the business"; so that practically all of them were likely to assume this attitude, and your committee finds they act as a unit in all their responses to our various overtures and have been assured that in all matters of this kind they will act together. And they always have acted together and they always will con- tinue to act together as long as the board of trade, the greatest com- mercial organization in the world, will permit these men to violate the laws of the State of Illinois and give them the privilege of the floor of that exchange at the same time. Now, what happened also ? At page 7 of the same report, a short quotation: On the other hand, grain mixed and graded down to a line just suflScient to pass it into a given grade and put there by the warehousemen themselves and kept in store for a length of time to earn storage, is a risk it would be unjust to impose upon the public, and is one that the warehousemen under such circumstances should them- selves assume. The board of trade committee's report that they put it in public storage and keep it in storage for the length of time to earn storage, bearing out the contention that I have always maintained, that grain is placed in storage to be held there as a club to play these "fixture" games. 52 GRAIN EXCHANGES. Kept in store a length of time to earn storage is a risk it would be unjust to impose upon the public, and is one that the warehouse men under such circumstances should themselves assume. Also, in quotations, page 10 of the same report of the same com- mittee: Paragraph 7 — • Mrst one on the second page — is intended to exempt public warehousemen from any disciplinary action by the board of directors in any question of dispute arising from their conduct as public ware- housemen, and requiring that all such matters must be adjusted in the courts under the law. Where they always want to be; in the courts under the law, where they have forever been safe. Any question of dispute arising from their conduct as public warehousemen,, and requiring that all such matters must be adjusted by the courts, under the law. This is so repugnant — Now listen to the board of trade of the city of Chicago, that greatest commercial institution in the world. Listen to what it says : This is so repugnant to the very objects of the association — To take away their discipline, their punishment of the law violator, a public warehouseman. This is so repugnant to the very objects of the association and to its highest and most sacred traditions, that your committee would not consider it for a moment, and we do not believe that such a proposition to so amend the rules would command a baker's dozen of votes outside of their own. Meaning the warehousemen. You will observe that the only punishment they are willing shall be inflicted upon them by the board of directors for any violation of the warehouse law shall be that the warehouses shall be declared irregular. There is the statement of the committee of nine saying that it is repugnant to the members of the exchange to have them for a moment think that they would take from the rules of this great exchange a punishment for violations of the warehouse law. But I will pick up in my hand in a moment a circular issued just within two or three months, signed by the president of the board of trade and members of the committee, sitting in this room, where they recommended the taking from these rules of a penalty for the viola- tion of the warehouse law for trading in grain by the Chicago elevator monopoly, showing that in addition to the growth of this monopoly from 1896 to the present time, all along through these years, it has gained strength, and has gained strength from year to year until to- day it stands so allied with the board of trade that the board of trade actually takes from its rules disciplinarj- punishment. Now, then, why should the board of trade take away from the ware- housemen the penalty which the board of trade has had upon its books for 3rears, and which this committee said they would never take off ? Why do they now take it off ? The truth of the matter is this, based upon my best judgment, this monopoly so holds within its grasp that greatest grain market in the world to-day, and is so intrenched in its board of directors, in its official management,"^ in its privilege, to be regular, in the control and use of its clearing house, and even to the extent of sending delegates to Washington, GEAIN EXCHMSTGES. 53 tiiat monopoly is so intrenched, has such a firm hold upon the board of trade, that it can dictate to that institution that that penalty shall be taken from the books. In other words, the board of trade stands to-day throttled and controlled by the public warehouse monopoly of the city of Chicago, to which I have referred. In support of that proposition I want to go further and say that the business of that exchange, the legitimate purpose of that exchange, has gotten down to such a low ebb of financial return for the busi- ness which it performs, and the commission business and legitimate grain merchandising has grown to such a low ebb that a compromise was effected only a short time ago, at the time that rule was taken from the books prescribing the penalty. A compromise was effected by which there was entered into an agreement, which I hold iu my hand, by which the members of the board of trade and the then present president entered into an agreement that this rule of pun- ishment by the board of trade for a public warehouseman who violated the public warehouse laws, that pimishment should be taken from the books, upon the ground that the pubhc warehouse- men, bidding for grain in the covmtry, would agree that they would bid on the basis of a fixed price at the close of the session of the board of trade, as prescribed by rule agreed to, and in the bidding on that fixed price with the commission merchants in that market, a margin of one-half cent per bushel would be left for an open field to participate in, giving the commission man an opportunity to receive a chance to get hold of the grain in buying it from country shippers on a half-cent margin, and the compromise effected was that this disciplinary rule should be taken from the books. I defy any man to contradict that, and I wHl now produce the rule and circulars to the members showing that, at the present time, not only the grain monopoly itself is an injury to the Chicago market, but that the board of trade, in Hcensing and giving privileges and entering into compromise becomes a party in restraint of trade and is just as guilty as the elevator monopoly. Now we will proceed to show these rules. This is from a reference called "Board of trade amendments." To amend Rule IV by striking out section 32 of said rule and inserting in lieu thereof the following. Here is the rule of the agreed price at the close of the session of the board of trade, entered into and printed, by which at the agreed price, leaving a margin, warehousemen and members of the board would bid the country at the close of each day's session. On the next page of the same pamphlet is the cancellation of the rule which took away the punishment for public warehousemen for dealing in grain which this committee refers to as being so repugnant to the very customs of the institution. Shall I read that ? Is it agreeable ? Is it important ? All wheat, com, oats, and rye purchased subject to Chicago Board of Trade weights or Chicago inspection by members of this association, at points outside of Chicago, for shipment to this market (the term "this market" as used herein including all places where Chicago inspection or weighing prevails) sha,ll carry, in addition to all other charges prescribed by the rules of this association, a charge of one-half of 1 cent per bushel in case the purchase shall be made from a nonmember, and three-eighths of 1 cent when purchased from a member of this association; 54 GEAIN EXCHANGES, That is to say, if you bought from a nonmerdber you would leave one-half of 1 cent per bushel, if you bought from a member three- eighths of 1 cent. These chaiges are established to cover all incidental expenses incurred in handling and financing such grain at this market, and accordingly this rule shall not be appli- cable to grain purchased from a member of this association in business at Chicago who finances and attends to the arrivalj the delivery, the collection, and accounting of and upon such grain. In order to facilitate the transaction of all business governed by this rule-^ Now, I do not Imow what "facilitating all business governed by this rule" means, but perhaps some of the other gentlemen will ex- plain it. In order to facilitate the transaction of all business governed by this rule, the board of directors shall establish and maintain during a part of the whole of each day upon which the exchange is open for business a place where buyers and sellers of wheat, corn, oats, and rye to arrive may gather and freely buy or sell or offer to buy or sell the various commodities traded in thereon. The board of directors are further em- powered to establish all necessary and proper regulations governing the terms and conditions upon which said trading shall be conducted both during and after the close of such market. After the close of the regular market, any member, upon proper record being made of the same, may purchase or offer to purchase wheat, corn, oats, or rye for shipment to this market at the price that any member may see fit to bid, provided such bid shall aUow the aforesaid charges. The intent of this rule is that all sales of wheat, com, oats, or rye, made in accordance therewith, shall be filled by the delivery of grain billed direct from the country point of origin to the seller at this market. Whenever the seller of such grain, prior to its arrival in Chicago, shall furnish to the buyer thereof the number of the car, or cars, containing such grain, the grade established by the State inspection department of Illinois shall be final between the seller and buyer at this market. In case the seller shall neglect or refuse to supply such information to the buyer prior to the arrival of the grain at this market, then the buyer upon delivery thereof shall have the right to appeal from the decision of said inspection department to the grain committee of this association. This rule has been enacted to secure a broad, open, and competitive market for the commodities traded therein, and any member of this association transacting business in his own name, or firm, one at least of whose partners is a member of this association, or corporation, one at least of whose officers is a member of this association, who shall willfully purchase or offer to purchase any such grain for shipment to this market on a basis which will not allow the apportioned charges, shall, upon conviction, be subject to such discipline as the board of directors may elect to impose. ".Apportioned charges" refers to the half cent a bushel or three- eighths of a cent a bushel from a fixed price. Then, with relation to the taking away of the rule, here is a copy of the rule to strike out the punishment to be inflicted by the board of trade for a warehouseman dealing in grain. Mr. Lenkoot. The first rule that you read, did that amend some prior rule, or is it entirely new ? Mr. Gkeeley. That is to amend Rule IV by striking out section 32 of said rule and inserting in lieu thereof "the following: Now, I am not here to (juestion the price set. What constitutes the prices set — what constitutes the bidding price at the close of a session in the afternoon. I am not here to question what methods these men went into to make up that price, and the price was made which they all agreed to, but the fact of the case is that after the session was closed a price 'of some kind was agreed to. If I am cor- rectly informed, not being^ a member now, not having been in active business there for some time — I may not be correct in this rule, and if I am not I want the gentlemen to correct me — but my understand- ing is that after the close of the board a price is bid by all members GRAIN EXCHANGES. 55 of the association, and if any man wants to change that price and make it a higher bid, to do so by posting notice or notifying the people in the trade that he intends to change the price. But the important point I want to emphasize is not the fact to be put into this discussion that these men bid a certain price at the close of the board of trade. What I want to emphasize is this; that the board of trade, as an institution, is following out the dictates of the ware- house monopoly, and that whatever arrangement was made was an agreement and an understanding between the interests of the board of trade, whereby the penalty for law violation by a disciphne by the directors of the board of trade against the warehouse trust should be abolished. And that resolution passed. On page 22 of the same report of the committee of nine of the board of trade members, reporting to the association, this appears, which is a letter on an Armour Elevator Co. letterhead, 205 La Salle Street, Chicago dated November 22, 1906, addressed to Mr. C. L. Raymond, chairman, Chicago: Deah Sir: I have your favor of the 20th instant, extending an invitation to attend a meeting of your committee to-day, but regret that I will be unable to do so on account of leaving the city this afternoon for four or five days. I will attempt, however, to give you my views regarding the present system of pub he elevators: I feel that the temper of me board of trade members is such that a change in the system of operation of the public elevators in this city is an absolute necessity. Ap- parently a majority of the members feel that it is detrimental to their interests to have public elevators conducted along the lines that they are now being handled; therefore, I feel that for the good of the trade as well as the public warehousemen the system should be completely changed. The good of the trade, as well as the public warehousemen: 1 feel that your committee or the board of trade should, just as soon aa possible, work out some plan whereby public elevators may be provided, and such elevators as are provided be operated entirely by people of concerns who are not interested in any way in the handlLng of grain. That is signed "George E. Marcy," who is manager of the Armour elevator outfit. Now, is not that letter to the committee an admission that public elevators were violating the laws and that the board of trade was trying to secure a solution of the problem ? This was during these deliberations which came up at a time when these elevators were maldng application, or when the board of trade wanted public ele- vator storage for the ensuing year, and Mr. Marcy thinks that some plan should be devised whereby the conditions should be changed. And what has he in view at that time but another- scheme stronger than the rule in force which he wanted to impose upon the board of trade, which even his own men on the floor dared not advocate at that time, and they continued to keep right along doing business, and in the face of these admissions constantly brought forth here, and with the knowledge from the official reports of these committees, the board of trade continues from year to year to grant these men privileges to rob the public and violate the law, to which I have called your attention. The same report of the same committe^e, page 28. Jjisten to what these members of the board of trade say about themselves and aboiit these elevator men: Fourth. The rate of storage for the first 10 days, and that for the daily period remain- ing as now established, there can not be and there ought not be any modification of 56 GRAIN EXCHANGES. the present reasonable requirements of the rules for the maintenance of the condition of the grain while in store, more especially that the great bulk of the grain (some 98 Eer cent of it, as stated by Mr, James Patten) is put into these elevators by the ware- ousemen themselves and mixed down as near as possible to the bottom of the grade (as stated by Mr. Stream from the same platform). Manifestly, it would be a gross wrong to permit grain thus put into a regular warehouse by the owners, lessees, or -managers thereof to remain in said warehouses under the control or ownership of said warehousemen for the purpose of earning storage charges for the benefit of the ware- housemen until it is no longer safe to maintain it in good condition. Which we claim is true — and then sell it and deliver the receipts to the trade who by ignorance of its real con- dition, and thus passing upon innocent holders the losses resulting from the mode of operation above described. The warehouseman puts the grain there, it was so manipu- lated by him as to be just fit to pass into grade, and he alone knows its actual condition in store; therefore, until he shall dispose of his grain in absolute good faith to the public at the time it is put into store he should be held for its absolute good condition while it remains in store. Now, then, with that statement of facts by the Chicago Board of Trade, stating that 98 per cent, as stated by Mr. Patten, 95 per cent, as stated by Mr. Stream, goes into public storage, and complaining of the condition of grain reduced to the lowest possible ebb of tm grade, they stiU, year after year, continue to license and to issue new censes, and make regular and give the use of its clearing house to this organized monopoly, which, as I have repeatedly said, con- stantly and willfully, day after day, violate the laws of this State and the rules of the board of trade, to a time when the board of trade was forced by compromise to take that restriction from its books. Now, then, are you surprised that since the year 1887, when this monopoly first became to be intrenched, are you surprised that between that time an:d now, 25 years and over, that at least the only men in this country who have courage to tackle this organized monopoly at the market center, with the strength of the board of trade back of it and assisting it, is this group sitting in this corner, with the trade-mark on their hands, the American farmer? And much to their honor should it be, that these tillers of the soil, the men who produce the grain — quite proper is it that, after attending convention after con- vention, year after year, and discussing and trying to discover the problems herein set forth, it is quite proper that they should meet year after year and pass their resolutions and discuss their questions; and I myself have spoken to over 60,000 of them, and scarcely a year goes by but what a protest in the form of resolutions from farmers' organizations throughout the length and breadth of this land protest against this growing iajustice, and not an official of the board of trade nor a local officer of the State of Illinois nor the pohce power of this country has been offered to the assistance of these men wno spend 365 days of the year preparing and raising a crop while I can sell 100 cars on that market in 10 minutes. Where is the justice in this proposi- tion ? Are you surprised that we should be here ? I consider jt an honor to represent the producing interests of this community. Boys, jrou know, every one of you, that from 17 years old I have grown up in your midst and have been a member of your exchange. We have elbowed side by side. I have been in a position to feel your very heartbeats. Men are on this comnaittee that have worked hand in hand with me, and Henry S. Robbing, too, against this monopoly. And I am proud of the efforts that we have put up GBAIN EXCHANGES. 57 together, and inasmuch as these gentlemen appear here on a similar poission, I take it, asking for an investigation, I think it very likely indeed that they are stUl with us, heart and soul, to down this elevator monopoly. And let me tell the members of the Chicago Board of Trade sitting within the hearing of my voice, as I told them 20 years ago when this Tuley suit was first instituted, that unless we made conditions honest on the floor of that exchange; that unless, in the deliberations and in the conduct of our business we should give to the public honest, fair, open, just competition for the crops of this country; to make our rules and regulations fair and open to ail alike; to take away from a public custodian any right which he had to enter into competition with others and create this monopoly; unless we did that, the day would surely come when the man behind the plow would walk into that institution and demand that that board of trade, in conjunction with this elevator monopoly, give us a fair and open market; and instead of the floor of the board of trade, where I for years have made the same appeal that I have made here, we are forced to divorce ourselves from that market place, and with the avalanche of brawn and muscle of these western prairies we are forced to come in with a petition, which I read at the opening of my remarks, asking the President of the United States and the Members of Congress to afford relief for this condition; and I say to the mem- bers of this board here now, if yOu want that exchange to exist, if you want to permit your constituents there to handle the crops of this country in Chicago, there is one thing you must do; first, con- form to the laws of the State of Illinois as related to this grain mono- poly or as sure as the sun rises and sets there will be an arrow sent deep into the heart of that institution that will wipe it from its very existence if, indeed, the public-elevator monopoly, in whose grasp you are, do not wipe you from the earth before the farmer gets there. The Chairman. Mr. Greeley, I believe you stated this morning how much more grain is sold in this coimtry than is produced. Mr. Greeley. They sell three hundred times more wheat in one year than they handle on the board, at the least possible calculation, in the future business of the market. The Chairman. Three hundred times ? Mr. Greelet. Three hundred to one. It is a low estimate. I explained that a few moments ago. The Chairman. WiU that be admitted? Do you think that will be disputed ? Mr. Greeley. I do not believe anybody interested would admit it, because nobody ever tried to figure it out. It is impossible to figure it out, because it is just buying and selling all day long. I know what trading in grain is. I know what future trading is. I have been in it. I was brought up in it; bred in it from youth. No man on the board of trade that knows anything will deny that in the wheat pit alone, on an average, every day of the year the total amount of the purchases, plus the total amount of the sales in the futures, will at feast total 25,000,000 a day, from 9.30 in the morning to 1.15 in the afternoon. There are those who have boasted that they have traded in 20,000,000 a day, a single firm. Think of it. I myself, although I have been a little dealer, what you might almost term an "insig- nificant trader," have many a day traded in 500,000 bushels to 58 GEAIN EXCHANGES. 1,000,000 bushels, and never thought much about it myself at the tune. The Chairman. You do not handle the wheat, though, in tradmg ? Mr. Greeley. And there are men in the business to-day trading in milUons upon millions of futures, tens of millions of futures, hundreds of millions of futures, firms that do it every year, that do not know what the color of a warehouse receipt is; they never saw a carload of grain, and Mr. Canby, the president of the board of trade, is sittiag here to-day, and I will challenge him before the investigation by this committee is through to show by his records where he ever handled 10 carloads of grain since he has been a member. The Chahiman. What is the justification for that ? Mr. Gkeelet. The justification is this, or the plan is this, if you want to know the secrets about it. The Chahiman. I would like to know all about it. Mr. Gkeelet. I am going to tell it to you before I get through. See what I am starting on ? I have not begun yet. The Chahiman. You can have all the time you want. Mr. Greeley. We are going to try to make this a complete ex- position of the whole proposition. I have referred to the trading in futures. In cash grain this is about the way the deal is shaped up to-day: The Chicago public warehousemen control the public warehouses, the warehouse receipts, and are the largest traders in futures on that market. Number 1. In order to get the men to buy the futures of them and sell the futures to them, a large organized force is necessary, of which I was a part for a great many years. In other words, I was engaged in the lucrative practice of furnishing the body of men, the suckers, to be separated from their money by the elevator monopoly. The Chairman. While you were in that organization, did you ever get hurt in any way ? Mr. Greeley. Oh, no; I never got hurt. I always had a rake-off. The rake-oflf is this. This is the way it is done. The board of trade, as it exists to-day, is not existing in the future business for any other purpose than to get a commission on future trades. That is the pur- pose of the business. That is the purpose of the private wire systems that skirt the country, to which I have referred in this complaint. The idea is to get men who will trade in futures. What they call grain for future dehvery. Now, do not make a mistake about that term "grain for future delivery." These people, Mr. Robbins, will argue here, no doubt, before the committee, that it is a perfectly legal contract, for a man to buy and sell grain for future dehvery. Now, we all admit it. That is a legal contract. Those men come in and buy and sell grain for future dehvery, and there is trading in grain for future dehvery. As a matter of fact, a future trade in grain IS never a trade in grain until the trade is consummated with the actual dehvery of the stuff. So that what they do do, they deal in contracts. That is what future trading is; it is a contract that they will receive a certain amount of grain to be dehvered at a given time in a given warehouse, and.t-hejomy place where they can receive it is th^:, warehouse that the board of trade makes regular under this practice. The Chairman. Would it disturb you for me to ask you a question ? Mr. Greeley. No. GRAIN EXCHANGES. 59 The Chairman. I believe in being acquainted with these things. Not long ago we passed a bill through the House known as the -Scott bill, prohibiting speculating in cotton futures, but some gen- tleman from somewhere came here and we were convinced by a lot ot evidence that we ought not to apply the same rules to speculating in grain, dealing in futures in grain. Now, is there any difference in the two kinds of trades? Mr. Geeelet. I am not familiar with the business of handling cotton, but I am familiar with the business in grain. Now, you may get your information on cotton from others and then compare it with what I will try to give you on grain. The Chairman. I am just giving you that information so that you will understand why we did not apply the same law to grain. That is what I wanted to get at, to find out something about it. Mr. Greeley. I think this: these contracts are made, to answer your previous question as to what the Board of Trade at present in the future busmess is constituted for — the business in the future trading is not for the purpose of enabling any man who will buy grain for future delivery to take the grain away. That is not the purpose. Very few, comparatively, buy grain for future dehvery in Chicago for the purpose of taking it away, except in very isolated cases, where at certam particular times some unusual condition exists where grain is Hkely to be very scarce. It is the aim and end of the storage men to hold the grain in storage. What the speculation house wants to do, what the board of trade rules want to do, what they aim to do all the time, is to have the men make a contract for the receipt of grain in the future, and when they consummate that con- tract, if possible, to convert him to that idea of selling out. In other words, the commission man gets $7.60 to bring an order into that market for the purchase or sale of a 5,000-bushel lot. The Chairman. Let me ask you this question: Suppose a man in Illinois executes a promissory note that is given in one of these trans- actions, speculating in grain futures; does your court compel the enforcement of that kind of a contract and enforce the payment of the note ? Mr. Greeley. I tried a case in court in the city of Chicago wherein a man lost a certain amount of money speculating through me on a contract in grain for future delivery, and he paid me a margin to protect it. The margin was absorbed, and he shipped me a carload of oats to be placed to his credit as an additional margin, as the market went against him.. When he quit that transaction he quit with a larger loss than his car of oats. I asked him for the money, and he brought a countei suit against me when I sued him to recover, and the courts of Cook County made me give that man back his car- load of oats. I not only lost the money that he paid me, but the court made me return to him the car of oats which he put up as a margin. The Chairman. They held it to be a gambling transaction ? Mr. Greeley. They held it to be a gambhng transaction. Now, then, I do not maintain that this was general law. I got licked in that lawsuit. I believe that certain of these contracts are declared legal contracts; grain for futui'e delivery, as conducted on the board of trade, is declared legal. I do not mean puts and calls; I am talking about legitimate transactions in grain futures, which are declared legal by the courts. 60 GEAIN EXCHANGES. The Chairman. Where they intend to deliver it? Mr. Gkeelet. Even though settlement is made by the payment of differences which have been declared legal, but our point is this The Chairman (interposing). But the supposition is that they intend to deliver it? Mr. Greeley. The supreme court, as I vmderstand it — I am not a lawyer, and you men may know much more than I do about it- decides whether the contract is a legal contract or an illegal con- tract. The nature of the contract is what is passed upon by the higher court, but our contention is that when contracts m gram for future delivery are dominated by an illegal condition, which enters into those contracts, and that something entirely foreign to the con- tract in the existence of a monopoly enters into the general market conditions, which can force parties to a contract to either sell out or buy in at their dictates, then that control overrides the legality of the contract itseK, and in the interest of pubMc policy the system should be abohshed. It does not make any difference, as I regard it, whether the con- tract in grain for future delivery is legal or not, the great question at issue to-day is whether the public suffers or not — that is all. Now, we are getting a little bit away from our story for the time being. Let us proceed, and get to our futures. The Chairman. That might throw some Hght on the legislation, if we are going to legislate. Mr. Greeley. Yes; I think it ought to. I think it is very per- tinent. Now, in regard to further progress in this matter, and I will try to hurry along as fast as possible, it may be claimed that some of the things that Mr. Greeley has said have existed before the flood, possi- bly, or existed in 1887, or in 1890 or 1896, when President Baker made his fight for the board of trade against this monopoly, and that therefore Mr. Greeley is entirely out of place, not being modern and up to date. Let us look into the proof to-day to see whether it exists now or not. One proof of its existence is the very fact that they took off the penalty a short time ago. They would not take off the penalty of something that did not exist. But I hold in my hand what, for reference, is called a "bill of complaint." It is the bill of complaint in the case of Adolph J. Lichtstern v. J. Kosenbaum Grain Co. et al., in which proceedings Mr. Kobbins, attorney of the board of trade, appeared as counsel for A. J. Lichtstern, of the city of Chicago, in a proceeding to enjoin the J. Rosenbaum Grain Co., pubhc warehouse- men, from_ deahng in grain in a public elevator, and dehvering ware- house receipts to Lichtstern on grain mixtures from his hospital place into public storage — and Mr. Robbins conducted that suit for Mr. Lichtstern. Mr. Manahan. How long ago was that ? Mr. Greeley. I should say probably not to exceed two years, and I should say the last decision of Judge Smith was probably within a yeaf. It is very recent. Mr. Robbins conducted that suit. And now, Lichtstern took the position that as a buyer of grain in the Chi- cago markets receipts were to be delivered to him on the contracts, and that no man, a public warehouseman of grain, had a right to deliver the grain on those contracts, and applied for an injunction GRAIN EXCHANGES. 61 restraining J. Rosenbaum, a public warehouseman, from delivering the receipts. Now, to cut it short, the court upheld Mr. Lichtstern in his • position. Ml'. Eobbins's contention in that suit, and Mr. Bobbins, the attorney of the board of trade, ai-guing against the public ware- houseman dealing in grain, to protect a client, is this : That certain said defendants also threaten and intend to continue that practice, and to further store their own grain in their own said public warehouses in which your orator's wheat is stored, as aforesaid, as your orator fears, when so stored there, mix the same with said other grain in store there, from which your orator's receipts must be satisfied. Mr. Robbins, in his bill of complaint in the interest of Lichtstern agaiast Rosenbaum, a public warehous?man, said, on page 10 of this bill of complaint: That the Railroad and Warehouse Commission of Illinois many years ago established different grades of different kinds of grain, including wheat, and that said grades are still in force in Chicago and the grades so established for the different qualities of wheat and other "grain are not such that upon such inspection and grading thereof, all the grain of each grain is exactly of the same quality, nor is it practicable to establish grades of grain which shall comprise only grain of exactly the same quality, but it has always resulted, and must always result, that in the inspection of gi-ain coming to the Chicago market, carloads of grain of different qualities have been and must of necessity continue to be graded into the same grade, the difference in the market price at the same time of different qualities of the same grade of grain varying from 2 cents per bushel in the upper grades to 15 cents per bushel in the lower grades, and that the great bulk of grain brought to Chicago is brought to Chicago by rail in carloads, and is in- spected by said inspectors while on the track and before transmission into the public warehouses of defendants and others in Chicago, and that under the warehouse law of Illinois a public warehouseman issuing a receipt for grain stored in his class " A " ware- house is not obliged upon the return of said warehouse receipt and the demand by the holder thereof for the delivery of grain mentioned therein, to deliver the identi- cal grain for which said warehouse receipt was issued, but is permitted to deliver the same quantity of the grain from the same grade of the said elevator, and by reason thereof — That is, by reason of the proprietorship — and by reason thereof said defendants are in a position to receive into their pubMc elevators other wheat which in point of quality is near the bottom of the grade and is just sufficient in the quality to pass muster for a particular grade, and when your orator shall call for the grade upon his warehouse receipts said defendants are in a position to, and your orator fears that they will, deliver to him the grain of the lowest quality of grain of that grade, though received by defendants, as aforesaid, and retained for their own use and as their own, and to meet the receipts issued by them in the name of said brokers as aforesaid, the grain of better quality which otherwise would be delivered upon the receipts now held by your orator and thereby depreciate the quality and value of the wheat to which your orator otherwise would be, and legally is, entitled to as the owner of his said warehouse receipts. That the said defendants are in a position where their selfish iaterest would thus induce them to discriminate against your orator in the delivery of grain by reason of the fact that they also own and operate what is known as a cleaning house, and it is the part of the business of the said J. Bosenbaum Grain Co. to purchase, and they are daily purchasing, carloads of wheat arriving in Chicago which are of off- grade; that is, of such poor quality as not to be susceptible of grading up to the grades which are the grades used in purchases and sales of wheat for future delivery in this market upon the board of trade, and that it is the practice and business of said defend- ants to unload said cars of off-grade wheat and other grain into their said cleaning house, and there subject it to a cleaning, mixing, and doctoring process, so aa to raise, it possible, the grain to a quality where it would pass the inspection of the State inspectors as wheat on said standard or upper grades, and then said defendants, by means of such subterfuge hereinafter described, are constantly placing said doc- tored grain in their said public warehouses and delivering it out to your ora tor and others holding receipts of said J. Rosenbaum. Now, what was that subterfuge, and so forth ? We will reach that in a minute. But let us go on with the method. I want to show 62 GEAIN EXCHANGES. the methods in vogue by this Warehouse Trust in the doctoring and. mixing of grain, as portrayed by Mr. Bobbins in the Lichtstern suit. That your orator is informed and believes, and charges the fact to be, that imme- diately adjoining said tanks the said defendants own, or control, and operate a certain other structure — Now, the tanks were public storage. And Mr. Robbins is here, and will correct me if I am wrong. And the private elevator was near the tanks. The tanks were the public storage places, where Licht- stern was objecting to having gram delivered to him in storage. That your orator is informed and believes, and charges the fact to be, that imme- diately adjoining said tanks the said defendants own, or control, and operate a certain other structure so built as to enable the defendants to improve the gradeor quality of low-grade grain by drying and cleaning or mixing it with other like grain of a better quality, and that by means of tunnels, belts, and conveyors operated, by the same motive" power as aforesaid, said building, so constructed to be used as a cleaning house, is connected with said building, so constructed to be used as a cleaning house, is so connected with said 84 steel tanks or bins that automatically and without the knowledge of all who are not participating in the operation of said cleaning house into any one of the said 84 steel tanks, and from any one of said steel tanks into said clean- ing house. That said steel tanks are numbered from 1 to 84, inclusive. The Rosenbaum institution, miring from 60 to 200 bushels of screening to the carload in its Irondsde elevator and transferrin,;^ it over to Rock Island elevator B, a public storage, and getting nis own manager of the .Irondale elevator to be the proprietor of the public elevator — that is, the custodian in charge; the manager. He now inaugurates a system whereby in this proceeding, the Lichtstern case, he makes a public elevator of the tanks, and by the means of tunnels and subterfuges, quoting the exact words of the attorney for the board of trade in the Lichtstern suit — ^Lichtstern prays for relief because of the danger that exists in the transfer from the private house into the public tank storage, and the court grants him an injunction based upon the argument of Mr. Robbins, of the Board of Trade of the City of Chicago. The Board of Trade of the city of Chicago licenses, makes regular, and permits to continue that scheme of Rosenbaum's in, really, the same situation, actually, and the same institution, and offers for the public the use of storage so constructed by tunnels and subterfuges for the public to come in and do business with a market dominated by influences like that. What do you think of that, gentlemen? With that kind of an organization and comniercial exchange, called the greatest grain market in the world, licensing and permitting to be regular and giving to the pubHc of this magnificent country, through its facilities, of letting a man, after he was discovered in mixing from Irondale into Rock Island — allow- ing him the privilege of having an opportunity to mix grain to be stored in tanks to be sent out, which Lichtstern, a man who is buying grain for future delivery — and the only reason that Lichtstern ever entered into the lawsuit was because I told him myself that he would be robbed, and that the best thing he could do was to get John Hill to prepare his case and to get Mr. Robbins to try it. And John HilF prepared the case, and I helped him to get it up, and Mr. Robbins tri^d the suit", and it was won, and I never got anything for my trouble except abuse. [Laughter.] Honest, gentlemen, would that not make a man, a member of the board of trade, ashamed to admit the fact that he ever belonged to the institution, and especially would it not bring the blushes to his GRAIN EXCHANGES. 63 cheeks to have thought for a moment that he could have come down to Washington, the Capital of his country, and defend an organization of that character ? Boys, I am with the farmer. [Applause.] Now, what else happened ? I think we might as well make this complete, gentlemen. We have not a great deal more. Let us get it all in, because of this fact. I think I enjoy the only single distinc- tion — and I do not say it at all in a flattering sense — of being the only man in this country who has ever taken the pubUc platform generally against the Chicago pubMc elevator monopoly, and I never had but one chance to make a speech, and I am not always anxious to do that. The only audience I am ever permitted to address on this subject is an audience of men who are so absolutely independent that the big organized game of finance can not get thena. Boys, there they are — - the farmers of this country. I could not make this speech on the floor of the exchange, nor could I at any pohtical meeting that I ever attended. It is prohibited, and it is almost impossible, in the State m which I live to get anything of this nature ever pubHshed in the public press, and whenever attempt is made to put it in the public press and make these things public the men who attempt to prevent its publication are the Chicago public warehouse monopoly and the officers and. directors of the Chicago Board ot Trade; and I have ample evidence in my possession to show that the officers and the men who have gone to the Chicago papers and have suppressed the preparations which I have made for-the pubMcation of this material^ are the men whom I have mentioned. The Chairman. Do you know whether any of these big concerns have regularly employed men to edit these things, to see how they go out over the wires in Chicago, to make or unmake news ? Is there any such suppression of news at Chicago as there is in New York ? Mr. Greeley. My suspicion is, from the evidence, as I say, as related to these problems, that the press is very friendly, indeed, to the warehouse monopoly, and it always has been, and it is almost impossible to get any expression in a newspaper of prominence in my city. Xet us continue with the bill of complaint of Mr. Eobbins. There may be speeches in these various quotations that bear upon this evidence of this warehouse monopoly and its intrenchment. Page 15 of this same bill of complaint: That the exchange room of the Board of Trade of the city of Chicago — This is Mr. Robbins in his plea for Lichtstern — is the largest grain market in the world. Now, gentlemen, we want to comment for a moment and paren- thesize — as to the largest grain market in the world. You many con- sider that it is the largest wheat market in the world. Well, it is not. It handles about one-fourth of Minneapolis, about one-third to one- half of Duluth, less than 25,000,000 bushels a year, as I said, just about as much in a year as is handled in one forenoon in the futures business. What I want to impress upon you is this fact, that when you get the impression that we are the greatesrt graia market in the world, eliminate it on wheat. But there is one thing that you can assume,- and do it with perfect safety, and that is that in trading in grain for 64 GBAIN EXCHANGES. future delivery on contracts for grain to be delivered at some future time, to which I referred, we excel all markets in the world combined many, many times over, so that in the fictitious proposition, ia that which does not exist and is never consummated, we are the giants and in a class by ourselves. PLaughter.] Let us proceed. Chicago is the largest grain market in the world, and that that board of trade is, a corporation organized through charter granted to it by the State of Illinois — Granted to it by the State of Illinois; State power behind that institution; it got its right from organized society. Shall it keep that right under these circumstances, or have we arrived at a point where even in the State of lUiaois you men should get ready and go down there and ask that this charter should be annulled ? Am I right ? Do the facts bear me out ? Let us go on. Which charter confers on said board of trade the power to establish such rules, regu- lations, and by-laws for the management of the business of its members and the board in which it shall be transacted as said boaj:d shall think proper. All right. Did they think it is right and proper to allow this ele- vator monopoly to continue to exist, and take off the penalty ? That pursuant to the powers thus conferred said board of trade has established as its market hours from 9.30 a. m. to 1.15 p. m., except on Saturdays, when the closing time is 12, and has also prescribed by a rule that its members must make all contracts for future delivery of grain during said market hours and in open market — that is, upon the floor of its exchange room in the city of Chicago. This is Mr. Eobbins talking now to the court: And said board of trade has by other rules provided that only warehouse receipts which are issued by such class A warehouses as have qualified, or, as the expression is, become "regular" under its said rules, shall be deliverable upon said future con- tracts; and that in order to become regular a warehouse must agree to conform to the rates of storage prescribed by said board of trade and also give bond to protect the members of the board of trade from any failure of said warehouse to faithfully dis- charge its duties as warehouseman; and that by reason of said provisions warehouse receipts for grain issued by a class A warehouse in Chicago which has qualified or become regular under said rules of the board of trade — A class A warehouse is the pubhc elevator we are speaking about — and that by reason of said provisions warehouse receipts for grain issued by a class A warehouse in Chicago which has qualified or become "regular" under said rules of the board of trade have a value greater than the receipts calling for the same kind and quality of grain of public warehouses which have not so become regular. That in May, 1911, there was an active demand for cash wheat and said defendants, being in the control of said~ Irondale elevator, wrongfully conceived the plan of temporarily making said Irondale elevator a public warehouse, and also a "regular" warehouse as aforesaid, and of putting their own grain into said elevator and maintain- ing the same as a "regular" house long enough to get the profit and advantages which would result from the increased value of said warehouse receipts issued thereon while said warehouse was a regular warehouse, and as soon as they, had done this, of causing said elevator to cease to be regular, and thereby deprive those buying said receipts of the opportunity of selling the same grain represented by said receipts for future de- livery on said board of trade. Now, what happens ? Did not the board of trade grant them the privilege to be regular, and at a convenient time inthe proceedings whatever it was, did it not cease to be regular ? Did not the boardi of trade, at the request of Rosenbaum, one of the members referred to in my former exposition of the facts, did not the board of trade GBAIN EXCHANGES. 65 lend & ready ear, and has its ear not always been ready to the people of this monopoly to take advantage of the public when they wanted to use public storage, and especially in a crisis which existed at this time, was it not very important that the board of- trade should use its judgment as to whose grain was going into that elevator ? "WTiy should the board of trade at that time, in view of the repugnancy of a public warehouseman trading in grain, as quoted in my former remarks —why should they at this time have licensed J. Rosenbaum to enter into a deal to deliver in that mixing house, a public elevator, any of the grain to Lichtstem unless the contention is not borne out that at all times the board of trade is in collusion with the elevator monopoly and is absolutely controlled by it in the conduct of business in the warehousing of grain on that market? That having wrongfully devised said scheme, said defendants proceeded at once to put into effect and made said Irondale elevator a public warehouse by obtaining from the warehouse commissioners a license therefor, as aforesaid, and then applied to the board of trade to make said warehouse "regular" until July 1, 1911. Until the warehouseman could get out of his short contracts, where they were cornered by Lichtstem buying the wheat. I am not defend- ing Lichtstern's corner, but I am just showing how it is possible for these men whenever they have a private elevator that has not here- tofore been declared public, they can run, and secure protection by being made regular by the Chicago Board of Trade. Page 17 of the same 1 ill of complaint, Mr. Eobbins speaking to the court in the interests of his chent, Lichtstem, fighting the elevator monopoly: That, as above stated, all wheat of the same grade is not of the same quality — Bearing out Mr. Lichtstern's point as well as my statement and the experience of every man who knows anything about the grain business and these mixtures — That, as above stated, all wheat of the same grade is not of the same quality, and the law permits a warehouseman to mix his own warehoiise grain of different owners pro- vided it is of the same grade, and when this mixing is done, an average of quality is obtained which is not unfair to all of said receipt holders. But that when owners of public elevators are permitted to manufacture the grades by mixing, cleaning, etc., as heretofore explained, the aim of said warehouseman then is to get into said ware- house as much of his grain as possible, and as a result the said doctored grain is made as of low a quality as it can be made and still pass inspection into the grades at which said warehouseman seeta to have it graded; the result of which cleaning and doctor- ii]g of grain by public warehouseman is to deteriorate the general mass of the grain of all grades in the public elevator. That is Mr. Robbins's argument in the Lichtstem suit, bearing out the contention that I made in regard to the entire public-warehouse system, and the general aim and intention of this monopoly is to doc- tor and reduce to the lowest possible ebb the grade of grain which they put from their cleaning house into public storage. That said J. Rosenbaum Grain Co. are constantly transferring grain thus cleaned and made into "contract" grade by them into theu: said public warehouse, and the quality of your orator's grain covered by said receipts issued for grain in said ware- houses, is being constantly depreciated thereby, and that said conduct of said defend- ants in thus operating a cleaning house in connection with their public warehouses and transferring their own grain from said cleaning house to their said warehouses is in conflict with their duty as custodian and trustee of your orator, and all others, who hold warehouse receipts in said class A warehouses of the defendants. 37214—14 5 66 GEAIN EXCHANGES. Which is the argument contained in a portion "of the bill of com- plaint of Mr. Robbins, which is presented to you for the purpose of impressing more strongly upon your mind by recent testimony that the end and aim of the potent and dominatmg force in the Chicago market is to get the money of the man who takes the other- end of the future trade by the mixing of grain in such a manner, in collusion with an unsatisfactory, incompetent inspection department, which has existed for years in the State of IlHnois, in such a manner that the man who buys the future will be forced to liquidate and sell out at a deteriorated price, so that the warehousemen may buy that back at a depreciated price and then sell it again to a new sucker, by the same method, and accumulate storage charges in the futures for his own personal gain. The existence of that monopoly is not a thing of 1887, nor is it a proposition of the hour when President Baker sounded his clarion notes which I read to you in his circular but a short time ago. Now, what does Judge Smith say — the man who tried the case? Why, it is on just the same lines as the decision of Judge Tuley, just the same line as the decision of -the supreme court sustaining Judge Tuley. Listen to what the judge says when Mr. Robbins made that eloquent plea, which I listened to with a great deal of interest : But one concluflion can be drawn from the evidence, in my opinion, and that is that the defendants are storing their own grain in their public warehouses, as stated above. No doubt about that. They are in the business contrary to law, the established law of the State. Then the judge says, quoting a former decision of the supreme court, which I have mtroduced in evidence, but which it will do no hurt to quote here very briefly: As said iu the Hannah case, page 86 — If I am not right I stand corrected on this question, but it appears here from some authority, and I think that is the authority — "This constitutional provision impresses the business of a public warehouse with a public use, and those four applied for and accepted licenses to keep public ware- houses under the act of 1871, voluntarily occupy a relation to those who store grain in their warehouses or have the right to so store grain which makes it incumbent upon such warehousemen to discharge certain duties to such owners and producers and shippers of grain." And as said in Central Elevator Co. v. People: "This rule applies to every person who stands in such a situation that he owes a duty to another, and courts of equity have never fettered themselves by defining particular relations by which alone it will be applied. They have applied it to agents, partners, guardians, executors, directors, and mansiging officers of corpora- tions, as well as to trustees, but have never fixed nor defined its limits." That is the same quotation which appeared in the other decision which I read you some time ago, which Mr. Robbins quoted in the Lichtstern case as the decision of Judge Tuley, of the supreme court. The act itself says : It shall not be lawful for any public warehouseman to mix any grain of different grades together or of different qualities of the same grade for the piurpose of storing or delivering the same. Storing and dehvering. He can not even take it out of a mixing house andj)ut it in public storage under the decision of Judgd 'Smith. But do they do it to-day? Yes; certainly they do it. They violate it every day. They certainly do. And does the board of trade GRAIN EXCHANGES. 67 permit it? It certainly does. Does the board of trade give them the use of its clearing house every day, even now — not in 1887, when I first started this complaint, which I have been pressing for 25 years, but do they do it now? Yes; they do. Do they give them the use of the pits to do their future trading? Yes; they do. Do they permit them, under the rules of the board of trade, to qualify them- selves at their convenience? Yes; they do. Is the board of trade a party in interest in this monopoly for the violation of the laws of the State of Illinois? Yes; they are. Are they subject to prosecu- tion for the creation of a monopoly which the courts say exists, as a Earty in interest in that monopoly? Yes; they are. Should they e prosecuted under the laws of the United States Government, through the Department of Justice, for illegal restraint of trade and open and honest competition? Yes; they should, unless they expel these lawbreakers from their membership, and even then, yes. Am I right ? Who disputes me ? We have men here that may dispute it. It is not my intention to be unjustly harsh. But what a picture it is to sit in this Capitol Building of this country, with one farmer saying to me here in this room that when he obtained his summons to come to Washington "I was husking corn in my cornfield" A Voice. Shelhng. Mr. Greeley (con tingling) . "Or shelhng corn in his cornfield," and he immediately left there and he has come to the city of Wash- ington to be present at this investigation,, and that man is Mr. Mc Vicar, president of the Farmers' Association of Iowa, having 60,- 000 men, and he has always been ready, and his association has ever been ready, and I have addressed it at a number of occasions at its annual conventions, where thej have made preparations to be ready, that when the alarm was sounded at the Capitol of this country the farmers would come to the rescue of the men who had preceded them in these investigations. And we are here now with the goods, the real goods, for the informa- tion of the lawmakers of this country, seeking relief in some form — we perhaps may not know just how. But we are here for an investi- gation to find out, and we ask your help. I hold in my hands, gentlemen, a copy of a report of the board of directors, issued to the members of the board of trade of the city of Chicago, including, among other things, a financial statement for the year ending January 5, 1914, in which Mr. Robbins, attorney of the board of trade, offers, as its attorney, on page 15, a quotation ex- tending to the close of page 18. The last portion on page 18 and the last quotation of Mr. Robbina in that annual report of the board of trade, reads as follows : Several measures have been introduced into the National Congress, the provisions of which, based on erroneous conceptions, are calculated to restrain the activities of the members of this and all other exchanges in the buying and selling of commodities for future delivery. I would suggest that every member exert himself to dispel error in relation to our business by disseminating the truth, and also urge every member to evidence his loyalty to the association by carefully keeping his business in all particulars strictly in conformity with our rules and the laws of the Commonwealth. Mr. Bobbins. You do not mean that is any part of my report, do you ? 68 GEAIlSr EXCHANGES. Mr. Greeley. I find it under your Jheading here. I will show it to you. It says further: I know that none mean to do otherwise, but avoidance of giving offense at times when there is evidence of a disposition at legislative capitals to be hypercritical is but prudence on our part. The greatest exchange in the world, just then ready to go to Wash- ington for an investigation, quoting words of that character. They must be proud of that record. The Chairman. But what is the date of the document? Mr. Greeley. It is the report of the legal department for the year 1913, and it continues rigM along there [indicating]. At the top of page 16 appears the words "by' the president" [exhibiting paper to Mr. Kobbins]. Mr. RoBBiNS. No; that is not mine. Mr. Greeley. Mr. Robbing wishes to be excused,- and we will apply it to the president of the exchange and give him credit. Mr. Manahan. Who did write that ? Mr. Greeley. The president of the board of trade. ^ The Chairman. The president is here and he will speak later. ^ Mr. Canby. That must refer to some previous president; not to nj^e. Mr. Greeley. I am glad to see you gentlemen aU getting on the ^ajid wagon. The Chairman. What is the date of the document? What we want is the fact in the case. Mr. Greeley. January 5, 1914. Mr. Canby. That is the report of the outgoing president of the hoard of trade. Mr. Greeley. It is the outgoing president of the board of trade, and I hope that you aU feel as we do and that you will not stand for it. A very pertinent definition of a public warehouse for grain was fiven in a document which was in the nature of a complaint before the )epaTtment of Justice at Washington, of the Milwaukee Chamber of Commerce against the Chicago Board of Trade. I do not want to enter into a discussion as to the merits of that controversy, but a very splendid definition of a warehouse receipt for grain in public storage was given in' that complaint, and for the purpose of enlightening those who may wish to jknow in regard to what constitutes the basis of the delivery system, I will give this definition : These certificates perform the same office, function, and responsibility in the domain of the grain trade, or commerce, that a gold or silver certificate issued by the authorities in WaSiington performs in the domain of finance, or a certificate of deposit issued by a bank for me money received. All of these three kinds of receipts or certificates are representative in character. The gold certificate represents gold, the silver certificate silver, the bank certificate represents possibly botn, but all three represent money only, which is merely the measure of value. The certificate of storage represents food products or food, what we eat, sustenance, life. It represents what is of the greatest mterest to humanity now, and ever has been. One represents the measure of value, the other the actual value itself. I make the contention that in the grain business of Chicago, in the conduct of the large amount of business transacted in that market, that a public grain receipt is the basis of our trading currency, that it should be just as stable, reliable, and dependable as the certificates issued by any institution issuing money, by any institution issuing those certificates; it should be just as reliable as our moiiey certifi- cates. Now, then, what is the fact when a man takes in a warehouse GEAIN EXCHANGES. 69 receipt on a future contract on grain for future delivery in the trade currency and business, what operations on those contracts or mix- tures which Mr. Robbins has referred to in his protest in the Licht- stern suit, to which he has also referred in the Tuley case ? Those receipts are of such a character that a man sitting m the room, at one tune one of the largest corn dealers in this country, who handled as much corn, if not more, than any single man in the world, as a merchandizer, told me himself at that time, under the conditions then existing, which was during the dominance of this elevator monopoly, that he would rather buy No. 4 corn on the sample tables than take a public warehouse grain receipt from a public elevator for No. 2 com. In the evidence submitted it has been shown that in the contract grades of wheat it was absolutely proven by sufficient testimony, so that Mr. Robbins called attention to it, that of the grain going into public storage the warehouseman may keep for himself grain of a certain quaUty of the same grade and deliver to a customer grain of a different quality of the same grade. Thus it appears that in the conduct of the business the warehouseman is enabled to keep for himself that which is of a higher value of the same grade and deliver the poorer out, and the evidence shows in the Tuley case, and quoted by Mr. Robbins, that grain of the same grade sometimes placed in public storage differs in the contract grades to the extent of 2 cents a bush|||, and in the offgrades to the extent of 15 cents a bushel. ThiiX of a situation in which a commercial exchange invites trade through -warehouse systems of countless millions and hundreds of millions of bushels of grain all the time, for men to come in and go up against a combination where they are almost certain, if delivery takes place, to get the lowest of the grade on the delivery, and if they do not get any, they are forced, by a knowledge of what they are going to get, to sell out their futures and pay the warehousemen or others a profit to take the other side of the market against them. The board of trade complains of the existence of bucket shops. I assume that some of you men may have sufficient general knowledge of conditions as^ they exist to-day to know that the bucket shop is a place where you can go in and make a bet with the proprietor as to whether the market will go up or down and the transaction based upon the amount of money you want to risk. In other words, if you buy wheat in there and put up $10 and you buy it at 90 cents, you bet that it will sell at 91, and if it goes down to 89 you lose your money, and that is all there is to it. Your money is won if it goes up a cent and your money is lost if it goes down a cent. When you make a trade in a bucket shop with the proprietor of that institution you know the limit of your loss. It is set. Now, then, what happens if you make a trade with a public elevator man on the board of trade through a commission house with a warehouseman at the other end of the trade ? Suppose you buy grain of that warehouseman through any commission merchant and buy 10,000 bushels of wheat. All right, you have got it bought and Armour & Co. have got it sold. You,jjave no chance to get out of that trade with Armour & Co. if Armour & Co. want to fulfill that contract — no chance. Now, suppose that you bought the wheat of Armour at 90 cents, and it went down, and you take a loss at 89 cents, a cent a bushel 70 GEAIN EXCHANGES. loss, and you sell it out at the 89 cents figure; Armour comes in and delivers that wheat to you at 90 cents, and you deliver it on to the fellow who has bought it of you at 89 cents. Well, somewhere in that endless chain somebody gets that wheat, and Mr. Bobbins has introduced evidence in these suits to say that the difference of the quahty in pubhc storage may be 2 cents a bushel (or 15 cents a bushel for the off grades), which are deliverable on the future contracts, but stiU may come into the possession of somebody in the conduct of business. In a bucket shop you know your loss. What excuse can the board of trade offer for putting you' up 'against a contract where you have got to pay for a warehouse receipt that is graded by the State, but whose merchantable value they claim has a difference, is on the line of the grade of the lowest possible of that grade. My contention is this: That the uncertainty of the man who takes and pays for the warehouse receipt, forced to merchandise the prop- erty from public storage with the system of inspection that has been so severely criticized there for years, and with the knowledge that the board of trade men have of the depreciated 'condition, and the out of condition, and the Rosenbaum condition, of stuff made up of screenings, that he runs a risk that even the man in the bucket shop does not run. He is forced to be a merchandizer taking a greater chance than a man in a bucket shop. A fine proposition for a legiti- mate trader who goes into that market, perhaps with even the ex- press purpose of giving some support to it because he is a believer in a higher price, ha^'ing to take the mixtures that the Chicago Board of 'Rade permit to be forced Upon him, and always at the lowest of grade. I hold in my hand a document which I wrote • myself , an open letter to the members of the Chicago Board of Trade, entitled "Another Year in the Elevator Controversy: The Attitude of Presi- dent Sager, by Samuel Hallett Greeley." That is my name. Decem- ber 30, 1907. I printed 1,500 of these circulars and distributed them myself on the floor of the board of trade and handed them to the members. What is that paper? That paper is an exposition of the alUance of the officials of the board of trade with the elevator monopoly, continuing right along, year after year, and that is 1907, whereby it is shown that a collusion exists. If they make Rosen- naum'g house regular when he is putting 50 to 250 bushels of screen- ings to the car in public houses, and permit him to continue to have the privileges of the association, if he mixes his grain in the mixing house, and Mr. Robbins contends he mixed them in the suit against Lichtstern, it shows that there is a collusion, because the board of trade permits him to do these things. What else does the board of trade permit him to do? What is that circular? It is a protest. Against what? At a time when there was violent opposition to public warehousemen trading in grain, and about the same time in 1907 that we were making efforts to prevent the warehousemen from becoming regular, when the committee of nine, to whom I referred, "were conducting their negotiations," President Sager, of the board of trade, went to a number of the members of the board of trade and made this proposition: GRAIN EXCHANGES. 71 I can get an elevator and make it a public storage house in which the proprietor of that public elevator will not be a dealer in grain, which will be thrown open to the public on a fair and square basis, where everybody can do business through that public warehouse at the same cost, and it will place our board of trade and our market on a standing of respectability, but in order to get that elevator it will be necessary to guarantee Peabody-Houghteling & Co. $20,000 in cash as the expenses for the current year in the conduct of that elevator in case of a loss. So this question was submitted to a number of the members of the board of trade, and I, myself, contributed $500 to the raising of the $20,000 — which was completely raised — and nego tiations were entered into with Peabody-Houghteling & Co. for the use of the elevator for one year; and it was made regular by the Board of Trade of the city of Chicago, the proprietor was made a public warehouseman under the laws of the State of IlMnois, and it engaged in the business. Now, then, President Sager advised all the contributors to that fund that he would not peimit any other elevator to enjoy the privileges of being regular under the i-ules of the board of trade unless there was an fU)solute provision that they would not deal ia grain; and this McReynolds elevator, for which we contributed $20,000, and other storage which we had in view, would constitute the only storage which would be regular under the rules of the board of trade. ALnost as soon as that fund was contributed, and after we had raised it and had agreed with the president of the board of trade on that proposition, I am told, but I do not know, that at a meeting in the nighttime Presi- dent Sager entered into a negotiation with the elevator monopoly to make all -their elevators regular; and we fellows were stuck $20,000 on our guaranty and violating his personal word of honor that he would not make a single one of these houses regular till they con- formed to the rules, going to show conclusively that the official of the board of trade was friendly with the elevator monopoly. And I took the hberty of making plain the details to the members of that associa- tion in regard to the attitude of that man; and to repudiate me and throw discredit upon me and show their profound respect for President Sager, on a harmony platform he was reelected president of that board at the following election at the instigation and intercession of the ele- vator monopoly. Shall I oner that in the record ? The Chairman. Do you wish to have that printed as a part of your remarks, to cover some features you have uncovered in your address ? Mr. Greeley. Put it in complete. (The pamphlet submitted by Mr. Greeley is as follows:) AN OPEN LETTER TO THE MEMBERS OF THE CHICAGO BOARD OF TRADE. Last fall ex-President Fitch appointed a committee of nine whose duty it should be to seciure proper adjustment of the public warehouse question. After much ardu- ous work, covering a period of nearly six months, this committee failed to secure a satisfactory settlement with the elevator proprietors. In its report of April 25, last, the committee said: "The ownership and control of contract grain in public warehouses, either directly or indirectly, by any subterfuge by the owners and managers of such warehouses is not only unlawful but a dangerous matter and is a positive detriment to the market. "It now seems impossible to get a proposition from the managers of the public elevatcSrs under which they are willing to operate regular warehouses after July 1, 1907, which we can offer to your honorable body as a workable basis for a solution of the question." 72 GEAIN EXCHANGES. Mr. Marcy also said in a communication to this committee: "I feel that for the good of the trade as well as the public warehousemen the system should be completely changed. I am of the opinion that practically all of the present public ele vator men feel that they are ready to retire from the public elevator business just as quick as the board of trade can provide amjjle facilities in the way of public elevators to handle the Chicago Board of Trade business. "I feel that your committee or the board of trade should, just as soon as possible, work out some plan whereby public elevators may be provided, and such elevators as are provided be operated entirely by the people or concerns who are not inter- ested in any way in the handling of grain. In the first place, no one can be expected to operate an elevator, either public or private, without making something out of it." The above communications, being over the signatures of the parties to the contro- versy, show by direct statement or reasonable inference, that "trading in contract grain by public warehousemen is dangerous, and a positive detriment to the market." It shows further that the committee could not effect a settlement; that the elevators were ready to retire from business, and that public warehouses either had been or would be unprofitable. This committee of nine never would have made the above report unless they believed public elevators were improperly conducted, and that the elevator men absolutely refused to properly conduct them. May 25, following the discharge of this committee of nine, a new committee assumed negotiations for the board, this committee being in charge of President Sager, chairman ; not the warehouse committee of the board of directors, but a special committee. This special committee was appointed as the result of the publication of a circular of which the following is an extract, the same dated May 25, last: "The rules of the Chicago Board of Trade limiting and defining the rights of regular warehousemen are of a character which, in the judgment of the undersigned, allow so wide a latitude of interpretation that the operation of regular elevators thereunder has become unwise and impracticable, and we are, therefore, prevented from making application to have our respective elevators declared regular on and after July 1, 1907." To the above. President Sager's committee, under the same date of May 25, instantly issued to the trade a circular, the closing paragraph of which was as follows: "The committee, acting on behalf of the board,of directors, further desires to assure the trade that ample provision will be made for public storage to meet all require- ments, having already assurance of sufficient regular storage capacity to meet any emergency that may arise." Thus it appears that even if the warehousemen did not apply to be regular. Presi- dent Sager told us that "ample provision will be made for public storage to meet all requirements, having already assurance of euflBcient regular storage capacity to meet any emergency that mav arise." The elevators really said to this board, "You ruu your business and we will run ours; we do not need you; our business is unprofitable; we know public warehousemen should not deal in grain; we refuse to apply to be made regular." July 1 came around and still every elevator refused to apply to be made regular. Mr. Sager apparently made a determined stand against them. He assiu-ed the writer that he never would and never could consent to make them regular in view of their attitude and illegal methods. He denounced them as a trust in no false terms at Springfield, saying in substance, their methods of operation were illegal, unfair, monopolistic, and deserving of court prosecution. In keeping with his attitude of prosecution and in an effort to free the board and the country from the disgrace of the "system," President Sager solicited a guarantee of $20,000 to protect Peabody- Houghteling & Co. in the operation of the McReynolds elevator at South Chicago for one year as an independent public warehouse, claiming that the board would be in better shape to stand on its position against illegal elevators and thus win its fight. About 25 concerns guaranteed, this 120,000. Almost the instant this guarantee was signed President Sager's warlike attitude on the elevator trust apparently ceased. At a meeting of the directors last September (in which I am told at an adjourned meeting he requested secrecy of the proceedings), the directors voted to make every elevator regular, although he had assured the subscribers of the 120,000 fund above referred to that in no case would he consent to make all the houses regular at the same time, but simply one at a time, but then only as the demands of the trade required, giving preference to those houses which Judge Carter, in his opinion, had pronounced 'public " by virtue of their ownerslup by certain railroad corporations. It is plainly apparent that the subscribers to the $20,000 guarantee are the victims of grtesamis^ representation and a severe loss, as it is impossible for an independent public ele- vator, operating legally, to compete with those elevators, the proprietors of which are grain dealers actively engaged in buying and selling grain through their own houses. The plea for the McReynolds $20,000 fund was based almost entirely on GBAIN EXCHANGES. 73 the necesfflties of the board, a demand for honest warehousing, as an cncouragercent to its officials who were endeavoring to make an honest market (apparently), and as the most feasible plan to perpetuate the fight to a succeasful culmination for the board of trade, and thus bring about independent, inapartial, and legal grain warehousing in public elevators. The readiness with which the members jumped into the firing line and supported President Sager should be held as a sacred rremory by every lover of the "square deal," but the readiness with which President Sager \'iolatea his sacred promise by aiding and abetting in making them regular and leaving his "square-deal" supporters to assume the $20,000 obligation and again place the board under the control of this pernicious system should never be rewarded by another term to the honored position of president of this exchange. If it be contended that the board needed more storage room Judge Carter had pro- vided it. All that was necessary was to declare it regular; but in case more storage room should be necessary it was not required that all applications diouH have been approved in one "fell swoop." If it be further contended that the contract entered into by the board with the trust were approved by the legal advisers of the associa- tion, it is not to be presumed that if technically legal, the provisions of the contract would be carried out, for they never had been and are not to-day, to the best knowl- edge and belief of any well-informed member of this association. And the absence of any investigation by Mr. Sager relative to the violation of the contract entered into last September is quite suggestive evidence that the contract itself was either not prohibitory or the attitude of the administration is supremely negative; for every man believes who is well posted that public warehouse men to-day are still vio- lators of our laws, and that such violation is possible of prevention tf an aggressive attitude is maintained. And especially is this true when we see substantial men stand ready with $20,000 chunks to encourage such efforts. Is it proper that such magnanimity as shown by these guarantors should meet with the insult of a nomina- tion again tendered a man who failed to carry out his promises to those who responded to his caU for aid? It hardly seems possible this board wiU so instruct with the knowledge of the facts. Whether you may think these elevators should be regular or not as a business proposi- tion is not me only question involved; whether the contract which the board entered into was legal or not is not the important feature; in the opinion of good authority it is not a good contract; but the important subject matter for us is that our president, when he held the whip hand, later developed a preponderance of favor for that interest which has opposed public welfare, severed his alliance with those who answered his call for help, and aM,in assisted in placing this board in a position of public criticism by licensing that which we believe is still existent and should be suppressed. The men who contributed to the $20,000 guarantee don't want you to repay them in money; they don't ask personal favor or praise; but there is one among them who believes, after several months of silence, that no man should receive honor at your hands to which he is not entitled. The way these houses were made regular after President Sager's assurance of "sufficient capacity to meet any emergency that may arise," is simply a suggestion that their attitude was only a bluff, and that they were anxious to be regular, and that their houses would rot on the river unless they were made regular; but being regular, no sane student of the grain trade will deny that directly and indirectly the privilege of being regular is worUi, not hundreds of thousands, but millions of dollars annually. Now, the question is: In view of the rebuke administered by the trust to the com- mittee of nine; in view of the insult tendered this board in their circular of May 25, above quoted; in view of President Sager's attitude of denunciation of these men as law breakers both in Chicago and Springfield; in view of his promise to the $20,000 guarantors above referred to; in view of a further promise to Peabody-Houghteling & Co., or their selected representative, not to make the trust houses regular, as also above referred to; in view of all these things, why should he be selected to serve this elevator trust another year? If he actively assisted in making those houses regular or passively permitted it, he not only became a party to what is believed to be a very bad contract with the elevator men (and probably it is worse than no contract at all), but he absolutely failed to keep his promise with the parties at interest in the McReynold's elevator deal. As to whether he served the board of trade or the Elevator Trust is for you to say. His election to serve another term would be suggestive of your approval of illegal methods in warehousing of grain. It is the contention of the writer that the board of trade in its semipublic relation to the business interests of the country, can not afford to so place itself on record. Please do not accuse me of retaliating because I happen to be one of the McReynold's elevator guarantors to the extent of $500. I have already been offered relief from my 74 GRAIN EXCHANGES. bond, but the proposition was not accepted. Furthermore, not a subscriber to that $20,000 guaranty knows this circular is being published except one. Another thing worth notice: In the above quoted communication of May 25, the elevators say the rules are such that "we are prevented from making application to have our elevators declared regular after July 1, 1907." Now, who made a contract that made them change their minds and apply to become regular? Who made the rules any easier for them to be regular? Can the directors make rules? What is that contract? Is ii an immunity bath? Is there any member of this board who ever saw it? And in view of the attitude of the elevators toward the board of trade laat winter and spring, and for 17 years past, should they now be regular, whether the contract is good, bad, or otherwise, as a matter of law and justice? An- other question is: When the committee of nine was discharged last spring, why should President Sager assume the chairmanship of the new committee, which took up the warehouse negotiations, when there was a warehouse committee of the board of direc- tors already appointed by himself, whose duty it was to act, of which Directors J. P. Griffin was chairman and John J. Kellar, both of whom were antielevator men who refused to vote the elevators regular when they were so declared in September. Furthermore, did it ever occur to you that this elevator trust may be none too friendly to this board as an institution, as shown by their attitude in the past? Whether they are or not, when the investigation comes, conducted by the great public conscience, we should be careful that our official attitude from year to year will not be of such a nature as to weaken our defense or jeopardize our institution. Samuel Hallbtt Greeley. Copy of contract made last September between elevators and board of trade, show- ing how the board surrendered to the trust on terms coming from the trust itself, after the trust had announced they could not become regular under our rules, and after President Sager had said we had "sufficient public storage to meet any emergency." Read this amusing "keep secret" document: To the hoard of directors of the Board of Trade of the city of Chicago. Gentlemen: In submitting our application, attached hereto, requesting the board of directors to declare Armour elevators, comprising "A & B," and "B "-annex. Armour elevator C and Union elevator and annex, as described in said applications, regular warehouses for the storage of grain and flaxseed, under the rules of the Board of Trade of the city of Chicago, for the period ending June 30, 1908, we desire to state that, after consultation with the special elevator committee, we understand: First. That all stations at which there is competitive buying of grain are Jo be con- sidered as competitive points. Second. All grain received into and delivered out from any of our regular ware- houses shall be done under the supervision of competent supervising samplers appointed by the board of trade, under the control of the grain committee, who shall act in con- junction with the State grain-inspection department. The decision of the latter in regard to the grading of grain shall, however, be final. Third. That it is not to be considered a violation of the rules of the board of trade of the city of Chicago, or of the law of the State as declared by the Supreme Court, for us as proprietors or lessees of public elevators of class A to own grain m public elevators operated by us, provided the grain owned by us is segregated from that of the public, kept in "special bins," and the receipts issued against same be designated as repre- senting "special-bin" grain. Such receipts shall be plainly and conspicuously marked as "special-bin" grain and designate the number of said bin, such receipts not being regular for delivery on board of trade contracts. Nor is it to be considered in violation of the rules of the board of trade of the city of Chicago, or in violation of said decision of the Supreme Court, for such "special-bin" grain to be sold to a bona fide purchaser and be loaded out, reinspected, and delivered into regular elevators in the general public bins; and receipts representing said grain then may become deliverable on board of 'trade contracts, itbeingunderstoodthatwe, as proprietors of said elevators, shall have no interest whatever, either directly or indirectly, in the ownership or con- trol of the grain after having been sold, and the ownership and control of the property shall thereafter be vested absolutely in the buyer, who shall pay for the grain upon the delivery to him of the elevator receipts in the usual and customary mginner as is pro- vided for the deliveries oif cash grain under the rules. We, as proprietor? or lessees of public elevators of class A, shall have the right to deliver grain into any warehouse made regular' under the rules of the board of trade we may elect other than into ele- vators pwned, leased, or operated by us; provided, however, that we may stipulate for GRAIN EXCHANGES. 75 delivery of our grain into our own elevators, but shall be required to such grain to go to store. These sales are to be absolutely bona fide sales made in good faith. We, as owners, lessees, or managers of said elevators, shall have no interest whatever, either directly or indirectly, in the ownership apd control of the grain after having been sold and the ownership and control of the property shall thereafter be vested absolutely in the buyer, who shall pay for the grain upon delivery to him of the elevator receipts, in the usual and customary manner as is provided for the deliveries of cash grain under the rules. Fourth. Grain stored in "special bin," not being deliverable on regular board of trade contracts, may be sold or shipped by us. Fifth. We, as warehousemen, shall be required to exercise all reasonable care and diligence to preserve the grain in warehouses -in good condition, and in case of our inability to do so we shall promptly, by the proper publication, advise the trade and the public (aa required by law) of any damage to grain or flaxseed held in store by us. Sixth. So far as the rules of the board of trade are concerned, it is to be understood that a delivery by other members to us as proprietors, lesssee, or manager, of a public warehouse, in the regular course of business deliveries upon open contracts, of receipts for grain stored in our own warehouses, and which we have been able to again deliver out before the close of regular hours for such deliveries, shall not be construed to be a violation of the rules of the board of trade nor of the warehouse law, as far as the board is concerned. Such receipts, however, must be delivered out by us as soon as possible, but not later than the next business day. Seventh. Neither this communication nor any application to have, nor the action of the board of trade in making, our elevators regular under the rules of the board shall in any way affect or prejudice or be used by us or by any other party with our connivance or consent to affect or prejudice the pending litigation brought by the State's attorney of Cook County or a final decision therein. Eighth. Any intentional or willful violation of the above agreement shall be con- sidered as hishonorable conduct and subject us to discipline by the board of directors. YoTUB, respectfully, Aemouk Elevator Company. , President. Guarantors agreement in the McReynolds elevator deal, showing how the men who came to the assistance. of the board are bound to almost a total loss: Agreement between the undersigned grain merchants of the city of Chicago, here- inafter called the "grain merchants," party of the first part, and the firm of Peabody- HoughteUng & Co., of Chicago, hereinafter called the "firm," party of the second part. Whereas said firm represent the owners of the grain elevator now known as Mc- RejTiolds elevator A, situated on the Calumet River at One hundred and sixth Street in the city of Chicago, and said firm are making repairs and improvements to the elevator under the supervision of Mr. C. T. Anderson, engineer, to the end that the same may be rendered safe and suitable for the storage of grain, and whereby the insmrance rate on grain stored therein shall be reduced so as not to exceed one dollar and seventy-five cents (11.75) per annum, at the time of commencing operation of the elevator. And whereas a corporation is being formed, to which said property may be leased or deeded, which corporation will operate said elevator as an independent public grain warehouse of class A, in accordance with the laws of the State of Illinois and the rules and regulations of the Board of Trade of the city of Chicago, and will make proper application with proper bond, so that said elevator shall be declared regular imder the rules of the board of trade, and said firm agree to make all reasonable en- deavor that said elevator shall be operated in accordance with the laws of the State of Illinois and the rules of the board of trade for a period of one year from the time it may be declared open as a regular public elevator, and further agree during that time that the property shall not be owned or controlled by any of the people or corpora- tions who have until July 1 last been operating public elevators of class A in Chicago. And whereas by reason of the expense involved and the possible danger of loss in operation said firm and the owners of said property have been unwilUng to repair said elevator and operate the same as above, but the undersigned grain merchants have reqiuested' said^firjni on behalf of said owners so to operate said elevator ,-and as consideration for such repair and operation have agreed to guarantee said firm for itself and the company which may operate said elevator and the owners thereof that 76 GRAIN EXCHANGES. the gross income from said property derived from the storage of grain for the period of one year above mentioned shall be not less than twenty thousand doUai's ($20,000) : Now, therefore, in consideration of the premises and of the sum of one dollar ($1.00) to each of the undersigned in hand paid, the receipt whereof is hereby acknolwedged, the undersigned do hereby, as hereinafter provided, guarantee to said firm that the gross in- come as aforesaid from said McReynolds Elevator A, for the period of one year from the time said elevator is opened as a public warehouse of class A, shall amount to not less than the sum of twenty thousand dollars ($20j000). Each of the several grain merchants signatory hereto agree to send to the said elevator grain for storage ih sufficient quantity, as near as may be throughout the year, so that the storage earnings arising therefrom shall amount to the sums respectively agreed to by said several grain merchants, as set forth opposite their signatures. hereto, it being under- Bljobd that the storage rates charged by said elevator shall not exceed one-half of one cent (Jc.) per bushel for the first 10 days and one-fortieth of one cent (tbC.) per budiel for each day thereafter. In the event that eitherof said several grain merchants signa- tory hereto shall fail to send grain for storage sufficient to produce the sumset oppo- site his or its name, and should the gross income from the storage of grain in said elevator be less than said sum of twenty thousand dollars ($20,000), each of the grain merchants, parties signatory hereto, agrees to pay to said firm the difference between the amount of storage accruing upon the gram sent by him and the amount so set opposite his or its name, or so much thereof as may be necessary to make said gross income equal twenty thousand dollars ($20,000)^ but neither of the grain merchants signatory hereto shall be liable for the default of any of said other grain merchants hereunder. The total liability of each of said grain merchants in any event shall not exceed the amount set opposite his or its name. Said' grain merchants agree to cooperate with said firm and its assigns to promote the success of this enterprise and to use all reasonable effort to have their fellow merchants store grain in said elevator. It is understood and agreed that this agreement is assignable and shall inure to the benefit of the corporation proposed to be formed by said firm and to the owners of said property. In witness whereof the parties hereto have hereunto set their hands this 19th day of August, A. D. 1907. Copy of letter which spe.aks for itself: Chicago, November 15, 1907. S. H. Greeley, 59 Board of Trade, City. Dear Sir: At the request of Peabody-Houghteling & Co. I inclose you a copy of the agreement of which you are one of the guarantors. I trust you will please use every effort to give us enotigh business to operate this plant without having to call on you for assistance as per your agreement, and oblige, Yours, truly, J. B. Wayman, Manager. The Chairman. Do you think you can finish within 10 or 20 minutes this forenoon ? Mr. Greeley. No. The Chairman. The committee will have to be in session to-morrow, and I think we had better adjourn at this time until 10.30 o'clock to-morrow. (Whereupon, at 1 o'clock p. m., the committee adjourned until to-morrow, Wednesday, March 4, 1914. .gbain exchanges. 77 Committee on Rules, House of Representatives, Wednesday, March 4, 1914. The committee met at 10.30 o'clock a. m;, Hon. Robert L. Henry (chairman) presiding. The Chaikman. The committee-will be in order. Mr. Greeley, you may proceed with your statement. STATEMEITT OF MR. SAMUEL H. GREELEY, OF CHICAGO, ILL. — Continued, Mr. Gkeeley. Mr. Chaij-man, in order to save the time of the committee and to place upon the records of this investigation so that the records may snow more completely some of the conditions con- nected with the Chicago Board of Trade, the Chicago public warehouse monopoly in grain, and those conditions related to the inspection of grain, and also conditions that relate to trading in grain futures, I have a typewritten pamphlet which I would like to present to the secretary to be put mto the record. It is all pertinent to this dis- cussion, and if necessary it may be read. The Chairman. It is not necessary to read it if it is pai't of your remarks. We want all the facts we can get. Mr. Greeley. I wiU ask to have inserted in the record these pages which are marked in lead pencil on the left-hand side, omitting all that are not so marked. The Chairman. Do you show the contracts made there? Have you copies of them there in the pamphlet, showing the method of doing business in detail ? Mr. Greeley. I think that includes quite a Uttle of it; yes. The Chairman. The committee would like to have copies of the contracts showing the process of doing business there, if we can get them. Mr. Greeley. Some of those have already been introduced, and some are included in this discussion. (The matter referred to is as follows :) The board of trade pubUahes the following: "The objects of the association are: To maintain a commercial exchange; to pro- mote uniformity in the customs and usages of inerchants; to inculcate principles of justice and equity ia trade; to facilitate the speedy adjustment of business disputes; to acquire and disseminate valuable commerical and economic information; and gen- erally to secure to its members the benefits of cooperation in the.fm^;herance of their legitimate pursuits." If any commercial exchange permita, by passive attitude or voluntary permission, a system whereby one man may carry grain in a public warehouse at a loss, while another man may carry the same grade of grain at a profit, is not such exchange sub- ject to investigation aa a party at interest, and is not such exchange in a measure responsible, at least moralty, for such discrimination and consequent loss? & not such exchange, by such attitude, a party to a system which may be consid- ered in restraint of trade in interstate commerce, provided a monopoly is the result? If such exchange was primarily organized to secure "justice and equity" in trade, should not such passive attitude actually eliminate such exchange as an agent of the public service? If such exchange has a State charter creating its existence, should not that charter be annulled? If State law is openly and brazenly violated in the conduct of business on such exchange, is refusal on part of State officials to prosecute sufficient excuse for the exchange to permit such violation? 78 GRAIN EXCHANGES. Is it to be presumed tliat State oiScials will prosecute law violators when the ex- change of the greatest grain market in the world, if this be true, not only refuses InitiEU steps of prosecution, but encourages and abets the creation of that which is illegal? If the basis of future trading in grain is a public warehouse grain receipt and such receipt is approved by the commercial exchange as the prevailuig currency of specu- lation, and the issue of such receipts are willful lawbreakers, manufacturing and holding grain in quality of a q^uestionable kind as related to the average merit of each grade, and merchandising it, is it to be supposed that Government or organized society will not, in fact is bound to, investigate such condition? Is it to be behoved that Congress will not continue to discuss legislation hostile to so-called "legitimate speculation," when the Chicago public warehouse monopoly stands equipped with a passive governor, attorney general. States attorney, railroad and warehouse commission, board of trade directory, board of trade membership board of trade clearing house, Illinois inspection department, warehouse receipts, possibly free elevators and banking assistance, with an army of so termed "suckers" furnished by an endless system of private wires and blackboard quotations, together with millions of grain raisers, scattered in almost every town and hamlet in the country, from which to secure dividends? Is any Congress free from censure which will not try to land such a conspiracy in restraint of trade and will it not be justified in placing such conspirators behind the bars if the commerce so affected is interstate? Is trade in cash grain to suffer because of the lack of honest efforts to eliminate rascality? Is the agricultural community and the great consuming community here and abroad to be argued into the belief that such a pernicious system of future trading as now conducted is the backbone of the nation's prosperity and without it there is no path to commercial success or human happiness? Is there any man who can number the human wrecks strewn on the threshold of the board of trade clearing house, which is the collection agency of this lawbreaking grain trust, such wrecks being the result of the present illegal system? Are there such wrecks? Is it not a fact that the people of this country require and demand a broad, open, honest coropetitive market for grain, protected by railroads and commercial exchanges as well as the strong arm of the law and not an unguarded, unfair, unprotected so- called exchange where the lawbreaker is king and commercial anarchy runs riot? Is it not apparent to any student of the markets that Chicago as a fair, open market is fast losing her prestige on account of this state of affairs? Are we not being discov- ered? What excuse can be offered by such exchange in a fair and impartial investigation, for the issuance of annual licenses or privileges "to be regular' for such public ele- vators the proprietors of which are dealers in grain either directly or indirectly? What further excuse can such exchange offer for permitting such public custodians from privileges of the exchange clearirig house as a means of collecting toll from the public? What excuse can such exchanges offer for the circulation of literature announcing the principles of "justice and equity/' when lawbreakers form the chief basis of its business, one of the greatest factors m the operations on the exchange in futures or options, and handle more than 99 per cent of^all grain going into public elevators, as admitted by J. J. Stream and James Patten? What excuse can such exchange make to public investigators who may reveal the fact that its licensed public warehouse custodians have obtained and possibly now do obtain elevators free from railroad companies, on which elevators railroad compa- nies pay the taxes, interest, and insurance, thus equipping such licensed'favorites to enter into competition with legitimate grain dealers in the market? Is permission to do this promoting "justice and equity" in trade? Is the object of such exchange to organize and maintain working machinery for the use of an organization of get-rich-quick-special-privilege lawbreakers, whose main aim seerns to be to "separate suckers from their money,'' or is it not, in fact, in its original intention presumed to be an agency of the public necessity for honest trade convenience and commercial demand? Is the Chicago Board of Trade as at present conducted a benefit to producer, con- sumer, banker, merchant, laborer, speculator, rieceiver, shipper, and thei general community? Can any fair-minded man object if a public inquiry is begun to secure an honest answer to this question? Is the board of trade relying for its defense on its preamble of merely so many words in which it stands for '"justice and equity," while lawbreakers, under cover GRAIN EXCHANGES. 79 of those sacred words, plunder and thrive, protected by its special annual licenses and organized facilities? Is it not a fact, as one large trader and member of the board of trade remarked at a recent banquet, that in absence of outside trade (referring to members of the board) ' ' we are engaged in the unprofitable task of picking our own pockets to make a living " ? May it not be inferred that if outside trade were plenty in the market we would be picking the other fellow's pocket? Are these "pirates of commerce" so strongly intrenched in public favor and the favor of sixteen hundred members of the greatest exchange in the world that they can frighten honest legislators and honest merchants with the threat that unless present methods of commercial debauchery are permitted to continue Chicago will lose her prestige as a grain market or that if debarred from the exhcange they will organize a board of trade of their own? Is it conceded by all, that previous to the pooling arrangements of these public grain warehousemen, which was accidentally unearthed some time ago, and previous to the nominally free lease elevator system established, also more recently discovered and before public warehousemen became merchandizers of grain, were not signs of prosperity broadcast among those who now feel the want of business so keenly that "picking their own pockets" is seriously referred to as their present means of liveli- hood? Is it not self-evident and has not past experience established the fact beyond a doubt, that if the public could use well-equipped modern public elevators at a charge for service fair to the proprietor and the public, that dozens if not hundreds of board of trade members would be called into active service as real handlers of grain which the trust now handles, rather than continue as scalping speculators in the future pits and would not an honest warehouse receipt then become the basis of both cash and future trade? The ordinary board of trade man understands this with a scope of vision propor- tionate to the size of his legitimate business, which consists of a trading card, a lead pencil, and a "put and call" quotation blank. When the manhood of the grain men and the farmers is fairly aroused, do you sup- pose J. Ogden Armour will have the opportunity of constructing any $2,000,000 sum- mer homes, or J. Eosenbaum loading any more screenings as substitutes for contract grades of wheat or J. C. Shaffer hobnobbing with ex-President Taft as an honored guest at various conventions? It is not that we want to prevent these men from enjoying beautiful homes, or sharing in all stately honors, but that the people gen- erally may share in the blessings legally which these men enjoy through illegal means. Is this age so reeking with greed and the spirit of frenzied finance that l,600"men" will sit idly by and see the noose tightly drawn around their commercial necks and the necks of their clients whUe half the population of this country in agricultural pursuits is also suffering and has suffered at the hands of these monarchs of pit and elevator? Is manhood, honor, bravery, and determination so dead that the strong arm of the National Government must be forced to swoop down upon our commercial exchanges with the swiftness of the eagle and the talons of the vulture, to devour the remnants of a once brave and courageous body of men? Does it not rest with the exchanges of the country to so guard against the prostitu- tion of honest business that a defensive and apologetic attitude should not constantly be maintained before the public and in legislative investigations? If the board of trade spent thousands of dollars to fight public warehousemen in court to secure legal assistance to suppress corrupt warehouse methods and did secure such legal help, why should it not now use the power thus gained in court to suppress lawbreakers, when all that is necessary to secure that result is expulsion from the board? If this course is not adopted, may it not be assumed that the lawbreakers control the board? What may be considered the attitude of the board toward these men, when, for dishonorable conduct in recent market manipulation in September oats, Marcy, Armour's manner, and another manager, now deceased, were found guilty and received the terrible penalty of suspension for one day? The illegal system of public warehousemen creates a practical control of grain receipts in a few hands, namely, the hands of the merchandizing proprietors. One of the great evils of such control is the option which they have of creating a flood of re- ceipts on the market at a given time, to accomplish a premeditated purpose in the control'Sof the ftiture market and also the cash market. To flood the market with their hospital mixtures could wreck a George Phillips, a Cudahy, a Harper, or a Leiter with their millions of backing; or, using the other method of withholding receipts. September oats could be boomed 5 cents over night, September wheat go up 15 cents in a single day of July, oats sell at 69 cents on a manipulated market, or, perhaps, as 80 GEAIN EXCHANGES. is believed, the entire crops of the country forced under the cost of production. It is not that Phillips, or Harper, or Leiter, or Cudahy, or any July oats, September oats, or September wheat deal are either defended or praised; but attention should be called to the fact that evidence is sufficiently strong in the public mind in these few cases cited to show the power which resides in a public servant who transcends the duty for which he was created by law, when he becomes a market manipulator rather than an independent custodian of the property rights of others. The Chicago Board of Trade has forbidden in its membership any man who trades in certain grades of grain when he is the custodian of such ^ain in a public elevator. It is not for the board of directors to discuss the benefits or misfortunes of such trading; it is to enforce the laws that are violated and this the people expect as the board, by its charter, is public in its nature and in fact is created by the people. It is doubtful if any commercial organization in the world is so closely related to public welfare or public misfortunes as the Chicago Board of Trade. The machinery of a quasi public board of trade should be based on fair commercial dealing and exchange. As related above, this board is largely so organized theoreti- cally in its rules, with some improvement even in that respect still desirable; but the chief difficulty existing to-day, it is claimed, is not in the rules themselves but in the refusal of the officials to prosecute lawbreakers. The board's constant excuse to the public is its splended ethical rules and by-law nomenclature; but the knowledge of. law violation seems to be on a par with the knowledge which a blind man has of the sun; he knows it is there but he can't see it; and if -the annual political cam- paigns on the floor may be used as a guide, many of these officials are put in control for the express piurpose of losing their eyesight. If this is not true, a wholesome sus- picion may at least be aroused, because the absence of purification and fumigation is, to, say the least, extremely noticeable. Is the statement that "conditions have changed and we must change to suit con- ditions " a consistent statement? Has grain raising changed, have shipping, milling, feeding, and huma,n needs changed? What really has changed is the warehouseman, from a law-abiding custodian to a willful violator of commercial, legal, and moral ethics. Are we to conform to his method or he to the spirit of "justice and equity" as prescribed by the rules of the board and the laws of the State? If a burglar is caught with the goods, is society to listen to the argument that burglary, being now introduced and prevalent, society should conform to it? Has not the following been verified? If a public warehouseman buys a million bushels of September, wheat in the specu- lative market and that future goes down 2 cents per bushel and he is faced with an apparent loss, and he then immediately sells a million bushels of May wheat at 8 cents premium over September, may he not insist on the delivery of the wheat in Septem- ber and carry it to May and by paying no storage still have a profit? On the other hand, if he should first sell a million bushels of May wheat "short," and that month should go up 2 cents per bushel, can he not then buy a million bushels September wheat at 8 cents discount, insist on the delivery of the wheat in September and carry that wheat with a good profit, he paying no storage, being the proprietor of the ele- vator? What other trader can be thus protected here in our market by free storage? Who gives this system of absolute protection against law to the warehouseman? Does not the board of trade in granting the annual privilege of such license in making such houses "regular" become a party to this discrimination, and do we not invite trade to come here and "go up against" this kind of combination? Can any board of trade man consistently think of his conscience and the money of hia customer in the same thought? The elevator men say, "You get an elevator and you may do the same thing." What if a custom-house officer paid no duty on imported goods and com- peted with Marshall Field & Co. and J. V. Farwell & Co. "on imported material, and that custom-house official should say to Field and Farwell, "If you wish to compete with me, get a customhouse." How long would it be before merchants would resort to arms, if need be, rather than submit? Do we not comprehend that the true mean- ing of the word "public" as related to elevators has the same meaning that the word has to national customhouses? Or have we been so gullible as to infer that all things public are of necessity bound to be the means of "private graft?" Is it possible liiat if it can be shown that public warehousemen are illegally handling their own grain in their own pubUc elevators and issuing negotiable receipts for same, that such receipts may not be questioned as to their legality and thus endanger the- basis of our entire system of future trading? As related to contract wheat from J. Rosenbaum elevator B, a public elevator, Mr. Kettles told me November 17, 1911, that he went to Michigan and found five cars in- spected out of that elevator as No. 2 red, the wheat being hot and full of weevil; why GEAIN EXCHANGES. 81 wasthisnotinveatigated? It was common gossip. Is this not a sample of general pub- lic warehouse methods? It is argued by the elevator men that Chicago would be off the map as a grain market if they were not here. The fact is, Chicago is fast going off the map, because they are here. When Chicago had honest public warehouses, (Siicago led every niarket in all kinds of graia. It may be said that geographical location, transportation, and other things are factors in market-making, aind some reasons do exist for other markets; l)ut no argument can be made to sustain the contention that the monopoly is a benefit. If they do bring grain here, who profits by it? Who profits by the receipts of thousands of cars of wheat which come here during the summer and fall, bought and warehoused by these elevator men themselves? Would not many more cars have come if competitidn had been more opcfn? Who profits by the recent advance in storage rates through which the board of trade tried its best to commit suicide and throttle colnpetition, and through which the innocent carrier of our futures is more seriously burdened, specu- lators handica,pped, and the warehousemen proportionately benefited? Cfan you increase trade by such an increase of burden? Chicago's location in the midstof the greatest garden in the world and the normal demands of legitimate future trade, will give her all the business she is legitimately entitled to handle, if she goes right before the people. Such a system of public elevators can never escape final destruction nor can any investigation fail to discover us as the friendly allies of the system. To unearth a friendly alliance of the board of trade and this monopoly is very likely to mean the beginning of the end. As a guide to this board as related to evidence the circuit court decision of Judge Tuley, the sustaining decision of the supreme court, the various reports of officios and committees in reference to this system, mention should simply be made that all these and more are in the files of the secretary of the board without a doubt, and as to the evidence of corruption the air is so full of that in the conduct of our daily business in the public warehousing of grain that it requires a microscope to locate transactions which are really legitimate. If our board could make such heroic attempts to stamp out bucket shops and leave the burning shame of warehouse prostitution within its own portals, even at that, is it too late to step into the arena, fortified with the sacred words of its preamble "Justice and equity " and ' 'cooperation in the furtherance of legitimate pursuits, ' ' and send an arrow into the very heart of this evil? Occasions have arisen when individual board members have sought to correct market abuses in elevator mismanagement through publicity. It is noticeable that board of trade officials have been largely instrumental in suppressing such publicity. Why should these officials attempt to prevent facts of market depravity from becoming public, unless the board of trade is likely to be a party to censure? To be plain, is it a fact that the board of trade is so intricately interwoven in market irregularities that in advertising rascals we endanger ourselves? In truth, has it not been the aim of . these warehouse manipulators to so entangle the board in their methods that the strength of the association must be suitmnoned to monopoly defense to protect the board itself? Will not an impartial study of the facts disclose the result that the board is in the toils? Some men are under the impresSioli that any effort to secure justice from the opera- tions of a combination are misdirected eftorts and are socialistic in their nature andTthat combinations have a right to live. Combination of capital may be used as a means of public benefit; such organizations in many cases tend to reduce the cost of production and is a benefit to both producer and consumer; but when a combination becomes so strong as to eliminate fair competition and is monopolistic in its nature, then, instead of being a regulator of fair competition, it creates misfortune and evil results are apparent. Then the Government should act; this case demands governmental action. Every now and then some fanciful enthusiast imagines a remedy is in sight to cure existing evils; the board of trade is aroused, a discussion ensues, and the members try to lift themselves by their boot straps. For argument we wiU admit some meager benefits have come to members from some of these efforts. In despondent moments of poor business someone suddenly cries aloud, "Legalize puts and calls," or "Es- tablish a call board," or "Increase storage rates," or "No buying by elevators at noncompeting points," or "Have an insurance certificate follow a warehouse receipt," or "Raise commissions," but the moment one cries "Down with the Grain Trust and make an honest market," which is the real great, basic, fundamental neces- sity of farm, merchant, and future generations, the board hastily assumes silence; possessed of the mental fortitude of the man who rushed into the doctor's office de- manding that "he wanted something for his head," and was met with the jest by the doctor ^at "it wasn't worth a cent." * 37214—14 6 82 GRAIN EXCHANGES. In the wild rampage of organized greed, "conservatism" is urged by the grabbers; "radicals" are denounced as agitators and disturbers of business conditions and "panics may result" is the frecjuent warning. As a matter of fact, in a country filled to overflowing, we find ec[uality of opportunity in economic enterprises destroyed. Children, who should be in school and at healthful play, displacing men in shop and factory and the basic laws of race perpetuation cast to the four winds of heaven, as if no manhood and fortitude remained to enlarge and brighten the hours of life. Be- cause of the privileges and the power of the board of trade, there devolves upon it more than passing responsibility to perform its part in the great common life of our country; and no condition more seriously concerns public welfare than honest markets, and no instrument is more powerful than this board to secure them. To assist agri- culture in the establishment of just markets has a tendency way down the line to make life more livable to the child in the southern cotton mill and the miner under- ground, not to mention the future welfare of our own children, who should receive from our efforts the chance to supersede us as well-to-do merchants, with honest competition as a part of that legacy. Conservatism as indicating indifference to de- termined action, is the firm friend of existing corruption. What we need is strong men, who will fight for that which is right, because it is ri^t even though it requires the bugle call from the housetop or the midnight ride of a Paul Eevere. Section 18 of rule 4 of the rules, by-laws, and regulations of this board reads as follows: "It shall be the duty of the board of directors, in case any grave offense or act of dishonesty committed by any member involving the good name or dignity of the association, or any act of dishonesty on the part of a member, shall come to their knowledge, either by complaint or public report, to cause a preliminary or informal investigation to be made by a committee of their number into the truth or falsity of such complaint or report; and if the said committee, after investigation, shall deem, any member guilty of such offense, they shall so report to the board of directors, with specific charges; whereupon the member thus implicated shall be notified to appear before the board of directors in manner as provided by section 16 of this rule, and if found guilty, the said member shall be suspended or expelled as hereinby provided." Why not cause an investigation? The grain exchanges of North America are preparing to fight for "legitimate specu- lation in grain futures," fearing adverse legislation in Washington. But when "legiti- mate speculation " is superseded by the bunko game now working through commercial exchanges, every honest man may be expected to fight these exchanges to a finish, and if the grain future trading can not be freed from the four-aces-up-your-sleeve, should marked-deck, and kitty-rake-off schemes of lawbreaking plunderers, then grain be left to a cash merchandizing system, with only such future trades as guarantee actual delivery, and not settlements of "contracts on payment of differences." The day has passed when the great fundamental basis of our national wealth, our crops, should be kicked about as a comciercial football and values largely regulated by operators and methods which are neither right morally or legally. Appointing dele- gates by exchanges to permit such methods should be met with an equal force to prevent such methods on the part of all reputable bodies of men in all walks of life. Grain should no more be subject to commercial juggling than should our national currency, for grain is really money, and furnishes the greater buying power of our people. Grain exchanges serve a proper and useful purpose in crop merchandising, if properly conducted, but when they permit the organized forces of graft and monop- oly to use their machinery for results which are inconsistent with public welfare, then such exchanges cease to be agents of the general public good. At a recent banquet of North American grain exchanges the toastmaster, the presi- dent of the Chicago Board of Trade, created considerable applause by the assertion that "Unless we all hang together, we will all hang separately." The delegates seemed to realize the importance of a combined, sympathetic, strong policy of defense. But why should any gram exchange be on the defensive? Why should any exchanges "hang" separately or be "hung" at all? What is the cause of alarm? Does any reasonable man believe that honest exchange operations need fear an aroused public indignation, or do not the exchanges realize that powerful forces are at work m the pits, which the exchanges fear to attack? Who should lead in proper warehousing and mixing methods but the exchanges? But now, being forced into the arena, the battle for honest markets will be interesting. There are ways and means of conserving public business, health, fair competition, and honest warehousing. The subject involves study, careful research, unbiased judgment. This question may be linked with money, transportation, and the tariff as the great issues of our day. Unusual care should be exercised by individual grain dealers, millers, producers, consumers, and various organizations in signing petitions to Congress, lest they give GRAIN EXCHANGES. 83 expression to some policy which, apparently harmless, will be the means in reality of more strongly tightening the noose around the legitimate business of the country. Do not be misled into believing that unless present guerrilla methods are con- tinued the producer will suffer. He now suffers. A radical change is demanded, and the Government should go more deeply into the solution of the problem. If the exchanges can not rid speculation of lawless control, the Government should do so. The board of trade, in order to kill oft bucket-shop competition in the future or option trade, complains of the bucket shopper because he does not expect to receive or deliver groin, and for the further reason that he practically makes a bet with his customer as to whether the price will go up or down, and that tiiis is simply gambling. The board of trade then turns around and in sounding its own virtues declares that its members do not take the "other end" of their customers' trades, but that they actually make trades with another principal, and this principal then becomes the other party to their customers' contract. They do not explain, however, with any particular emphasis that this principal may be none other than a part of the Chicago warehouse monopoly, which has frequently been advertised as the most celebrated band of commercial outlaws which has ever robbed either an innocent man, a fanner, a grain dealer, a miller, or a speculator. Much board of trade boasting on the "legitimate grain business" of the greatest market in the world is indulged in, when people complain of the losses which are the result .of future or option trading; but when the secrets of the combination of warehouse control and future manipulation are aired, the question is quite easily understood. This alliance is what Congress should carefully investigate, and what me people de- mand must be investigated, and what 200,000 fanners represented here demand. If a grain speculator has little chance of success with the bucket shopper, who does not control the course of the market, what show has such speculator with the Chicago elevator monopoly, which more than any other factor in the world, holds the power to manipulate grain values? Any student of market conditions will admit that they do hold this power. The board of trade has spent thousands of dollars fighting bucket shops. The bucket shopper is one who takes the purchase side of a contract when his customer is the seller, or who takes the selling side when his customer is the buyer. The bucket shopper is not a grain merchandizer, nor does he want the contract with his customer to consummate in a grain delivery. The bucket shopper is not in a position to control the course of the market after he gets his customer into a trade. The board of trade commission man differs from the bucket-shopper in that he does not take the other end of his customers' trades himself, but furnishes a substitute, and it is current gossip and quite general belief that the Chicago elevator monopoly is frequently such substitute. And.it is a safe conclusion that with the warehouse trust arrayed against such speculators, the speculators are almost certain to meet with disaster as the power of the market control in the hands of the trust is frequently sufficient to absorb the limited margins of such speculators. Whether this be admitted or not, one fact can not be disputed, and that is that public grain warehousemen in Chicago are now and have been for many years very heavy traders in futures or options and collectors of differences through the board of trade clearing house, and that such warehousemen do own and control almost the entire stock of grain in public storage, which it is necessary for the speculators above referred to to secure in order to fill lieir contracts for future delivery. A trader "can get out" of a bucket shop trade but can not get out of a warehouse- man's grasp. One thing in trading in a bucket shop, a customer is out when his price limit is reached. In trading with the warehouse trust a customer is out when the elevator man sees fit to let him out, or the grain "contract" matures into an actual delivery. And what has happened during delivery is history filled with misery. The success of the Chicago market rests fundamentally upon honest up-to-date public warehouse equipment, and the quicker the Chicago Board of Trade recognizes this fact the more permanent is likely to be its future. I have in my hand a letter under date of April 5, 1913, directed to members of the general assembly and members of the Chicago Board of Trade with regard to trading in both puts and calls, showing that members of the Chicago Board of Trade last spring made an effort to introduce into Sprin^eld lerislation which would legalize gambling in grain, and that such gambling in grain has been so declared by the exchange in many of its publications, which I also hold in my hand 84 GRAIN EXCHANGES. Mr. Manahan (interposmg) . Let me ask you a question there. Will you plainly state in the record what you mean by "puts and tails"? Mr. Geeeley. Yes; I will come to that. I also have a circular showing the testimony of certain members of the board of trade in which they admitted having raised funds to the extent of over $4,000 to secure the passage of that legislation for gambling in grain, at Springfield. That document shows the testimony of Robert Mc- Dougal and A. J. White, members of the board of trade, admitting their participation in th« collection of this "jack-pot" fund used in securing that legislation at Springfield. If it is necessary for the committee to have the details of the exact testimony of these men in regard to their participation in the collection of tms fund, I will be glad to have it entered into the record, but if not, I will let this gen- eral statement suffice and leave it to the option of your committee as to whether or not you wish that inserted. I also have in my hand the paper containing a general statement from Charles D. Hamill, president of the board of trade of the city of Chicago, in which statement, on February 17, 18!" 2, he makes the following remarks as related to "puts and calls": It is a pure bet that the market will be either higher or lower the next day. It is the sort of gambling that is generally demoralizing. I have statements also from Alexander Demott, of the New York Produce Exchange, in which statement, under date of February 16, 1892, he is quoted as saying: The meaning given to the "options" in the first section is known to us as a species of gamblittg called "puts and calls," which are transactions opposed to law and good morals and should not be permitted tinder any circumstances. The membeis of the New York Produce Exchange, under date of February 6, 1892, state: The New York Produce Exchange heartily approves of section 1, The evils arising from trading in options, as defined by section 1 are well known, and any legislation that will suppress such practice will be welcome. This exchange has prohibited by the most stringent regulations all "option" trading, which is known more famil- iarly as "puts and calls " or privileges. So far, therefore, as the first section of this bill is concerned, this exchange would like to see it passed. There is also a statement here of Jemison B. Smith, secretary of the Toledo Produce Exchange, dated February 18, 1892, in which he I denounce the system — Referring to "puts" and "calls" — as clearly gambling, and unlawful by the statutes of Illinois and Ohio. Great num- bers of people do not understand the separation of this species of trading from the lawful and legitimate business of the exchanges, and it casts a reproach upon them. Here is a memorial from the Milwaukee Chamber of Commerce, dated February 15, 1892: The proposed legislation applied to two distinctly different kinds of trading, des- ignated in this bill, respectively, as "options" and "futures." The first named is a transaction not regarded as commercial- in its character and is not recognized by the rules of the Chamber of Commerce of Milwaukee, nor is it permitted to be prac- ticed in its exchange rooms. We deprecate such "options" as Unmercantile, per- nicious in their influence, and deserving to be restrained by all the powers of business associations, as well as by authority of law. GEAIN EXCHANGES. 85 Here is the statement of A. C. Raymond, of Detroit, dated Feb- ruary 22, 1892: I do not defend "puts" and "calls," understand me. They are already illegal. They are already frowned upon by every board of trade, because they are simply Wagers. I also have a quotation from C. W. David, farmer, of -Wichita, Kans., dated February 26, 1892, of a similar nature and effect to that which I have quoted. Here is the last official expression on put and call legislation by the Board of Trade of Chicago before it entered into this "jaclqpot" negotiation to have them legahzed at Springfield : [Resolution adopted by the board of directors oi the Board of Trade of Chicago, March 24, 1903.] Whereas house bill No. 638, house bill No. 645, and house bill No. 679 are now pend- ing before the General Assembly of the State of Illinois; and Whereas the adoption of any of these bills would annul section 130, chapter 38, of the criminal cod« in so far as it prohibits dealing in options or so-called "puta and calls"; and Whereas the board of trade of the city of Chicago, not only since the enactment of said section 130 in 1874, but prior to that time, has steadfastly refused to recognize so-called options, privileges, or "puts and calls" as business transactions; and Whereas said options, privileges, or "puta and calls" are in fact not only devoid of any commercial character whatsoever, but partake rather of the nature of gambling or of bucket-shop methods, and are, therefore^ inimical to the market and to the dignity and good name of this association : Therefore be it Resolved by the board of directors of the board of trade of the city of Chicago, That it earn- estly and respectfully protests against the adoption of house bill No. 638, house bill No." 645, or house bill No. 679, or any of them; Resolved, ThAt a copy hereof be transmitted to the president of the senate, the speaker of the house, and to every member of both houses of the general assembly. I have also a letter from a member of the Chicago Board of Trade dated April 5, 1913, in which he says: Chicago, April 5, 191S. To the members of the general assembly and the memnbers of the Chicago Board of Trade: The fourth biennial effort is now being made to lead the general assembly, by false and misleading arguments, into the grave error of repealing the "put and call" law (senate bill 126, passed Mar. 26, 1913). The advocates of this legislation insult the intelligence of every member of the assembly by requesting them to vote to permit a form of gambling so pernicious, so demoralizing, and so degrading that if legalized it will sink the Chicago Board of Trade below the level of the pool room or crap game. With a degenerate board of trade, such as would result from this legislation. Congress would have very little patience. That plank of the Democratic platform upon which President Wilson was elected which denounced gambling in food products would be easily justified into an act that would destroy the great grain market in Chicago. If the general assembly and the element among the board of trade members advo- cating this desired to destroy the l>oard of trade, they could find no quicker nor surer way to do so than by "legalizing" puts and calls. In the early life of the Chicago Board of Trade the gambling element invaded the legitimate trading in grain by means of puts and calls to such a degree that it was recognized as a pernicious evil, the suppression of which was absolutely necessary, and the present law passed in 1874 at the instance of the grain trade. Now, after a lapse of almost 40 years, the speculative element of the board of trade ask the repeal of this act. The object, regardless of all specious arguments advanced, is to permit the messenger boy to bet a dollar, or the millionaire to bet a thousand dollars, on the price of grain for the following day. " Puts " and " calls " have no more relation to commerce than a deck of cards or a box of dice. Horse-race gambling at least inspires the breeding of fine horses; "puts and calls" breed embezzlers and financial wrecks. 86 GKAIIir EXCHANGES. This foul plot to destroy the greatest grain market in the world should be resented by the decent element in the assembly and legitimate grain dealers. Especialljr is this true when it is rumored that " undue influences " are necessary to get the desired results at Springfield. KespectfuUy, John Hill, Jr. P. S. — If the rumors in regard to a "fund" are not idle, then a legislative and a board of trade investigation should be made. In keeping with this idea of the suppression of gambling, in view of the fact that it is generally recognized, even by prominent men con- nected with the commercial exchanges, and even, finally by the com- mercial exchanges themselves, in the past. Congress and the people at large are recognizing that there exists not only in "puts and calls" but in the future trading, which we have previously discussed, a necessity for some Irind of action on behalf of organized society. And in keeping with that behef, the Democratic Party in the Demo- cratic platform iri the last campaign, which elected President Wilson to the exalted position of President of the United States, stated the following under the caption of "Agriculture": We believe in encouraging the development of a modern system of agriculture and a systematic effort to improve the conditions of trade in farm products so as to benefit both the consumers and the producers. And aS an efficient means to this end, we favor the enactment by Congress of legislation that will suppress the pernicious practice of gambling in agricultural products by organized exchanges, or others. And largely encouraged by the declaration of this strong power known as the Democratic Party — and the strong power not entirely nor by any means confined within that organization — we come here before this committee with that encouragement, to ask you to assist in passing legislation which will protect the markets of the country from this nature of trading. A "put" is a bet which the buyer of the "put" makes with the seller of the "put," which I will illustrate briefly in this way: If wheat closes to-day Jfor a given month at 90 cents, the buyer of the "put" offers to wager $5 that the next day, at 89^ cents, the market will decline to such a price under 89| cents, and he will be able to "put" the wheat at 89^ cents and make a profit. In other words, it is this, more plainly stated: A bet of $5 is made that wheat will close lower than 89i; but, to preface that, if wheat closes below 89^ cents, the buyer of the "put" has the privilege of selling to the buyer 5,000 bushels of wheat at 89^, so that if it closes under that price he may buy it in the future market at a profit and make the difference. The "call" is just the opposite. If wheat closes at 90 cents and a man buys a "call" on wheat at 90^ cents, he buys the right the next day to buy of the man of whom he bought the call" 5,000 bushels of wheat at 90^, so that if it closes above that price he will be able to call the wheat at 90^ and sell out in the future market at a price above that figure. A "put" or a "call" never in the history of the trade marketed a bushel of grain, and these state- ments, made by the exchanges and others, offered in this investiga- tion that they serve no purpose in the business of this country except gambling are true. Now, why is it that the board of trade hastened to Springfield to legaUze puts and calls? I do not claim that my judgment on this matter is infallible. I may make mistakes as to why interests do these things, but I am willing to volimteer the opinion at this time to the effect that the legitimate handling of grain in the Chicago mar- GBAIN EXCHANGES. 8Y ket was so monopolized and the conditions in trade were so unfair as related to honest and open competition, and that to a large extent the future trading had been so dominated by the warehouse monopoly in control of the cash, as well as future trading, that business on the floor of the exchange to the general membership became so limited that that competition forced them to throw open the portals of the board to $5 and $10 gambUng, in order that they might have a chance in that small way to make a living. Mr. Chairman, referring again to the warehouse monopoly, I hold in my hand the Board of Trade report of the City of Chicago for 1911, and I will quote from page 40 of that report : "And no warehouse shall be declared a regular warehouse unless" (and then other words follow, and then contmuing) "they are carry- ing on and intend to continue to carry on the legitimate business of a pm)lic warehouse and under the laws of the State of Ilhnois, and in accordance with the rules of the Board of Trade of the City of Chi- cago, and the regulations and requirements of the board of directors." No house shall be declared a regular warehouse under their rules imless they conform to the rules of the board and of the laws of the State of Illinois. Mr. Kelly. Will you put those rules in, so that we may have them in the record ? Mr. Greeley. Yes, I will, gladly. Now, then, what position can the board of trade possibly assume, in view of the evidence brought before this committee, as to combi- nations in violation of State laws relating to the warehousing of grain? It certainly must be regretted by every man in this room, when he sees this open violation of law, and then at the same time view this rule of the exchange which absolutely prohibits a house, from becoming regular in view of that violation. There can be no defense for the board thus Hcensing these lawbreakers. I hold in my hand two documents, volume 14, No. 278, Fifty-ninth Congress. On page 216 of that report I wish to introduce the testi- mony of Mr. H. G. Wetmore, showing the mixing and doctoring of grain by public warehouse men, showing that such mixing caused a constant and almost instant depreciation in the value or oats of 4 to 5 cents a bushel. I would hke to have inserted in the record a portion of Mr. Wetmore's testimony, including between the lines on pages 216 and 217 of that report. Remember such decMne affected oats generally over the count^. (The testimony referred to is as follows :) Mr. Marble. What effect does that condition have upon the desirability of these public elevators to the public? Is it possible for the public owners of grain to profit- ably store grain in the public elevators? Mr. Wetmore. It is not; no. Mr. Marble. It is not? Mr. Wetmore. No, sir. Mr. Marble. Can they depend on getting as good grain out of public elevators as they put in? Mr. Wetmore. No. Mr. Marble. Are they practically certain of getting a poorer grain, a poorer grade of grain than they put in? Mr. Wetmore. They are pretty sure to get the bottom of the grade. Mr. Marble. No matter what they put m? Mr. Wetmore. Yes, sir. Mr. Marble. Have you had any experience in that respect? 88 GRAIN EXCHANGES. Mr. Wetmohb. I never put any grain in a public elevator. I take it out, buy it, and ship it, but I don't put any in. My grain that comes from the country I don't put in ike public elevator. Mr. Marble. How long have you been in the grain business in this city? Mr. Wetmohb. Twenty-four or twenty-five years; that is, I have been in business for myself for about 18 years, probably 16 or 18 years, but I have been connected with other people's business here. Mr. Maeblb. I will ask you, at the present time, who owns the bulk of the grain in the public elevators, the public or the proprietors of the different public elevators? Mr. Wbtmorb. It is put in by the — ^it is largely put in by the elevator companies through the private houses. Mr. Marble. Through such arrangements as you have testified to here? Mr. Wbtmoee. Yes, sir. Mr. Marble. Are the public elevators of Chicago used by the public? Mr. Wbtmoee. No, sir. Mr. Marble. And as you have testified, it is not possible for them to be used by the public? Mr. Wetmore. Oh, it is possible. Mr. Marble. Well, it is not financially profitable? Hr. Wetmore. It is not financially profitable, no, and the percentage is small. Mr. Marble. Is it your experience that the inspection of grain going out of the city is the same as on grain coming into the city, or different? Mr. Wetmore. Well, it is supposed to be. Mr. Marble. I mean in the regular and ordinary practice? Mr. Wetmore. The same; I can not state as to that. I know, as I said before, that the grain going out is a "skin" grade, or the bottom of the grade, while the grain coming in is virgin grain, as we call it, and it may be very high of the grade. I know if you take straight No. 3 corn that comes into Chicago and mix it together — the bulk of it — ^it would be a very high grade of No. 3 corn, and the same grade shipped out of No. 3 corn would be very much below, and I take it on that basis. At page 154 of the same book is the testimony of Mr. W. S. Jackson, formerly president of the board, of trade, and related to his position as a "dummy" for the elevator interests. In other words, his per- mission to the use of his name in the records of the public ware- housing of grain receipts and future trading in the same, aiding and abetting the public warehouse monopoly in the evasion of the law. (The testimony referred to is as follows :) Mr. Maeblb. With what proprietor did yovL do that sort of a business? Mr. Jackson. For the J. Rosenbaum Grain Co. Mr. Marble. Only for the J. Rosenbaum Grain Co.? Mr. Jackson. Yes, sir. Commissioner Proutt. You mean you would sell a future without buying grain against that future? Mr. Jackson. Yes, sir. Commissioner Protjty. When you do that you speculate? Mr. Jackson. At the time it may be regarded as a speculative transaction. Mr. Maeble. At the time you sell that future- have you an arrangement or a moral certainty that the cash grain is going to be brought to you to complete the transaction and earn your one-eighQi of a cent? Mir. Jackson. That is my belief. Mr. Maeble. And it is done in that way? Mr. Jackson. Yes, sir. Commissioner Prouty. What is the source of your belief that the caah grain wiU come along when you make this bargain? What makes you think so? Mr. Jackson. Mr. Rosenbaum would give me an order to sell 25,000 or 50,000 bushels of wheat. I go into the market and sell it. It might stand there a week or 10 days. Commissioner Proutt. He takes care of it this way? Mr. Jackson. We take care of it. Mr. Marble. After the purchase by you of the cash has been made, has a time arisen when the cash has arisen to a preinium and there would be a chance of selling the cash wheat? Mr. Jackson. No, sir; never since I have been in this business. Mr. Marble. You heard the question put to Mr. Woodbury? Mr. Jackson. Yes, sir. GRAIN EXCHANGES. 89 Mr. Marble. How would you feel in theae transactions of yours if such an occasion should arise? Mr. Jackson. I should feel that I had a legal right to dispose of the cash wheat. Mr. Marble. Would you feel that you had a moral right to take the premium as your own property? Mr. Jackson. I would not think it was a wise business transaction for me. It would be apt to curtail my future business. Also, in the same document, pages 220 and 221, is the testimony of ex-President Wm. S. Warren of the Chicago Board of Trade, con- demnrag, in striking contrast, violations of Taw by the public ware- housemen of the city of Chicago in regard to transactions, the nature of which we have under discussion at the present time. This may be referred to if desired. Mr. Manahan. Mr. Greeley, is this testimony taken by the Inter- state Commerce Commission in the matter of investigating the rela- tion between elevators and railroads ? Mr. Greeley. Yes, sir. I hold in my hand a circular signed by various members of the Chicago Board of Trade, including its present {)resident, Mr. C. H. Canby, and other members, which reads as fol- ows: September 12, 1913. To the members of the Board of Trade of the city of Chicago: The undersigned committee representing every distinct interest in our membership has been at work during the greater part of the summer months endeavoring to arrive at some practicable and honorable solution of the one problem which has divided our association into hostile camps for many years. The result of this committee's work is found in several proposed amendments to our rules soon to be submitted to the suffrage of OUT entire membership. The broad purpose of the proposed measures can be stated in one sentence. It contemplates a bigger, better, and busier grain market, not in some other city, but right here at Chicago; and, furthermore, it intends that member- ship in this exchange shall in the future be an asset to every grain man who possesses it, rather than as at present, often a liability. It eliminates the "call" rule and the criticism that for a portion of the day the commercial activities of our members are unduly restricted and in addition removes the unfortunate situation which faces us now at least once each year, where this market is threatened with the loss of the whole or greater part of its public storage capacity. The committee has worked hard and earnestly and the result is a proposition which represents the common ground and an honest compromise, of all the conflicting interests upon the various proposals presented and considered. The committee is a unit in its belief that the adoption of liese measures will redound to the benefit, not of one, but of every interest at this market and will restore to this association a material prosperity and harmony of spirit, conspicuous of late by their absence. The committee trusts that this appeal to the membership will not be in vain, but that all who are sin- cerely desirous of "better times" on this exchange will give to these measures their unqualified support. What are the conditions that should make any membership in that exchange even a liability, unless it is in keeping with the facts which I set forth as the reason why this put and call bill should have been passed at Springfield ? Why is the market threatened with the whole or partial loss of the storage capacity unless it means that condition which was presented yesterday to the members of this committee, , that the board of trade is in the grasp of this warehouse monopoly and is dominated by it constantly ? Now what is it that this circular wants to produce ? This circular is published with the intention of crystalizing sentiment among the members of the board of trade to take from the rules the punishment to be inflicted upon public warehouse men for dealing in grain. And they claim, that in order to effect a "compromise" that will make memberships more valuable and dispense with the discord that now 90 GRAIN EXCHAKGES. arises in the conduct of business on the exchange, that to permit the violation of the law and to permit the elevator monopoly to continue to exist without punishment on behalf of the exchange, is the solution of the problem. President Canby of the board of trade signed that circular, and so did others. But in a measure, how can you blame them ? How caii the other gentlemen who signed that circular be blamed ? Are they not in the toils? Now who else signed that circular? George E. Marcy is one, representing the Gram Trust. Robert McDougal is another, another dummy whose name is used to carry on their nefarious purposes. Edward Andrew, ex-president of the board of trade is another whose name appears. There are other names upon that circular not officially connected with the management of that Institution, and I present this circular to your attention to carry out the argument which I have constantly advanced in this investigation, that the board of trade is so bound up in the clutches of this monopoly with its great game of future trading that it will have no elevators in which to conduct its business unless they grant the privileges — ^free from discipline — which these men — the elevator men — demand from the association. Poor board of trade; finally at the point where all the sacred traditions of its early past are cast into the waste basket. They- have arrived at this critical moment, when they surrender, body and soul, to this monopoly, and make an agreement by resolution, making it a part of the active machinery of me association, whereby they enter into a contract to the effect that they wiU grant immunity to this warehouse monopoly, provided the monopoly, in sending out its bids overnight, will leave sufficient margin in tne purchasing of the grain so that these men may divide the swag to the extent of haJf a cent a bushel, and permit the elevator men to make the big money in the game in placing the values of the crops of this country. I defy any man, no matter who he is, to deny the accuracy of the statements wmch I have made in regard to this proposition. The printed circular is itself the evidence. The board released the penalty. Now, anticipating what may be said by anyone in regard to the discussion which I have presented to this committee, I desire to say that the board of trade for years has served in many branches of its business as an institution deserving the confidence and respect of the business community. There is much of the business of that exchange which is legitimate, honest, and commendable. Its rules and by-laws in the main are in keeping with fairness, equity, and justice in trade. In its membership are men of high standing and ability, men who are an honor to the community and in the upbuilding of Chicago have been on the firing line in all large enterprises. I number among the members of that exchange some of my most intimate and dearest friends ; but notwithstanding the fact that all that is true, among men, even among good men, who desire things to be properly conducted, men who believe in fairness and equity, things will occasionally arise where people who are not really so inclined, enter into and create conditions which are really against the best judgment of those good men to whom I have referred. Such conditions have crept in and taken possession of that institution, and this fact is plainly evident at this time. The Chicago public warehouse monopoly, which was born in crime, rocked in the cradle of infamy, in its inception created for a purpose that was illegal — to draw grain to Chicago on the rebate sys- GRAIN" EXCHANGES. 91 tern — has entered that institution by the power of its money, the strength of its control, and has the board of trade tightly in its grasp. This investigation portrays the fact that at last this unholy alliance is generally made public. With all due sympathy for my friends on the board of trade who desire conditions that are fair and equit- able, I must say that although the 1,600 members are largely depend- ent, together with their families and the families of their employees, on the mcome from that institution for a living — and perhaps 10,000 others are connected with it and dependent upon it for food, clothing, and shelter, requiring at the lowest estimate $10,000,000 a year to maintain them — I feel sorry for them and for the fact that this investi- gation has come up at tms time; but we must concede that 1,600 members of the board of trade are not to be compared to the families of 200,000 farmers represented in this gathering, whose famihes also are dependent for food, clothing, and shelter upon the products of their toil. The Chairman. Mr. Greeley, are there any more members out of this 1,600 membership of the board of trade that take the same view of these questions that you do; men that would come here and make statements before this committee ? Mr. Greeley. Not to come here and make statements. Mem- bers of the board of trade do not come before the pubHc, as a rule, and make statements of this character, for reasons easily imagined, but there are many of them who hold many of these views. My impression is that if they did appear before the public they would probably be in the same position tnat the board of trade is to-day, in the toils. And the reason that I appear before this committee is not from the fact alone, perhaps, that I have any particular object to be gained— not for my own personal gain, for rather I think it reverts to my own financial detriment — but one reason I appear here is the fact that I recognize that no young man going out as I did on the board of trade and entering into the grain business has the opportunity at this time to enter into competition with the forces which have been discussed here and be an honest merchant and at the same time a successful man. The fundamental right of a man to earn an honest living enters largely into this question. And another reason I fearlessly come before this committee is that I am more or less independent, not having been an active partici- pant in the business for the past six years. But it is not that free- dom from active participation in the business alone which prompts me to sound my voice in this meeting, because for 20 years as a member of the exchange T sounded it upon the floor as I sound it here. But there is in aU men, Mr. Chairman and gentlemen — there is in the heart of every man — a love of common justice that will speak out now and then in fearlessness. And that was especi- ally aroused when but a short time ago, in Sioux Falls, S. Dak., and in Fargo, N. Dak., I attended two conventions of 4,000 farmers, dis- cussing the same questions which we are discussing here, where I beheld the disgraceful scene of representatives of the Chamber of Commerce of Minneapolis, headed by its secretary, McHugh — and in Fargo by its attorney — leading a band of strong-armed men to take possession of the hall of the farmers where an open, honest discussion of public questions was to take place, and which resulted in such a demonstration in trying to intimidate farmers in these 92 GRAIN EXCHANGES. meetings that it was necessary to call the police in order to put down an impending riot. And I will leave it to the gentlemen here — some of them were present at these gatherings — who will verify this statement which I present to this committee. Now, anticipating the arguments which these gentlemen will pre- sent, one of them will be this : They will state the fact that grain for future delivery is legitimate in a contract which calls for a certain specific amount to be delivered at a certain, specific time at a certain specific price and of a certain specific grade; and if anything transpires before delivery of that grain the party who has it sold may buy it back on the open market, and instead of waiting for the delivery of the property may settle the contract by the payment of his loss or his profit on that transaction. And I submit that the courts of this country have held as to the legality of that proposition. Now, then, that being true and being admitted by all who understand the law on this subject, then the further question arises as to whether or not in the large conduct of the business of the market in many htmdreds of millions of bushels of grain that are thus contracted for, if a condition arises where some particular monopoly organization inserting its ten- tacles into the intricate manipulations of those contracts, thereby forcing the parties to those contracts to sell out or buy in at a price which their control of the grain in the market will occasion — even admitting the academic legitimacy of the contract in the first instance, is it not against public pohcy that if a detriment is created against the general grain business of the country by the existence of that condi- tion, should not, then, these contracts in "futures" be abolished? And as an assistant to the grain trade of the country^ is it not wise that the Congress of the United States should furnish a properly organized system of grain inspection under civil service, so that the grain going through the marsets of the country may be properly graded, may be properly inspected as to the grade in any market throughout the country where the grain may be delivered ? Ajaother contention is that the public warehousing of grain, the inspection of grain, and the trading in grain futures are very closely allied. This is true. If public warehouses truly public are estab- lished at market centers, stop and think for a moment what an advan- tage it would be to the farming interests of this country. The profits wmch now accrue to the elevator people at the terminals would go to the farmers and the curses of "future" manipulation by ware- housemen aboUshed. An impartial conduct of these warehouses would furnish to the producer ample opportunity to mix, clean, clip, dry, and otherwise improve the condition of his grain. And it is our contention that the business is large enough, so that if the Govern- ment should institute such terminal warehouses^ such business would be profitable to the Government; that a fair charge for service could be made that would take care of depreciation, interest, and all other fixed charges of the investment and be an accommodation and assist- ance, a means of jjrofit to the producers who ship their grain to those markets, and ehminate the curse of artificial accumulation. I call the attention of the committee to this one fact, which should ever remain uppermost in your minds, and that is this : That the great evil of the future and the public warehouse system is not the few millions of dollars — perhaps no profit at all — which the public ware- housemen receive in the conduct of their business. I am not stating GRAIN EXCHAlirGES. 93 or estimating any amount of profit which they may receive, but this I do think to be true: that their operations confine the price of real grain within the limit of the piice for futures, which they largely dic- tate, and that it is an impossibility in the conduct of the business for cash grain to get outside the hmits of the futures in the ordinary normal course of business, although at times a few cars occasionally have escaped the prescribed limits. Mr. Manahan referred in his opening address yesterday to the profits which a combination may nave received at Minneapolis, 'to the extent of perhaps $20,000,000. The profits that any combine may receive in the control of this business is not the only point at issue. I make the general statement, based upon careful investiga- tion and many years of study, that the operations of the Chicago public elevator monopoly, with the assistance of the controllers of the Illinois inspection department and with the assistance of the board of trade, nave created a condition in Chicago where an average of at least 10 cents per bushel, and perhaps 25 cents per bushel, has been taken from the values of wheat, corn, and oats for the past 20 years. And if the crops of this country equaled in the last year 5,000,000,000 of bushels, we may say for safety that the average for the three crops for the past 20 years has been 3,000,000,000 bushels yearly. If they have taken 10 cents a bushel from the value of the crops by their method of setting a price upon the absolute cash gram of the country through their monopolistic methods, I would estimate that 1300,000,000 a year has been taken from the profits of the producers of this country through the operation of mixing and "future" domination. And that does not take into account any very meager millions which their operations as warehousemen may have produced for them. The Chairman. Let me ask you a question there. On the whole, can you say whether or not these things that you have just stated, during the last 20 years, have depressed or enhanced the price of the products of the farm, the grain products ? Mr. Greeley. They have generally heavily depressed them. The fact of the case is that these men at times take the other side of the market when grain is scarce, and wiU enter into speculation in these contracts and will force contracts to a price that they wish, necessary to absorb the margin money of unwary investors who have taken the other side, the short side, which the elevator men usually assume in the hedging of his business. Now, as regards hedging, these men wiU advance the argument that "what we need in these markets is some place that we can hedge." Let it be known to every man throughout this country that this thing they call hedging will never be necessary when you take from the market this illegal system of dominated future trading, which can be enhanced or depressed at the wiU of these men. They say that bankers wiU more readily advance money when a man's wheat is hedged. What is the security for a banker, the hedge? No; the wheat. Now, which would be the better security for a banker to advance money on, wheat treated and mixed and doctored to the "lowest of the grade" held in a pUbHc elfevator by these pro- prietors, manufactured in these hospitals, or good wheat properly placed in public storage, under the supervision of the United States Government ? Quality means security. As to the safety of a hedge 94 GEAIN EXCHANGES. and the security of the banker on wheat in a public warehouse con- ducted by J. Rosenbaum, when screenings were stored as wheat, as a matter of fact it was disclosed by the evidence in this case, by the board of trade itself, that from 50 to 260 bushels of screenings to the car were placed in public storage by the pubHc warehouseman liimself. Would that ever be occasioned if a system of warehousing grain were introduced whereby the grain would be held by an inde- Eendent custodian with the power of the United States Government ehind him, and an inspection certificate which would be honored aU over the world for public grain held in storage in a public elevator ? The Chairman. Do you mean that there are ever more warehouse receipts issued than there are actual bushels of wheat in those elevators ? Mr. Gkbelby. In the Eosenbaum case, yes, there would be ware- house receipts for more than the bushels of the wheat in the elevator, because in the case I referred to the screenings in the elevator were considered as wheat. Of course, it was chaff. But in the general conduct of the business I would" say no, the amount of wheat is there represented by the receipt; but the trade has been shocked by an instance of where thousands of bushels were not on hand as repre- sented by the receipts outstanding. The Chairman. If there are three hundred times more of these transactions than there are actual bushels of wheat, then how could the wheat be a security for the banker on these hedges in all those cases ? Mr. Greeiey. It would only be a security on the wheat actually held in the elevators ; a small proportion of the great bulk of futures sold. The banker makes no discrimination in regard to the trading in futures. He does not become a party to any security for any of those future or option transactions. That security is between the firms transacting business on the exchange one with the other, and the banker is not at all interested in that. It seems to mo almost a sacrilege to place upon the records of the Congress of the United States the history of some of the men connected with the methods which I have described; and I have thought after giving it serious consideration last night that I would not, for the sake of their families, mention some of the outrages perpetrated by these mfin in the conduct of that business. In fact, I nave in my possession locked up in safe-deposit vaults, sworn testimony which I believe, and which my attorneys believe, would place some of these men behind the bars. If this seems a bold statement, and if the methods of some of these men should be brought to light, at proper request I will, without hesitation, submit that evidence. The cost of carrying grain in a pubUc elevator — 5,000 bushels of wheat, at 90 cents, $4,500 worth of property eight months in public storage, interest at 5 per cent on $4,500 — equals $150, or 3 cents a bushel; insurance for the same length of time for the same quantity of grain at the same price, at 2 per cent, 1 i cents per bushel, equals $75, making a total cost of $225. If a public warehouseman carries grain in public storage, say, from September to May, plus the cost of the management of ^the elevator, he would pay 4^ cents a bushel. If a man in competition with that public warehouseman as a merchan- dizer of grain desires to carry the same 5,000 bushels of wheat at the same price, the same cost, in addition to the 4^ cents a bushel, he GRAIN EXCnANGES. 95 has to pay 8 cents a bushel storage charge. In other words, the competition in the Chicago market discloses the fact that a ware- houseman can carry grain in storage eight months for 4J cents a bushel, plus operation, whereas it costs the outsider 12 J cents a bushel, and the 8 cents per bushel which the outsider has to pay for the carrying of grain in pubUc storage is paid to the licensed public custodian, who has an elevator made regular by the Board of Trade of the city of Chicago, and that elevator man stands to-day as the competitive merchandizer of the conxmission man, the grain dealer in that market, and that is one reason that about 95 to 98 per cent of the grain in public storage in Chicago is controlled by this monopoly. And if this investigation goes any further you may examine the records of the Illinois State registration department " in the city of Chicago — the pubUc records — which will show that if you take a microscope and look back for years it will be almost impossible to discover grain sent to pubhc storage and merchandized there by any other than the proprietors themselves out of the hospital mix- ing houses, to which I have referred. And in the conduct of the suit conducted by Mr. Robbins in the interests of lichstern against Rosenbaum I myself secured the data from the records in which Rosenbaum was interested, and in the conduct of the Rosenbaum public warehouse it was almost impossible to find all through the records, month after month, a single individual who had put grain in a pubhc storage on account of the opportunities which the monopoly possessed to crush all outside competition. Mr. Kelly. What would be the approximate cost of the manage- ment of these elevators, or these public warehouses ? Mr. Greeley. As to the management of the elevators I do not know. I know they are conducted, so they must be doing it at a profit. But there should be no profit in the conduct of a pubhc elevator. The word "public" does not contemplate that any man should receive a profit. The mere fact that elevators are used for public purposes, our contention is that no profit should exist. It should be controlled by organized society.- But having grown up in the system where private parties put their money into elevators, in some instances, and where railroads give elevators free of charge in other instances — Shaving grown up under that system, it is not remarkable at all that we should be in this plight in which we are to-day. And that brings me to a statement which I think is largely true: That when any great unrest occurs in this country, when any great agitation is aroused as to monopoHstically controlled enter- prises, you will generally find, gentlemen, that the cause of that monopoly exists in the usurpation of what should be the public -function of government, usurpation by a private individual, where a private individual assumes the duty which the State itself should perform. Or, stated in another way, the creation of this unrest is occasioned by the fact that the State refuses to perform to the individual that function which the State should perform in the exigency of the hour. And this is an exigency of the hour, a tremen- dous question which has come up at this time for solution, when, as I said in my opening remarks yesterday; we are confronted with a volume of business involving every year, in three crops, five billions of bushels of grain, which at an average of 50 cents a bushel is worth $2,500,000,000. 96 GEAIN EXCHAKGES. These figures are so gigantic that the ordinary mind can scarcely comprehend them, and we see an organization at Chicago intrenched in violation of the law, shaping and dominating by an illegal control of a system of contracts, by which they are able to exceed 300 to 1, and many more times 300 to 1, the actual receipts of wheat. When we see that condition existing, are you really surprised, Mr. Chairman, that there is a cry for relief? You gentlemen, coming from the South, where cotton is grown, must have some idea as to what the great problem means, and if there is a member of your committee representing the State of Kentucky here, certainly these facts must inspire within his imagination and memory certain conditions that existed in the tobacco industry in his own State, when to meet the depredations of a monopoly in tobacco, you, sir, must remember that your own people were driven to what some may term anarchy to secure redress, but what perhaps was only the righteous indignation of these people who were under similar conditions to those to which I have referred in regard to grain. Mr. Canteill. i would state to the gentlemen there, that in large measure we secured relief in Kentucky by placing on the statute books legislation which has been enforced. Mr. Gkeblet. Good. Mr. Cantrill. As applying to warehouses and the pooling of crops, the seUing of crops, etc. It seems to be your contention here that your laws in Illinois are not enforced. Mr. Geeeley. My contention is that the laws of the State of Illi- nois are not proper laws for the solution of this q^uestion. The farmers outside of the State of lUinois have no voice in the making of Illinois laws. The grain of this country is a necessity and the business of Chicago as related to markets to that extent far beyond the limits of her own State. It is interstate. Mr. Canteill. For instance, it has been only about two months since the Imperial Tobacco Co. was convicted of monopoly in Ken- tucky. If you have a monopoly in the grain businiess there, would it not be possible to convict them under some State laws? The tobacco monopoly was convicted in Kentucky under the State'lawS. Mr. Greeley. It is impossible to convict them under the State laws on account of their poUtical control. Mr. Cantrill. You mean to say, then, that the board of trade in Chicago controls the courts and the legislature, so that you can not make laws and that you can not get a judgment of the courts to cai'ry out your laws? Mr. Geeeley. I mean to say that in 1896 an injunction was issued by the Circuit Court of the State of Ilhnois, afBrmed in the supreme court of the State in 1903, and never since that time, except once, has anybody attempted to enforce the injunction, except Lichstern, and we could get no redress in the State of lUinois. And not only that, as this is an interstate proposition, if the grain business of this country is interstate, the simple fact that aii antiquated Illinois law exists is no rea,son why we should not now appeal for larger and broader legislation as the needs of the occasion require. Mr. Canteill. You made a reference a good many times yester- day to this practice of J. Rosenbaum & Co., of mixing their grain and perpetrating frauds, and so forth. Have you in your possession evidence that other members of the Board of Trade of Chicago have GRAIN EXCHANGES. 97 done that, or do I construe your statement to mean that it is not the practice of members of the board of trade to do as J. Rosenbaum & Co. have done ? Mr. Greeley. It is the general practice of the elevator monopoly to do as Rosenbaum does. Common report says Armour did it. Mr. Cantrill. And it is the practice now? Mr. Greeley. This mixing is the practice now and always has been. It is the general system. It never has been otherwise; they always did do it since 1887. And another thing is true, that the men who should correct these abuses are not doing so, chieiiy among the members the board of trade. The opposition is less every year to these transactions on the exchange. There have been some men on the board of trade who have fought this elevator monopoly; some officers of the board of trade have been very active in trying ■to eliminate the rascality, and I mention among them chiefly W. T. Baker and W. S. Warren and John Hill and others. But the fact that these men have fought at times to prevent this condition is no excuse for these men here not doing it now. In fact, it ought really to be an encouragement to all administrations since these men held office to try and dispose of this monopoly. I have taken up a great deal of time in the discussion of this case. I have in my possession, in addition to the papers which I have brought here, I should say, a large valise full of similar evidence. It would be almost impossible to present all of it. It is said that perhaps this should be an administration matter to secure public warehouses, Federal inspection, and prevention of future trades as dominated by this monopoly, and that action should be taken against the commercial exchanges for their alliance with this monopoly. But I contend that it should be no administration measure. It is not a measure for any faction, any party, any clique, any committee, any fine work, any attempt at doing star-chainber methods, if any such ever did exist or ever will or ever do. This is a question for the broad open daylight, for fair, honest discussion on real merit. And I care not whether a man is a Republican or a Demo- crat or a Socialist or a president, or a banker, or a school-teacher, or what he may be. This problem is so great in its importance that if, should be seriously met, regardless of any administration of any kind, shape, or form. This is a matter of principle, of fairness, oi justice, and equity, and in closing, touching upon that subject, let me quote the words which I committed to memory in my childhood : Loyalty to principle is Mgher than loyalty to party. One is a heavenly sentiment from God; the other is a device of this earth. It is said that we wUl throw away our votes, and our opposition will fail. Fail, sir, no honest, earnest effort in a good cause ever fails. Did the Christians faU. when with their precious blood they sowed the seed of the church ? Did the 300 Spartans faU, when in the narrow pass they did not fear to brave the innumerable Persian hosts, whose . very arrows darkened the sun ? No ; overborne by numbers, crushed to earth, they have left an example greater far than any victory. . And this is the least we may do, our example will be a source of triumph hereafter. I thank you, gentlemen, for so patiently Hstening to me in pre- senting so fully this exceedingly difficult problem. 3T214— 14 7 98 GRAIN EXCHANGES. The Chairman. It is now five minutes until 12 o'clock, and some of us have to be on the floor of the House at noon, so the committee will take a recess until 2 o'clock this afternoon, and resume the hearing here. AFTER RECESS. The committee reassembled at 2 o'clock p. m. The Chairman. The committee will be in order. Mr. Manahan will proceed with the hearing. Mr. Manahan. Mr. Magnus Johnson, of Minnesota, a farmer of that State, has some remarks to make to the committee. STATEMENT OF ME. MAGNUS JOHNSON, OF LITCHFIELD, MINN., PRESIDENT STATE UNION AMERICAN SOCIETY OF EQUITY. Mr. Johnson. Mr. Chairman, and members of the committee, it is not necessary for me to tell you that I am a farmer, and I am proud to tell you that I am a small farmer. I am that kind of a farmer that we need in this country, and I will now take a few minutes of your tinie to tell you what the farmers in my vicinity have done, what they are doing, and what they intend to do in the future. I come from a community where we have a lot of people. My county, Meeker County, is recognized as the banner county of coop- eration in the State of Minnesota, the great cooperator. Sir Horace Plunkett a little while ago stated at St. Paul that the State of Min- nesota is the banner State for cooperation in this great Union. About 20 years ago — ^between 20 and 25 years ago — ^we started in with mu- tual fire insurance companies, and I am glad to say that to-day they have proven to be a success. The last report of our State insurance commissioner, Mr. Preuss, stated that it only cost the farmers of the State of Minnesota not quite 20 cents a hundred to insure their farm property in these mutual insurance companies; but it cost $1.25 to insure the same kind of property in the old line companies; and there is no man who will dare to contradict me in the statement that the farmers have made a success in that line of business. But we did not stop there. We. went further. We began to organize cooperative elevators, and I am pleased to say that that has proven to be a success, although there are a good many points where the farmer's elevators are in the hands of the business men, principally the bankers of the respective towns, and the business is controlled in such a way that the farmers of that community where such elevators are located can not get the benefit of the cooperation by belonging to those elevators. I was at a meeting in New Rockf ord last week, and I met a man there who had had a share in an elevator at that place a fewyears ago — he paid |25 for the share — and he sold it to the banker for $75, and I was told that they even paid higher for the shares in order to get hold of them. I just mention this to show to you that the farmers' elevators are not a success all over my State, and they are not all a success in South Dakota and North Dakota, either. But the majority of the farmers' elevators to-day are a success, and they will be more successful if the farmers themselves controlled these elevators through their own stockholders. GBAIN EXCHANGES. 99 Before I say anything more about elevators — I am coming back to that subject in a few minutes — I wish to mention to you that there are other lines that we, the people, are managing, and are making a suc- cess of by cooperation. There are shipping associations that we have organizeo. and are organizing them week after week. I can mention to you town after town where during the last two- years we have organized shipping associations, and I have yet to find one place where we have made a failure. There are a good many points, of course, where we have strong competition, but we are still in the field, and we are determined to st&j in the field to make this thing a success. My neighbor, Mr. Halvorsen, of Litchfield, has been organizing many of these associations in Minnesota, and we are now going into the State of North Dakota to organize these shipping associations. We have not only organized shipping associations in the country, but we have concentrated — that is, the American Society of Equity in the State of Minnesota has concentrated — their efforts on a certaia commission firm at St. Paul The Chairman (interposing). Let me ask you a question there. We want you to talk here just like you would talk to your neighbors. This committee simply wants to get the facts, and I want to ask you what you mean by these shipping associations. I do not know that I quite understand you. Mr. Johnson. You do not know anything about live-stock ship- ping associations ? The Chairman. No. Mr. Johnson. I will have to tell you about that. There is one of these associations in nearly all the small towns throughout the State of Minnesota. Before that, you understand, for years and years, there was a live-stock buyer who bought this live stock. Now, take Litchfield, for example. Litchfield is the county seat of Meeker County. We had at one time there five different live-stock buyers. A. few years ago Mr. Halvorsen, who was a farmer out in the country there, moved away from the farm and came into town, and he had this scheme in his head to form this live-stock shipping association. He talked with a few farmers about it, trying to get them to come in with him, and he told these farmers to come in on a certain day — - let us say Tuesday — and to telephone him or write him, send him a postal card, saying that, for instance, "I will deliver to you a carload of hogs Tuesday," or whatever it was he had. Another farmer would write, "I will deliver to you so many head of cattle, so many veal calves," and if he would get a carload on Tuesday he would ship on Tuesday. If he saw that he was going to get enough together next Tuesday he would ship on that day, but if he can not ship every week he ships twice a month, or three times a month, according to the season. Now, Mr. Halvorsen has a system to run this business. When I bring in a veal calf to him, for instance, he marks up my name on a record that he keeps — my name and post-office address, and one veal calf for me. He has a column there, on the date and everything all ready. Then he has a marker in his pocket and he marks Roman figures on that caff — No. 1, or whatever it is — and then I get a receipt from Mr. Halvorsen that I have shipped that calf. Suppose I have brought in a cow also. He will do the same thing, put the mark on the cow and give me a receipt for the cow on the same sUp. Now, suppose 100 GRAIN EXCHANGES. I had brought in a carload of hogs, and suppose half of them were No. 1 and half were No. 2 — now that is, I have No. 1 hogs and my neighbor has poorer hogs. No. 1 will bring a better pnce on the market than No. 2. "fiie expenses are practically the same, you understand, on the poorer hogs as they are on the good ones. Now, when he gets in my hogs — suppose they are No. 1 — ^he gives me a re- ceipt for them, and when the nogs go down to the market he foUows the load. Now, after Mr. Halvorsen got this started, he was told by a good many farmers, progressive farmers around Litchfield, that he ought to advertise in the paper and tell people about this scheme. But he was kind of a modest man, and he said, "I will go down with two or three carloads, and if I make a success of this, that will be . enough advertising for the community, and they will come into it." He did not spend a cent in tfiat way, and all he did was from the con- fidence that the people had in him to go down to market with their stock and sell it for them. That is a great thing with the farmers, to have their confidence. It happened that the first three or four car- loads that Mr. Halvorsen went down with, the other buyers were shipping on the same date, two or three of them, and they were sitting there laughing at him and saying that he would not go down with many carloads before he would get tired of it. But let me tell you right here, that Mr. Halvorsen has made a success of the business and these other fellows are out of it. They had to go into some other business, because this shipping association has proven to be a success, and last year, according to the statement at the annual meeting, they shipped 161 carloads of stock, if I am not mistaken. I know the Hutchinson association had 170 carloads of stock, but they have bigger territory. The first year Mr. Halvorsen shipped 14 carloads and the next year 36 carloads, and then it kept foing higher and higher, and to-day he is dominating the market m litchfield. Now, if Mr. Halvorsen is not able to go down to South St. Paul with the stock, he sends his neighbor down there to look after this stock, but if no one goes with it, he gets a commission firm down there with whom he can account to sell the stock, and this statement goes down with it. For instance, Magnus Johnson has a carload of so many hogs, one veal caK, one cow, and so forth. These are sold, and whatever my cow brings, that is in there; whatever my veal calf brings, is in there; and what my hogs bring is in there. Then, of course, Mr. Halvorsen gets 5 cents a hundred for everything, it does not make any difference whether it is hogs, cows, or veal calves. He just gets 5 cents a hundred for his work. Then he figures the commission that they charge, the freight and everything, so much a head for cows and veal calves and hogs — everything is put up by the commission firm, you understand, and this stateinent 13 made up with the commission, and freight and everything deducted, and when he comes home he files this statement. There is a shrinkage sometimes, perhaps, but Mr. Halvorsen is so successful that he generally gets an overrun down there. There are times, of course, where there is a shrinkage and a very bad shrinkage, but Mr. Hal- vorsen generally gets an overrun, and all that overrun goes into the sinking fund. Now, if I ship a hog to Mr. Halvorsen and if I lose that hog— of course if I send it to the old buyer, as soon as the hog is delivered at GRAIN EXCHANGES. 101 Litchfield the old buyer becomes responsible and if he loses it I get my raoney anyway. Now, when all the farmers shipping with the association, they are bound to have a sinking fund, and if a cow is lost, or a hog - sometimes hogs die -I get my money from the association just the same, so I am protected in every way. Mr. Halvorsen comes home to Litchfield with the statements and I tell you he is a very busy man. He is also manager of the Litchfield Creamery, doing from $80,000 to $90,000 of business, and when you go into his room it is just hke going into the office of a big firm in a big city. He has the confidence of the people, and that is what is needed in this business. Now, when these statements come from the commission firm, he figures out what is coming to me, and to everyone, and if there is any error, it has printed on there, '"please mention any errors." Everything must be satisfactory to the people in Litchfield. We have practically wiped out all competition there, except a Mr. Johnson, who is shipping a carload occasionally. Now, where I am a director in one of these shipping associations in Minnesota we have a strong man as a competitor, and that man has financial relations with many of the farmers, so they are shipping their stock to him. But we have found this to be the fact, smce these shipping associations were organized, that that man is bound to pay the top price before he can get the stock from these farmers. The Chairman. I have the idea, now. I diverted you from your course back there. Mr. Johnson. Is that all you want to know about shipping associa- tions ? The Chairman. Yes, that is all. Mr. Johnson. I was going to tell you what the farmers have done and what they are doing and what they intend to do. I do not think I mentioned the insurance companies that we have organized, but I want to say that we have made a success even of the telephone busi- ness. But we farmers are never contented. We are all the time after more and more, and we, the farmers, have succeeded not only in the formation of these associations, the mutual companies, but there are other things that we have accompUshed which I wiU not take up your time to mention. But there is one thing I want to mention, and that is, we have put into out State legislature and we have helped to put into this Congress men with progressive ideas, that we know will stand by the farmer and wUl work for the farmer, and we aragoing in the future to put every man who runs for office on record in this great Northwest country, and if that man does not obey the wishes of his constituents over there in Minnesota, Wisconsin, North Dakota and South Dakota, we will elect that man to stay at home. You may think that I am putting up a bold statement to you, but it is a fact, and the results for the last six or seven years will bear me out, that the reactionaries are bound to stay at home, because they do not represent the common man. As I said, I am a small farmer, and I am glad of it. What we need in this country is small farmers, and I tell you that in my township we have the vote. Now, let me tell you further what we have accomphshed. We are doing a good deal of buying in bulk and eliminating the middleman, but I am not going to touch upon that subject. Two years ago, at Fargo, I was elected one of a committee of five to get up a market 102 GEAIK EXCHANGES. convention to be held at the city of St. Paul in the spring. We got together, the committee, and we tried to get the best speakers obtain- able for that occasion. We tried to have a market convention, not only for grain but for other things that were raised on the farms so that we could sell from the producer directly to the consumer. The question came up at the , convention of the Equity Cooperative Exchange, which was formed a few years previous. That exchange is incorporated under the State laws of North Dakota, and I wiU say that the Equity Cooperative Exchange has not had a chance to make any progress. They tried to have a man at Minneapolis who was going to sell a few carloads of grain for them, but they were up against a great monopoly, a great combination, and they could not do any- thing. But it shows that the farmers were the ones that started it; that is what I want to impress upon your minds, that it was the farmer that started it, and we have been going ever since. One of the speakers at the convention of South Dakota, a lawyer of Still- water, Minn., told us that we farmers did not know how to do any- thing; that it takes a lawyer, an efficient man to show us how to do things.' But I called that man down^I am ashamed to tell you that that man is working for the State of Minnesota and is paid by the State. He was on the pay roll of the State of Minnesota when he came there, and when I got through with that man he came down and shook my hand, and said, "Mr. Johnson, I promise you that I will never say those words again." But still that man is on the platform, and whenever there is any meeting like they had the other day, when the combine wants to have a speaker, he is there representing the combine. The Equity Cooperative Exchange is broadening out, it is growing every day, and will continue to grow. During this marketing con- vention a good many things were talked over that 1 would not take - up your time to tell you about; but I was appointed a committee to call on our honorable governor, to call on the warehouse commission, ajid to call on the secretary of the chamber of commerce, Mr. McHugh, who is in the room now. 1 was to call upon them and find out what they were going to do, what they thought about the convention, etc. When I left the room in the old capitol building at St. Paul I said to the convention, "1 wiU ask the secretary of the chamber of commerce to come over and address you." They laughed in my face. They thought that was the biggest undertaking that ever could be done, because they said he would not recognize me. When I came into Secretary McHugh's office he was very nice to me and said, "1 wiU come over and talk with you, and I will answer any questions." So I must say that Mr. McHugh was very nice to me, and when I came back and read over the message from the honorable fovernor it was quiet in the room; but when 1 read the message that had the promise of the secretary of the chamber of commerce that he would be there to-morrow to address the convention I tell you there was a roar in that hall. We were beginning to knock at the door of the chamber of commerce, and, let me tell you, we have been knocking at the door ever since, and M^e are going to continue to knock at their door. Now, I must admit that the market convention did not accomplish much, but it was a step in the right direction. We had one last GEAIN EXCHANGES. 103 year, and we are going to have one on the 20th and 21st of next month, to talk over these things that are of benefit to the farmers. Before the holidays we were advised that the highest official of our State, our honorable governor, was going to hold a conference with the farmers in the city of St. Paul to discuss matters of interest to the farmers of om' State. Whom did he call down there ? He did not caU a single farmer down there, but he called bankers and county agents. That is all he called down there. So, if we are going to have a meeting now, we must call it ourselves, and we do not get any State appropriation, although our taxes have gone up from 2.7 to 5.9 mills. Extravagance. Our taxes are coming up, and if we are to have the benefit of it, we, the common people of tne great State of Minnesota, we, with families who toil in the heat and m the cold, who have to go out and feed these veal calves, and milk those cows, and slop those pigs, etc. — if we are to have what is due us, we must organize; we must have more farmers in the State of Minnesota to join hands with us in this fight. Let me tell you what happened in my own county, before I quit on that subject. According to the last Government census, issued three years ago, covering a period for 10 years previous, Meeker County, in the heart of Minnesota, 65 or 80 miles from the large cities, went down in population 737, although Meeker County had on deposit in its banks, more money than any other county in the State of Minnesota, in proportion to the population. The village of Litchfield has more money in its banks on deposit than any other city in the State of Minnesota, according to its size. That statement was brought up before the bankers' convention at Duluth, I believe it was, last fall. But let me tell you a little bit more about the census. If we look up the Government census, we will find that our Nation has increased in population from over 21,000,000— or nearly 21,000,000, I can not say for sure -in the same period, although we have had farmers' institutes and speakers for the last 20 years, telling us how to produce more and more, our beef supply has gone down several millions, sheep several millions, and hogs a good many millions. Why is it that South Dakota is going backward in population? Why is it that Iowa, that grand old agricultural State, is going backward? It is up to the legislatures of this land to try to find out the remedy for these things. I spoke at a banquet at St. Paul a little while ago, and I put it up to those fellows. I was talking to the live-stock commis- sion men in St. Paul, and I said to them, "the farmers in the country want you fellows to try to help us make laws that are favorable to the farm^ers, so that they will go back from the city to the farm, so that I can keep my girls and boys on the farm, so that they will be contented, so that we can make farm life more comfortable and better. Now, how are you going to do it?" One of my neighbors sold a 200-acre farm the other day and put the money in the bank, what he got of it. The man that bought it only had about $1,200 to put into the farm, and he probably got his capital from some eastern State through some bank. Now, I tell you that man will never pay for that farm unless he has good luck, good times, and good crops, etc. If he has not, he had better not own a farm. Let me tell you now what the records show from the State of Iowa. They were investigating the question there a short time ago, and they proved 104 GRAIN EXCHANGES. that on 180 acres average farm the renter in the State of Iowa is making $400 more than the owner of a farm himself. I mean if a man owns a farm and farms it and another man rented another farm, he would make $400 more than the man that farmed his own farm. Now, I think I have said enough on that subject, and I will go back to the farmers' exchange. That will be the principal part of my talk. As I said, we did not make much headway in the Equity Coopera- tive Exchange for two or three years, and you could not expect us to make much headway under the circumstances. If I was going to try to tame the buifalo, I would not go to the buffalo and takenold of him by the horns. It would be useless for me to do that. I ought to have some other method to get after these fellows, and we, the common people, we are scheming, we are getting together. We are figuring out how we are going to get this thing coming our way, and the best way is to go to the legislature, to go to the halls of Cpngress, and let them know our demands, and if they know our demands, and if we do not demand anything that is unreasonable, we will get them. We fought 15 long years for the parcel post, and we have got it. We fought m my legislature a good many years for measures that are beneficial to the farmers of my State to-day. We have gotten some of those measures through. A good many people tell us, "You farm- ers ought to be contented; you are independent; you ought to stay at work; you should put your nose down to the plowshare and let us take care of your busmess." But the farmers of the Northwest, the farmers all over this Nation, to-day are in better position to demand what they want, and we will demand, and if we do not get it to-day, and if we do not get it next month, and if we do not get it next year, we will get it, because the 12,000,000 of farmers have got the power to get it. I will now return to my subject. In August, 1912, the Equity Cooperative Exchange, was incorporated, as I said before, under the laws of North Dakota, and entered the Minneapolis market. In entering that market we were bound to have a man that we could depend upon. We were bound to pick out a man like the farmers of Litchfield picked out for their shipping business. We tried to get first this one and then that one, but in talking things over there were some objections to them — the farmers are not such fools as some people think they are — but finally we picked out a man — ^and the best man that could be found in the country for that business. His name is George S. Loftus. Everybody in this Nation ought to know him. He has done more for the people of the State of Minnesota, and not only for them, but for the people at large over this great continent than probably anybody else. That is a pretty broad statement, but I think we ought to have the credit for picking out a man with the ability and with the courage to stand up for his convictions, and we have got him, and he is making a success of the Equity Cooperative Exchange. He has handled since last August — since last fall- between seventeen and eighteen ' hundred carloads of grain. His records are open to anybody to look over. The record shows whether the car came from South Dakota, or North Dakota, or Minnesota; who it come from; it shows every transaction on that carload of grain until it is at the point where it is sold. It shows the returns, the GEAIN EXCHANGES. 105 expenses and everything. Although the grain combine are circulat- ing false reports about this Equity Cooperative Exchange The Chairman (interposing). Now, tell me just what you mean by the grain combine ? Mr. Johnson. The grain combine at Minneapolis is the dealers of Minneapolis, the chamber of commerce. ■ The Chairman. That is the grain combine, is it ? Mr. Johnson. I call it the grain combine because the commission men and the elevator companies are in together, and together with the highest officials of the banks of that great city of Minneapolis, are the controlling power of that institution. Let me tell you, Mr. Chairman, that we tried to sell our wheat in the city of Minneapohs, and we could not find the mill in the city that would buy a kernel of that wheat, although they could get the virgin wheat from the fields of North and South Dakota and Montana, but they would not buy it. We have letters to prove that Mr. McHugh wrote a letter to North Dakota telling them that they, millers of Minneapohs, do not buy cooperative exchange wheat. The Chairman. You do not claim that the railroads were in this combine, do you ? Mr. Johnson. The railroads ? I want to tell you something that happened in October of last year. When our wheat was coming in the fastest — now, I am not calling this business my business, but of course it is our business. Mr. Loftus does not own a share of stock in it, I do own stock in it, Mr. Manahan does not. He never had a cent out of it. It is a strictly cooperative concern, because after an 8 per cent dividened is declared to the stockholders the patronage basis is applied. If you ship 50,000 bushels of wheat you get a pat- ronage dividend for that amount ; and if you ship more you get more, and if you ship less you get less. Now, it happened one morning, when Mr. Loftus came to his office in the grain exchange building, that he had a telephone message from an official of the Great North- ern telling him, "We will not transfer your cars." In an hour from that time he got a message from one of the officials of the Soo Line telling him the same thing. In a little while he got a message from the Northern Pacific telling him the same thing. Well, Mr. Loftus telephoned to the elevators and tried to unload. Every elevator was full; of course they were, although we know they were not full. Mr. Loftus is a railway expert. No man can beat him in transportation, no living soul. He told me that he did not know what to do, but when the farmers are in a fix there is some way out. He finally wired Mr. Manahan at Washington, and when he went home that night he did not sleep at all. The next morning the roads had a message from Mr. Marble, the man who is dead now, from the Interstate Commerce Commission, to let the cars go through. Is there a railroad combine? Do you want to ask me anything more about it? If I could talk to you for 24 solid hours — I used to talk that long, but I am getting old now — I could tell you, Mr. Chairman, of all the abuses and everything that was done to cripple this little one-horse affair by the chamber of commerce, but is not a one-horse affair now. It has got two horses and it is getting along fine. Now, what we want is legislation. That is what we came down here for. You might have seen a great big committee on this side, 106 GBAIK EXCHANGES. but we could not afford to send down the men. We picked out a few, and we have prepared our case. I did not want to come myself, although I would have liked to ,do it, but I thought I could not afford to, because my farm needs attention. But it may be that what I lose on my farm, probably my neighbors will gain, and like a good many others, perhaps I am working for the future, and if 1 do not get any reward for it, wh\, lot it go. I know that I have done my duty. At Sioux Falls, S. Dak., we had an nsiociation meeting on the 2.5th or 26th of December. In that meeting the chamber of com- merce was represented. They were represented in that town just as well as we were. Previous to that time a committee was appointed to go over and investigate the grain exchanges in the city of Minne- apolis. The committee came back and unanimously reported in favor of the Equity Cooperative Exchange. At this meeting the chamber of commerce speakers tried to criticize this committee's indorsement of the Equity Cooperative Exchange. They had a man picked out there to do their work, but the first man they picked out declined to do it. He was a farmer and he stood up for the farmers and nothing but the farmers, but they finally got one fellow to introduce a resolution. I was down there with the farmers from Minnesota to try to see if we could give a little assistance. A motion was made to lay it on the table, and we were about to have a vote on this proposition whether to put it on the table, or not. I began to wonder myself whether we were going to lose. But I used to have hopes within my breast, and i have hopes to-day. After our speakers had talked to the farmers of South Dakota and after the chamber of commerce was represented by their secretary and one of their directors, when the vote was taken for officers every- one of those nine officers was reelected by a big majority; and the man for president, who was nominated by the chamber of commerce crowd got only 17 votes. The chamber of commerce was represented there, 200 strong, with great celebrities and officials and people in town that were backing the chamber, but they had to go to Minneapolis without anything. I think the chamber has been feeling that licking ever since, like the schoolboy whose father told him, "Why, Willie, I did not know until yesterday that you had got a spanking." "Why," said Wilhe, "I knew it all the time." They have found that we can get at them, and when the Equity Cooperative Exchange had their annual meeting at Fargo the same crowd was over there well represented. Whenever we have a meetiug we invite them to come over. We hke to have open debate with them. We have had debates and they have found that they are licked in every debate, and they have refused to come out any more in open debate. Why? Because they can not stand up. Their speakers are not sincere. They do not have the sincere ring in their speeches and the farmers know it. What happened at Fargo? Let me tell you. One of their rep- resentatives, Mr. S. D. Worlcs, one of the State senators in Minnesota, was one of their representatives — and we called upon him — we called upon others by name, but none except Works came to the platform, and he came and talked for 10 minutes. He did not answer any ques- tions but just told us how he was elected, etc. He is a big farm owner in North Dakota and Minnesota, and he said that he was going to GEAIN EXCHANGES. 107 the people at the auditorium that night; that the meeting that day was going to be closed. We had all the afternoon session. We had several good speakers on the platform there. Mr. Herbert, one of the officials of the town — secretary of the commercial club, I believe he is — he told us that we would have to vacate the auditorium with our speakers at 8 o'clock, because a circular had been sent out that there was •going to be a meeting by S. D. Works, of Minnesota, and the attorney for the chamber of commerce was going to speak at 8 o'clock. We telephoned to see about it, because we had it in black and white from the president of the State agricultural college that we should have the last half of the day, but the chamber of commerce crowd had agreed to some other things. At 8 o'clock we were on the plat- form, and the chief of poUce and another member of the police lorce approached the platform, and the lawyer and Mr. Smith, the presi- dent of the auditorium association — the building was under con- struction then, they had just thebasement finished — and he demanded that we get down. We protested. We said that the farmers were law-abiding citizens, and our president, J. M. Anderson, tried, with Mr. Smith, to get the floor for 10 minutes, but Mr. Smith was just like a yellow jacket on the platform — you could not get near him. The chief oi poHce finally promised that we should have 10 nnnutes to explain thiags, and our crowd left the fioor and the auditorium haU, several hundred strong and went to another hall. We could not all get in there, so some of them had to go back and listen to Works and Grower. I am not going to take time to tell you what was done after that convention, but what we did there was not successful, because we tried to get the chief of police out of office and we did not succeed. There were five of the commissioners, and only one of them was on our side. Diu-ing that week we sold $6,000 or $7,000 worth of stock for the Equity Cooperative Exchange, and since the Fargo meeting we have sold over 115,000 worth of stock of the exchange. That shows that our work is bearing fruit. This is a burning issue on the North Dakota prairies. It has gradually begun to drift over the Red River into my own State, and a good many in my own county have bought Stock in the Equity Cooperative Exchange. Let me tell you of the meeting we had with the chamber of com- merce, when the Minnesota Elevator Association had their annual meeting, a little whUe ago, about two weeks ago. We began corre- sponding with them on the 5 th day of December, two months previous to their meeting to let the Equity Cooperative Exchange be recognized among the speakers, but, no, we could not get it. We could not get one speaker on that program. We pleaded for two months with them but they would notgive us one. They would not give us 10 minutes on the program. We know who controlled that meeting; we know who dictated the president and chairman of that meeting. The next day I tried to get Mr. Dunn of Iowa, a man that everybody ought to know, a man who has organized more country elevators than any other man in the world — I tried to get him on the program for a few minutes, for half an hour, but, no, I could not do it. When they would not recognize Mr. Dunn, of Iowa, I thought that he ought to be dear to every man in this great fight to-day. But the farmers have friends, and what happened ? The mayor of the city of Minneapohs threw open his reception room in the city hall, and Mr. Dunn m the eveninq: was the prmcipal speaker on that occasion. 108 GRAIN EXCHANGES. I just mention this to show you that the combine has control of those fellows. There were only 45 men present, and mogt of them farm elevator managers. They had these managers under their control. The chamber of commerce was behind them, and tliey did not dare to do anything else. Well, what happened ? The chairman of that convention stated to me, "I will not recognize you fellows. Go away from here. I am going to put my program throughin spite of — " I would not say the last word he used, but he did not put it through as he planned to do, because the agricultural college had a speaker up there. Their speaker told us that we were farmers; that we could not do anything; that we did not know how to go ahead and do business; that we did not know how to cooperate. That man was on the platform and spoke for an hour and a half, and he was very pleasing to the grain combine. I mention this to show this committee what we are up against. Now, there are a great many abuses that I could take up your time longer to teU about. I know the speakers behind me are perhaps more able than I am to teU the members of this committee about that. I am here representing the farmers. I have my credentials from two States, and I feel proud to come down here and represent the farmers. I feel strong because I know I have got the foundation behind me of this Nation. We all know that during 1912, 175,000,000 bushels of grain were handled in the city of Minneapohs; 50,000,000 bushels of this was sold to outside millers. The outside miller to-day is buying aU the grain — Waconia, Lake City, Cold Springs — I can not remember all the names. They are the ones that are buying our grain, but the big mills of Minneapolis are not buying a kernel of it. They are boycotting our business at Minneapolis. Now, they claim that we charge two commissions. Let me tell you that they are claiming that we have to go through the chamber of commerce to sell our grain. We figured it out here the other day and we found that just about 8 per cent of our grain had been sold through members of the chamber of commerce. You know it is hard to get rid of some grain. Some poor grain comes in and it is hard to get rid of it, and sometimes Mr. Ryledriver, of the chamber of commerce, would come over and buy a few cars of us. But what happened to him? Did he buy any the next day? No. The chamber of commerce said that Mr. Ryledriver could not continue to do any business there, and he quit buying of us. This forced him into bankruptcy. There is another member of the chamber of commerce who is to-day doing biisiness with us; but I do not know how long he will stay, because they are also after him. Now, they are telling around that we are charaing two commissions on wheat that we are selling for the farmers. We are not buying grain, you understand; we are just han- dling grain on consignment from country points. That is all we are doing, and we can prove we have never charged two commissions on a single carload of grain shipped. Mr. Loftus has written out a check for $1,000, verified by the treasurer of our bank in Minneapolis, and he put up that check for $1,000 with the proposition that it woul4 be paid to the poor of Minneapolis provided the chamber of commerce came oyer with a similar check, and we would put them up together and have a committee to decide it, and if that committee could prove GRAIN EXCHANGES. 109 that the Equity Cooperative Exchange had charged two commissions on a. single. carload of grain, our check will be paid over to the board of charities and correction in the city of Minneapohs. Mr. Cantrill. Let me ask you a question there. Has the grain that the Equity Cooperative Exchange handled for the farmers in your section and in the Dakotas resulted in securing a higher price to the farmers than they formerly secured ? Mr. Johnson. Yes. Mr. Cantrill. To what extent ? Mr. Johnson. I have not got the figures, but perhaps they will be shown to you before this hearing is over. You know a good many- mills are getting wheat now from North Dakota. That grain is not coming down to Minneapolis; it is forwarded to other points. A sample is taken and sent down, and our sales manager succeeds in selling a good many carloads in that way, and we are saving a good many doflars on a carload by doing that. Mr. Cantrill. I mean on the general average. Mr. Johnson. On the general average, I am satisfied to say those elevator firms that are practically seUmg all of their grain to us — I testified over and over again — that they have received more from the Equity Cooperative Exchange than they did from the chamber. They are not selling all their grain to us. They are selhng to Mil- waukee, to Chicago, etc., and I think it can be shown that they are getting better prices of us than they are getting from the chamber. And that is another thing, the chamber of commerce firms are per- haps to-day trying to do what business they can hke these old stock shippers in the small towns. They are paying top prices for stock, and so are .the members of the chamber of commerce. They are trying to please the other fellows, because they have got a watch- dog over here across the street, and that watchdog is there on the job all the time. I mean the Equity Cooperative Exchange. Mr. Cantrill. The reason I asked the question was because I wanted to know whether the experience in your section had been similar to what it has been in Kentucky, because since the formation of the American Society of Equity in Kentucky we have increased the price of our tobacco, which is the large money crop of our State, on an average of over 100 per cent. We have more than doubled the price. I wanted to know what your experience had been on that line. Mr. Johnson. Well, you can not expect that we could do as good as that. I am not a man who will tell you anything that I can not prove. I am not going to try and state things and have you come back and say that that man did not tell you the truth. The Chairman. The committee has parceled out the time this afternoon to several other gentlemen. How long wiU it take you to conclude ? Mr. Johnson. I have talked for two hours now. I did not know that I had been that long, but I will conclude as soon as you want me to. The Chairman. We would be glad if you can conclude in 15 min- utes. Mr. Johnson. There is one thing that I want to emphasize, and that is this: What the farmers are asking for is a fair and square 110 GRAIN EXCHANGES. deal. If the chamber of commerce is going to do any business there — we have nothing personal against these people. We have nothing personal, but what we have got ag9.inst them is the present system of business they are doing over there. Mr. Greeley has covered that point. And I want to speak for Mr. Greelej^ — I can not go back on every statement of his, you know, because it would take a man of several years' experience, and I am only a farmer. I have not been a farmer all my life. I learned a trade in the old country, the trade of a bottle blower, untU I was 21, and I could blow a bottle faster than you fellows could blow your nose. But I have been farming for the last '21 years, and what we want the chamber of commerce to do is to do away with this method of obtaining money that does not belong to them, that belongs to the farmers. It has been proven that the machinery in Washington has been more beneficial to us than our State administration. We have a State agricultural college over at St. Anthony, but we get more information from Washington than we do from our own State college. They have got 60 men out running over the State of Minnesota to teach produc- tion, and they never talk about how to sell our products. A little while ago I was at a meeting of the Minnesota Development Asso- ciation, and I was the only speaker on the platform that talked about prices. We came here to ask you to do all you can to influence this Congress to appoint a committee to investigate this grain exchange, because we have proved that there is a monopoly in the grain business in that ssction of the country. We have proved that gambling in futures has a tendency to lower the prices on grain to the producer. We have also proved that there is no competition on grain at country points between old line elevator companies. That is something we count on you to do. It takes 56 per cent of what we produce to put it into the hands of the consumer. I teU you, these matters will be paramount issues in the next campaign. It is up to you lawmakers to consider these things, because something ought to be done or the agricultural districts will become more and more isolated. I could take you in a car, if I had one, if you were in Minnesota, over my own county and show you neglected land, thou- sands of acres grown up in quack grass and Canadian thistles and other weeds. I could show you sections where we have got the people, and everything looks like the Garden of Eden. That is the condition I am working for, to do away with the unnecessary middle- man, to put him where he belongs. That is what I am here for. We demand a fair and square deal, as I said before. How about the - press of this country ? We had a little paper at Fargo which we called the National Grain Grower, which was working for us. We thought we had the paper, but the editors got hard up for money and they came over to us officers and asked for a loan of $6,000. They said unless they got it from us that there was $7,000 coming to them from' some other place; and we know where they were going to get it, too. We said, "We will never give you any money." In two or three issues after that that organ began to work for the chamber of com- merce, and it is doing so yet. We had the editors of the Grain Grower on the carpet the other day, and it reminds me of when I take two of my boys to task after they have been in some mischief. They acted like schoolboys, and we wanted to know the reason why they turned on us. I saw in their faces what they told was not the truth, and GEAIN EXCHANGES. Ill when our national secretary asked them whether they would verify on oath what they had said they hesitated and did not say anything; and I understand part of it they cut out, and I also understand there is in the paper something they ought to cut out yet, and we will make them cut it out. What we want and what we are working for is to get a fair, square deal in the press. When anything is going on over the State which is pushed by the chamber of commerce, you will find the city papers in my section, the Minneapohs Journal and the Tribune, coming out in flaming headlines to advertise the fact; but when the Equity Ex- change gets anything up, if you find it at all you wdl fina it away down in the small letters there so it would not be recognized by those reading the papers in a hurry. I am glad to say to you, however, that a great many papers are taking our side month after month. We have got papers which are going to stay by us, and I know by goin^ out and talking with the farmers and with the common men it would not take very many months before we get more papers with us. Let me tell you, I am no sociahst, but the sociaHst vote at the last election shows that there is a protest against this present system of affairs. You lawmakers ought to think about that big vote, be- cause we are not contented; and what I am working for and wiU work for as long as I have my voice, so long as there is a red drop of blood in my veins, I will stand up for the common man. In conclusion, I want to tell you that I beheve that right is might and that truth will prevail. I thank you. Mr. Manahan. I am going to call upon Mr. Mc Vicar to express the views of the association which he represents. The Chaikman. Mr. McVicar, the committee will be glad to hear you. Mr. Makahan. State whom you represent and speak for. STATEMENT OF MR. IRA D. McVICAR, PRESIDENT OF THE FARMERS AND GRAIN DEALERS' ASSOCIATION, EAGLE GROVE, IOWA. Mr. McVicae. Mr. Chairman, I want to tell you, before I make any remarks — and, by the way, they will be very brief Mr. Manahan. Mr. McVicar, what is the extent of that association that you speak of, and how much of an association is it ? Mr. McVicar. Well, it is composed of over 300 individual elevator companies, with a membership approximately of 60,000 members. I want to thank this committee for extending to us an opportunity to be heard. I think it certainly spells progress in great big letters; I think it is going to open up one ojf the greatest movements that has ever been inaugurated in this country. It can not help but result in great good. It will be a great pleasure to me, when this investi- gation has reached its conclusion, to be able to place in every elevator company in my State a complete report of the proceedings of this investigation. Now, I am not going to add very much to what has been said, but simply to indorse what has been said. There are other speakers who kre nere who will take up other lines of thought, and I simply want to go on record as a representative of the farmers of the great State of Iowa, as being present at this meeting and adding our mite and influence to what has been said. 112 GRAIN EXCHANGES. Mr. MANAkAN. Are you a farmer? Mr. McViCAE. I am a farmer, a practical farmer, living on my own farm, and, as Mr. Greeley said yesterday, when the news came flashing over the wires informing me that the committee wished my presence here it found me shelling corn out on my farm, and I rode on a load of shelled corn to my city to take the train for Washington. At the beginning of this last month, February, we had a convention down in Waterloo, Iowa, that was attended by 1,200 delegates, and I just want to read you two paragraphs of the resolution that was passed there, and I want them to be entered into the minutes, showing the united sentiment of the farmers of Iowa [reading] : Resolved, That we recommend to the national council to take up the question of the investigation of grain with our Senators and Representatives and urge them to do all wifiin their power to secure a law providing for the Federal inspection of all grain handled in interstate commerce. Second. Resolved, That we favor action by our national council to secure the pro- hibition of gambling in grain; to secure a clean bill of lading; to reimburse shippers for actual cost of coopering cars; to secure reciprocal demurrage; to secure such con- trol of the terminal elevators as will open them to the public without discrimination. That was passed, Mr. Chairman, without a dissenting vote. It was unanimous. That expresses the sentiment of the Iowa farmer. I think, beyond the shadow of a doubt, that there is not a man within the sound of my voice who will dispute the statement that there never has been a farmer or farmers' organization that has ever appeared before or appealed to any legislative body whatever asking any favors of any kind. All under the heavens that the farmers are asking for is a square deal and justice and equity. All that the farmers of Iowa are askmg for is a free and open market. We want Federal inspection of grain ; that is what we came down here for; that is why we attended this hearing. If we had not supposed or had dared to believe that this hearing would lead to legislation, I do not suppose we would have appeared. But we have hopes that this investiga- tion wUl terminate in legislation that will give relief, and I think that unless something of the kind is done at this session that it will be ■done in the near future at least, and I think that some of the repre- sentative men on these grain exchanges that Mr. Greeley spoke in such high terms of this morning — and I am glad he did; I am glad he did not bunch them all together and call them all "bad fellows," and I think that they see the "handwriting on the wall" and know that they are being tried before the court of public opinion. Mr. Chairman, we have speakers to follow who will present these matters clearly and forcibly to you, and I do not wish to take up your valuable time further. I have simply gone on record, and I thank you very much. Mr. Manahan. Mr. Chairman, I am going to call now on Mr. Ira M. J. Chryst, of Wisconsin, who is president of the American Society of Equity and represents the legislative committee of his national organization. STATEMENT OF MR. IRA M. J. CHRYST, OF WISCONSIN. Mr. Cheyst. Mr. Chairman and gentlemen of the committee, as has been announced by Congressman Manahan, I am here as a repre- sentative of an organization that is known as the American Society of Equity. Some of you possibly are somewhat familiar with that GEAIN EXCHANGES. 113 organization and what they have been trying to do for the American farmer; some of you possibly are not, and for the benefit of tlaose who are not familiar with the work which this organization has attempted, I will state briefly the purposes and objects of the organization. If you will go to our articles of incorporation and our constitution and by-laws, you will find that it is set forth there that the basic principle of tne American Society of Equity is to secure just and profitable prices for all products of the farm. When I make this statement, I believe that you will readily understand that the task that we have undertaken is no small one. As an organization that is nation-wide in scope, it is not possible for us to devote all our time to any one particular crop or product, but having in our associations members who are engaged in producing the various products that are grown in this coimtry, we feel that it is our duty to oring to the members producing the various crops every possible assistance that it is possible for us to bring to them in the marketing of their crop, and seeing that they secure just and fair dealing in the markets of this country, and that is why I am here before you at this time. As an organization we could not be more concerned in the mem- bership that were growing one particular crop than another, but, as I said before, we stand ready to assist our membership, be the product of whatever nature. When we took up the work of the organization and began to inquire into the system of marketing the various products of this country, I want to say right here that the discoveries that were revealed to us were siinply appalling, to say the least; and I know of no product that is grown in this country to-day in which the American farmer is up against so serious a proposition-, when he enters the markets of this country, as are the grain farmers of this country. And, as I said at a meeting not long ago, when we entered the proposition of the grain marketing the conditions that we found there were simply little less than vicious. You may be concerned to know just where we commenced on the marketing proposition of the grain. The only safe place to begin on any proposition is right at home, and we took up the matter of estabhshing farmer elevators that you have been hearing so much about here during this hearing, but we had not progressed very far along the line until we found other agencies were in the field establishing farmer elevator companies, and we found that the managers that were placed in charge of some of those elevators were so closely connected with the central market or the terminal markets of grain that they almost made it impossible for us to keep up with them in a competitive way. For instance, take it in my own home State there. In the county that is just adjoining my home county, where we established a local farmers' elevator — and I believe your attention has been called to it already, the discrepancy that exists in price at markets and towns where we have a farmers' elevator and where we have the old-line elevators. In the village of Prescott, in the southwest part of Pierce County, we estabhshed an elevator company about four years ago. No sooner had we opened up this elevator for business than we found that the price of grain tributary to Prescott begun to raise, and in the city of River Falls, which is in the same county, about 16 37214—14 8 114 ■ GKAIN EXCHANGES. miles across in the opposite direction, we found this condition: In Prescott we had the farmers' elevator company and the old-line company, as it is termed. In the Eiver Falls we had the three old-une companies. Three years ago this winter we found the price of wheat in Prescott, whether it was sold at the farmers' ele- vator or whether it was sold at the Une elevator, was 11 cents per bushel more than in the city of Eiver Falls. We found that rye was 7 cents per bushel more, and barley 4 cents a bushel more, and oats 4 cents a bushel more. Those are the conditions that we have found in our country markets, where we have attempted to estab- lish a marketing system for our membership. But what we have found there is exceedingly tame as to what we have come in contact with when we had attempted to enter the terminal market. We had been gathering some data along that line, but our friend Greeley has covered it so thoroughly here- that I do not beheve it is going to be necessary for me to devote a great deal of time along that line. But I want to say right here that "the suggestions and contentions that this organization has had in the past regarding our markets in the terminal centers has been borne out and confirmed by Mr. Greeley, who has addressed you at length upon matters of this kind. We had gone far enough into this proposition, however, to be led to beheve that there was discrepancies there and that the farmers were not getting a square deal when our grain entered the termiaal market. You have heard something about the mixing of grains. We have come in contact with that. We had discovered that grains had increased in standard from the time they leave our warehouses in the country markets until they came on to the central market. Our sister State, the State of Minnesota, has upon its statute books a law that provides that elevator companies in the terminal market must file with the railroad and warehouse commission reports of business done. We were fortunate enough to get hold of a report of a terminal elevator situated in the city of Duluth, and this is the report. I believe the question was asked yesterday by some member of this committee whether there was any difference in the quality of the grain as it went into the elevators as compared with the quality that comes out. This elevator, the report of the railroad and ware- house commission tells us, of the No. 1 northern wheat they took in 99,711 bushels; they shipped out of No. 1 northern 196,288 bushels. Of No. 2 northern they took in 141,455 bushels and shipped out 467,764 bushels. Of No. 3 they took in 272,047 bushels and shipped out 213,459 bushels. But the surprising part of this report is in the two grades of grain following. They tell us of No. 4 wheat they took in 201,267 bushels, but they had not a single bushel to ship out. Of rejected wheat they took in 59,742 bushels, and none to ship out. So that we were led to beheve that whatMr. Greeley told you here yesterday with regard to the mixing of grades does actually exist in the terminal market; and the only way that we could account for that was that they had undergraded some of our grains, and had GRAIN EXCHANGES. 115 mixed it with the higher grade of grain and had sold it all out at the additional advance. Mr. Lenkoot. Was that a private house or public house ? Mr. Cheyst. It is supposed to be one of the head elevators there at Duluth. This led us to believe that there was just such a condition of affairs as Mr. Greeley has outlined to you here in this investigation. You will realize just what that means to the American farmer, but, as has been stated before this committee, there is sometimes a difference of some 12 to 15 and 18 cents per bushel between the various grades, which has been enumerated in this table. We then went to the weighing department at the city of Duluth, and we went back for several years to see whether this condition had been in vogue for years prior, and we found that during the year 1902 the elevators there took in 599,602 bushels of No. 1 hard wheat and shipped out 648,607. They took in of No. 1 northern 15,187,012 bushels and shipped out 19,886,137 bushels. Of No. 2 northern they took in 19,693,454 bushels and shipped out 15,178,099 bushels. Of rejected wheat they took in 892,241 bushels and shipped out 94,626. Of the no grade wheat they took in 2,561,505 bushels and shipped 468,922 bushels. In 1904, in the same place, their weighing department shows that of the No. 1 northern or hard they took in a little lietter than 60,000 and shipped out 109,000. Of No. 1 northern they took 12,401,000 and shipped out 18,217,000, but when we get down to the lower grades. No. 3 northern, they took in 2,616,000 and only shipped out 283,000. Of rejected wheat they took in 2,350,000 and shipped out 314,000. Of no grade wheat they took in 2,586,843 bushels and shipped out 256,943 bushels. Mr. Kelly. Mr. Chryst, I asked the question yesterday if there was any actual loss in that grade, of prices represented by those figures. Have you the total of all the figures to show coirespond- ingly all the wheat taken in and what was taken out ? Mr. Ckryst. In the total that I first enumerated, we find the number of bushels received and the number of bushels shipped out, and then the number of bushels on hand and the number of bushels shipped out, and those on hand compare exactly with the number of bushels that have been shipped in. The number of bushels shipped out and the number of bushels on hand equal the number of bushels received. Mr. Kelly. Exactly? Mr. Chryst. It is all embodied in the report; I omitted that part of it. Mr. Manahan. Give the totals. Mr. Chryst. The total number of bushels received was 890,245. Mr. Manahan. The total number of bushels received of all kinds ? Mr. Chryst. They shipped out 877,511 bushels, and have on hand 12,733 bushels, making a grand total of 890,245 bushels, which com- pared exactly with the number of bushels which they have taken in. 116 GRAIN EXCHANGES. So that this condition of affairs has led us to beheve that the Ameri- can farmer was not getting a square deal when we went into the termi- nal market. You may wonder why this condition of affairs can exist, when we have what is termed "State inspection," and I want to say right here that had I been on the floor when Mr. Greeley was yesterday, and had been asked the question whether The Chairman. Some of the members of the committee desire to go over and vote upon some matter that is up. Mr. Chrtst. We can wait. The Chairman. I will sit here and they will go and return. Mr. Chrtst. Shall I proceed ? The Chairman. Yes; you may proceed. Mr. Chrtst. The question was asked Mr. Greeley yesterday as to whether he though or he felt that there was anv connection between the inspectors who passed upon that grain and the members of the board of trade in the city of Chicago. I am not prepared to say whether there is in the city of Chicago, but I have felt for some time that there was too close a connection between the State board of grain inspectors in the city of Minneapolis and those that are operated in the chamber of commerce, and my reason for that state- ment is this: Mr. Johnson here has told you something about the equity exchange there, that independent marketing system that the farmers are attempting to establish, and the gram that comes to that exchange is subject to the same inspectors as though it had gone to the chamber of commerce. And I have in mind -one par- ticular car that came in there during the past season, billed to the exchange there. That exchange has got to sell that grain upon the grade that is established by their inspector there. That carload of wheat was classed as "No grade," which meant that Mr. Loftus, who is the sales manager of that exchange, would have to sell it on that grade. We have in our organization members that are con- nected with a mill in southern Minnesota, and one of them who happened to be in the city at that time and was given a sample out of the same carload of grain which had not been, unloaded, but was still on track there. He took this sample over to the same inspector-^ and to show you that they know wheat when they see it, they said to this gentleman, "Is not that sample out of car so and so ?" knowing that they had already inspected the car. He said he did not know the number of the car, but that it was in the interest of th^ mill and they were buying wheat, and that car was passed on again by the State inspectors, and the same car that they passed for the equity exchange as "No grade" wheat was passed to the milling company as No. 1. So, I beheve that there is too close a connection between our State inspectors of Minnesota and the chamber of commerce, and that they are not kindly disposed toward the independent market that the farmers are seeking to establish there. And that is why we are here as representatives of our organization to ask this Congress to give us such legislative enactment as will give us Federal inspection at the central markets. Sometimes we are told that they do not believe there is need of it, but being also a hve-stock grower as well as a grain grower, I find that when my live stock is sent to the central markets, and is there slaughtered and put in the form of finished meat products, that the UJiAlK EXCHANGES. 117 Government furnislies an inspector to pass upon that meat product as to whether it is suitable for food or not, and at every slaughtering- plant in our State I find that we have a Government inspector. K it is necessary to place a Government inspector at every slaughtering plant where live stock is prepared for meat products in the State of Wisconsin — and the same is true in other States — is it not just equally important that we have Government inspectors to inspect the grain products as weU? Sometimes, when I have called attention to the report of this elevator company there at Duluth, which I had just read to you, H met with this argument, that they have in those elevators a system of cleaning grains that improves their condition. Being interested in the gram business as a producer ever since I have been in business for myself, I have noticed that whenever I deliver my grata to the local elevator, whether it is one of our cooperative elevators or whether it is an old line elevator, the mansCger of that elevator there has the necessary instruments for testing that grain, and he will tell me almost to an exact unit the amount of flour that a bushel of that grain will produce; and I want to ask these gentlemen who are here in the interests of other concerns whether their concern has ever dis- covered any means by which the amount of flour that a bushel of wheat wiU produce can be increased. I was in hopes when Mr. Johnson was on the floor a while ago, and was telling something about that exchange, he would have told you something about what led up to this. I would say this, so fax as the American Society of Equity is concerned, that wherever we have gone into the markets to better the condition of our members in the marketing of the products which they grow, it has always been the disposition of the society to inquire into the present system in vogue, and, if possible, to help to correct the evils of the system that existed there rather than to establish an entirely new system of marketing. The grain product is the only product so far that the organization has felt that it was necessary for them to go outside of the old system and establish a system of markets of their own, and I had hoped when Mr. Johnson was teUing about the meeting that was called in St. Paul two years ago this month, when he asked the secretary of the Chamber of Commerce of Minneapolis to come over and address that meeting, he would have also told some of the statements which the gentleman made there. As I recall them, we called attention to some of the evils existing in the present grain markets. You remember, Mr. Johnson, what Mr. McHugh told us. Mr. McHugh being present here, undoubtedly will recall it himself. I asked Mr. McHugh the question, and IMr. McHugh's answer was this: "Why," he says, "you fellows are producing the grain. You have gone on producing, but you have not provided any system of marketing your grain. You left it to us to establish a system of marketing, and in doing so we established a system that suited us, without regard to what the farmer desires, " or practically words to that effect— that they estab- lished a system that was satisfactory to them, without regard to its effect upon the farmer. And then he says the reason that we did this was because we found it more profitable to market the grain that you were growing than to go out and grow grain for ourselves to market. 118 GRAIN EXCHANGES. So, I say, from that day on the grain growers of the Northwest felt the need of establishing a market system of their own, and it is possible more than anything else that led up to the establishment of the cooperative exchange in the city of Minneapolis at this time. I do not kno"w that it is necessary for me to consume a great amount of time here this afternoon. We simply want to state the position of the organization regarding this matter, and our organiza- tion has gone on record favorably to the establishment of pubUc elevators in the terminal market, and I believe that that is what this resolution calls for that you have under consideration at this time. We believe it is the only way in which the grain growers of this country wiU ever be given a fair and open market. We insist that when we are given an open market that that market be placed under Federal inspection, and our reasons for so doing are some we have assigned " you, and the quotations we have given you from the reports that we have here at this time. So, as the representative of an organization, not only of the States of Minnesota and Wisconsin, but an organization that is national-wide in its scope, we ask of this committee to give careful consideration to the- subject matter inclosed in the resolution before you at this time, and to carry it further and give to the grain farmers of this country a fair and open market, with Federal inspec- tion, where they can deal just as nearly with the consumers of their products as it is possible for them to deal, without being handicapped under the complicated and secret system that is in vogue at the present time. I thank you for your attention. Mr. Manahan. I will now ask the committee to Hsten to Mr. Drake, of MinneapoUs. STATEMENT OF MR. BENJAMIIT DRAKE, MINNEAPOLIS, MINN. Mr. Drake. My name is Benjamin Drake. Mr. Chairman and gentlemen of the Rules Committee, I remember that yesterday during the progress of this hearing some one of the committee made the statement to the effect that as the bUl regulating future transactions in cotton was originally introduced it also covered similar trans- actions in the grain exchanges in the United States; that somehow somebody had mformed those in charge of the bUl that this was not a proper provision, and it had therefore been dropped out. I think that possibly the volume I hold in my hand may throw some light as to the probable identity of the person or the interest which sug- gested that gambUng in the commercial exchanges in grain should be eliminated from this biQ. I desire to quote a few lines from the annual message for 1911 of the president of the Chicago Board of Trade, as foUows: Much, time and effort have been spent in acquainting the legislative bodies of the country and the public generally with the active and practical functions of the grain exchanges of the country, especially those of the Chicago Board of Trade; also with the close and vital relation which these functions sustain to every industry, to the farmerj to the producer, grain dealer, banker, and to the people, regardless of political affiliations. It was soon discovered in prosecuting the campaign for the general diffusion of information as to the ^ain exchanges, their purposes, their functions; and as to many and effective fapilities created and sustained for the protection of all interests involved, that dealing in generalities, discussing abstract theories of political economy were unproductive of desirable results; in fact, instead of being of benefit to the exchanges were to these institutions a positive injury. Members of Congress, who were desirous of obtaining a thorough knowledge of grain exchanges of the country, GRAIN EXCHANGES. 119 in order that they might enact such laws as would best promote the common industry and coromercial welfare, vainly sought until this year to obtaia that information, which only a practical grain merchant, exceptionally qualified by long successful and extensive experience in the grain trade, could impart. This information has been given by your president and others to congressional committees, to various commercial bodies in different parts of the country, and to many publications. In other words, according to the statement contained in that mes- sage, there is maintained by the Chicago Board of Trade what I would term an "organized lobby,", or better, perhaps, a "school" for the education of Congressmen along lines of legislation pertaining to grain exchanges. That, I think, may suggest the identity of the party who was successful apparently in eliminating gambling in grain, the Erimest necessity of Hfe, I take it, from the operation of the cotton ill. The Chairman. I think I asked that question, and I desire the record to show precisely what was in my mind. I remember at the time the legislation was pending there were bills before the Commit- tee on Agriculture to prevent speculating in cotton futures arid in grain as well, and finally, when the bills had been considered and the report came from the committee of the House, it included a prohibi- tion only against speculating in cotton futures and gambling in grain was eliminated, and I wondered why it was at the time and made some inquiry and was informed by a gentleman who had heard the statements from various gentlemen who *had been considering this matter in the deliberations of the committee that the grain people made such a showing that it was impossible to put them in the same class; that it was not the same kind of a transaction that we were dealing with when we dealt with the speculating in cotton futures. So it was left out at that time, and the House took up the cotton futures bill — I believe it was known as the Scott bill. Mr. Scott was then chairman of the committee, and it passed through the House and went over to the Senate, but the Senate failed to pass it. But that was the impression left on my mind at the time, that there was some difference in these things, and without going into details I accepted it as being correct, and there was no further agi- tation about it at that time. Mr. Manahan. Do you know, Mr. Drake, whether or not the agricultural associations of farmers generally were advised or had any knowledge of the pendency of such a measure before committees of Congress or any way of making themselves heard ? Mr. Drake. The farmers certainly were not notified of the con- sideration of that bill, and certainly elimination ot the provision pertaining to speculation in grain was not on account of the sug- gestion of the fanning body of the country. " I suggest that the suggestion originated and the showing made was made by the organized lobby or organized propaganda, so ably described in the message of the president of the Chicago Board of Trade which I have quoted. In saying to-day what I desire to say, and which I consider it a great privilege to say to this committe, I would state that I repre- sent and speak for, as I beheve, at least 100,000 producers. I rep- resent the Equity Cooperative Exchange of Minneapolis, its stock- holders and its patrons. I speak for — at least, at the request of — the Cooperative Association of Elevators of South Dakota and a 120 GRAIN " EXCHANGES. similar organization in North Dakota. What I say has the sanction of the national president of the Equity Society, of the president of the Minnesota Union of Equity, and I speak, in addition, for count- less unorganized grain producers all over the States of North and South Dakota, Minn'esota, Iowa, Wisconsin, Montana, and other States. Only last Saturday afternoon, at Wahpeton, N. Dak., 300 farmers met and unanimously, without a single dissenting vote, passed reso- lutions demanding that Congress investigate the grain exchanges of this country and afford to the farmers some relief from the abuses which are being practiced. Less than a week before, at New Rock- ford, N. Dak., over 500 farmers made the same demand. In Min- neapohs, early in February, at a meeting of 500 or more farmers resolutions were passed to the same effect, and if I were stop to enumerate the individual instances where investigation has been demanded I could not get much further in my remarks this after- noon. The Chamber of Commerce of Minneapolis, as I expect to show the committee by the evidence at hand, is a monopoly and is operated as a monopoly, purely and solely for the benefit of the individuals who comprise that chamber, and as opposed to the interests of the pro- ducers that it is supposed to serve. In the first place, the Chamber of Commerce of Minneapolis, in the words of its own secretary, who is present at this hearing, has prac- tically no outside competition except the competition from the §rain exchanges of Chicago and Milwaukee. Before the Senate committee to investigate the grain exchanges of Minnesota, Mr. McHugh testified as follows: The only competition, practically speaking, the chamber has is at Chicago and Milwaukee. I do not know why he did not include the terminal at Duluth. That, to some degree, is in competition with the Minneapolis market, although it is closed during the season of navigation. Duluth, Milwaukee, and Chicago are the only outside competitive terminals which the Minneapolis market has to contend with. So far as Duluth is concerned, for a long period of each year, from the 1st of December to the 1st of April, the market is closed because navi- gation is closed. So far as Chicago and Milwaukee are concerned, the difference in freight rates from points in North and South Dakota, many points representing large areas of country in both States, is such that Minneapolis really has no competition. The difference in freight rates from many of these points ampunts to 6 cents per bushel and is in favor of the Minneapolis terminal ; and within that margin, at least, the Chamber of Commerce of Minneapolis has absolutely no competition in the marketing of the producers' grain. During the year 1912 the chamber of commerce, through its facilities, marketed almost 200,000,000 bushels of grain, which shows the extent of the operations of that private market place. It is the largest primary wheat market in the world. So much for outside competition. I desire to call the attention of this committee to the ijiternal rules and regulations and practices of the chamber ; to its organization GRAIN EXCHANGES. 121 as a corporate entity. In the first place, the chamber of commerce is a private market place. This was the contention of its attorneys; this was the admission of its officials at the grain investigation con- ducted in the winter of 1912-13 before the senate and house investi- gating committees of Minnesota. At this point I wish to introduce the testimony of these gentle- men. In reply to a question, the secretary of the chamber, Mr. McHugh, replied: The institution being a private corporation, there is no reason why its affairs should be published at all, any more than those of any other private corporation. Again, Mr. Mercer, one of the attorneys for the chamber, made this declaration of the position of the chamber organization : It is not a public business at all. The only thing is that there are certain rules given them there in the statute which exist in the other laws. And so far as their arbitrating their differences are concerned, we have shown you here before the committee the way that is handled, in order to get control of the members, to be sure they will operate properly with everybody they deal with, is upon the application which they make and an agreement which they sign at the time they become members. And the supreme court — 1 can show you the case — ^has held that is the theory on which those rules are enforced under the laws of the State. Mr. Schwartz. Is there any concern or house that has so much secrecy connected with it as this seems to have? Mr. Mercer. Why, certainly, the Supreme Court in that Evans case, 86 Minnesota 448, points out that it is a corporation in the nature of a fraternity or beneficiary association. Now take the Gunderson order for instance Mr. Manahan. That case didn't bring up these issues. Mr. Mercer. Oh, yes, it did; something in that same line of the power to enforce the rules. Take your Gunderson order putting church or any organization Mr. Bendixbn. That is different. Mr. Mercer. Not at all different. The contention repeatedly made and maintained aU through these investigations was that the chamber of commerce was a private market place, and that the producers tributary to that market had no more interest in the rules, practices, or customs of its members than they would in those of any other private corporation. Now, then, as further evidencing the position of the officials upon this point, in a newspaper article, over the signature of John J. McHugh, the secretary, pubhshed in the Improvement Gazette, of Minneapolis, for October 31, 1913, he said: The Chamber of Commerce of Minneapolis, therefore, like church corporations or fraternal societies, is a voluntary corporation in the form of a private corporation. Every operation of the chamber of commerce in the past has been shrouded with all the secrecy which could be commanded. The very book of ruled bears upon its face ths words, "For the use of members only." No pubhcit}- whatever that could possibly be prevented has ever been permitted of the affairs of the Chamber of Commerce of Min- neapolis. What are some of these rules and practices, of which the public never heard until the Minnesota Legislature undertook the investigation of the subject last winter ? Under the rules of the chamber, the board of directors have the absolute and arbitrary power to fine, suspend, or expel any member for the violation of any rule, any regulation, or even any custom of the association. 122 GEAIN EXCHANGES. Mr. McHugh, in the article in the Gazeteer, which I have above quoted, says: It is comparatively easy for the board of directors to secure obedience to the rules of the organization on account of the fear of suspension or expulsion in case of violation of the rules. So the chamber organization has arbitrary and absolute control over the actions and conduct of its members. The organixation was organized 31 years ago. As organized, it was organized simply as an adjunct and purchasing agency for the Minneapolis millers. The Minneapohs millers were located there around the power site of St. Anthony; they desired to secure a constant and assured supply of frain; for that purpose they organized the Chamber of Commerce of linneapoHs. At tne beginning it was controlled by the millers exclusively. A short time afterward, when the great elevator system sprang up, which has been so well described by Mr. Greely, as existing at Chicago, it came to be controlled by a combination of millers and elevator men — both, gentlemen, you will notice, interests which are consuming the grain of the farmers and which are antago- nistic to those of the producer. In the beginning the membership of the chamber of commerce was limited to 550 members. It has never been increased by a single membership. All of the memberships have been sold out for more than 15 years past. The grain trade has increased at least fivefold, but the organization has never permitted a single new membership to be added to its limited membership of 550. For 15 years one has not been able to buy a membership unless some member happened to offer one for sale. Even after buying one, it can not be used unless the individual is formally admitted by a vote of the board of direc- tors, and the boai'd of directors of the institution, even after an indi- vidual has bought his membership, can refuse to allow him to use it for any reason or any whim or any caprice which may actuate them; in such case there is no appeal either to the membership of the insti- tution at large or to any court of competent jurisdiction or in any other way from the action of the board of directors. In other words, they can and do exclude, and have always excluded, everybody whom they do not want to transact the grain business at the Minne- apolis terminal, no matter what his qualifications, moral character,, or business standing. I wish to call attention to an incident which aptly illustrates the viciousness of this last provision, and also the viciousness of several other rules and practices of the chamber of commerce. But, first, in the organic act under which the chamber was organized there are some peculiar provisions . In the first place, the board of directors of the association has a right to adjudicate differences and disputes between members, and also between a member and an outsider, pra- vided the outsider consents; and when so adjudicated the judgment of the board of directors can be filed in the district court of Hennepin County, wherein the chamber of commerce is located, and when so filed has the full force and effect of a judgment in a court of compe- tent jurisdiction; execution wiU issue upon it in the same way as upon the judgment of a regularly constituted court. The chamber of commerce is a court, trying its cases in secret. GKAIN BXCHAKGES. 123 Again, under the organic act, in the event of indebtedness, every member has a lien upon the membership of every other member, which is prior, superior, and paramount to the claim of any indi- vidual outside of the chamber to whom money m.ay also be owing. It is to this provision that I now wish to call your particular attention. The Chairman. Let me ask you a question right there. You mean a special act of the legislature chartering this board of trade ? Mr. Drake. Yes, sir. The Chairman. And that this lien is on the .membership in the chamber and not on any property ? Mr. Drake. Just upon the membership — the money value of the membership — yes, sir. The Chairman. What is the money value of the membership now? Mr. Drake. The money value of the membership now is about $3,500. I will stand corrected if I am not correct. It has run as high as $5,000, and is now about $3,500. I believe the memberships are lately at a slight discount. I call the attention of the committee to this incident: In 1903 the farmers of Clay County, Minn., organized what was known as the Minnesota Farmers' Exchange. That exchange was incorporated and sought to market its own grain at the Minneapohs terminal. This story may be of pecuhar interest to this committee by reason of the fact that Elias Steenerson, a brother of Congressman Steenerson, of Minnesota, was one of the directors of that organization formed in 1903. These farmers were of the opinion that they could buy a membership in the Chamber of Commerce of Minneapolis, come down to the chamber, and market their own grain. They thought there was a free and open market in Minneapolis. They sent their repre- sentative down to the Chamber of Commerce of Minneapohs, and they found out that they must first obtain a membership before they could do business. When they sought a membership they found that aU the memberships were sold and had been sold for a number of years past. Finally, after waiting for weeks, they found an individual who was ready to sell his membership for $4,200. They bought this mem- bership. They then thought they could do business upon the chamber of commerce. But then they were confronted by the rule that they could not do business until they were admitted by a vote of the board of directors, and the board of directors of the Chamber of Commerce of Minneapohs refused to permit the farmers' organization to do busi- ness, even after it had secured and bought a membership, because it was a cooperative institution. AU of this time the grain of the Mirmesota farmers' exchange had been accumulating. They found it necessary to market it. There- fore, they went to a member of the chamber, McKinnon & Son, and engaged this firm to market that grain for them, to pay them the usual commission for the service. McKinnon continued to market the grain for some time. Finally, at a time when he had in his possession 12 carloads of grain belonging to the farmers of Clay County, at such a time he failed, and as the evidence shows, he failed, it is claimed, largely because of speculating or gambling transactions with the firm of E. L. Welch. E. L. Welch is one of the men who is here to-day representing the Chamber of Commerce of Minneapolis. McKinnon failed because of gambling transactions 124 GRAIN exchakgbb. with Welch's firm. Welch, bj^ virtue of that privilege, secured to the organization by the organic act of the law of Mnnesota, first seized McKinnon's membership, and appropriated that; and then in some way or other he got the grain — the 12 carloads, which the farmers of Clay County had shtpped in to McKinnon & Son, and which had been turned over to Welch. So that all the farmers got out of their 12 carloads of grain was a deficit of some $12,000. The directors of the organization each raised $1,500 apiece, each going into his own pocket, paid off the owners of the grain, the ship- pers ; and the association went out of business. That is the story of the first attempt to market grain upon a cooperative basis at the Minneapolis terminal; and I call attention to the fact that the man who broke the Farmers' Exchange of Min- nesota is here to-day representing the Chamber of Commerce of Minneapolis. It was my intention to read a portion of the testimony of Mr. Steenerson, in which he narrates the story of the Minnesota Farmers' Exchange, his sworn testimony, but in view of the fact that I have given it m substance, I am simply going to ask that it be incorporated in' the record and made a part of me records of this committee. The Chairman. It will be so ordered. (The testimony here submitted by Mr. Drake is as follows :) [Ellas Steenerson, House committee, pp. 241-243.] Mr. Elias Steenerson, being duly sworn, testified as follows: By Mr. Manahan : Q. What is your name? — A. Elias Steenerson. Q. Where do you Uve? — ^A. Crookston, Minn. Q. How long have you lived there? — ^A. It is 36 years since I settled in Cooke County. Q. Whathasbeenyourbusinessduringthattime, generally speaking? — A. Farming and various other kinds of business. At present I am postmaster at Crookston. Q. You have been engaged in farming? — A. Some of the time. Q. You have been engaged in the gram business? In the elevator business? — ^A. I have never dealt in grain; simply shipped my own grain. Q. Have you ever had any experience with the chamber of commerce at Min- neapolis? — A. Yes. Q. With whom did you have those transactions that you speak of? — ^A. I was con- nected — I took an interest with the farmers in a corporation for the purpose of handling grain at the terminals. Sent a man down to the terminals to sell our own grain. Q. What was the name of that corporation? — A. The Minnesota Farmers' Exchange. Q. Incorporated under the laws of Minnesota? — A. Yes, sir. Q. You were one' of the incorporators and one of the directors? — ^A. Yes, sir. Q. Your plan of operation was to send a nian down to Minneapolis? — ^A. Yes, sir. Q. To represent you on the Exchange? — ^A. Yes, sir. Q. Who did you send?— A. J. S. McDonald, secretary of the organization. Q. To represent your corporation?— A. Yes, sir. the Minnesota Farmers' Ex- change. Q. When was that? — A. I believe it was in 1904. Q. Was he a member of the chamber of commerce, or did he have a place on the chamber? — A. No; we did not suppose that it was necessary, in order to sell our own grain, to be a member of any other organization than our own, but we found that there were no facilities for selling our own grain. It was all centered in the chamber of commerce. All grain dealers were members of the chamber, and in order to sell our grain it became necessary to become a member of that organization. _ Q. You found when you got there the chamber of commerce controlled the situa- tion, and it was impossible for your agent to dispose of the grain there?— A. Yes, sir. Q. Then what was done? — A, We made application for membership in the cham- ber of commerce. Q. What happened to that?— A. We found that the memberships of the chamber of commerce were sold, and they told us that in order to get a membership we would GEAIN BXCHAHGES. 125 have to buy one from some one that has one for sale. We looked around. It was said there always was somebody who had one for sale. AVe finally found one who was willing to dispose of it. We made arrangements to get it. If one buys a mem- bership, he will have to apply to the board of directors of the chamber and be passed upon whether they will be allowed to become members, even if he has bought his seat. When they took up the application, they refused to let us have a seat, even though we had purchasea a membership. Q. After you had purchased it? — A. Yes, sir. Q. In whose name did you make application? — A. I am unable to remember that. Q. Whether it was in the name of the secretary or by the company itself, you made application for a seat on the chamber, which was refused? — A. Yes, sir. Q. Was this man McDonald a man of responsibility, and an intelligent man worthy of a place? — A. Yes, sir. Q. He was refused the membership on the ground that he represented a cooperative association? — A. Yes, sir; I think that was their main objection. Q. Then what did you do? — ^A. By this time, the grain shipments came through the association. Q. Through what association? — A. Through the Farmers' Exchange, and the secre- tary made arrangements to turn it over to someone who was a member of the chamber of commerce. Q. Do you remember who that was? — A. Alexander McKinnon & Sou. Q. Then, as I understand you, McDonald in representing your exchange made arrangements with this member on the chamber that they should dispose of your grain? — ^A. Yes, sir. Q. McKinnon disposed of the wheat turned over to them by McDonald represent- ing the Equity? — A. The Farmers' Exchange; yes, sir. Q. What happened then? — A. It ran on a while, then it turned up that there were 26 carloads of grain came in, turned over to McKinnon, and he turned them over to E. L. Welch & Co., another member of the chamber of commerce. Q. Then what? — ^A. McKinnon failed. Q. Failed? He went broke? — A. Yes, sir. The grain was by Welch credited to McKinnon's account. McKinnon was in deep to E. L. Welch. Q. As I understand you, when McKinnon failed he was indebted to Welch? — ^A. Yes, sir. Q. And he turned over these cars to E. L. Welch instead of paying you tor your Sain; simply appropriated the money and applied it on McKinnon's indebtedness to m? — A. Yes, sir. Q. How much was it? — A. Something over $12,000. Q. Then what happened? — A. We looked into what we could do. We asked Mr, Welch to pay us. Q. Welch knew it was your wheat? — A. Yes, sir. Q. You took up with Welch for your money? — A. Yes, sii-. Q. What did Welch say to you about it? — ^A. I never heard. It looked to me like a shell game. I then went to the chamber of commerce and wrote to them to get their rules. I got that and looked it up and found they were organized under the statutes, which gave them a right to exist as a chamber of commerce and the act gives them the authority for the purpose of inculcating principles of justice and equity and trade. Mr. Manahan. They got, not only justice and equity, but they got Steenerson. wheat. Q. The wheat was turned over to McKinnon & Co., a member of the chamber of commerce? — ^A. Yes, sir. The member of the chamber of commerce who sold the wheat got not only the wheat, but he also kept the membership that ilcKinnon owned. Q. And Welch kept McKinnon's membership? — ^A. Yes, sir. Q. Your society or exchange brought the matter right up to the chamber of com- merce? — ^A. Yes, sir. I studied this organic act and their laws and regulations and thought to myself, if they were sincere in their motives and wanted to follow out the principles, that they would possibly assist us to get this wheat paid for to the original shipper and in order to give them that opportunity, so I took it up with the chamber of conunerce by correspondence and explained to them the situation to lend us a helping hand. We had several letters with them and they finally staved it off. [Ellas Steenerscn, House committee, vol. 1, pp. 246 and 247.) Q. Then that was the final communication to you from the chamber of commerce t^ A. Yes, sir. Q. Did the chamber of commerce ever attempt to right the wrong of the transacti :•" which you have stated to the committee? — ^A. No; they have not. 126 GEAIN EXCHANGES. Q. They simply on advice from their attorney referred you to the railroad and warehouse commission? — A. Yes, sir. Q. Did you put it up to the railroad commission? — ^A. I do not remember. Q. What further was done, if anything? Did the farmers ever get paid for their wheat? — A. Yes; there were nine directors of us and eight of us put up $1,500 each to pay for the wheat. The directors paid the farmers for the wheat. Q. Did the directors ever get anything back?— A. No; I never got anything back, only what this farmers' exchange finally had to liquidate and dispose of the property and they paid 25 per cent and I took that and let it go. Q. The farmers' corporation, it broke them? — A. Yes, sir. Q. And they paid the directors part of the money they advanced for the wheat?— A. Yes, sir. Q. Did you ever get any of it back from E. L. Welch & Co.?— A. No, sir. By Mr. Teigen: Q. Do you consider to-day, in your mind, the only reason why your farmers' ex- change was broke up and destroyed from doing business, was the fact that you never got returns from the chamber of commerce for this wheat? — A. Yes, sir; that was the reason. [Elias Steenerson, House testimony, pp. 753-754.] By Mr. Teigen: Q. Do you at the present time, Mr. Steenerson, consider it obligatory upon the chamber of commerce to pay this debt? — A. Morally, the/ ought to pay it. Cross-examined by Mr. Mbbcbb, attorney for chamber: Q. Do you want this committee to understand that you think the chamber should pay it? — A. I certainly do. Q. Do you know what kind of an organization the chamber is? — A. I think so. Q. You do not mean to say you think the chamber got this money itself? — ^A. Through their instrumentality, Mr. Welch got the money. Your system and the manifold ways of doing business fixed it so Welch & Co. swindled the farmers out of 26 carloads of grain. Q. How long have you been thinking this over? Do you want this committee to believe that you are not willing to try it out in court and although the chamber did not get this grain you want them to pay for it? — A. I want this committee to believe that I wanted the chamber of commerce to understand the situation, so they could, if they saw fit, make their members make restitution to those people who had shipped this grain. I submitted the case as plainly as I could to them, and they declined to do so, and that is all as far as I am concerned. Q. You are willing to have it appear in record that you think the chamber of com- merce owes this debt? — A. I still hold that they are morally obliged and should make restitution either themselves or those who got the money. Q. You never looked into the instrumentality yourself? — A. I have. Q. And you were not willing to have that instrumentality arbitrate the dispute?— A. If an outsider were to submit to any agreement to arbitrate matters of this kind with a member, he would have no chance whatever before a board of arbitrators com- posed of members of the chamber. If the members would live up to the by-laws and rules, they could adjust matters between your members and the outsider, but they consider outsiders proper subjects to be fleeced. That is the way you are transacting your business, and that is what you got your organization in to do and it is a shame upon the State of Minnesota that you are permitted, imder any law, to carry on such a nefarious scheme, to maintain their charter. Q. Was the board of arbitrators explained to you? — A. I read the articles of incor- poration and the rules of the chamber of commerce, and in one of the rules it said, the members will not be required to incriminate themselves in case there is a hear- ing, which, of course, is the right we are entitled to. When we are -in coiirt we take that right, but for you people to prescribe that you shall have the right to refuse to answer questions shows m itself that you are trying to shield rascals. Further, as showing the power of this organization, and its ineth- ods, there are at l^ast 400 traveling agents, solicitors of the differ- ent firms of the chamber of commerce. These traveling agents, before they are permitted under the rules of the organization to represent a grain firm, are obliged to sign an agreement, which is set forth in the book of rules of this organization, wherein and GRAIN EXCHANGES. 127 whereby they agree to be bound by the rules, customs, and regula- tions of the association, in the same way that a member is. So that all of the employees of this organization are subject to the same disciplinary measures as the members themselves. This regular tion IS set forth in the book of rules under what is known as Circular No. 286. The practical eftect of this is that no traveling agent, no matter what the provocation, dares to say anything derogatory to any member of the chamber of commerce; but, on the other hand, this body of employees, traveling over the Northwest, visiting the managers of farmers' elevators as often as they possibly can, are as a rule pouring out their false accusations against the Cooperative Exchange at Minneapolis. These solicitors are a part of the ma- chinery of this great monopoly, this grain combine, whereby it is seeking to crush and throttle the Cooperative Exchange, through the instrumentality of the abuse and villification of the majority of these traveling agents or soUcitors — all who will stoop to do the bid- ding of the combine. Starting as the chamber of commerce did, with only 550 member- ships, it at once adopted the policy of permitting any individual or any firm within its membership to buy and own as many member- ships as his or its money could buy; at the same time, the big firms, the milling firms and the elevator firms, began to organize subsidiary and aflBliated companies. These in turn accumulated as many memberships as they could in each instance; so that to-day we have the spectacle of the Van Dusen-Harrington Co., supposed to be a commission house, but owning as subsidiaries terminal elevators and country line elevators. We have the spectacle of the Van Dusen-Harrington Co. and its six subsidiary companies owing 21 of the limited memberships of the chamber of commerce; and Mr. Ewe, one of the managing heads of that great company, with its subsidiaries, is here to represent the chamber of commerce. We have the spectacle of the Washburn- Crosby Co., with its numerous subsidiaries, owning 24 of those limited memberships; the F. H. Peavy Co. owning 8; the E. S. Woodworth Co. owning 9; the Pillsbury Flour Mills Co. owning 9; the McCaul- Dinsmore Co. owning 7; the E. L. Welch Co. owning 7; T. M. McCord Co., 9; the Big Diamond Mills Co. owning 10, and so on. Every one of these companies which I have described, gentlemen, is either in the milling or the elevator business ; and some of them are in the milling, the elevator, and the commission business combined. In addition to permitting these companies to own, vote, and control as many memberships as their money can buy, I wish to say that it is beyond all peradventure that 40 of the companies of the chamber of commerce own and vote an actual majority of all the memberships within the organization. The organization has also adopted the pohcy of tucking away a membership wherever it will do no harm and wherever it may do them some good. In this way the banks of Minneapolis own eight memberships, the MinneapoHs Gas Light Co., a pubhc service cor- poration, owns two; the Soo Railroad owns one; trie Gluck Brewery Co. owns one; a; hardwood manufacturing company owns one. But, never in the whole history of the institution has a cooperative organ- ization been permitted to own a single membership. They are prodigal so far as the public-service corporations are concerned, 128 GRAIN EXCHANGES. prodigal to the point that they permit a single member to own and vote 24 memberships, but they will permit no cooperative organiza- tion to own a single share, iuid at Fargo, in North Dakota, on the 3d of July, 1912, and again at Sioux Falls, S. Dak., about the 16th day of December, 1913, at the latter place in the hearing of many of the men here to-day, Mr. McHugh, the secretary of the chamber of commerce, stated boldly that a cooperative association would not be permitted to own a share or to do business upon the floor of the chamber of commerce. I wish to say on that point further, as showing the manner and method in which this monopoly is entrenched, that outside of the eight memberships which are owned directly by the officers of banks in Minneapohs, considering the two largest banks of the city of Min- neapolis, a majority of its board of directors of one are members of the chamber of commerce. Taking the next bank in order of im- portance, 13 out of 30 of its board of directors are members of the chamber of commerce; and of still another bank six are members of the chamber of commerce. I simply call attention to these facts, in order to show the means by which this monopoly ramifies its control, reaches out and attempts to control even the credit of its competitors. I am going to do an unlawyerlike thing and here anticipate in a measm'e a defense of the chamber of commerce. Mr. McHugh has said upon many occasions — and I find this in an article written by him — that a farmers' elevator company in North Dakota has been a member of the chamber of commerce for many years. This claim appears upon the patent insides of many newspapers. This is not a fact. It is true that the Farmers' Grain Co., of Devils Lake, N. Dak., holds a membership in the chamber of commerce, but it does not use it. It does its business through some other member. More than that, it is not a farmers' organization at all; it is an aggregation of capitalists, a corporation incorporated for the sum of 1250,000 and owning 18 old-line elevators at 18 different points in North Dakota. I have in my possession, here exhibit, but will not offer it in evidence, the report of a commercial agency which shows that these are the facts. At the investigation held in St. Paul, Minn., during the winter of 1912-13 the secretary of the organization was unable to show a single directorate in the entire 30 years' existence of the organization which had not been made up of a majority of the big millers and elevator men. In other words, these interests have always controlled the Chamber of Commerce of Minneapolis, and if the committee will inquire into the situation, I think you will find that practically every abuse which the producers complain of to-day is the result of this control of the organization by the millers and elevator men, interests which are antagonistic to those of the producers. These buying inter- ests are interested in getting the grain as cheap as possible, and all of their rules and their practices are framed with this in view. Now, as for example, for more than 20 years past, members of the chamber of commerce charged an arbitrary switching charge of SI. 50 upon every car of grain that came into the Minneapohs terminal. A large portion of the cars which came into the Minneapohs terminal paid no switching charges whatever to the railroads, and yet, in defiance of the State law, a switching charge of $1.50 "was charged to every car of grain that came into the terminal for more than 20 GKAIN EXCHANGES. 129 years. During the investigation last winter, the State railroad and warehouse commission of Minnesota prepared a statistical table which showed at once the amount of switching charges imposed by the- railroads, and at the same time the amount of switching charges which were charged by the members of the chamber of commerce back to the shippers upon these same cars. I hold that table, or rather these two tables in my hand; and they show that in the year 1912, the members of the chamber of commerce charged the pro- ducers more than $60,000 in switching charges more than they paid to the railroad —more than $5,000 a month was extorted, robbed from the producers tributary to the Minneapolis market by virtue of this scheme of charging back switching charges to the producer, and that system was continued for 20 years. This table was pre- pared by the State railroad and warehouse commission, and after the evidence had been given before the investigating committee, still this grasping monopoly hung on, and maintained its illegal and extortionate switching charge. The Chairman. Did I understand you correctly, to say that the switching charges amounted to $60,000 more annually than the freight charges ? Mi. Deake. No, sir. The switching charges imposed by members of the chamber of commerce and charged back to the shippers of cars exceeded the amount of switching charges actually charged or im- posed by the railroads by the sum of more than $60,000. Mr. Lenroot. Annually ? Mr. Drake. For at least 1912. Mr. Lenroot. For that year ? Mr. Drake. Presumably; the amount growing somewhat less as you go back. The organization maintained this charge, gentlemen of the com- mittee, after the railroad and warehouse commission had prepared its tabulation, after the evidence had been submitted, which showed conclusively the robbery, the extortion — maintained it for at least 6 months, maintained it until the very day when the railroad and warehouse commission, on the 28th day of November, 1912, made its order, declaring the charge illegal, and declaring that hereafter it would revoke the license of any dealer Mr. Manahan. You mean 1913, 1 presume. Mr. Drake. 1913, declaring that it would revoke the license of any dealer who continued to impose an arbitrary switching charge or any charge in excess of the charge actually imposed or charged by the railroads. Mr. Garrett. Has that now been corrected ? Mr. Drake. That has been corrected. I now offer in evidence the tabulation referred to. Switching Taeifp Statement No. 1. This is a statement showing the total number of cars of all kinds of grain received by the different roads at Minneapolis, the number of such cars ordered to the differ- ent industries in Minneapolis for imloading, giving the switching tariff that should be applied in their movement for the grain year ending August 31, 1912. This statement was prepared by the grain department for the railroad and ware- house commission from the records of the orders filed with the different carriers for disposition of such grain cars ordering them to MinneapoUs industries on all lines in the city for the period stated. 37214—14 ^9 130 GEAIN EXCHANGES. Disposition or orders of cormgnees sending such cars to Minneapolis industries — Proper switching tariff apphed to the movement of such cars from the road over which they were received to the industries at which they were unloaded. Roads. Carload receipts of pain in- spected "on ar- rival" on each road from Sept. 1, 1911, to Aug. 31, 1912. Cars moved under free switch. Cars moved under a switch of $1. Cars moved under a switch of SI .50. Cars moved under a switch of *2. Cars moved under a switch of 12.50. Cars moved under a switch of $3. Totalper road. 51,999 21,455 5,640 19,191 17,198 10,637 3,617 20,719 2,658 429 4,076 4,746 1,643 655 218 3,121 100 86 40 196 91 21 16 24,214 13,300 3,758 8,833 9,439 7,147 2,619 1,774 465 911 576 2,336 1,103 372 136 96 48,609 18,093 4,872 Chicago, Milwaukee & St. Paul 911 213 23 2,343 280 1,051 177 8 Soo 1,000 18,628 15,743 10,304 3,528 Chicago Great West- em.., .. .. 120 100 Chicago, Bock Island & Pacific 2,211 Total 129,537 35,043 3,670 70,984 5,986 2,131 4,075 121,888 Percentages 0.287 0.030 0.582 0.049 0.017 0.033 0.998 The average switch on the 121,888 cars moved during this period amounts to $1.14i. At $1.50 each, it charged, the total charged for switching would amount to $182,832. At the tariffs applied above, the correct amount of such switching charges amount to $139,668.50, a difference of $43,163.50. Switching Tariff Statement No. 2. This is a statement showing the total cars of all kinds of grain received by the dif- ferent roads at Minneapolis, the number of such cars ordered to connecting lines for shipment out of Minneapolis, together with the switching tariff that should be applied for their movement for the grain year endiag August 31, 1912. This statement was prepared by the grain department for the railroad and warehouse commission from the records of the local freight offices of the various railroad com- panies at Minneapolis from the records filed with the different carriers for disposition of such grain cars, ordering them to connecting carriers for shipment. Disposition or orders of consignees sending such cars to connecting carriers for shipment out of_Minneapolis — Proper switching tariff applied to the movement of such cars from the roads over which they were received. Koads. Carload receipts grain in- spected on each road. Great Northern to roads shown at— Milwaukee to roads shown at— St. Louis to roads shown at— Soo to roads shown at— Free switch. S1.50 switch. Free switch. il.60 switch. Free switch. $1.60 switch. Free switch. $1.50 switch. 61,999 21,455 6,640 19,191 17,198 10,637 3,617 (') 980 1,426 878 66 38 408 414 36 96 1,966 284 9i' '"'"2i3' 74 148 245 53' 62 23 Milwaukee 179 St. Louis 58 Soo Line 22 207 Northern Pacific 149 Omaha 7 Chicago Great Western 42 69 27 44 Chicago, Rock Island & Pacific 16 3 Total 129,637 4,246 2,586 304 688 49 230 291 1 The receipts of grain on the Milwaukee include those of the Bock Island, because the Bock Island is 8 tenant of the Milwaukee and uses the Milwaukee wheat yard in which to place their oars for Inspection. GRAIN EXCHANGES. 131 Disposition or orders of consignees sending such cars to connecting ^rriersfor shipment out-of Minneapolis — Proper switching tariff applied to the movement of such cars from the roads over which they wer-e received — Continued. Boads. Northern Pacific to roads shown at— Omaha to roads shown at— Chicago Great Western to roads shown at- Chicago, Rock Island & Pacific to roads shown at— Total oars ordered lor shipment Free switch. $1.50 switch. Free switch. J1.50 switch. Free switch. $1.50 switch. Free switch. $1.50 switch. from each road. Great Northern.. 217 633 320 16 405 234 214 16 70 '"■'265' 14 57 36' 8 «■ 32 81 34 32' ii' 193 Y 36' 1,505 4 685 Milwaukee St. Louis 121 1,976 Soo Line 33 37' 449 Northern Pacific 26 1,310 740 Omaha . 2,307 905 Chicago Great Western Caiicago, Rock Island & Pacific 74 17 76 8 348 Total 2,065 1,527 329 192 91 386 43 12,915 Total cars moving under a free switch, 11,808, or 0.914 per cent. Total cars moving under $1.50 switch, 1,107, or 0.085 per cent. The average switch on 12,915 cars moved during this period amount to $0,128; at $1.50 each, if charged, the total charges for switching would amount to $19,372.50. A.t the tariffs applied above the correct amount of such switching charges amount to $1,660.50, a difference of $17,712. I simply have gone into this matter to illustrate the attitude of this grain combination. That is my purpose and my sole purpose, except this, I would call the attention of the committee to this fact: At no other grain exchange in the United States is there any switching charge charged back to the producer. You can go to the other exchanges — Clhicago, Milwaukee — and there is no switching charge charged back to the producer. The switching charge, as a matter of fact, is not a charge which a producer should pay. It is like cartage of the goods after they arrive at their destination. The producer ships his grain to the terminal market. He is not interested whether the concern which buys the grain is located on this track or on that track. That is a matter for the man who buys the grain to pay; and at all other markets, all other grain markets in the United States, there is no switching charge charged back to the shippers of grain. The Mirmeapohs Chamber of Commerce, in addition to cmarging back the actual switching charge, which is done in no other grain exchange, I beheve, in the world — certainly not in the United States — in addition to doing that the chamber of commerce robbed the pro- ducers of over $5,000 per month for 20 years by the imposition of fictitious charges. Mr. Leneoot. May I ask you if this order of the warehouse com- mission prohibited the switching charge or permitted the charges when actually paid ? Mr. Drake. Permitted the charges when actually paid. I speak of the Minneapolis Chamber of Commerce. The defense which probably will be urged to this system is that in most of the other grain markets of the United States the switching charge is absorbed by the railroads, whUe it is not absorbed at Minneapolis. I would call the attention of the committee to this fact: At the Duluth terminal the charges are imposed by the railroads in the 132 GBAIN EXCHANGES. same way that they are imposed at the Minneapolis terminal, and always have been; but at the Duluth terminal the switchii^ charge is not 'charged back to the shipper. In other words, this extortion, this robbery, has been practiced for 20 years, because the organiza- tion is a monopoly and nad the power to do it. Mr. Garkett. Who pays that charge at Duluth? Mr. Drake. The shipper. Mr. Manahan. At Duluth ? Mr. Garrett. Yes. Mr. Drake. At Duluth it is paid by the man who purchases the" grain, if I am correctly informed. I am not a grain man, and I would not state that as a fact ; that is my impression. Mr. Garrett. I understood you to say that that charge was made at Duluth. Mr. Drake. By the raili'oads, in precisely the same manner that it is made at Minneapolis. Mr. Garrett. Yes. Mr. Drake. But in one market — in the Minneapolis market — it is now charged back to the shipper. In the Duluth market it is not charged back to the shipper. Mr. Garrett. You do not know who pays it, do you ? Mr. Drake. My impression is that it is paid by the purchaser of the grain. The Duluth market is largely an export market; the MumeapoUs market is largely a consumption market. The great mills of Minneapolis consume at least 75 per cent of the grain; the mills are interested in getting the grain as cheap as possible, in charg- 1- to the producer every item which can be charged. The situation at an export market, as I understand it, is different. At any rate, the point which I am making is this^ That at Duluth the charge is not charged back to the shipper, while under precisely the same con- ditions it is now charged back to the shippers in Minneapolis by the chamber of commerce members. And up to the time of the order of the railroad and warehouse commission, November 28, 1913, in addi- tion to charging back the actual switching charge, they charged back $5,000 per month more. Mr. Manahan. That was by a flat rate of $1.50 per car? Mr. Drake. That was by a flat rate of $1.50 per car. Mr. Garrett. I understood that; and I understand that at no other grain market in the United States are there any switching charges made, except at Duluth, and at Minneapolis ? Mr. Drake. As to that, I am unable to state, whether they are made or not. If made they are not charged back to the producer. The switching charge, as I endeavored to say before, is logically in the nature of a cartage charge. When the producer, the shipper, has put his grain into the terminal, he is not concerned with where it goes, whether it goes 20 miles from market over a railroad, or whether it goes 2 mUes from a market over a switching road; that is some- thing for the purchaser to figure out, and for the purchaser to pay in the nature of cartage. Mr. Manahan. As I understand, there are quite a few cars come into Minneapolis upon which there is no switching charge at all by anyone ? Mr. Drake. There are many, many cars — thousands of cars of grain which come to Minneapolis every year, and have been for the GRAIN EXCHANGES. 133 last20 years, and to which fact the secretary of the organization, Mr. McHugh, testified at the hearing before the Minnesota Legislature. There are thousands of cars which come into the Minneapolis market upon which no charge at all is imposed by the railroads. The method has been Mr. Cantkill. What are the usual charges ? Mr. Drake. The charges vary in the Minneapolis terminal from probably a maximum of about $3 to a minimum of about $1. Mr. Cantrill. How is that charge taken up or allotted ? So much commission, so much switching charges— what goes to make up the items ? What do they charge up to the shipper ? Mr. Drake. What do they charge the shipper ? Mr. Cantrill. What items 1 Mr. Drake. They charge up a switching charge at the present time, if there is one; they charge up the inspection charge; they charge up the weighing charge; they charge up the freight from the point of shipment to the point of destination ; and they charge up the commission for selling the grain; and these amounts they deduct from the proceeds of me sale. Mr. Cantrill. Now, on an average, what does that amount to per car, those entire charges ? Of course, there is the freight, which depends largely on where it is shipped from. I understand that; but I mean the regular market charges, leaving out the freight. What I am trying to get at, as near as I can, is the cost per bushel or per car levied on the farmer for the selling of his wheat, over the market, so as to ascertain whether or not it is exorbitant or reasonable. Mr. Drake. Mr. Cantrill, I am not a grain man, and I am unable to give you those figures. To still further fortify this monopoly and sti^l further to crush and ehminate competition at the Minneapolis market, and between the members of the chamber, in particular, the Chamber of Commerce of MinneapoHs by a direct rule — by a direct rule, rigidly enforced — has eUminated all competition whatever between its members in bidding for or purchasing grain on the track in the country for ship- ment to MinneapoUs. That provision or practice is provided for in a direct rule of the organization. It is known as section 10 of the rule 8 of the rules of the chamber of commerce. I simply desire at this time to quote the testimony of the secretary of the chamber of commerce, given before the investigating committees of the Minne- sota Legislature, to show that the organization itself admits there is no competition whatever under this rile. [Referring to paper.] Before the committee of the hoase of representatives the witness, Mr. McHugh, testified as follows, he being the secretary of the organiza- tion [reading]: Q. I do not recall just exactly your answer to my question. Is not this rule and its enforcement— does not this rule and its enforcement give the chamber of com- merce control over the market price paid for all grain purchased for sale in Minne- apolis, and does not it restrict absolutely to the extent that the chamber dominates the trade of grain, the freedom of trading in^ain in the Northwest?— A. It requires the members to purchase grain for Minneapolis to base their prices on the Minneapolia market. Q. I am talking about the grain consigned to Minneapolis market. — A. So far as the basic price at country points? Q. Yes; I say the chamber of commerce and its directors have and exercise the power under the rules adopted and the discipline enforced to not only control the trading on that chamber but also control prices of every member trading on the 134 GBAIN EXCHANGES. chamber which he pays in the country for grain purchased for the Minneapolis mar- ket? — A. That is, in carload lots; yes, sir. - Q. It is?— A. Yes, sir. By Mr. Manahan: Q. Then there is no competition in the country between members of the associa- tion operating in the country for prices paid for shipment to Minneapolis? — ^A. The basing price for all members Q. I say there is no competition in the country between members of the association operating in the country in the prices they pay to the farmers or dealers there for grain consigned to Minneapolis? — A. This is track purchase of grain in carload lots. Yes; on the basing price it is just the same for all. ■ Q. In other words, out at Morris, Minn., there are two different members of the chamber in Minneapolis who attempt to buy grain there. — ^A. It would be at the closing price Q. One can bid against the other on that closing price? — ^A. For shipments to Minneapolis; no. Q. So that so far as the Minneapolis market is concerned and the enforcement of this rule, practically destroys competition in the country for members of the associa- tion for the price on track carload lots? — ^A. For shipment to Minneapolis, yes. Q. Probably the same rule is true in Duluth on the board of trade, as you under- stand? — A. I am not familiar. Q. It would be a good thing for the farmers and shippers, would it not, if there was competition between the members of the board out in the country^ buying their grain on track? — A. The basic price for the stuff coming to Minneapolis is the market value in Minneapolis. Q. I am talking now about the farmers in the country that have carload lots of grain for sale. — ^A. Yes. Q. If they could load their cars and put it up to the different members of the cham- ber in Minneapolis and the different members had a right to bid for that carload of grain and compete with each other,, if the market justified bidding, it would be better for the farmer if they could do that? — ^A. I would not say so. Q. If it would be better for the farmer, what hurt could it do the chamber to have them do it?— A. I would not wish to express any opinion there. The Chairman. I think the committee will adjourn its proceedings now until to-morrow morning at half past 10. (Whereupon, at 4.50 o'clock p. m., the committee stood adjourned, to meet to-morrow, Thursday, March 5, 1914, at 10.30 o'clock a. m.) Committee on Rules, House of Representatives, Thursday, March 6, 1914- The committee met at 10.30 o'clock a. m., Hon. Robert L. Henry (chairman) presidiog. The Chairman. The committee will be in order. Mr. Drake, 3'ou may proceed, STATEMENT OF MR. BENJAMIN DRAKE. Mr. Drake. May I inquire, Mr. Chairman, how long this morning's session will probably last ? The Chairman. ' I suppose the members would like to go to the House to hear the reading of the President's message, and I think we might run until 12.15. Mr. Drake. Now, Mr. Chairman, I had just quoted, at the last adjournment, the admission of the secretary of the Chamber of Com- merce of Minneapolis, before the house investigating committee of Minnesota, to the effect that there was absolutely no competition GEAIN EXCHANGES. 1S5 between members of the chamber of commerce in the purchase of grain on track at country points. I desire to say, to show that there was no inadvertence on his part in that admission, that within two weeks, before a senate investigating committee of the legislature, the secretary, after denjing three or four times that he had previously made the admission to the house committee — after making these denials under oath, he was forced and did admit again that there was absolutely no competition at the Minneapolis terminals, and I desire to incorporate these questions and answers in the record. This testimony was taken before the senate committee : Q. So that the rule necessitates in the bids for grain which are made for grain under these conditions a uniform price all over the State, varying only because of the vary- ing freight charges between different points; is that true? Mr. Mercer (attorney for chamber). Objected to as calling for a conclusion and being something that this witness could not state. A. There are so many ingredients to be taken into consideration, a man could not know imless he had the actual facts, the variation in buyers and judgment, and range in values, and a lot of other things. Mr. Works. It strikes me the witness might state his opinion as far as his knowledge A. In a general way, it is true. The rule is plain and clear. It says the bids shall be based upon Minneapolis values and those values shall be used as a basis of the bids for country prices. Of course the values fluctuate continually; but it is true so far as grain purchases in carload lots on track at country points for shipment to Minneapolis are concerned, that the Minneapolis basis is the basis all over the State, or anywhere else, for that matter. Mr. Lende. Your answer to his question is, "Yes"? A. Yes; in a general way, it is correct. Q. Then will you tell this committee that there is any competition between buyers of grain in carload lots on track at. country points at any given day and hour? (70) Mr. Mercer. I object to that. The wjtness has not shown himself competent to answer that — ^no foundation laid nor proper cross-examination; that is, if Mr. Schmitt wants this to go in Mr. Sullivan. Let the witness state whether he knows or not. A. One member may be aware of prices — one member may not be in touch with the market at one particular moment on just what the price may be — ^but if the value of the grain is notorious to everyone at any given moment, that would be the uniform basis all over the State and members generally would use it in their bids; under those conditions the bids would be uniform all over the State. Mr. Works. Don't some buyers get their price once a day and others several times a day by use of the wire? A. Are you speaking of buyers in the country? Mr. Works. Yqs. A. In the counfay some buyers use the Western Union C. N. D. service. Mr. Sullivan. What is C. N. D.? A. I don't know what the words mean ; it simply means a service for giving market news. They report every hour or at stated periods between the opening and close. Mr. Mercer. It means commercial news dispatch. (Question read by the reporter). Mj. Drake. I object to anybody conversing with the witness while he is on the stand I want to examine this witness and not the pl-esident of the chamber of commerce or anybody else. That is improper procedure and I so characterize it. Mr. Mercee. I think that is a matter simply for the committee to determine. Mr. Lende. Answer the question. (Question read). A. The basis being the same, if they all are working on the same actual price, the price that they would all bid would be the same. (71). Mr. Works. Then there is no competition? A. There would be no competition; no. Q. Why didn't you say so in the beginning? So that I say, Mr. Chairman, as shown by the sworn testimony of the secretary of the Chamber of Commerce of Minneapolis, twice 136 GEAIN EXCHANGES. reiterated, there is no competition to-day in the purchase of grain in the country and points tributary to the Minneapolis market. Another device by which competition has been further eliminated in the Minneapohs Chamber of Commerce's private market, is this: They have instituted there a system of subsidiary ownership, a system of interlocking directorates and officials of the various com- panies, the milling companies, and the elevator companies, on the one hand, and the commission houses on the other. I make the charge, and I defy any of the members of the chamber of commerce to disprove it, that the commission companies which are supposed to represent the farmers— God save the mark — at the Minneapolis ter- mmal — the commission houses, the large ones handhng more than one-half of the consigned grain that comes into that terminal, are absolute^ owned by the milling and elevator interests which buy the grain. This is not an unsupported charge. But, first, the duty of a commission merchant, of course — it is almost an insult to the intelli- gence of this committee to suggest this — but I would say, the duty of a commission merchant is one of fidelity. He is bound in law and bound in business honor to get the best price he can for consigned grain, and to sell it to the best possible advantage. He has no right to sell it as a subsidiary to a company with which he is affiliated. That is wrong. Then what is the meaning of this community ownership by big mills and elevators of Idanneapohs, of the commission houses, under names which suggest no connection whatever, and which connection is abso- lutely unteiown by reason of the secrecy by which this institution has , been able to enshroud itself? I \yish to make this statement on the matter. Prominent among these subsidiary groups is the Van Dusen- Harrington group, a group which is represented here to-day by Mr. Ewe, one of the three men who constitute the managing head of that group of subsidiaries. It consists first of the Van Dusen-Harrington commission house, which is one of the largest commission houses upon the floor of the chamber of commerce. In addition it owns all the stock of the three terminal elevators in Minneapolis — the Star, the Crescent, and the Pioneer Steel. It also owns the National, the Atlas, the Interstate, and the Van Dusen elevator companies, all of which are old-line elevator companies, altogether comprising more than 300 line elevator companies. This concern, as shown at the Minnesota investigation, sold grain consigned to it to its own sub- sidiaries. During the month of January, 1913, as shown by the rec- ords of that investigation, this commission house receiving the grain impressed with this trust to secure the highest possible price for it and owing the duty of fidehty to its principal, this commission house sold to its own subsidiari s 197 cars of grain in one month. Mr. Ewe, who is here, also testified that when the miller sent in an order for grain and they were able to fill it out of their own receipts of consigned grain, they would charge a commission both for selling and for purchasing that grain. The Van Dusen Co. is one of the large companies; it owns, controls, and votes 21 of the hmited mem- berships in this close club known as the Minneapolis Chamber of Commerce. Another subsidiary group is the Washburn-Crosby Co., of which Mr. Crosby, president of the chamber of commerce," is a prominent GBAIN EXCHANGES. 137 member. These subsidiaries include the following, which the Wash- bum-Crosby Co. owns or controls by a system of interlocking direc- tors: The St. Anthony, the St. Anthony & Dakota, the Imperial, the Huhn, Rocky Mountain & Great Western elevators, and the Great Western Grain Co., the Bamum Grain Co., and the Brown Graia Co. The last two named companies are commission houses. Each is a subsidiary of the Washburn-Crosby Co., with ofl&cers practically iden- tical with the parent company. During the past summer this com- pany issued a statement showing that of its total assets over $100,000 was at the time owing from other Washburn-Crosby subsidiaries, which would seem to indicate a healthy and flourishing condition of business between this company and its subsidiaries. It is also prob- able, it seems to me, that the Heising Grain Co., another commission company, is owned by the Washburn-Crosby group. This group owns and controls 24 of the chamber's limited memberships. Another group is the Big Diamond Mills Co. This milling company owns the following subsidiaries: The Commander Mill Co. and the Commander Elevator Co., the Midway and Powers and Sheffield ele- vator companies. It also owns or controls the Gregory-Jennison Co., a commission house, and one of the large commission houses on the floor of the chamber of commerce. In a similar way the McCaul-Dinsmore commission house also owns or is afl&Uated with the McCaul-Webster and Hawkeye elevator companies. E. S. Woodward & Co., a commission house, is also in the elevator business, as the Concrete and Woodward elevator companies bear witness. E. L. Welch & Co., a commission company, is afiiUated with or owns the Security Elevator Co., and is also interested in a mill at Fairfax, Minn. Mr. Welch is here to-day representing the chamber of commerce. The T. M. McCord Co. is affihated with the Merchants' Elevator Co. The Nye, Jenks Co. is affiliated with the Itasca Elevator Co. and the Calumet Elevator Co. The Standard Grain Co. is affihated ' with the Federal Elevator Co. ; the CargU Commission Co. with the Victoria, and E. E. Moers, Superior Termiaal, and Montana Central Elevator Cos., as well as the Minneapohs Seed Co. and the Tri-State Implement Co.; the W. H. Poehler Commission Co. with the Pacific Elevator Co. The Kellogg Commission Co., generally speaking, is manned by the same men as the George C. Bagley, Royal, Atlantic, and Home- stead Elevator Cos. W. D. Gregory, of the firm of Gregory- Jennison Co., is also president of the Carter-Sammis Co., a commission house, and is also president of the Powers Elevator Co. The Hatton Grain Co., a commission house, is owned jointly by the Northwestern, St. Anthony & Dakota, and Andrews Grain Co., and the Washburn- Crosby Co. I have some others on my hst, but I shall not read aU of them. I will say, however, that the Quinn-Shepherdson Co., a commission firm, owns Elevator D on the C. & G. Western Railway tracks. The International Grain Co., McCarthy Bros. Co., and ia large elevator at St. Louis Park are all under the same management. The Electric Steel Elevator Co. is owned by the Russell Miller MilUng Co., and thereby hangs a tale. 138 GEAIN EXCHANGES. A farmer from North Dakota wrote in to the Kussell-Miller Co. and asked them why it was that they refused to buy a bushel of the grain handled by the Cooperative Exchange, and why it was that aU the Minneapolis miUs have for months refused to buy a bushel of the grain handled by the Equity Cooperative Exchange, and this letter, which I shall offer in evidence, was received in reply. This is on the stationery of the RusseU-Miller Milling Co., and is dated, Minne- apoUs, Minn., February 7, 1914. I will read it: L. NoLTiMiER, Secretary, _ Valley City, N. Dak. Dear Sir: We have your valued favor of February 4 and will be very glad to answer your questions in regard to our wheat buying as fully as we can. As you know, we buy at our Dakota mills a great deal of our wheat supply from Equity farmers and from Equity elevators. We feel sure no flour sold m North Dakota is manufactured so largely from Equity wheat as ours. As to our wheat supply for our Minneapolis mill will say, that we do not buy a bushel of this wheat ourselves, nor do we have any organization here for buying wheat. Our wheat here is all bought for us by the Electric Steel Elevator Co. on a brokerage basis. We simply tell them the kind of wheat and the amount we want and ask no questions as to who sells it. This arrangement is cheaper for us than to put in our own wheat-buying organization; so that as long as we are buying no wheat whatever through our own organization, we are of course not direct buyers of Equity wheat at this point, though presume much of our wheat ground here is raised by Equity farmers and shipped by Equity elevators. Very truly, yours, Russell-Miller Mlg. Co. H. S. Helm, General Manager. Now, I wish to offer in evidence, and I do offer in evidence, the statement of a financial agency, showing that the Electric Steel Elevator Co. is ia fact a subsidiary owned by the Russell-Miller Milling Co. I offer this in connection with that letter. (The statement referred to is as follows:) Electric Steel Elevator Co., 75 Chamber of Commerce, Minneapolis, Minn., October 12, 1912. This ia a Minnesota corporation organized in February, 1901, with an authorized capital of $200,000, which was increased by amendment in January, 1905, to $300,000. The corporation owns and operates a large terminal steel elevator plant on Marshall Street NE., and the company waa controlled until some weeks ago by the Messrs. L. S. and George M. Gillette and associates. In the early part of August it waa reported that arrangements had been made whereby the capital stock of this com- pany would be acquired by the present officers and associates, who are the principals of the Russell-Miller Milling Co. of this city. It was reported that the plant was bought, based on a valuation of $450,000, and that former stockholders received some cash and also preferred stock amounting to $200,000 and common stock $50,000, The bond issue, amounting to $200,000, was floated and now appears against the property. Edward P. Wells has long been a resident of this city, is president of the Wells & Dickey Co., investment bankers of this city, and also president of the RusseU- Miller Milling Co., a man in excellent standing and of considerable means. Mr. Lyon has also been a resident of this city for several years and was formerly located in North Dakota. He was the principal of the Lyon Elevator Co., which was taken over by interests controlled by the above ofiicers, and he is also vice pres- ident of the Russell-Miller Milling Co., and one of the important stockholders. He is also president of the Mandon Mercantile Co., a large institution of this city. Mr. Helm is prominently identified with the management of the RusseU-Miller Milling Co. and has been associated with that concern for years. Also well regarded in all respects and represents some resources. ' This is the way in which the producers of the Northwest are hood- winked and the way in which they are robbed by this system of GEAIN EXCHANGES. 139 -interlocking directorates, by this ownership of the commission houses by the very interests which buy the gram; by this interlocking of -officials; by this secret manipulation of the members of this insti- tution, some of whom are here to-day and wiU prate to you about their high standards of honor — an institution whose by-laws set forth as one of its objects that it is incorporated to inculcate the principles of equity in the trade. Mr. Cantbill. Ther,e is one line of argmnent I would like to have you touch upon. I have been expecting to, hear it from you, but have not heard it yet, and before you conclude I would like to have you bring it before this committee. Is it your contention that the practices indulged in by these different boards of trade have resulted m forcing the wheat farmers of the Dakotas to sell their wheat crops and other grain crops at a loss ? Mr. Drake. Absolutely. I am prepared to show that. Mr. Canteill. I mean at a loss to the farmer ? Mr. Drake. Yes. Mr. Cantrill. In other words, is it your contention that if you can secure the relief asked for under the Manahan resolution it will result in making the grain business for these farmers a profitable business instead of as to-day, a losing business ? That is the point I want to get at. Is this operation that you complain of forcing the farmers to sell their wheat at a loss ? Is wheat raising a profitable business to these people, or is it an unprofitable business, owing to these practices you complain of; and do you think this resolution will brmg relief and place the business on a profitable basis ? Mr. Drake. I would answer both those questions in the affirma- tive. I venture to assert that for the past three years the average farmer has raised and marketed his wheat and grain of all kiads m the Northwest at a positive loss. Mr. Cantrill. That is the point I wanted to get at. Mr. Drake. I have had hundreds of farmers in the Northwest tell me that they could not raise wheat and make an ordinary just and reasonable allowance for the cost of raising it, including labor — that they could not raise wheat except at a loss. I venture the assertion that in the choicest part of the Ked Kiver Valley of the North, the garden spot, as we all say in the Mississippi Valley, the garden spot of that whole valley — that in that choicest wheat-raising country — possibly of the United States — there has not been a year in the past three years that the average farmer has raised wheat and after pay- ing for the cost of raising it, has not suffered an actual loss in the marketing of his product after it has passed through the machinery for distribution afforded by this private club, known as the Minne- apolis Chamber of Commerce. Mr. Cantrill. Now, right there — if you get the relief asked for in this resolution, do you believe, or do you consider that the business will then be a profitable business for these farmers ? Mr. Drake. I do, without question. That is what we are here for. Mr. Cantrill. That is the point I wanted to bring out. Mr. Drake. There are 200,000 farmers who beUeve that. Mr. Lenroot. I have been unavoidably absent for a portion of this hearing. Have you presented to the committee any figures or data showing the difference between the price the farmer receives and the price the miller pays after eliminating transportation costs ? 140 GRAIN EXCHANGES. Mr. Drake. Mr. Lenroot, as the author of this resolution will tell you, for days and weeks, before both committees of the Minnesota Legislature, the members of the committees wrestled with the attor- neys for the chamber of commerce in the vain endeavor to make them produce the records of their sales. We could not do it. I am coming to that point. Another device employed to eliminate competition Mr. LenRoot (interposing) . May I interrupt you about these sub- sidiary corporations? You spoke of the milhng and elevator compa- nies having subsidiary corporations doing business as commission merchants, and so forth. Has there been put in the record anything with reference to the ownership of country elevators ? Do they also own country elevators? Mr. Drake. Yes, many of those I have named are country ele- vators; others are terminal elevators. Some show by the name adopted that they are country line elevators, and some do not. It is a matter not entirely within my personal knowledge, and I am not able to distinguish in all cases terminal elevators ftrom country and hne elevators by the nomenclature adopted. Mr. Lenroot. Is it your contention then that many of these inde- pendent country elevators sending wheat to Minneapohs are in fact selling to one of the old line elevators in their own place ? Mr. Drake. Absolutely, yes. Mr. Lenroot. That is, it amounts to the same thmg? Mr. Drake. Yes. Another device employed to overcome compe- tition is this: The commission houses — and the commission houses are largely owned by the elevator and miU interests which control the chamber of commerce — the commission men loan money to the farmers' elevators to serve them through the season. The farmers' elevator must have money to buy the grain which comes in during the crop year. Unless they have a surplus ahead — unless they have a sinking fund to draw on — every farmers' elevator company must borrow money. As a matter of fact, the ordinary farmers' elevator company does and must under present conditions borrow money to finance himself through the season. Now, then, these commission houses make a practice of borrowing money of the banks, where their credit is good, and turning it back and loaning it to the farmers' elevator companies. Mr. Cantrill. At what rates of interest ? Mr. Drake. At a reasonable rate of interest, 6 or 7 per cent. The Van Dusen-Harrington Co., of which Mr. Ewe, who sits there, is one of the managing heads — as Mr. Ewe testified before the investiga- tion — loaned to the farmers' elevators of the Northwest the enormous sum of over a miUion and a quarter dollars. And wherever a loan was made to the farmers' elevator an agreement was taken back that the elevator would ship all the way from 50 to 1 00 per cent of its grain to the house which made the loan. Not only that, but there was taken back this further agreement that if at any time the commission company making a loan con- siders its security insecure or if at any tune the business was not conducted as the commission house thought it oaght to be con- ducted—that is, properly — they could call the loan at once. Now, I offer in evidence the testimony of Mr. Ewe and others on that point. GKAIN EXCHANGES. 141 which establishes my claim conclusively. In other words, there is a general practice existing at the Minneapolis Chamber of Commerce that every comnussion merchant to the fullest extent of his credit borrows money of the Minneapolis banks or other banks where his credit is good — and where the farmer can not get money — and he turns around and loans that money to these farmer elevators, and in their dependence they are coerced. — there is nothing else to do but to agree to ship theu" grain to this, monopoly. It is a system of financial slavery. This system -of loaning has been used all the time to compel shippers to give their consent to the arrangement that the conunission houses may sell to subsidiaries. Oftentimes sales are made without the knowledge or consent of the shipper to the subsidiary companies of the receiving house. But oitener they coerce the consent of the shipper by the instrumentaUty of this loan agreement which I have stated. I offer in evidence the testimony of Mr. Ewe, fuUy covering this point: [Loans to fanners' elevators. G. S. Ewe. House eommlttee, Febraary 19, 1913.] Witness. We financed five line elevator companies. We financed 42 independ- ent and farmers' elevator companies that operate in composite 268 elevators. Under agreements the Van Dusen-Harrington Co. must be prepared to furnish these 47 com- panies $1,325,800. The borrowers take the money any time that they please and pay it back when they choose by the proceeds of their shipments. The agreements are made annually for the crop season. The company owning 19 of the 268 elevators agree to ship us all of their grain. That is one of the points Mr. Manahan raised — don't you remember? Agree to (475) ship us all of their grain, but they don't all do it. And one object of loaning money to grain shippers is to secure their consignments. If shippers do not consign enough grain to us during the year to warrant the loan, we would not be inclined to make it the following season. The money that is loaned by commission houses to influence shippers is principally borrowed from the banks for the purpose, and there is no use taking the risk unless it builds up the receiving business. Now, this I have made in concise form, so I can not be accused of being a speecbmaker. Mr. Tbigbn. Could you add one important statement to finish that up there and show how many cars out of all those, besides these 16 you mention, have been trans- ferred to you directly or indirectly? Witness. None whatever, excepting the cars we have had permission to sell to ourselves. Mr. Teigbn. That is what I mean; I mean the cars you got written permission to transfer — ^how many? Witness. I haven't that information (p. 476). [Loans to fanners' elevators. G. F. Ewe. House committee, vol. 1, p. 346.] Q. Do you also loan money to a great many consignors? — A. We do loan money. Q. How much have you loaned out to consignors, dealers in grain, as a general proposition? — ^A. I would not know without refreshing my memory. Q. Do you know anybody? — ^A. I do not. Q. What land of an arrangement do you make with a man out in the country from whom you solicit shipments and to whom you make loans? What is your arrange- ment? — A. We loan a man a certified amount of money, and he secures the loan and agrees to ship us his grain. [Loans to farmers' elevators. G. S. Ewe. February 19, 1913. House committee.] Q. I call your attention to Exhibit 28, being the loan form used by you in your loans, to this clause, "If in our opinion you are not solvent or your business is not being properly conducted, or you are not complying with the terms of this agreement, then all indebtedness shaU become due and payable at once." — ^A. Yes, sir. Q. That comprehends, does it not, and gives you the power to call the loan any time in your opinion the borrower is not sending you his grain where it provides he should?— A. I don't think so. (P. 493.) 142 GRAIN EXCHANGES. Mr. Manahan. It is simply this, that either this man or any other borrower when he has before him the contract which he signed, a copy of it, where he borrows that money on condition that when "in our opinion he is not conducting his business properly" you can immediately call the loan — and I am asking you now if it was not the purpose of your company and the only intelligent motive it could have had in inserting that clause to use it as a club to compel the servility of the borrower? Witness. Not at all. Q. Then why did you put it there? — ^A. No answer. Q. Why was that put there at all?— A. As a matter of business precaution. (P. 496.) [Consent to sell to subsidiaries. G. S. Ewe. House committee. February 19, 1913.] Examined by Mr. Hopkins: Q. Then if their grain was not being sold through your firm and you had a loan to these people you wouldn't know whether they were hedging or not; is that not right?— A. That is right. Q. Then if you found out that the grain was not coming to your commission firm you would be inclined to suspicion as to whether or not the deals of that man who made the loan from you were such as you would care to continue the loan; isn't that right? — A. Yes, sir. Q. And if any large percentage of his grain went to some other source or termi- nation A. Yes, sir. Q. Through some other commission firm, you would endeavor to (p. 497) check him up outside of your sales to see how he was conducting the business? — ^A. Yes, sir. Q. Have you a definite way in ^connection with the other commission firms of determining whether or not he is dealing in the pit? Have you any definite method with the other commission firms to aacertain whether or not he is dealing in the pit, and to what extent? — A. No; not to that extent. Q. Do you check up as between yourselves for mutual protection in regard to that matter? — ^A. The commission houses make a report to Mr. Mclnemey, who is the secretary of the Grain Receivers' Association. Q. And he, if it showed a condition of that kind would report it to the different commission companies loaning money, as I take it? — A. Yes, sir. Q. And that would be the check you would have upon that individual? — ^A. Yes, sir. Q. You consider that a protection to your people in the loan which is absolutely justifiable, do you not? — ^A. Yes, sir. Q. Now, if you ascertain that a large part of that man's wheat was going to some other commission firm that didn't have any loan, you would be inclined to call that loan, would you not? — A. Yes, sir. Q. And that would compel him to make other arrangements in regard to his indebt- edness? — A. Yes, sir. Q. Then what you mean here, "your business not being properly conducted," would include the fact that he was not shipping sufficient grain to your company? — ^A. Yes, sir. Q. Then from the very sense he has a loan from you people he feels under obligation to ship to your company? — A. Yes, sir. Q. Would you not say that if at the time that loan was made the question come up as to whether or not you should be permitted to sell to your subsidiary companies, the object of getting that loan would be sufl[icient to cause that person to agree to that?— A. No; I think not. Q. You don't think it would have any influence to da that? — A,. No influence whatever. (P. 498.) Another device to crush competition is this: Many of the com- mission merchants of the Minneapolis Chamber of Commerce — I do not know how many, except that I do know that six or seven are shown to have done it by the testimony adduced before the Minnesota investigating committee, and I believe it is a general practice — many of the commission merchants seU consigned grain in competi- tion with grain which they themselves own. Now, the vice of that system is this — you will see it, anybody can see it. Here is the Van Dusen-Harrington Co., which buys grain — owns grain itself, and which also handles grain upon consignment for producers and shippers. Mr. Ewe, the managing head of that institution, we will say, has GEAIN EXCHANGES. 143 10 carloads of No. 1 northern wheat which he owns himself. He has, on the other hand, 10 cars of No. 1 northern wheat which has been consigned to him by shippers. It is his duty as a commission mer- chant to get the highest price obtainable and sell the consigned grain to the best possible advantage. In this state of affairs he receives from an outside selling point, as is often the case — as is constantly the case, the management of the Equity Cooperative Exchange telk me — he receives from one of these milling points an offer for 10 car- loads of grain of this description at three-fourths of a cent above the market, or one-half cent or one-fourth cent. Now, then, whose grain wiU he take to supply this order? Does he take his own? Do you take your own, Mr. Ewe, where you get all the profit, or do you take the grain of the consignor, which you are bound to take in business honor ? I say to you that this method of selling grain by the commission companies in competition with grain consigned is one of the greatest evils which we complain of. It results in great loss to the shipper. The Chamber of Commerce of Minneapolis has further eliminated competition by a rule, which is found on page 78 of their latest book of rules and which provides or recites in effect that it has come to their knowledge that many grain dealers outside of the chamber of commerce are making fraudment representations, offering fraudulent inducements to shippers to get their grain, and it concludes by noti- fying its own membership to sell no grain and to have no dealings with such outside persons ; and under the control which the organiza- tion exercises over its members under this rule, they have totally prohibited any commerce between their members and outside inter- ests. That is another method by which they stifle competition. Mr. Lenkoot. Are you putting that into the record? If it is not in, I would like to have you read it. Mr. Drake. I would like to read it, but my time is so limited I am afraid I can not. Mr. Leneoot. If you will put it into the record, that will do. Mr. Deake. Yes; I shall put all of these things into the record. I herewith submit the rule : In 1905 this organization, the Chamber of Commerce of Minneapolis, entered into a secret agreement with the railroads entering the Minne- apolis terminal. The State law gave the shipper 48 hours free time before demurrage can be charged upon his car. The Chamber of Commerce of Minneapolis agreed that demurrage should be charged upon the cars of shippers 24 hours after arrival at destination. That agreement went into effect January 1, 1906. I have a copy of the agreement, and I will offer it in evidence. (The agreement referred to is as follows :) CIRCULAE NO. 405. OCTOBEB 8, 1912. Whereas from time to time certain individuals, firms, and corporations, notmembers of the chamber of commerce, engage in business in the cities of Minneapolis, St. Paul, or elsewhere, and solicit shipments of grain from farmers and others; and Whereas the above-mentioned individuals, firms, and corporations in many cases employ members of the chamber of commerce to sell the grain so received for them, for which the regular commission is charged; and Whereas in many cases the shipments are secured from the country shipper entirely as result of false statements made by the individuals, firms, and corporations, above 144 GHAIN EXCHANGES, mentioned, to the effect that by shipping to said individuals, firms, or corporations (not members of the chamber of commerce), the shipper would avoid the payment of any commission whatever, and would have his grain sold for as high a price as could be secured in the exchange room of the chamber of commerce; or that a leas commission would be charged for sdling the grain than that provided by the rules of the Chamber of Commerce; and Whereas, in fact, the shipper in many cases pays two commissions, which fact is en- tirely concealed from him by various methods; and Whereas the action of the members of the chamber of commerce is selling the grain for the above-mentioned individuals, firms, or corporations on the floor of the ex- change room assists them in carrying on such fraudulent business; and Whereas the chamber of commerce has no control over such fraudulent conduct or such representations, except to regulate its own members in the furtherance of such schemes; and Whereas this association is willing for its members and all others to do legitimate trad- ing in the grain business, and does not wish to curtail the trade of inaividuals out- side of its association where not done in fraud or on misrepresentations to the ship- pers; and Whereas it is the opinion of the board of directors of this association that the members of this association should be regulated so as not to allow them to handle grain of any kind which is procured under circumstances such as are above mentioned, or any other circumstances which mislead the shipper into believing that he is getting the advantages of this association when in fact he is not getting such advantages; and Whereas it'is quite necessary that this association keep complete control of its members to require them and all who represent them to transact business with the shippers in perfect good faith: Now, therefore, be it Resolved, That members of the chamber of commerce are hereby forbidden to act in any manner as the agent or representative of any individuals, firms, or corporations, in liie cities of Minneapolis, St. Paul, or elsewhere, not members of the chamber of com- merce, who are soliciting shipments of grain from the farmers or country shippers in the manner above mentioned, or through any scheme, artifice, or device by which this association is falsely represented, either in its dealing or in the right which the ship- pers get with respect thereto, or at all, unless the person so soliciting such shipment can show a written statement of the shipper to the effect that he realizes that the per- - son receiving such shipment is not a member of the chamber and can not get advan- tages out of the chamber which he could not himself get. ClECULAR No. 421. December 31, 1912. To Members : At a meeting of the board of directors held this date, the secretary was instructed to forward the following notice. The agreement between the Terminal Dispatch Associa- tion and the chamber of commerce is set forth below. Copies of this notice have been forwarded to the manager of the Northern Demurrage Bureau and proper officers of the railroads centering in the Twin Cities. Yours, respectfully, John G. MoHuoh, Secretary. December 31, 1912. To the Chairman of the Joint Committee: Under the memorandum of December 19, 1905, between the Chamber of Commerce of Minneapolis and the Terminal DiBi)atch Association, you are hereby notified that the memorandum of December 19, 1905, between the Terminal Dispatch Association and this association has been called to our attention and we are convinced that on the facts and the law of Minnesota as it now stands, there is grave doubt as to whether or not this instrument is now valid, and that this association should not require its members to cany out the same, irrespective of whether that instrument is now in force. You are hereby notified that if there is any portion of said instrument now in effect, in so far as it controls demurrage, not in accordance with chapter 23 of the General Laws of Minnesota of 1907, it is hereby terminated 30 days after the receipt by you of this notice. Yours, respectfully, John G. McHugh, Seeretary. (The board of directors, at a meeting held Dec. 19, 1905, ratified on behalf of the chamber of commerce the following agreement entered into with railway companies members of the Terminal Dispatch Association. Effective Jan. 1, 1906.) GRAIN EXCHANGES. 145 Memorandum of agreement between the Chamber of Commerce of Minneapolis and the railway companies members of the Terminal Dispatch Association: The Chamber of Commerce of Minneajiolis and the railway companies who are members of the Terminal Dispatch Associafion, being desirous of facilitating the Suick movement of cars, the prompt collection of car service charges (demm-rage), le removal of existing differences and the ready termination of disagreements tiiat may arise in the future as to car service charges, have agreed upon the following rules governing car service charges, to become effective January 1, 1906, and to remain in effect until changed by a two-thirds vote of a joint committee consisting of not less than six (6) representatives of the chamber of commerce and an equal number, but not less than six (6), representing the Terminal Dispatch Association, it being under- stood that on points of car service charges not covered by the following rules the regu- lations now in force of the Terminal Dispatch Association shall govern . 1. On all grain or seed received on or before 8.30 a. m. disposition shall be given not later than 4 p. m. the same day, provided inspection is reported to office of the chief grain inspector before 11 a. m. 2. when reinspection is called before disposition is furnished as above, one additional day of free time will be allowed provided the local agent is notified of the call for rein- spection on the day car is inspected, and a change of grade is allowed by the State in- spector or appeal board. If no change in grade is allowed car service will be assessed, providii^ disposition is not furnished before 5 p. m. of the day car is first inspected, except that when appeal is taken and reinspection is changed one additional day free time shall be allowed, making two days of free time in all. _ 3. On cars for delivery at miUs or elevators, 48 hours free time will be allowed from time cars are set for delivery, excepting that on wheat for the mills time will be figured from 7 a. m. the following day, if delivery to lines on which mill is located is made after 3 p. m. No additional free time will be allowed for reinspection or appeal. Delivery will be considered accon\plished when cars have been placed upon tracks designated or upon storage tracks when delivery tracks are full of cars to be loaded or unloaded by consignee. Delivery to Minneapolis western, Minneapolis eastern, or railway transfer railways to be considered as delivery to industries theieon. 4. Cars ordered to an elevator or mill and "run through" witout unloading, except on account of reinspection or appeal being called, of which immediate notice shall be given to agent of delivering Une, will be subject to a charge of $2 per car in addition to usual car service and switching charges. 5. On cars loaded out of elevators and inspected (it for inspection) up to 6 p. m. disposition shall be furnished not later than 4 p. m. the following day, excepting fliat where reinspection or appeal is called and the grade is changed by the State inspector or appeal board, one additional day of free time shall be allowed. 6. Car service charges collected under the above rules will be charged at the rate of $1 per car per day or fraction thereof. 7. All car service chaises accruing before cars are finally disposed of will be paid by the party last filing disposition order with the Terminal Dispatch Association or local agent. 8. A joint committee will be established for the purpose of deciding disagreements between receivers, or between receivers and shippers, or between receivers and shippers and the railway companies. The decisions of the joint committee will be binding in all cases. 9. The joint committee will be composed of seven members, three chosen by the chamber of commerce, three by the Terminal Dispatch Association, and the seventh by the above six. Five members of said committee will constitute a quorum, but there must be an equal representation in person or by representatives of the railway companies and the chamber of commerce in all disagreements between consignees and consignors and the railway companies. 10. Car service bills shall be paid within 48 hours after presentation. Errors in car service bills shall be brought immediately to the attention of the manager of the Terminal Dispatch Association. Should disagreement arise as to correctness of Buch bills, matter will be referred to the joint committee for decision. Bills for car service charges shall be rendered within two (2) days following release of cars. The railway companies shall give notice of car service charges accruing the first day after free time; failure to give such notice, however, shall not relieve receivers or smppera of the payment of car service charges. 37214—14 ^10 146 GEAIN EXCHANGES. 11. Questions involving abuse of equipment, unnecessary delays in switching, methods or practices of either party hereto causing detention of cars may be referred to the joint committee for consideration and action. 12. The jurisdiction of the joint committee will cover all commodities handled by members of the chamber of commerce. 13. Refunds due under decisions of the joint committee will be made promptly and not later than three days after such decisions are rendered. 14. The members of the joint committee will serve for one year or until their suc- cessors are appointed. They are empowered to adopt rules governing their meetings, to select a secretary and place of meeting, and to assume on behalf of the chamber of commerce and Terminal Dispatch Association such expenses as may be necessary. 15. This agreement may be terminated by the railway companies or the chamber of commerce, parties hereto, upon 30 days' written notice to the chairman of the joint committee. In witness of the foregoing agreement, the parties thereto have, at MinneapoUs, Minn., this 19th day of December, 1905, thereunto, by their proper officers, attached their signatures, to wit: The Chamber of Commerce of Minneapolis, by its president and secretary, and the said Terminal Dispatch Association, acting on behalf and by authority of the railway companies, which are members of said association, by ito chairman. The Chamber op Commerce op Minneapolis, By P. B. Smith, President, By L. T. Jamme, Secretary. Terminal Dispatch Association, By A. W. Trbnholm, Chairman. This agreement went into effect January 1, 1906 and remained in effect until December 31, 1912, until eight days before the Minne- sota Legislature, many members of which had made their campaigns upon the proposition that these abuses should be remedied — ^it remained in effect until eight days before the legislature went into session, Then the board of directors met in their secret sanctum and revoked this agreement, which was absolutely secret, appearing in none of the official records of this close corporation. I have no way of estimating the amount in which shippers were mulcted by this illegal and dishonorable agreement. The Chamber of Commerce of Minneopolis has established a com- plete boycott of the grain handled by the Equity Cooperative Ex- change. They have not bought — the big mills of Minneapolis, all of which are members of the chamber of commerce, and the miUs which consume at least 75 per cent of all the wheat which comes into the Minneapolis terminal — these miUs have not bought one ker- nel of grain of the Equity Cooperative Exchange for months. Here is a letter signed by Mr. McHugh, secretary of the organization, and addressed to one John F. Krug, secretary of the Farmers Ele- vator Co. at VaUey City, N. Dak., on the stationery of the chamber of commerce, oyer his own signature, in which he states that, " there are no buying interests of any consequence except members of the chamber of commerce." That is one of his statements. Another is, "practically none of the milling interests, terminal interests, linseed oil manufactories, etc., will purchase any grain whatever from the Equity Cooperative Exchange, or from any nonmember, for the reason that when they buy grain in the exchange room of the chamber, the seller must guarantee the title to the grain," and so forth. I offer this entire letter in evidence. The letter referred to is as follows: GBAIN EXCHANGES. 147 The Chamber of Commerce of Minneapolis. Secretary's Office, „ ^ „ ^ December SI, 191S. Mr. John F. Krug, Secretary Farmers' Elevator Co., Valley City, N. Dak. Dear Sir: Your letter of December 29 received. The undersigned will not be able to be at Valley City on January 3, as you request, nor will Mr. Benson. However, we have asked the commission merchants to have a representative at your city on January 3, at 2 p. m., and we have received definite information to-day to the effect that the commission merchants will have a representative present at tiie meeting which you mention to be held at the city hall on that date. With reference to the question to whom you should ship your grain, we might state that tlie_ majority of farmers' elevator companies ship their gra,in to more Qian one commission company, in order to be able to compare the services rendered and the price secured, and by this method to compel the commission merchants to put forth their best efforts on behalf of the customer m order to hold their share of the business. _ So far as the Equity Cooperative Exchange is concerned, we might state that prac- tically all of the buyers of any consequence both in Minneapolis and also in the neighborhood of 150 miles of Minneapolis, are members of the chamber of commerce. In other words, there are no buyers of any consequence, except members of the chamber of commerce and a very large proportion, possibly 90 per cent, of the grain consigned to the Equity Exchange is sold oy them to some member of the chamber of commerce, and in most cases with a deduction by the member of the chamber of commerce of at least a full commidsion. Since there are no buying interests of any consequence except members of the chamber of commerce, we can see no advantage to a country shipper in shipping to anyone not a member of the chamber of commerce, since this nonmember will have to pay in most cases a full commission in order to have the grain sold in the exchange room of the chamber of commerce. And if another commission is charged by such nonmember, it simply means that the shipper pays from 2 to 5 commissions. We would also advise shipping to more than one commission concern, members of the chamber of commerce. We would advise that these shipments be made of grain of precisely the same character and value, and without the knowledge on the part of any commission concern that shipments were being made at the same time and of the same kind of grain to other commission concerns. After a number of shipments have been made in this manner, it is very easy to tell which commission concern is the most active in securing the best results; although we do not advise any farmers' ele- vator company shipping exclusively to any one commission concern. It is a good thing for any commission merchant to realize when selling a car of grain for a farmers' elevator company that another car may have been shipped at the same time of exactly the same kind of grain to another commission concern; because this method keeps the commission concerns keyed up to their very best efforts. Practically none of the milling interest, terminal interest, linseed-oil manufactories, etc., will purchaae any grain whatever from the Equity Cooperative Exchange, or from any nonmembers, for the reason that when they buy any grain in the exchange room of the chamber of commerce the seller must guarantee the title to the grain; and in addition to this, in any disputes relating to the car, the buyer can require the dispute to be settled by the board of arbitration, which he could not do if the seller was not a member of the chamber of commerce. So that the big milling interests in Minneapolis, the large terminal interests, and other large buyers, will either purchase no grain whatever from outsiders, or will make the price so low as to offset the risks. The result is that the Equity Exchange, or any outside selling agency, labors under a great disadvantege in the fact that 90 per cent of the buyers will not purchase grain from them at all; and the result, is that grain has to be peddled around and offered to the few who may purchase it, and under these conditions the prices are not, naturally, the prices which are secured in the exchange room of the chamber of commerce, where all the buying interests compete with each other for the grain offered by the com- mission merchants. However, the members of the chamber of commerce have no claim upon your grain at all and are not entitled to your shipments unless thf y can show better net results than you can secure elsewhere. If you see fit to ship to the Equity Exchange at all, it would certainly seem wise for you to ship cars to two or three members of the chamber of commerce at the same time, and of precisely the same quality of grain, and after this has been done a certain number of times you can decide for yourself whether the results secured through members of the chamber of commerce are better than those secured through the Equity Exchange. 148 GEAIN EXCHANGES. We forwarded to you yesterday two copies of the National Grain Grower, giving lists of cars purchased from the Equity Exchange and sold to members of the chamber of commerce with the deduction of at least the full commission. If the Equity Exchange charged another commission to the shipper, then the shipper paid at least two commis- sions. Since a very large proportion of the grain shipped by the Equity Cooperative Exchange is sold in the exchange room of the chamber of commerce, we can not see what advantage accrues to the shipper. The members of the chamber of commerce insist, of course, upon securing at least a profit equal to the commission, and it would seem as if the shipper was payingfrom two to five commissions, where one commission would be all that is necessary. We call your attention especially to the Shelley Far- mers' Elevator case, quoted in one of the Grain Growers which we forwarded to you. We assure you that if at any time we can be of service to you, or furnish any informa- tion to you, we will be glad to do so. If you make shipments to the Equity Cooperative Exchange, we suggest that you forward confirmation of sales, an account of sales, to the undersigned, requesting the undersigned to investigate these cars, and see if the cars were in fact bought by the members of the chamber of commerce, and the price paid, etc. In other words, find out what really happened to your cars. We shall be glad at all times to furnish you any assistance or give you any information which we may have regarding the general market, and hope that you will not hesitate to call upon us whenever you yourself or the officers or directors or stockholders of your company desire to have any information which we can furnish. We take this opportunity of wishing yourself and the farmers' elevator company you represent every possible success. Yours, respectfully, John G. McHugh, Secretary, Here is a statement from the highest man of this combine, admitting a concerted boycott of the grain handled by the Equity Cooperative Exohajige. Is that not a violation of some act in restraint of trade ? There is another point which I would like to take up, and that is this, the cost to the trade of these commission houses, this duplicated machinery. I wish to offer in evidence the testimony of the- officials of this chamber covering the point which I shall now summarize. What is the cost of maintaining a commission house ? One of the commission houses testified before the investigation in Minnesota that the cost of maintaining it was from $30,000 to $36,000 per year. Another, the McCall-Dinsmore Co., testified that the cost of main- taining his firm was $300 a day — over $90,000' a year. Counsel for the commission companies in that hearing introduced a sworn state- ment which showed that 33 commission houses had incurred a total expense in 1911 of $519,000 and in 1912 of $443,722. Now, gentle- men, that is an average expense, as shown by these 33 commission houses of over $14,000 a year for each commission house. Mr. McHugh swore that there were 200 commission houses upon the floor of the chamber. We think he is here to-day , also to testify that in his opinion there were 200 commission houses. If that is true, and if $14,000 is a fair figure for the expense, the total expense of operating those commission houses is $2,800,000 per year. But it is not true. There are not 100 commission firms in the chamber, and Mr. McHugh knew it. They simply make the claim to try to make it appear that the commission man — the rejjresentative of the producer — as they claim, has some influence in this monopolistic institution, completely dominated by the mills and elevators, the buying interests. There are, in fact, not over 100 commission men in the chamber of commerce. So let us cut their claim in two. Their expense then would be one- half of $2,800,000, or $1 ,400,000. Now, where do they get the money to pay these expenses ? The highest commission paid for grain is 1 cent per bushel on wheat. All inferior grains pay a less commission. GEAIN EXCHANGES. 149 The greatest amount of grain that ever came into the Minneapolis terminals was in 1912, and in that year less than 200,000,000 bushels came into that terminal. That was of all kinds of grain. , Now, one-half of this grain coming into the Minneapolis terminal' was not consigned grain. It was owned by the old-ane elevators. The commission men had nothing to do with it. If it was not con- signed, no commission was paid for the sale of it, so that aU the grain coming in that could possibly be handled by the commission men must have been not to exceed 100,000,000 bushels. And the total commission upon that, if you figure the highest commission — and the commission upon the inferior grain is less than that upon wheat — the total commission would be only $1,000,000, and the total expenses of the commission firms, cutting in two the claim of these two men as to the number of commission firms, amounts to $400,000 more than they could possibly have derived from legitimate commissions on the greatest crop that ever came into the Minneapolis terminal. Now, gentlemen, I ask the privilege of introducing in evidence tes- tiinony which shows the facts which I have stated. It is as follows : [Cost to trade of traveUng agents. B. F. Benson. House committee, February 21, 1913.] Q. Now, what is about the average salary. I don't mean that you pay particularly, but if you know about what a competent traveling solicitor for a commission house, about what his salary and expense account amounts to every month, what would be reasonable to cover both the salary and expense account? — A. Oh, I should say, salary and expense would probably average in the neighborhood of $300 a month. Q. For each man? — A. For each man. That is a pretty broad statement. Q. Well, I mean just in general terms. — A. Yes. Q. Probably a man that would be competent to do that work, he would expect about $125 to $175 per month and then his expense account? — A. 1 have always figured, if a man is not worth $100 to start with I don't want him, because it is re- sponsible work, or should be at least. Q. So that a firm running a couple of traveling men would be under an expense of approximately $5,000 a year? — A. Yes, I think that is putting it probably low enough. Q. Five to six possibly? — ^A. Yes. Q. Five or six thousand dollars a year. Mr. LiND. You mean on that item? Q. Yes, I mean on that item alone. — A. Yes. Q. The item of soliciting and checking up. Now Mr. Benson, $5,000 is all of the commission on half a million bushels of wheat, isn't it? All the commission you re- ceive on the sale of a half million bushels? — ^A. 1 believe that is correct. (P. 674.) Q. Now then, how many men have you got in your office in Minneapolis? — ^A. Well, I think our office force is probably between 8 and 10. We sometimes have extra now and then. Q. About 8 or 10 men? — A. Including the stenographic force, in all, about 10. Q. And that excludes the proprietors, that is in addition to the proprietors? — ^A. Yes. Q. How many of the men of the company are right in active work, yourself and who else? — A. Mr. Newhouse. Q. And Mr. A. Mr. Engstrom. Q. But in addition to you 3, 8 or 10?— A. About 10. I could give that exactly. Q. That is near enough. Now what about would be your average office expense including help and office rent, and light and so forth, incidentals, postage, and so on? — A. Per month? Q. ' Yes.— A. Oh, I don't know that I could give you that very certainly without looking it up. Our Duluth office and Minneapolis office is put together on the ex- pense. Q. Well, take it for both, it is all right for both.— A. I should say it will run proba- bly around $2,000 and $3,000 a month. Q. Possibly $2,500?— A. Including salaries and all? Q. Might be about $3,000 a month? That includes both houses?— A. Yes. 150 GRAIN EXCHANGES. Q. Your traveling men item you spoke to me about, is that included in that or is that in addition to that? — ^A. That is all our expenspe; that includes the traveling men too. I would want to verify that though. • Q. About $36,000 a year. That is the commission on handling 3,600,000 bushels of grain. Now Mr. Benson, approximately how many bushels of grain a year, a season, does your house handle? (P. 675.) [Expense of maintaining office o( MoCaul-Dinsmore. J. J. MoCaul. House committee, p. 713.] Q. Do you think it would be possible for your company or any company situated similarly to handle enough grain so that the commissions fixed by the rules and ex- acted by the custom of the trade would pay your heavy operating expenses and make any profit on your investment and for your time? — ^A. Not with the expense account we have now, because this buying and selling business entails a great deal of expense. Our company is at an expense of $300 a day in maintaining a force in Omaha, an office in Helena, Mont., an office in Aberdeen, S. Dak., and possibly in Sioux City, Iowa, and also a kind of an office at Bismarck, N. Dak. And they are principally engaged — ^for instance, the Omaha office does very little except to deal with wmter wheat, and buy it from dealers from Nebraska and sell it to millers throughout the East or Southeast who are in the market for that class of grain. And, of course, we could eliminate all that expense in coimection with the buying and selling business, cut it down to the actual expense of conducting a commission business. Q. And possibly make some money? — ^A. And possibly make some money out of the commission business. [Expenses of commission firms. Gov. Lind, attorney for commission men. House committee, February 28, 1913.] Mr. Manahan. Pursuant to the call of the committee, Mr. Lind for the commission men whom he represents has made the following statement. The following is a state- ment in the aggregate of expenses, grain handled, and commissions received by 33 firms represented m the membership of the Minneapolis Grain Commission Men's Association for the crop years of 1910 and 1911 and 1911 and 1912. 1910 and 1911, ex- penses, $519,065.28; commissions, $624,239.11; bushels, 75,277,812. 1911 and 1912, expenses, $443,722.21; commissions, $702,656.37; bushels, 83,766,506. Owing to the method of accounting employed in grain trade, it is impossible to separate switching and demurrage charges without an exhaustive audit which would take several weeks of labor. Signed Minneapolis Grain Commission Merchants' Association, J. H. Mclnery, secretary. Mr. Elmquist. It don't show the total expense per bushel. Mr. Lind. No; but I computed it. It makes a net profit of twenty-three one- hundredths of a cent per bushel. Mr. Merger. To the commission men? Mr. Lind. To the commission men. Mr. Manahan. Now, this purports to be 33 firms. Mr. Lind. There are 38 members of the association. Two men didn't desire to submit any statement. One man became a member of the association this current crop year, so that he could. That is 35 out of 37 who have anything to report. The question is, Where do they get the money ? The commission ot 1 cent per bushel for wheat, three-fourths of a cent for rye, one-half a cent for oats, and so forth, by actual demonstration, the most prosperous year ever had, will not pay the expenses of these com- mission firms, admitted by themselves. Where then, do they get the money? I will tell you where they get the money. In the first place, they get it by a system of repeated sales. It is not a rule, it is not a regulation of the chamber, but it is a custom followed religiously, except in one instance. In every instance, practically, where a com- mission man of the chamber of commerce receives consigned grain, unless he turns that grain over directly to a consuming interest, a mill, or elevator in which he is interested, or which owns his commission house — unless he does that, he does not sell directly to the consumer. No; he sells to his brother member, A; A, the commission man, sells to B, the commission man ; B, the commission man, sells to C, possi- bly, and then, haAdng accumulated three commissions instead oi one, C may possibly sell to the interest which actually consumes the grain. GEAIN EXCHANGES. 151 So that by this system of repeated and useless sales, seUing from one to the other ol the members of this close corporation, the members of this close club eke out enough to bear those expenses — not only to bear those expenses, but to become in some instances enormously rich. This is one method by which they pay their expenses. Mr. Manahan. How are those additional commissions tacked on to the producer ? Mr. Drake. Those additional commissions are simply a burden on the trade. You can not have men engaged in this kmd of chican- ery, piling up commission upon commission, without taking it out of the price which the man gets who raises the commodity, or which the consumer pays who buys it. I say that is a matter so patent that I will not stultify the intelligence of the committee by dis- cussing it. There is another method —and I want to say right here that in my judgment it is the most important thing in this entire discussion. This is the crux of the whole situation, as was said by Mr. Greeley. There is another method which is the great, the important, method, by which this private combine gets enough money out of the grain to pay the expenses of operating this comphcated machinery. I refer to future transactions. I have here, gentlemen —and I ask the privilege of introducing it in evidence— a considerable quantity of testimony taken at the Minnesota investigations upon the subject of future transactions. This is aU exceedingly instructive and directly in point. The quotations — it would take me an hour to read them — the quotations show conclusively, from members and officials of the chamber of commerce, these facts. In the first place, the price of the future determines the price of cash grain. That is admitted time and time again by those sworn statements which I introduce in evidence. Mr. McHugh states here — • Mr. McHugh admitted that every time a future transaction is made upon the floor of the chamber of commerce that that operation influenced the price of the future, and, of course, influenced in that way the price of cash grain. Why, the president of the chamber of commerce, Mr. Wells, in response to the question by the author of this resolution, admitted that under this system now in vogue the Chamber of Commerce of Minneapohs, the gamblers and speculators, by conclusive and concerted action in the various markets of the United States, by producing a flood of buying, or buying and selling orders, in any market, that they could at any time arbitrarily raise or lower the price of cash wheat. And the only hmitation he put upon it was that they could not do it permanently. Great God, gentlemen, a necessity of Hfe — the necessity, the stafl' of hfe, the principal product — almost the sole product — of the great States of North and South Dakota, and the price of that commodity fixed by the gambling speculations of a crowd of gamblers! Do we not need any remedial legislation? Does the plank in the Democratic plat- form mean anything? That is why we are here to-day: that is the big proposition in this case. (The testimony referred to is as follows:) [Futures. F. A. Hallett, chamber commission merchant. House committee, vol. A, p. 1066.] Q. So you represent outside (.-ustomers in dealing in futures?- A. Yes, sir. Q. Is the bulk of your business filling the orders of outside customers in futures? — A. Yes, sir. 152 GRAIN EXCHANGES. Future transactions in foreign exchanges — Influence upon price of casli wheat at Minneapolis. F. A, HaUett, chamber commission merchant. House committee, vol. 4, pp. 1075-1076.] Q. Now, you wouldn't want to give the comnkittee the impression, Mr. Hallett, that this information for which such a large sum is paid was not valued and considered right along by you traders? — A. Yes; it is considered, and the information is valuable for not only our traders, but for all that are interested or engaged in the grain busi- ness, outside of our exchange as well as inside. Q. I know; but what I am getting at is the simple fact that traders in their bid- ding on the pit in futures are either to a greater or less extent influenced by the quo- tations appearing on the board as coming through the wire from other markets, Chicago, New York, and other places?— A. Well, yes, I would say that they are. Q. So that if the quotations from New York and Chicago on any day as coming over the wire show that prices dropped, dropped, dropped every few minutes, it would depress your market? — A. Well, not always, Mr. Manahan. Q. I am talking about the general proposition.— A. Yes, it would; the chances are it would; ves. Q. That is what I mean. We are trying to get at the ordinary and not the excep- tion. That would depress your market? So, also, it is true that if either immedi- ately afterwards or the next day the prices on those outside markets raised an eighth or a quarter at a clip, successively, up and up, that would raise your bidding on your market, wouldn't it? — A. Well, often it would; not always. Q. I am calking about the rule. — A. Well, I think so; yes. [Future tradiug— Influence upon price of cash grain. W. A. Gregory, member of chamber. House com- mittee, vol. 4, p. 1203]. Q. So, I say the power of the men in the pit to buy and sell grain under future con- tracts as exercised by them in the chamber of commerce does affect the price of wheat? — ^A. Temporarily it does. Q. From day to day? — ^A. Yea; that is during the day it does have an effect. Q. Yes; from day to day? — A. Yes. I believe it does. I think it does. [Futures— Influence upon price of cash wheat. F. A. Hallett, chamber commission merchant. House testimony, vol. 4, pp. 1085-1086.] Q. You have already testified that, generally speaking, the price paid for cash grain was fixed by the futures? — ^A. Yes. Q. So far as your observation and experience on the board goes, Mr. Hallett, the principal influence that you have directing you in future bidding is the other mar- kets of the world? That is the principal thing, isn't it? — A. It is one of the chief things. [Trading in futures. E. L. Welch. House committee, vol. 3, p. 885.] Q. Do you get large orders from Chicago? — ^A. Yes, sir. Q. Very large orders, do you? — A. Yes, sir. Q. How large is the largest you get, you have ever got? — A. Oh, possibly 100,000. Q. You get a hundred thousand a clip from Chicago? — ^A. We have. Q. Frequently? — A. Not frequently. Q. But occasionally you get large orders from Chicago, do you? — ^A. Well, from 10 up to 100. Q. Well, from Chicago? — ^A. Yes, sir. Q. And other commission men, to your knowledge, get the same thing? — ^A. I pre- sume they do. Q. So far as you know? — ^A. Yes, sir. Q. Now, Mr. Welch, that shows, doesn't it, that Chicago and New York and the other big markets of the world can, by throwing in these enormous orders of 100,000 at a clip, affect the market price, affect the market both here and in Chicago? — ^A. I don't know as they have ever affected it very much. [Influence of future trading on price of cash grain. F. A. Hallett, chamber commission merchant. House committee, vol. 4, p. 1073.] Q. But with the exception of that, as I understand you, now usually and as a gen- eral proposition, the cash price responds to the bidding of the jpit? — A. Yes. Q. Either up or down. Now the bidding in the pit for grain is influenced largely by large orders, isn't it? — ^A. No; not always, Mr. Manahan. Q. No; but I mean largely? — A. No; I wouldn't say that. In casea of this kind the pit GEAIN EXCHANGES. 153 Q. Let us get at the element that does influence it. Is it the number of orders that are given for a little higher price that causes it to go up, or is it the number of bushels purchased that brings the price up?— A. That depends upon the market to some extent. At times the market is advanced very quickly on a very small order. I have seen a market advanced a half cent on an order for 50,000 bushels; then I have seen a market depressed in the same way. Other times I have seen Future traosactions— "Scalping and spreading" influence of selling orders on market. V. S. Ireys, pit trader in chamber. House committee, vol. 5, p. 1405-6.] Q. And then sell later? Well, that is called scalping, isn't it?— A. Of course, the more buying you have the more readily it vdll absorb the hedges. Q. Yes; I imderstand. So that it occurs occasionally that a bunch of hedging orders will come in early in the day and depress the market, put it down below what it is in other places. Is that the idea? [No answer.] Q. Or do you want to convey to the committee the idea that occasionally the market will actually open less than it doeo in othar markets without regard to lie orders? — A. Yes; the opening, I will state, is based on the selling and buying orders. Q. The opening price then reflectd largely in your judgment ^A. The differehce between the buying and selling orders in volume. Q Yoa might say the weight of the buying and selling orders as compared with each other?— A Yes. Q, If the buying orders were more numerous and vigorous the price would imme- diately respond and go up. If the sellii^ ordero were more numerous the price would immediately sag? — A. That is it. Q. And just the minute that price would sag as a scalper would take as much as you thought you could handle quickly and immediately sell in Chicago or wherever you thought the better opportunity was? — A. Yes. Your market is now made, the price of cash wheat is made by the price of futures. If you abolish futures the price of cash wheat in made by what the miller or some group of men will pay for it. It restricts your trade. Future trading — Magnitude of scalping transactions. F. G. Holbrook, pit trader. House committee vol. 5, p. 1476.) By Mr. Manahan: Q. Mr. Holbrook, I understand since you have testified yesterday you have checked over your memorandum of business and desire to make some corrections as to your oestimony? — ^A. Yes, sir; my remembrance is I testified in response to your question as to the volume of trading, that it ran from ten thousand to twenty or thirty thousand and upwards some days. I find in looking over there was some days as low as 10, 20, and 30, and upward, and the average since the first of the year amounts to 67,000 bushels. [Trading in futures— Manipulation of market. E. L. Welch. House committee, vol. 3, p. 936.] Q. So I go back to my original proposition on that if men desire the large dealers can act together and by crossing their orders, crossing their orders and crossing them again in large quantities they can boost the prices right up. Three or four of the large dealers, of you men in Minneapolis, with an understanding with three or four of the large dealers in Chicago can at the same moment or at same hour of the day wire your orders to buy, large orders, 100,000 at a clip, and start a little temporary boom, and if you are quick enough to get rid of it after you have got the boom going up, you rake off a nice little profit. Isn't that something like the game? — A. I said it might affect the market temporarily if there was a large bull made like that. Influence of future trading on price of Cash grain. F. A. Hallett, chamber commission merchant. House committee, vol. 4, p. 1071-1072.) Q. You have notices, I presume that the price paid for cash grain from day to day on the floor follows the ups and downs of future trading very faithfully, that is true, isn't it? — ^A. To a certain extent; yes. Q. I am not stating it is always the same margin between them, but what I mean is, if the futures go up or down on any certain day of trading a half to a cent, or even more, that the cash market that day would immediately reflect that same rise in price? — ^A. That is usually the case. Q. I mean that is the general rule? And therefore it is true, is it not, that the prices paid on the floor for cash grain are largely and usually determined by the prices 154 GEAIN EXCHANGES. that the board and clock represent as being bid for futures on same grain, same kind of grain? — A. It is usually the case; not always. Q. I mean that is the general rule? — ^A. Yes. Q. There will be curcumstances and times due to local coriditions or something that will vary that general rule? — A. Yes. Q. But the general rule is true? — A. I would say that; yes. [Futiire transactions— Influence ol price ol casli wheat. F. L. Doherty, chamber scalper. House com- mittee, vol. 4, p. 1192.] A. The way it appears to me, the scalper usually works on extreme points on a market, whether it is up or down. He might figure an extreme point; for instance, if he has a rapid decline of half a cent on account of an avalanche of selling orders from various quarters, the scalper might think it was low enough and buy himself some wheat. It may be his judgment was wrong about that, although it looked cheap. [Future transactions— Dealing in "phantom" wheat. F. L. Doherty, chamber scalper. House com- mittee, vol. 4, pp. 1193-1194.] Mr. Manahan. You have no idea of ever getting the actual grain; in fact, scalpers, some of them, don't pretend to be judges of grain, do they? Witness. Well, it is not necessary for a man to be a judge of the various grades of grain, because of course he only trades in one grade, one commodity. By Mr. Merger: Q. You must take it, if you don't sell it out; the rules require it? — ^A. Yes, sir. Q. And the practice is that way? — A. Yes, sir. Mr. Manahan. But you wouldn't say — for instance, you bought some yesterday that you intended, except in the legal sense that you must, if you couldn't sell it— but you didn't really intend yesterday on any purchase you made to wait and actu- ally get the May wheat in wheat? Witness. I must contemplate the delivery of grain when I buy it. Mr. Manahan. Of course, in case you couldn't sell it. Witness. I wouldn't want to state I wouldn't intend to take it, Mr. Manahan. Mr. Manahan. But you wouldn't want to state you actually did have the mental intention to take wheat. Mr. Mercbk. He would have to, unless he sold out. Witness. Yes. Mr. Bendixen. Did you ever take any wheat? Witness. Take delivery of it personally? Mr. Bendixen. Yes. Witness. No; I have not personally; not for my own account. Future trading — Influence upon price of cash grain. W. A. Gregory, member of chamber. House com- mittee, vol. 4, p. 1202.] Q. You wouldn't say, in your judgment, from all your experience, that the trading by the scalpers to the extent a trade either actually does stop a rising price or checks a lowering price? — A. I would say it had a strong tendency in that direction; yes. Q. Then the scalpers bidding backward and forward, and also the bidding hy hedgers and brokers generally, can and does affect the market price? — ^A. On, it has an effect; yes. I wouldn't say it had a permanent effect, you understand. Future transactions not based on intelligent knowledge or forecast. V. S. Ireys, pit trader. House com- mittee, Vol 5, p. 1425.] Q. Can you demonstrate, I say, by your own records and your own books when you have been able to forecast with sufficient accuracy future markets to show that you have made money on that score? — A. I have never had occasion to forecast, therefore I have never done it. ^Q. Then you have not attempted to make money in that way? — A. No. Q. So that all the knowledge you iave acquired of the pit and its operations and the market and the character of crops, and so forth, as the result of your 16 years of work in the business you have at no time felt that you would be justified in venturing your own money in speculation to any large extent on future markets, have you? — A. No. Q. Your intention is to buy as much as you sell, and sell as much as you buy? So as not to carry over to the next day? — ^A. Yes, sir. GRAIN EXCHANGES. 155 Q. I will ask you, within the observation and experience of pit traders like yourself and your own operations, whether they do affect the market price of futures at all? In other words, wEether yoiu: operations make the market to any extent? — A. Well Q. Or whether yon simply take advantage of a A. I quite often do make quota- tions myself. My bids offered make a quotation quite often. Q. In other words, your own bidding frequently has the effect of being a quotation?— A. Yes, sir. [Trading in futures— St. Paul office of E. L. 'Weloli. E. L. Welch. House committee, vol. 3, p. 918.] Q. Then, do you know any business men in Minneapolis dealing in futures at all?— A. No, sir. Q. Not at all?— A. No, sir. Q. Are you sure of this? — A. I can't recall any. Mr. Bendixbn. Here in this office in St. Paul anybody that wants to drop in and wants to take chances on the grain market you speculate for; ain't that the idea? Witness. Yes, sir. (Transaction in futures — Manipulation of market. E. L. Welch. House committee, vol. 3, pp. 928-929.) Q. I say you said — ^now, if we are going to have that modified or changed, let us have it now. You said in answer to my question that large dealers in the great mar- kets by acting in concert had the power by this instrumentality of future sales to teniporarily affect the market price on grain, didn't you? Mr. Mercer. Had the power, he said. Witness. They might affect the market temporarily. Q. That is my point. And affect it in the direction to serve their concerted pur- pose, of course, temporarily? — ^A. Temporarily; yes. Q. Is it not true, Mr. Welch, that stupendous trades are made within that period of time which you might call temporary on account of the smooth-running machinery of the business? — A. I don't recall any. I don't know of any. Q. Don't you know that in the course of a minute or less trades of stupendous magnitude can be actually consummated, conti'acts made and closed within a period of a minute or less? — A. Well, I don't know that can be done that quick. It takes a little time to execute orders. Q. Well, within five minutes, say? — A. Yes; there could be some large trades executed in five minutes, depending a good deal on the conditions of the market. Mr. Manahan. Is there any connection between the future trading in Chicago and Minneapohs ? Mr. Drake. Yes ; I will cover that point right now. Mr. Cantrill. You are here, then, because you feel that the Democratic Party will carry out its promises in the platform ? Mr. Drake. I am. I am a Eepubhcan, but I voted for Mr. Wilson and I am proud of it. I have faith in this administration. The question has been asked a number of times by a member of this committee why does not the State of Minnesota handle this situation ? Why come to the National Legislature ? Why does not the State do it ? The evidence which I have offered — and which I have not had time to read — there is the sworn testimony of repeated witnesses to the effect that the price of the future in any market — any grain market — is not decided by the operations in that market. It is the result of the joint operations of all markets, not only of the United States but perhaps of the entire world, so that legislation against futures — State legislation — is almost futile. It would simply drive the gamblers into another market. Now, I do not need to argue that point; it is admitted by the grain combine, and I wUl not take up any time upon it except to read their admission. In the Minnesota investigation some progress was made in showing up the evil of futures, in spite of the suppression of information demanded, and then as a sop to the — I may say the infuriated pub- lic — the members of the chamber of commerce — the directors I 156 GBAIN EXCHANGES. should say — got together and passed this resolution. I quote from the official transcript: Mahch,S1, 1913. "To Members: ^ .;: At a meeting of the board of directors held this date the following resolution was unanimously adopted: Resolved, That the president and secretary of the chamber of commerce be instructed by the board of directors to mutually confer with the officers of other grain exchanges upon which grain is sold for future delivery, and endeavor tosecure an agreement on the part of the leading grain exchanges that a rule or regulation be adopted wnich would make it necessary for members of the various exchanges to require an initial margin' of at least 10 per cent on all speculative purchases or sales of grain or seed for future delivery in lots of not less than 5,000 bushels. That is the resolution. Now, Mr. F. B. Wells, then president of the chamber of commerce, said in his testimony : It would do no good for any one market to take this stand. It would simply drive the trade to another market, but I feel very strongly that it the matter were taken up with all the exchanges in this country such a regulation could be enforced, and if put in force it will prevent the small speculator from dabbling in the market and losing his money, as he is almost sure to lose it without experience or reasonable financial backing. We do not need to argue that point. The chamber of commerce officials admit the claim that in order to have successful regulation of trading in futures, you must have a national law. Now, my time is drawing to a close Mr. Canteill (interposing) . You ask for a law to regulate tradiag in futures, or do you ask for a law to prohibit absolutely trading in futures ? Mr. Drake. Either, as far as we are concerned. Now, after complete discussion of this question, the chamber of commerce officials refused absolutely to disclose any information as to their future transactions — any information which could be, as they considered, of value to the public. But, unwittingly — as I hear some laughter in the other part of the room I will cite this instance of what actually occurred. On one of the last days of the session of the House committee, that committee sent over to the Chamber of Commerce Building, where they were to furnish them with this information about futures, where they were to show the books; and when they got there and were seated in that room — the official investigating com- mittee of the State of Minnesota — when they got there, the first thing that was done was to exclude the stenographer, the man who was making a transcript of the testimony. They did not want a record of the testimony, and the stenographer was excluded. Then they brought in a witness, a chamber of commerce man. They swore him, but they did not give his name. He was sworn as "John Doe." The committee did not know him, and they would not let the committee discover his identity. When John Doe was called upon for evidence, and when his books were produced, gentlemen, what was produced ? A set of books; a set of books wherein the names of the individuals dealing in grain, the date and every item of information of importance to that committee was covered with stickers, so that the names of the individuals, the nature of the transactions — everything except a row of figures 2 feet long was excluded from that committee. But, in spite of that, gentlemen, we can show to-day through the evidence given, approximately and accurately enough the volume of GEAIN EXCHANGES. 157 the future transactions of the member upon the floor of the chamber of commerce. We can show it in this way. I offer in evidence the testimony given before the House committee by one W. S. WilHams, a member of the chamber of commerce, the secretary of what is known as their clearing-house association. Now, Mr. Williams testified that his organization existed sunply and solely for the pur- pose of clearing future transactions of members of the chamber. He testified in effect, that it was a wheel within a wheel, an organi- zation or corporation within a corporation — within the general cor- poration of the chamber of commerce. It was more secret even than the parent organization. There was nobody in the entire organization except himself who knew the amount of the future transactions of the members of this organization, and he was not' allowed, under the rules and by-laws of the organizations — he was not allowed to disclose that information even to a director of the organization, and he refused to give any information to the com- mittee. But he unwittingly gave the information nevertheless. This man Williams testified, as is shown by the exhibit which I oflfer, that the total revenue of this organization, the clearing house, was derived by charging the members of the association one- half a cent for every thousand dollars of volume in their future trans- actions. This was the consideration for his services in clearing the obligations of one member as against another. Remember that figure, one-half cent per thousand volume on future transactions. He testified further that the expense of maintaining the organiza- tion was $2,000 per month, $24,000 per year, and that they had in the past paid two dividends. He testified, as the transcript shows, on one occasion that they had accumulated a reserve and held it at that time of $200,000, and in the next line the amount is mentioned as $20,000. Which amount is correct I do not know. Now, I will ask you to follow me closely, as the prestidigitator says. It is a little complicated, but perfectly accurate. It takes $1,000 in future transactions to produce one-half a cent of revenue to the clearing house on the floor of the chamber of commerce . One thousand dollars to make one-half a cent of revenue, and it therefore takes $200,000 to make $1 in revenue to that clearing-house association. It there- fore—following it up m the same way— takes $400,000,000 of future transactions each month to pay $2,000, the monthly expenses of that organization, and it takes $4,800,000,000 of future transactions to pay the total expenses of that organization in one year. And that organization, what does it represent? The future trading of the chamber of commerce? No; the trading of 37 members only; and, as I understand the proposition, the pit traders in futures, the acknowledged traders — the pit traders, the men who buy and sell nothmg at all but wind, the men who deal exclusively in phantom grain — are not members of that association at all. As I understand ft, it represents the 37 of the so-called legitimate dealers in grain. The testimony of W. S. Williams is as follows: roiearing house of oliamber-Volume of future transactions. W. S. Williams, member of chamber. House committee, IV; 1279.] Q. I would Uke to have you give us a copy of that statement, Mr. Williams. WUl you undertake to do so— a certified copy of the last annual statement showing the resources and liabilities of the clearing house association as a corporation?— A. 1 will try to. 158 GKAIN EXCHANGES. Q. How much, approximately, has the association on hand now, in money? — A. about $200,000; a little over, I think. Q. That is its own property? — A. Yes, sir. Q. It doesn't owe any debts so far as you know? — ^A. No, sir. Q. Expense may be current incidental expense? — A. No, sir. Q. Now, that $20,000 in addition to the dividends that have been paid has been earned by the commissions solery, hasn't it? The association doesn t buy or sell itself, and didn't earn any of that by speculation? — ^A. No, sir; no, sir. Q. Every bit of it is earned by these commissions on futures? — ^A. Yes, sir. Q. And about how much is earned every month, approximately? — A. We always pay expenses, Mr. Manahan, and a -little more, usually. [Chamber of commerce clearing house— Volume of future tradings. W. S. Williams, member of chamber. House committee, vol. 4, p. 1278.] Q. What does the clearing house association get for keeping this record and making these checks?— A. Half a cent a thousand. Q. Half a cent a thousand? — A. Yes, sir; the clearing house. Q. What are the expenses of the clearing house? — ^A. The office expenses? Q. What are the office expenses; what do they pay for office expenses to the chamber of commerce association? — A. Why, I think our rent is something like $182.50. Q. A month? — A. Yes, sir. Q. That is the rent to the chamber? — A. That is rent to the chamber; yes. • Q. What other office operating expense has the clearing house, your salary and your assistant's salary? — ^A. Yes, sir. Q. Any bookkeepers? — A. Yes, sir. Q. How many? — A. I have two bookkeepers and a boy. Q. A messenger boy? — A. Yes, sir. Q." What is the total operating and salary expense in bulk of the clearing house association, approximately, if you can't tell exactly, a month? — A. Oh, I should think a thousand dollars, Mr. Manahan. Q. Now, has your association ever paid any dividends on its stock? — A. Yes, sir. Q. How much is it capitalized for?— A. For $50,000. Q. And about what has been its average dividends since you have been connected ■with it? — A. Well, I think we have only paid two dividends, Mr. Manahan. \ [Clearing house of chamber — Secrecy in operations. W. S. Williams, member of chamber. House com- mittee, vol. 4, p. 1272.] Q. I asked you to bring over, you remember, the records for the past week — the original records for the past week — so as to exhibit them to the committee and show just the method of operation. You didn't do that. — ^A. I didn't understand that is what you wanted, Mr. Manahan. It was not clear to me at all. Q. You wo.uld have no objection to my going with you, tliis afternoon, through these cuiTent records, to see how these records are kept, would you? — A. Why, I will say that all my records are simply the cash and the carried-over sheet. Q. That is what I want to see myself, and take some blanks, just how the machin- ery is operated? — A. I will say, Mr. Manahan, that I am not allowed even to tell the directors about it. That shows the private accounts of many of the individuals there, and I am, in fact, a trust officer. Q. You say this record of yours shows the private account of individuals? — ^A. Yes; it shows the long and short, you know, for each trader. Q. From day to day? — A. From day to day. [Clearinghouse chamber of commerce. W.S.Williams, member of chamber. House committee, vol. 4, p. 1270.] Q. Wliat office do you hold in connection with the operations on the floor of the chamber of commerce?-^A. I am treasurer and manager of the clearing-house asso- ciation, which is a separate institution. _ Q. State to the committee just what that clearing association is. — A. It is an asso- ciation to simplify the matters of doing business, especially in connection with future trading. Q. Who are members of it? — A. Anybody, who is a member of the chamber of commerce is entitled to become a member. Q. By paying how much? — A. The value now is about $2,400, I think. Q. $2,400? — A. For membership; yes, sir. Q. It is a corporation? — A. Yes, sir. GEAIN EXCHANGES. 159 One of these pit traders testified before the house investigating committee of Minnesota that he alone— that his operations in futures alone amounted to an average of 67,000 bushels of grain every day. Now, then, the volume of future transactions by the 37 members amounts to at least $5,000,000. There are at least 200 members doing business upon the floor of the chamber of commerce. I say that it is a fair inference — it is a radically necessary deduction — that the whole amount of future transactions of the members of the cham- ber of commerce can not be less than $10,000,000,000 each year. In other words, for every bushel of real wheat, more than 50 bushels of phantom wheat is sold upon the floor of the chamber of com- merce. And every bushel of future grain which is sold tends to make the price received for cash wheat. In the testimony which I have introduced, the witnesses repeatedly testified to the fact that the receipt of as small an amount as 50,000 bushels of selling orders will frequently depress the Minneapolis market one-half a cent. What then, when the volume is such as we have shown — ^what must be the extent to which the natural law of supply and demand is controverted by the operations of these gam- blers? Mr. Manahan. Could I ask a question there ? As I understand it the miUers of Minneapolis buy most of the wheat coming into the terminal there ? Mr. Drake. Yes. Mr. Manahan. Their operations in the pit have a tendency to depress the price of cash wheat so that they could fill their bins at the depressed price. Mr. Drake. Yes; I so understand it. Mr. Cantrill. Let me ask you a question there, please. It does not bear directly on the argument now, but I want to get it into the record. Have you a State antitrust law ? Mr. Drake. We have a State law which is termed a State antitrust law. Mr. Cantrill. Has there been any attempt by anyone to have this monopoly that you complain of here indicted and convicted in your State courts under that law ? Mr. Drake. I would prefer not to answer that question, unless it is necessary. Mr. Cantrill. Well, I should think, Mr. Chairman — it seems to me that in this investigation that is rather a vital question, because I am very frank to state that as a member of the committee I do not think Congress ought to be dipping into these investigations unless it can be proven that the States are absolutely unable to handle the ques- tion. If you have a monopoly in your State and a State law that can handle it, I think you should make an effort to do it. I am very very frank to say that we have in Kentucky such a law and have indicted and convicted the International Harvester Co., the Imperial Tobacco Co., and other trusts and monopoUes. The reason I ask that is that I want to get into the record what you had to say on that point. Mr. Greeley told the committee the other day — in answer to my question he practically admitted that in lUinois there was a condi- tion of affairs that the Board of Trade of Chicago practically con- trolled the Illinois Legislature and the Illinois courts, and that the farmers of Illinois and the shippers there could not get any redress 160 GRAIN EXCHANGES. in that State. I would like to ask the question and get it into the record whether in your opinion such a condition of affairs as that exists in Minnesota? It seems to me that it has a direct effect on the consideration of this resolution by the committee. I know it would have, so far as I am individually concerned as a member of the com- mittee. Of course I can only speak for myself. Mr. Drake. In the first place, as I have endeavored to point out, any legislation affecting futures wiU necessarily be futile unless — — Mr. Cantrill (interposing). I am not speaking now of futures. The point I am speaking of is — the main thing is that the farmers are confronted with this monopoly. If you have a State law directed against the suppression of monopolies, what I want to know, is wiether the effort has been made in Minnesota, in the court under that law, to attack this monopoly, that you complain of here; and if so, whether there has been any attempt to indict that monopoly? Mr. Drake. I would prefer to say nothing more than this unless the committee insists. The matter has been presented to the attor- ney general of the State of Minnesota. The attorney general of the State has done nothing. Is that answer satisfactory? Mr. Manahan. What other conditions are there, generally? Mr. Drake. Well, in my judgment, the State of Minnesota is the most boss-ridden State in the Union. That is my opinion. Mr. Cantrill. Well, that is what we want to know. We want to get the facts in the case. Mr. Drake. We have in that State the Great Northern Railroad, the "empire builder" Mr. Cantrill (interposing). That is the boss of the State? Mr. Drake. The political and financial boss of the State. Mr. Cantrill. In other words, you have practically the same con- dition in Minnesota that Mr. Greeley complams of in Illinois, and you have come to Congress to get the relief that you can not get in your own State? Mr. Drake. We can not get that rehef. Mr. Cantrill. That is what we want to know. There is no reason for having any secrecy about this thing, because it has all got to be pubhshed when we get on the floor of the House. What we want now is pubhcity. Mr. Drake. When the house committee started its investigatioli it was a real investigation, made up of farmers, the men who had made their campaign upon the proposition that they would investi- fate these evds. When the house started that investigation, what appened? The chamber of commerce got busy. Their secretary, as it appears in the record, Mr. McHugh, got into touch with reac- tionary senators. The senate of my State' broadly speaking, was reactionary, and they were able to start, as a back fire to this real investigation they were able to start a senate investigation to trav- erse the same ground. In reahty it was a committee to whitewash the chamber of commerce. It was headed by a man who is here to-day, Senator Works, of Blue Earth, Minn., a man who has gone out on the platform since, speaking for the combine, and who is here to-day to argue for the combine — the servitor, in my judgment, of the grain trust of the Northwest. GEAIN EXCHANGES. 161 Mr. Canteill. Well, I do not think that the question is out of place, because we want to get at the real character of this question here, so as to know how to weigh the statements. I presume they will have something comphmentary to say about your side, and we want to get your side also. Mr. Deake. Now, while I am talking, I must pay my respects to my friend McHugh, because my time is about up. You want to understand the character of McHugh. In 1906 the grain farmers of Canada attempted to organize at the Winnipeg terminal. Mr. James J. McHugh, secretary of the Chamber of Com- merce of Minneapolis, was a member of the Winnipeg Exchange. The Grain Growers Grain Co., a cooperative institution of farmers, applied for membership in the Winnipeg Exchange. They were admitted and they started out to doing business. They were doing business one week in the exchange. The next week they were thrown out on the streets of Winnipeg. James J. McHugh, the man who comes here to-day to speak for the combine, the most thoroughly dis- credited witness of the entire investigation, was indicted for criminal conspiracy in connection with the attempt — with the action of the Winnipeg Grain Exchange in throwing out the Grain Growers Grain Co. In other words, this genial gentleman is the professional throttler of cooperative associations. Mr. Canteill. You say he was indicted. Was he convicted ? Mr. Drake. He was not convicted. Mr. Canteill. He was acquitted? Mr. Deake. I do not know whether he was acquitted or not; but my understanding is that after the Grain Growers Grain Co. had been thjown out on the street, after aU the marketing facilities of the Winnipeg Exchange had been withdrawn, they went to what corre- sponds with our Federal Government, the provincial government. They obtained the intercession of the provincial government, and the Winnipeg Exchange was forced to reinstate and did reinstate the Grain Growers Grain Co. to its membership, the exchange insisting upon a modification of the rules for distributing its profits, which made, it seems to me, in the strict sense of the word, hardly a coop- erative institution, and it is my understanding that after the resto- ration of the Grain Growers Grain Co. to the board of trade in the manner which I have outhned the charges against McHugh were dropped. At any rate this fact remains: his field of usefulness in Winnipeg was gone. It was necessary to transfer him to some other locaUty that he might continue his activities. Now, let me go back, since I am asked as to conditions; but, first, may I make this request? I have not been able to cover the ground as rapidly as I intended. I have probably not covered more than one-half of what I wanted to cover when I came here this morning, and there are a great many facts that I have not touched on at all. Mr. Canteill. Well, you may place any facts m the record that you care to. • i j q Mr. Deake. May I just place this, then, m the record ( The Chaieman. Of course, each gentleman who has made a state- ment here will have a chance to examine his remarks and to extend them on pertinent issues, but of course the other side will be entitled 37214r-14 11 162 GBAIIir EZOHAKOES. to hear what you say and reply to it. That would fairly apply on each side, and you would also be entitled to look over anything they might insert, which is not said here. All we want is to get at the facts on both sides. You understand we are not holding you to the strict rules of law and evidence. This is a kind of publicity committee on these matters, to get at the real facts in these con- troversies, and there will be no objection to your extending your remarks, providing the other gentlemen can see them. We will also be glad for Mr. Greeley to avail himself of the same privilege after the close of his remarks. Mr. Drake. Now, as to the question suggested a moment ago by Mr. Cantrill as to the poUtical and financial power of this organizar- tion, against whom practically unorganized farmers and associations were contending at the Minnesota iavestigation. The array of legal talent produced on the part of the chamber of commerce at this investigation has never been equaled in the State of Minnesota. A large part of the talent is here to-day. There was Judge Simpson, who is here to-day, an ex-justice of the Supreme Court of the State of Minnesota and for many years judge of the district court. There was his partner, probably equally distinguished, Judge Lancaster. There is his other partner, Mr. Purdy, formerly, as I understand it, United States judge and here to-day to defend the combine. There was an ex-govemor of the State of Minnesota. There was an ex- member of the Legislature of Minnesota, with the privileges of the floor. There was John G. McHugh himself, who is an acute and shrewd attorney. That was the array of talent which the farmers went up against, and in addition to all these there was the regular attorney for the chamber of commerce, Mr. Mercer. And Mr. Mer- cer's fee only, according to the pubhshed account — ^his fee alone for services in that investigation — amounted to $16,000. All that the farmers have paid me for my services — and I put in some four months in that investigation alone — will not exceed $200. It shows the relative strength, the relative standing, of the two organizations. They control the legislature poMtically, at least one house of it. Mr. Cantkill. Which house is that ? Mr. Drake. The senate. The chairman of the judiciary committee of the senate was the partner of Mr. Mercer, the attorney for the Chamber of Commerce. Senator Poehler, one of the senators, is the man who, as I understand it, is interested in the Poehler Commission Co. Mr. Cantrill. Let me understand' you. Do I understand that, as a member of the Senate, this gentleman appeared before the Senate when his partner was taking a fee on that proposition ? Mr. Drake. Yes, sir. That is no breach of etiquette in the State of Minnesota. Now then, they have the assistance and support of the railroads, and public service corporations, and I believe the United States Steel Trust, and they are able to enlist all of the reactionary poHticians of the State of Minnesota. And as the result, we are up against an influence which it is almost impossible for the farmers to combat. Mr. Cantrill. What was your State administration, ; politically, during this state of affairs ? Mr. Drake. Republican, I rather blush to say. GBAIN EXOHANGBS. 163 The Chairman. It was both parties during this period you have covered, I believe. Mr. Dkake. Yes. It depends upon what is meant by " this period" It has been Republican for some four years back, and prior to that it was Democratic. Mr. Cantkill. While this investigation was going on, what was it ? Mr. Drake. Republican. Now, I think I have about five minutes more. I desire at this time to offer in evidence the testimony brought out by the interstate commerce investigation in 1906, which is found upon pages 965 to 975, Senate Document No. 278, volume 14, Fifty- mnth Congress, second session, "Interstate Commerce Commission testimony on grain trade." ■ The Chairman. Mark the part that you wish to insert, and it will be placed in the records. (The testimony referred to is as follows :) F. R. Durant, called as a witaess, having been duly sworn, testified as follows: Mr. Marble. You reside in Minneapolis? Mr. Durant. Yes, sir. Mr. Marble. What is your business? Mr. Durant. I am manager of the Grain Bulletin. Mr. Marble. What is the Grain Bulletin? Mr. Durant. The Grain Bulletin is a bureau for the furnishing of information to grain dealers at country points; such information as is necessary in conducting their business. Mr. Marble. You have an organization, have you? Mr. Durant. Yes, sir; an association. Mr. Marble. How many members of that association? Mr. Durant. Eighteen. Mr. Marble. You are an employee of the association? Mr. Durant. Yes, sir. Mr. Marble. You are an officer in it? Mr. Dukant. No, sir; well, I have the title of assistant treasurer. Mr. Marble. When was this association formed? Mr. Dueant. It was originally formed in July, 1902. It was reorganized in May, 1905. Mr. Marble. What was the organization for the reorganization? Mr. Durant. We had no articles of association, nor anjr officers, and it was believed that it would be better to put the association on the basis of a complete organizatioii. for the complete conduct of the business. ******* Mr. Marble. You are not incorporated imder the State laws? Mr. Durant. No, sir. Mr. Marble. The first paragraph of these articles reads as follows: "Recognizing and appreciating the advantage of cooperation and securing and disseminating any and all proper information for our mutual convenience, benefit, or protection, we, the undersigned purchasers and dealers in grain, have organized this association and have adopted the following articles of association for the government of our affairs." You have not copied the signatures? Mr. Durant. No, sir; you have a copy of those. Mr. Marble. I believe you know of the making of this copy — ^it was made by Mr. Taylor? Mr. Durant. Yes, sir; I should say that it is correct. Mr. Marble. That is a correct list of your membership? Mr. Durant. Not of the membership; the membership are indicated by the stars. Mr. Marble. And those not indicated by the stars are simply subscribers? Mr. Dukant. Yes Mr. Marble. What is the status of a subscriber? Mr. "EhjRANT. It is practically the same, except tha,t he has no responsibility in regard to the expense of operation. M!r. Marble. At the present time what does your association do? Commissioner Prouty. How many subscribers are there? Mr. Marble. There are 18 members. 164 GBAIN BXOHAWGBS. Commissioner Prouty. Now, tow many subscribers? P^taps you can tell. Mr. DuRANT. That is not a complete list of subscribers. Commissioner Prouty. Tell us how many there are. Mr. Dijrant. I do not know that I could give the actual number of subscribers. We send out in all about 1,275 cards of information, and of those there are about 90 that go to farmers' elevators and about 275 that go to independent dealers, and that is about one-third of the total number. There are 1,275 elevators owned by our sub- scribers and members. Mr. Marble. What information do you send out? Mr. DuRANT. The value of grain at the different country points, based on what that grain would sell for on terminal markets. Mr. Marble. You tell the value at the country points? Mr. DuRANT. Yes, sir. Mr. Marble. Not at Minneapolis? Mr. Dtjrant. No, sir. Mr. Marble. The value which you send deducts the freight rate from that point into Minneapolis? Mr. DtTRANT. Into Minneapolis, as a general proposition. Mr. Marble. Does it deduct the margin of profit? Mr. DuRANT. Yes, sir; the maximum margin of profit. Mr. Marble. Who determines that margin of profit? _ . Mr. DuRANT. That maximum of profit was determined when we first organized to send out this information. It. was, as nearly as I can recollect, the concensus of opinion of the majority of the subscribers. Mr. Marble. Since your association was formed, what is the greatest number of points which has been affected by agreements to divide the grain? Mr. DuRANT. I do not remember more than 126, perhaps 130. Mr. Marble. And that was reduced to about 100 in 1904? Mr. DuRANT. Yes, sir. Mr. Marble. Did the Atlas Elevators have such agreement? Mr. DuRANT. Yes, sir. Mr. Marble. How many, would you say, with them? Mr. DuRANT. It would be purely guesswork on my part, because I don't know. Oommdssioner Prouty. Haven't you documents in y«ur possession now from which you can testify? Mr. DuRANT. No, sir. Commissioner Prouty. What has become of your books and papers? Mr. DuRANT. They were destroyed from time to time since I have been doing this work. My office room is limited and papers of that kind after a month or two were of no value and they were destroyed. _Mr. Marble. If you were to attempt to state the number, could you, in your own mind, reach what you would consider a fair approximation of those figures, if I would ask it? Mr. DuRANT Of the number of houses of each one? Mr. Marble. Of each company. Commissioner Prouty. He has given you approximately the total number of stations . If you will read him a list and ask him if a particular company was or was not engaged in that particular kind of operation, I think that would be sufficient. Mr. Marble. I will. Mr. Durant. I can say that not in every case all the stations operated wer ! included. Commissioner Prouty. Just read the names of the 18 and ascertain whether they were all engaged in operations of that kind. Mr. Marble. Just one second first. Do you know why not all were included in any case? Mr. Durant. No, sir. Mr. Marble. You were not advised as to that? Mr. Durant. No, sir. Mr. Marble. Did you have to do with the making up of this agreement bringing the parties together? Mr. .Durant. No, sir. My work was purely clerical. Mr. Marble. The Atlas Elevator Co.? Mr. Durant. Yes, sir. Mr. Marble. They had such a contract? Mr. Durant. Yes, sir. Mr. Marble. I think I had better determine what this contract was before I read the list. These contracts were in writing? GRAIN EXCHANGES. 165 Mr. DuRANT. Not always. Mr. Marble. Sometimes? Mr. DuRANT. I have known them to be. Mr, Marble. And were those that were in writing of the same general character as those that were not? Mr. DuRANT. I couldn't say positively, but I presume their nature was the same. Mr. Marble. I will show you this [counsel hands paper to witness]. Mr. DuRANT. Yes, sir. Mr. Marble. That is one of the contracts? Mr. Durant. Yes, sir. Mr. Marble. That doesn't appear to be signed by anyone? Mr. Durant. No, sir. Mr. Marble. Were those contracts signed? Mr. Dtjrant-. I haven't knowledge of that, whether they were signed or not. Mr. Marble. Were they simply memoranda? Mr. Dtjrant. Simple memoranda, as I understand. Mr. Marble. And jrou recognize this as one of those memoranda? Mr. Durant. Yes, sir; I presume that that was. Mr. Marble. This purports to be a copy. Will you follow it as I read the original, because I want to put a copy in the records [reading]: MEMORANDUM OP AGREEMENT AT WORTHINGTON, MINN., EFFECTIVE AUGUST 1, 1900 H. E. Torrence (7), Swedish Mercantile Co. (20), Hubbard & Palmer Co. (26), Peavy Elevator Co. (32), H. N. Douglas (36), St. John Bros. (40), each to receive one- sixth (-j) of the entire receipts of all the grain handled at Worthington. Prices to be made by H. N. Douglas, but are to be as nearly as possible on the fol- lowing basis: Wheat at 12 cents and fraction off Minneapolis delivered close. Oats at 6 cents and fraction off Minneapolis; flax at 16 cents oft Minneapolis; com at 10 cents oft Min- neapolis; timothy seed at 65 cents per hundredweight oft Chicago. Penalties to be: Wheat, 2^ cents; oats, IJ cents; com, 2 cents; barley, 3 cents; rye, 4 cents; flax, 4 cents; timothy, 10 cents. Full rates of storage, as shown on standard storage tickets to be collected. Minimum dockage to be 1 pound per bushel, and sieve test to'be made of all wheat showing over 2 dockage. All parties agree not to pay over list. Closed house one-half penalty. Statements to be rendered each week to H. N. Douglas, who is to make a monthly report to F. R. Durant. The books of any party to this agreement are to be subject to examination at any time. This agreement to continue in effect for one year from date, provided however, that any party may withdraw by giving 15 days' notice in writing to that effect, to each party to this agreement, and by paying the penalty to expiration of said 15 days. Mr. Marble. That is a correct copy of this original contract? Mr. Durant. Yes, sir. ****** Mr. Marble. Now, I will go through this list of names as quickly as possible, to see what companies were in this agreement, and if you are able to tell me what proportion of their total elevators or the number, I wish you would volunteer that, and I will not take the time to question you. Mr. Durant. All I could say as a general proposition is that there were not all of any company's in it. Mr. Marble. And if at any time you can indicate what proportion of any company, I wish you would do it without being interrogated. Mr. Durant. It will be only guesswork, because I do not remember. Mr. Marble. The question is of the names I am about to read, which companies were parties Commissioner Prouty (interrupting). You call the names and let him say yes if they were and no if they were not. Mr. Marble. If they were parties to this agreement. The Atlas Elevator Co.? Mr. DuBANT. Yes, sir. Mr. Marble. Anderson & Moes? Mr. Durant. Yes, sir. Mr. Marble. Anchor Grain Co.? Mr. Durant. Yes. Mr. Marble. Benson Grain Co.? Mr. Durant. Yes, sir. 166 GEAIN EXCHANGES. Mr. Marble. E. A. Brown? Mr. DuRANT. Yes, sir. Mr. Marble. Bennett Grain Co.? Mr. DuRANT. No, sir. Mr. Marble. Were they subscribers at that time? Mr. DuRANT. Yes, sir; they were subscribers during the latter part of that time. Mr. Marble. During the time when there were cards? Mr. DuRANT. Yes, sir. Mr. Marble. Do you know why they were not parties to the agreement? Mr. DuRANT. No, sir. I don't know that they were not. So far as I am concerned, they were not. Mr. Marble. You don't know why? Mr. DuRANT. No, sir. Mr. Marble. Blenkiron Grain Co.? Mr. DuRANT. No, sir. Mr. Marble. Were they subscribera during that time? Mr. DuRANT. No, sir. I think they were in later than January, 1905. Mr. Marble. A. H. Betts? Mr. DuRANT. Yes, sir. Mr. Marble. Does the commission desire me to read the headqiiarteis of tihese companies as well as the names? Commissioner Prouty. Just simply the names. Mr. Marble. Button Elevator Co.? Mr. Durant. Yes, sir. Mr. Marble. Carlon Elevator Co.? Mr. Durant. Yes, sir. Mr. Marble. W. W. Cargill Co.? Mr. Durant. No, sir. Mr. Marble. Do you know why they were not parties?. Mr. Durant. No, sir. Mr. Marble. John P. Coffey? Mr. Durant. No, sir. Mr. Marble. Do you know why he was not? Mr. Durant. It may be that he came in at a later date; and I wouldn't aay aa to ' that. Mr. Marble. E. R. Dibble Co? Mr. Durant. No, sir. They were a new concern. Mr. Marble. H. H. Dwight? Mr. Durant. Yes, sir. Mr. Marble. Greiz & Zeeman? Mr. Durant. Yes, sir. Mr. Marble. Gilchrist & Co? Mr. Durant. Yes, sir. Mr. Marble. Hunting Elevator Co? Mr. Durant. Yes, sir. Mr. Marble. Hubbard & Palmer Co? Mr. Durant. Yes, sir. Mr. Marble. Holmquist Grain & Lumber Co? Mr. Durant. Yes, sir. Mr. Marble. Harrington Grain Co.? Mr. Durant. No, sir; they are a new concern. Mr. Marble. M. P. King? Mr. Durant. No, sir. Mr. Marble. Larkin & Co.? Mr. Durant. Yes, sir. Mr. Marble. McCauU-Webster Elevator Co.? Mr. Durant. Yes, sir. Mr. Marble. McLaughlin, Ellis & Co.? Mr. Durant. Yes, sir. Mr. Marble. Northwestern Elevator Co.? Mr. Durant. I think there was one time when I had one station of theirs; it was some years ago. Mr. Marble. Do you know why you didn't have more? Mr. Durant. No, sir; I don't. Mr. Marble. Ober-Kingsbury Co.? Mr. Durant. No, sir; they are a new concern. Mr. Marble. Peavy Elevator Co.? Mr. Durant. Yes, sir. GKAIN EXCHANGES. 167 Mr. Marble. Reliance Elevator Co.? Mr. DuRANT. Yes, sir. Mr. Marble. South Dakota Grain Co.? Mr. DuBANT. Yea, sir. Mr. Marble. Skewis Grain Co.? Mr. Dtjrant. Yes, sir. Mr. Marble. St. Johns Grain Co.? Mr. DuBANT. Yes, sir. Mr. Marble. J. T. Scroggs? Mr. Dtjrant. Yes, sir. Mr. Marble. Stoddard & Ketchum? Mr. DuRANT. No, sir; they were the same as Oei^oes & Bennett Grain Co. 1 don't know anything about that anywhere else. Mr. Marble. A. A. Truax? Mr. Dtjrant. Yes, sir. Mr. Marble. George Terwilliger? Mr. DuRANT. Yes, sir. Mr. Marble. Western Elevator Co.? Mr. DuRANT. Yes, sir. Mr. Marble. Can you tell us what other companies you had charge of the arrange- ment for of this sort? Mr. Dtjrant. Why, I can not think of any that are in existence now. Of coTirse, there would be independent men the same as there were at Worthington, like Mr. Torrence and the Swedish Mercantile Co., scattered throughout the country at the different stations; local men that were interested in the same arrangement. Mr. Marble. Did you ever have any farmers' elevator companies in such an arrangement? Mr. Dtjrant. Yes, sir. Mr. Marble. Cooperative companies? Mr. Durant. As to their being cooperative I have no means of knowing. Mr. Marble. Farmers' elevator companies? Mr. Dtjrant. Yes, sir. Mr. Marble. Can you name them? Mr. Dtjrant. I recollect one at Cylinder, Iowa. Mr. Marble. Do you know the name of that company? Mr. Durant. I presume it was the Farmers' Elevator Co.; I do not remember the exact title. Mr. Marble. Do you recall any other one? Mr. Dtjrant. I do not think I do. Mr. Marble. This list I have been reading ic a list of yoTir present members who are subscribers at the present time? Mr. Dtjrant. Yes, sir. In this connection I also offer a portion of the testimony of A. J. Hoskins, taken before the Interstate Commerce Commission hearing of 1906. It is as follows: Minneapolis, Minn., November 22, 1906 — 10 o'cloch a. m. Commissioner Prouty. Mr. Marble, you may call a witness. Mr. Marble. I will call Mr. Hoskins. A. J. Hoskins, called as a witness, being duly sworn, testified as follows: Mr. Marble. You reside in this city? Mr. Hoskins. Yes, sir. Mr. Marble. What is your business? Mr. Hoskins. I handle prices for the elevator companies in the northern country. Mr. Marble. What do you mean by "handle prices"? Mr. Hoskins. Well, I put out changes of prices every day. They occur nearly every day, and I have a basis, as we call it, printed oS.on a sheet, and the changes that are to be made, and send them around to the different elevator offices (p. 930). Mr. Marble. Have you at the present time charge of any arrai^ement for pooling the grain or dividing the business at country stations? Mr. Hoskins. No, sir. Mr. Marble. You have had in years past, have you not? Mr. Hoskins. Yes, sir. Mr. Marble. How long since you have had such arrangements? 168 GEAIN EXCHANGES. Mr. HosKiNS. I think there was some at the beginning of the last crop before this. The crop begins August 1. Mr. Maeblb. You think there was some August, 1905? Mr. HosKiNS. Yes, sir. Mr. Marble. How many points were affected August, 1905? Mr. HosKiNS. I do not know. I made a good many statements for comparison only that were made and put sut and compared and thrown in the waatebasket, I suppose. Mr. Marble. Whether there was any agreement back of that, you do not know, as to some of those — any agreement to pay a penalty or cease buying? Mr. HosKiNS. No. Mr. Marble. But as to some of these arrangements in August, 1905; were there agreements to pay penalties on excess grain purchased? Mr. HosKiNS. Yes; I think so. Mr. Marble. How many such agreements would you say there were in August, 1905? Mr. HosKiNS. Do you call each station an agreement? Mr. Marble. Yes; how many points? Mr. HosKiNs. I do not know. Perhaps a couple of hundred. Mr. Marble. In what States were those stations located? Mr. HosKiNS. Well, Minnesota, South Dakota, and North Dakota. Mr. Marble. Any in Iowa, or would that be tributary to this market? Mr. HosKiNs. No. Mr. Marble. Any in Nebraska? Mr. HosKiNS. No. Mr. Marble. Your territory is the northern, anyway, is it? Mr. HosKiNS. Yes, sir. Commissioner Lane. For whom were those comparisons made? Mr. HosKiNS. At the request of different elevator companies (p. 931). Commissioner Lane. Located here in Minneapolis? Mr. HosKiNS. Yes sir. Commissioner Lane. What were those companies? Mr. HosKiNS. Well, the list shows. Commissioner Lane. The elevator companies named on that list [referring to Exhibit No. 1]? Mr. HosKiNS. Well, a good many of them, I think — yes, most of them. Mr. Mae:^e. Perhaps we better find out which ones. Commissioner Lane. Yes, sir. Mr. Marble. I will ask you first, were these agreements of the same general nature and form at these two hundred points? Mr. HosKiNS. Yes, sir; I think so. Mr. Marble. What was the form and nature of that agreement? Mr. HosKiNS. Well, it was to figure a penalty on — of course, first it was decided what percentage each company was entitled' to, and then those that got more than their share, there was a penalty figured, and those that got less than their share received the penalty. Mr. Marble. What was that penalty generally? Mr. HosKiNS. Two and a half cents on wheat, and in some cases 2 cents on barley and rye, and flax was 3| and oats were 2 cents. Mr. Marble. Each of the buying elevator companies rendered a statement to you? Mr. HosKiNS. Of their receipts; yes, sir. Mr. Marble. You figured who had the excess and the amount due from the ones gettingthe excess? Mr. HosKiNS. Yes, sir. Mr. Marble. And also to whom that money was to go? Mr. HosKiNS. Yes, sir. Mr. Marble. You had the clearing house, as it were, for this business? Mr. HosKiNS. Yea, sir. Mr. Marble. Who paid you for that service? Mr. HosKiNS. Why, I do not know that anybody did. I made an assessment to cover the expense of my office, based on the number of elevators that each company had, and I sort of did this other service for nothing. Mr. Marble. Carried on as a part of the business of the office? i Mr. HosKiNS. Yes, sir. Mr. Marble. Without special compensation for it? Mr. HosKiNS. Yes, sir. GRAIN EXCHANGES. 169 Mr. Makble. Now, taking this list, I will read it to you, and I will ask you to indi- cate, name by name, whether or not the firm named was in such agreements as you have described [reading from list]: Andrews & Gage? Mr. HosKiNS. Yes, sir. Mr. Marble. They were? Mr. HosKiNS. Yes, sir. Mr. Marble. At how many stations? Mr. HosKiNS. Oh, I can not tell. I should think 40 or 50. Mr. Marble. Could you indicate generally where those stations were? Mr. HosKiNS. On the Northern Pacific road (p. 932). Mr. Marble. And did it include all the elevators of Andrews & Gage on the North- em Pacific? Mr. HosKiNS. No. Mr. Marble. Only a portion? Mr. HosKiNS. Only part. Mr. Marble. Why did it not include all? Mr. HosKiNS. I do not know. Mr. Marble. Do you know whether or not it was because there were independent buyers at some points who would not enter into such an arrangement? Mr. HoSKiNS. It might have been that; I do not know. Mr. Marble. Would it be possible for you to tell us the names of the stations at which Andrews & Gage were in such contracts? Mr. HosKiNS. No, sir. Mr. Marble. Could you furnish us a list showing those stations this afternoon? Mr. HosKiNS. Yes, sir. Mr. Marble (reading from list). E. W. Summer? Mr. HosKiNS. No. Mr. Marble. The Great Western Elevator Co.? Mr. HoSKiNS. Yes, sir. Mr. Marble. At how many points were they in such arrangements? Mr. HosKiNS. About the same as Andrews & Gage. They are on the Northern Pacific also. Mr. Marble. Probably at the same points with Andrews & Gage? Mr. HosKiNS. In a good many cases. Mr. Marble.. About 40 or 50? Mr. HosKiNS. Yes; I should think so. Mr. Marble. Did they have other elevators on the Northern Pacific? Mr. HosKiNS. No; they have five or six on the Great Northern, I think. Mr. Marble. That were not in this arrangement? Mr. HosKiNS. They might have been in, but they were on the Great Northern. Mr. Marble. Were all their elevators on the Northern Pacific in this arrangement? Mr. HosKiNS. No. Mr. Marble. Why were any omitted? Do you know? Mr. HosKiNS. I do not. Mr. Marble. In your list can you tell us the names of the towns at which the Great Western had such arrangements? Mr. HosKiNS. I think I can. Mr. Marble (referring to list). The Exchange Grain Co.? Mr. HosKiNS. Theyiad a few. Mr. Marble. How many? Mr. HosKiNS. Oh, half a dozen or 8, 9, or 10, I think. M' Marble. Situated where? Mr. HosKiNS. On the Milwaukee road. Com mi ssioner Lane. Did these people furnish you with the list of places where they wanted to make the combination? Mr. HosKiNS. Yes, sir. Commissioner Lane. They furnished that to you? Mr. HosKiNS. Yes, sir (p. 933). Mr. Marble. Did you have to do with getting up these combinations? Mr. HosKiNS. No. Mr. Marble. You were simply notified that they had been arranged and would then keep the books for them? Mr. HosKiNS. Yes, sir. Mr. Marble. Did this include all elevators of the Exchange Grain Co.? Mr. HosKiNS. No; I do not think so. 170 GBAIN EXCHANGES. Mr. Marble. And if it did not include all, you could not tell why? Generally, without stopping to ask that question as to all of these, where it did not include all the elevators of the company named, do you know why it did not include all in any case? Mr. HosKiNS. I do not. Mr. Marble. Did you in any instance arrange such combinations as this? Mr. HosKiNS. I may have helped. I may have gone and seen a single company at the request of some other company. Mr. Marble. Can you tell us of such an instance? Mr. HosKiNS. 1 can not recall one now. Mr. Marble. But you think you might have done so? Mr. HosKiNS. Yes, sir. Mr. Marble (referring to list). The Pacific Elevator Co.? Mr. BosKiNS. They were in, too, I guess. Mr. Marble. What places and on what road? Mr. HosKiNS. On the Milwaukee road, I think. Mr. Marble. With all their elevators, do you know? Mr. HosKiNs. They had only a few. I tMnk they were not all in. Mr. Marble. How many did you say were in? Mr. HosKiNS. The Pacific? I guess they are on the St. Louis road. Mr. Marble. How many did you say they had in such arrangements? Mr. HosKiNs. Oh, half or two-thirds of their houses. I think they had somewhere between 15 and 25 stations. Mr. Marble (referrir^ to list). A. O. Cornwell? Mr; HosKiNS. Yes, sir. Mr. Marble. How many houses? Mr. HosKiNS. He has 10 of 12, but only a few were in the arrangement. Mr. Marble. How many were in the arrangement? Mr. HosKiNs. I should think a half dozen. Mr. Marble. On what road? Mr. HosKiNs. The Great Northern. Mr. Marble. E. L. Welch & Co.? Mr. HosKiNS. That is really a commission firm. They go under the name of the Security Grain Co., I think, their elevator line. Mr. Marble. The Security Elevator Co.? Mr. HosKiNS. Yes, sir. Mr. Marble. So, the answer as to one of those lines would answer as to both? Mr. HosKiNs. Yes, sir (p. 934). Mr. Marble (referring to list). The Security Elevator Co.? Mr. HosKiNS. They are on the St. Louis road, and have 20 to 25 stations. Part of them were in; I guess not all. I am sure not all. Mr. Marble. How many were in? Mr. HoSKiNS. Oh, 12 or 15 perhaps. Mr. Marble (referring to list). Winter & Ames Co.? Mr. HosKiNS. Yes, sir; they are on the Great Northern, and I do not know — they have 20 or 30 houses altogether. Mr. Marble. How many were in? Mr. HosKiNS. Oh, half of them, perhaps. Mr. Marble. The State Elevator Co.? Mr. HosKiNS. Yes, sir; they are on the Great Northern road, and, I should think, had 20 houses or thereabouts. Mr. Marble. How many were in? Mr. HosKiNS. Oh, perhaps half of them. Mr. Marble. The Federal Elevator Co.? Mr. HosKiNS. Yes; they are on the Great Northern and Northern Pacific both. I do not know; I guess they have 30 or 40 houses. Mr. Marble. With how many did they have such arrangements? Mr. HosKiNS. Perhaps half of them. Mr. Marble. The McCauU-Webster Elevator Co.? Mr. HosKiNS. Yes; they are on the Milwaukee road and Great Northern — a few on each. They have not many houses in my territory; I should not think over a dozen at the outside; perhaps not that many. Mr. Marble. How many did they have in the combination.? . i. Mr. HosKiNS. Oh, perh&,ps half of them. Mr. Marble. The Hawkeye Elevator Co.? Mr. HosifiNS. That is in the same office, and the same answer would apply to them. I do not think they had over three or four houses — or five that I know of. GRAIN" EXCHANGES. 171 Mr. Marble. And all of them in the combination? Mr. HosKiNS. No. Mr. Marble. Where were their houaes located? Mr. HosKiNS. I do not know that I can say offhand. Mr. Marble. The Interstate Grain Co.? Mr. HosKiNS. Yes, sir; they are on the Great Northern road entirely I think They have a matter of 50 or 60 houses or perhaps more. Mr. Marble. How many did they have in such arrangements? Mr. HosKiNS. About half, I should think. Mr. Marble. The National Elevator Co.? Mr. HosKiNS. Yes; they are entirely on the Great Northern road and I guess they have — oh, 75 houses, perhaps. Mr. Marble. And how many of them had such arrangements? Mr. HosKms. Part of them. I should think in the neighborhood of half Mr. Marble. G. W. Van Dusen & Co.? Mr. HosKiNS. Well, they are not in my territory. Mr. Marble . They are on this list. Did they get yom- prices? Mr. HosKiNS. They get the changes of prices, but I do not know how many houses they have exactly, and none of them were in the arrangement (p. 935). Mr. Marble. And you had charge of no such arrangements for that firm? Mr. HosKiNS. No, sir. Mr. Marble. The Atlas Elevator Co.? Mr. HosKiNS. Well, they are in the southern territory. They were on my -hat for prices and that was all. Mr. Marble. The Osborne-McMillan Elevator Co.? Mr. HosKiNS. Yes, sir; they are on the Soo road. They have — I do not know how many — I should think close to 100. Mr. Marble. And how many were in the arrangement? Mr. HosKiNS. Well, part of them; perhaps half of them. Mr. Marble. The Empire Elevator Co.? Mr. HosKiNS. Well, that is the Osborne office. Their houses are on the Milwaukee road. They have, perhaps, 30 or 40, and part of them were in when the arrange- ment was on. Mr. Marble. What proportion? Mr. HosKiNS. I should think not over half. Mr. Marble. The Northland Elevator Co.? Mr. HosKiNS. That also is in the same office. Their houses are on the Soo. I do not know; I think they have 30 or 40 and perhaps a third of them or a quarter were in the arrangement; perhaps more; perhaps half. Mr. Marble. The Columbia Elevator Co.? Mr. HosKiNS. Their houses are on the Milwaukee road. I should think they had 30 or 40, and part of them were in the arrangement when there was an arrangement, I should say about half. Mr. Marble. The Crown Elevator Co.? Mr. HosKiNS. They are on the Milwaukee road also. They have — I guess I got the two companies mixed. The Columbia, I do not think, has as many houses as I said. They are on the Milwaukee just the same. Mr. Marble. Is the Crown-Cummings a company? Mr. HosKiNS. No. Their office — their bookkeeper had a room in the Cummings office. I do not know whether the Cummingses are interested in the company or not. Mr. Marble. The Woodworth Elevator Co.? Mr. HosKiNS. Yes; they are on the Soo road. They have — I do not really know — perhaps 50 or 60 houses, and part of them, perhaps half, were in the arrangement. Mr. Marble. The Monarch Elevator Co.? Mr. HosKiNS. They are on the Northern Pacific road entirely. They have, I think, 108 houses — I thinik it came out yesterday in some testimony here. They have some 108 houses and part of them are in, perhaps 50 or 60. Mr.-MARBLB. The Duluth Elevator Co.? Mr. HosKiNS. They are on the Great Northern road, and I do not know how many houses they have — ^perhaps 70 or 80 — and part of them were in. Mr. Marble. What proportion? Mr. HosKiNS. Well, I should say in the neighborhood of half. Mr. Marble. The St. Anthony & Dakota Elevator Co.? Mr. HosKiNS. Yes. I think they have about 150 or 160 houses on the Great North- em road, and part of them were in. Some were and some were not; I think, perhaps, half (p. 936). Mr. Marble. How many did you say were in? 172 GBAIN EXCHANGES. Mr. HosKiNS. Well, about half, I should think. Mr. Marble . The Imperial Elevator Co.? Mr. HosKiNS. They are on the Great Northern. I think they have 75 to 90 houses. Part of them were in, perhaps half. Mr. Marble. The Minnesota Elevator Co.? Mr. HosKiNS. That is a new company that has just started this tali. They are bmlding on the Soo. They have, perhaps, a dozen houses, and I never had any arrangement with them at all. Mr. Marble. Never had any arrangement for theni? Mr. HosKiNS. No, sir. Mr. Marble. They have started into business since the time of these arrangements? Mr. HosKiNS. Yes, sir. Mr. Marble. The Stewart Elevator Co.? Mr. HosKiNS. I think they sold out their houses, or most of them, last fall, the be- ginning of this crop, say July or August. I do not know of their having more than — 1 think, perhaps, they have three, four, or six houses; no arrangements. Mr. Marble. In August of last year they had no arrangements? Mr. HosKiNS. No. Mr. Marble. John McLeod & Co.? Mr. HosKiNS. Well, that is really a commission firm. They had shippers at two or three stations and got prices for them; never had any arrangements. Mr. Marble. The Minnesota Grain Co.? Mr. HosKiNS. That is a commission firm also. Mr. Marble. And had no arrangements? Mr. HosKiNS. No. Mr. Marble. The Hennepin Elevator Co.? Mr. HosKiNS. Well, that is what we would call a small concern. I think tiiey have a half dozen or a dozen houses. I do not know much about them. I do not think we ever had any arrangements with them. We furnished them prices. Mr. Marble. The Powers Elevator Co.? Mr. HosKiNS. They are on the Northern Pacific road, and I should say they had about 40 houses. They were in the arrangement, part of them — half of them, perhaps. Mr. Marble. The George C. Baaley Elevator Co.? Mr. HosKiNS. They are on the Milwaukee road, and have perhaps 40 houses, and were in the arrangement, part of them. Mr. Marble. About what proportion were in the arrangement? Mr. HosKiNS. Well, haU, as near as I could say. Mr. Marble. The Atlantic Elevator Co.? Mr. HosKiNS. They are on the Soo road, in the Bagley office, and have 80, 90, or perhaps 100 houses on the Soo road. Mr. Marble. How many in the arrangement? Mr. HosKiNS. About 40 or 50. Mr. Marble. The Royal Elevator Co.? Mr. HosKiNS. They are also in the Bagley office, on the Soo road. They have 20 or 30 houses and were in the arrangement, perhaps half of them. . Mr. Marble. The Homestead Elevator Co.? Mr. HosKiNS. That is a new company that the Bagley people bought last August or about that (p. 937). Mr. Marble. So you had no arrangements? Mr. HosKiNS. No; I furnished them prices. Mr. Marble. The Northwestern Elevator Co.? Mr. HosKiNS. They are on the Great Northern road and have a little over 100 houses; part of them, we will say half, were in the arrangement when there was one. Mr. Marble. Nels Enge? Mr. HosKiNs. That is more a commission man than anything else. I do not think he owns any houses. If so, not more than two or three, and we may have had an arrangement at one or maybe two stations. Mr. Marble. The Heising Elevator Co.? Mr. HosKiNS. They are on the Great Northern road and have twenty-odd houses. They were in at part of them. Mr. Marble. What proportion? Mr. HosKiNs. Well, I should say half, as near as I could estimate. Mr. Marble. The Miller Elevator Co.? i; Mr. HosKiNs. They are on the Milwaukee road, and I should judge have about 20 houses. They were in the arrangement at part of them; say half. Mr. Marble. The Acme Grain Co.? GBAIN EXCHANGES. 173 Mr. HosKiNS. Well, they are on the Great Northern and Northern Pacific, both. They have houses on both lines. I do not know— they have been growing lately, buying and building houses— and I do not know how many they have. I should: think 50. They were in the arrangement with a few of them or part of them; perhaps half. . Mr. Marble. Perhai)s 25? Mr. HosKiNS. Yes, sir. Mr. Mahble. N. J. Olsen? Mr. HosKiNS. Well, it seems to me he had houses on the Northern Pacific and sold them out and bought some houses farther south . T do not know how many houses he has. I should think a dozen, perhaps. Mr. Marble. Do you know how many you had arrangements for of this sort that has been testified to? Mr. HosKiNS. Perhaps half the stations. Mr. Marble. The Minnesota & Western Grain Co., is that the name? Mr. HosKiNS. Yes, sir. Mr. Marble. The Minnesota & Western Grain Co.? Mr. HosKiNS. I think they are entirely on the Great Northern Road, more particu- larly in the southern territory. They have a few houses in the north, and I should think they have 20 stations; perhaps half of them were in the arrangement. Mr. Marble. The Mclntyre-Ingold Co.? Mr. HosKiNS. Well, they are on the Milwaukee road, and I do not think they have over 6 or 8 or 10 houses. I do not remember of their being in any arrangement. Mr. Marble. John D. Gruber Co.? Mr. HosKiNS. I think they are entirely on the Great Northerii Road. They are comparatively new. I think then- ofiice was moved here about a year ago from some point upcountry; never had any arrangements (p. 938). Mr. Marble. The Anchor Grain Co.? Mr. HosKiNS. Well, they have a few houses up north. I think they have more houses that are out of my territory and that I do not have any record of. I do not think they have over a half dozen houses up north and had an arrangement, perhaps, at two or three or four stations. Mr. Marble. The Victoria Elevator Co.? Mr. HosKiNS. They are on the Milwaukee road, and I should think had 20 or 25 houses; were in the arrangement at part of them — ^perhaps half. Mr. Marble. C. G. Ireys? Is that the name? Mr. HosKiNs. Yes, sir. He is on the Soo Road. I think he has perhaps a dozen houses. He was in the arrangement with a few of them — well, I do not think half of them. Mr. Marble. The Reliance Elevator Co.? Mr. HosKiNs. They are on the Milwaukee road, I think, entirely, and I do not know — I think they have 20 or 25 houses; were in the arrangement at a few of those — perhaps half. Mr. Marble. P. R. Durant? Mr. HosKiNS. Well, his name is there just simply to get prices. He has no elevators. Mr. Marble. The Minneapolis & Northern Elevator Co.? Mr. HosKiNs. They are on the Great Northern road, and I think have ninety-odd elevators. They were in the arrangement with part of them when there was an arrangement. Mr. Marble. What proportion? Mr. HosKiNS. Well, I should say half. Mr. Marble. The W. J. Jennison Co.? Mr. HosKlNS. Well, I think they are more a milling concern. I do not think they have any elevators. We give them prices, but I think they are more in the milling business. Mr. Marble. You do not remember any such arrangement? Mr. HosKiNs. No. Mr. Marble. The Thorpe Elevator Co.? Mr. HosKiNs . Well, I think they have perhaps 40 or 50 houses on the Great Northern and Northern Pacific both, and there was an arrangement at part of them; perhaps half. Mr. Marble . About half of them were in such arrangements as you have testified to? Mr. HosKiNs. Yes, sir, Mr. Marbl&. The Gillette Elevator Co.? Mr. HosKiNs. Well, they were on the Great Northern. They only had three or four houses. They have since sold out; never had any arrangements. 174 GRAIN BXOHANGBB, Mr. Mabble. The Cargill Elevator Co.? Mr. HosKiNs. They are on lihe Great Northern, I think, entirely. I guess they have 90 or 100 houses in my territory and were in the arrangement at part of them; perhaps half. Mr. Makblb. The Occident Elevator Co.? Mr. HosKiNS. Well, they are a new firm that moved to the city last fall. I do not know how many houses they have — perhaps a dozen. Never had'any arrangements. Mr. Maeblb. The Minnesota and Dakota? Mr. HosKiNS. The Occident? (P. 939.) Mr. Marblb. Is there another one here, the Minnesota and Dakota? It is a pencil memorandum at the bottom of the list [handing Exhibit No. 1 to Mr. HosMns]. Mr. HosKiNS. No; that is not part of it. Mr. Hbfpblpingeb. Mr. Marble, our company bought that firm five or six or seven years ago. It is entirely out of existence. It was just absorbed. Mr. Maeblb. Now, this list I have been readiag from is your present maiUng list for prices, or list of persons to whom you furnish prices? Mr. HosKiNS. In a general way;' yes, sir. Mr. Marble . Is that one of the lists of to-day for prices? Mr. HosKiNS. Up toamonthortwoago. We make changes from time to time. We may have added a company or cut out one. Mr. Maeblb. Do you recall any company that was on your list up to August, 1905, the time you testified that these arrangements continued to, which was in such arrange- ment and which does not appear on your list? Mr. HosKiNs. No, sir. Mr. Maeblb. Is your list practically the same now as then? Mr. HosKiNS. Very nearly the same; yes, sir. Mr. Maeble. There has been no discontinuance in your office at any time because of these contracts? Mr. HpsKiNS. No. Mr. Maeble. That feature was dropped, but the office went on as before, except for that? Mr. HosKiNS. Yes, sir. Mr. Maeblb. Now, did all the people having these arrangements — they also got prices from you, did they not? Mr. HosKiNS. Yes, sir. Mr. Maeble. Was it any part of the contract that they should pay the card prices? Mr. HosKiNS. No. Mr. Maeblb. Simply a division of the grain at the point, with a penalty to be paid on the excess? Mr. HosKiNS. Yes, sir. Mr. Marble. And a sha,re for the one not getting his proportion? Mr. HosKiNS. Yes, ^ir. Mr. Maeble. Was there any other feature in the contract? Mr. HosKiNS. No. Mr. Marble. Were those written contracts? Mr. HosKiNS. No, sir. Mr. Marble. Oral? Mr. HosKiNS. Yes, sir. Mr. Maeblb. How often did you render statements? Mr. HosKiNS. Once a month, generally. Mr. Maeble. Those statements took me form of "so-and-so elevator company to Hoskins, debtor"? Mr. Hoskins. No; we ran them by numbers, because it was easier and shorter to write than the name of the company. Mr. Maeble. And you made a statement of the amount due them and the amount ■ due from each one? Mr. Hoskins. No; if they had a debit, I showed that, and if they had a credit, I showed that (p. 940). Mr. Maeble. Not as to any person in particular? Mr. Hoskins. No. Mr. Marblb. To whom was the money paid? Mr. Hoskins. To me. Mr. Marblb. To you? -^ Mr. Hoskins. Yes, sir. Mr. Maeblb. And by you distributed it to the parties entitled to it under the arrangement? Mr. Hoskins. Yes, sir. GRAIN EXCHANGES. 175 Commissioiier Lane. What was the total number of elevators in that arrangement? Mr. HosKiNs. I should say 40 — Oh, elevators? Commissioner Lane. Yes, sir. Mr. HosKiNS.I really could not say. Mr. Marble. Perhaps 40 companies? Mr. HosKiNS. About that, I should think. Mr. Marble. These names of companies I have read do not represent that many different interests, do they? The Peavey Co., for instance, owns several of these concerns? Mr. HosKiNS. Yes, sir. Mr. Marble. How many of these elevators does the Peavey concern own? How many of these companies? Mr. HosKiNS. I think two, the Monarch and the Duluth. Mr. Marble. What others here are subsidiary companies of large interests? Mr. HosKiNS. Well, the Bagley has four companies in their office and the Osborne- McMillan, I think, has three. I think generally with that exception they are single companies. Mr. Marble. Single interests? Mr. HosKiNS. Yes, sir. Mr. Marble. Did you have charge of such arrangements as this from the beginning of the time you sent out the prices? Mr. HosKiNS. Yes, sir; I think so. Mr. Marble. And you testified that that was about 11 years ago you began? Mr. HosKiNS. Yes, sir; 11 years ago the Ist of August last. Mr. Marble. That would be the 1st of August, 1895? Mr. HosKiNS. No — well, I guess it would — why, no. Mr. Marble. The time you began sending out these prices? Mr. HosKiNS. Eleven years ago the 1st of last August I commenced. Mr. Marble.' What date would that be — 1895, would it not? Mr. HosKiNS. I guess so; yes, sir. Mr. Marble. And you have ever since continued this furnishing of prices? Mr. HosKiNS. Yes, sir. Mr. Marble. And you had charge of such arrangements for paying penalties on surplus grain purchased and dividing the grain for approximately 10 years — no; 11 years? Mr. HosKiNS. No; 10; not more than that. Mr. Marble. Yes; 10; that is right. Commissioner Lane. Mr. Taylor informs me that there were about 950 elevators, according to your statement, in this pool. Would that be approximately it? (p. 941.) Mr. HosKiNS. Why, approximately; yes, sir. Mr. Marble. How much money would you say you handled a year under this pool? How much per month? That would be easier? Mr. HosKiNs. It varied, according to the time of year. In the busy season there would be more than in the dull season. Mr. Marble. I should think a couple of thousand dollars. Mr. Marble. Per month? Mr. HosKiNS. Yes, sir. Mr. Marble. And in the dull season, how much? Mr. HosKiNS. Perhaps half that. Mr. Marble. How much per year would that average, would you say? Mr. HosKiNS. There are about four months busy season and eight months dull season. Mr. Marble. That would be about $16,000 a year? Mr. HosKiNS. Yes, sir. Mr. Marble. That was figuring this excess penalty merely on the excess grain pur- chased? You had nothing to do with the grain purchased by these companies inside their proportion; you did not figure on that? Mr. HosKiNS. No. Mr. Marble. And this $16,000 a year was arrived at by figuring this penalty on the surplus? Mr. HosKiNS. Yes, sir. Mr. Marble. And payir^ it to those who had less than their proportion? Mr. HosKiNS. Yes, sir. Mr. Marble. Have you made your prices up in the same way from the beginning of this employment? Mr. HosKiNS. I have always gotten them from somebody. We have a price com- mittee that gives me instructions each day what price to give out, and I follow those instructions. 176 GRAIN EXCHANGES. Mr. Marble. You do not use your own judgment as to the price? Mr. HosKiNS. No; except in a single day -when the committee is absent from the floor, and I try to handle the thing the best I could, but not over a dozen days a year that way. Mr. Marble. Who now constitutes that committee? Mr. HosKiNs. Mr. Magnusson, president of the Northwestern Elevator Co., Mr. Andrews, of Andrews & Gage, and Mr. P. J. Smith of the Osbom-McMillan offices, are the active officers. Really Mr, Magnusson and Mr. Andrews are the active men. Mr. Smith comes around almost every day; and, then, I thiuk Mr. Marfield and Mr. Wendel are members of that committee, but never take any hand in fixing prices at all. Mr. Marble. What length of time does the committee serve? Mr. HosKiNS. Well, until some other committee is appointed, I suppose. Mr. J. P. CargUl had charge of the matter for, I should say, about eight years (p. 942). The undisputed testimony before this committee thfirefore shows that in 1904, and for 10 years prior thereto, the menibers of the MinneapoHs Chamber of Commerce, who were the old-line elevator interests chiefly — the old-line elevators — absolutely fixed the prices to be paid for grain at over 950 stations throughout the territory tributary to Minneapolis. They not only fixed the price, but they divided the amount of grain which supposedly competing old line elevators at those points should receive. They not only did this, but they imposed penalties when a man bought more grain than he was supposed to buy, and if the grain house of the old line elevator company was vacant, it received a stipulated sum anyway. This condition of affairs prevailed at over 950 points in the State of Minnesota. Now, I would say a word, if I may, with reference to the news- papers. I have been accused since I came here of an unfair and partial attitude toward the newspapers and particularly the Minne- apolis Journal. I wish to say that u I have offended the representa- tive of the Minneapolis Journal, I sincerely regret it. i did not attack his integrity. I believe him perfectly sincere. I have no quarrel with him, but I do attack the Minneapolis Journal as a sub- servient organ. I would say further, if I may, that during the Minnesota investigation the two largest dailies, the Minneapolis Tribune and the Minneapolis Journal, in my judgment and in the judgment of every man upon this delegation, systematically and purposely falsified and perverted the facts connected with that mivestigation. They suppressed the truth as to the great combine. In our judgment they lent every aid to perverting and falsifying the facts as to the Farmers' Exchange, in our judgment and opinion. They have done this ever since; they are doing it to-day; and they ■will continue to do it with regard to this hearing. I can understand, Mr. Chairman, the attitude of trade papers such as I hold in my hand, the Price Current and Grain Eeporter, a publi- cation published by Mr. Pickell, who is here to-day. This publication on the first page contains the advertisements of 22 hay and grain firms, three of them soliciting trades in futures. In my judgment, and in the judgment of the delegation whom I represent, this indi- vidual can not do otherwise than he is doing, oppose the cooperative movement at the terminals. His editorial policy, in our judgment, is due to the fact of his dependence on this great trade organization controlled by the grain combine of the Northwest. The National Grain Grower, of Fargo, N. Dak., was telling the truth about this investigation, was exposing the machinations and GEAIN EXCHANGES. 177 abuses of the combine. Then the National Grain Grower needed money; they fell into troubled financial waters. Mr. McHugh made a trip up to Fargo, and the next week the National Grain Grower was filled with his speeches and with fulsome laudations of the grain combine of the Northwest, which the week before it had exposed. Such is the power of monopoly and money. I could never find it in my heart, Mr. Chairman, to condemn very vigorously the woman, who for very necessity of bread to eat, was forced into a life of shame. But the mere wanton, who dehberately f restitutes her virtues for desires of lust, what shall we say of her ? will not condemn Mr. Pickell and his pubhcation. In my judgment it is controlled by the combine which it defends. I do not condemn the other trade papers, but the metropohtan newspapers, those great and powerful daihes with their assured circulation throughout the country, who do not need to bow to the yoke — in my judgment they are the strumpets of newspaperdom. They are the crawlixig, and the creeping things of earth. In my judgment, and in the judgment of the delegation which is here to-day, the MumeapoUs Journal and the Minneapolis Tribune are controlled by the grain combine. I will say further that within a few days after the investigation terminated at Minneapolis, the president of the Chamber of Com- merce of MinneapoKs, Mr. Wells, tendered a wine supper of some nine courses to four or five reporters of the Minneapolis Tribune and Journal. Judge Simpson was there; he naight tell you about it. They put a number of the boys to bed right there in the hotel. They were rewarded for their faithiul service. And then week after week, Sunday after Sunday, in the Minneapolis Tribune and the Minneapolis Journal you might see page after page full of the advertisements of the members of the Minneapolis Chamber of Commerce; a thing absolutely unheard of until the grain combine was attacked. Mr. Chairman, I have already exceeded my time, and I will close. Minneapolis, Minn., March 9, 1914. Representative Henry, Chairman, Washington, D. C. Please let the record on the grain hearing show, foUowing Mr. Drake's testimony, that Senator Wilson, former attorney general of this State, was not a partner of mine or interested in the fees which I got for defending the chamber of commerce in the Minnesota Legislature; that both Mr. Drake and Mr. Manahan knew this. If affidavit is desired, kindly let me know. H. V. Meecbr. The Chairman. The committee will be compelled to go over to the House now, and we will take a recess until 2 o'clock this afternoon. AFTER RECESS. Mr. Manahan. I am going to call now a gentleman who wiU speak for the farmers of South Dakota. ^ Mr. Solen, I think, can be truthfully- said to be the "father of cooperative farm elevators in the United States," if not in the world. About a quarter of a century or more ago he organized the first farmers' cooperative elevator, so far as I Know, in the United States, and since that time has been very active, and has the confidence of the people of South Dakota. 37214—14 ^12 178 GEAIN EXCHANGES. \ STATEMENT OF H. G. SOIEN, OF SOUTH DAKOTA. Mr. SoLEN. Mr. Chairman and members of the committee, I am not going to take up much of your time. There is some good reason why I am not. The previous speakers have handled the subject so thoroughly that there is very little for me to say that might be of value to the cause. There is another reason why I should not take up much of your time — I am not much of a speaker, being educated behind the plow and in the mines and on the railroad, or wherever duty called me, and that does not lead to the speaker's platform, so what I have got to say will be very brief. I feel it is due your honorable body that I make some explanation as to who I am and whom I represent, and you will, therefore, kindly pardon me if I briefly refer to myself. I am a member of a committee of. six that was appointed by the grain growers of the West to proceed to Washington, and on their behalf lay their grievances before Congress. My occupation is that of a farmer, and I have lived in South Dakota for nearly 45 years. Our State is an agricultural State, notwithstanding that we have within our borders the richest hundred square miles in the United States, known as the Black Hills raining district. Nevertheless, the agricultural return is over 90 per cent of the total annual production of the State. That is the interest that I represent. Accordingly, I am here to work in behalf of the farmers of my State for the passage of laws that will effectually put a stop to all gambhng in grain, and especially prohibit all dealing in imaginary grain, which often makes the price less to the producer and more to the consumer. For many years the farmers of the Northwest have been asking for legislation of this character, until it appeared to them that they were practically outside of the care and consideration of our lawmakers. We are, however, determined to keep asking until we shall receive the recognition that is due us as people engaged in America's greatest industry. Mr. Chairman, we do not feel that we are asking for anything un- reasonable when we make a demand for legislation of the character named. We do not feel that we are imposing burdens upon any other industry when we ask for legislation prohibiting gambling in the things we produce, since we believe that the price of those articles is adversely affected by such gambhng. Though we have often failed in the past, as I have previously suggested, to obtain relief we claim to be our due, nevertheless we have faith that the present ad- ministration, which has already done much for the common people, will give us the legislation that this country's greatest industry de- mands. With this hope in our minds, we are now asking you to give us this measure of long-deferred justice. I have given a great deal of study to this economic question in my own way and I am firmly convinced that if we are to keep the Amer- ican youth on the farms of this country we will be compelled to rec- ognize their claims to protection imder our laws in a measure that will enable the farmers to retain in their possession a greater portion of the Wealth they produce than is at present possible. Unless this is done and the production thereby kept up ia a measure equal to the consumption we wiU be forced, m a decade or two, to import bread- stuffs to supply American consumption. GEAIN EXCHANGES. 179 This I would consider a national calamity, which can be, with your cooperation in the way of proper legislation, readily prevented. Two weeks ago I left home upon a wire from my friend ex-Congress- man Kelley, of my State, who is chairman of this committee, to start for Washington at once. Gentlemen, let me say to you this is no pleasure for us, to leave our home and our business in the dead of the winter on this long trip to Washington, but if we can accomphsh any good by coming here, we shall feel weU repaid for so domg. Again, I ask you, on behaK of my constituency, to take this matter under advisement and to give it your honest and candid consideration. We trust that 3-ou will give us the full measure of justice that our cause demands, thereby bestowing the greatest good upon the great- est number. In my study of th^ Grain Trust terminal market two facts stare me in the face, which are these: If we continue the present system of marketing farm products, it means deserted homes and ruination to the agricultural industry in our great and glorious country; but what win we get in return? Millionaires and paupers multiplied by the thousands. On the other hand, Iilr. Chairman, if wise and just legis- lation pertaining to that industry is enacted, it means more homes, more nappy homes, where happiness, prosperity, and contentment reign supreme; and our children and our wives deserve it. Mr. Chairman, I am not going to take up more time. I know that my friend Kelley is waiting for the floor, and on behalf of our people I thank you very much for this opportunity. Mr. Manahan. Mr. Chairman, I will conclude the witnesses on behalf of the resolution by calling on Mr. Kelley, who is a director of the South Dakota Grain Grower's Association and a director in the cooperative exchange also, and who served in the House in the Fifty- fifth Congress, I think it was, and is undoubtedly known to some of the older members of the committee. STATEMENT OF HON. JOHN E. KELLEY, EX-MEMBER OF CONGRESS FROM SOUTH DAKOTA. Mr. Kelley. Mr. Chairman, it has been stated by another before this committee, I believe by Mr. Drake, that he represented 200,000 farmers. I was elected at a tri-State convention held in the city of Fargo, where there were at least 2,500 assembled farmers from the States of North Dakota, South Dakota, Minnesota, and Wisconsin; and in addition to that the representatives of the State of Nebraska and the great State of Iowa are here, and I believe that the principles for which I stand and which I shall advocate to this committee rep- resent the views of more than 1,000,000 farmers, and perhaps a mil- lion and a half farmers, and I believe that the entire agriculturists of the States that I have mentioned are a unit in demanding the things for which they are sent to the Capitol of the United States to ask Congress for. I just came from the Hall of the House of Repre- sentatives, and I listened there to a magnificent effort made by a gentleman from Wisconsin, Mr. ReUly, I believe. The agricultural appropriation bill, it appears, is under consideration at this time, and it carries an appropriation, from the general remarks, I take it, of $9,000,000, and I found that the burden of his remarks was that it 180 GRAIN EXCHANGES. was an absolute necessity that this amount of money be appropriated, not alone in the interest of the farmers, nor did he make the plea in the interest of the farmers, but in the interest of the consumiag pub- lic of the United States. He pointed out the discrepancy in the agri^ cultural population to-day and what it was at the close of the war. He pointed out that unless some measure can be enacted, either by the Congress of the United States or by the State legislatures, or some other power, whereby the farmers can be induced to remain upon the farms and increase the production, that the consuming public of this country will soon be obliged to send abroad and import their wheat, their corn, their beef, and whatever else they use. Notwithstanding, Mr. Chairman, the fact that $9^000,000 is about to be appropriated for the purpose of extending this great work-— and I approve of every dollar of it and all the work that is beiag done for the purpose of teaching the American farmer to grow two blades of grass now where he grew one before; to teach him to grow two bushels of grain to the acre where he grew one before — i say that unless you give the farmers of the United States the legislation that in their judgment and in their wisdom they need to enable them to retain a decent portion of the two blades of grass and the two bushels of wheat produced your legislation will be in vain. The ris- ing generation do not stay on the farms; and why? Becailse there are greater attractions elsewhere; because the farm is not as remu- nerative as other industries are; because it is more remunerative to sell the grain that the farmers produce than to produce the grain— and on this, with the gentlemen from Minneapolis, from Duluth, and Superior, and Chicago, I take direct issue. I wish that it were so that I could reach my hand across in genuine good-fellowship and say to every one of the representatives of those exchanges: "You are occu- pying an honest position; you are a necessary part in the great trans- actions and business system of this country and of the marketing Of the grain the farmers produce." But I can not say it, and I am curious to know what arguments will be made here when I close this- summing up and the justifications that will be made for the methods that you have pursued. Mr. Chairman, I have been sent here Under specific instructions. I have a duty to perform; to present the questions to you of the spe- cific demand that those farmers made in convention assembled — Gov ernment grading and inspection of grain, which means a uniform sys- tem and a standardization. Why do farmers bf the agricultural Northwest ask for this ? Why do you oppose it? Will you tell us before this committee why you oppose it ? You have been here, my friends. I have run onto your handiwork. I have met your line-up and I know what you are standing for; and I ask you again — why do we demand it and you oppose it ? Mr. Chairman, we demand the absolute Government grading and inspection of grain, because we know we have not had a square deal in the local inspection of grain. We know, as has been stated by the gentjemen who preceded me before this committee that when from 6,000,000 to 6,000,000 bushels of No. 1 and No. 2 wheat were shipped out of the terminal markets of Minneapolis — more than were shipped in — I do not pretend to give the absolute figures; we know- there was unfair grading. How does it come about? This is going to GEAIN EXCHANGES. 181 bring me to answer more fully, perhaps, a question asked by the gentleman from Kentucky as to why we were not able to get redress of the grievances of which we complain in the State of Minnesota. Mr. Chairman, if we were residents of the State of Minnesota, if the territory embraced in the States of North Dakota, South Dakota, Wisconsin, and Montana, and Iowa, and, perhaps, Nebraska, to some extent— if we had a voice and a vote in the State of Minnesota, it might be possible that that magnificent stretch of territory with its intelligent people residing thereon might have sufiicient political influence to get the necessary legislation enacted in the Legislature of Minnesota. But as it is we are as voiceless as dumb animals; we are no more than if we were residents of the South Sea Islands, and the farmers who live in the State of Minnesota are absolutely unequal to the situation. I do not live in the State of Minnesota, but I have made an extended investigation as to the conditions existing there, and I know the power and the influence of the mighty grain combine existing in the city of Minneapohs. I know that the milling interests in Minneapohs are the greatest on the face of the earth, and they are in collusion with the grain combine known as the Minneapolis Chamber of Commerce. They control the chamber of commerce. While there are many individual members and commission merchants for whom I have the highest regard, with whom I have done business in former years, I say there are many dishonest men in their organization, and the organization as a whole has stooped to the most despicable methods — methods that would put the blush of shame on the face of a sneak thief. How are you going to explain your taking from the farmers a $1.50 switching charge ? My genial mend who sits over there, who came to the city of Sioux Falls — and I may refer to that a httle later — but I see time is flying rapidly. I heard him undertake to explain that on the platform ^t Sioux Falls at our annual convention, and the only explanation that he could give was that it was a practice that had been in vogue for 20 years. Why, Mr. Chairman, if the conten- tion stands that to practice thieving for 20 years wiU legaUze it, then; horse stealing may be legalized in the same manner. It may be unpop- ular to refer to such as stealing, since it is done by "big business." I know that the idea has got abroad that you must not refer to the actions of a corporation as stealing, or to anybody engaged in big business. I lately saw a report, put out at a grain dealers' conven- tion, where some 40 or 50 people had broken into cars at one of the great terminals — I think it was Chicago — many of them were caught with the "goods," and 18 or 20 of them received small fines and jail sentences, and the rest were allowed to go on probation. That was mentioned as "stealing." Can you find anything of the kind pertaining to big business referred to as "stealing"? Oh, no. But, somehow or other, a pre- cedent has been established at the Capitol, over at the Senate end. Not a great while ago an investigation of some kind was on pertain- ing to the New York, New Haven & Hartford Railroad Co., and the attorney for the people referred to the transaction as "stealing," whereupon the attorney for the corporation said, "Oh, don't refer to it as 'stealing.'" Whereupon the senior Senator from Minnesota replied, " Oh, call things by their proper names. It is not only steal- ing, but the meanest kind of stealing." Hence you will pardon me for using the same term, since the precedent has been established 182 QBAIN EXCHANGES. in the Senate of the United States. Not only was it steaUng, not only was it participated in and continued for over 20 years, but how long since have they quit doing it ? How long since the Chamber of Commerce of Minneapolis quit charging the farmers, in absolute vio- lation both of the laws of the States of South Dakota and Minnesota, demurrage where a car was detained over 24 hours ? How long since and when did you let go of this steal ? And you are the men who say, "No; you shall not have Federal inspection and grading of your grain," though the question has been agitated here for years. Mr. Chairman, it is a decade and a half since the farmers commenced pleading with the Congress of the United States for the poor privilege of getting a square deal, and we believe that such can only be had under Federal inspection, absolute and complete. Why do the gen- tlemen arrayed on the side of the chambers of commerce and boards of trade oppose this proposition ? I say they oppose it because they believe they are going to have an undue advantage in the future, as they always have had in the past. They not only control the State of Minnesota, but they control the Legislature of Minnesota; they control practically every great industry in the State of Minnesota. I will say to my friend from Kentucky that there is not a bank in the city of Minneapolis they do not control, but one. There is not a paper in the city.of Minneapolis that we could get a word into with a burglar's jimmie, outside of the Minneapolis News. They control the entire situation. They are known as "big business." That is why even the farmers of Minnesota, instead of going to the legis- lature for a redress of their grievances, go to the only power to which they can go to make this plea for right and justice. Will any man say that we are asking anything unfair when we ask Federal inspection at the hands of our National Government ? Will any man say that the farmers are trying to beat somebody; that there is any- thing wrong about the demand ? I know that can- not be said. What was the condition ta the meat industry of the United States before we had Federal inspection ? We all know what the conditions were when they sold the embalmed beef" to the soldiers who were fighting the battles of this Eepublic. We all know that an embargo was laid upon American meat even in Germany and France. We know that the exports of American meat were seriously hampered when we had Tom, Dick, and Harry making the inspection, but we hear nothing wrong about that to-day, and encouraged by the success of this, we believe that we are justified in asking at your hands a law that will enable us to place the thing that we produce on the markets under Government inspection and that we shall have at least to that extent, a square deal. I see nothing wrong about it. I can not un- derstand where there is anything wrong about it. And I say this monopoly is one of the most tyrannical and the most grasping monop- olies that ever existed since the birth of history down to the present hour. They come here, but whether they will oppose this proposition that I advocate openly and before this committee, I know not; but I know they have been working here against it, and I have it from the authority of the Chairman of this Committee that they got it out of the Tsill as it passed the House of Representatives, the last session of Congress ? ] Mr. Manahan. That was the "option" bill. GEAIN EXCHANGES. 183 Mr: Kelley. They are closely allied. I will come to that in a few moments. I accuse the chamber of commerce of being an absolute monopoly. The Chaieman. Would it disturb you for me to ask you a question ? Mr. Kelley. No, sir. The Chairman. I remember when we had up the proposition of in- specting meats, and I think I made a speech in favor of the inspection of meats, but there we had the proposition that the meats were poison- ous and diseased, and in order to prepare them for interstate commerce we would have the authority to appoint these inspectors, but the thing_ that troubles me now is where we would get any authority to appoint inspectors of grain. Mr. Kelley. Mr. Chairman, on that proposition we ask that a law shall be enacted conferring the authority upon the Agricultural De- partment. The Chairman. You have had this question before the Committee on Agriculture ? Mr. Kelley. No, I have not been before that committee. That is the. contention; that is what we ask, that the Department of Agri- culture be authorized by a law passed by the Congress of the United States to establish and perfect a uniform system of grading throughout the country. Mr. Manahan. For interstate commerce ? Mr. Kelley. For interstate commerce. The Chairman. That is the point that this committee would like to have some light on. My mind is open on that proposition. I have not examined it at all as a lawyer. Mr. Kelley. And the reason why, Mr. Chairman, I invite anybody to ask me any question you please, only provided that you will give me a little more time if I run short. The Chairman. I will not interrupt you any more. Mr. Kelley. It is aU right, Mr. Chairman. I invite questions. The opposition is invited to ask any question they see fit. Imay not be able to answer all of your questions, because I am not an expert in selling grain, but I have made an extended investigation of this question, Mr. Chairman, and I think I know somethmg about it; and as a result of that investigation I accuse the Minneapolis Cham- ber of Commerce of being an absolute monopoly. First, you are a monopoly, because, as has been stated before upon the floor of this committee room, you were organized some 30 or 40 years ago with 550 members. You have never increased your membership. You are not open to an increase of membership. If I came there, with the price of a membership, sir, I could not obtain it, unless I first found a man who wanted to sell, and after I obtained it, your board of directors would determine whether or no I would be admitted to membership, and being a director in the South Dakota Grain Grow- ers' Cooperative Association, I would be barred from membership in that organization, under your rules. I want to say to you, Mr. Chairman, that the attitude of the Minne- apolis Chamber of Commerce toward the agriculturists of the North- west is simply this: "Yes, you produce that grain by your own efforts, by your own hands, but if you sell it in the Mmneapolis markets we shall seU it or it shall not be otherwise sold." That is 184 GBAIN EXCHANGES. Jour attitude, and I defy you, wlien you follow me to show that it can e sold in any other way to-day except in defiance of you and jour actions. Under this tyrannical condition that existed in Mmne- apoMs, under the operation of the chamber of commerce as it thus exists, a little organization of the State of North Dakota, consisting of 300 farmers, was organized three years ago in the hope of market- ing their own grain. I say that the chamber of commerce has per- formed every act within its power to put that organization out of existence; they have even referred to its members as the "night riders of North Dakota." And I can produce from one of your mouthpieces every word that I am now quoting. It is said the words originated somewhere down South. They originated down in Kentucky or Tennessee, did they not ? And they transported them to North Dakota, and applied them to the men who there formed an organization for protection in the selling of grain. But there is not a man of those who have served time in a penitentiary; there is not a man of those who was ever indicted by a grand jury; there is not a man against whom a single thing can be said, except that they wanted to sell a thing that they themselves produced in their own way. You have not only tried to put that institution out of business, but there are many men associated with the Chamber of Commerce of Minneapolis that have got down to the level of character assassins, and tried to blacken the character and the reputation of the sales manager of the institution, George S. Loftus. You have tried to bribe the sales managers of our local elevators, and not only were they not satisfied with controlling the entire State of Minnesota, the Legislature of Minnesota — the upper branch at least — the men who inspect the grain in Minnesota, but they even came down to South Dakota, at our annual convention at Sioux Falls, and tried to control us. why, they went around and got a member of our organization to introduce a resolution to censure the officers, the directors of the institution. I am one of those directors, and my friend Solen, who has just left the floor, is another one of them. What was the extent of our offense? In the June previous we simply passed a resolu- tion requesting a part of the elevators of our State, of which we have about 100, to send a part of their shipments, when practicable, to the independent exchange. I have simply said this much in order to give you an idea of the character of tne monopoly that we are up against. Mr. Chairman Mr. Manahan. What was the result of that convention ? Mr. Kelley. The result was that we cleaned them up in beautiful shape. That was the result of it, and nevertheless and notwithstand- ing that, the Minneapolis Journal and the Minneapolis Tribune pub- lished only such stuff as the chamber of commerce wanted. Mr. Chairman, something has been said as to whether the action of the chamber of commerce and the board of trade of Chicago and Superior and Duluth has anything to do with establishing the price of grain. I think that I can show you they have much to do with establishing the price. I can show you that the past year, except the opemng and the closing, wheat was slightly higher in Winnipeg than it was in MnneapoHs. I can show you that the previous year in the city of Winmpeg wheat averaged, from 2 to 7 GRAIN EXCHANGES. 185 cents higher than in Minneapolis. Why? For the simple reason that Winnipeg is always on an export hasis. The farmers there through money loaned by the Government of Canada, have estab- Ushed a system of elevators whereby they are marketing annually 40,000,000 bushels of wheat. They are prepared to export their grain, if the regular exporters do not give them the export price; and, consequently wheat on the Winnipeg market usually represents that price. Accordingly when you find wheat in Minneapolis below Winnipeg you will know that that is the result of the hand of the speculator. You heard Mr. Greeley say here yesterday that the American farm- ers were selling wheat for 75 cents a bushel. I marketed last fall several hundred bushels of wheat, not at 75 cents but at 69 cents per bushel, and I have kept posted on the export markets as well as the local markets, and I Imow that I paid a tribute of 7 cents per bushel on that wheat when I took a local price of 69 cents. I will now leave the question of wheat and turn to the question of corn. Here are the figures I obtained this morniag from the Agri- cultural Department, and I want to call your attention to the manner in which they manipulate the situation when the corn gets out of the hands of the farmer and into the hands of the speculator. Please note this: Here is 1911. Corn starts in in January at 48 cents — the months will correspond with the figures as I go down the column — January, 48.2; February, 49; March, 48; April, 49; now note that corn is getting out of the hands of the farmers. When we get down to April there is but little left with the farmers, and still less in May, which is 52 cents; June, 55; July, 60; August, 65; September, 65; Octo- ber, 65. Now, the new crop starts in again; November is down a cent, 64 cents; December goes down— the crop is coming in^ — 61 cents, and so on. We shall note the same thing in 1912. It starts in with January at 62 cents; February at 64 — the farmers are getting rid of it now; there is not very much left; March, 66 cents; April, 71 cents; May, 79 cents; June, 82 cents. There is not much corn left in the hands of the farmers in June. Then the price soars. We wUl find the same thing in 1913. Corn, started ta at 48 cents in January; February, 50; March, 52; coming down to June at 60; July, 63; August, 65 cents; September, 75 cents; October, 75 cents. Now, look out. The new crop is about to come in. Price drops in November to 70; drops in December to 69 — that is 1913, just past; in January to 69, and February down to 68. And yet these men will come before you, and they will tell you, "No," they do not have a^ything to do with the price of grain. But futures, also, have something to do with it. I can not pretend to do justice to the great question of future gambling at this time in the . 15 minutes left and I can only call your attention to the fact that they have beaten down the price of corn in the American markets in the past 65 days from to 10 to 12 cents a bushel. How do I know that to be the fact ? Gentlemen of the committee, there is less corn in the United States at this time, adding the entire crop of Argentina, our own entire production for the past year, by 300^000,000 than tjiis country produced in 1912. Still, they have beaten the price of corn down in the present year, and they teU you it is because of corn coming in from Argentina. Do you believe it ? There never was a year in 186 GEAIN EXCHANGES. the history of this country, during 40 years, when there was not corn imported from Argentina or somewhere else, not, perhaps, quite so much. We have had about 7,000,000 bushels from Argentina. Suppose, instead of the total production of corn this year being 2,700,000,000, it was 2,707,000, would that knock down the price? What philosophy that is. But while they have beaten corn down in the great markets of the United States, while they have played in the hands of the speculators of corn in the United States, how do we find the price to-day in Liverpool ? I hold in my hand the Chicago Eecord-Herald — some of you gentlemen are famihar with that sheet — and I find that according to its figures of February 26, corn was selling in the city of Chicago for about 66 cents; I find it selling in the city of New York for 71 cents, and I find it selHng in the city of Liverpool for 90 cents. I find that while the price has been beaten down in the American markets by the speculative interests of this country, American mixed corn has adyainced in the markets of Liverpool. Sixty-six days 'ago there was 5 cents a bushel difference between the price of corn in New York City and Liverpool. What is the difference to-day? That was the regular export difference between the two markets. I am talking to men who understand shipments and exportations of grain — and I say that the same relative difference exists as to wheat m New York City and Liverpool to-day that existed then, while the difference in corn has widened. This from 5 cents then to 20 cents now. The speculative interests have beaten the price down, and- I am foing to make a prediction for the benefit of anybody who wants to ear it, and that is that when this crop of corn gets out of the hands of the farmers and the men it will do the same as it has in previous years when June, July, and August arrive, and wiU be worth more money than it is now. The rest of my time — there is but little left — -I am going to devote to futures. The farmers of the United States are a unit in demand- ing the aboHtion — the absolute prohibition of gambhng in futures. Why? Because no good purpose is served, by gambhng of any kind. Suppose I were to turn around and ask those genial gentlemen here in iront, "What do you want to gamble in grain for?" I trust that when you take the floor before this committee that you will inform the committee and inform the representatives of the farmers of the Northwest what you want to gamble in futures for. I was asked here yesterday what difference, if any, is there between gambling in cot- ton futures and gambling in futures of grain ? I maintain, Mx. Chair- man, there is no difference. I maintain that it is just as bad and a little worse, if anything could be, to gahible in future sales of imaginary grain as to gamble in imaginary cotton. A hundred million bales of cotton were sold on the stock exchange of New York City a year ago, and 100,000 bales of actual cotton were sold there. Who paid the colossal amount of money used in the sell- ing of imaginary cotton to the extent of 100,000,000 bales ? Who pays the expenses of selling the countless miUions of wheat that are sold on the terminal markets of Chicago and Minneapolis? Somebody pays those bills. There can be and there is no dispute about that. Who is benefited by it? Can anj^body allege that the American consumer is benefited by giving options and seUing imaginary grain, gambling in the great staff of fife ? Can anybody say that the pro- GEAIN EXCHANGES. 187 ducers are benefited by it? The producers are a unit — you can not find a farmer who is not opposed to dealing in imaginary wheat. I am not speaking against contracts for the future delivery of real grain. I consider that a different proposition entirely. And, then, somebody raises the question: How are you going to differentiate? Well, I have one little plan of my own, and that would be this : I do not know what were the terms of the cotton bill, but I say if I could not remedy it in any other way I would remedy it this way. I would place a tax upon the scheme of every imaginary deal that was made, and then, if they settled by the delivery of actual grain, there would be no tax, and if they did not settle by actual grain they would have to pay the Government tax. I would tax them out of existence, as we taxed the old State banks when they had wildcat money in every State of the Union. We had a faulty system of financing until the strong arm of the Government of the United States came in and taxed the State banks out of existence. I would tax such a nuisance as the oleomargarine or imitation butter was taxed when it purported to be something it was not. But how does it affect the markets ? That is not a hard thing to prove. It is not a hard thing to see through. There is not a man in this room who does not know it. I will tdl you how it is done, very largely. Suppose Armour, a man who can control $250,000,000 or more at any time, sells short 100,000,000 bushels of wheat. Why, the dazzling prospect of mak- ing money attracts Tom, Dick, and Harry in every town through- out the length and breadth of the United States. I can name men, if I choose to, right in my home town, who have been caught by that bait. What is going to happen when that day comes? Suppose Armour sold 100,000,000 bushels of wheat for June delivery. Some- body bought that wheat that Ai-mour sold. All over this country there are men who are foolish enough to believe that they can make something out of nothing. They do not know that the cards are stacked and the dice loaded against them. How does Armour manipulate it ? Why, gentlemen, it is the sim- plest thing under the sun. When that day approaches, when Armour IS going to be called upon to dehver 100,000,000 bushels of wheat that he sold for June deUvery, wheat has got to be made lower for Armour to buy and deliver it, and Mr. Armour being in possession of $250,- 000,000 — ^being in possession, as Mr. Greeley told you here yesterday, of an elevator capacity in the city of Chicago, being in collusion with other big men who own elevators and who store grain — they not only can control the actual grain, but they can control the price of im- aginary grain, and consequently the price of cash grain is beaten down by the power of this man so that he can buy wheat cheap when he wants it cheap, and if he is on the other side of the deal he bulls the market or bears the market, according to his own interests. We all remember when Leiter made the corner on wheat, and there was a gentleman in my State — I can not remember his name, but I remember the transaction — he was State chairman of the Eepublican State committee, and he put out the statement that he and Leiter had all the wheat in the United States ; he held 5,000 bushels and Leiter had the rest of it; and Wheat went above $1 a bushel, and my only regret, as I remember it, was that I could not partake in the glories of the Leiter corner. 188 GEAIN EXCHANGES. That is a fair representation of the whole, thing. But when they tell you nobody is interested in that but the gamblers it is not true. There was not a farmer in the United States who was not interested in that proposition at that time, nor a consumer in the United States who was not interested in it. Why? Because they were buying flour. Every person in this country consumes flour and was inter- ested in that corner in wheat and it was no benefit to the farmers at least. The rest of us, then, were not beneficiaries of that transaction, but we lost by reason of it, and it is so all along the line. Those men — but there is a small bunch of the men themselves who deal in futures, who reap the rewards. It is the "big fish eating up the little fish" every time. They put out their dazzling announcement, and the bait is taken all over the length and breadth of this land, and the lambs are gathered in to be shorn just exactly as they are gathered in at Wall Street. The same thiag is repeated over and over again, and if a new bunch is needed every time, they are taken. Mr. Chairman, the history of the United States is strewn with the wrecks of financial institutions worked out in the different gambling dens of the great terminal markets of the country. It was the lure of the pit that brought Bigelow, the great banker of Milwaukee, to his doom and sent him to the penitentiary; it was the lure of the pit that brought John R. Walsh, the great banker of Chicago, in a certain measure to his doom, where he all but died in a Feder al p enitentiary. It was the same thing that took Morse, the great Wall Street speculator, and sent him to prison, and by the merciful act of a President of the United States he escaped upon a presentation made by his physi- cian — but when he got 'out he seemed to be about as well as ever. My time is about closed, but I say to- the people here and to this committee, that the farmers of the agricultural Northwest have confidence in their Government; they have confidence in this Con- gress; their cause is just; they are asking for nothing but what is within their God-given right. They asked to be enabled to put the thing they produce on the markets of this country, and they only asked that the Government of the United States shall establish and maintain, under its own autbority and by itself, a system where they can get a square deal, and know at least they are getting what is justly coming to them. Mr. Manahan. We have quite a few letters from different points and telegrams and things of that sort which I would like to file. They are pertinent to the issue, and I will file them with the stenog- rapher. Before doing so, I will submit them to Mr. Robbins and Judge Simpson. The Chairman. Do they throw any light on the subject matter before the committee ? Mr. Manahan. Just a few of them. I think they are illuminating, a few telegrams and letters. The Chairman. Very well, if they are letters or documents which will give us information, but if they are simply requests for investi- gation, it would not be necessary to print anything like that. Mr. Manahan. With respect to the extension of the remarks of Mr. Greeley and Mr. Drake, it is understood that whatever additions they make to their remarks will be submitted to Mr. Robbins and Judge Simpson, and then if the members representing the board see GRAIN EXCHANGES. 189 fit to put in considerable documentary evidence they will not have time to read, it will probably be jproper to have them submit it. The Chairman. That is only fair. We do not want anything to go in which each side does not see. Mr. Manahan. There were a couple of Congressmen who spoke to me. I do not know what side of this matter they are on, but they wanted a chance to say a word before the resolution came up. I believe one was Mr. Miller. Representative Miller. I would like to say a few words in bahalf of the Duluth Board ol Trade at any time there is opportunity. The Chairman. How much time would you want, Mr. Miller ? Representative Miller. Not more than five minutes. The Chairman. I will tell you what I think we might do about that. Mr. Lindbergh, also wanted to make a statement, and I think probably at the conclusion of the other side, when they have finished their case, you and Mr. Lindbergh might make your statements, because the committee has already agreed that these gentlemen might proceed. Representative Norton. I come from a State that is interested in a matter that is being considered. I would like to make a brief statement of about 10 minutes to the committee. My statement will be in favor oi this resolution. STATEMENT OF J. W. SHORTHILL, OF NEBRASKA. Mr. Shorthill. I do not want to represent that I am appearing on either side, but we are simply appearing on our own initiative in this hearing because it is touching on things in which we are inter- ested, and I wish to speak in behalf of the resolution at some time during this hearing. The Chairman. Whom do you represent — what organization? Mr. Shorthill. I am representing the independent farmer grain dealers of Nebraska, and in a collective way the independent farm3r grair dealers of five other States, and partially one other. The Chairman. You shall have an opportunity to be heard, then, later. We will go ahead- m the regular way and hear from these gentlemen, and then we will hear you a little later. Mr. Shorthill. There might be something in the statement which I have to make, which was made up before this investigation began, to which the opposition might wish to reply. The Chairman. I assume some of them will remain over. STATEMENT OF HENRY S. ROBBINS, REPRESENTING THE CHICAGO BOARD OF TRADE, CHICAGO, ILL. Mr. RoBBiNS. Mr. Chairman and gentlemen of the committee, two of the three exchanges mentioned in this resolution are here to be heard upon it — the Chicago Board of Trade and the Minneapolis Chamber of Commerce. We have arranged amongst ourselves that the Chicago Board of Trade shall be heard first, taking half of the time allotted, and the Minneapolis Chamber of Commerce shall follow. Before the members of the board of trade are heard, it has been thought proper that I, as its attorney, should address you. I suspect that, perhaps, without saying so, they wished to make me an ex- 190 GBAIN EXCHANGES. hibit" in the case, to demonstrate, in view of the high rank as a lawyer that Mr. Greely assigned to me, how much he can exaggerate when acting mader the stimulus of an intense enthusiasm. I shall confine what I shall say to such phases of the situation, and such trade conditions, as have come under my observations in liti- gation with which I have been connected. I am the more inclined to so limit myself, because this morning a member of my profession, Eossessing some of the youthful confidence that I have lost, has, after aving consulted a few farmers in Minnesota, undertaken to assure you with great confidence that the natural law of supply and demand is set aside by traders in Minneapolis, who are able to fix the prices which the farmers get for their grain — suggesting the simile, an old one, of the beautiful swan that grandly glides over the lake, proudly unconscious of the depths below. The resolution professes on its face two objects: One is to discover facts to spur the Attorney General to action in the enforcement of the Sherman antitrust law; the other to acquire information in aid of legislation. The first point I can dismiss with very few words. The province of this end of the avenue is to make laws, not to enforce them. There is a department at the other end whose duty it is to enforce the laws that are at this end enacted. Congress has passed a law that is ample to prevent monopoly and suppress competition in all matters connected with trade in general, and with the grain trade in particular; and I do not imagine that it will be regarded as the provmce of this committee to obtain facts to enable the Attorney General to discharge his duty. We all know that the Department of Justice has an efficient Bureau of Investiga- tion. There are many people whom I could bring to you who would assure you that this bureau and the Department of Justice in acting on its results axe too active and too efficient. Therefore, I think that there is no occasion for any investigation on your part to enable the Department of Justice to adequately enforce the antitrust law of the United States. In fact, that department has already had occasion to get after the Chicago Board of Trade. It had enacted a rule that it thought would help the grain trade in Chicago. But the Attorney General thought the rule violated the Sherman Act, and instituted a suit at Chicago to annul the rule. Later the rule did not work out in prac- tice as had been anticipated, and it was repealed. This was called to the attention of the Attorney General with the suggestion that there was no longer, much necessity for trying the academic question that the suit now raised; but the department has not assented to the dismissial of the suit. So I think this board of trade would join with other people in thinking that the Department of Justice is efficient enough. One of the members of this committee hit the nail on the head this morning when he said that if there is charged here any monopoly which results in impairing competition in interstate trade, the Sher- man Act is adequate to stop it. If there is any monopoly to interfere with the internal laws of a State, Illinois has, and Minnesota should have, adequate laws to f)revent it. If Minnesota has not, the remedy is an appeal to the egislature of that State. GEAIN EXCHANGES. 191 So much for this talk about monopoly. I think what I have said will dispose of that phase of the resolution. However, I am not inclined to leave this question, in view of the severe talk that has come from the other side respecting the Chicago Board of Trade, without reminding this committee how erroneous is this suggestion that the Chicago Board of Trade and the Minneapolis Chamber of Commerce are participants, as organizations, in any of this competing or noncompetmg for the grain trade. . Let me explain to you what the Chicago Board of Trade is — and I think that what I say about that will apply equally as to the Miane- apolis Chamber of Commerce. The Chicago Board of Trade is a cor- poration organized under a special act of the Illinois Legislature. Its powers are such as are necessary or proper to maintain a commercial exchange. It is authorized to adopt rules to carry out this purpose. Its main object is to provide a place where men may assemble to trade. It adopts rules. Those rules name the officers and direct- ors — who are in part changed each year— to carry out the purposes of the organization as expressed in its rules. "Wliat are those pur- poses and what does it do ? It provides an exchange room where its members meet between certain hours to trade. It provides its own courts to settle, without the delay and expense incurred in litigation, the disputes between its members. Its rules provide how the "black sheep" shall be kept out of its membership, how men shall be taken in, and how men, who fall short, shall be put out. It provides a weighing system, because the State of Illinois does not. It provides a system by which margins, or security, may be put up on contracts between its members. It provides a method by which deliveries may conveniently be made. It provides the means by which contracts may be conveniently settled. It pro- vides a clearing house by which money settlements may be con- veniently made between m.embers. It provides an inspection sys- tem—where the State of Illinois has not provided one— for com- modities other than grain. It supplements the warehouse system of the State of Illinois by providing for warehousing and issuing receipts for products that are not covered by the warehouse law of Illinois— such as hog products. It gathers for its members all obtainable trade news relating to commodities dealt in. It sends out through the telegraph companies its market quotations, so that the farmers may know just what the prices of grain are at the time. It.collects its revenue by selling its quotations, from rentals of parts ollits building, and it gets the balance of its needed revenue by an annual assessment upon its members. It never has engaged in commerce. During the entire time of its 3xistence, since 1859, it never has sold nor bought a bushel of wheat nor made or lost a dollar in a trade. When counsel told you that the Minneapolis Chamber of Com- merce is the only competitor at Minneapolis, what did he mean? The Minneapolis Chamber of Commerce, like the Chicago Board of Trade, does not bid for a bushel of wheat nor offer a bushel of wheat; it is not a competitor. He must have meant that there is a body of traders who, of course, are competing against each other every day and every hour of every day for the commodities that come to that market, unless there is some illegal agreement which deters them 192 GEAIN EXCHANGES. from doing so. That is also true of the Chicago Board of Trade. There is in Chicago a larger body of traders than at Minneapolis. Their instinct and interest also would be to make a quarter of a cent a bushel when they can. These two bodies of traders are also competing with each other out through the western country, to buy all the grain they can, and unless there is some agreemene between them, each man is trying to outbid the others and so get aU he requires. This bidding is going on aU the time. That is what I wish to impress upon you. The Chicago Board of Trade, as an organization, is not and can not be engaged in any monopoly or conspiracy to suppress com- petition, because it is not at all concerned in that bidding. Its acti"vities are entirely expressed in its rules, which are open to the view of everybody. If it does anything that violates the Sherman Act, it is between those two covers [exhibiting copy of rules, which is filed with the committee]. If its officers do anything, as its agents, in violation of the Sherman Act, it must be because those rules confer on them authority to do so. The Attorney General can determine whether the Chicago Board of Trade is violating any law that aims to prevent monopoly by investigating those rules. He has already don? so and found one whose validity is to be tried out in Chicago. Henc5 there is no occasion for including this organi- tion in any mvestigation of any charge of monopoly. The arguments here have been almost past comprehension. One of th°m seemed to be that the Chicago Board of Trade is responsible for any monopoly that exists in the warehousing of grain, because it had made "regular" certain warehouses. The State of Illinois has passed a law by which it controls the grain-mixing warehouses of that State. They are required to take out hcenses; they are subject to a drastic law. Nobody may operate such a warehouse without making it pubUc under, and subject to, that State law. All that the Chicago Board of Trade may do is to select from such as have become public warehouses those that it is willing to make "regular." What does "regular" mean? Simply that if two men make a trade on the Chicago Board of Trade, the tender of a receipt of a warehouse made regular will be a dehvery. Some of these gentlemen seem to think that .because the Chicago Board of Trade makes regular some of the pubUc warehouses of Chicago it is violating some monopoly law or participating in some agreement to suppress competition. What else can the Chicago Board of Trade do? It must have warehouses; it must select such warehouses from those that the State tenders it. So I think that the suggestion that the Chicago Board of Trade in making "regular" a warehouse is engaged in some wrongful act may be dismissed without further comment. Then counsel, without indicating very clearly how, say the board does not enforce the law as made by the Tuley decision. I shall later explain what the Tuley decision is. But bear this in mind, one may not go into a court in the State of Illinois, unless he can show that he has some pecuniary interest to be protected. The Chicago Board of Trade is just as powerless to go into a court in Illinois to enforce the Tuley decision as is the chairman of this committee, because it never has a dollar's interest in a bushel of grain stored in any elevator in the State of Illinois. Hence, its failure to bring suit is no violation of any law. GRAIN EXCHANGES. 193 It is also suggested that it ought to expel some of these warehouse- men, because they violate the warehouse law. Well, the Chicago Board of Trade does not exist to enforce the laws of Illinois. Illinois has provided its courts and its prosecuting officers for that purpose. I think therefore I may pass over all this effort to connect this organization with any charge of monopoly or wrongdoing in reference to warehousing. Aside from this question of monopoly, there seem to be just two vmderlying propositions left in this resolution, one is that this House institute an investigation of the grain warehouses and the conduct of those who operate them, with a view of following it with some legis- lation; the other is that this committee shall inaugurate an investi- gation of this future or "pit" trading, or, as these gentlemen some- times call it, "gambling," on these exchanges, with a view of having Congress enact some law respecting it. I take this to be true. If there is to be an investigation it should be in aid of some proposed Federal legislation. By that I mean it must be in the direction of getting information on a subject respecting which Congress may constitutionally legislate. You would not start an investigation to get information to instruct the State legislatures how to legislate. They might naturally prefer to gather their own information in their own way. Hence, I assume that the proposal here is to get information to aid Congress to legislate upon the two subjects that I have referred to. Juiother subject suggested here I am not going to discuss. That is the question of inspection. It is a matter that is already being discussed in the United States Senate. It is under consideration in the Department of Agriculture, and is, I believe, now before one of the committees of this House. I do not regard it as a proper part of the discussion here. Has Congress the power to legislate respecting the warehouses of the State of iflinois? That is one underlying question and I want to speak upon it. You may recall that in 1871, the Board of Trade of the City of Chicago secured what was the first comprehensive State statute re- specting the warehousing of grain. I believe it was the first statute that permitted the mixing of the grain of two owners without des- troying the title of each in the common mass. At any rate, it was the first comprehensive grain warehousing statute. " About the sapae time the State of Illinois undertook to prescribe the rates of storage and its warehouse men resisted. They said that their warehouses were a part of interstate commerce, because "a link in the chain of trans- portation" of grain across the State of Illinois. At that time and under the conditions then prevailing, that was true. Grain shipped from some State other than Illinois into Chicago was then transferred through these public elevators either into the cars of the Eastern railroads, or into lake boats and went to the East by lake. This transferring was in a sense a part of the act of transportation, and be- cause of that feature these Illinois warehousemen urged before the Supreme Court of the United States that this State statute invaded the domain of interstate commerce. I want to read you what the Supreme Court said upon that contention. I am referring to the case of Munn v. People (94 U. S., 135). 37214—14 ^13 194 GKAIN EXCHAKGES. The warehouses of these plaintiffs in error are situated and their business carried on exclusively within the limits of the State of Illinois. They are used as instruments lay those engaged in State as well as those engaged in interstate commerce, but they are no more necessarily a part of commerce itseli than the dray or the cart, by which, but for them, grain would be transferred from one railroad station to another. Inci- dentally they may become connected with interstate commerce, but not necessarily so. Their regulation is a thing of domestic concern, and certainly until Congress acts in reference to their interstate relations the State may exercise all the powers of government over them, even though in so doing it may indirectly operate upon commerce outside its immediate jurisdiction. The State of New York subsequently passed a similar statute, which came under review in the Supreme Court ia the case of Budd V. People (143 U. S., 545), and the same doctrine was reafiirmed. Then the State of North Dakota passed a similar statute, respectiag which the Supreme Court again announced the same principle, in the case of Brass v. Stoser. (153 U. S., 391.) In each of these cases the Supreme Court sustained the State statute upon this ground : You know the distinction which that court makes in reference to the question of the power to regulate interstate commerce. It is this: If the subject matter is susceptible of one uniform law, the Supreme Court construes the Constitution as intending to vest the right to regulate exclusively in Congress. The mere silence of Congress on that subject is taken as indicating its intention that no law shall exist. Hence no State may pass such a law. On the other hand, there are a great many matters respecting which no uniform regulation is feasible ; no uniform law will fit every condition in every State. As to that class of subjects the Supreme Court holds that the power to legislate is in the States until Congress sees fit to do so, but not thereafter. The Supreme Court of the United States saw that the conditions as to warehousing grain were different in different States, and could not be covered by one uniform regula- tion, and decided in the cases referred to that, until Congress acted, grain warehousing was a matter for the States to regulate. The Chairman. That case you referred to last was the case in 140 U. S., Chief Justice FuUer, in the Roher case ? Mr. RoBBiNS. No; the case of Brass v. Stoser. The Chaerman. I mean the one you were quoting from about the laws that were not subject to uniform regulation. Mr. RoBBiNS. That is found in a number of authorities. The Chairman. I remember those. That case was in regard to the police power of Iowa, Kansas, and other States dealing with the hquor question. Mr. RoBBiNS. That distinction has been drawn in a number of cases, and with respect to many subjects. It is the doctrine in these three cases respecting warehouses. The Chairman. If those warehouses should become a part of the instrumentalities of interstate commerce, then would not Congress have the power to legislate ? Mr. RoBBiNS. I think the result of the three cases I have referred to is that, if the warehouses are a fink in the chain of transportation, Congress does have the reserve power to legislate respecting them. If the conditions of warehouses are the same in Chicago now as they were when the Munn case arose, I think that Congress has the power to legislate with reference to them. -GKAIN EXCHANGES. 195 But I want to call your attention to the fact to be further explained by men in the business, that the public warehouses of Chicago are no longer "a link in the chain of transportation." When grain now comes mto Chicago on a western railroad and is to go thence east, it is transferred through transfer houses owned and operated by the railroads. The cargoes move east in very large steamers and the grain is no longer transferred through an elevator from the cars to the boat. Gram goes into the elevator in car-load lots. These car lots are, as they arrive, purchased on the board of trade by somebody who is accumulating a big cargo to ship forward. In other words as the business is now done, the grain that comes to Chicago becomes a part of the general mass of the property of the State, and so remains indefinitely — may be a year or so. The grain stops in Chicago. It no longer passes through these public elevators on its way beyond .Chicago. Hence, I doubt very much whether there is now any power in Congress to pass any law regulating these grain warehouses in Chicago. The Supreme Court held in United States v. Hopkins (171 U. S., 578) that the services rendered by an association of brokers known as the Kansas City Live Stock Exchange, whose rules, it was claimed, violated the Sherman antitrust act, were a mere local facility. It seems to me that the warehouses of Chicago, xinder the conditions now prevailing, have become but a local facihty and are not now in any sense a part of interstate commerce. But if I am wrong in this, then Congress has merely a reserve power; and the question then arises whether Congress is going to enter that field of legislation. If it does, and passes any law regu- lating grain warehouses that ipso facto will nullify every State law on that subject. If Congress enters, aU State laws become null. It is proposed that Congress enter that field by legislating, although you know, and the Supreme Court has pointed out in all these cases, that no uniform rule will apply to all the different conditions. Ware- houses out in Dakota are quite different things and need different laws from the warehouses in Illinois. The warehouses in Buffalo are quite different, need different laws, and perform a different service from the warehouses of Illinois. When a cargo goes through Buffalo on its way East, the warehouse there is performing the task of- immediate transfer from boat to cars. Is Congress prepared to enter that field ? That is the problem that presents itself here. If so, its legislation must be all sufficient. I submit it is not a field that Congress should enter at all. Grain warehousing is one of those subjects that should be left to the States to regulate, each according to its own conditions and its own ideas of its own best interests. That has been the treatment of it in the past by all parties; that has been the way the Supreme Court has looked at it. Are we now to change, when the party that has come into power — and I speak of it because I have always been and hope to die a member of that party — has led many voters to join it, because it has professed to entertain a clearer appreciation of the rights of the individual States, and a stronger conception of the vitality of the Constitution. The Chairman. You understand we never undertake any in- vestigation unless it is with a view of Federal legislation ? jVIr. KoBBiNS. Certainly. 196 GRAISr EXCHANGES. The Chairman. We only gather information with a view to" passing some statute in pursuance thereof. Mr. lioBBiNS. It seems to me, the question that is up to this com- mittee is, whether you are going to recommend to the House that the attitude of the Congress towards warehousing shall be so radically changed as to take the right of control from the States iind vest it in the Federal Government. That is a very serious attack upon the theory of local self-government. The Chaikmak. Of course, there might be other questions in this, and there are other questions than the warehouse and the gambling in fultures. Mr. RoBBiNS. That is a different proposition. I am discussing pow only the proposition to have a law passed by which Congress ghaH regulate the conduct of grain warehouses and warehousemen. Mr. Lenroot. Of course you understand, Mr. Eobbins, this com- piittee has no power of recommendation in reference to legislation at aU? Mr. RoBBiNS. I understand that, too, but I understand we are sitting here under the assumption that in some way your judgment for or against the question of investigation, and perhaps of legislation later, will have some influence on the House Committee on Agriculture. Mr. Lenroot. The province of the committee is to determine whether prima facie evil exists and whether Congress has power to legislate, and then it is within the province of another committee to recommend whether legislation shall be had or not. Mr. Bobbins. For that reason I am talking of the power of Con- gress — ^first, whether it has it; and, second, whether, if there be such a reserve power, it is wise for this Congress to exercise it and reyerse the pohcy that has prevailed heretofore. To show you that there is a difference in conditions and a difference in the attitude of the different States as to grain warehouses, I call your attention to the fact that in the State of Illinois the legislature ■has found it necessary to have practically two different laws in ref- erence to grain warehouses. It has placed the warehouses in the city of Chicago in one class and passed a set of laws in reference to them, and it has placed the grain-mixing warehouses outside of Chi- cago in the State of Illinois in another class and passed different laws in reference to them. Thus there is right in one State a dissimilarity of conditions. Then let me call your attention to another thing: The State of Illinois, in its statute, thought it was not wise to allow any mixing of grain in the public (levators, so that no mixing of grain is prrmitted in the pubUc elevators. The public elevator men generally have other private houses where they mix their grain, and then it is taken out and inspected by the State officials, and then is put into the public warehouses. The State of Minnesota, I understand, takes a different view. It feels thar it can by regulations protect depositors in grain in ware- houses,' even though in the warehouse itseK the mixing of grain is per- mitted. Probably that is due to dift'erent conditions; at least, there is a different policy in each State in reference to that particular subject. GBAIN EXCHANGES. 197 I come now to th^ so-called Tuley decision— about which you have heard so much— and a clear understanding of what it was will clear the atmosphere a good deal respecting what has been said here. About 30 years ago I first became connected with this warehousing question. I was then intrusted with this Htigation. They who were then officers of the board of trade — one of th?m, Mr. Baker, has been mentioned — thought it was undesirable to have a public elevator man putting his own grain in his own public elevator and then mixing it with the grain of others, because all the grain of any grade could not be of exactly the same quality. Some of it would be the top of the grade and some the bottom, and the fear was that the duty and self-interest of the warohousemen would conflict, and they would take the best or top of the grade for themselves and leaveth^^ poorer to meet the receipts of th^ir depositors. So that after much agita- tion the board of trade tried to get some relief from this practice. It was in no position itself to commence a suit, because it had no pecuniary interest in the grain in the warehouses. What it did was to go hat in hand to the attorney general of the State of Illinois, and ask him if he would not commence such a suit. He consented, and a suit was brought in his name, which resulted in the decision by Judge Tuley, which the supreme court affirmed. In that case we took the groimd that a warehouseman was like a trustee; that he must be free from temptation, under the well-known equity principle applicable to trustees. We did not show in that case that any of those warehousemen had abused his position by actually taking out the best of the grade for himself and leaving the rest of it to his depositors. We stood broadly on the principle that, beiag a trustee, he could not occupy a position where he would be tempted. That was a high ethical principle to apply to the ware- house busiaess. These officials of the board of trade were aimiug to put the ethics of trade in Chicago on a very high plane, and we were able to convince Judge Tuley — a very able chancellor — that this should be done. We were able, when the case got to the supreme court, to convince that court that this was the best policy. The elevator men then applied to the Illinois Legislature, which took a different view, and passed a statute permitting what Judge Tuley enjoined; that is to say, permitting the warehousemen, under restric- tions named in the statute, to mix their grain with the grain of their depositors. Thinking that this statute was imconstitutional, because the character of a public warehouseman was fixed by the State con-' stitution, the board went hat in hand to the State's attorney in Chicago— the board of trade had no right to sue itseK — and asked him if he wotdd bring a contempt proceeding to test the constitu-' tionaJity of that act. He did it, and the case was taken to the Illinois Supreme Court, which in 1905 held the statute unconstitu- tional. Then for the first time the Tuley decision became really effective, • the statute having temporarily prevented its enforcement. Then this elevator question recurred agam. When the 1st of July came around— when the warehouses were obliged to again make themselves "regular" — they refused to do so. The, board then by a suit against the railroads tried to establish the principle that it was the duty of the raih-oads to furnish in Chicago depots for grain just as they did depots for package freight. The Supreme Court of Illinois, however, disagreed with us. It was during that struggle that this 198 GEAIN EXCHANGES. elevator was started, for whicli Mr. Greeley furnished a part of the money, as he has told you. Then a compromise arrangement was made which was carried with a contract, which will be introduced in evidence. It was an effort to arrange the control of this warehousing of grain so that evils that were thought to exist would be eliminated. I have always been placed in opposition to the elevator owners on this question. The great majority of the members of the board do not operate elevators. The proprietor of an elevator has but. one vote in the elections of managers of this .exchange. Every small trader has an equal vote. So the antielevator element always control the elec- tion, and this has given rise to frequent controversies. But it hardly seems fair to assume because the elevator proprietors have, insisted upon the right to mix their own grain with that of their depositors and have perhaps done it since the Tuley decision became effective that their conduct has been anything more than the violation of an equitable principle. This may seem to you a less wrongful act when you bear in mind that when the same problem was met in the State of Minnesota that State passed a law sanctioning that practice. That is to say, Ilhnois is the only State whose law is so drastic as respects these public elevators. Mr. Kellt. Is it Ulegal in Illinois at the present time for ware- housemen to deal in the grain in the elevator ? Mr. RoBBiNs. No; that has been stated, but that is not true. An elevator man may deal in grain as much as anybody else; an elevator proprietor may deal in grain and store his own grain in a special bin in his elevator without violating any law. All that an elevator man may not do under the Tuley decision is to put into the same bin with his own grain the grain of a depositor. Jhat is all the Tuley decision is. Reference has been made to the Lichtstern case. Now, what was the Lichtstern case ? Lichtstern was a purchaser of grain on a large scale, and he had acquired a lot of wheat. He thought that one of these elevator proprietors (Rosenbaum) was not treating him right. They got into a controversy, and Lichtstern commenced a suit, in which I acted as his attorney. It was shown in that suit that, while Rosenbaum had a practice that seemed on its. face to be all right, the lower court decided that it was in reality a violation of the principles of the Tuley decision. That practice was this: Grain would be bought by Rosenbaum in Chicago, and then he would sell it for cash to a member of the board, and at the same time Rosenbaum would buy back from the same member a future covering the same quantity of grain, and the grain would then go to Rosenbaum's pubHc elevator. On its face it looked like a straight transaction, but as Rosenbaum always selected the same two or three brokers in these transactions thp court thought the practice violated the spirit of the Tuley decision and decided against Rosen- baum. But there was no evidence in that cas" of any wrongdoing on the part of any of the other elevator proprietors of Chicago. We were necessarily confined to taking evidence relating to Rosenbaum. That the principle of the Tuley decision is one of State law, which, I think, anybody who is injured may have enforced. In the Licht- stern case the lower court decided that one who has grain in an GEAIlSr EXCHANGES. 199 elevator may enforce that principle, although the upper court doubted this. At any rate, the prosecuting attorney at Chicago, and the attorney general of IlMnois, have undoubted power to en- force that principle. It is said they do not do so. Of course, you do not beheve that the great State of Illinois, its governor and its attorney general, and its great mass of law-abiding voters, are within the control of a few elevator proprietors in Chicago, nor wiU you beheve that the execu- tive officers of that great State have had their sense of duty paralyzed by the use of money; nor that any attorney general, since the Tuley decision became effective, has been derehct in enforcing the law, so far as incumbent upon him to enforce it, in the way that seemed to him to be for the best interests of the State. If any attorney general has not enforced the Tuley decision when apphed to, it must be because he was convinced that the manner they handle a like situation up in Minnesota is better for the State at large than the drastic way in which it would be handled under the Tuley decision. I here assume that it is true as the proponents of this resolution say, that the ele- vator proprietors do not now conform to the Tuley decision. I do not know whether they do or not. There are men in this room who can discuss that phase of it. I know that in their contract with the board of trade the elevator proprietors profess to warehouse in compliance with the Tuley de- cision, and 1 think that the board of trade and its officers — ^who come from the best of its membership — have sought to deal with this troublesome problem so as to promote the best interests of that market. So much for the Tuley decision. If there has been any wrong- doing on the part of any of these elevator proprietors, it must be a violation of some law of the State or of the United States. No new legislation is needed. The enforcement by the proper officers of exist- ing law is all that is required. I come now to the question of future trading. Here I want to start with the proposition that Congress has no power to enact a law pro- hibiting future trading on the Chicago Board of Trade. If I am right in that, there is, of course, no occasion for any investigation. There are two classes of contracts made, or two kijads of trading indulged in on the Chicago Board of Trade. One is that which involves the shipment of grain in carload lots to Chicago to members of the board of trade to sell on commission, or perhaps to members of the board of trade who have bought it "to arrive." These in the parlance of the board are called "cash transactions." As soon as a carload of grain comes to Chicago the State inspector inspects it. An official of the Chicago Board of Trade, I think, takes a sample from each car and brings it to the exchange floor, where it is exposed to those who buy grain, and they buy, I suppose, somewhat on that saniple and somewhat, on State inspection. Mr. H. N. Sagee. Pardon me a moment. I think Mr. Robbins is mistaken in his opinion in regard to the samplers of the board of trade bringing the samples to the members on the exchange, by which the grain is usually sold. The samples are brought by the employees of the State of Ilhnois. The board of trade has absolutely nothing to do with the inspection. The board of trade brings samples through its agents at the request of its members to corroborate the accuracy 200 GRAIN EXCHANGES. of the work of the State inspector, but the samples which are brought are brought by the employees of the State of Illinois. Mr. RoBBiNS. All 01 which shows I am wise in refraining from discussing trade conditions. This kind of trading is entirely distinct from "future trading." By "future trading" I mean trading for future delivery. All the attacks which have been made upon the trading upon the board of trade have been directed to what is known as pit" trading. This future trading is done in the exchange room of the board of trade, and only by members of the board; no outsider is permitted to go upon the exchange and there make one of these future trades. The Chairman. Written contracts are entered into for both kinds of trading you are speakiag of, are they ? Mr. RoBBiNS. There are slips exchanged as to future trading, but how they handle the cash trading I do not know. I guess it is the exchange warehouse receipt for the check. The Chairman. Have you any objection to putting into the record copies of those contracts or receipts or whatever they are, so as to have the details before us ? Mr. EoBBiNs. Certainly not. Mr. Manahan. The "puts and calls" also. Mr. EoBBiNS. That is another point I will come to. I am dealing now only with future trading. I hope you will remind me if I do not meet your inquiry. I want to deal with this subject first. The question is whether this future trading within the State of Illinois and between persons then present in that State, and mostly residents thereof, and making such trades either as principals or as agents for others, some of whom are present and reside in other States, is interstate trading and within the power of Congress to regulate ? Mr. Manahan. In that connection, will you discuss, Mr. Robbins, the use of the telegraph and the mails in future trading ? Mr. Bobbins. I do not know what you mean, but if I do not cover everything, when I get through, I will be glad to have you call my attention to it. The Chairman. Mr. Manahan, do not interrupt Mr. Robbins unless you consult the committee about it. Mr. Robbins. .The first case where exchanges secured the atten- tion of the United States Supreme Court is Hopkins v. United States (171 U. S., 578). There were two cases brought by the United States at Kansas City to enjoin two live-stock exchanges, one an exchange composed merely of men who acted only as commission men, and were not thenselves traders; the other brought to enjoin an organiza- tion of men who were themselves buyers and sellers of live stock. In the first case it was claimed that this association of brokers had violaited the Sherman antitrust law, in that they had prescribed a minimum rate of commission, and in that they had passed a rule by which they would not trade with any outsider. Thus the Supreme Court was called upon to determine whether this conduct of these brokers was interstate, and it decided that it was not. In doing so the court said [reading]: The services of members of the different stock and produce exchanges throughout the country in effecting sales of the articles they deal in are of a similar nature. Memr bers of the New York Stock Exchange buy and sell shares of stock of railroads and GRAIN EXCHANGES, 201 other corporations and the property represented by such Bhares of stock is situated all over the country. Is a broker whose principal" lives outside of New York State and who sends him the shares of stock or the bonds of a corporation created and doing business in another State for sale engaged in interstate commerce? If he is employed to purchase stock or bonds in a like corporation under the same circumstances, is he then engaged in the business of interstate commerce? It may perhaps be answered that stocks or bonds are not commodities, and that dealers therem are not engaged in conimerce. Whether it is an answer to the question need not be considered, for we will take the case of the New York Produce ExchaMe. Is a member of that body to whom a cargo of grain is consigned from a western State to be- sold engaged in inter- state commerce when he, performs the service of selling the article upon its arrival in New York and transmitting the proceds of the sales less his commissions? Is a New Orleans cotton broker who is a member of the cotton exchange of that city, and who receives consignments of cotton from different States and seUs them on change in New Orleans and accounts to his consignors for the proceeds of such sales less his com- mission engaged in interstate commerce? Is the eharacter of the business altered in either case by the fact that the broker has advanced moneys to the owner of the article and taken a mortgage thereon as his security? We understand we are in these queries assuming substantially the same facts as those which are contained in the case before us, and u these defendants are engaged in interstate commerce because of their services in the sale of cattle which may come from other States, then the same must be said in regard to the members of the other exchanges above referred to. We think it would be an entirely novel view of the situation it all the members of these different exchanges throughout the country were to be regarded as engaged in interstate commerce because they sell things for their principals which come from States different from the one in which the exchange is situated and the sale made. The theory upon which we think the by-law or agreement regarding commissions is not a violation of the statute operates also in the case of the o&er provisions of the by-laws. The answer in regard to all objectionj is, the defendants are not engaged in interstate commerce. But special weight is attached to tJie objection raised to section 11 of rule 9 of the by-laws, which provides against sending prepaid telegrams as set forth in the statement of facts herein . It is urged that the purpose of this section is to prevent the sending of prepaid telegrams by the defendants to their various customers in the different States tributary to the Kansas City market, and that the section is a part of the contract between the members of the exchange, and is clearly an attempt to regulate and restrict the sending of messages by telegraph and telephone between citizens of the vsu-ious States and Territories, and. operates upon and directly affects the interstate business of communicating between points ip differ- ent States by telegraph or telephone. An agreement among the defendants to abstain from telegraphing in cortain circum- stances and for certain purposes is so clearly not an attempt to regulate or restrain the general sending of telegrams that it would seem unnecessary to argue the question. An agreement among business men not to send telegrams in regard to their business in certain contingencies, when the agreement is entered into only for the purpose of regulating the business of the individuals, is not a direct attempt to affect the business of the telegraph company, and has no direct effect thereon. Although communication by telegraph may be commerce, and if carried on between different States may be commerce among the several States, yspeculator, whose function it is to relieve both producer and consumer of the hazards of distribution, so that the surplus of one portion of the earth may regularly be supplied to the deficient portion at such a price as will in the long run a little more than balance the gains and losses of this species of commercial enterprise without unduly depressing the margin of profit to the producer. Just one more quotation: Why has commercial distribution in the United States become so largely identified with a speculative class of trading capitaUsts? The answer is, that it has been found best for the producing and the consuming interests of the community that the risks of distribution should be localized in a separate commercial class whose members are in a position to inform themselves as to all the factors^ past, present, prospective, affectang the future course of prices. If the risks of distribution fell upon the farmer, it would increase materially the risks of capital required and thus raise the rate of interest he should have to pay as producer, because increased risks always raise the rate of interest. 212 GRAIIir EXOBCABTGEe. And there is more like that. I must relj, if it interests you, upon your reference to that yolume and discussion. On that subject, and on all the subjects therein treated, thprg has been no change in conditions. Now, as well as when that report was made, this market, created by these hed^g contracts and the purchases and sales of grain for future delivery by these speculators, is carrying the products of the farm from the time they leave the farmers in the fall until they are absorbed in the consuming markets of this country and the world during the rest of the year. Mr. Cantkill. Mr. Bobbins, have you in your possession any evidence to put before this committee wiat your position is sustained by the producers of grain and men who produce these products to go over your market ? Mr. RoBBiNS. I have this to say, that the State of Ilhnois is one pf the large agricultural States of the country. I do not know that it now produces more bushels of grain than any other, but there was a time when it did, and I guess it does now. It is a State that is largely agricultural. As respects legislation, the State of Illinois outside of Chicago has two-thirds practically of the legislators who are elected every two years. Chicago, which somebody might say is dominated by interests friendly to the board of trade, has only a minority in the legislature. The State of Illinois has never ps^sea a law that aimed to destroy this future trading. Men may come here and tell you that it is a very hurtful thing, but not a single man comes here from the State of Illinois to tell you so; and if the farniers in such great num- bers as has been stated here, regarded this future trading as an evil, do you not think that the Ilhnois farmers would have -secured adverse legislation at Springfield ? Mr. Cantkill. The thing I am trying to bring to a direct issue is this: These gentlemen who preceded you come here and speak for various farmer organizations against the position that you are taking. You claim, as I understand, that those marketing prices is a benefit to the farmer. I ask the question as to whether or not you have back of you a resolution from any farmers' organizations who are producers speaking through you to this cominittee that your system is the proper system ? Mr. JRoBBiNs. No; I do not think that any effort has been made to get this, but I am glad you suggested the question, because I want to read into this record the remarks recently made in the United States Senate by Senator Nelson. I think it safe to assume that Senators of agricultural States like Minnesota are quite as good authorities on what the farmers of their State want as are those who are interested in farmers'. orgar!i;?ations organized for profit, whose views are biased by their controversies with competing ex- changes which lessens their profits. Mr. Cantkill. I do not think that, if you wUl pardon me, any Senator and Member of Congress would be quite as good authority as the direct resolution of the farmers' organisations themselves, speaking through their own organizations; and I was trying to see if your side had anything from them. Mr. RoBBiNS. No effort has been made in that direction, and no resolution of a farmers' organization would be of very much value, unless its members had heard both sides of the question. GRAIN Exchanges. 213 You ask me what my answer to the claim of these gentlemen, that they represent so many farmers, is. I do not think that the fact that these gentlemen are officers of organizations of farmers entitles them to come here and say that their opinions are the opinions of the farmers, even of their organizations. Mr. Cantrill. I think this, if you will pardon me, and the com- mittee will permit it, if you come before this committee and make a contention that your system of marketing is to the benefit of the gjrain producers and the grain raisers, to make good your conten- tion, I think you should offer to this committee statements from the- grain growers and from their organizations to back you up. Mr. RoBBiNS. Perhaps so. Yet, after all, is it not an economic question? Is it not a question to be determined right, and not a Juestion to be determined by counting the opinions of farmers on it ? t is not alone the farmers that are interested in this question. The great body of consumers are also deeply interested. Mr. Cantrill. I grant you that. Mr. RoBBiNS. And is it not, after all, a question for trained, thoughtful minds to consider, and to look at it in all its economic features, to ascertain what is best for all classes ? Mr. Cantrill. We will try to look at it from all viewpoints in formulating our final conclusions. Mr. RoBBiNS. We have not undertaken to take a vote of farmers on this question. You asked me about that sentiment, and I should like. to read into the record what Senator Nelson said on this subject, because you will bear in mind that the antioption bill of years ago originated with, or was fathered by. Senator Washburn of Min- nesota (readiag) : Mr. Nelson. Mr. President, there are two sides to this question. In order to illustrate what I mean I will give the Senate a little bit of past history. My predecessor in office in the Senate introduced or advocated a biU to do away with options in wheat. There was quite a controversy over it in the State of Minnesota, The millers, the men who bought wheat, were in favor of it. It was said at the time — I do not know whether it waa true or not — that it was because some of the millers had been speculating in wheat and had gotten caught by the Chicago fellows. For awhile they had the farmers interested and made them believe that it would be a great help to the farmers to destroy this option business. But finally, after due consideration, most of the farmers in Minnesota lost interest in the proposed.legislation and came to the conclusion that option dealing, while it might hurt the speculators who were en- gaged in it, was not, after all, such a bad thing for the farmers. Without option dealing the only buyers ttie farmers would have for their grain would be the miUers, and they would control the market. The millers could abso- lutely say what the farmers were to get for their grain; and what the millers did not buy, or what they could not sell here at home, would be controlled by the foreign purchasers, the importers in foreign countries. I recollect quite well what the farmers said at that time. I was nothing but a plain farmer myself then. Mr. Cantrill. That is Senator Nelson, of Minnesota ? Mr, RoBBiNS. Yes, Mr, Manahan. Who is the author of this resolution from Minne- sota ? He seems to be of different opinions, Mr, RoBBEsrs, I am giving the other side, [Laughter,] This com- mittee must decide which knows most about it, of course [reading resumed] : They said: "Here it is to our advantage to have two sets of buyers— not only to have the millers, who want our wheat for grinding, but to have these option fellows in the market, too. They sometimes help to boom the price and we get a little more 214 GRAIN EXCHANGES. for our wheat. To be sure, some of these school-teachers, these young fellows who want to get rich quickly in the diftei;ent towns, go to these bucket shops and speculate in wheat; but what do we care for that? This speculation, one way or another, makes a bigger market for us, and especially when they get up a comer. If we have wheat in our granary at a time when they get up a corner and can load up our teams and rush it to market, we may be able to get 10 or 15 cents a bushel more than the millers would possibly pay us." So the enthusiasm in favor of that legislation that first appeared in our State among the farmers utterly died away. They began to think that while option dealing in itself intrinsically was not exactly according to the creed of the apostles, yet after all it was not such a dangerous thing for the farmers. It gave the farmers a more ex- tensive and broader market, and once in a while it gave the farmers a chance to get a little more than they otherwise would have gotten for their wheat. I am interested in die welfare of the farmers. These people who are foolish enough to bet on baseball or gamble in wheat or cotton are a set of gamblers. I do not know why my heart should go out to them. I am' with the cotton raisers and the wheat raisers, and I am for whatever will help to give them a bigger market and a better market and a bigger class of buyers. Even if a part of the buyere are nothing but gamblers, I have no objection, from the standpoint of the farmer. Mr. Manahan. May I ask a question ? I just want to inquire when that was written ? Mr. RoBBiNS. It was said about a year ago; or two years ago, I think. Mr. Manahan. How many years ago — I wondered whether it was a recent speech or not. Mr. RoBBiNS. How about that, Mr. Merrill? Mr. J. C. F. Mekkill. I do not remember the date. Mr. RoBBiNS. It was, I think, not farther back than 1911. The Chairman. You broke up the bucket-shop system in Illinois by legislation ? Mr. EoBBiNS. No, sir. The Chairman. You still allow bucket shops there? Mr. Eobbins. No, sir. The Chicago Board of Trade did that under the system that was affirmed in the Christie case, which up- held a property right in its quotations and sanctioned injunctions to protect them against theft. The Chicago Board of Trade prac- tically eliminated the bucket shops of the Central West by spending, since 1900, more than $200,000 of their money in the litigation which that involved. The Chairman. Does Senator Nelson advocate the bucket shop ? We broke them up in Texas. We used to have 20 of them in my town, Waco. Mr. RoBBiNS. I think Senator Nelson used "bucket shops" in a general sense as applying to anyone who undertakes to speculate in grain. The Chairman. Perhaps so. Mr. Robbins. I am referring to such concerns as are really bucket shops. The Chairman. The committee will now take a recess until 10.30 o'clock to-morrow morning. (Whereupon, at 4.55 o'clock p. m., the committee stood adjourned until to-morrow, Friday, March 6, 1914, at 10.30 o'clock a. m.) GRAIN EXCHANGES. 215 Committee on Rules, House of Representatives, Friday, March 6, 1914. The committee met at 10.30 o'clock a. m., Hon. Robert L. Henry (chairman) presiding. The Chairman. Mr. Robbins, you may proceed. STATEMENT OF HENRY S. ROBBINS, OF CHICAGO, ILL. Mr. Robbins. Mr. Chairman and gentlemen of the committee, I wish to caU your attention to the fact that a rule of the Chicago Board of Trade provides that no member of the board of trade receiving an order for the making of a future-dehvery contract may do so without going into the open market — that is, into the pits — to execute it. Another rule requires that all such orders must be executed within certain market hours (from 9.30 a. m. to 1.15 p. m.). Hence while a future contract may be made between two members, who are princi- pals, in Chicago after these hours, every member, who is actiog as agent in making a future contract, is obliged to go to the open market and make it within these market hours. You will therefore perceive that by the rules of the board of trade this future trading, in which outsiders participate, is done in the exchange room in Chicago during these market hours and that only members of the board who are in Chicago become parties to these contracts. Another feature of the case that I mentioned yesterday is this. The laws of Illinois provide that in public warehouses in Chicago all grain must be inspected as it goes into the elevator and that grain of the same grade shall be mixed together, and that when any IS delivered out it must be delivered out, as near as may be, from the bins containing the grain longest in store. That is to sa;y, so that the first in will be the first out. There is no way under this law that a depositor can get the identical grain that he has put in. He gets his snare of the larger mass, which insures him grain of average quality. There is, however, in this statute a provision that any man may have his grain put in a special bin, but in that event his receipt must bear the mark "special bin." But in the dealings on the board of trade those "special bin" receipts are not dehverable upon future contracts. One who thus makes a trade for future dehvery must dehver the regular receipts, which vest in him only title to an ahquot part of the larger mass of grain in the warehouse. The point of that is this : All these future contracts contemplate, and when they are completed by dehvery they involve the transfer of wheat that has already become a part of the general mass of prop- erty in the State, even if some of that wheat may have origina,lly come from another State. In other words, this method of handling the wheat makes applicable decisions of the Supreme Court of the United States, which have decided that property is no longer a subject of interstate commerce when it has become a part of the general mass of property of a State. Does not that make this future trading purely local or intrastate trading, despite the fact that some who employ Chicago brokers to participate in it, may reside iu other States than Illinois ? 216 (3t&Mii!t MC-kAmts. Another feature is this : The decision of the Supreme Court in the Christie case (already referred to) held not only that, considered generally, the future transactions there were not gambling, but that the State of Illinois had legislated on the subject and had recognized this class of trading as legitimate trading, and not gambling. One question presented in that case was whether this future trading violated a certain statute of Illinois enacted for the purpose of pre- venting gambling; whether that statute covered this trading for future delivery; and the court held that it did not. Its decision on that point is as follows : It is said that the plaiatiff itself keeps the greatest of bucket shops, in the sense of an Illinois statute of June 6, 1887 — that is, places wherein is pefraittea the pretended buying and sellirig of grain, etc., without any intention of receiving and paying for the property so bought, or of delivering the property so sold. * * * * * * When the Chicago Board of Trade was incorporated we can not doubt that it was expected to afford a market for future as well as present sales, with the neces- sary incidents of such a market, and while the State of Illinois allows that charter to stand We can not believe that the pits, merely as places where future sales are made, are forbidden by the law. * -* * * * * It seems to us an extraordinary and unlikely pro;po8ition that the dealings which give its character to the great market for future sales in this country are to be rtgardfed as mere Wagers or as "pretended" buying or selling, without any intention Of i-Bcfeiving and paying for the property bought) or of delivering the property sold, within the meaning of the Illinois act. I will not stop to read all of the decision, but I wish to impress upon the committee the fact that the Supreme Court of the United States has construed the Illinois statute and has in effect said that the Hhnois Legislature has recognized this class of trading as commerce and not gambling, because they did not include it in this gambling statute. Now, I am asked about the "put" and "call" statute. A "put" or "call" is what we lawyers would call a unilateral contract, where one man agrees that he will deliver or receive certain property, and the other party to the contract pays a certain sum for the privilege of calling for the property. It is a binding contract on one man and not on the other. At one time the State of Illinois prohibited that class of trading, and I believe it was then in accordance with the views of the board Of trade that such contracts might well be excluded from the commel-ce of the State. But Illinois was the only State in the Union, I believe, that has ever undertaken to prohibit, by statute, these unilateral contracts. One of the courts of New York has ex- pressly held those contracts valid. Later the Chicago market, being in competition with other grain exchanges where such contracts were prohibited, the Legislature of Illinois recently modified that law so as not. to prohibit all Contracts of that form. That is the law which I was very sorry to hear Mt. Greeley say had been the result of bribery. This recent statute is another instance where the legislative mind of the State of Illinois has indicated that it regards this speculative trading on the board of trade and within the limits of the statute as commerce and not gainbling. ■ The Supreme Court of the United States has said that thi^ futiire trading is intrastate, and the State of Illinois regards it as commerce and not gambling. In this situation how can Congress constitutionally undertake to regulate this future trading ? GEAIN BSCHAlirGES. 217 I have now viewed this trading from the standpoint that it is com- merce. I wish now to view it irom the standpoint of these gentle- men here,_who say it is gambhng. If it be gambling, it is very appar- ent that it is gambling in which only parties in Illinois are active participants. Perhaps some of you, in your careless moments, have participated in or been present at a Uttle game of draw poker. I am told that this game can not be played by telegraphing between States, but requires the personal juxtaposition of the two or more participating individuals. I am told that the success of it depends much on one's control of the flow of the blood and one's restraint upon the facial Expression, and that it is a game that must be played face to face. If a State believes in that form of pastinie, or at least beheves that its citizens, under their right to personal liberty, should be per- mittsd to get together in a room and engage in that form of pleasure, what right has Congress to prohibit the game within that State? Would the power of Congress be any greater because somebody in another State might have sent to one of those players, relying On his skill, a little nloliey to stake upon the game? In other words, is not this subject wholly within the pohce power of the State, and is not Congress without poWer to interfere with it? A State may, under its constitutional rights, legalize ptoker playing, and Congress must keep its hands off, because it has no police power with respect to the internal affairs of the State. Now, do not under- stand that I am advocating such legislation. The Constitution confers upon Congress the right to regulate ititer- gtate commerce. That is not only a grant of power, but it is also a Bitiitation of power. It nieans that Congress shall regulate inter- state coDinierCe, but must liot Utidertake to regtilate intrastate Commerce. An act of Congress which interferes with intrastate commerce violates the Constitution just as much as a State statute that interferes with interstate comitterCe. The Supreme Cottrt in inahy cases has hsld that any Stat6 legislation that obstructs interstate eotaBHerce is violative of the Constitution and void. And in the dis- charge of its high duty it %iil also declare — whenever the question is presented — that any congresSioiial action vi^hich obstructs the right of the State to control its intrastate cotnnaerce also violates the Constitution. I am speaking now not merely of direct legislation which under- takes to expressljr prohibit future trading, but such as indirectly interferes by, for instance, denying to the citizens of a State the right to use the post office in the transaction of their intrastate com- merce or preventing a citizen of one State using the railroads to go to another State for the purpose of trading there or by denying ftontesidents use of the telegraph wires in order to communicate with their agents in a State, so that they may properly participate in the ititernal commerce of that State. These forms of legislation would he as unconstitutional as the direct prohibition by act of Congress. One gentleman here — and I am glad to say that he is not a lawyer, because lawyers seem to have more respect for the Constitution than laymen do — ^has said, "You should tax enough to prohibit." All right-thinking lawyers will agree that anj act of Congress which, thotigh Called a "tax," is in reality a prohibition of intrastate com- 218 GRAIN EXCHANGES. merce, violates the Constitution of the United States. I am aware that when the legaHty of the law taxing State banks out of existence came before the Supreme Court it said it would not interfere. But it did not say that Congress did not disregard the Constitution. What the court did say was that whenever Congress, a coordinate branch of the Government, says it is exercising its taxing power and that what it has provided is a tax, it does not become the judicial branch of the Government to look into the motives of Congress in order to see whether it was not a prohibition instead of a tax. In other words, in such a case Congress is supreme. But this does not mean that Congress is less bound by the Constitution than is the Supreme Court. Every Member of Congress, when he enters upon his duties, takes an oath, as does every justice of the Supreme Court, to uphold the Constitution of the United States. So that Constitu- tion itself requires. That oath is as binding on, the consciences of Congressmen as upon the consciences of justices of the Supreme Court. I can not conceive that any right-minded, high-thinking Congressman would vote for a law whose only purpose is to prohibit intrastate com- merce, and intentionally give that law the false name of a tax, so that it might pass the Supreme Court. Mr. Leneoot. "What would you say about phosphorous matches in that connection ? Mr. EoBBiNS. I repeat what I have already said. I have never been able to approve of such legislation. I do not think that lawyers generally approve of such legislation. That is all I wish to say about the legal phases of this resolution. Just this in conclusion, I do not wish this committee to get the im- pression — and I would misrepresent the attitude of the Chicago Board of Trade if I gave the impression — that there is anything in its dealings or its attitude or the dealings or attitude of its members that needs to be concealed. This agitation seems to be really a controversy between two associations in Minnesota, each competing for the same business. True, some come here to favor this resolution who are not connected with either of those associations. But have they not been brought here at the instigation and perhaps at the expense of this organiza- tion whose stock is involved in this contest in Minnesota ? I do not care to go further into that, but that is the way it appears to us. You may think differently. You may think that the farmers are crying for this legislation. It is for you to determine whether the reasons which I have been suggesting here for and against this resolution justify the passage or rejection of this resolution or an investigation. If you snail reach the conclusion that there should be an investigation', then we ask you to make that investigation as comprehensive as it can be made, so that its results may go as far as they can be carried. To that end I urge upon you, not a resolution of one House of Congress which might be sufficient to instruct its Members, but a joint resolution that shall include both Houses of Congress. The Chairman. Let me say this to you : Of course you have nothing to do with the exchanges in New York and New Orleans, but if we should go into an investigation of the so-called grain ex- changes, then, in view of the Baltimore platform, the declaration of GKAIN EXCHANGES. 219 the Democratic Party for legislation against speculation in products of the farm, would it not be well to take in aU of these exchanges, not only grain exchanges, but cotton exchanges, and to make a thorough and exhaustive investigation of aU of them ? Mr. KoBBiNS. I should think so. If you are going to investigate at all, investigate thoroughly by a general resolution creating a com- mission. I would go further and say that it should be by a commis- sion composed not only of Members of this House — and I hope they would be leading Members of this House — and leading Members of the Senate, but I would add to that investigating committee some prominent men, Uke President Hadley, of Yale, to be selected by the President, who would bring their experience resultiag from a life's studj' of trade conditions to the elucidation of this problem. In that case whatever result was obtained would be one that would in^rre the confidence of, and carry conviction to, the whole country. The Chairman. Personally, I think it is perfectly safe to say that Congress will legislate on this question of speculating in the products of the farm, but whether we would take in grain exchanges or not, I am quite sure there wiU be legislation against speculating in cotton futures; and I quite agree with you that if we have an investigation it ought to be exhaustive and thorough, and that legislation ought to be based on proper information. Mr. RoBBiNS. That is my personal view, and I am glad to say that that is the attitude of the Chicago Board of Trade. There is nothing to conceal. Of course, we realize that when Senator Kyle of South Dakota carried through the proposition by which this investigation was made some 10 years ago, it was exhaustive and disclosed the whole situation. But a new generation of critics seems to come up every 10 years or so, and if the attitude of public opinion is such that this investigation is needed, do not regard the Chicago Board of Trade as having anything to conceal. Mr. Lenroot. If an investigation should be had by the House alone, do you believe it should be by a special committee or by a committee having jurisdiction of such legislation £is would follow such an investigation ? Mr. RoBBiNS. Never having been in public life, I do not feel very competent to advise you on that subject. But I say, get the best information you can. This is a great big question, a great big economical question. It is a question that affects not merely the grain trade of this country, but goes into the grain trade of other countries. The price of wheat is a world problem, depending on world conditions. Therefore I could not urge anything but the most thorough investigation, by the most intelligent body of men that can be selected, and it is very fortimate that we have now in the presi- dential chair a man who is especially equipped to add to the selections of both Houses of Congress men whose judgment would inspire confi- dence throughout the country. Mr. Manahan. Mr. Robbins, I think you inadvertently used a word that possibly you will not want to stay in the record. That is the word "bribery." Mr. Greeley did not accuse anybody of bribery. He said a "jackpot" was made up to influence legislation, or some- thing to that effect, as I recall. He did not say that anyone was bribed. 220 GRAIN EXCHANGES. Mr. RoBBiNs. That word "jack pot" has been so much used out in " my State that we have gotten, jack pot and bribery so mixed up that one means about the same as the other. Mr. Gkeeley. The jack pot was raised, but I did not make the claim that the money was used for bribery. Mr. RoBBiNS. Then I will withdraw the word "bribery." Mr. Greelet. The fund was raised for the purpose of seeming the passage of the bUl. STATEMENT OF C. H. CANBY, PRESIDENT OF THE CHICAGO BOARD OF TRADE. Mr. Canby. Mr. Chairman and gentlemen of the committee, I appear before you on behalf of the Board of IVade of Chicago.' I am the chief executive officer of that association. The Chicago Board of Trade appears in opposition to resolution "No. 424, for the reason that everjr allegation in which the Chicago Board of Trade is mentioned individually, or where it is coupled with any other organization, is distinctly and absolutely false and without basis in truth. We have nothing to conceal, but it is with a sense of humiliation that we find in any public document the number of false allegations that are contained in that resolution. The Chicago Board of T^ade is a purely voluntary association, receiving its life and existence by special charter from the State of Dlinois in 1859. It has continued fi'om that time to this a constructive force ill commerce and the func- tions of its members are intertwined with all the commerce of the great West. About 30 days ago I had t^e honor of appearing before Secretaries McAdoo and Houston to explain the influence of grain commerce on finance. I demonstrated to the honorable Secretaries that the Chicago Board of Trade drew grain from a territory including all west from a line drawn north and south in Indiana down through the central part of the State to Terre Haute; northwest to a point south of St. Louis, continuing northwest through northern Missouri, including aU the State of Iowa; west in the State of Nebraska as far as wheat grows ; northward,, including some counties in southeastern South Dakota and some counties in southern Minnesota, our hmitation there being purely a question of freight rates. During the year 1913 the Board of Trade of Chicago paid, through its membership, country drafts approximating $130,000,000. These drafts were direct obligations against shipment^ of grain, a,nd in al- most every instance arrived before the grain. The amount of bank- ing credit accumulating as a result of that commerce was a large portion of the funds on which commercial banking credit is based for the commerce in boots and shoes, dry goods, and aU other products that flow westward. The membership of our board of trade is 1,640. About 1,250 are residents of the city of Chicago and Cook County, or adjacent coun- ties. About 400 are grain merchants, grain shippers, and exporters in different parts of the country. The activities of our association are steady and continuous, and we believe are a vital part in the commerce of this land. One of the witnesses who appeared before your honorable com- mittee made the statement that the price of wheat was made in GRAIN EXCHANGES. 221 Chicago. I would not impeach the intelligence of anyone who has had the opportunity, who has had the means of becoming acquainted with economic conditions, to imagine for one moment that they paid very much attention to a statement of that kmd, but in carrying out this Hne of argument this witness went back to 1893, to 1895, when the price of wheat in the city of Chicago went down to 50 cents a bushel, and endeavored to show that the board of trade had some- thing to do with causing that decUne. To demonstrate the absurdity of that argument I wish to call the attention of the committee briefly to what the conditions were then. There was not a single article sold in commerce that was not in a state of greatest depression between 1893 and 1896. The security markets of the country were depressed. The leading railroad stocks of the United States were selling at almost nothing; Northern Pacific at $3 a share; New Jersey Central at |6 a share. Iron mines were sold on the Mesabi Range of the State of Minnesota at a price that was less than the ore on the dump in any normal condition of affairs. Real estate was depressed; everything was depressed that went into commerce; labor was unemployed in enormous numbers; unemployed men walked the streets of every city. During these conditions we were embarrassed, strange as it may seem, by a most bountiful crop. We had carried over a large sur- plus supply of grain from the previous years. The elevators every- where were filled and a large crop was coming on. This proved the last straw to break the camel's back. The country was full of wheat and everyone wanted money. Gold, by reason of the scare which had originated in the minds of many people that there was a possibility of the country going on a free- silver basis, was at a premium. I beheve $27 per thousand was paid for gold at that time. As Mr. Wilson has stated, a condition of panic is largely a mental attitude, and this con- dition was intensified as it spread over the country. Wheat sold in the State of Indiana at 35 to 40 cents a bushel. There was such an abiindant supply that farmers fed it to the hogs. In fact, there was an unhealthy condition underlying every branch of economic affairs, separated entirely from any possible relation to the system or busi- ness methods of the market centers. It was a combmation of eco- nomic and financial fears, and as a result we had for several years probably the greatest depression we have had since the Civil War. It is palpably absurd to charge any portion of the responsibility for these conditions to the Chicago Board of Trade or its members. It was also charged by one of the witnesses on the other side that as a result of a. conspiracy or combination of leading men on the board of trade, Mr. Leiter lost a large amount of money by his transactions in wheat in 1898. There is no evidence whatever to support any such theory. The general opinion of those who had the best opportunity tp form a judgment in regard to the facts of that period is that owiag to the advance of prices at that time the American farmers were greatly benefited. It is true that Mr. Leiter was a large owner of wheat, not only in the leading American markets but also in the foreign markets. The subsequent decline in prices was from purely natural causes, due to increased accumulation of surplus, and . the approaching movement of a new crop, and any loss sustaijied was the logical result of the developments in the situation. All statements 222 GEAIN EXCHANGES. made here as to the amount of financial loss sustained are based on guesswork and purely arbitrary. To show that our members are strongly interested in public affairs I would state that the Chicago Board of Trade is one of the members of what is termed " the Council of Grain Exchanges of North America." This means that several delegates are sent to a convention each year to discuss matters of importance to the exchanges, such as .freight rates, crop conditions, crop statistics, and everything else which might affect them. This organization established several years ago what is termed " a crop-improvement committee," and the Chicago Board of Trade, as the largest exchange, took a prominent place m that organization. We appropriated from our own treasury several thousand dollars per annum and a committee was appointed to obtain subscriptions for this work. We gained the attention and interest of a promment merchant of Chicago, not a member of our association, who subscribed a milhon dollars, to be spread over a period of years; last year I believe he paid about $50,000 to this fund. This crop- improvement fund is to be used for the purpose of educating those who are not f amiUar with the matter how best to select seed, to plant, etc., so as to obtain, the best crops. In the States of Illinois, Indiana, Iowa, and Michigan we have established stations in charge of county superintendents. These superintendents work with the farmers, and a lecturer goes about with stereopticon lantern slides showing., seed selection and germina- tion. Altogether $100,000 was expended in this work with the farmers directly by the Council of Grain Exchanges, and our own force, during the year 1913 The Chicago Board of Trade, to get the matter clearly in your minds, is only a market place. The exchange transacts no business. The members act in perfect freedom under the rules of the associ- ation, which are framed for the best interests of aU. There is not a more independent body of men on earth. There is not a body, of men in the world that would resent more bitterly, as an insult, any attempt at domination by any interests whatever than the members of the Chicago Board of Trade. Each member owns and must own his own membership. That is a provision which we insist upon. The statement in the Manahan resolution that any number of our members are controlled by any interests, by aiiy combination of interests, by any associatorn of interests, which in any way fixes the elections or the legislation or rules on our board is a base calumny. The -Chairman. Before you proceed with that, I intended to ask Jou another question. You spoke of Leiter awhile ago, saying that e tried to buy all the wheat m the world ? Mr. Canby. I should have said in the United States, also in some of the foreign markets. ^ The Chairman. Well, in the United States. Where did he make these purchases, on the Chicago Board of Trade? Mr. Canby. He bought wheat everywhere. He bouglit possibly the largest amount on the Chicago Board of Trade. The Chairman. The transactions occurred there ? Mr. Canby. Yes; but he bought wheat in other markets also. The Chairman. Do your records show how much he actually bought % GBAIN EXCHANGES. 223 Mr. Canby. No, sir. The CHAmMAisr. Have you any way of ascertaining how much he did buy ? Mr. Canby. No, sir. The Chaikman. It is a matter of surmise, then, and conjecture 1 Mr. Canby. Yes. The Chairman. I thought you might have some record to show what the amount of the purchases was. Mr. Canby. No, sir; that would be with the individilal firms. Mr. Lenroot. Your records will not show the volume of the trans- actions of any individual, then ? Mr. Canby. No, sir. Mr. Lenroot. They do show the total volume, do they not ? Mr. Canby. No, sir; not at all. It is a free and open market, and no record is kept of the amount of transactions. The Chairman. He could have bought just as long as he wanted to. He could have bought ten times as much as he did buy, could he not ? Mr. Canby. Possibly, admitting that he could find those who would sell it and he had the means to pay for it. The Chairman. I understand, but he could have bought all that he wanted to ? Mr. Canby. Yes, sir. The members of the board are not only independent in regard to their personal actions in business, but they are very independent in the — pohtical, you might term it — part of the board's affairs. No man could be elected as director or as any other officer if the suspicion became general that he simply repre- sented an interest of any kind. He must, in the very nature of things, have the confidence of the great majority of members in his personal freedom, in his personal judgment, in his personal integrity and honor. Otherwise he stands a very poor chance of election. To show the interest that is taken in these elections — because this part of our affairs is an important subject — at our election which was held on the 1st of January, I received, I think, 855 votes, which is considered a very fair vote when there is no special subject involved. Mr. Griffin, who was elected vice president at the same time, received 894 as the candidate for vice president. I have a Eersonal acquaintance with a large majority of the members, having een a memoer for 24 years. During this period I have never heard a single member of the Chicago Board oi Trade intimate that he thou^t or that he- had heard anyone else say they thought that there was a combination of any kind between our board — which is of course impossible, for tlje board transacts no business — or by any number of members, or any single member, with any other exchange or its members, either in this country or in any other countr . I have never heard any one intimate it until I read this resolution, and I do not believe anyone ever did intimate such a thing before. I am acquainted probably with one or two hundred members of the exchanges in the Northwest and St. Louis and Kansas City, and I have never heard any member of a,nj of these other exchanges intimate that they ever heard of such a thing. If there was a basis in truth for it, it would have come out somewhere. It never did, for the simple reason it did not exist, and the charge that we have ever entered into any kind of a combination with any other exchange or exchanges is utterly false. 224 GRAIN EXCHANGES. Mr. Lenroot. You say the board of trade conducts no business. Are there any hmitations of action imposed upon the members by your rules that interfere with their freedom of action? I mean in conducting business? Mr. pAETBy. Only along Hnes that are commercial. Mr. Lenroot. I understand. Is there any limitation as to their right to do business with nonmeinbprs in Chicago with reference to the purchase of wheat? [gjMr. Canby.' There is no limitatioii ^xcept that they myst charge a commission. That is all. Mr. Lenroot. They can buy from anybody in Chicago, as well as from outside? Mr. Canby. Oh yes. Everywhere. This resolution begins with the statement that, "the world's demand for wheat and t}ie consumption thereof so closely jialances production from year to year that there is no legitimate occasion for violent fluctuations in the price of that necessity." Now, that is what I would term a purely academic statenient. There is no one who can teU what might happen in the price of anything. For example, it would not make any difference what the crop was this year, or what it was last year, if news should be received in this country this afternoon that war had broken out between France and Germany, or between any two important powers of Europe, the price of wheat to-morrow might advance 10 cents a bushel. There are a great many things that affect prices. If something in fmance should happen, like the anticipated failure of a great bank, the price would declme. But in support of thjs "Whereas" the statement wasmade that the United States crop in 1009 was 683,000,000 bushels, and in 1911 it was 621,000,000 bushels of wheat. The world's crop was practically the same thing both years. Now, here was the argument. In 1911, with a smaller crop, the price was 87 cents average on the farms, while in 1909 with a larger crop, the price was 99 cents, showing that the price was 12 cents a bushel higher in 1909 on a larger crop m the United States than it was in 1911 with a world's crop practically equal for that year. Mr. Cantrill. Where are those figures ? Mr. Canby. I get those from the trade bulletin compiled by Howard, Bartels & Co., of Chicago, the Chicago Board of Trade's statisticians, recognized statisticians on wheat figures. Mr. Manahan. The figures that I gave were taken from the Statis- tical Abstract,-and showed a mu(^ larger crop in 1909 than in 1011. Mr. Canby. No, the gentleman made the statement that the world's crops for these two years were practically even. Mr. Manahan. No, I beg pardon, my statement will show — my statement was that the world's crop was larger in 1909 con- siderably. I gave the number of millions of bushels specifically, and it was much larger in other crops besides wheat. Mr. Canby. I beg the gentleman's pardon. I followed the state- ment. Here are the figures. The Chairman. I think his figures were taken from the Statistical Abstract, whatever they were. Mr. Canby. I would like to ch"ck th-^m up with the record. GEAIN EXCHANGES. 225 The Chairman. You can do that lat r on. You may just con- tuxue now. Mr. Canby. The next allegation contained in this resolution is that of monopoly; the assumption being that because there arii five or six elevator companies that are prominent and are doing a large business, that there has been a combination between those (levator compani s. Back in the nineties, during the panic period, there was nothing that became more demoralized in the Unite ei States than the busin^ ss morals of the country. The Sherman Act was a dead letter. No one paid any attention to it. Kebating was com- mon everywhere. Th^re was not a merchant doing a large busi- n ss who was not on the rebate list of all the roads. In fact, if you did not have a rebate, you could not do any business. That was so general that it practically established the situation. Competi- tion was so keen that every kind of combination possible was brought into life during this period in the effort to improve busin( ss conditions. But there never was a combination of Chicago eleva- tor companies for a division of earnings. But because of certain conditions in 1904, or 1905, there was a pool formed for the accom- plishment of such purposes, as will be explained to you by a gentle- man who wiU follow me. It was only in existence about three months. From that time on I know from everything that I have observed in all the channels through which one would receive information that there never has been in this country or in any other country four or five or six concerns that have competed against each other more sharply, and at times more bitterly (until it became almost a question of lack of personal friendship), than have all these elevator companies. They have all gone out anywhere and everywhere for business and treading on each other's feet every minute. Profits were cut down to a point so that in a few years there was httle or no money in the business. This is shown by the fact that in recent years a number of elevators were destroyed by fire and not a single one was rebuilt. Competition could not have been more keen. Now, the statement has been made in this biU that we exercise an arbitrary control over our membership. WeU, the only arbitrary control we exercise is that we say they must be honest. We say they must treat everyone honestly and fairly and if charges are preferred against them under these rules they are tried and disciplined if found guilty. They can not be convicted without legal evidence in conformity with the rules adopted by the members themselves. Certainly nothing could be more fair than this. Mr. Lenroot. Have you a copy of the rules of the board that the committee can examine ? Mr. Canbt. Yes, sir; I have one here which I will give to you. [Mr. Canby hands a pamphlet to the chairman.] Now I am going to refer just briefly to a question that will be dis- cussed by the gentleman who will follow me in detail. And that is the question of inspection. The inspection of the State of Illinois is under the control of the State absolutely and finally, there is no member of the Chicago board of trade who would dare to try to in- fluence an inspector of grain. The chief inspector is Mr. John P. Gibbons, of Chicago, appointed by the governor and confirmed by 37214—14 15 226 GBAIN EXCHANGES. the senate of the State of IlUnois, and the department is under the control and absolute jurisdiction of the State public utilities com- mission. Hon. Edward G. Dimne, our present governor, succeeded, against the efforts of many of the business men in Chicago, in having a State utUities commission appointed instead of one that would simply apply to the city. The charge that Chicago dominates the State is untrue. This commission is composed of Hon. James E. Quan, ex-Governor Yates, Frank S. Funk, and ex-Judge Thompson. There are no more honored and respected men in the State of Ilhnois; they are men of character and integrity. They have complete jurisdiction over this entire question, and I wish to say now that the grain that is inspected into the Chicago public elevators and the grain that is inspected out of the Chicago pubhc elevators is exactly ahke as far as it is possible for it to be. There is no such thing as having two different standards of inspection in and out of our pubhc elevators. It is under the same department,, the same system, the same grade — everything is exactly the same. There is no market in this country — no market in the world to-day that has higher grades of grain than the contract grades in the public elevators in the city of Chicago— none in the world, and I challenge any statement to the contrary. In line with this subject I desire to state that we have shipped milUons of bushels of grain out of our public elevators to different parts of this country and also to many foreign coimtries since last fall on this crop, and I have not heard a single complaint in regard to the quality of the wheat or the standard of the grade. I wish to read into the record a telegram from John T. Fahey & Co., of Balti- more: During past year we have bought from Chicago and sold in Europe about 3,000,000 bushels 2 hard winter wheat, and quality has been very satisfactory. Mr. EoBBiNs. That is sold on State inspection? Mr. Canbt. Sold on State inspection; certainly. It is sold on the grade, not on sample, but on the grade. Here is a telegram from Louis MuUer Co., of Baltimore, dated March 4, 1914: We have bought several million bushels 2 hard winter wheat from Chicago firms on Chicago inspection during past two years. Quality was uniformly satisfactory to us and to our buyers. Gill & Fisher, of Baltimore, say: The Chicago grade of 2 hard wheat has been of very uniform quality this season, and has given great satisfaction to our foreign buyers. The statement either before this committee or anywhere else that the grades of grain in the Chicago pubhc elevators has been reduced, has been changed by any mixing, or anything else while in these pub- lic elevators is a base slander. It is a slander against an honest set of inspectors, and it is a slander against the intelhgence of the House. Mr. Canteill. Right there, let me ask you a question. National inspection, of course, would carry with it a national system of grading, I should think. Now, owing to the different quahties of wheat or of different grades of wheat, grown in different parts of the United States, is it possible and practicable to set down a national grading of wheat? GEAIN EXOHAOSTGES. 227 Mr. Canby. The question of grading is a very broad question. The wheat that is grown in one section it is quite true might not be uniform with the wheat grown in another section. But of course, that would be taken into consideration in estabUshingtheir system- of grading. How it would work out I do not know. We have been working for the past year in connection with the Department of Agriculture on a system for what we term Federal supervision, and "we think it is going to work out all right. That is, the Agricultural Department will estabhsh — they have already established — tentative grades of corn, which will go into effect. July 1. The Federal Gov- ernment will not inspect, but they will supervise, they will see that the State inspector has inspected the grain on the United States De- partment of Agriculture rule or basis. In my opinion it is practically the same thing as Federal inspection. It would be impossible to have Federal inspection alone in the State of Illinois at present, as the constitution of the State has a provision for State inspection in it. The grade of wheat is nothing more or less than a description, and to show you how uncertain at times in the country this is, I will read J^ou a letter that I have received — ^in effect it says that owing to the act that at the country stations as one farmer comes up with his wagon load and then another farmer comes up with his, and so on, the wheat is all dumped in together, it is very difl&cult to keep it separate, and the naixing of the wheat begins right at the country station. The mixing of the wheat of the different farmers begins right there, and one lot may be a little drier than another; one might have seeds or dirt in it, but it all goes in together and is loaded out together. Every grain buyer will tell you that one of the most diffi- cult things in the world is to inspect grain; that frequently two or three good judges of grain will disagree, and at times one man will reverse his own decision a little later on the same sample. The description of the grade itself shows that: No. 2 hard winter wheat shall include all varieties of hard winter wheat either or both light and dark colors, dry, sound, sweet, and clean, and may contain not more than 25 per cent of soft red winter wheat, and weigh not less than 69 pounds to the measured bushel. No. 3 hard winter wheat shall include all varieties of hard winter wheat or either or both light and dark colors, not clean or plump enough for No. 2, and may contain not more than 25 per cent of soft red winter wheat, and weigh not less than 56 pounds to the measured bushel. The only sure difference is the 3 pounds difference in weight of a bushel. If it can be tested out by what we term the Winchester stand- ard, it win show that one is 56 and the other is 59, but when it comes to the appearance of the wheat it is simply a question as to whether the inspector thinks the wheat is clean enough and plump enough to be No. 2 or it is not. That is on the appearance, and it does not make any difference how much he may try, he will come to points where he is uncertain how it should be graded. Nothing could be more unfair than to attack the honesty of the inspectors when there is a difference of opinion as to grade. There is no truth in the gen- eral statement that the inspection system is unfair if wheat goes into an elevator one grade and comes out a grade higher. The machinery necessary, to clean and prepare wheat after it has come to the private elevators — if it is full of dirt and stained, as it 228 GRAIN EXCHANGES. sometimes is, or it may have smut balls in it — the machinery for this work is very expensive, and it is not every place in the country where they have machinery of that kind. Consequently the clean- ing house is one of the great economic features of the terminal mar- ket. You must have the cleaning house, or there would be millions of bushels of wheat reduced very much more in grade than was orig- inally the case if it were not for the cleaning process. Mr. Cantkill. And this cleaning house in large measure accounts for the increased output of the higher grades ? Mr. Canby. Yes, sir. Mr. Canteill. That is my own personal experience as a farmer, and I want to have that point clear. For instance, I have run a threshing machine myself, and something may go wrong with the cylinder and some wheat go through while the machine is not running nght, I take that wheat and test it, and it might not run No. 3 wneat; but if I take it and run it through my spanner on the farm and put it through a cleaning process it will come out No. 2 wheat. Now is it your contention that these figures, as quoted by the other ■side, showing that you sell so many more million bushels of No. 2 wheat than went into the elevator — is it your contention that that is due to the process of cleaning it and bringing it up to grade ? Mr. Canby. I think their figures were taken on some elevator out- side of Chicago. Mr. Cantkill. If that is true, then, as I understamd it, then there is no fraud. It is purely a legitimate process. The dirty wheat comes in from the farmers' elevator, and the machine cleans it up and makes a higher grade out of it. Mr. Canby. Yes, exactly. Frequently there is no profit in it, because of the cost of labor. The cost of labor has to be considered in the elimination of the dirt, and the loss might be 800 or 1,000 pounds of dirt to the car^ Mr. Canteill. Of course, I understand that. Mr. Canby. Now, the point I made before is this: There is not a single bushel of wheat comes out of the Chicago public elevators any different in grade from what goes in. The private houses can have all the mixing places they please, but you can not clean or mix one bushel of grain in a Chicago public elevator. That is where the public comes in. Mr. Lenroot. How about mixing ? Mr. Canby. And you can not mix wheat in a public elevator. Mr. Manahan. But you can put mixed wheat in there. Mr. Canby. The law says you can put mixed wheat in there. Mr. Manahan. May I ask a question there ? The Chairman. If Mr. Canby does not object. Mr. Canby. I do object. The machinery of the State of Illinois, I have shown, has absolute and complete jurisdiction over the question of inspection, and also control of the elevators. The law gives the public utilities commis- sion, that I spoke of, control of these public elevators, and any citizen of the State of Illinois can go into the circuit court and object to the management of any elevator in the State. The judges of-the circuit court are Edward O. Brown, Thomas G. Windes, Merritt W. Pinckney, R. S. Tuthill, Frank Baker, John Gibbons, C. M. Walker, Lockwood Honore, John B. McGoorty, George Kersten, Frederick A. Smith, GRAIN EXCHANGES. 229 Adlor J. Petit, Kickham Scaiilon, Jesse A. Baldwin. Tiie circuit court of Chicago as a bench ranks high. It has been stated before your committee that a citizen could not have Ayrongs corrected imder the civil procedure of the State of Illinois; and I wish to tell you, because I love the State, that if there ever was a base slander in the world it is that. There is not one single item of evidence that any man can not obtain all the justice that any case requires before the courts of Illinois. The public utilities commission, as it stands to-day, has the confidence of every citizen of the State that knows anything about the men — never mind politics - of all parties. It is a nonpartisan body. We have come here for the purpose of demonstrating to you that our position is purely a commercial function, that there is no combine of any kind with any other market of this country or in any other country. We have come here to demonstrate to you that our ware- house receipts are the best collateral of any kind in this country. There is no collateral that any banker in this land would rather have — who knows anything about grain — than Chicago regular elevator receipts. We feel that the State of Illinois has been slandered and libeled during the course of this investigation. We feel that some of the false evidence that was given here, some of the false statements that were made here, have injured the farmers back in the country, because when you make a false allegation against an important terminal or export market — I do not care which — when you make an allegation which hurts the credit of that market, which destroys con- fidence in the market, whom does it react on? It goes back to the man in the country, because that is the channel through which the wheat must flow. The Chairman. Let me ask you, would you regard these ware- house receipts as good collateral to be put up with the Federal Keserve Board for the issuance of currency ? Mr. Canbt. The best in the world. The Chairman. Do you think they would be as good as prime commercial paper ? Mr. Canbt. Yes; there isn't anything in the world any better. Mr. Leneoot. It is considered equal to cash by the banks ? Mr. Canbt. Yes. Mr. Forgan of Chicago has made the statement that during times of monetary stress he would rather loan money on elevator receipts than he would on Government bonds. The Chairman. Would you consider it as liquid as currency based on prime commercial paper ? Mr. Canbt. Yes, sir; you can turn it into gold any day in the year. There is a gold market for wheat in Europe at any time. The Chairman. I am glad to hear yoii say that, because I made that suggestion when we were considering the currency bill, and they said I was too progressive. Mr. Joseph P. Griffin. In 1907, when we had the last panic, grain collateral in the pubhc elevators in Chicago was negotiable at any bank in Chicago when you positively comd not borrow money on pubhc bonds. That was because you could dispose of that wheat for gold; everybody must have wheat and they would give their money for it. Mr. Canbt. I want to lay stress on this point, that there is not a single item of evidence which discredits in any way the grain from 230 GEAIN EXCHANGES. our public elevators. I shipped about 70,000 bushels last year and there was not a complaint on a single peck. And those oraers were distributed aU around the eastern seaboard to a great many different people. Beginning five or six or seven years ago, there was a new light break- ing out over the United States, and smce then everything has been marking up to a little higher level and better understanding of the situation. People know everywhere now — they have known it more in the last year than ever before — that the day when you can put any- thing over on the people has gone forever. The watchword of the Chicago market is "Cooperation" with the producing and the grain deahng element of the country. We recognize clearly and posi- tively that the interest of every producer in the State of Illinois, Iowa, Nebraska, any State that is tributary to oxu- market — that his interest is mutual with ours, and if there is anything we can do to advance their interests, we will sit up nights trying to put it into effect. Not long ago we had a meeting at the State inspection de- partment of representatives of lUinois farmers, and grain dealers — the Chicago Board of Trade grain committee, composed of seven experts, and the State grain inspection officials. The meeting was to talk over the establishment of tentative grades of grain which will go into effect July 1, and we came to a unanimous decision; and it is my judgment that there is no question that can ever come up which in any way affects the interest of the grain trade, the producers of the country, or the terminal market; there is no difference that can pos- sibly come up which, with a Httle tact and a little diplomacy, can not be adjusted. There is no question that can not be disposed of between one element in the trade and another. They all have the same object in view, primarily, and that is an honest profit in the business. Mr. Chairman, I do not know of anyone — and I am speak- ing positively — I do not know of a single man of the 1,640 members of the Chicago Board of Trade who would not do anything he possibly could to preserve the integrity of our markets. That is the point we strive to maintain. I went to a little dinner not long ago, given by one branch of our association called the receivers' association. Those men are all commission merchants. They send out their cards to the country, and some of them travel for the purpose of getting business for their Chicago firms. There was not one utterance at the dinner of 160 grain men — not a single utterance that was not along the line of " What can we originate, what can we do, that wiU help us out in the country?" That was the sentiment. Mr. Lenroot. If you are about through with your remarks, I want to ask you one question. Is the average quauty of a given grade coming into the New York or Chicago market higher than ihe aver-- age quality of that grade going out of the Chicago market ? Mr. Canby. No ; I should say not. It will all depend on whether there is any large amount of dirty wheat coming in or not. Mr. Lenroot. It is charged that — here is a car coming in, an average car, running from the lowest of the grade to ^e higli,est. Now, then, aU of these higher grades are mixed with the lower grasps so as to bring them both to test a higher grade, and it goes out that way. Does not that affect the price to the farmer of that particular grade of wheat ? ORAIN EXCHANGES. 231 Mr. Canby. No, sir. The wheat is always graded on a range, and the price of wheat is always based on the grain itself. They are not expecting a dollar and ten cents worth of anything for a dollar. That is not business. Now, a grade is a certain specific requirement; it must be 59 pounds to the bushel for No. 2, and it must fill stated requirements of grade, and that is what the buyer buys. Now, for the seller of wheat, his wheat is simply sold on the grade, and he takes the same chances that the buyer and everybody else does. In wheat coming from the country, there might be in the same car three or four different kinds ; one end of the car might have high No. 2 in it, and the other end a lower No. 2, and there might be all kinds all through it. Mr. Lenroot. Does not the price of a given grade depend on the average quality of the wheat itself in that car ? Mr. Canby. Yes, sir. Mr. Lenroot. Now, if the average quality of that grade was less going out of Chicago than it was coming into Chicago, would not the price of that grade be less in Chicago to the buyers there ? I am just assuming that condition. Mr. Canby. It has not been so this year. The average has been very close. Mr. Lenroot. The average quality in both grades ? Mr. Canby. Yes; very close. Now, I want to disabuse your minds of one thing. We do not grade oiu- wheat into the pubhc elevators on the bottom of the grade ; we do not do that. Not long ago I took several hundred thousand bushels of oats out of a pubhc warehouse, and they weighed 2 pounds over standard, and I took them out of seven different elevators. No, sir ; they do not grade it down. That idea is not correct. The Chairman. The committee will take a recess at this point until 2 o'clock this afternoon. AFTER RECESS. At the expiration of the recess the committee assembled. Mr. Cantrill (presiding). The chairman has requested me to go ahead with this hearing until he returns. STATEMENT OF ME. C. H. CANBY— Resumed. Mr. Canby. Mr. Chairman, I desire to add to my evidence on the question of inspection the following statement taken from the United States Department of Labor, Bureau of Labor Statistics, No. 130, entitled Wheat and flour prices from farmer to consumer" [reading] : The States make provision for the grading and inspection of grain for the con- venience both of the buyer and the seller. The fee for inspection provided by the Jaw of Kansas is 1 per cent per 1,000 pounds, miTiimiini capacity of car, which fee in practice is paid by the shipper of the wheat. A fee of like amount and paid in like manner is charged for weighing. As already explained, wheat is graded according to its weight, its soundness, ite freedom from foreign matter, and recently also by ito coloi'.^='The only certain element entering into this grading is that of test weight. The other elements are determined according to the judgment of the inspector. As a consequence there is much conflict of judgment as to the grading of wheat. In- spectors disagree with each other, and sometimes an inspector reverses his previous grading, and there are frequent appeals frMn the decision of an inspector to that of the chief inspector. 232 GEAIN EXCHANGES. I make this statement for the reason that the testimony submitted during the past few days has shown that there is a disposition to blame some one and to severely criticize the receiver at a teirminial market frequently when the return on the grade does not meet the feelings or the opinions of the shipper, I put this in to show that that can take place very readily and very easily, and it is part of the accidents of the trade. In the testimony submitted on Tuesday there was a statement made in regard to the volume of a fair day's trading in wheat on the board of trade in the city of Chicago. The party testifying made the statement that it was 100,000,000 bushels. My observation and my opportunities for observation tell me that those figures are grossly exaggerated, and with deliberation I beUeve that it can be stated that it is ten times too large. Juggling with big figures is comparatively easy in the mind, but to estabnsh any such enormous figures as those transactions would be necessary which would be away beyond any- thing that would take place in any ordinary year — I do not recollect ever having known of such a thing. It must be remembered in connection with the volume of trade for any given day, in any market or for any given week in the future market, that all of the actual wheat which is hedged does not go to the market itself, so that a comparison between receipts during a given month or any year with the sales for future deHvery does not show the actual condition which results, connecting those trades with cash trades. For example, corn moves throu^ Iowa down to St. Louis on the Burlington road, and by reason of a smaller market there the hedges are placed in Chicago, 1,000,000 to 3,000,000 bushels, according to the capacity of the elevator. This corn is merchandised to different Southern States, usually from St. Louis, sometimes east- ward for an export outlet by the way of Newport News, not a bushel of it is shipped to Chicago; but when the grain is distributed and sold the hedges placed m Chicago are bought in. Thus by the economic function of future sales in Chicago there are millions of bushels — many millions of bushels — of that kind of merchandising and distributing takes place every year in Kansas and Nebraska, Mis- souri, Illinois, Indiana, Ohio, and even from the Northwest. So the idea that some one may have of large figures of future sales does not give the real facts and conditions surrounding what those transac- tions represent. I am going to take up the question of the buying and selling of wheat for future dehvery, and treat it purely as an economic question. The Chicago Board of Trade, which I have the honor to represent, takes the position that buying and selUng for future dehvery is one of the most economical of all economic functions; that it is the best Siece of machinery that the human mind ever devised for the pro- ucer, for the consumer, and for the different parties in interest who handle grain. The banking collateral value of grain is one of the most important points to consider in connection with this question, and it is one that vitally interests the farmer at the present time and under our present system. I would be glad to negotiate a loan on any grain in a good house that can be insured, on a basis of 5 cents margin on wheat, and of 2 or 3 cents a bushel on corn and oats. The fact that banking collateral is of a high character stimulates the disposi- tion of buyers to accumulate gram when it moves after the harvest GRAIN EXCHANGES. 233 season. The crops of the country are harvested usually within a limited period of time; wheat within 90 days, oats probably within 60 days. Just as soon as the grain moves from the farm there is a great property interest created. The farmer wants his money, properly so ; it is a full year's crop and debts must be paid. The sale of tne grain to some one is essential to get the money, unless the farmer is willing to keep it and go to the country banker, borrow the money, and carry it himself. But, assuming that he does not wish to assume this risk, he has the opportunity to sell it for future delivery in the termuial market. The speculator performs the function of insurance by assuming the risk until it is finally absorbed in the channels of dis- tribution to the ultimate consumer. The western country has been filling up with small elevators in many places. Farmers have cooperative elevator companies and private interests have theirs. They are everywhere. A great many of these elevators, in my opinion, would be forced out of business if they could not place a sale hedge against the grain that they purchase from fanners. The bankers of Chicago handle in the course of the year many milhons of dollars of loans on grain. They loan money on grain in houses in Iowa, and through Illinois, and frequently up in the Northwest. These loans are considered, when with reputable people, very desirable, owing to the system of protection afforded by the future market. All this goes to help the farmers' price. To maintain this system you must have the speculator, because when the orders to sell the grain for future delivery come to the terminal market the milling buyer or the shipper may not be in the market that day, and there must be a constant buying power. There must be a situation where you can sell any day you wish to and any time during the day. The elimination of the speculative buyer, who stands in the center of the transaction as a function of insurance, would force the element of speculation either back to the farmer, who perhaps does not want to speculate or force it toward the consumer, who does not wish to buy a long period of supplies ahead. There is no way, as long as sur- {)lus quantities of tangible property exist, that the element of specu- ation can ever be removed. It has existed since the earhest days of commerce and wiU probably exist until the end of time. Mr. Kelley. Mr. Canby, would you just permit a suggestion ? Mr. Canby. Yes; if it will not take but a second. I am in a hurry. Mr. Kelley. So far as I am concerned I do not object to future sales of actual grain, and I never have. Mr. Canby. I will answer that. Now, do not interrupt me again, because I am in a hurry. The gentleman said he did not take excep- tion to future sales of actual grain. The question now is. Who is he going to sell it to if you take from the market the speculative buyer when the miller or shipping buyer has already supplied his wants ? The millers must have a market where they can constantly buy, and the farmers must have a market where they can constantly sell, and to perform those functions you must have the speculative interests who, are wilUng to either sell or buy. Under this system the smaU dealer is on the same footing as the large capitahst except as to the quantity he might buy. He can buy at the same price to the one- eighth of a cent per bushel. On the board of trade of the city of Chicago the greatest capitalist in the United States could not buy 234 GEAIN EXCHANGES. 1,000,000 bushels or 5,000 bushels or 1,000 bushels for future delivery an eighth cent cheaper than the man with a sftiall flour mill which only produces about 50 barrels a day. They are on the same footing of perfect equality. The competitive system, which is brought about by this condition of affairs, is the direct result of competition, the maintenance of com- petition — the point our honored President has been preaching ever since he went into office. The speculator who is willing to assume the risk — he is insuring something — ^for the farmer, shipper, or miller is not getting something for nothing by the purchase or sale for future delivery, by any manner of means. He is performing a valuable function where he stands ready to perform a legal service, and for that reason, if he makes a profit, weU and good; if he makes a loss, that is the chance of all business. The purchase of a ton of pig iron is no different from the purchase of 5,000 bushels of wheat for future delivery. The contracts are legal and the service beneficial. My experience and observation have been, covering a period of 32 je&is, that the purchase and sale for future delivery does not raise or lower the average of prices, but it is an equahzing force, tending to bring the consumers' and -producers' basis closer together. The Producer's price is held up and the consuming price is held down, 'hey are brought nearer together by the natural force of competitive buymg and selling. No man, unless he expected to take large chances, and then he would immediately become a large speculator, would take those chances. in commerce without the opportunity to hedge his grain, either on the purchase side or the sale side. It operates one way just the same as the other. The mUlers are constantly making contracts for flour for delivery one, two, or three months ahead. They can not carrj all the wheat in their mill elevators that these future sales of flour would require; they can not do that. What do they do ? They are buyers of wheat for dehvery in the months of May, June, or July — one, two, three, or four months ahead. Who are they going to buy from? They must buy it from somebody that is willing to sell, and if the party who is willing to sell is a speculator, is he not performing a function that is vital in the business proposition by assuming that risk? Whatever cost there is in the working out of this system might be termed the premium on insurance. You can not get somethmg for nothing, and our contention is that this is a great vital function of commerce. It stands to reason that some- where there is a cost, but that cost, whatever it is and wherever it is borne, is, we claim, very small for the service rendered. The first effect of proposed legislation, or any factor which would hamper and disturb the markets for the purchase and sale for future delivery of grain, would be a declining influence on prices in the country. How and why ? Between the middle of June and the middle of September the entire wheat crop of the United States is harvested. Last year it was approximately 740,000,000 bushels. Our domestic consumption is only 45,000,000 bushels per month, which proves that there is an enormous property valine crea1;ed which, if the producers wished to turn into money, they must' find some one who is willing to assume the speculative risk between that period and the time it goes into consumption. If you remove the speculator, who is the buyer at times and who at other times is the GRAIN EXCHANGES. 235 seller and who makes that constant market by which you can turn the grain into gold at any time, who is to take and assume the risk ? So that from any standpoint, from any viewpoint possible, I can not see where and how Congress would ever be justified in interfering with this system. These exchanges must conduct their business on a high plane of morality; they have got to do that. On our board that is the one thing we contend for, and with 1,640 members you can readily see that it is not possible to have 1,640 perfect people, but I do claim that man for man, member for member, the members of the Chicago Board of Trade wUl stand as high in honor as any equal number of men in any business or profession in the world. (Mx. Canbyhere read the following from Bulletin 130, Department of Labor:) The grain trade in the United States is the most competitive in character of any business in the world. This is a broad statement, but the evidence fuUy indorses that statement. There is no other business either, in this country or in Europe where the competition of the buyers through the country have raised the price of the grain up, as it is under this system during the past 25 or 30 years. The tendency has been to a constant narrowing of the difference in price between producer and consumer, so that to-day the value of a bushel of wheat in a barrel of flour is the closest to the price that the fanner receives of any important food product in the world. It is impossible to legislate on any general Une both ways at the same time. And people should be fair about it. The consumer is just as much interested in the prosperity of the farmer as any one else, because it all comes around again in the general evolution of things. When the consumer expects or tries to get flour any cheaper than it is to-day, relative to the money that is paid to the farmers, he is unreasonable. The actual cost of the flour that each person in the United States — and this is on the average — constmies m the course of a year, according to the United States Department of Agriculture statistics, 5.51 bushels, is only IJ cents per day. So that it is the cheapest thing and the most important food product at the present time. Furthermore, a change of 10 cents a bushel, which would give the farmer a good additionafprofit, is only fifteen one-hundredths of a cent a day additional, so that viewed from any standpoint there is no waste in this system. Mr. Cantrill. Right there, Mr. Canby, just let me ask you this question, please. Mr. Canby. Yes, sir. Mr. Cantrill. From your statement, the consumers are getting their flour at a very reasonable price. There is no imposition being put on the consumer who buys the flour, and you have very accurate and complete figures on that proposition. Could you give this com- mittee the figures to show that so far as the producer of the wheat is concerned, that he is securing a fair return for his investment, and for his labor — whether or not the growing of wheat in your judg- ment is a profitable business in the country, and that his interests are preserved as well as the interests of the consumer? Mr. Canby. It is a very difficult matter, sir, to make an answer to"t4iat question, because you can not make it general. The condi- ti6ns are very different in the different sections of the country. ' Mr. Cantrill. Conditions are very different, too, as to consump- tion in different parts of the country. Since you had covered that end, I thought possibly you had also covered the other end. 236 GRAIN EXCHANGES. Mr. Canby. I will say this, that on the basis of the price the con- sumer is buying his flour to-day, the farmer receives ,a higher price relatively than he ever did before in the history of the country. There is no time in the past when the farmer got as large a percent- age of the price that the consumer pays as to-day on wheat. It is an extremely economical function. Mr. Canteill. Just in a general way let me ask you this question. Mr. Canby. Yes, sir. Mr. Cantbill. Do you consider the production of wheat hj the wheat farmers now as profitable business for the farmers? Is the price such, in your judgment, in a general way, that it is a profitable business for the farmer ? Mr. Canby. I should say that, like all other businesses, you have to say "yes" in maiiy cases and perhaps "no" in some others. I think yes, in some cases. Mr.- Canteill. Taking the country over, as a general proposition, or the wheat-growing States ? Mr. Canby. Wheat is not as profitable, in my opinion, as some of the other grain, but you must remember, at least I must remember, that it is very necessary in some sections of the country that the farmer must raise wheat, first, to rotate his crops, second, he must have the straw. Wheat straw brings a good price, and he uses quite a lot, especially where- there is dairying. I wish to draw a comparison between the conditions that exist in this country and the conditions which exist in Argentina. That is a country without any great open markets. The grain trade is largely in the hands of a very few big capitahsts. The result is that the big buyers leave a margin just a little over what is necessary to keep the producers in the business. They pay him just a small margin over what they know the cost of production is, and there is the biggest margin between the price that the producer receives in the Argentine EepubHc and the markets of Europe than is received by any other country in the world. One of the features of this business in the United States, as stated in the Bulletin 130 of the United States Department of Labor Sta- tistics, is the desire for independence by those engaged in production and distribution; in other words, hostility to trusts and combina- tions [reading]: IFrom Bulletin 130, Department of Agriculture.] When a grain dealer or miller has a quantity of wheat on hand and does not desire to run the risk of a decline in price before he can sell it, he hedges in the grain mar- ket by selling a " future; " that is, he enters into a contract of sale for future delivery. Should the price of wheat advance he makes a profit on his wheat in stock and loses on his future when he closes it out. On the other hand, should the price of wheat decline, he loses on his wheat in stock but makes a profit on his future by buying on the market at a lower price to close it out. Thus ihe speculative side of the grain market aSords the dealer in actual grain an opportunity to do a comparatively safe and conservative business. Without the opportunity to deal in futures, conserva- tive dealers state that they would not buy wheat in any considerable quantity except on a much wider margin and at a consequent lower price. It ought to be apparent, I think, to almost anyone who, will jl^hiak the matter over calmly and deliberately, that if you remove anv large number of buyers aiid sellers from an economic field you will certainly change the relative condition of competition a^ compared with monopolStic control, and my contention is that if anything GEAIN EXCHANGES. 237 is done to injure or cripple the buying and selling for future delivery, that big capital interests would enter the field when the grain is going to move, then accumulate it imtil the surplus was secured; after that when the consumer buys from month to month the price would be marked up and the margin would be three or four or five times what it is to-day between producer and consumer. I wish to introduce as part of my remarks a speech made by Senator E. D. White, of Louisiana, now Chief Justice White of the United States Supreme Court. This was before the United States Senate, July 21 and 22, concerning the Washburn biU, a measure designed to prohibit future dealings in grain, cotton, and pork products (reading): [Speech of Senator Edward D. White, of Louisiana, now Chief Justice of the Supreme Court, before the United States Senate July 21 and 22, 1892, concerning the Washburn bill, a measure designed to prohibit future dealings in pork products, grain, and cotton.] Mr. President, the votes which have bev^n hitherto had in the Senate to take up this bill and the general line on which the argument has proceeded seem to indicate that there is probably a majority sentiment on the floor in favor of the bill. I should hesitate very much with this knowledge to make any very elaborate discussion as to the constitutionality of the bill, or to the wisdom of the legislation which it pro- pounds, if I were not profoundly conscious that in my judgment there has been, before the American Congress for many years no more pernicious, no more vicious, no more flagrantly unconstitutional legislation, no legislation more tending to under- mine and destroy the very foundations of our Government, and none more calculated to do untold and untellable harm to the people of this great country. The interests which this proposed legislation affect are enormous. The products, the price or sale of which the bill attempts to regulate, run up into vast proportions. The theory of the Senator who presents the bill and who urges it with so much zeal. on this floor is that, if the bill passes, to all the great body of the consumers of this country, representing 78 per cent of the population, there is to be an enhance- ment in the cost of these vast products. If, then, the arguments of the proponents of the bill be true, upon nearly $3,000,000,000 of products the effect of this legisla- tion will be to increase the price to all the consumers of the country. My judgment is, on the other hand, that if the bill passes, the necessary effect will be to reduce the prices obtained by the producers of the country to a considerable degree upon this great sum. With mese great issues involved in this bill, issues which go home to every hearth- stone in this land, issues which reach out their fingers into the pockets of every man, be he rich or poor, I think I shall be justified in an attempt to discuss its provisions deliberately, in order to point out what I conceive to be the flagrant constitutional defects which are involved in it, and the gross financial and business, heresies which it contains. Mr. President, let me analyze the bill. What does the first section provide? It has been gone over very frequently, but I shall go over it again in order to make clear what I shall endeavor to say. The first section forbids options, which are the argot of the commercial gamblers, are known as "puts and calls." Now, what is a put or call, or an option, as defined in this bill? It is a contract in which a man gives to another a sum of money for the privilege of calling upon that man to deliver property, or for the privilege of delivering to him. It is a purely unilateral contract, by which a man gives a sum of money for the privilege of delivering or receiving property. So far as this contract is concerned, or trds so-called contract, I have no word of defense to raise, because it is a contract which engenders no obligation per se. Courts of this land, at least the courts in my State, have declared it is a contract without a consideration, which can not be enforced; that it involves within its bosom an ele- ment of chance which makes it purely aleatory, and therefore takes it out of the domain of all those great contracts around which the law throws the shelter of its protection and the instrumentalities for its enforcement. ■^'hat does the second section provide? The second section defines futures. What does it define futures to be? It defines any contract to be a future where the one sdling at the time of sale is not the actual owner of the property, however real may be his intention to deliver at the time stipulated and however great may be his means of fulfillment. What else does it provide? After defining this contract it then goes 238 GRAIN EXCHANGES. on to say that neither the Government of the United States nor any municipality,- nor any State, nor any farmer, in go far as he may have made a crop or had a crop in progress of being made, shall be brought within the grasp of the provision. The amendment which has been adopted on the motion of the Senator from Minnesota: also takes all retail dealers out of the reach of the second section. The bill defines options. The bill defines futures. Is the definition general in both cases? It is. Now, if the proposed statute stopped there and contained its pen- alties, then every human being and every contract for options and futures wherever our administration extended would be brought within the provisions of a general statute. Does this bill do that? No; it is discriminating from one end to the other. It is flagrantly and openly discriminating. After defining options and futures, then the bill goes on to say, not that all contracts of that kind within this broad land shall come within reach of this general statute. No; but it picks out particular things and particular subjects matter to make them alone the subjects of the general law, which, if it has any foundation in public necessity or public right, should operate over a sway as broad as our jurisdiction. Now, to what is the bill applied? Here are these contracts and here are these general definitions. What does the bUl say? That the articles to which the foregoing sections relate, raw pr unmanufactured cotton, hops, wheat, corn, oats, rye, barley, pork, lard, and bacon. Of all the vast objects of contract in this land it makes a gen- eral definition and then singles these out alone to cover them by the proyisions of the statute. If there is a Senator who does not admit that from the day of the Ma^na Charta down, the first and the elementary principle laid down by English-speaking people is that the general laws should be operated generally and that no discrimina- tions should be exercised? The distinguished Senator from Mississippi [Mr. George] helped to frame a constitution in his State recently. I venture to say that in Qie exercise of the power vested in the Legislature of the State of Mississippi this discrim- inating clause would be stricken with constitutional paralysis, because it was not in general law. There is not a modern State constitution in this Union which has not put its anathema on discrimination. How, then, is this bill justified? I do not know. By what rule has it been written? What has been the prescience which has looked over all this land and picked out these particular objects to make them alone the sub- ject matter of this discriminating law? Mr. President, be the clamor what it may, I know my people well and I should' not be afraid to go with my vote before them with this third section in my hand and invoke their ordinary sense of common American fair play and feel absolutely confident of their denunciation of this attempt to discriminate in favor of the one product as against another product. How is this justified? I have heard some talk about agricultural products. My mail has been burdened every day for almost a month with some circular gotten up by some committee somewhere. The Senator says that this bill is in the inteiest of the farmers, that the farmers are scattered; that they are not oiganized and can not protect their ri^ht, and, therefore, they must be looked after. My mail has been burdened with private letters, telegrams, circulars, newspapers, pamphlets, in favor of the bill which has engendered in myjnind a deep-seated alarm that there is a mighty conspiracy against the consumers of^ the counby and in favor of certain favored persons, and I think I can demonstrate such to be the fact before I take my seat. Now, take food products. Does this bill embrace food products? Is cotton a food product? Where are butter and cheese and cattle, and all the thousand other food products which are left out of this bUl which is called a food-product bUl? You have in the bill things which are not food products and you have not food products in, and yet it said great clamor comes up for this bill from the American people because it ia a bill to protect food products. If we are going to protect food products, let us protect them . Do not let us discriminate. If the gamoling spirit is what the Senator thinks, then this bill is going to close the exchanges to these products and open the bucket shops ard gambling saloons all over the country to the products which he discriminates against, and we must write in the title, "An act passed by Congress of the United States to stimulate gambling in the agricultural products, and to encourage the opening of bucket chops, by forbidding gambling in a few products and licensing as to the others." ■ But, Mr. President, what a proposition, that these things are picked out for anathema and denunciation because titiey are dealt in on boards of trade. God of mercy, in this age of the world are we to shut our eyes to every teaching of the English-speaHng race? Are we to confess that we are more ignorant than were our forefathers 200 years ago? What is the history of English commerce? What has enabled it to grow and prosper, carry on its wings the light of civilization and religion and truth all over this world? What has done it, sir, but the energies of the great commercial bodies of the world, GRAIN EXCHANGES. 239 epeaking through their chambers of commerce and their boards of trade? The very structure of our Government, almost the very fiber of this Government, was evolved in that country which preserved iti liberties by the efforts of its great bodies of mer- chants assembled together for the purpose of trading. The very essence of trading is liberty itself; intercourse engenders the immortal spirit of liberty from the very fact that men gather together ir the interest of commerce, which needs th j wings of liberty and of peace to spread itself in enlightening and improving the world. Let us see what the argument or the Senator would lead uo to. What are these boards of trade? They are merely the aggregation of merchants who meet in a room to collect the information necessary to enable every man to trade on an equal footing. The telegraph, the reports of all kinds, the bulletin board, and everything open; so, if I may be pardoned the use of such slang expression, there is a fair and square deal; and the man who buys and the man who sells, all possessing the information which is garnered all over the whole world, deal on an equal footing. Mr. President, boards of trade are true evolutions of that doctrine of equality which has dominated the world, the equality and liberty of man. The poor man with small capital who comes into the great chambers of commerce and the boards of trade, with all the information exposed to his view, needs to protect himself from being gouged and destroyed only with the light of reason which God has given him. It is putting him on an equality with the rich man. The purpose of this bill, then, is to strike down all the trading which can be done at an equal advantage and to stimulate the trading where the small man will be at the mercy of the big man. Its purpose, then, is to allow trading where all the protection which modem society and modern commerce have evolved will be destroyed. * * * Mr. President, when I surrendered the floor yesterday I was discussing what I con- ceived to be the confusions and the discrimination in the terms of the bill as to the provisions creating or defining the acts which the bill prohibits, or virtually prohibits, BO as to show that the objects embraced in these definitions were defined by no rule, followed no coherent or consistent line of thought, conflicted one with the other, and were utterly and entirely irreconcilable. If we view the bill as classifying the products as agricultiu-al products, then a vast number of agricultural products were omitted. If we view the bill as a classification of food products, it omits many things which are food products. In answer to that argument, the Senator from Minnesota [Mr. Washburn] jesterday said that the line of thought along which the bill proceeded was to reach things which were traded in on boards of trade. The argument which was had yesterday I think led up directly to the conclusion that if that were the line of thought which dominated the bill, then the necessary effect of the bill was to increase instead of decrease gambling and speculation, because, as this system of gambling and speculation has its origin in the inevitable tendency of the human character to take risks, particularly under the conditions of modem Ufe, the exclusion of a few articles which were gambled in to-day, leaving the vast sum of human products out of the inhibitions of the bill, would simply deflect the channel of gambling from the bed into which it now flows into a wider and deeper and stronger and a more pernicious stream of gambling. I called attention, however, I think, yesterday to the fact that there was, in my judgment, a philosophically fundamental mistake in attempting to forbid speculative tendencies on boards of trade where that tendency could be executed with reasonable honesty and with reasonable precaution, and encourage and foster speculation where those restraints and restrictions and precautions did not exist. Last night my attention was called to a discussion of this question in a book on politi- cal economy, which seems to be so opposite, so entirely to embrace the subject matter of this discussion that I will send to the desk and have read the paragraph to which I wish to call your attention: "It is a singular fact that markets have been the subject of popular prejudice and moral objection almost in proportion to the perfection with which they economize time, transporting an effort, and equalize prices. The proper meaning of a market is not merely the place set apart in which buyers and sellers may meet with their goods, but all that territory, with its groups of buyers and sellers, consumers and producers, of which the residents are so brought into union and contact with each other by the mutual intelligence which arises through reciprocal commerce that one price is arrived at by all with facility and promptitude. "A market rises into its highest efficiency and value when it concentrates into ore focusisojarge aproportion of the buyers and sellers of a certain commodity as to become, in conjunctiotfwith one or two other markets of the safe kind, in authoritative standard of prices of tiie articles in which it deals, for all buyers and sellers through the world. By aid of the quick intelligence which the telegraph supplies and of the swift transpor- tation, which steam affords, the whole world is then converted into one market having 240 GRAIN EXCHANGES. one price subject only to cost of transportation of the product between the point ior whidh the price is quoted and all other pcriiits. Such marJkets are the Bourse of Paris for stocks and securities, the London Stock Exchange as well as the London Produce Exchamge, the Liverpool and New York Cotton Exchanges, the New York Stock Ejx- change. Product Exoiange and Real Estate Exchange, and formerly the Gold Raom and tiie boards of Trade (grain and produce exchange) of Chicago, in conjunction with those of other Western cities, and that of Liverpool." Concerning these exchanges. Prof. Jevons says: The theoretical conception of a perfect market is more or less completely carried out in practice. It is the work of torokers in any extensive market to oigonize exchanges, so that every purchase shall be made with the most thorough acquaintance with the conditions of the trade. Each broker strives to gain the best knowledge of the condi- tions of the supply and demand and the earliest intimation of any change. He is in communication with as many other brokers as possible, in order to have the widest range of information and the greatest chance of making suitable exchanges. It is only thus thatu definite market price can be ascertained at every moment and varied according to the frequent news capable of affecting buyers and sellers. By the mediation of a body of brokers a complete consensus is established and the stock of every seller nr the demaaid of every buyer brought into the market. It is the very essence of trade to have wide and constant information. A market, then, is theoreti- cally perfect only when all traders have perfect knowledge of the cJondition of supply and demand and the consequent ratio of exchange; and in such a market as we shall now see, there can only be one ratio of exchange of uniform commodity at any moment. Mr. President, the object of this bill, the very classification defined in the bill, is to exclude the products which are dealt in on tliis kind of a market and leave outside of the operations of the bill, the products which are dealt in on another or unrecognized market. I ask the desk to have read the description of ttie other market to which the things not brought into the bill are neglected : "In the sale of carriages, pianos, jewelry, clothing, and other things which do not admit of such authoritive contest over the price, there is great inequality in the prices at which two persons in the same city on the same day may buy two filings of the same kind and of equal value. Hence there is great cheating in such trading. One may pay |200 for a watch which another buys for $100. There is no standard. In all these grades of goods long credits must be given as the dealers must hold the goods until they reach consumers. But in articles dealt in by product exchanges the price is advanced to the producer, and his crop can always be sold if he desires, even before it is harvested. Hence the authoritative manufacture of prices confers some- what the same benefit upon a community as is conferred by an authoritative standard of law, religion, manner, and ethics. It enables every man to know each moment how he stands relatively to the results of his past exertions, what they have cost, and how much he can get for them." Such, Mr. President, is the description of the market destroyed by the provisions of this bill. In conclusion I respectfully protest against a favorable report on the Manahan resolution, as we deny that any of the allegations re- lating to the Chicago Board of Trade and the grain trade conditions in Chicago have any basis in truth. STATEMENT OF MR. JAMES SIMPSON, OF NEW YOEK. Mr. Simpson. Mr. Chairman, I am what is termed "a distributor of grain." I deal in grain and grain products and hay and straw, and represent what you may say is purely legitima^te in this line. I just came in here this morning. I got a piece of paper and made hurried notes. So I have come without any preparation, and I will speak a few minutes on the things I know of, and my experiences pertaining to the necessities of exchanges and the trading thereon, the legitimacy of the requirements of hedging, etc. ^ The one pomt with respect to hedging for legitimate ope^tiong,, and it is the whole of the trading in futures, is entirely based upon the legitimate handling of the grain. We handle this grain, and I think I can safely say that there is no business that affords as small a per- centage of profit; on the other hand, I can also say that I think that GEAIN EXCHANGES. 241 there is no buaijiess that under the machinery of handling that is attended with so little loss. For instance, to illustrate, in the case of a failure of a grain merchant, it is not Uke a manufacturing concern. The disposal of his assets is not attended with material loss. A man may fail in some manufacturing interest, say cotton goods or some- thing else, and the handling and getting rid of his fabrics would make a loss, whereas, getting rid of the bankrupt stock of grain is attended with none, hardly. We usually get in the handling of this grain about one-half cent a bushel gross, and if you will note the instance of com at 65 cents a bushel, a carload containing 1,000 bushels is $650. You can see at once that the percentage of profit is less than 1 per cent. Out of that, of course, we have our expenses. We make contracts. I want to illustrate the necessity of what we call hedging or trading in futures, the grain for future dehvery. I have right now, for instance, grain sold in carloads to be distrib- uted to the dealers throughout the East from March to October, inclusive. The relation there, the point is, that the old crop will extend up until October. A new crop will be harvested next fall. We sell one man, for instance, over at Paterson, N. J., or out West, or Massachusetts, or at Hartford, and all of the small towns, perhaps a car a month, actual cars of grain, and he buys that way, oecause he makes contracts — contracting work is going on all the time — and a party with a large contract must know what his expenses are. So he buys in that way, and we sell to him in that way. I then, in turn, will buy in the city of Chicago — buy the contract grain. I had delivered to me in December contract oats, buying the December futures. Then they hand me out of the pubhc elevators the oats, load them into cars, and distribute them all over the East. In fact, I supply grain to those who supply the poMce department of the city of New York, the street-cleaning department, the fire depart- ment. They put out proposals asking us to give a price and submit an offer to supply that department with so much per month, each month around, the whole year. We put in our bid, we make an offer that we will supply at such and such a price, and the lowest offer is accepted by the city. How in the world could I supply the city of New York, on one hand, unless I was able to buy the futures in Chicago or elsewhere. I buy on all exchanges that way — exchanges at Peoria, St. Louis, Indianapolis, Toledo, Minneapolis, Buffalo. The city of New York, on its part, must know how to make up a budget, so as to provide the expenses of the municipal government. They must know what they are going to pay to feed the horses. So they come to us and ask us to make a contract for that, and we in turn make a contract. If we did not have the futures to trade in it would be impossible to say, "I shall deliver oats next September." Permit me to say they do not even exist; but we know they will exist. We can foresee the existence, and the composite mind is operating all the time. We get at the value of that. The farmer is raising it all the time; he will produce it for us, and the party in Chicago will sell it to me legitimately and will deliver it to me every time, always and invariably. There was a contract made in the city of New York for delivery to the Government for the Panama Canal work extending over a long period of time. 37214—14 ^16 242 GRAIN EXCHANGES. The necessity for the operation on exchanges must be apparent to you. Something has been said — in fact, I read the resolution — and there is a reference to the violent fluctuation brought about through market operations. There is no such thing as trading in hay on the Chicago JBoard of Trade, in the nature of these futures, such as referred to in wheat, corn, and oats. But I remember very vividly years ago a fierce drought that existed throughout the State, from about the Allegheny Hne all through the East. It was so bad that the pall of smoke from the forest fires alone swept over the city of New York. That drought started in early April and lasted until the 1st of June. It got to a point where it made itself severely felt, but it appeared that the hay crop was about ruined. There was a sudden advance in hay of $14 a ton, or just twice the price that existed before. I also remember dis- tinctly that on the 7th day of Jane — I will never forget it — it rained, and it did not stop raining for one week all over this country, and after the end of that next week, when it was discovered that a reason- able crop of hay was made, through the blessings of Providence, hay went right back again, right away, quickly. There were no manipu- lations. Nobody had anything to do with that. Nature did it all, nothing else. It is simply the mevitable law of supply and demand. The violent fluctuations are brought about not through any kiad of combinations and monopoUes. They do come about through force of nature. The curtailment of crops by drought, etc. That with respect to hay I mentioned to you to show you how little has the boards of trade to do with such matters. I wiU speak a minute on the inspection. From my standpoint, as a buyer — I buy oats and corn from the hundreds of dealers throughout the West, members of the Chicago Board of Trade and the Chamber of Commerce of Minneapolis and Toledo and Peoria, and they will deliver me standard white oats, or they will dehver No. 3 yellow corn or No. 2 yellow corn, and a certificate is issued -with each car that I ship out, and I ship the cars by the hundreds to every small town all over the East. Not only am I myself and my concern altogether satisfied with this inspection service; they are inviolate; they pass like the "coin of thereabn." I paymymoney forthoseoats If they five me the piece of paper officially signed, stating that in that car is To. 3 white oats, No. 2 standard oats. No. 3 yeUow corn, or No. 2 yellow corn, as the case may be, I am perfectly satisfied. As I say, not only am I perfectly satisfied, but so is every little dealer at the smallest town that I deliver a car to. He knows he is getting what he bought; he is perfectly satisfied with it; he pays his money and we do not have complaints. We have a right of appeal. If, for instance, I report 100,000 bushels of oats from somebody out there, and while that i3 loading out, I may, if I choose, have a private inspector look at those oats being loaded in, and he may say, if he sees fit, "Wall, perhaps this is not quite good enough for you." He has the right to do that and question the inspection and make appeal. I say he has the right and the pri'vilege, but I also say to you that within 20 years I have never had occasion to exercise that right. I have got my goods; I have got them according to stipulat^d'^' requirements; the certificate has been always good, and it is worth face value all the time. GRAIN EXCHANGES. 243 I want to make reference, too, to the fact that on the boards of trade — and I will give a notable instance of the Chicago Board. The effort is made to meet the economic requirements of the mer- chandising of the grain. Some 10 years ago — I can not exactly state how long — perhaps 12 years ago — the giade of oats then that passed on contracts which were deliverable when you bought contracts future delivery, were mixed oats, that is, black and white. ITie black and white oats appeared to be being grown in lesser quantity; farmers were tending to the sowing of the white, and the trade throughout our East and everywhere complained of the need of the white, and wanted the white rather than the mixed. So, we wanted white oats, and we originated here in the East — or, rather, we made an appeal to the Chicago Board of Trade — sent out and represented that the needs of the trade were for white oats. And through and by us came about the use of this very word "standard" which is now your grade standard white oats. The grade is standard, because the requirements of the trade said "We want white oats," that they are the standard. The board sat in session, and heard what the rep- resentatives said to be the requirements of the trade, and forthwith established the grade "standard white oats," which is the grade to-day, and which we use. When we buy oats, as I do buy them, for May delivery, they shall deliver m^ what is called "Standard white oats" and load them out for me, and I will ship them all over the eastern country. I want to say something about the uses of the board and its inspec- tion, that we dealers in the East buy at country points, and buy at points in Indiana, at points in Ohio, anywhere, even buy them in our own State of New York, which is the largest producer of hay of any State in the Union; and it raises, notwithstanding it buys im- mensely from the West, 40,000,000 or 50,000,000 bushels of oats, and our agricultural community is in the heart of New York State; it is a big producer, a great big agricultural State, and we buy at all these small points, at stations here, from small elevators, from Srivate concerns; and if they would tender us what we call country To. 2 white oats or out in Ohio or Indiana, and represent them to be good grade standard white oats, we would not feel like paying quite as much a price for those as we would for the certificate oats of Chicago, the standard oats they would ship out for us, because these shipments from country points do not come through a market where it is passed upon by judges, and therefore, I say to you, that it goes back, it reacts on the farmer. The farmer would get less for those oats from me and anybody like me, because I want the stamp of approval from the board of trade. I think that I will not take up your time further, but I might say only a word, that the prices are made through the law of supply and demand; that, for instance, we take care of the product, "i'ou enacted a tariff law in Congress, which went into eft'ect last fall, and by the removal of the duty on corn and the reduction of the duty on oats to 6 cents a bushel it caused a flood of oats from Canada, and some- what of a floods of corn from Argentina. The farmf rs of our own country were^ naturally, I may say, frightened. They let their grain go in greater measure, I think, than usual, and they brought about the piling up in our primary terminal markets 32,000,000 bushels of oats, the greatest visible supply of oats I have ever seen within my time, 244 GEAIW EXCaiANGES. and I have been here 24 years in the busmess. It caiiic about through the fear of the falling prices. If that 32,000,000 bushels of oats had not been taken care of by somebody, if that had not been bought through the support of those who f ( It that they would subsequently have value through the needs throughout the year, putting them in the houses and carrying them., I womd almost tremble to think what some farmers would get for thfirs toward the end of the fall. You may say, "To be sure, things will right themselves ; things will average up around the year in gen- eral," but what about the poor farmers in between this, if somebody did not take care of them; through the very process, through our boards of trade, through the methods we have, somebody takes those, pays for them, stands the interest on his money, storage, and so rorth, and provides until the time when they are wanted. We can not (Iraw the supplies from original soxu-ces. The prices might have gone to a very materially lower paint than they did but for the fact that we bought in corn here to the seaboard. Bringing that corn in here reduced the price of corn to the farmer, in my judgment, $65,000,000. I had occasion to make some remarks on that. Mr. Lenroot. This fall, thi&year? Mr. Simpson. This year, Mr. Lenboot. Lost them $65,000,000 ? Mr. Simpson. I should say $65,000,000 the farmer lost through the effect of taking off the duty on corn. Mr. Kelley. Mr. Chairman, will you permit a question? Mr. Simpson. Yes, air. Mr. Kelley. How much com came in from Argentine ? Mr. Simpson. About 9,000,000 up to date. ^. Kelley. About 7,000,000 according to the Agricultural De- partment, if you will allow me to correct you. Mr. SiMFSOM. I am subject to correction. I should say, however, the Agricultural Department has not made up its figures to date. Mr. Kelley. I got the information yesterday. Mr. Simpson. I stand subject to correction; I made a rough guess. You got the figures, and it is 7,000,000. Mr. Kelley. Igot them yesterday. Mr. Simpson. Tflaen, it makes the matters all the worse, from my standpoint. Mr. Kelley. Still, there was shortage last year, I believe of over 700,000,000? Mr. Simpson. Seven hundred million bushels of corn was short between the crop harvested last fall and that of the year previous. Mr. Kelley. And then the shipping in of 7,000,000 bushels of corn is comparatively a small item ? Mr. Simpson. The shipping in of 7,000,000 bushels of corn has cost your farmers $65,000,000, not by any machinations of the Chicago Board of Trade, nor anybody connected with it, but due simply to the fact that the seaboard was supplied from that. Mr. Kelley. May I ask you another question ? Mr. Simpson. Yes, sir. , Mr. Kelley. Was ther ever a year for 40 years there was not corn imported into the United States ? Mr. Simpson. I think there never was a year when there was any imported to any extent. GKAIN EXCHANGES. 245 Mr. Kellet. I simply call your attention to the fact -that if you will examine the Umted States Statistical Abstract, you will find' there has not been a single year in 40 years when there was not com imported into the United States. Mr. Simpson. Will you kindly tell me for what purpose and to what extent ? I am pleased to answer any question. I know of no corn which was brought in. Mr. Kellet. And at the same time, my friend, corn was shipped out averaging 90,000,000 bushels, while com at the same time was shipped in according to the figures given by the United States Govern- ment. Mr. Simpson. Are you not speaking at random ? What is the pur- pose ofyour remarks ? I can not understand it. Mr. Kelley. My dear sir, I do not wish to interrupt the gentleman, unless he wishes. The Chairman. I am a little bit afraid we will get into politics. [Laughter.] Mr. Simpson. I am prepared just to tell you what I know, if I know anything that is of any value. The Chairman. The question of the import and export of com right now, I think, would not throw much light on the subject before tms committee. Mr. Simpson. I am trying to bring out the effects; in other words, there are causes for things, where effects are assigned that are im- properly assigned; they are not the causes at all. I am talking from the standpoint of a man who uses the machinery of the exchanges for the purpose of supplying the East, the consuming parts of our country, with their supply, and I think I have told you about all I started out to tell. STATEMENT OF MR. J. P. GRIFFIN, BOARD OF TRADE, CHICAGO. Mr. GrIffin. I represent the Board of Trade of Chicago, of which institution I am vice president. The gentlemen in our delegation from Chicago came here prepared to respond in detail to the allega- tions contamed in the so-called Manahan resolution. We all pre- sumed that facts and figures in support of that resolution would be presented to this committee. In so far as the Chicago market is con- cerned the only evidence which, in my judgment, at least, the Board of Trade of Chicago should be called upon to respond to, was the long statement by that gentleman who for 28 years was a member of our exchange. By a pecuHar process of reasoning he has attempted to convey to you gentlemen the thought that there was an unholy alli- ance between five certain firms of Chicago and the remainder of 1,640 members, whereby the producer on the one hand and the consumer on the other were mulcted out of vast sums of money. A little later in my discourse I shall address myseK to that subject. Before proceeding further it might be well for me, perhaps, to state that I am a grain merchant. I am not identified with the elevator business, either tl^e public or the private elevator business, nor am I aflSJiated with what is termed "future trading" or the speculative business, with the exception of where such trades are used for "stmon pure" hedging of purchases, against cash grain either held ia Chicago, 246 GRAIN EXCHANGES. in the West, or in the hands of the consumers and distributors, whose representative I am in the Chicago market. It might be of some interest to you, gentlemen, especially in view of the wild assertions that have been made, to know somethmg about the personnel and character of the business. The atternpt has been made to impress upon you that the Board of Trade of Chicago is a gambling institution. The only other function it appears to have, according to the testimony of this witness I have in mind, is that it furnishes a means whereby a combination of five men are in control of the destinies of the entire grain world. I would have you tmder- stand that I am not here to defend individuals or systems or coteries; but I represent the board. What are these grain exchanges ? What is the Chicago Board of Trade ? As the able attorney of our institution and as our president have explained to you, it is a market place; it is a building, a massive building, where 1,600 members congregate each day to engage in trading in the various commodities that are incidental to an exchange. These exchanges are not the result of some happy overnight thou^t on the part of some fertile imagination. They represent, gentlemen, the process of evolution. The grain trade gradually drifted into the E resent method of doing business. The madiinery of these exchanges as been so perfected, and as a United States Senator said a few days ago in conversation, "to-day it represents, to the greatest and fullest extent, the best example of the onward march of progress in business civilization." I may not quote him exactly, but that was the sub- stance of it. The thought has been left with you that the bulk of our members are enga^ged in the illegal or what have been described as gambling transactions. It might be of just'a little interest if I read for you a few of the classes of persons represented in the makeup of the mem- bership of the Chicago Board of Trade. We have receivers. The function of a receiver is to take the grain as shipped from the pro- ducers in the West coming into the country tributary to Chicago, grain shipped in car lots, to find buyers for it. For that service me average coinpensation is half a cent a bushel, the bulk of the grain handled in Chicago being corn, we being more properly a corn rather than a wheat primary market. We have shippers. They come in the open market, and they go in the country and they buy grain. They ship to New York; they ship it to every point of the compass, to almost every civilized nation where grain is used. We have private elevators, we use the terms "private" in our trade to distinguish it from those elevators which receive a license from the State to be public custodians of graki. They operate elevators for their own benefit. Nothing but their own grain is handled through the machinery of those houses. Then, we have the public elevator men, who have been so much discussed and need no introduction. We have exporters on that exchange who market the. surplus crops aU over the universe; millers, who manufacture flour from wheat and rye — wheat principally; distillers; representatives of transportation and vessel interests; manufacturers .^of glucose and starch; oatmeal products; homiuy miUs; malstei^;' manufacturers of cattle and hog feeds; dealers in hay andstraw.;^ I eliniinate entirely, but wiU, for the purpose of getting in the record, also men- tion besides that our membership are probably the largest manufac- GRAIN EXCHANGES. 247 turers of pork products in the world, which also are traded in speculatively on our exchange — that is, traded in for future delivery. Our organization is somewhat of a democracy. We have an officiary of 18 members — a president, 2 vice presidents, and 15 directors. They are an executive body. AU of the rules are made by the mem- bership itself. The directors have no law-making power; they are merely elected to enforce the rules. So it must be apparent to you, the high improbability of any coterie of 4 or 5 firms or of 20 firms dominating and controlling that membership. It has been impressed upon you that they control the directors and the officials and the membership at large. Gentlemen, I can say without fear of contradiction that I personally can muster more votes on the Chicago Board of Trade on any question in which I am concerned than can aU of the elevator men, public and private, and I ask Mr. Greeley or any other gentleman present to combat that statement if it is not correct. Wnat is true of my situation — I only point to myself as being typical — is equally true of a vast number of other members. The impression also has been given out that the average board of trade man is a man who indulges in "milk and honey," and has all of the cream of the grain trade. Grentlemen, that is not true. The average man on the board of trade is the small merchant. We have as big men as there are in my line of endeavor, but the average man on the board of trade, I dare say, is possessed of infinitely smaller means than the averaige farmer represented in this room to-day, or the average of the farmers whom they do represent. The compensa- tion or profits arising out of the business, considering the risk involved, is smaller than any other line of endeavor I know anything about. To further impress upon your minds that we have a legitimate function — eliminating for the time being the question of future deliv- ery and that of pubHc elevators — I would like to read a set of figures, taken from the annual report of Illinois State inspection grain depart- ment for the year ending June 30, 1913, which is the end of their fiscal year. The receipts of grain of all kinds at Chicago during that period aggregated 336,751,567 bushels; the shipments from Chicago during the same period represented 165,952,723 bushels, or a total in and out handling of over 502,000,000 bushels. During the same period, according to the same authority, there passed out of "public" elevators in Chicago a total of 32,633,000 bushels. In other words, the volume of business that passed through the "public" elevators in this period, the elevators owned by the "alleged combine," was less than 10 per cent of the total grain handled in the city of Chicago during the same period. The amount handled by public elevat9rs, in the aggregate, is less than is handled by two of our large industries in the course of a year. I offer that statement in defense of this charge that these people, by virtue of owning these public elevators, are dominating the grain trade of Chicago. In addition to the grain which our merchants actually handle in the city of Chicago, our members have interests elsewhere — in Texas, Ohio, Iowa — in every State, almost. They have elevators, shipping elevators, country elevators, etc., and all of that grain is handled through the medium, through the machinery, of the board of trade. They use it for hedging purposes, and all that, and while this is per- sonal and unofficial, I think it is most conservative. 248 GBAIN EXCHANGES. In addition to handling grain that actually comes to Chicago, I estimate that our members handle at least 250,000,000 bushels of grain. All actual grainj however, does not come to Chicago. So that the figures I have given you indicate that our members mdulge in a total handling of 750,000,000 bushels of grain. In that figure I am not including any of our members who may be members of other exchanges, like Minneapolis, Duluthj St. Louis, or Kansas City, but members who are primarily in business in Chicago and for whom Chicago is headquarters. Other speakers will address you on the question of speculation. In fact, some have done so already. I should like tp address you briefly in reference to the question of hedging. Hedging is the man- ner in which I use the gram markets. I represent in the aggregate upward of 500 shippers. Over half of those shippers are farmers' cooperative elevators, largely in the States of Ilhnois and Iowa. I also represent consuming interests, those people who buy grain and very largely manufacture it into grain products. 1 contend, and I have always contended, that there can be no question about the legality of that method of trade. In my business our customers use the futures market for the purpose of hedging against purchases of grain by the medium of sales for future dehvery, and against sales of grain by purchases of grain for future dehvery. Stocks, manufactured products on hand, or grain on hand is hedged in the future markets; also grain products hke flour, glucose, and starch are hedged in the market when the manufacturer has a sur- plus on hand and must keep his miU running, in order to secure low cost of production, and uses the future market for that purpose. The president of the board has explained why the volume of hedging in the market is disproportionate to actual receipts. The entire world uses the Chicago market as a hedging place. Conse- quently the actual receipts must be disproportionate to the volume of future trade. The Chairman. Could you use imaginary names and just illus- trate this hedging ? Mr. Geiffin. I will use a case on my books, but if you will allow me I wiU refrain from using names. The Chairman. We want the record to be complete. Mr. Griffin. Very well. There is a manufacturer in the State of Iowa who manufactures glucose, starch, and other products from corn. Last November he made sales of his product covering the entire year 1914 — that is, starch sales, not his entire output. He instructed me to buy against that transaction 200,000 bushels of May corn. The Chairman. May corn ? Mr. Griffin. May com, in Chicago. That corn is now on my books. The reason for that is this : If he attempted to buy the cash grain to cover that transaction it would employ the use of a large amount of capital. He would have the risk of the grain deteriorating, getting out of condition. Furthermore, he is located in the State of Iowa, where freight rates and other things enter into the cost of the corn to him, and the corn that he actually wiU consume, in aU human probability, will not be this 200,000 corn he has bought through me, but the com he wUl buy from his neighbors of Iowa, where he can GEAIN EXCHANGES. 249 buy with an expense of shipping of 5 or 6 or 7 cents per hundred- weight, instead of 17 or 18 cents per hundredweight to Chicago, and the freight biick from Chicago. That is a common, everyday trans- action. Then, there is the transaction Mr. Lenroot. What does that cost ? Mr. Griffin. It costs one-eighth of a cent a bushel. Mr. Lenroot. Just the commission ? Mr. Griffin. The commission is all it costs him. He can take the grain on delivery, and I will ship him the grain for the same com- pensation. Several years ago, when the corn crop was short, he actually did buy a large quantity of grain in Chicago for futiire de- livery, and shipped it oack to Iowa, and consumed it. Mr. Kellet. May I ask the gentleman a question there ? The Chairman. If the gentleman does not object. Mr. Griffin. I have no objection. Mr. Kellet. Why did he buy that delivery in May corn, when he actually later on bought the corn from his neighbors at less expense ? Ml-. Griffin. Because it was an impracticable thing for him to buy the actual grain from small local dealers and get it in dehveries as he wanted it; and for the further reason that I have stated, that if he attempted to do that it would mean that he would have to keep that train in his elevator and hold it until he made it up into goods and ehvered the products to his customers. Mr. Manahan. As I understood, the probabihties are he would have no part of this corn you bought, but would buy a supply for his entire needs from nearer his factory ? Mr. Griffin. He bought this corn from me to insure him against fluctuation in the maiket. Mr. Manahan. When he bought that corn, in November, who sold it to him? Mr. Griffin. Probably a speculator. Mr. Manahan. Then, your idea is that this manufacturer wants speculators and outsiders to carry the risk of his contract for his output ? Mr. Griffin. That is absolutely correct. He did not care to take chances on the fluctuation in the market when he made the contract with his customers for the sale of 200,000 bushels in product, the price at which he sold it, and the margin. Let me finish my statement. In order to insure to himself a profit which he had at the time of his trade, he made a purchase for future dehvery in Chicago. He insured it in the same manner as though he bought a fire insurance pohcy on his plant. wr. Manahan. In that connection, what price was paid for that, 200,000 bushels that you bought? Mr. Griffin. I have not the data, but considerably higher than the present price. Mr. Manahan. So that he can buy corn in the country for less than he bought that future ? * Mr. Griffin. Yes, sir. Mr. Manahan. Then he wiU lose. He will not make as much money on his contract, on his manufactured product, as he would if he had not bought the future ? Mr. Griffin. Exactly. He insured the profit that he had; nothing else. 250 GEAIN EXCHANGES. Mr. Manahan. He insured the profit he had ? Mr. Griffin. That is exactly correct. On the other hand, if you will allow me, if he had not insured and the market had gone up he would have lost 10 cents and not only had no profit, but a loss of 10 cents per bushel. Mr. Manahan. So that it resolves itself into this, does it not, Mr. Griffin, that some one has got to carry the risk of the fluctuation in these large contracts between the time of production and the time of consumption. It has either got to be the men engaged in the business or speculators outside? Mr. Gkiffin. Wherever there is property and ownership there is risk; somebody must carry it. I do not wish to be discourteous, Mr. Congressman, but my time is limited, and I would be very glad to answer you further if we had more time. Mr. Manahan. I think you have made it clear. The Chairman. Proceed in your own way. Mr. Griffin. During the discourse of my distinguished friend from Chicago, reference was made to "night riders" of Kentucky, appar- ently for the influence it might have on the distinguished Congressman from that State. Nothing pleased me more than the fact that that was mentioned, because it brought out to me an inspiration which I had entirely forgotten. It is true, you did have night riders in Kentucky. Why ? Because the producers in your State had to sell their output, their product, to a monopoly. If you had had your tobacco exchanges in Louisville and St. Louis, as you did before it was crushed out by the tobacco monopoly, youwould have never had any occasion for night riders. Mr. Kelley. If you will allow me to say a word — — Mr. Griffin. I did not quote you, if you will pardon me. Mr. Manahan. In that connection, can not the trusts all appro- priately be handled by appropriate legislation, and the tobacco trusts and every other trust destroyed, as such, so that Mr, Griffin. That has been our contention all the way through. Mr. Manahan. So that you will not need the so-called future trad- ing on exchanges to protect producers from trusts. Mr. Griffin. Mr. Chairman, I do not wish to be discourteous to the Congressman or to any other gentleman, but we have four or five other speakers who desire to be heard, and our time is limited. The Chairman. I will ask you gentlemen not to interrupt Mr, Griffin any further. Mr. Griffin. While passing on these questions, allow me to remind you gentlemen that tobacco and oil were formerly 'traded in ex- tensively for future dehvery on exchanges. The trading in these commodities for future dehvery ia a speculative way is practically a thing of the past. We all know that the oil is monopoUzed; all these httle exchanges which existed 30 or 40 years ago, have been wiped out. So, it leads me to think with certainty in my own mind that those exchanges, these open competitive markets, instead of being monopoMes, are hj their very nature the opposite to monopohes. They are the sure barrier, the sure preventive of .monopoly, and these gentlemen from the country — and I do not wish to be runderstood as criticizing their motives; I think they are misinformed; I think they are being led astray by "false prophets.' Allow me to remind GBAI]!T EXOHAKGBS. 251 you gentlemen that the grain farmer of the United States is the one man who has an open, free, competitive market for the products which he produces. There is not a class of men on God's earth, as a class, who are so prosperous as the grain farmers of the United States. Getting back again to the question which I mentioned briefly at the start of my statement — that is, the question of whether or not there was a monopoly in grain in Chicago, a combination existing be- tween the board of trade and the so-called public-elevator combine. The gentleman who made that statement, I think, did it under a misapprehension of the law of Illinois. I do not recall the number of times he made the remark in the course of his address to your honorable committee, but I think a hundred times is no exaggeration, that a pubhc-elevator man had no right to engage in "dealing in graiQ." As the able attorney for the board has pointed out, he was laboring under a misapprehension. The officers of the board of trade are charged with the enforcement of their own rules and the control of their own members. There is no process of reasoning by which they should be charged with the enforcement of the crimmal statutes of the State. They have no machinery, no power; but it ought to be said in defense of our exchange — and that was evidenced by Mr. Greeley's testimony — that the only effort made by anybody to correct what- ever abuses there might have been in the public elevator system was that instituted by the Board of Trade of Chicago, who have spent $200,000 or $300,000 in the last 25 years to accomplish that very end. An endeavor has been made to convince you, gentlemen, that by some process of machination which I could not understand, this grain which goes in public elevators tends to reduce the price of the 'grain to the fanner, to the producer. Now, as a matter of fact, I am a practical grain man, and I think I can safely state that unless a farmer, a producer, buys a contract speculatively and takes delivery of that contract, that he has not any interest or concern in grain which has passed into a public elevator. A lot of wild statements have been made, too numerous for me to attempt to combat this afternoon, but there are two I will mention in passing. The gentle- men of the committee will remember the nature of one concerning Mr. Sager, an ex-president of our board, in which an ex-member of the Chicago Board of Trade testifying here charged that it was under- stood when a certain elevator was made regular that no other houses would be made regular. For the purpose of getting it into the record, I wish to testify that I was also a guarantor on that contract to the extent of $1,000, and that such an understanding was never embraced in the contract, nor was any such thing understood. At the close of the testimony of this gentleman another question was asked, and that had to do with whether or not -what was described as the "Rosenbaum" practice was a common one on the board of trade of the city of Chicago and the Chamber of Commerce of MinneapoMs, and he answered in the affirmative. I have been a member of the board of trade 1 6 years, and never before within my knowledge has any such thing occurred, and I am sure I would know it if it had happened. It seems to me, also, in justice, that you gentlemen ought to have some explanation about this Rosenbaum incident. I am not here to defend them. As a matter of fact, my relations with that concern are most unfriendly. ^52 GEAIN EXCHANGES. in a personal sense; but the evidence that was allowed to go into the record was an outrage, in my opinion, to those people, because only part of the truth was stated. The bulk of it was suppressed by the gentleman who was testifying. The facts were in that case that in the absence of the proprietor of that elevator the employees did what was charged; they plugged" a certain number of cars of good grain, presumably with screenings. The gentleman who testified in regard to that refrained from stating that the practice was discovered, by whom? By the board of trade. He afeo neglected to advise you that the board of trade made a most painstaking investigation. I happened to have been one of the committee which investigated that verv incident. The committee employed in its aid perhaps the most skillful investigator in the United States, Mr. John HUT, jr.; and 1 think Mr. Greeley wiU bear me out that he is a man whose integrity could not be assailed; he is bomb-proof as to his honesty. Mr. Gkeeley. Mr. Grifiin, I would just say in regard to that, all I submitted was that same report by the committee verbatim et literatim. Mr. Geeffin. You eliminated such portions of the testimony that had to do with the fact that a most thorough investigation had been made, etc. Mr. Greeley. The whole report is in and there printed. Mr. Griffin. I will just say another word on that, Mr. Chairman, and that is that this committee investigated and had a confession from the culprits— the superintendent and foreman of the elevator, and that confession can be had in Chicago now; and the point I am conaing to is the unfairness of attempting to take an incident like that, -and convey the impression he cud. When one of you gentle- men asked him the question, he testified it was a common practice. It is the first time that has ever happened in the board of trade^ and the board of trade itself discovered and run it down and stopped it. I should like to talk to you at much greater length, but there are three or four speakers waiting. In conclusion I want to say to you that the board of trade of the city of Chicago, as an institution, has nothing to fear. It invites investigation of its practices, its customs, its rules, of its members. It wUi surely cooperate with any fair- minded committee that will be appointed on this subject. I thank you. STATEMENT OF MR. JOHN J. STREAM, OF THE CHICAGO BOARD OF TRADE. Mr. Stream. I am a member of the Chicago Board of Trade' and have been for some 13 or 14 years. I have been engaged in the ^ain business since 1882. I OTaduated from a telegraph messenger boy on the Chicago Board of Trade to that of office boy in the gram com- mission firm of Charles Counselman, a gentleman who was named here as being one of the elevator combine. I continued with Coun- selman in one position and another from 1882 until the time of his death, March, 1904. After his death, Mr. John G. SUatffer took over his accounts and terminal elevators, and I engaged with Shaffer in the operation of those elevators, and am with Shaffer t6-day. ' Primarily, we are in the grain shipping business. We buy grain in the country; GEAIN EXCHANGES. 253 we buy grain on the floor of the exchange. We sell it to exporters at the seaooard; we sell it to eastern distributors. Secondarily, we operate a public elevator. During Mr. Counselman's lifetime, he operated, in addition to his South Chicago elevators, which we now control and operate, two other elevators in Chicago. They were large terminal elevators; and also a great number of country elevators on the Eock, Island system, all through Iowa, Nebraska, Kansas, and Oklahoma. We had what we called "stations." At some poihts we had oat bins, where they raised more oats than they did any other grain. At others we had corn cribs, and at other points we had country elevators. I had charge of the country elevators for quite a number of years. Toward the last years of Mr. Counselman's fife we disposed of these elevators and got out of the country elevator business. We found it unprofitable. Along in 1900 to 1903 and 1904 we came into very severe competition with farmers' cooperative elevators. We found that the farmers' elevators were unfair to us. Their members gave us no chance to buy and compete for their grain. We had been buying grain all these years on a very close margin, something like a cent to a cent and a half a bushel on corn and oats and 2 to 3 cents on wheat. We found these farmer elevators had in their by-laws a Eenalty clause, penaUziag their members from a haK to a cent a ushel if they sold their grain to anybody but their own concern. We could not compete with that condition, and so we got out of the business. I understand that the legahty of that penalty clause is now in the Supreme Court of Iowa for consideration and adjustment. As I say, I continued with Mr. Counsehnan, one of the gentlemen who was supposed to be one of the combination or one of the trusts or monopoly, until the time of his death. When ]\Ir. Counselman died, he died virtually a bankrupt, and the bulk of his losses came in the last six years of his fife and occurred in his grain business. So much for Mr. Counselman's connection, and I want to say that no more honorable man, no more law-abiding citizen ever lived than Charles Counselman. Prior to 1887 the method of doing business in cash grain on the Chicago Board of Trade was receiving grain from the country on consignment. There was but one elevator in Chicago at that time of any consequence that devoted itself to the cleaning and mixing of grain. That was the George Seaverns elevator. The other ele- vators in that city were operated strictly as pubUc elevators, and up to that time the operators of the pubHc elevators in Chicago became immensly wealthy. Along in 1886 or 1887 a change took place in the handling of grain in Chicago. Instead of the grain being con- signed, country grain dealers wanted to avoid the risks of the fluctu- ation in the market; they wanted to sell their grain. The railroads up to that time had rates into Chicago — flat rates — and flat rates out or Chicago, the combinations of whidi were so high that it was prefer- able to take the grain and store it in pubhc elevators in Chicago, carry it over the winter, and ship it to the East via lake to better advantage. M$J^S ^^ 18^7 the railroads put in through rates, through Chicago to the East. The new freight rate system was so much less than the combination of the two locals that it began to take the grain through Chicago instead of sitopping there, and the result of that system destroyed the use of public elevators for storage purposes. 254 GBAIK EXCHANGES. ana the grain business took on a change. M6n like Counselman, Armour, Weare, and a few others stepped in and took these elevators, elevators that were operated as pubhc elevators and that were fiven up by the old operators because they had become unprofitable y reason of this change. The new operators inaugurated a system to meet the new conditions, and that was to buy the grain, to carry it, force it into that market, and keep Chicago on the map. From that time, gentlemen, the elevator interests have been antagonized by the old receiving interests; they saw their business going away from them; they saw that the large elevators in buying grain direct was causing them to lose business. Instead of these gentlemen adapting themselves to the changed conditions they began fighting the elevator interests in Chicago and have continued ever since, and that has been the trouble in our market to this day. Up to that time, as I say, when the country used to consign its grain, the dealer in the country would have to wait weeks for his returns before he knew whether he had made or lost on his shipment, and in buying his grain from the farmer he had no safe guide, but the change that was inaugurated at that time permitted the country grain dealer to buy his grain from the farmer on a very close margin, because he could , sell it to the dealer in Chicago the next morning. The system of sending out card bids broadcast over the country, which was in- augurated at that time, j)ut the country grain dealer in a position where he could safely buy and sell. We at that time, as I say, would take the closing market of the future and calculate what was a fair price for the cash grain, based on the future, and we would send out from Chicago, from Bloomington, 111. ; from Decatur, from Des Moines, from Omaha, through our agents at those points, our card bids to the various country grain dealers, bidding them certain prices for grain — com, wheat, or oats — tor acceptance by 9.30 the next morning, and when these acceptances came in we would promptly hedge this grain in the pit; and that system has continued to this day. So that, instead of consigning grain to Chicago, the great, big volume, the bulk of the grain thai comes to Chicago now is first sold, and by that system and the result of that change nas caused the savings of thousands of dollars to the country dealer and to the farmer. Mr. Leneoot. Did I understand you to say, Mr. Stream, that the price of the future determines the price of the cash ? Mr. Stream. Not always ; sometimes it does. For instance, in the market to-day the stocks of spring wheat in Chicago are small. Spring wheat is selling at a premium over the May future. I think when I left Chicago spring wheat was selling at 95 and May future about 94 or 94^. That premium was due to the small stocks, and due to the high price of wheat in the Northwest, where the spiing wheat is grown, adding the freight to the price of wheat in the Northwest woijd make the spring wheat in Chicago cost about 95 cents, but the hard wheat, which is more tributary to our market, was selling at a discount. In buying our grain on the floor and in buying our grain in the country, we buy on the theory — I am telling you the actual practice, because I make these prices that are sent out^anticipating Some grain above an average run; anticipating also that some of the grain will arrive in lower condition than the grade on which we are bidding. GEAIN EXCHANGES. ' 255 For instance, we are about prepared to bid for new wheat for July shipment. We have already given to some of the commission men a basis they can work on. We say, we will give you a half over July or a cent over July for shipment of 2 hard wheat by July 20. If we get any wheat we put it into store when it is delivered, we apparently make no profit. I cite this to show you how close the gram ousiness is handled. We buy this wheat at a haK over July. It comes in, and we find amongst the receipts some of the wheat instead of testing 59 pounds, which is the weight of No. 2 hard wheat, some of it tests 60; some of it tests 60^. Then we find some wheat that tests 58 pounds. That goes in as No. 3. We calculate that there will be enough wheat that will run under 59 pounds which we can take at a reasonable discount, will offset the premium we pay for the wheat that will go 60 and 60i, and when the two are blended and brought to 59 or 59i pounds we have No. 2 wheat, contract grade. In buying our grain on the floor of the Chicago Board of Trade, in the eastern part of the hall- are probably 100 tables. These tables are rented out to the various commission men who are receivers, and on these tables they have these samples of grain on display for sale. The buyers go from table to table and pass on the samples and make their bids. In buying wheat we do not buy it by the grade, because it is marked 2 hard wheat or 3 hard wheat, but we buy it on our judgment— what we can do with it. Say that 2 hard wheat of a certain quality may not be worth more than grade 2 hard wheat, and yet 2 hard wheat that is of a heavier weight, cleaner wheat, is worth more than the 59-pound wheat. So we pay a premium for it, because we expect to use that wheat in carrying up the lower grade?. What does that mean to the farmer? Every bushel of that high-grade wheat for which a premium is paid redounds to the shipper or farmer, and that premium carries up the lower grade wheat, and minimizes the discounts at which the low-grade wheat is sold in the market, and all resulting in good to the farmer. Now, about buying this grain in the country and buying it on the floor. What we do with it is to hedge it. We insure ourselves against fluctuations in the market. We immediately sell a future against our purchases, or, when we sell grain to the East, if we have not the grain on hand, or bought to arrive, we buy the futures. As an illustration, in 1909, in the fall of that year, we had a promise of a fairly good corn crop. In the month of July May corn for the following year sold at a range from 55 J to 59 cents; in August, 52| to 59 cents; and in September, from 57f to 63 J. During those three months I sold about 4,000,000 bushels of corn to Baltimore exporters on the basis of the May. I sold the corn, bought May in the pits, and that was before the crop was determined. Along in September and October reports came of drought in western Kansas and Nebraska, aflecting the corn very seriously, and as a result the corn market began to cUmb. Corn that I had sold was for Decem- ber, January, and February shipment from Chicago or from the country. When the month of December rolle'd around and the new crop was i:eady for market. May corn was 60| to 66f , or about 5 to 8 cents moreithan it sold at the time I had made these contracts. When the time came for the shipping of this corn to Baltimore, the market had reached a level where the foreigner was not interested in our market and in our corn, and it was difficult to sell an}" more 256 " GEAIK EXCHANGES. corn. Note the result. We went into the country— we went into Ohio, we went into Indiana, we went into parts of Illinois that rarely shipped to Chicago. We went into that territory that ordinarily ships to Baltimore, and to the Seaboard, and we bid for the corn for December shipment, for January shipment, and for February ship- ment at this higher range of prices, when in January the corn sold at 66i to 70f , or about 11 to 15 cents higher than what is sold at at the time I made these contracts for export. I bought 3,000,000 bushels of corn when the market was high and shipped to Baltimore on my contracts. As I bought it I instructed the country shipper to bill it to Baltimore, and as fast as I bought it I sold back a future in the pit. The com never came to Chicago ; it went right to Baltimore. When I say 3,000,000 bushels of it, that is all the com I shipped on that con- tract, tjecause the foreigners, when the market was high, thought they could replace some of their requirements in other directions, and they sold back a million bushels of that com to me basis of the future. So, I did not have to ship it; but what was the result of the sale of 3,000,000 bushels of com ? Com began to accumulate in the termi- nal markets; there was no export market for it; no new contracts possible in January, because the price was too high. We took this 3,000,000 bushels and reheved the distress that would follow had this com gone to terminal markets, and whUe that corn was moving out — the movement to the terminal markets was not heavy; they were not pressing — but what was the result afterwards ? WTiile the price con- tinued too high, the com accumulated, and from 70f cents in January that com went down into the 50's, 58 and 59 cents afterwards, and it broke because the com accumulated in the terminal markets. That is an illustration of our methods of doing business. If it were not possible for me to buy that corn for the month of May in the pit, I would not have been able to sell it to the exporter when the oppor- tunity arose, and because of that opportunity I had helped to reheve the pressure of the movement of com at that time by moving it out of the country, and helped to sustain the price for the American farmer. Let me give 'you the condition to-day. It is true our com crop is short and has been short, and the markets consequently have been very high. So much so, that the consumer has curtailed his consump- tion, and the corn and oats are accumulating in market centers and the visible supply is getting enormous and getting quite heavy. The visible supply in Chicago now, is about 10,000,000 com, and the market is heavy. Let me give you an illustration of the conditions in the market now, and how we do our business. My trader wires me [reading] : ' What does that mean? Here we bought 15 cars of corn spot and 4 to arrive. We bought that corn on the floor of the Chicago Board of Trade. We sold 2 cars for shipment. That was all we could sell. We sold the May against the balance. If we did not have the May to sell against the balance, what would the farmer receive for his 14 cars of corn? Where would he have found a buyer for that cash corn ? He would have had to hold his corn until the buyer appeared or until some speculator appeared, and that speculator,-not having a place to hedge that corn, would certainly buy at his own price. The 1 Telegram not furnished. GRAIN EXCHANGES. 257 telegram I next have — I am simply reading my own wires; the information that my manager is giving me of the day's business [reading] : ' These are private matters, but I want this to come to you to show you the way this business is done. We bought 24 cars of corn spot and 4,500 bushels in the country to arrive, and sold the May, and he, says no one sold any corn for shipment to the East or to the sea-' board. What would have happened in Chicago if there was no place to sell that corn, no place to hedge it ? What price do you think the farmer would receive for his corn ? Because of the outlet through the pits, through the hedging, insurance, Mr. Farmer finds a market for his product every day, every minute in the day; that is through the operation of hedging. Mr. Garrett. Might I ask what effect the importation of corn from Argentina has ? Mr. -Stream. It has considerable effect, sir. It has this effect : It creates sentiment; it is driving the New England buyer out of the market, who heretofore would buy his wants for 30 or 40 days ahead, and because of the cheapness of Argentine corn at the seaboard, he does not want to take the chance of having native corn running to him in large quantities at much higher prices, and as a consequence, all winter long, instead of selling large amounts of corn, as we usually do, we have been doing a sort of hand to mouth business, and just as you hear these telegrams, two cars and one car and three cars a day, being the extent of the business. Mr. Garrett. What effect has the importations had on the price of corn and the use of corn in this country? Mr. Stream. It has lowered the price; that is my beHef. Mr. Garrett. To what extent. Mr. Stream. That is hard to say, because if Argentine corn had not been imported, there is no telling how high American corn would have gone. Mr. Garrett. To what extent has it lowered it to the consumer ? Mr. Stream. That is hard to say. Mr. Garrett. It has lowered it ? Mr. Stream. Oh, there is no doubt about it; it has lowered the cost; there is not the least doubt about that. The western farmer and the western speculator have been calculating on extremely high prices on grain this year, but the importation of grain has upset their calculations. Mr. Garrett. How much has been imported ? Mr. Stream. I do not know. My guess is about 7,000,000 of Argentine corn and probably 15,000,000 or 18,000,000 of Canadian oats. Mr. Garrett. I am speaking now of corn. Mr. Stream. About 7,000,000 or 8,000,000; I am not sure of it. , Mr. Garrett. Do you know what happened to it ? Mr. Stream. The bulk of that corn has gone to New York. The glucose interests who are users of corn have been the chief buyers; in fact, so much so that they have not bought any corn in Chicago all 1 Telegram not furnished. 37214—14 17 258 . GRAIN EXCHANGES. winter long. Some of that corn is arriving and has been arriving re- cently at southern ports. Mr. Garrett. It has gone into feed stuff ? Mr. Stream. It has gone into feed stuff; yes, sir. Mr. Garrett. AU the importations ? Mr. Stream. Yes, sir. Mr. Garrett. What about the glucose manufacturers you spoke about ? Mr. Stream. They have been the chief buyers of Argentine corn; and really they are the biggest consumers of corn in New York. Mr. Garrett. They use it in what way ? ■ Mr. Stream. They make it into glucose and into all sorts of corn products. I want to say something about cleaning. In handling grain through an elevator in Chicago there is a natural shrinkage. My experience has been that it has averaged one bushel per thousand, so that in handling grain through an elevator, whether you clean it or not, the mere elevation from the car into the scale and from the scale into the bin, and out of the bia and into the scale and back into the boat or into the car costs one bushel per thousand in shrink, In cleaning graia and blending it with the better grain, the cost either in the shrink or in the handling or putting into condition generally absorbs the discount at which the lower grade is bought. So that when we are through the mixing, cleaning, and the blending, bringing the grain up to the higher grade, it comes pretty near cost- ing us as much as the contract or higher grade, and the margin of profit is extremely small. Our business, as I say, is chiefly the shipping business and our public elevator business is a secondary consideration. Many men on the board of trade said, "Why don't you get out of the public elevator business?" We would to-day or to-morrow if the Board of Trade of Chicago would assure us some protection on our hedging. There has not been a dollar made in the public elevator business in Chicago in the last 15 years — not a dollar. Mr. Garrett. How i's that ? Mr. Stream. There has not been a dollar in the public elevator business in Chicago in the last 15 years. That is my own experience with my own elevators. We operate them, why ? Last year we handled in all 30,000,000 bushels of cash grain. That gram is all hedged in the pit; and if we did not have the means whereby we could put that grain into contract grade and deliver it on those hedges we might suffer very severely by not being able to fill our contracts, having no places to put our contract grain. We utilize the public house only when it pays us better than it does to ship the grain out to the eastern seaboard. There was something else said about the value of warehouse re- ceipts. We have a great deal of money tied up in grain to-day. Our elevators are almost filled to the roof, and I thmk when I left our bank account showed very heavy loans. We are able to borrow on our private and public elevator receipts, grain certificates, 90 and 95 Eer cent of the value. The bankers are willing to loan us that much, ecause we say to them, "Every bushel is sold in the pit." The value of this grain is fixed; we are insured against the fluctuations of the market. GEAIN EXCHANGES, 259 There was something said about poohng and great stress was laid on that, and about the elevators combining and working together. I want to say that the public elevators in Chicago have never com- bined; they do not cooperate; they are not a trust; they are not a combine, but that they buy against each other; that the competition amongst them is the keenest and the most severe imaginable. So much so that along in 1906 and 1907 or thereabouts, one elevator man would go into the market and gather up the receipts of any'other elevator man and take the grain out of his store and move it over to his own elevator when the cash could be bought at a discount under the future, and in that way they would take the "grain from each other _ in order to get the earnings that might exist. We tried to stop that business, and the result of that was this arrangement, that we would not take the graia out of each other's elevators, we would leave it alone; we would leave the public take it, and it was then arranged if anyone did take it he should make amends in some way, and so we entered into a pooling arrangement, which continued for about six or seven months, and on advice of counsel we afterwards discontinued the operation of this pooling arrangement. But that arrangement was only to protect the grain m our own elevators, so that the elevator man would not take it from us and move it over into his own house; and at that time it coiild be done, because switching charges were very low. That has been the only deal that the elevator men ever entered into in the Chicago market. I deny that the elevator men had ever conspired, that they ever cooperated, that they ever fixed prices, that they ever worked' together. There is absolutely no truth m the statements that were made here, gentlemen, that the public elevator men were in cooperation and that they were in a combine. Just one word more, Mr. Chairman. Something was said about Rosenbaum, and about his plugging some cars with scresenings, and that that was the common practice of the elevator men. You have heard that denied, and I want to deny it, absolutely. I want to deny it for myself, first; I want to deny it for old Joe Rosenbaum. Old Joe Rosenbaum, as I know him, would not stoop to a thing of this character; old Joe Rosenbaum fought in the war ; old Joe Rosen- baum was elected by his comrades commander in chief of the Grand Army of the Repubhc. That is the man who is accused here of stoop- ing to this sort of business, charged for the zeal of some employee. A statement was made which I wish to correct, that on February 26, American corn in Liverpool was 90 cents, in New York 71, in Chicago 66. What is the-whole truth ? Somebody in Liverpool was short American corn for February deUvery, and he only had two days to dehver it, and there was no American corn there. That is why it was 90 cents. Mr. Kellet. WUl you permit a question, sir ? I made the state- ment. I say there is not a paper pubHshed in Chicago for 40 days that will not bear out the statement I made as to the price of American corn in Liverpool, and while it went down in the United States, it rose in 45 days a cent and a half a bushel, while it went down from 10 to 12 cents a bushel here, and I can prove it by every paper published in Chicago and MinneapoUs. Mr. Stream. I want to add Mr. Kelley. By every trade journal in the United States. 260 GRAIN EXCHANGES. Mr. Stream. Mr. Chairman- Mr. Kelley. Cash corn. Mr. Stream (continuing). Inspection in Chicago is under the absolute control of the State of Illinois, through its inspection de- partment. You have heard that described. I wont add to it, but it is the absolute truth. The inspection of grain in and out of public elevators, in and out of private elevators, is beyond the control of the elevator men in that market. The grain in going through public elevators has an additional check to that of the State grain inspection department. The board of trade, through its grain committee, through its sampUng department, has exacted a promise from the gublic elevator operators that all grain going into public store must rst be approved by that grain committee through its inspection department, or grain going out of public store must first be appproved in addition to the approval of the State. Mr. Lenroot. Why is not the weighing, Mr. Stream, done under State supervision - as well as the inspection which is under State regulation ? Mr. Stream. I do not know, excepting that the board of trade had taken up the weighing of grain a great many years ago, and has con- tinued it, and it has developed the greatest weighing department in the country, and I believe it is so perfect that the State of Illinois did not care to interfere with it. . Another question I want to put before you is about grain going into public store, and about the public elevator man controlling or owning that grain. Up to the time of the Tuley decision public elevator men put their own grain into their own public elevators, and they did it on this theory. You have heard it stated here that the public no longer used the public elevators in Chicago, and that the graia coming into public store had to come through the opera- tions of the public elevator man, and that 95 to 98 per cent of the grain that passed into the public elevator was forced in by the op- erator of the public elevator. In putting grain into store the opera- tors of the public elevators calculated that no one was harmed, because practically all of the grain that went into store was grain they had put in themselves. About the grain going out of public store that grain must find a buyer. It goes out somewhere; some- body buys it, either the consumer, the miller, or the exporter. If this grain was of such character as described here, do you not think the consumer would be here to add his complaint? The fact is, gentlemen, there is no better grain going out of a terminal market than goes out of public elevators in the city of Chicago. About the profits : I am going to tell you something about the inside of our business, about the profits of this public elevator busi- ness, and this great, big shipping business, and about the cost of operation. Last yeax, on the large quantity of grain we handled it cost us 0.42 cent per bushel to handle grain through our cleaning house and our shipping house. It cost us 60 per cent more to operate the public house, but 10 per cent of the total grain we handled went through the public house. The average that we have received from the grain handled in the last 10 years through our elevators has been less than 38 cents per bushel, the net result. I cite this to show you on what thin ice we are skating. GRAIN EXCHANGES. 261 Mr. Manahan. May I ask a question ? The Chairman. If it does not disturb the gentleman. Mr. Manahan. What are your profits on future shipments ? Mr. Stream. That is the sum total of all; that is the result of the entire transaction. Mr. Lenroot. Three-eighths of a cent a bushel upon the actual wheat going through the elevators, if I understand you ? Mr. Stream. From the hedges or the actual wheat, the entire transaction. First, we may take a loss in the future and get a profit in the cash, or we may get a profit in the future and get a loss in the cash, but thats the net result-^ — Mr. Lenroot. Your hedges are exactly offset by your actual wheat ? Mr. Stream. Yes, sir. Mr. Lenroot. Nothing beyond that ? Mr. Stream. Nothing; not at all. Mr. Manahan. As I understand you, you do not speculate at all. Mr. Stream. Not at all; and, as I understand it, it is the practice of every elevator operator in Chicago to hedge every bushel of grain they handle. Mr. Manahan. You do not speculate either yourselves or through any of your agents or representatives ? Mr. Stream. No, sir. I just want to add one or two more things, Mr. Chairman. Grain going into public elevators, through our present system, which we think is lawiul — we do not own grain in public bins in our own public elevators. We do not place it there, but when the time arrives, if we find we can not sell our grain to Jaetter advantage by shipping than to put it in store, we sell it to a commission man on the floor on the basis of the future. We sell it as contract grain in cars and leave it to the commission man to unload it in any elevator he chooses and deliver it out, so that we have no control of the grain after loaded into cars; and we contend that that operation is absolutely legal. The putting of grain into the public elevator is not grain in transit; it does not take the nature of transit grain; it becomes a local propo- sition, so that that grain going into an elevator is delivered on these contracts, and it is a local deal. It carries no transit privileges. I do not think I have much more to say, Mr. Chairman and gentle- men, except that we feel that we are conducting our business according to law, and have no fear of any investigation, and will continue to conduct our business as we feel, according to law. I thank you, gentlemen. STATEMENT OF HIRAM N. SAGER, FORMER PRESIDENT BOARD OF TRADE, CHICAGO. Mr. Sager. I have been engaged all mj- business life in the grain business. Until I was 25 years of age I was a farmer, raising grain to be sold on the Chicago market. After that time, for 18 years I was in the milling business, buying grain for two of the largest mills in Illinois, and in the export of grain to Europe and shipment of grain to the Eastern States; and since that time, for the last 12 years, as a grain receiver and commission merchant, handling grain on the 262 GBAIN EXCHANGES. Chicago market for more than 600 correspondents, shippers of grain from the Western States. Gentlemen, I have not appeared here to oppose the proposal out- lined in this bill for an investigation of the exchanges. Personally, I have no objection to such an investigation. I would welcome an exhaustive, thorough, comprehensive study of the operations -of the grain exchanges on the part of Congress, and I know it would redound to the credit of the exchanges and of the Board of Trade of Chicago, of which I am a member and of which I have twice been president. I had no intention of appearing before your honorable committee or coming to Washington at this time until I received a telegram from friends here attending these hearings, who wired me that an attack had been made by Mr. Greeley, in his testimony before this committee, on my honor, on my integrity, on my honesty of purpose, on my good faith in regard to my actions while president of the board of trade in cooperating with a committee to settle, as nearly as could be, at that time, the difl&cult elevator question then pending; and I came to Washington, gentlemen, for the sole purpose of controverting those statements, not only on behalf of my own honor; but on behalf of the 18 men of the directory of the Chicago Board of Trade who acted with me in effecting those settlements, and especially the three members of the committee who handled that question before referring it to the board of directors, three of the most honorable, upright, conscientious, and high-grade merchants I have ever known in my life — ^Mr. John W. Bunnell, Mr. James Bradley, and Mr. Edward Andrews. Gentlemen of the committee, to the men of the board of trade the mere mention of those names indicates the high purpose that animated that com- mittee in considering this question; and I might state, further, as indicating the approval of the one thousand six hundred- and odd members of the exchange who were fully conversant with all the delib- erations of that committee and with whom final settlement of the case rested, approved later by the board of directors —I want to say that the judgment of the more than 1,640 members of our exchange on the action of that committee was this : That since that time, as a mark of honor and respect to those gentlemen and to me, and as a mark of confidence in regard to Qur action in that matter, which Mr. Greeley has intimated to you here was dishonorable and untrue to the high ethics of these gentlemen, I want to say that the members of that exchange since that date have elected me again president of the board of trade, have elected Mr. John Bunnell president of the board of trade, have elected Mr. Edward Andrews president of the board of trade, and have elected Mr. Bradley vice president of the board of trade; and the 1,640 members of this exchange did that with the full knowledge of everything connected with this adjustment of the ele- vator question. Gentlemen, the intimation by Mr. Greeley in his remarks to you and in the circular letter which he has read into the record and has left to be printed in the record, that there was anything dishonor- able or underhanded or dishonest or contrary to the highest ethics of every one of us gentlemen of that committee is absolutely false, and Mr. Hal Greeley, when he made that statement, deliberately and maliciously lied, and he knows it. Gentlemen, he has read into the record here a circular letter which he addressed to the members of our association, and which he issued to the members of our asso- GEAIHr EXCHANGES. 263 ciation, merely as a dirty political campaign document, issued at the very last moment before I was up for election as a president, and issued with the sole and only purpose of maUgning me before the directors and membei-s of our association, and trying to influence votes against me in that pending election. He issued that circular on the 30th day of December, 1907, and the elecaon came about three days after. This settlement of the elevator question had been made months before. Why did Mr. Greeley wait until just before that election, merely giving me time to write a hurried answer and get it printed in the most hasty manner and issue it to the members of our asso- ciation as a partial and incomplete reply to his mahcious fabrica- tions of falsehoods ? Why did he do that ? Why did he not bring out these- statements before ? Because Greeley is an unscrupulous man, and every member of our association who knows his record for years beMeves that to be true. Gentlemen, Mr. Greeley issued his statement to the board of directors and to the members of the asso- ciation which he has left here with you to be printed in the record. I wish to leaV3 with you and have appear as a matter of record the very hasty reply which I made to that document. This was an open letter. I only had one evening to prepare this letter and get it to the members before the election. I wish that printed. The Chairman. That is your reply to the letter of Mr. Greeley • which he introduced here ? Mr. Sager. a reply to Mr. Greeley's letter attaoldng my honor. The Chairman. It will'be inserted in the record. Mr. Sager (continuing) . And the honor of the committee and the honor of the directors who settled this elevator controversy at that time. (The letter of Hiram N. Sager to the members of the board of trade of Chicago here submitted, is as follows:) AN OPEN LETTER PROM HIRAM N. SAGBH TO THE MEMBERS OF THE BOARD OF TRADE OF CHICAGO. Chicago, December SO, 1907. To the members of the Board of Trade of the City of Chicago. Gentlemen: You have doubtless received a copy of the "open letter" written by Mr. H. S. Greeley and distributed by him to the members of the board of trade, in which he denounces the agreement under which the public elevators have been declared "regular" by the board of trade, and in which he attacks me for having assisted in effecting this agreement. Under ordinary circumstances I should make no reply to such a letter, but since Mr. Greeley plainly intimates that in the settlement of the elevator controversy I have been actuated by improper motives, and have been guilty of disloyalty to the exchange and of grijss misrepresentation, I feel impelled to address you on the subject. It is certainly strange that in Mr. Greeley's letter he failed to call your attention to the fact that the adjustment of the elevator question under which these properties are now being operated met with the approval of the attorney of the board of trade, and of all the elevator committee to which the matter was referred, and of the presi- dent, and both vice presidents, and of 12 of the remaining 15 members of the board of directors, and of the chairman of the special elevator committee, which had previ- ously considered the same problem. However, since Mr. Greeley desires to place all the, responsibility for this adjustment upon me alone, I am perfectly willing to assume it. I believe it to be a fair, honorable, and equitable settlement of a con- troversy that for years has disrupted our exchange, divided our membership into hostile camps, and impaired our usefulness to the public. I trust the members of the association will give the present plan suflSciejit trial to demonstrate whether it is a solution of our difficult problem or not. 264 GRAIN EXCHANGES. Referring to the statement of the special elevator committee to the trade, and quoted by Mr. Greeley, to the effect that the trade need feel no alarm at the difficult situation confronting us as the committee had "assurance of sufficient regular storage capacity to meet any emergency that may arise," that statement by the committee was absolutely true and correct in every respect. At the time the statement was made the committee had the assurance of over 6,000,000 bushels of elevator room that, in case of absolute necessity, could be used for public storage. Part of this elevator capacity was being operated by its owners in their private business and could only be given up at great personal sacrifice, but it would have been devoted to the public service if needed. Mr. Greeley makes the misstatement that I was chairman of the special elevator committee. I did not have that honor. I was not chairman of the committee. Under direction from the board of directors, and only after the previous elevator committee had asked to be discharged from further duty, I appointed a special com- mittee to consider the subject, and as I was, as president of the board,- ex officio a member of all committees, I worked with this one, and I have never served with any committeemen who more unselfishly and more loyally devoted their time and ability to the best interests of the exchange. It is true, as Mr. Greeley states, that up to the settlement of the elevator contro- versjr I "made a determined stand against them." I did so because I believed their position was wrong and detrimental to the interests of our exchange, and I shall be equally opposed to them if they ever take the same position again. At the same time, when the elevator proprietors finally acceded to the demands of the committee, and accompanied their request to have their elevators declared regular with the condi- tions and agreement as prescribed by the committee and approved by the board of directors, the time for controversy and strife had passed and me time to test the plan fairly and dispassionately had arrived. I never stated to Mr. Greely that I "never would and never could consent to make the elevators regular." On the contrary, my efforts were largely directed toward forcing the elevators to become regular on terms that would be favorable to and meet the approval of the members of the exchange; and that, I believe, has been accomplished. What I did say to several members was that I never would and never could consent to make the elevators regular on the conditions which the elevator proprietors demanded, and I never did. Mr. Greeley refers to the so-called McReynolds's elevator agreement and the guaranty fund subscribed to protect the proprietors of that elevator against loss in operating the elevator for one year as a public warehouse. I was the first one to sign that guaranty, and I consider it money well spent. It assisted in bringing the elevator proprietors to agree to our proposal, it furnished over 1,000,000 bushels additional storage room, and it is giving the trade an opportunity to patronize an absolutely independent elevator if they wish to do so. No misrep- resentation was practiced in regard to this elevator, as alleged by Mr. Greeley. The board of trade did not first approach the owners of the property. On the contrary, the attorney for the bondholders of the McEeynolds elevator came to me stating that the McReynolds elevator was empty and idle; that for several months fruitless efforts had been made to sell it and that, being vacant, it was difficult to keep the property insured. He asked if the bondholders controlling the elevatpr should operate it as a public warehouse under the rules of the board of trade, would certain members of the board guarantee the elevator- $20, 000 gross earnings for one year or jointly make up any deficiency between the gross earnings and that sum? I stated I would be one to sign such an agreement, and the arrangement was finally consum- mated. I did state to the bondholders and to those who signed the agreement that I did not think all the elevators formerly "regular" would be declared regular again at the same time by the board of directors even if they did make application, but to this the attorney of the board would not consent, and when the elevators accepted our pro- posal and applied to be made "regular" he insisted, on account of certain legal con- siderations relating to the injunction suits then (and now) pending before the Supreme Court of Illinois, that all the elevators sign the agreement, and be declared regular together or else that none of them be permitted to do so. It was, aa Mr. Greeley states, gratifying to know there were so many members of the board willing to assume some responsibility in connection with guaranteeing the McReynolds elevator against loss, and not the least gratifying feature is the fact that, so far as I know, Mr. Greeley is the only one who regrets this action. Mr. Greeley repeatedly refers to secret meetings, secret agreements, and "keep secret documents." There were none such. The elevator committee endeavored to keep the members advised of the situation, and when the directors approved of the GEAIN EXCHANGES. 265 settlement effected it was expressly ordered that everything in regard to the conditions agreed upon with the elevator proprietors should be made a matter of record and be spread upon the minutes of the directors' meeting in full, where it is open to the inspection of every member of the association. The only agreement or understanding of any kind with the elevator proprietors accompanies their applications, and is on the directors' records, open to tne inspection of any and every member of the association. I am neither a proelevator man nor an antielevator man, and I do not believe we should be divided into such classes. I am for what is right and best for the exchange, and I firmly believe the so-called elevator agreement will prove to be both. It concedes to the elevator proprietors nothing to which they are not legally entitled, and, on the other hand, it protects the interests of the members and of the exchange. Best of all it furnishes a basis upon which we can aU work in harmony and upon which we can firmly upbuild the Chicago market. If, however, it fails to meet with the approval of the members, it can be abrogated on July 1 next, as by mutual agreement the experiment has been limited to that time. Yours, truly, Hiram N. Sagek. Those two letters were submitted to the 1,640 members of our exchange. What happened? The election took place, just after- wards, and I was elected president of the board of trade by one of the largest votes that has ever been cast for president. Out of the entire 1,640 members there were only about 10 members or less who did not vote for me, with the full knowledge of all the facts and with Mr. Greeley's dirty, mahcious, lying screed before them. That was the answer to Mr. Greeley's tirade of abuse and falsehood, deliber- ately pronounced by 1,640 intelligent, wide-awake, honorable mer- chants. There is not another man in that entire association so low so contemptible, so absolutely false to all the true ethics of manhood as would have issued that screed just before that election except Mr. Greeley. Gentlemen, you do not know the character of the man who has testified here against me and who has maligned the association with which he was connected for so many years. He has told you here that that elevator settlement was made in the nighttime — an absolute falsehood. That elevator settlement was the result of months of deliberation; it was the result of the carefully thought out investiga- tion and best judgment of one of the ablest, most honorable select committees that our exchange could possibly produce to settle that disturbing question, and it was indorsed by the directory of 18 mem- bers; and, gentlemen [turning to representatives of the Chicago Board of Trade], bear me out in this: Not only my committee, not only my administration, not only the members of the exchange at that time indorsed and approved of that settlement of the elevator ques- tion, but every administration since, from that day down to the present, has indorsed, has approved, has renewed that very same agreement, and it is the agreement to-day under which the pubhc warehouses of the city of Chicago are operating as regular warehouses of the Chicago Board of Trade. Do you think, gentlemen, that I am moved in this matter ? I am most profoundly moved. This is the first time in my entire business life of more than 30 years on the Board of Trade of the City of Chicago, and this is the first man of all the 1,640 odd members who have in all that time ever accused me of the sHghtest deviation from absolute morality and integrity and the highest of commercial ethics. And his charges are as false, as malicious, as absolutely untrue as is the heart of that man which instigated his remarks. _ 266 GEAIN EXCHANGES. Gentlemen, it is a most scandalous thing that a man so absolutely discredited among the members with whom he has been associated aU his life, as is Mr. Hal Greeley, should be permitted to come before the Congress of the United States, as represented by your committee, and in the presence not only of your committee — and, gentlemen, this is one of the things that hurts me most of all — not oiny in the pres- ence of your committee, but in the presence of my lifelong friend, my early boyhood friend and schoolmate, my friend of to-day, Senator Robert M. La Follette — in his presence, to malign my character, I say, gentlemen, that your committee should permit such a man to attack me, when I was 800 miles from here, is, to say the least, most astonishing, and therefore I crave your indulgence^ if I seem to make my remarks personal, if I seem to deviate from the matter you are considering, because my personal honor and character is the dearest asset I have in hfe. I am not a rich man; I never expect to be. I have been engaged in the grain business all my life — the most legiti- mate, most conservative, most useful feature of the grain business. I have never had a speculative transaction on our exchange in aU my life. I have never been able to accumulate anything of any material moment, but I have built up among my associates in that exchange a reputation for absolute honor, a reputation for absolute truthfulness, a reputation for character that is second to none, and I challenge Mr. Greeley as to whether that is not true. There is not a member of our association — bar none — whether they agree with me or not, whether they agree with that settlement that was made by that committee or not — there is not a member of om- association except this man — man! God forgive the word! This person. There is not another member of our association except this person who would accuse me of anything except the highest degree of honor and integ- rity and probity, and I am here to protect my good name, and through protecting my good name to protect the reputation of those three members of that committee, one of them now dead, who acted with me, and to protect the reputation of the 18 directors who acted with me in this matter — and their action has been indorsed, as I said before, by every administration from that day to this. Gentlemen, pardon me for a few words more. There is so much to speak of in relation to this matter. I would like to talk two hours about it, but I am trespassing on the time of another member, who has given me the courtesy of a few minutes of his time to answer this libelous assault. What was that agreement that Mr. Greeley criticizes and which he says, "lying," gentlemen, "was consummated in the nighttime," there- by inferring that it was done under cover, that it ^v^as secret, that it was hidden, which is absolutely not true. It was open to aU the members of our exchange, and spread on their records, accessible to every member of our association, fully discussed by the directory, and is known and was known to all the members. I wish to submit what that agreement was, that adjusted the elevator question on what I believe to be, and what all the administrations since then have indorsed as being the most fair, the most equitable, most reason- able settlement of that difficult question that was possible. I sub- mit the copy of the original agreement arrived at by the committee, approved by the entire directory, and since then by every admin- istration. GKAIN EXCHANGES. 267 The Chairman. It will be inserted in the record. (Copy of original agreement with elevator company, dated Sep- tember 10, 1907, here submitted by Mr. Sager, is as follows:) [Copy ot original agreement with elevator companies about declaring elevators "regular" for storage of grain.] Chicago, September 10, 1907. To the board of directors of the Board of Trade of the City of Chicago. Gentlemen: In submitting my applications, attacted hereto, requesting the board of directors to declare , as described in said applications, regular ware- housjs for the storage of grain and flaxseed, under the rules of the Board of Trade of the City of Chicago, for the period ending June 30, 1908, I desire to state that, after consultation with the special elevator committee, I understand — Firet. That all stations at which there is competitive buying of grain are to be considered as competitive points. Second. All grain received into and delivered out from any of my regular ware- houses shall be done under the supervision of competent supervising samplers appointed by the board of trade under the control of the grain committee, who shall act in conjunction with the State grain inspection department. The decision of the latter in regard to the grading of grain shall, however, on appeal be final. Third. That it is not to be considered a violation of the rules of the Board of Trade of the City of Chicago, or of the law of the State as declared by the supreme court, for me as proprietor or lessee, of public elevators of class A to own grain in public elevators operated by me, provided the grain owned by me is segregated from that of the pub- he, kept in "special bins" and the receipts issued against same be designated aa representing "special bin" grain. Such receipts shall be plainly and conspicuously marked as "special bin" grain and designate the number of said bin. Such receipts not being regular for delivery on board of trade contracts. Nor is it to be considered in violation of the rules of the Board of Trade of the City of Chicago, or in -violation of said decision of the supreme court, for such " special bin" grain to be sold to a bona fide purchaser and be loaded out, reinepected and delivered into regular elevators in the general public bins and receipts representing said grain then may become deliverable on board of trade contracts; it being understood that I as proprietor of said elevators shall have no interest whatever, either directly or indirectly, in the ownership or control of the grain after having been sold, and the ownership and control of the prop- erty shall thereafter be vested absolutely in the buyer who shall pay for the grain upon the delivery to him of the elevator receipts in the usual and customary manner as is provided for the deliveries of cash grain under the rules. 1 as proprietor, or lessee of public elevators of class A shall have the right to deliver grain into any warehouse ' made regular under the rules of the board of trade I may elect other than into elevators owned, leased or operated by me; provided, however, that I may stipulate for delivery if my grain into my own elevators, butshall be required to sell such grain to go to store. These sales are to be absolutely bona fide sales made in good faith. I as owner, lessee, or manager of said elevators shall have no interestwhatever, either directly or indirectly, in the ownership or control of the grain after having been sold, and the ownership and control of the property shall thereafter be vested absolutely in the buyer, who shall pay for the grain upon the delivery to him of the elevator receipts in the usual and customary manner as is provided for the deliveries of cash grain under the rules. Fourth. Grain stored m ' ' special bin "not being deliverable on regular board of trade contracts, may be sold or shipped by me. Fifth. I as'warehouseman shall be required to exercise all reasonable care and dili- gence to preserve the grain in my warehouses in good condition, and in caae of my inability to do so, I shall promptly by the proper publication advise the trade and the public (as required by law) of any damage to grain or flaxseed held in store by me. Sixth. So far as the'rules of the board of trade are concerned, it is to be understood that a delivery by other members to me as proprietor, lessee, or manager of a public warehouse, in the regular course of business deliveries upon open contracts, of receipts for grain stored in my warehouses and which I have been unable to again deliver out before the close of regular hours for such deliveries shall not be construed to be a viola- tion of the rules of the board nor of the warehouse law, as far as the board is concerned. Such receipts, however, must be delivered out by me as soon as possible, but not later than the next business day. Seventh. Neither this communication, nor my application to have, nor the action of the board of trade in making, my elevators regular under the rules of the board shall in any way affect or prejudice, or be used by me, or by any other party with my 268 GEAIN EXCHANGES. connivance or consent, to affect or prejudice the pending litigation brought by the State's attorney of Oook County or a final decision therein. Eighth. Any intentional or willful violation of the above agreement shallbe con- sidered as dishonorable conduct and subject me to discipline by the board of directors. Yours, respectfully, And in substantiation of my statement that it has been adopted by every administration since then, I offer also a copy of the present agreement with the elevator companies, which you will see is prac- tically the same agreement. The Chaikman. It will also be inserted in the record. (Copy of present agreement with elevator companies here sub- mitted by Mr. Sager is as follows:) [Copy of present agreement, year 1914, with elevator companies about declaring elevators "regular" for storage of grain.] BoABD OF Trade of the City of Chicago, Chicago. . To the board of directors of the Board of Trade of the city of Chicago. GENTLE.UBN:'In submitting our application, attached hereto, requesting the board of directors to declare , as described in said application, regular ware- house for the storage of grain and flaxseed under the rules of the Board of Trade of the city of Chicago, for the period ending June 30, 19 — , we desire to state that, after consultation with the warehouse committee, we understand: First. That all stations at which there is competitive buying of grain are to be con- sidered as competitive points. Second. All grain received into and delivered out from any of our regular ware- houses shall be done under the supervision of competent supervising samplers ap- pointed by the board of trade under the control of the grain committee, who shall act m conjunction with the State grain inspection department. The decision of the latter in regard to the grading of grain shall, however, on appeal, be final. We, however, will not accept grain for storage in our regular warehouses that is not satisfactory to the grain committee of the Board of Trade of the City of Chicago, as to grade, unless it comes from sources over which we have no direct control. Third. That it is not to be considered a violation of the rules of the Board of Trade of the City of Chicago, for us as proprietors or lessees of public elevators of Class "A" to own grain in public elevators operated by us, provided the grain owned by us is segre- gated from that of the public, kept in "special bins" and the receipts issued against same be designated as representing "special bin" grain. Such receipts shall be plainly and conspicuously marked as "special bin" grain and designate the number of said bin, such receipts not being regular for delivery on board of trade contracts. Nor is it to be considered in violation of the rules of the Board of Trade of the City of Chicago for such "special bin " grain to be sold to a bona fide purchaser and be loaded out, reinspected, and delivered into regular elevators in the general public bins, and receipts representing said grain then may become deliverable on board of trade con- tracts, it being understood that we, as proprietors of said elevators, shall have no interest whatever, either directly or indirectly, in the ownership or control of the grain after having been sold, and the ownership and control of tlie property shall thereafter be vested absolutely in the buyer, who shall pay for the grain upon the delivery to him of the elevator receipts in the usual and customary manner as is pro- vided for the deliveries of cash grain under the rules, it being our understanding, however, that no room in our own public houses shall be used ior special binning our own grain to the exclusion of grain offeredi by the public for storage. We, as proprietors or managers of such warehouses, shall be required to sell any grain or flaxseed that we may wish to sell to go to public storage in warehouses regu- lar under the rules of the board of trade in the open market in the exchange hall during the hours of regular trading. Sales may be outright or in exchange for futures. That it shall be the duty of the directors to fix a place where such sales shall be made. That the buyer of such grain sold as above to go to public storage shall order the Ba,me to store in public warehouses regular under the rules of the Board of Trade of the City of Chicago. GKAIISr EXCHANGES. 269 That all grain so sold to §o to public storage shall be put in such position that same can go to public storage without expense to the buyer: Provided, however, That the buyer shall pay all expense and charges if he elect to move the same from that position. That the same rules as to margins and as to acceptance of offers shall apply on such sales as are applicable to time contracts. That the possession of such grain when sold to go to public storage must be deliv- ered to the buyer before it is put into public elevators, and must be paid for on guar- anteed weights and grades, and the seller shall furnish expense bills of equal tonnage to insure transit privileges when the grain is shipped, provided the grain has not remained in public storage beyond the expiration of the time during which the expense bills are good for transit privileges under the rules of the transit bureau. Fourth. Grain stored in "special bin," not being deliverable on regular board of trade contracts, may be sold or shipped by us. Fifth. We, as warehousemen, shall be required to exercise all reasonable care and diligence to preserve the grain in our warehouses in good condition, and in case of oxa inability to do so we shall promptlv. by the proper publication, advise the trade and the public (as required by law) of any damage to gi-ain or flaxseed held in store by us. Sixth. So far as the rules of the board of trade are concerned, it is to be understood that a delivery by other members to us as proprietors, lessees, or managers of a public warehouse, in the regular course of business deliveries upon open contracts, of receipts for grain stored in our own warehouses, and which we have been unable to again deliver out before the close of regular hours for such deliveries, shall not bs construed to be a violation of the rules of the board nor of the warehouse law, as far as the board is concerned. Such receipts, however, must be delivered out by us as soon as pos- sible, but not later than the next business day. Seventh. Any intentional or willful violation of the above agreement shall be considered as dishonorable conduct and subject us to discipline by the board of directors. * Yours, respectfully, Mr. Greeley. Mr. Chairman, may I sa}^ right there that in addition to this agreement there is also in this question, which has brought out this criticism, the promise of Mr. Sager to me personally, and to other men who contributed the $20,000 contributed to Peabody, Hough- teling & Co., for the expenses of that elevator for one year, that he would not make any public elevator regular if we furnished that fund ; and in immediate violation of that promise, mthout any knowledge of the men who contributed that money, Mr. Sager, at a meeting, I understand at night, absolutely made an agreement to make these houses regular, and absolutely violated his promises to every man, in violation of the sacred trust as man to man, that if we put up that money not one of those houses would be made regular; and [address- ing Mr. Sager] you made that promise, which you violated. Mr. Sager. Mr. Chairman, have I the floor ? Mr. Garrett. I want to venture to suggest that this committee is not interested in the personal diflFerences of gentlemen who appear before the committee. I heard the statement of Mr. Greeley a few days ago. I think he violated the proprieties in making a personal attack and in not confining himself to the matter of the resolution. I do not blame the gentleman who has the floor now, whose name I do not know Mr. Sager. Sager. Mr. Garrett. In making some sort of a response, but I think there ought to be a time when there should be an end to personahties about a matter that is not involved in the resolution and can not possibly become involved in the resolution. The Chairman. I quite agree with the gentleman, and I was just thinking we had allowed this matter to go entirely too far; but inas- 2 70 GRAIN EXCHANGES. much as Mr. Greeley had made a statement that reflected on Mr. Sager, the Chair was indulging the hope that he would be moderate and temperate, and reply, if he could, m an argumentative way, and state facts. This is a thing that never has occurred in this committee before. Mr. Garrett. I do not want to be misunderstood in my attitude. I think Mr. Greeley violated the proprieties in the statements he made a few days ago. I can sympathize somewhat with the temper of the gentleman who is speaking now, but I think that both of them have gone about as far as it should. Mr. Greeley. May I just say a word? I think it is proper an explanation should be made. This is not a personal matter. The Chairman. You take your seat. Mr. Sagee. Thank you, Mr. Chairman. The Chairman. We have allowed Mr. Sager to say more than he should have been allowed to say, and perhaps we allowed Mr. Greeley to go further than he ought to have gone. The chairman of' the com- mittee hopes, Mr. Sager, you will confine yourself within temperate limits. Mr. Sager. Mr. Chairman, I will do my best to confine myself in the most temperate manner with which I can consider this attack upon my honor. When Mr. Greeley interrupted me a moment ago I was just about to refer to and had in my hand that very agreement he has spoken about in-i-egard to a contribution of many membeis of our exchange, guaranteeing the ovrners of an elevator against loss if they would make it regular under the rules of the board of trade at the time when we so sadly needed their assistance in setthng this elevator question. The letter which I addressed to the members of the board of trade covers that question. I do not want to take time to lead it, because I have so few minutes in which to defend myself, but I Mill say this, that there was no such promise made to Peabody, Houghtehng & Co. by me or by any member of the committee, and I would so testify under oath. There was no such promise made by me; and the other members of the committee have assured me there was no such promise made by. them to Mr. Greeley. Fortunately, there are two other members here besides myself who contributed to that fund. Mr. Joseph Griffin has already testified that there was no such promise or agreement made to him as indicated by Mr. Greeley, that the other elevators would not be made regular. I should Hke to ask Mr. Wilham Eckhardt, of Pope Eckhardt & Co., who is heie, and who was also a contributor to that fund, if there was any such promise made to him. Was there, Mr. Eckhardt? Mr. Eckhardt. No, sir; there was no such promise made. Mr. Sager. Mr. Eckhardt was one of the subscribers to that agree- ment, and he says there was no such piomise made, and I declare to you, on my honor, I never made such a promise to Peabody, Houghtehng & Co., or to Mr. Greeley. If such a promise had been made, it would have made this agreement with Peabody, Houghtehng & Co. so much more valuable to them that they would have embodied it in the contract. I submit the contract made with Peabody, Houghtehng & Co. in regard to this guaranty fund, and there is no word in it — abso- lutely not a word in it in regard to such an agreement, either verbally or implied. GBAIN EXCHANGES. 271 (The agreement with Peabody, HoughteUng & Co. here submitted by Mr. Sager is as follows :) Agreement between the undersigned, grain merchants of the city of Chicago, herein- after called the " Grain Merchants,'' party of the first part, and the firm of Peabody, Houghteling & Co., hereinafter called the "Firm," party of the second part. Whereas said Firm represent the owners of the gram elevator now known as Mc- Beynolds elevator A, situated on the Calumet River at One hundred and sixth Street in the city of Chicago, and said Firm are making repairs and improvements to the elevator under the supervision of Mr. C. T. Anderson, engineer, to the end that the same may be rendered safe and suitable for the storage of grain, and whereby the insurance rate on grain stored therein shall be reduced so as not to exceed 11.75 per annum at the time of commencing operation of the elevator. And whereas a corporation is being formed to which said property may be leased or deeded, which corporation will operate said elevator as an independent public grain warehouse of class A, in accordance with the laws of the State of Illinoifi and the rules and regulations of the Board of Trade of the City of Chicago, and will make proper application with proper bond, so that said elevator shall be declared regular under the rules of the board of trade, and said Firm agree to make all reasonable endeavor that said elevator shall be operated in accordance with the laws of the State of Illinois and the rules of the board of trade for a period of one year from the time it may be declared open as a regular public elevator, and further agree during that time that the property shall not be owned or controlled by any of the people or corporations who have until July 1 last been operating public elevators of class A in Chicago. And whereas by reason of the expense involved and the possible danger of loss in operation, said Firm and the owners of said property have been unwilling to repair said elevator and operate the same as above, but the undersigned Grain Merchants have requested said Firm on behalf of said owners so to operate said elevator, and as consideration for such repair and operation have agreed to guarantee said Firm, for itself and the company which may operate said elevator and the owners thereof, that the gross income from said property, derived from the storage of grain, for the period of one year above mentioned, shall be not less than $20,000. Now, therefore, in consideration of the premises and of the sum of $1 to each of the undersigned in hand paid, the receipt whereof is hereby acknowledged, the under- signed do hereby, as hereinafter provided, guarantee to said Firm that the gross income as aforesaid from said McReynolds elevator A for the period of one year from the time said elevator is opened as a public warehouse of class A shall amount to not less than the sum of $20,000. Each of the several Grain Merchants signatory hereto agree to send to the said elevator grain for storage in sufficient quantity, as near as may be throughout the year, so that the storage earnings arising therefrom shall amount to the sums respectively agreed to by said several grain merchants, as set forth opposite their signatures hereto, it being understood fliat the storage rates charged by said elevator shall not exceed, one-half of 1 cent per bushel for Qie first 10 days and one- fortieth of 1 cent per bushel for each day thereafter. In the event that either of said several Grain Merchants signatory hereto shall fail to send grain for storage sufficient to produce the sum set opposite Ms or its name, and should the gross income from the storage of grain in said elevator be less than said sum of $20,000, each of the Grain Merchants, parties signatory hereto, agrees to pay to said Firm the difference between the amount of storage accruing upon the grain sent by him and the amount so set opposite his or its name, or so much thereof as may be necessary to make said gross income equal $20,000, but neither of the Grain Merchants signatory hereto shall be liable for the default of any of said other Grain Merchants hereunder. The total liability of each of said Grain Merchants in any event shall not exceed the amount set opposite his or its name. Said Grain Merchants agree to cooperate with said Firm and its assigns to promote the success of this enterprise and to use all reasonable efforts to have their fellow merchants store grain in said elevator. It is understood and agreed that this agreement is assignable and shall inure to the benefit of the corporation proposed to be formed by said Firm and to the owners of said property. In witness whereof the parties hereto have hereunto set their hands this day of August, A. D. 1907. Party of Second ParL Party of first part: Name . Amount . 272 GBAIN EXCHANGES. The statement that is made that the committee and the board of, directors and, especially I, betrayed the men who contributed to that fund, is absolutely false. I wish I had time to elaborate on that question. I have before me here a list of all the members who subscribed to that fund, and the amounts they subscribed. Mr. Greeley is the only man on that list who has ever said to me that he regretted signing that agreement. Furthermore, Mr. Greeley left the intima- tion that all of the money subscribed was lost. He said he never got any of his back. Why he did not get it back, I do not know. He had an opportunity to get it back, because the owners of that elevator, a short time after this agreement was made, had an oppor- tunity to sell that elevator at a big price and were most anxious to do so, and they asked the members to this agreement to cancel the agreement, and they returned them a large part of their contribu- tion; and what we lost by our contribution that was not returned we considered well spent, because it helped us to drive the elevator companies into this agreement, which I have submitted and which was considered by all the members of the exchange, barring possibly Mr. Greeley, as the best possible settlement of the question. It was a settlement that was approved by the attorney of the board, and it was a settlement that has stood from that day to this, and though it started as an experiment it has proven to be the fairest and most equitable and most just and most satisfactory settlement of the ele- vator question that ever has been proposed or made on our exchange. Gentlemen, I shall revert no more to this personal matter. I only wish I had more time, but unless you are going to sit longer than I fear you are, I shall not have time to touch on this question to which I would now address myself. The Chairman. The committee will have to suspend at 5 o'clock. Mr. Sagee. Gentlemen, I will desist in just a moment, because there are other members wishing to follow, and it is only by their courtesy that I have taken part of their time. I wish to say, gentle- men, as a farmer, as a miller, as a grain commission merchant, who has never speculated, that I only wish I had the time to explain to your committee and through your committee to the Congress of the United States why I believe the present system of trading in grain for future dehveries, as conducted on the exchanges, is one of the most useful economic functions performed in this country, and how it is especially useful to the farmer. I beheve if I had half an hour I could convince you that if it were not for this speculative trading, if the boards of trade were abolished to-morrow and all the speculative buyers who congregate there to take, right after harvest, the enormous quanti- tities of grain that are being pressed on the market — ^if they were eliminated by statute, I could convince you, I am certain, that it would cost the farmers of this country not less than 10 cents a bushel, perhaps many times that, on every bushel of grain they sell. I wish I had the opportunity to elaborate on this question, because I thor- ughly beheve it is an evolution of trade that has brought up to the nearest possible state of perfection the economic method of marketing the farmers' crops. It is not perfect yet. If there are any improvements you can suggest we will be glad to hear them. If a commission is appointed and any recommendations are made, we will be glad to subserve to them. But, gentlemen, I GKAIN EXCHANGES. 273 beg of you, until you have something better to offer in place of the present system, imtil you can give to the farmers of the United States something equally good to protect them against sudden declines in the market, do not aboHsh this system. If you do you wiU bring tremendous losses on the agriculturahsts of this country, a class most dear to me. I was one of them; my friends are stiU engaged in the business and my business is almost entirely with the western producers and shippers, and on their behalf I appeal to you to carefully study this question before you disturb the existing con- ditions. I thank you, gentlemen. STATEMENT OF DAVID F. SIMPSON, MINNEAPOLIS CHAMBER OF COMMERCE, MINNEAPOLIS, MINN. Mr. Simpson. Under the arrangement made, it would now be in order for the persons representing the Minneapolis Chamber of Com- merce to present their position to the committee, but Mr. Shorthill, of Nebraska, who spoke to us before, is anxious to speak at this time for other reasons. He has some questions he would Hke to submit and have them answered in the regular order during the discussion, and we would be very glad to yield to him a few minutes, if it is con- venient, and he said he wanted about 20 minutes, I beheve. The Chairman. We can give Mr. Shorthill 15 minutes this after- noon. • STATEMENT OF MR. J. W. SHORTHILL, SECRETARY FARMER GRAIN DEALERS' AND PRESIDENT NATIONAL COUNCIL GRAIN DEALERS' ASSOCIATIONS, HAMPTON, NEBR. Mr. Shorthill. Mr. Chairman, it will rather cause me to make considerable haste in order to get through with what Uttle I had to say . The Chairman. Some of us have engagenents at 5 o'clock, and I suppose you can have a little more time, if necessary; but suppose you commence now. Mr. Shorthill. I will be very glad to do that. I am representing the independent farmer grain dealers of Nebraska; that is, farmers who, when they had a personal grievance in the grain market or in a certain locahty have united themselves to protect themselves in the market and form an independent company. We have about 200 companies of that kind that somewhat differ m their plans of doing business in the State — not quite 200. They have banded them- selves voluntarily into a State association. I represent that association as their secretary. I am not a farmer, and my experience in the grain business has been as manager of farmer's elevators, until two years ago, being elected the secretary of this State association and now ser-ving on my second year, devoting my entire time to the service of the association on a fixed salary, with my expenses paid. A little over two years ago the Nebraska association, Illinois association similarly, the Iowa association, the Minnesota association, the South Dakota association, and the Kansas association — there M-as no Kansas association at that time — I make that correction, and in a partial way the young North Dakota association, met together in 37214—14 18 274 ' GEAIN EXCHANGES. Minneapolis, the object of their meeting being to forni what was called the National Council to handle matters of mutual interest to those grain dealers' associations of those seven States which I have men- tioned. I am representing that National Council, they having seen fit to elect me to the position as president of that council, and in the absence of any representatives here in another capacity from the two States of Kansas and Illinois, I would beg the privilege of speaking for them. I have tried to be concise in my statements, and confine them in a way that would convey to you the uncolored impressions of the people that I represent, and for that purpose I had prepared my statement before this hearing had gone very far — almost immediately after my arrival at Washington, and I have not changed it, but will give it to you as I prepared it as being the sentiment of these people on these questions. First. We are interested in the inspection of our grain at terminal markets, but on this point we have an abundance of first-hand in- formation, on which we have based our opinion as tc^ what we want and for that reason we axe not asking for anything froni this commit- tee at this time on Federal inspection of grain entering into interstate commerce. However, I want an opportunity to very briefly explain what we mean by this. Second. We are interested in the methods used in conducting the large storage elevators and transfer houses into which our grain is received at some period of its progress in interstate commerce. On this point we have not conclusive evidence to enable us to say defi- nitely what we do desire, but it is our belief that all interests in the grain trade will be best served by individuals in charge of those houses when such individuals are not financially interested in the grain they are handling, and that such houses should be open alike to all grain entering into interstate commerce. On this point, how- ever, I am sure that we are not decided as to the best and most practical method of procedure. Third. We feel our lack of reliable information as to the matter of dealing in futures. We believe that there are serious evil practices and possible manipulations connected with lihe present dealing in futures in grain and we also believe that there are some real advan- tages. We believe that an exhaustive study of the practice when con- ducted in the proper way wUl make it possible to eradicate the greater evils and also preserve the more important advantages. In this con- nection we again plead our lack of proper knowledge and also our lack of means to secure that knowledge. Fourth. In the matter of the proper methods of conducting and managing grain exchanges (this single term is here used for con- venience and is meant to include all hke organizations) we also plead our lack of proper knowledge. We beheve that such organizations when engaged in handling grain in interstate shipments might possibly be improved in a degree from the standpoint of the general grain trade by some sort of regulation or oversight. We beheve that a proper investigation of these organizations will show whether it is necessary to regulate them by Federal authority or whether they are guilty of practices that ought to be corrected and that the proper kind oi an investigation will lay the foundation for intelhgeiit action in whatever GKAIN EXCHANGES. 275 line may be necessary. We feel that the country groin trade in general is in need at this time of impartial information on this subject. In view of the previous statements, it is our desire that this com- mittee, when it reports on the resolution that is now before it, recom- mend that an investigation be instituted immediately by the Federal Government, which shall be thorough, public, and entirely impartial to every interest in the grain trade, and that at any time when sufficient evidence be found to warrant legislative or other action that such action be immediately recommended by the investigators. Mr. Gaerett. Would it interrupt you to ask a question ? Mr. Shorthill. No, sir. Mr. Garrett. Have you read the agricultural biU which is just now being considered before the House ? Mr. Shorthill. No, sir; I have attempted or tried, ever since I have been in the city, to see the bill. You mean the bill with regard to the inspection of grain ? Mr. Garrett. I mean the agricultural bill now before the House and being discussed at this minute while we are sitting here. Mr. Shorthill. No; I have not. Mr. Garrett. I think if you will turn to page 18 you will find an appropriation of $78,000. Mr. Shorthill. I know something of that. Mr. Garrett. One of the purposes is grading and inspection. Mr. Manahan. Inspection, grading, and handling of grain. Mr. Shorthill. I understand that part of it. In talking with a member of the Agricultural Committee from our State, and by talking with the department that has been making thes3 investiga- tions, I think I understand something of their intentions. We desire that the investigation be made to cover the present methods of operating storage and transfer elevators, the transac- tions in grain for future dehvery or dealing in options, and the con- duct and management ofgrain exchanges. The object of the investi- gation shall bo for the impartial information of the grain trade in every branch and the pubhc in general, and for the correction of whatever evils may be found. We beUeve that such an investigation which wiU produce the infor- mation mentioned is necessary at this time, for the reason that there is no conclusive information on these subjects that we know of at the present time that has the confidence of aU, or even a large part, of the grain interests, and that could be used in effectually settlmg some vital problems that now confront the entire grain trade; and for the further reason that the country grain dealers are almost without information of any kind on these subjects, and that it is not possible, nor even advisable, for them to get such information, because it wouM be imme- diately assailed as being biased, imfair, and that it was obtained for a selfish purpose, which would make the work useless in an attempt to settle differences such as now confront the country dealer and the terminal interests. If any information would be accepted by all con- cerned, it would be information secured by an impartial investigation made by the Federal Government. I hope I may have a few minutes at some future time to explain why we take this position. I ajn through at the present time. 276 GRAIN EXCHANGES. STATEMENT OF MR. F. G. HORNER, lAWRENCEVILLE, ILL. Mr. Horner. Mr. Chairman and gentlemen of the committee, I do not wish to make a speech. In fact, I could not do so if I desired, but I feel that any restriction ot so-called speculation or trading in grain futures so vitally affect my business that, with your permission, I wiU read a few remarks which I have prepared. I am not a member ot the Chicago Board of Trade or of any similar exchange, but a country elevator owner in Illinois, buying, grain direct from the farmer and merchandising it to the best of my ability either direct to the miller or to such terminal markets as at the time may seem best, and I believe that the points that I will present will be applicable and pertinent to thousands of other country grain dealers, and, as a necessary result, to the farmers whom they may serve. In this connection I might add that I have never shipped a car of wheat or com to Chicago in my Hfe. I prefer not to give you any generalities or abstract views of my own, but, in the simple, homely manner, by examples from my own personal experience m my own business, try to present to you a few concrete examples ot the economic value of the so-called future trad- ing in the actual marketing of our crops of grain; and I would be pleased to answer any questions which the committee may desire to ask in so far as my abihty and information will permit. I know that there are various sections of the country where the larger farmers hedge their own individual crops directly in the Chicago market, but in my own territory I do not know of anyone following this course. Our farmers have and are now following the method of selling their growing crops to us whenever the prices of future deliveries in Chicago permit us to offer them a price which meets their views and shows them a good margin of profit over the cost of production. For instance, I have noticed that almost inva- riably when we have been enabled to offer the farmer a round price, such as 11 for his wheat, or 50 cents for his corn, that he would con- tract as much of his crop as he felt he might do with safety for delivery at the time of harvest, or shucking, as the case might be. I re- member one instance when, in April, the future deliveries of grain in Chicago were soiling at a price which permitted us to hedge our purchases in that market and offer our farmers $1 per bushel for their wheat. We bought, in the course of less than 10 days, about 60 per cent of the wheat that we handled on the entire crop. Now, the method is this: As purchases are made by us from day to day direct from the farmer, an equal quantity is sold by us in the Chicago market for delivery at some future date. Understand, we have no intention whatever of shipping this wheat to Chicago, as we are situated nearer the consuming markets in the South and East than Chicago and, necessarily, owing to the transportation charges, can always sell our grain direct to eastern and southern millers to a better advantage than we could ship to Chicago, from which point it would have to be reshipped back over the same route. So, as I have said, we sell against this grain, or hedge it — to use the trade term — and in one, two, three, or four months, as the case may be, when our farmers deliver their grain to our elevators, we will merchandise it wherever we can do so to best advantage, and simultaneously buy back an equal quantity of the GBAIN EXCHANGES. 277 grain we had sold in Chicago. We know by this method that the original profit which we had in the transaction will be conserved; or, in other words, that as the value of the cash wheat may move up or down in the interim between making our contract with the farmer and reseUing to the mdler or perhaps to a distributor, that in approxi- mately the same ratio the Chicago market will move up or down, and that, therefore, any excess profit over that originally shown in the cash transaction will be met by a relative loss on the hedging or Chicago end, and, conversely, loss in the cash end by a corresponding profit at the hedging end. Now, you might ask why we do not sell this grain direct to the miller, exporter, or distributor at the time of purchase, instead of going through the double transaction of a hedging sale. In the first place, a sale of cash grain must always be for specmed delivery. Our wheat crop, for instance, usually begins to move to market the first week in July, but often, on account of rain, this movement is delayed, perhaps, for two weeks; sometimes, for three or four. Now, we sell this wheat to a miller for, say, shipment by July 15; perhaps he sells flour to be manufactured from this same wheat for shipment, let us say, August 1. Now, the flour buyer is depending on having this flour shipped on the date mentioned. If we do not ship the wheat, the miller can not ship the flour. The delayed condition of harvest is general in this section of the country. A temporary scarcity of wheat and flour ensues as a result of the weather. The flour buyer must have his flour; and he goes on the market and purchases the quantity of flour he has purchased of the miller, and charges the miller with any resulting difference in addition to the regular market differ- ence. He may, in order to secure immediate shipment, have to make the purchase from some miller less advantageously situated in regard to freight rates than the miQer from whom he had made the original purchase, and the resulting loss may grow iato large proportions; but the mill er is legally hable for any loss that may be sustamed from his failure to fuhfllhis contract. As the originators of this contract, we must reimburse the miller for the loss he has sustained, and our original profit is possibly converted into an actual loss. Secondly. It is never possible, even for a few days before marketing the cash grain, to teU exactly from what section, from what miller or distributor, we can obtaia the best prices, as this depends on a multiplicity of circumstances, such as the rapidity with which grain is moving to the respective points, the magnitude of the demand for flour, etc. Thirdly. On the quahty of the crop. We might have sold No. 2 wheat to the miller. Perhaps rains or ' some other circumstances .beyond our control have reduced the grade to such an extent that we had no No. 2 wheat, nothing but lower grades. Perhaps rejected or no grade. The particular purchaser may be unable to use this grade at any price on contract, or perhaps his facilities for the hand- ling of off-grades are such that he can only use it at a price much below its intrinsic value. We have contracted, however, No. 2 wheat, and, to the extent of our financial liability, we must deliver the ^ade we have sold or pay such damage as may result to the purchaser from our failure to fulfill our contract. On the contrary^, should any of these circumstances result when we had the gram hedged in the pit at Chicago, we could remove our hedge there at 2Y8 GEAIX EXCHANGES. any minute during the sessions of the board of trade at a fair and equitable price because of the breadth and magnitude of the trade there. Now, to take another Une of thought, it is a matter of common and general knowledge that the large proportion of the wheat and corn crops of this country move from the farms in a comparatively short space of time. At our own particular stations I will say that, on an average, our farmers market 80 per cent of their wheat crop during the period between July 1 and August 15 and 70 .per cent of their corn between October 15 and January 1. This proportion is perhaps larger than the country, as a whole, will show, but it is everywhere very large. Now, some one must carry this grain until the consumer needs it. It must be carried by one of five parties — the farmer, the country elevator man, the miller, the terminal ele- vator man, or the speculator in the pit; and whichever one of these five owns the wheat he is holding it with the single idea that the price will enhance and show him a resulting profit. In practice I think you wiU find that this element of speculation is actually participated in in most cases by aU five of the parties mentioned. The farmer may hold all or a portion of his crop in his own granaries, or he may store it with the country elevator man. The country elevator man may have so much grain thus offered that he has not room in his house. He will sell a portion of this frain and ship it out and protect himself against a rise in the market y buying a similar quantity in the Chicago market. When the farmer wishes to sell, he wiU then buy back his hedge in Chicago. In this case the farmer is the speculator, although he has not directly utilized any of the facihties of Chicago and other exchanges. The elevator man who has used these facilities has most emphatically not speculated. As country elevator owners, if we fiU our elevators with grain and hedge the grain or sell an equal quantity in Chicago for future delivery in order to take advantage of our storage room and secure the higher prices prevailing for future dehvery, we are not speculating; but if we do not sell against this wheat we are speculating. The same applies to the miller and terminal elevator. Now, if you ehminate future trading in exchanges, every owner is necessarily a speculator. I do not thmk it would ever happen that you would find everyone handhng cash grain a unit in the idea that grain values would advance, and even if of such an opinion — so emphatically so — that they would be willing to carry their granaries, elevators, or miUs, as the case may be, full of wheat when they knew there was no possible opportunity to protect themselves against loss, except by the actual sale and merchandising of the cash article, which might take months if the quantity was large and conditions unfavorable. Yet that is what would be necessary to maintain prices during the rush movement. The only possible result would be that whoever carried this load from the time it leaves the farmers' hands until it enters the hands of the consumer, would have to secure it at such a price as he would think would protect him from loss, and as a result, without doubt, there would be a great depression in values at the time of greatest movement. Whether this would be 5 cents or 10 cents or 20 cents I would not undertake to say, but that the depression would be real there is absolutely no doubt. It is this particular function of acting GRAIN EXCHANGES. 279 as a balance wheel of the market that is performed by the speculator in grain, regardless of what his motive may have been in making the transaction. I have been in the business of actually handling cash grain from the farmer all my life, and I firmly beheve that speculation is just as necessary in the economic handhng of any crop of the magnitude of the wheat and corn crops as the railroads are, and I beheve that the greatest injustice that would be suffered from the abolition of future trading on the various exchanges of this country would be that suffered by the producer and, next to him, that by the country elevator man and small miller, and the very least would be that suffered by the larger wealthy elevator men and millers. The Chairman. The committee will now adjourn until half past 10 o'clock to-morrow morning. (Thereupon, at 5 o'clock p. m., the committee stood adjourned to meet to-morrow, March 7, 1914, at 10.30 o'clock a. m.) Committee on Rules, House of Representatives, Saturday, March 7, 1914.. The committee this day met, Hon. Robert L. Henry (chairman), presiding. Mr. Simpson. With the permission of the committee, we have agreed to yield 10 minutes to Mr. Shorthill this morning, within which time he thinks he can finish his remarks. STATEMENT OF ME. J. W. SHORTHIII— Continued. Mr. Shorthill. I offered the statement of the position of our people on the question before this committee last evening, but had no opportunity for explanation. I want to consume the 10 minutes' time in doing what I can toward explaining the situation of our people on these questions now before the committee. But before doing that I wish to state to the committee that I want to submit to the Chamber of Commerce of Minneapolis and the Board of Trade of Chicago, through their secretaries, eight or nine questions which I wish them to consider at this time. Those questions pertain to the questions that are being considered here. I have given them copies of those questions and will ask that when they answer them they read the questions and read the answers in connection with them, and in order to avoid duplication I will not read the questions at this time. Now, I said that we were not asking anything from this committee on the line of Federal inspection of grain. I said that for this reason: We come here with the understanding that this resolution asks for an investigation in order to determine the advisability of legislation. We, who represent the country end of the matter, feel that we have ample facilities and have obtained information at first hand sufficient for us to base our opinion as to what we want in the line of Federal inspection. Our people desire that we stand for the Federal inspec- tion of grain, and the only reason I am mentioning this is because it has been brought before the committee. However, I realize there is a close relation between all of these four questions — the inspection 280 GEAIN EXCHANGES. of grain, the dealing in futures, the conducting of public warehouses, and the conducting of grain exchanges. They are intimately con- nected, because they now enter into every .transaction, and they can not be entirely separated. Our people are affected by this inspection of grain in this manner: At the present time there is a lack of uniformity; there is a lack of fixed standards ; there is a lack of prescribed methods for arriving at those standards, which leaves the country grain dealer in an uncertain situation. Consequently, in order to be safe under contracts which he makes to deliver grain, it is necessary for him to deliver grain of a quality superior to the quality which his contracts require. The dealer at the terminal market has at his elbow' an inspector who may be called in to inspect at first hand the grain which he ships out of his elevator, and for that reason this item of uncertainty which the country man must contend with is eliminated in favor of the dealer at the terminal market. I just want to mention two things in connection with the relation of the elevator interests to the handling of grain. I will cite one instance : In one market at one time there was a rule passed which was in the nature of reforming transactions on that exchange. It was passed by a majority of the membership of that exchange; when the rule went into effect the grain merchants appeared on the floor with their grain to sell, but the elevator people who had control of the elevator capacity in that market, said, "We do not want to buy this morning, we are not in the market." And I am told that for two or three days there stood those opposing forces — the grain men wanting to sell grain according to the rule and the elevator men not in the market, and the elevator men stood out until they established the new rule and bought the grain on the terms they desired. In that case those rules were absolutely controlled by the elevator interests. Now, there is another point which we must take into consideration in an investigation of this kind, and that is the possibility of limiting the amount of elevator capacity that will make grain available on future contracts. It was not very long ago that Mr. Armour went down to Kansas City and bought up the entire elevator capacity of the Kansas City market, and it became necessary for the Kansas City Board of Trade to pass a rule which made grain deliverable in cars on the railroad tracks in order to prevent a corner being made in that grain market. As to dealing in futures, we are uninformed; we do not know; we are undecided upon it. We believe there are evils connected with it, and possibly manipulations, but we believe there are also some good features connected with it. What we want is information on those things. As it appears to us in the coimtry, we want to know if nar- rowing the transactions in connection with dealing in futures is going to decrease or is going to increase the power of the great moneyed interests to manipulate transactions; and, further, we want to know whether the abolishment of futures will tend to throw the con- trol of the cash grain market into the hands of the moneyed elevator interests. We are interested in knowing those things. Our people are divided on those (questions. Take, as an illustration, the actual condition that exists in the coxmtry stations. Some of the directors of these companies which I represent are permitted to deal in futures in the way of hedges, while others absolutely prohibit it, and will GRAIN EXCHANGES. 281 not allow hedging. So there is a division of sentiment. But taken as a whole, and from the people who have the best opportunity to have a knowledge, we beUeve that there is a doubt in the minds of the majority as to the advisabihty of abohshing the trading in futures. But do not miss the idea that our prime object here is to ask for information along these lines which I am suggesting. Now, another thing The Chairman (interposing). What would you think of a propo- sition Uke this: The creation of a joint commission, similar to the Aldrich Currency Commission, of, say, there Senators, three Repre- sentatives, and three from the outside, making nine in all, to investi- gate not only the question of speculating in grain but in cotton, and charging them with the sole responsibility of looking into that one question, speculation in the products of the farm. Mr. Shorthill. In regard to the question of deahng in futiires ? The Chairman. Yes. Mr. Shorthill. Our position on that is just exactly this: We would not want to say that we beheve that should not be done. The only thing is we want an investigation of this proposition. We want it to be made thoroughly and impartially, and we want it to be as broad as it is possible to make it. On that ground I could see no good reason for objecting to that suggestion. The Chairman. As I said the other day, I think it is generally agreed that there will be legislation during this Congress on the ques- tion of speculating or gambung in cotton futures. However, we must get information upon which to base our legislation, and it has occurred to me that probably that would be the best way to get it. Mr. Shorthill. I should say that, so far as I know, that wouM have our approval. I should say that it would. The industrial commis- sion has made a report, and in their report they have mentioned the fact that the chief objection to dealing in futures was the question of speculation. Now, I just want to drop a suggestion along that line in regard to what we have seen in the country end. That is aU we know any- thing about — the country end of this proposition. We are not familiar with the inside workings of any other part of the grain trade; that is, intimately familiar with them. We have seen evils result from the operations of private warehouses in that farmers and others have been induced to invest their money in this proposition, and in which they have loist. We also know it to be true that it would not have been possible for those men to carry on these trans- actionain futures if they had not been extended credit for that purpose, and knowingly for that purpose, by their local banks. We off ir this as a suggestion: Would it be a valuable feature to consider the relation of the banks in this connection as to advancing money to people knowingly for the purpose of pure speculation in futures ? Another thing we should like to see demonstrated conclusively, if possible, is whether there can be any possible relation between the grain operators and -the banks with resp3ct to the question of dealing in futures; that is to say, do the banks really consider prop3rty in the shape of grain or cotton of more stable value or more safe when it is hedged than other investments ? We are anxious to know the rela- tion between the two elements. I am only offering these suggestions. 282 GRAIN- EXCHANGES. Now, here is one thing which I beUeve is a thing that should receive important consideration in this investigation. I want to give it to you in the light that it appears to us in the country end. For the {)ast few yrars it has seemed that the tendency of the market has been argely in the direction of track bidding, and this track bidding has been done in this way. I will not take the time to explain it, unless you have some questions to ask, but I will say this, that the track bids have universally, for the past two years or more, exceeded the amount the country shipper could get out of the grain to be sold on the floor of the exchange. I hope you get the idea. That is, the prices that were offered in the country have been so much above i;he prices that could be received on the exchange floor that the stuff has been bought on those track bids. Now, the result has been that it has been more difficult for the commission merchants to make a profitable business out of handling grain on commission than it has been at any other time. The suggestion I wish to offer here is that it be ascertained whether any combination exists, of one kind or another, between the track bidders which has for its object the ultimate elimination of the commission merchants, and, if so, would it be a good thing to elimi- nate them? That is a question I would like to see investigated, because of the condition that exists now. I hope it will be understood that the facts I stated yesterday were prepared before this hearing commenced and they have not been changed. They were delivered in that form in order that you might get the true sentiment of the people I represent. If anything has appeared at this hearing which would in any way answer any of the demands we have made or the requests we have been making, we are entirely satisfied that they be accepted by the committee. A point which we would like to see determined is whether the abohshment of trading in futures would affect the commission mer- chant; that is to say, under the present conditions could a commission merchant, with an elevator capacity, use a hedge on which he might base his contract price, or whether the countryman could hedge or could bring his grain in on the flour and sell it, or sell it for future delivery himself? These things ought to be determined in any investigation that may be made. In conclusion let me say that we find ourselves in need of an investigation, and I find a great many grain men who are expressing the same opinion. I came up here and I have found that there are a lot of Congressmen who say that they would not vote on legislation along certain lines until they have more information. So there is a desire all along the line for an investigation. I do not see how we can get out of that situation; that is, without having this investiga- tion. But the thing that I want to impress on this committee is that our people feel that this thing should be done in a big, broad, and impartial way; that it should not be confined to the people that I represent, because any evil that might affect them or any advantage that they might get out of that, if it were not based on a fair con- sideration of all interests, would only bring temporary advantage. We feel that this grain question is an important matter and that all uncertainties that now exist in it ought to be disposed of, so that we can get down to a sane, simple basis and go ahead properly. I thank you, gentlemen, for the time, and I want to especially thank the gentlemen from Minneapolis for yielding this much of their time to me. GRAIN EXCHANGES, 283 STATEMEITT OF MR. DAVID F. SIMPSOIT. Mr. Simpson. We feel that the gentleman has used the time to as good advantage as we could have used it by presenting very fairly his position before this committee. Of course, that is what we are all anxious to have done here. I appear here, Mr. Chairman and gentlemen, representing the Chamber of Commerce of Minneapolis. At the very outset we would like to make our position reasonably clear upon this question. In this discussion I shall, as will other members representmg the Min- neapolis Chamber of Commerce, go into some matters that we deem to be strictly matters of local or State regulation. By doing that I would not like it to be understood that we disagree in any way with the position taken by Mr. Robbins in his very clear presentation of what he deemed to be the limitations of the power oi Federal regu- lation. That position having been defined once, we are perfectly willing to discuss matters in reference to the grain exchanges regard- less of whether these matters are properly subjects for Federal legis- lation or for State legislation. As to the question of an investigation, as the Chair has said, that th« basis of an investigation by Congress would be the possibility or probability of some legislation upon the subject investigated, and we recognize that it is a matter entirely for Congress to determine whether or not there is a reasonable likehhood of, or a feehng among the mem- bers that there should be, legislation upon the subject of the market- ing of grain, and if there is that feeling we do not for a moment stand here to oppose an investigation on the part of Congress. In fact, if an investigation is made, started on broad lines, started in response to a pledge contained in the platform of one of the leading national parties, or for any other fair reason, I think that the grain exchanges of the country would welcome it, because they feel that their business is being cojiductod in a way that the more information that is obtained about it the less feeling of distrust there will be on the part of the people who are shipping and sending their grain to the terminal markets. The grain exchanges, I think, feel that way. As the production and marketing of grain has increased there have been devised faciKties for handhng that grain — particularly through State legislation on regulating warehouses, providing for inspection, and providing for the weighing of grain, so that it may be standardized by fixed or absolute rales, through the b lilding up of great warehouses both in the country and at the terminals, foi the purpose of accommo- dating and holding that grain from the time it is marketed until the time it may be consumed, through the organization of these markets, these exchanges. As far as their internal affairs and the regulation of their members within the society is concerned, they are private corporations, but as to the purpose for which they are organized, affording a market for grain, they serve a public purpose. The exchange itself has no interest in the transactions there taking place, except to see that they are honestly and fairly conducted, that the members engage in free competition, and that the buyer and seller meet upon these markets in fair competitive trading. And in that connection, as an essential part of that system, an opportunity should be afforded by future trading to the men who are carrying on these economic pro- 2 84 GEAIN EXCHANGES. cesses of forwarding and holding the grain from the time it leavesthe hand of the producer until the time it gets through the mills and into the bakeries and to the people, who are going to consunie it in the form of bread; that these men who are engaged in performing those neces- sary economic functions should not be forced to speculate through the fluctuations of the market during that time. By this system m connection with the opportunity for hedging, the margin between the price received by the producer of the grain and the price paid by the consumer is the narrowest margin that exists as to any product that is marketed, and, after all, gentlemen, if we will think clearlj of ■it for a moment, it is that margin that you are interested in. It is in the margin that the profit of the commission merchant, of the elevator man, of the man handhng grain, lies. There is no mystery about that margin between the farmer and the mills; it is only about- 4 cents, gross, not merely on our exchanges, but on the exchanges all over the country, where grain and wheat are handled. And when somebody comes here and says that through future trading the farmers' return is reduced 10 per cent, when the gross margin, the place from which any slack must be taken, is only 4 cents, it shows that somebody is not thinking clearly on the subject. If you enhance in some way the price to the producer it is perfectly apparent you must enhance also the cost to the consumer. There may possibly be a fraction of a cent in this 4 cents that might by improved methods be taken out, but it is perfectly apparent that we. arc dealing with small amounts, and while that is not the subject 1 wanted to talk about, it seems to me that the margin between pro- ducer and consumer is the really important question here. These exchanges, believing that they are taking the crops from the producer to the consumer with less margin than any other product is handled on, want that known and are glad to have it known, and any in- vestigation that will make that fact more apparent to the producer and consumer will be welcomed by them. Oi course, as has been said, if that investigation takes place it should be a broad investigation, extending where trading in and raising of produce extends; it should not be limited to these three exchanges; ]t should be conducted by men who have no interest whatever in any of the agencies that are handhng th^se products; it should not be limited merely to exchanges as organized and so called, but it should include aU agenci:s engaged in the handling of grain, whether in the country or at the terminals; and with such a broad foundation and with such a commission as your chairman has suggested I doubt if there is a grain exchange in the United States that will enter a protest against an investigation. Mr. Lenroot. About how many grain exchanges are there in the United States ? Mr. Simpson. About 25, I am informid by one of my associates here. But we are here to-day, may it pleas? this committse, speaking to this resolution, opposing a resolution which says that the grain exchanges in the State of Minnesota and the grain exchanges in the State of IlLnois have entered into combinations by which the pro- ducer of grain is being injured, and that the law is being violated, and which, because of this, demands an investigation of those ex- changes. It has been suggested here that the question before us is the question of whether or not a prima facie case is being made to GRAIN EXCHANGES. 285 support those charges. We want to insist that we do not believe that, by the testimony, if you call it testimony, or speeches, if you call them speeches, which have been submitted in support of this resolution a prima facie case was made. We b?Uevo that any appearance of wrongdoing in those exchanges and of hardship to the producer that may have been created here has been created by mis- statements of the actual facts; and we want to correct those misstate- ments. We do not concede here for a moment that there should be an investigation pursuant to this resolution or that tins committee should in any way make a finding that these charges are sustained. On the pomt oi information in reference to the grain trade there have, of course, been a great many investigations. I have in my hand here a bulletin issued by the Bureau of Labor Statistics of the Department of Labor. It is known as Bulletin "No. 130. I have no doubt you are familiar with it. It is an extremely comprehensive discussion of the subject of wheat and flour prices from the farmer to the consumer. It gives, I imagine, the information upon that question almost as clearly and fully as it could be obtained after an investigation, and I just want at this time to call attention to one or two statements in that pamphlet. I presume it is not necessary to introduce it in this record, because it is published by the bureau, and it is already an official document. From page 10 I read: Everybody dealing in. wheat and wheat flour is doing so for the profit he expecta to- make. The business is speculative from beginning to end and competition is usually keen. There may at times be local agreements as to prices and occasionally a man or a group of men may attempt a corner on wheat, but the field is so broad and so easily entered that no monopoly can well exist. That is the deliberate opinion of the department, after an investi- gation. Mr. Cantrill. That document undertakes to cover the prices of wheat and flour after it leaves the farmer ? Mr. Simpson. Right from the beginning, yes; up to the consumer; it covers bread. Mr. Cantrill. I mean, does that undertake to go into the cost to. the farmer in raising and producing wheat, or does it just cover it from the farmer? Mr. Simpson. It does not go into the cost of raismg wheat; those statistics are very readily obtainable. Of course, they may vary in different parts of the country, and it would have to be an average on account of the great v.ariation in the crop. I want to read from the same page: The farmer delivers his wheat to the operator of the country elevator, who tests, weighs, and receives it. The elevator operator usually buys at about 3 cents a bushel under the price at which he can sell on track at the time. He, of course, buys lower if he can, but competition generally keeps him down to a margin of about 3 cents. A decline in the wheat market at the time of shipping may turn his apparent profits into a loss or, on the other hand, an advance in the market may give him a much larger profit than he anticipated. Surh data as could be gathered seem to confirm the gen- eral statement that elevator margins have been about the same during the time since 1906. I simply read that to show that after this investigation by the Department of Labor that it arrived at the conclusions stated on two points — that competition was keen and monopolies did not exist, and also that the country elevator margin averages 3 cents. If you have a margin of 3 cents for the country elevator, add a commission of 1 286 GKAIN EXCHANGES. cent at the terminal market and you have the 4 cents that I have suggested is the existing gross margin between the wheat taken to the local station at the point of origin and the wheat put into the hands of either an elevator or a mill man at the terminal market, ready for the change from wheat into flour. In the State of Minnesota we have had three investigations by our legislature — independent, comprehensive investigations — not going outside of the State, of course, but absolutely going into all the detail of the situation within the State of Minnesota. I was not able to lay my hand on the report of the first investigation, but I have the report of the subcommittee of the house and senate of the session of 1907 appointed to investigate the rules, practices, methods, and works of the Chamber of Commerce of Minneapolis and the Board of Trade of Duluth, and I would' hke to submit that and have it incorporated in the record. (The report here submitted by Mr. Simpson is as follows:) Report of the Subcommittee op the HorsB and Senate (Session op 1907) to Investigate the Rules, Peactices, Methods, and Wokk op the Chambbe op COMMEECE op MINNEAPOLIS AND THE BOAED OP TeADE OP DuLUTH. Your committee beg to report that pursuant to resolutions adopted by the House of Representatives and Senate, providing that a committee of 15 De appointed, that said committee of 15 delegated to the undersigned committee the work of investi- gating the rules, methods, etc., of the grain exchange as described above. As your committee report that pursuant to such resolutions, this undersigned sub- committee held various sessions and called before them various witnesses from dif- ferent parts of the State of Minnesota and have listened to all the evidence offered on the part of these witnesses, all of which is herewith submitted. Your committee report that among the witnesses so giving testimony before this committee were the secretaries of these two exchanges, country elevator dealers, country elevator owners, commission merchants, bankers, millers, members of the Farmers' Grain Exchange, etc. And your committee report that these witnesses were subjected to examination and cross-examination under oath and that aa a result of such testimony it appears that these grain exchanges have been organized for the purpose of facilitating trade', for the settlement of disputes, of providing rules under which business shall be transacted, etc. ; that neither of these grain exchanges are engaged in any way in the purchase or sale of grain or any commodity, the object of their work being simply that of furnishing facilities to their various members and surrounding these members with various safe methods and to establish rules governing business transactions. It has systematized its business so that business people can market volumes of grain readily and convert it into money with a less amount of friction and expense than ever before. Your committee feel that the development of the grain business has been materially helped by the organization of these exchanges and that they have been one of the causes that has greatly developed the whole Northwest. These exchanges provide a Elace where grain can be bought and sold; it gathers together at these places the uyers and sellers, and among these buyers and sellers are those whose scope of prices extends beyond the confines of this country; among the facilities offered by each of these exchanges is the information openly given to all members of the conditions of the various markets of the world at all times. The competition of these exchanges is open . and keen. The merabership of each of the exchanges includes millers, elevator owners, grain commission merchants, linseed-oil manufacturers, bankers, cereal manu- facturers, etc. , many of the members of each of these exchanges residing at other points than at the terminal markets; the competition in the purchase and sale of all grain in each of these exchanges is so open, the interests represented in the exchange iteelf are so varied, the rules making the transactions so certain, and the high standard of business integrity maintained by each of these exchanges, that it seems to this committee that the result of the existence and work of these exchanges has a very small possibility of being hostile to the best interests of the producers of grain in this State. Your committee report that there are 550 memberships in the Chamber of Commerce of Minneapolis and that there are 200 memberships in the Board of Trade of Duluth and that all of these memberships are issued. That in order to obtain admission to GEAIN EXCHANGES. 287 either of these exchanges, a memberehip certificate must first be bought and an appli- cation be made to the exchange for membership, which application is finally passed upon by the board of directors, it requiring a majority (and not less than 7 aflirmative votes) to entitle the applicant to admission. It appears clearly to your committee that while among some of our citizens there is a prevalent contention that the grain market is, in a sense, controlled by these two exchanges, yet it is evident that the reason for such opinion is based upon the fact that these exchanges gather together the buyers and sellers of all grains and that therefore any one having grain to sell naturally goes to these exchanges simply because, if for no other reason, that all the buyers and sellers of grain are in the market. It is a matter of convenience as well as expedition for either buyers or sellers to be members of either of these exchanges. Each exchange provides a definite rate of commission to be charged, which is 1 cent on wheat and barley and one-half cent on oats, etc., and also provides that members can do business for other members at one-half the regular rate, but it is also apparent that unless the transactions are very large, the interest on an investment of a membership being considered and the various costs and expenses attendant upon the conductmg of the business is considered, that there is a very slight difference as to the cost between being a member and a nonmember. It also appears that by virtue of the high standard of business integrity maintained bythese exchaiiges, that the farmer and country shipper can, to a very great degree of safety, rely upon the honesty of such commission merchant with whom he does business. It also appears to your committee from the evidence that the movement of the grain crop of the Northwest requires very large sums of money, and it also appears that the commission merchants of these exchanges not only act as grain receivers — that is, as the trusted agents of shippers in receiving their grain and selling the same — but that they also to a very large degree advance money to these shippers in ad^-ance of ship- ments. It appearing that at certain times of the year an amount of money as great as ten or twelve million dollars is loaned by these commission merchants of the two exchanges to the grain dealers at country points throughout the Northwest and at a reasonable rate of interest. It being impossible for these country grain dealers to get the necessary financial assistance from their own country banks because of the fact that no country bank, and in fact no bank, can loan to any one concern only a certain fraction of its capital. The commission merchants are therefore to a large degree sustaining grain dealers at country points in a financial way, and it is apparent that the commission merchants, who are likewise borrowers of large sums of money themselves, are enabled to get this money which they loan in this way from the banks of the larger cities because of the fact that they are members of these exchanges, and that these exchanges themselves act as strong forces in building up proper business methods and principles and thus in a very large degree aid their members in their standing with the lending world. - The testimony of the bankers offered before this committee clearly shows this phase of the work of these exchanges. It also shows that it enables dealers of grain to so hedge their deals that at no time are they specu- lating on the market or affected by the fluctuations of the markets and they are thus enabled to show to the large bankers that they are at all times secure and at no time are they running risk of being bankrupted on account of the sudden change in value. It appears that the Chamber of Commerce of Minneapolis expend between thirty and forty thousand dollars every year in information which is disseminated among its members advising them of the various facts and situations of the markets throughout the world, thus enabling the producer of grain to keep thoroughly posted as to the market conditions of the entire globe. It appears that the grain trade of the Chamber of Commerce of Minneapolis has grown from 17,000,000 bushels of grain in 1881 to 130,000,000 bushels in 1906, and the Board of Trade of Duluth has seen its grain business grow from 3,500,000 in 1881 to 80,000,000 bushels in 1906, thus it can readily be seen that since the organization of these grain exchanges that the grain trade has developed greatly in the Northwest. Your committee feels that while perhaps they have not had the time tb minutely investigate all the phases and charges that have been made against these different exchanges, yet they feel sufficiently well informed on the subject now under investiga- tion to add the following as their deduction of the evidence by the different parties who have been summoned to testify before this committee. A copy of all this evi- dence offered and all the rules, regulations, and by-laws, together with the articles of incorporation of both these exchanges, is hereto attached and made a part of this report. Your committee, however, although being satisfied that these grain exchanges have been in operation and are now productive of great benefits, yet your committee is incliaed to believe, in respect to the matter of admission to membersliip of applicants, that the methods of election of such applicant should be broadened and so enlarged that it should be dependent upon a vote of a larger proportion of the members of the exchanges than at the present time, and so that the question of refusing or reteiving 288 GKAIN EXCHANGES. an applicant for membership would be passed upon by a larger number of the members than IS now required by the rules of the exchanges. Your committee are also of the opinion that it might be wise and desirable for these exchanges to so enlarge their authorizfed memberships so that they could be more readily purchased by any possible applicant. Sub-Committee of House and Senate. I have already suggested that we are speaking here to-day to this particular resolution for a limited investigation, and referring to one phase simply of the showing made. The necessity for such an in- vestigation seems according to nearly all the speakers who have been questioned about it, to rest upon the fact or the claim that the two States involved — the State of Illinois and the State of Minnesota — in their different departments are so corrupt or inefficient or so under control that they will not properly cover the field of regulation which, is conceded to be very properly a local field. Gentlemen of the com- mittee, in reference to Minnesota that statement was madej you will ' remember, in response to a question from the gentleman from Ken- tucky, by an attorney who appeared here from the State of Minne- sota, an attorney who I think was born in that State, who has grown up there, whose family is prosperous there, who inherited substantial wealth there, and when he did not seem inclined to commit himself in response to the question of the gentleman from Kentucky, the Representative at large of Minnesota in this Congress said, "Tell them the situation." In answer the attorney then said in substance, "Well, our State is controlled, that is the State of the Great Northern Eoad and the Hill interests." Whether it has a direct bearing upon the question before this committee or not, I, as a citizen of the State of Minnesota, want to deny that the attorney's statement is a fair representation of the intelligence, the independence, the citizenship, and the government of the State of Minnesota, and I can convince this Committee in a moment that the statement quoted is as slanderous as words can be, spoken of a State. If you will recall the initial step in the Northern Securities case, the birth of the recent series of so-called "trust-busting" cases was taken by the administration in the State of Minnesota; that the first- decision laying down the modern rule by the United States Supreme Court in reference to the regulation or control of consoli- dations of corporations was laid down in that case. You gen- tlemen will recall that in the rate cases, in which the decision was recently fUed, that the State of Minnesota took the lead in making that investigation; that a great mass of testimony was taken in that case; that the Minnesota case was given the fir^t place on ~^the calendar of the Supreme Court, and the principal decision filed was in the Minnesota case ; and the State officials of Minnesota, more than of _ any other State, won that victory in favor of the regulation of railroads. I want to call your attention to the fact that the legisla- ture — the previous illustration refers to the administrative depart- ment — passed that bill requiring the lowering of rates. I want to call your attention to the fact that the State Legislature of Minnesota at its last session increased the gross-earnings tax on railroads; adopted a distance tariff bUl, which, whether we commend it or not, was certainly opposed by the railroads, and its passage evidences a lack of control on the part of the railroads. I could take a long GRAIN EXCHANGES. 289 time showing you gentlemen that along the line of the modern regulatory laws Minnesota is as far advanced as any State in the Union. They have a trust statute that is just as comprehensive as the Federal statute; in addition, they have a number of antidiscrimina- tion statutes going into more detail than the Federal statute does — all of which have been passed by the State legislature referred to here. What about the courts ? The courts have sustained the anti- trust statute in actions against the Standard Oil Co., and against the Chicago Creamery Package Co. By the decree in the latter case it excluded that corporation from the State of Minnesota because of a violation of that statute. The last legislature, finding out that the exclusion of that particular -creamery package company from the State tended to further monopoly rather than prevent it, passed an act providing that in case it paid $10,000 fine it might continue to do business in the State. The courts have sustained another antidiscrimination statute relating to the purchase of cream and milk, but without going through the decisions, our courts have repeatedly found influential corporations guilty of violations of the antitrust statutes of the State of Minnesota, and there is absolutely no basis for a statement such as was made by the attorney appearing in support of this i-esolution. Mr. Oanteill. There has never been any indictment against your exchange under the present laws of the State ? Mr. Simpson. I was just going to take up, to show you it is not the fault of the administrative officers of the State of Minnesota or of the courts of the State of Minnesota that these exchanges have not been put out of business, but it is because the element of a monopoly does not exist in those exchanges, and it has been so determined. Mr. Canteill. The decision of that court is contrary to the state- ment set out in this resolution. Mr. Simpson. I should say absolutely opposed to it; and I will read Mr. Cantkill. That is on the question of law ? Mr. Simpson. I will ask to have included in the record, for con- venience, because it is a very appropriate and interesting case, the case of the State v. Duluth Board of Trade and others, in the 107 Minnesota Reports, at page 606, and I want to read to your honor- able committee the holdings of that decision, as found in the head- notes, and make the explanation to you that the headnotes in our State are written by the judges who write the decisions so they state the law as carefuUy as the body of the decision. Mr. Lenkoot. What is the date of that opinion ? Mr. Simpson. The date of it is May 7, 1909. The Chairman. Did you wish to insert the whole opinion or just the syllabi? Mr. Simpson. I will be governed by the wishes of the committee. The Chairman. How long is the opinion ? Mr. Simpson. It is quite a voluminous opinion; it discusses the Federal statutes and Federal decisions. The Chairman. I think it would be better just to insert the head- notes, because it is out of proportion that the opinion should go in, except parts which may be pertinent to the point you are discussing. 37214^14 19 290 GKAIN EXCHANGES. Mr. Simpson. I shall be very glad to follow the suggestion of the chairman. I wUl read four of the paragraphs in the headnotes. [Reading:] COMBINATION TO REGULATE BUSINESS. A combination formed by dealers in articles of a similar nature in a particular locality for the purpose of fairly regulating the methods of conducting businesB and providing rules for their dealing among members, but which exercises no improper control over nonmembers and does not control prices or production, is not in contravention of the statute. * * * DULUTH BOARD OP TRADE. The Duluth Board of Trade, as constituted imder its charter and rules, is not a con- spiracy or combination in restraint of trade, or which restrains, limitH, or interferes with the free competition in the production of grain, or in the purchase or sale of grain, at Duluth. * * * MONOPOLY DEFINED. The rules of the Duluth Board of Trade do not create or tend to create a monopoly. Trade and commerce are monopolized when, as a result of the efforts to that end, pre- viously competiug businesses are so concentrated in the hands of a single person or corporation, or a few persons or corporations acting together, that they have power and practically control the prices of the commodity and to thus practically suppress competition. And from the opinion, page 551 : But contracts and agreements for certain uniform charges, which are for the benefit of all and operate only indirectly on production and prices, are not within the prohi- bitions of the statute. There the court is discussing the rule that there must be a mini- mum commission charge, or that they can not sell grain on that exchange for less than the fixed mimimum commission charge. (Continues reading:] The purpose and effect of this rule are not to stifle competition, but to protect the members of the board, and foster their business and trade, and prevent it from becom- ing demoralized to the injury of all parties, including the consumer. The propriety of such rules indirectly, at least, receives the approval of the Supreme Court of the United States in Anderson v. U. S. (171 U. S., 604, 616; 19 Supreme Court, 50, 43 L. ed., 300.) That case was tried before a trial judge, and he found that there was no monopoly, and the Supreme Court sustained the lower court. There was an opportunity and effort made to show not only the rules but any facts tending to estabHsh any monopoly in the operations of that board, and the effort signally failed. Mr. Manahan. What is the date of that decision? Mr. Simpson. 1909, reported in the 107 Minnesota. And I should say that that prosecution was instituted at the request of the Farmers' Elevator Co., a predecessor, I think, in the agita- tion on this subject of the Equity Cooperative Exchange in the State of Minnesota, and was brought by the attorney general of the State. May it please the committee, I want to try to make clear to the committee this proposition, that this demand for an investigation, the evidence that has been submitted to you tending to sustain the necessity of that investigation, is the result of a factional business contest in the Northwest, is the result of an attempt of an organiza- tion to get business from the commission merchants of the Chamber of Commerce and the Duluth Board of Trade that they now enjoy. In other words, that it is a local business controversv. nnd that that GRAIN EXCHANGES. 291 accounts for the fact that this resolution is limited to the exact locality where that organization seeks to gain trade. Mr. Cantrill. What is that organization, the Equity Cooperative^ Exchange, so called? Is that a part of the American Society of" Equity ? Mr. Simpson. It is not as I understand it. The American Society of Equity and its branches in the different States, is not a commercial organization; it does not itself buy or sell. The Equity Cooperative Exchange was orignated as a voluntary association, among members of the Equity Society very largely to market their products. Later on it became incorporated as a private corporation, with stockholders who may or may not be members of the Equity Society, but I pre- sume the fact is that membership is quite largely the membership of the Equity Society. Mr. Cantrill. The part I want to get at is whether this Cooperative Farmers' Exchange is not controlled by the officers of the American Society of Equity ? Mr. Simpson, ^o, it is not. It is a separate, independent business organization. Mr. Cantrill. Separate and independent organization? Mr. Simpson. It is a separate, independent business corporation. To show the method and effort and plan of campaign that has been followed throughout the Northwest, I want to introduce into the record one of the advertisements for the sale of stock in that corpora- tion, a. blank sent out for subscription for such stock, and the accom- panying letter. These will show about the attitude of the associa- tion toward the chamber of commerce and the work they are carrying on, and I think its reading will suggest at once to you, gentlemen, that it is exactly the same thing you have been hearing here, and when we get through with this Eterature I think you toU come to our conclusion that the campaign for stockholders in the Equity Cooperative Exchange throughout the Northwest, and the campaign against the chamber of commerce conducted by the Equity Coopera- tive Exchange, a business corporation, is the same campaign that is being conducted before this committee and upon exactly the same arguments. [Beading:] Will you help ub to swell the greatest of farmere' movements? "Equal rights for all." 500 farmers already in the company. Organized, owned, and officered bjr farmers. Every other business is organized. Concentration and organization is the spirit of the age. We must also concentrate our efforts. Every farmer should be in his own orM,nization. Come in and make another unit in this great fight. write for information and all details. Equity Coopehative Exchange, J. M. Anderson, President, Fargo, N. Dak. Geo. S. Loptus, Minneapolis. And in response to those who reply to that advertisement, this letter is sent out. [Eeading:] Depend Your Grain Markets by Genuine Farmer Cooperation. Farmers of the Northwest are demonstrating that the coiispiracy of the grain com- bine to collect heavy toll charges on the farmers' grain shipments can be defeated. By selling through their own selling agency in the terminal markets, farmers can secure the full value of their grain. The Cooperative Exchange, owned and operated by the farmers, is a proven success from every standpoint. It is doing for the farmers in the terminal grain markets what cooperative elevators have done for farmers in their local markets — emancipating them 292 GRAIN EXCHANGES. from the grip of the combine. The Cooperative Exchange is already well established and is making steady progress in spite of the desperate efforts of the grain combinie against it. The Cooperative Exchange is owned by its many farmer stockholders. It pays dividends to shippers in proportion to their shipments, whether they own stock or not. STAND WITH YOUE NEIGHBORS FOE A SQUARE DEAL. Read the exposure of grain combine methods published in The Northwestern Agri- culturist and Cooperators' Herald during the last three months. Judge for yourself whether you have been getting a square deal in selling your grain. Write us, and we will refer you to farmers well known to you, whom we nave served to their satisfaction and profit in selling their grain. Stand with your neighbors in this fight for justice. BECOME A STOCKHOLDER AND MEMBER. Every farmer should become a member and stockholder of the Cooperative Ex- change, which is run on the true cooperative plan. Par value of shares is $50, bearing 8 per cent. It is a great farmers' movement, rapidly growing in power. Write us for further information. Also send for reliable market qu6tations and facts. Get in touch -with the great work which the Cooperative Exchange is doing for farmers, and learn what it can do for you. Equity Cooperative Exchange, (The Farmers' Terminal Grain-Selling Agejncy). J. M. Anderson, President, Fargo, N. Dak. George S. Loptus, Sales Manager, Minneapolis, Minn. [Application for stock in Equity C!ooperative Exchange.) I hereby make application for ■ — — — shares of the capital stock of the Equity Cooperative Exchai^e, of Pargo, N. Dak., said shares being of the par value of $50 each. It is understood and agreed that the stock herein apphed for shall not be issued until same has been fully paid up. (Signed) — (Address) — — From these statements and from this name Equity Cooperative Exchange we would naturally get the impression that this was an "'exchange" as the word is properly used — a market; but let us turn to the articles of incorporation of this society and see its purpose: The Eq^uity Cooperative Exchange is thus shown to a be a company engaged m the commission business, selling consigned grain at the Minnfeapolis and Duluth terminals, and is in direct competition with commission merchants, members of the grain exchanges at those points. And this campaign through the Northwest that has been tran&feited the past few days to your committee room is a campaign to get business, to get consignments of grain for sale on commission. Mr. Canteill. Have you any statute in your State that peimits the farmers to organize and to pool their crops and products without being in violation of your State antitrust law ? Mr. Simpson. I would not like to answer that without examining the statute. Mr. Cantuill. We have that law, and it has been very effective and very beneficial to the farmers. Mr. Simpson. There never has been any claim that this society was a monopoly or any attempt to prosecute or limit it on that ground; as I recall it our antitrust statute has not— as many such statutes ' have — an exception as to farm products. Authority exists for organ- GEAIN EXCHANGES. 293 izing cooperative associations, but I would not like to answer definitely the question asked without examining the statutes. Those articles were amended so as to make a provision: [Eeading.] The business of building or buying terminal elevators may be begun when $50,000 of the capital atock has been subscribed and paid for in full; any other business inci- dental or preliminary to the purpose for which this corporation was formed may be begun when $10,000 of the capital stock has been subscribe and paid for in full. This corporation shall exist for a period of 20 years from date of incorporation. And by subsequent amendments to the articles of incorporation, which I have not here, they provide for 8 per cent cumulative divi- dends on this capital stock to the stockholders. They also provide for the use of a considerable percentage of their funds for the p\ir- pose of promotion. I do not think they call it "promotion" — "organization of societies," I think possibly is the language. And then there is a provision that after that is all through with there shall be a distribution among shippers. That is the only cooperative feature, and I think I may safely say there never has been a distri- bution among shippers, and I think 1 may safely say if this company competes with other grain dealers and pays 8 per cent cumulative dividends and uses the money necessary to maintain the circuit of oratory and organization throughout the Northwest that we have heard of here, that there never will be any distribution on the co- operative plan. So that the two terms "cooperative" and "ex- change" in the title seem to be misnomers. I would like to introduce those sections of the articles of incor- poration which I have referred to into the record. (The articles of incorporation and amendment of the Equity Co- operative Exchange and papers incidental thereto are as follows :) Chamber Exhibit No. 6— T. C. S. United States of America. The State of North Dakota. Department of State. To all to whom these presents shall come: I, P. D. Norton, secretary of state of the State of North Dakota, and keeper of the great seal therof, do hereby certify that the annexed copy of the articles of incorpora- tion and amendment of Ecjuity Cooperative Exchange, Fargo, N. Dak., has been com- pared by me with the origmal copy now on file and of record in this department, and that the same is a true copy thereof, and of the whole of such original articles of incor- poration. In testimony whereof I have hereunto set may hand and affixed the great seal of the State at the capitol, in the city of Bismarck, this 26th day of August, A. D. 1912. [seal.] P, D. Norton, Secretary of State. articles op incorporation of EO,uiTy cooperative exchange. Kaow all men by these presents, that for the purpose of forming a corporation under the provision of the corporation laws of the State of North Dakota, we, the undersigned, hereby associate ourselves together and adopt the following arti'^les of incorporation: Article I. — Name and nature cf business. The name of this association for incorporation shall be the Equity Cooperative Ex- change. The general nature of the business to be carried on by this corporation shall be that of owning, leasing, and operating terminal elevators, and buying, selling, and storing all kinds of grain, grain products, seed, hay, straw, and other farm products for itself and as 294 GRAIN EXCHANGES. a commission broker, at terminal and other marketing points, and to do all things necessary or incidental to the things herein specified. This corporation may buy, hold, or sell its own capital stock as well as capital stock in other corporations. Article II. — Place of business. The home oflfice of this corporation shall be at Fargo, Cass County, N. Dak., but ofSces and agencies may be established in Minneapolis and Duluth, Minn., Superior, and Milwaukee, Wis., and at such other places as the board of directors of the corpo- ration may select. Article III. — Capital stock. The amount of capital stock of this corporation shall be one hundred thousand dollars ($100,000), divided into two thousand shares of fifty dollars each. Said stock shall be nonassessable. Article IV. — Capital to begin business. This corporation may begin business when fifty_ thousand dollars of its capital stock has been subscribed and paid for, and shall exist for a term of twenty years from date of incorporation. Article V. — Indebtedness. This corporation shall not make nor incur indebtedness or liabiUty so as to be subject at any one time to a sum in excess of the capital stock paid in, provided that temporary accommodations, loans, or advances made upon grain or any kind of farm produce in transit or in storage for the purpose of buying and shipping such grain or produce, shall not be deemed or held to be indebtedness or liability within the meaning of the terms used in this article. Article VI. — Oovernment. The government of the affairs of this corporation shall be vested in a board of direc- tors, nine in number, to be elected as per provision of these articles of incorporation and as per provision of the by-laws of the corporation. They shall hold office for a term of three years, except that at the first election of directors there shall be elected three for one year, three for two years, and three for three years. Article VII. — Manner of voting. At all meetings of stockholders, whether special or regular, each stockholder shall be entitled to only one vote, regardless of the number of shares of the stock which stands to the credit of his name on the books of the corporation. Article VIII. — Name of incorporators and directors. The following are the names and places of residence of the persons forming this corporation, and who shall serve as the board of directors until their successors have been elected and qualified, to wit: A. V. Swanson, Minot, N. Dak.; 0. H. Olson, New Rockford, N. Dak.; J. M. Anderson, Fargo, N. Dak.; F. B. Wood, Deering, N. Dak.; J. D. Myers, Blackwater, N. Dak.; Justus C. Bergh, Hendrum, Minn.; A. W. Ditmer, Velva, N. Dak.; Ross E. Parks, Lily, S. Dak.; Bert Cole, Campbell, Minn. In witness whereof we have hereunto fixed our signature, this 17th day of February, in the year of our Lord, 1911. J. D. Myers. John M. Anderson. Bert Cole. State op North Dakota, County of Burleigh, ss: On this 17th day of February in the year A. D. one thousand nine hundred and eleven, before me, M. A. Selvig, a notary public in and for Burleigh County, N. Dak., personally appeared John M. Anderson and J. D. Myres, known to me to be the persons whose names are subscribed to the foregoing instrum'~nt, and they severally, acknowledged to me that they executed the same. Witness my hand and official seal this 17th day of February, A. D. 1911. [seal.] M. a. Selvig, Notary Public, Burleigh County, N. Dak. My commission expires March 7, 1912. GRAIN EXCHANGES. 295 State op Minnesota, County of Wilkin, ss: On this 21st day of February, in the year A. D. one thousand nine hundred and eleven, before me, Julius Schendel, a notary public, in and for Wilkin County, Minn., personally appeared Bert Cole, known to me to be one of the persons whose name IS subscnbed to the foregoing instrument, and he duly acknowledged to me that he executed the same. Witness my hand and official seal this 21st day of February, A. D. 1911. [seal.] Julius Schendel, Notary Public, Wilkin County, Minn. My commission expires November 22, 1914. Filed for record the 24th day of February, 1911. P. D. NoHTON, Secretary of State. To the Secretakt op State of North Dakota: You are hereby notified that Article IV of the articles of incorporation of the Equity Cooperative Exchange of Fargo, N. Dak., has been amended by written assent of three-fourths of the holders of the capital stock of said Equity Cooperative Exchange, in accordance with section 4227, article 6, of the Revised Code of North Dakota for 1905, so as to read as follows: "Article IV. — Capital to do business. "The business of building or buying terminal elevators may be begun when fifty thousand ($50,000.00) dollars of the capital stock has been subscribed and paid for in fuU; amy other business incidental or preliminary to the purpose for which this corporation was formed may be begun when ten thousand ($10,000.00) dollars of the capital stock has been subscribed and paid for in full. This corporation shall exist for a period of twenty years from date of incorporation." In witness whereof we have hereunto set our hands and affixed our seals this 20th day of January, 1912, at Fargo, N. Dak. J. M. Anderson, president; Bert Cole, vice president; F. H. Squire, sec- retary; J. C. Bergh, director; A.W. Ditmer, director; W.I. Lowthian, director; O. H. Olson, director; J. D. Myers, director; F. B. Wood, director. State op North Dakota, County of Casn, ss: On this 20th day of January, A. D. 1912, before me, a notary public, personally ap- peared J. M. Anderson, Bert Cole, F. B. Wood, J. D. Myers, J. 0. Bergh, O. H. Olson, A. W. Ditmer, and W. I. Lowthian, known to me to be thepersons whose names are subscribed to the foregoing instrument, and they severally diily acknowledged to me that they executed the same. [seal.] F. H. Squire, Notary Public, Ward County. My commission expires August 5, 1914. State op North Dakota, County of Cass, ss: On this 29th of January, A. D. 1912, before me, a notary public, personally appeared P. H. Squire, known to me to be the person whose name is subscnbed to the attached instrument, and acknowledged to me that he executed the same. [seal.] Wm. H. King, Notary public, Cass County, N. Dah. My commission expires April 14, 1914. Filed for record February 1, 1912. P. D. Norton, Secretary of State. State of Minnesota, Department of State. Filed in the office of secretary of state on the 28th day of August, 1912. Julius A. Schmahl, Secretary of State. 296 GRAIN EXCHANGES. FoKEiGN Corporations — Minnesota, State op North Dakota, Cosg County, as: J. M. Anderson, of lawful age, being duly sworn, upon Ms oath states that he makes affidavit in accordance with the instructions printed on the back hereof for the pur- pose of complying with sections 2888, 2889, 2890, Revised Laws of Minnesota, 1905. ' 'An act to require every foreign corporation, organized for pecuniary profit, nor or hereafter doing business in this State to have a public office in this State, at which to transact its business, and to appoint an agent duly authorized to accept service of process, and requiring such corporation to file its articles or certificates of incor- poration with the secretary of state, and pay into the State treasury certain fees, providing penalties for a violation of the provisions of this act, and repealing chapter 70,. General Laws of 1899; approved April 17, 1899." That he is the president of the Equity Cooperative Exchange, a corporation duly incorporated under the laws of the State of North Dakota, on the 24th day of Feb- ruary, 1911", for a term of twenty years; that the amount of capital stock of said cor- poration ia one hundred thousand dollars; and the proportion of the capital stock of said corporation which is represented by the property located and business transacted in the State of Minnesota is one-fourth, and the amount of said capital stock so repre- sented in the State of Minnesota it twenty-five thousand doUajs; that Geo. S. Loflus represents said corporation in the State of Minnesota; and that the pubhc office of said corporation or place for the tran^ction of its business in the State is at 122 Com Exchange, in the city of Minneapolis, Minn. J. M. Anderson. State op North Dakota, County of Cass, ss: On the 20th day of August personally appeared before me, a notary public, in and for said county, in said State, J. M. Anderson, president of Equity Cooperative Ex- change, and made his oath ih&t the foregoii]^ statement by him subscribed is true in substance and fact. [seal.] William F. Lbmke. My commission expires January 3, 1913. [Foreign corporations.] Affidavit and statement of -. computation op pees. Fees must be paid upon the proportion of capital stock which is represented by the property and business in Minnesota. If one-fourth of the business and property of a corporation is in Minnesota, then it must pay incorporation fees on one-fourth of its capital stock. If one-half of its business and_ property is in Minnesota, then it must pay incorporation fees on one-half of its capital stock. For example, a cor- poration with a capital stock of $100,000, having a total property and businesa of $200,000, $50,000 of which is in Minnesota, is required to pay on one-fourth of its capital stock, or $25,000. The fees required to be paid into the State treasury are fifty ($50.00) dollars for the first fifty thousand ($50,000) dollars or fraction thereof of such proportion of capital stock, and the further sum of five ($5.00) dollars for every additional ten thousand ($10,000) dollars or fraction thereof of such proportion of capital stock, and no increase of the capital Stock of any corporation shall be valid or effectual until such corporation shall have paid into the State treasury the sum of five ($5.00) dollars for every ten thousand ($10,000) dollars or fraction thereof of such increase of said proportion of capital stock of such corporation. In case a corporation transacts business in the State, but has no property invested in this State, then the fee to be paid is based upon the proportion which its business in this State bears to its total business and property. Know all men by thise presents: That the Equity Cooperative Exchange of Fargo, in the State of North Dakota, a corporation duly organized and existing under the laws of said State of North Dakota, GRAIN EXCHANGES. 297 has and maintains a public office and place of business in the State of Minnesota, to wit, 122 Com Exchange, in the city of Minneapolis, in said State of Minnesota, and does hereby constitute and appoint Geo. S. Loftus, of said city of Minneapolis, its agent and attorney, who is duly authorized to accept service of process and upon whom service of process may be had in any action to which said company may be a party, and service on said agent shall be taken and held as personal service upon said cor- poration. This appointment to be and continue in force for the period/ of time and manner provided by sections 2888, 2889, 2890, Revised Laws of Minnesota, 1905, and until another attorney shall be substituted and appointed, and the appoiutment of — — • as agent is hereby revoked. . Witness our hands and seal of said company this 20th day of August, A. D. 1912. J. M. Anderson, President. G, A. Thiel, Secretary. State of North Dakota, County of Cass, ss: Personally appeared before me J. M. Anderson, president, and G. A. Thiel, secre- tary, and acknowledged the foregoing to be their free act and deed. [seal.] William F. Lemke, Notary Public. My commission expires January 3, 1913. United States op America. State op Minnesota, Department op State. I, Julius A. Schmahl, secretary of state of the State of Minnesota, do hereby certify that I have compared the annexed copy with record of the original instruments in my office of articles of incorporation of the Equity Cooperative Exchange, and amend- ment thereto, filed in this department on the 28th day of August, A. D. 1912, in for- eign corporation file No. 1842, and that said copy is a true and correct transcript of said instruments and of the whole thereof. In testimony whereof I have hereunto set my hand and affixed the great seal of the State, at the capltol, in St. Paul, this 5th day of February, A. D. 1913. [seal.] Julius A. Schmahl, Secretary of State. I would also like to introduce into the record extracts from the Grain Terminal, a monthly published by the publicity committee of the independent grain exchange at Minneapolis, and I will call attention to two or three statements in it. Mr. Lenroot. Is that independent grain exchange and the Equity Cooperative Exchange the same thing ? Mi. Simpson. There is no such thing as the independent grain exchange, and every time it is advertised as an independent grain exchange in the city of Minneapolis it is a misstatement. At the time we had the legislative investigation in Minnesota, or a short time prior thereto, feeling that they would be in trouble, Mr. Loftus, sales manager of the Equity Cooperative Exchange, Mr. Anderson, its president, and one Trovatten, a sales agent or organizer of societies, met and started to organize a grain exchange, and I have here an exhibit, the draft of articles of incorporation of that exchange that was received in evidence at that investigation. But they then stated that they never had completed the incorporation, they had not secured any subscribers. As I am informed the organization never got any further. But stUl the suggestion is continually made out through the Northwest that there is an independent gram exchange at Minneapolis. From the publication, the Grain Terminal, is offered the heading and those parts of the printed pages inclosed in brackets, 298 GKAIN EXCHANGES. as showing the representation that an independent exchange exists at Minneapolis. (The copy of the Grain Terminal submitted by Mr. Simpson is as follows :) ' Chamber Exhibit No. 6. — Makch 4, 1913. — J. C. S. The Grain Tenninal. Cooperation and efBoienoy. "United we stand; divided we fell." Let us work and puU together. The Grain Tenninal is published monthly by the publicity committee of the In- dependent Grain Exchange, Minneapolis. Subscription price, 50 cents per year. No. 1. Miiine> apolis, Mirm., February, 1913. Vol. l.J The eflBciency of the Independent Grain Exchange eystem compared with the looae methods of the old line system have proven better for both railroad and shipper. The Independent Grain Exchange stands for an open market with all deals in the open as against a market controlled by a close corporation with the power in the hands of the few. The Independent Grain Exchange and its members see that every shipper gets every- thing in inspection and weights that is coming to him, and that his interests are im- partially and fairly handled. The Independent Grain Exchange is here because of an insistent demand for im- proved methods of grain marketing and a more direct route from producer to consumer. Extravagant and costly methods of handling grain must give way to efficiency methods. The old-line system must face efficiency competition. To farmer, farmers' elevator companies, and all shippers: If you are interested in improved methods of marketing your grain, if you are look- ing for a more direct path from producer to consumer, remember that the Indepc nd- ent Grain Exchange is ready to serve you. Write any member of the Independent Exchange or George S. Loftus, sales manager. NORTH DAKOTA SHIPPERS FOR INDEPENDENT MOVEMENT. George S. Loftus, president, and James Manahan, general counsel, addressed large gatherings of shippers at Fargo, N. Dak., during the week of the Tri-State Grain Growers' meeting, in January. Intense interest was shown in the movement for better marketing methods and the work being done by the Independent Grain Exchange. Many shippers voluntarily signified their intention of sending consignments to the Independent Exchange. Shippers demand an open and uncontrolled market for their products. They insist that the price shall be named by supply and demand and not by market manipulation. LEADING NORTH DAKOTA PAPER DECLARES FOR INDEPENDENT GRAIN EXCHANGE. [Editorial from the Fargo (N. Dak.) Daily Courier-News.] The citizens of North Dakota, almost without exception, are interested in grain and grain prices. Our chief commodity is grain and our greatest business is its pro- duction; therefore any means which will insure an added 10 cents of grain income per bushel is of prime importance to our people. The Society of Equity has thrown its influence back of a great independent grain- handling movement. The sales end is in charge of George S. Loftus, of Minneapolis, one of the ablest and one of the cleanest grain men in the whole country. The legal end is in charge of James Manahan, lawyer, and of the same high type of citizen as Mr. Loftus. These two men are making a fight against present conditions which will be epochal for the farmer. They deserve and will undoubtedly get the support of North Dakota grain growers. It is human to be imperfect. It is but natural to expect that there wULbe imper- fections in the best plans, but there is no dodging the fact that the nearer the farmer can get to disposing of his product directly to the consumer the greater his chance of profit, and the sum of his whole year's effort is to get the greatest possible honorable return for what he produces — ^his stock in trade— his crop. The Independent Ex- change is a step in that direction. It is designed to bring the farmer and grain buyer directly in touch, eliminating the costly and unprofitable chamber-of-commerce GRAIN EXCHANGES. 299 methods. The grain producers of North Dakota and Minnesota will have the active support of this newspaper in so far as its support can be of value to them. In the line of showing the organized effort that is being made and the people taking part in it throughout the Northwest, and that it is the same effort which has been reflected here, I want to introduce as an exhibit some of the stationery used by this company; and I call attention to the fact that at the head of that stationery is the picture of an elevator, with a legend under it, "Our terminal plant, St. Paul." It developed upon the hearing before the Legislature of Minnesota that the Loftus & Hubbard Co., a partnership of which Mr. Loftus was one member and Mr. Manahan, the present Congressman from Minnesota, was his special partner — that they owned an elevator in St. Paul and at one time had operated it, but that they had leased it and had no more right to its use than any .other person, and that this picture here was a modified picture of that elevator. And as showing the photog- rapher's art, next to this elevator is a picture of a building. There is in reality no connection between these two buildings, but the photog- rapher in some way got in the picture something resembling a grain spout leading from the elevator down into the factory building, so as to show the plant a little bit larger. To show how simple the people who print this must think their constituents out through the North- west are, there are windows shown in every floor of the factory build- ing, so we have the remarkable suggestion that you can run wheat for storage down into a factory building, each floor of that building hav- ing many windows. Mr. Manahan. May I ask you a question ? Mr. Simpson. I do not believe I should answer further questions. While I would be deHghted, if we had time, we have been pinched down to four hours, and I would like to proceed without interruption. The Chairman. Mr. Manahan, do not interrupt. Mr. Simpson. I call attention to the fact that on this letterhead appear many of the men who are interesting themselves in this reso- lution and who have taken part in this hearing. Among others, as a national officer, Mr. Chryst, whom we have heard, from Wisconsin; as directors, James Manahan, the Congressman; M. Johnson, the eloquent man whom we heard the other day; and James Manahan, also as attorney. They are aU here but Mr. Ijoftus. He has not appeared here, but others who have appeared at this hearing sustain a relationship to the Equity Exchange of the same character. I also call your attention to the statement quoted on this letter- head: "We are in a position to store your grain." That, of course, is a true statement, because anybody can store grain; but it suggests, T think, and was intended to suggest, in connection with this picture of a terminal elevator, that this society had already progressed to the point of having a terminal elevator. 300 GllAIN EXCHANGES. (Following letter submitted:) [A A Trovaten, solicitor, Fargo, N. Dak.; M. Johnson, president State Union, Kimball, Minn. Geo. S. Loftus, sales manager, Minneapolis and Duluth; James Mana;haii, general counsel, Minneapolis. Direc- tors! Thos. Ealeiefi, Lake Elmo, Minn.; 0. H. Olson, New Rookford, N. Dak.; F. B. Wood, Deering, N Dak ; J D Myers, Black Water, N. Dak.; J. C. Borgh, Hendrum, Minn.; A. W. Ditmer, Velva, N. Cak.; J. C. Leum, Mayville, N. Dak.; W. I. Lowthian, Milbank, 8. Dak.; A. S. Mueller, Ijiadison, Minn.; Geo. S. Lottus, Minneapolis, Minn.; James Manahau, Miimeapolis, Minn.; Morris Sohlinoy, Lake Elmo, Minn.; C R. Whitaker, Hastings, Minn. National olBoers: M. J. Chryst, president, Hudson, Wis.; M. W. Tubbs, secretary, Madison, Wis.] [Our terminal plant, St. Paul.) Equity Cooperativb Exchange. ITerminal selling agency lor the American Society of Equity at Minneapolis, Dnlnth, and Superior. Capi- tal stock, $100,000. General Office: 114 Com Exchange. Licensed and bonded to the State of Minne- sota.] Minneapolis, Minn. Equity Coopeeativb Exchange. ["We are in a position to store your grain."] I have another letter here of the same character, but containing names of other representatives and some of the other gentlemen who have appeared here. On this one appears the name of a Mr. Teigen — whom I would like to refer to later — as one of the representatives of the Equity Exchange, a man who was on the house committee appointed to conduct an investigation of grain exchanges in the city of Minneapolis. To show exactly the relationship of everybody here to this ex- change . Mr. Manahan. Are you going to introduce the letter or just the stationery ? Mr. Simpson. The letter is unimportant ; it is just to show the letter- head. (Form of letter submitted is as follows :) Exhibit "S."— February 28, 1913.— J. C. S. [J. M. Anderson, president, Fargo, N. Dak. Bert Cole, vice president, Breckenridge, Minn. 6. A. Theil, ^ecretary, Fargo. N. Dak. M. Johnson, president State Union, Kimball, Minn. Geo. S. Loftns, Salee Manager, Minneapolis and Duluth. James Manahan, General Counsel, Minneapolis.] Equity Cooperativb Exchange, TEBMINAL SELLING AGENCY FOR THE american society of equity at minneapolis, duluth, and superior. [capital stock, 8100,000. general ofeice, 114 corn exchange, minneapolla, minn. licensed and bonded to the state of minnesota.] Independent Grain Exchange. [Representatives: O. H. Olson, New RocMord, N. Dak. F. A. Wood, Deering, N. Dak. J. B. Myers, Black Water, N. Dak. A. W. Ditmer, Velva, N. Dak. J. C. Leum, Mayville, N. Dak. W.I.Lothian, Milbank, " ■"-'- " " "-=■— "' — =--- ^^ ^-,_ , „ — ..„_ ^. ., „ „r..- — Driscoll, Brakke, i Dak. Thos. *.„.c.5„, „,...>„.„.„, ..1.1U.. ... ,^. ^0.5.1, *iouu.uui,™,iu,. a. o. u,.ucuoi, ^uauuuu, ..u^.. Morris Schllney, Lake Elmo, Minn. C. R. Whitaker, secretary, Hastings, Minn. P. H. Frye, Willmar, Minn. Ole Dale, Hanley Falls, Minn. Nels Peterson, Wadena, Minn. Jno. B. Bosch, Raymond, Minn. Mike Foley, Eden Valley, Miim. F. Teigen, Montevideo, Minn. F. O. Pierce, Breckenridge, Minn.] Equity Cooperative Exchange, Geo. S. Lomus. The letterhead, in addition to the names and other printed matter appearing thereon, as shown above, has, at the upper left-hand side, GRAIN EXCHANGES. 301 a cut representing two buildings connected by a spout. The building at the right is a usual type of grain elevator, this building extending upwards from a foundation of substantial width to a considerable distance, then narrowing by a sloping roof to about one-fifth of the width of the foundation, then extending upwards at this width a con- siderable distance; from the top of the narrow portion of the elevator builduig is shown the usual grain, spout connecting grain storage buUdings. This spout slopes down to the left and connects with a larg« three-story building located close to the first building described. This^hree-story buUding has windows on each story located close to eachf'other and extending continuously along the sicfes of the buUding as far as shown in the photograph. The photograph introduced and shown to the committee shows Eart of the front of a building, with the appearance of the usual office uilding, to the height of the top of the third story. On the left of the photograph seems to be an arched entrance to the building. To the right of this entrance on the second story are three windows. Over these three windows is a large sign with the words — INDEPENDENT GRAIN EXCHANGE thereon. Below this sign, on the lower sash of the three windows, appears the following printed matter^ on the first window to the right of the arched entrance, the words — EQUITY EXCHANGE on the second window the words — EQUrrT CO-OPERATIVE EXCHANGE and, on the third — JAMES MANAHAN LAWYER Mr. Cantbill. Have there been any advances in the price of wheat to the farmers since this Equity Cooperative Association started in , the Northwest? Mr. Simpson. No. I think we can answer that with absolute certainty; that is, if you mean that the farmer has been able to sell his grain on a narrower margin than he could heretofore, or get a better price, I say emphatically no. The farmers who sell through the regular commission merchants of the chamber of commerce get exactly the same prices they always got; they get the price that prevails on the open market, the competitive market, of the Minne- apolis exchange, less 1 cent per bushel commission and the necessary charges. I have printed matter I will put into the record here, show- ing that in very many cases the farmers who ship their grain through this Equity exchange receive 2 cents less than the price for which that grain sells on the Minneapolis exchange, the chamber of com- merce. First by a double commission, later by another method, and while this is not quite my field, I am into it and might as well cover it. When it was found by the chamber of commerce that dou- 302 GEAIN EXCHANGES. ble commissions were being charged by commission merchants out- side the chamber and false-account sales were being sent out to cover up that commission, the chamber of commerce adopted a rule in effect providing that no commission merchant, member of the chamber, should sell consigned graia for the consignee where he had information that false and fraudulent reports were going to be made by the consignee concealing the double conimission. Since that time the same practical result has been reached by the Equity Coopera- tive Exchange through selling graia to commission merchants who are members of the exchange, the members buying the wheat for immediate resale on the chamber, and buying it at 1 cent or more below the market price, thus maki ng their commission through the resale instead of as a commission. We have here, and I will intro- duce a little bit later, the report of a large niimber of such cases, showing a usual and customary course of business. I want to read at this time a letter that seems to me is important as showing the exact situation and who are connected with this Equity Cooperative Exchange, and with this effort to bring into disrepute the regular exchanges in the State of Minnesota: That letter was written December 26, 1912. I have the original letter, under promise to return it, and deeming it important I ask to have a copy incorporated in the record. Mr. Manahan. I desire to say that I never signed that letter, and if the original letter may be compared with my frank, the com- mittee can recognize it is not my signature. I did not dictate the letter nor sign it. It is written on my stationery, but that is all I know about it. The Chairman. Is that the original letter ? Mr. Simpson. That is the original letter. If the committee would like to examine it, I shall be pleased to have them do so, but I will ask to have a copy inserted in the record. (The copy of letter dated December 26, 1912, is submitted by Mr. Simpson, as follows:) James Manahan, Minneapolis, Minn., December ^6, 1912. Mr. W. A. Lbnnon, Columbus, N. Dak. My Dear Mr. Lennon: Mr. C. P. Olson, who is traveling for the Equity Exchange, wrote Mr. Loftus, their Minneapolis sales agent, that he had called on you and men- tioned the fact that in the old days you went to school to me. It pleased me to be re- minded that one of my old students had not forgotten me. I hope you will come in any time you are in the cities and see me. I suppose Mr. Olson told you that I am interested with Loftus in his business, and as general counsel for the Equity Exchange I am anxious to see it succeed the way it de- serves. I can assure you that any business you do with Loftus will be handled right for you and will be appreciated by me. Very sincerely, yours, James Manahan. And to show the exact situation of the parties, and in a rather graphic way, I would like to introduce into the record, and will pass to the committee for examination at this time, if they please, a photo- graph taken on Saturday, the day before I left Minneapolis, showing the Association of the Independent Grain Exchange. (At this point the original letter, dated December 26, 1912, sub- mitted by Mr. Simpson was examined by the committee.) GBAIN EXCHANGES. 303 The Chairman. I presume, Mr. Manahan, you have nopbjection to this letter being inserted in the record, with your statement. Mr. Simpson. Certainly, I am pleased to have Mr. Manahan's statement go in in coimection with it. Of course, I have no knowledge of this letter. I think Mr. Manahan wUl agree that this man was his scholar. The Chairman. You offer it for whatever it may be worth ? (At this point the original letter, dated December 26, 1912, was examined by Mr. Manahan.) Hand the letter back to the clerk, please, when you have examined it. Mr. Simpson. I would like to offer in evidence Mr. Manahan. I would like to introduce my regular frank in the same coimection. The Chairman. There wiU be no objection to that. Mr. Simpson. I am in a little embarrassing position, because this letter was given under promise of its return, but I think if Mr. Mana- han desires the original in the record, I think as a matter of fairness we wUl have to introduce the original letter. Mr. Manahan. I do not think the letter has any bearing whatever on the investigation. Mr. Simpson. That is very good. We wiU leave the original letter. Mr. Manahan. WeU, I thmk that I wiU ask the committee to strike out the letter and ah references to it, believing, in the first plate, it is not identified as my letter by competent testimony. I say it is not. Nobody says it is — even Judge Simpson does not say it is — and it is hardly fair to me to put a letter like that in that has nothing to do with the case. There is nothing in the letter, as I heard it read, that affects or pretends to affect in any way the merits of this resolution. I think it ought to be left out. The Chairman. The committee wiU take that matter under advise- ment. We will not delay Judge Simpson. Mr. Simpson. I would like to suggest, if the committee please^ that if we are going to commence striking matters out of the record I would like to urge upon the committee the striking out of the record of the very scandalous, and purposely scandalous, reference to myself and some other gentlemen in relation to a private dinner, but I had supposed everything that was presented here would go into the rec- ord. If so, I am going to speak on that when I come to it. Mr. Manahan. I have no objection to any of the remarks in regard to the matter being stricken out. The Chairman. We will take those matters up later. Judge Simp- son, you may proceed now. Mr. Simpson. I would like to introduce this other bit of stationery, on account of the date, September 9, 1913, showing Mr. Manahan's connection with the company, both as a director and an attorney at that time. Mr. Manahan. In that connection, Mr. Chairman, I think that ought not to go in, either. I know this zealous company of farm- ers; they are representative men in Minnesota, and they have made great endeavors to build up a trade out there in opposition to the chamber of commerce. I learned, a long time after it happened, that, relying upon iny friendship for them, they were using my name. To my knowledge, I have never been — I do not think that I have been elected a director; if so, I did not know it. I did not even 304 GRAIN EXCHANGES. know until long after that my name was used as general counsel. I did not know at the beginnmg of the hearing in Minnesota that my name was used as general counsel of the Equity Cooperative Exchange. Mr. Loftus is a very intimate friend of mine, and we had been engaged in business some time before that. Gov. Hubbard and I were special partners with Loftus. I invested a little money with him. It is true that they used my name as counsel, although I never was, to my knowledge, elected counsel. I never got any fees of it to this day as counsel for this association — the Equity Ex- change — and I have no objection to putting these' things in, so far as they concern me personally. They do not go to the merits of this resolution at all, and I suspect that they are put in for polit- ical purposes, and I think they ought to be left out, as it simply encumbers the record and is an attempt to divert the real issue. The Chaikman. Mr. Manahan, I do not know anything about the political purpose, but it seems to me, in connection with your state- ment and thfi documents Judge Simpson is offering that the com- mittee would like to have the benefit of examining them, not that they reflect on anyone Mr. Manahan. I do not object to that. But I do not know what is in these letters. Mr. Simpson. The contents of the letters may be excluded as far as that is concerned. There is nothing in the letters themselves. Mr. Manahan. With my statements as to the letterheads. I do not deny the letterheads are there; I am perfectly willing for them to go in. [J. M. Anderson, president, Fargo, N. Dak.; Bert Cole, vice president, Brectenridge, Minn; A. A. Trovaten, solicitor, Far§o, N. Dak.; M. Johnson, president State Union, Kimball, Minn. Geo. 8. Loftus, sales manager, Minneapolis and Duluth; James Manahan, general counsel, Minneapolis.] Equity Cooperative Exchange, Terminal selling agency for the AMERICAN SOCIETY OF EQUITY, AT MINNEAPOLIS, DULUTH, AND SUPERIOR. [CAPITAL STOCK, $100,000. GENERAL OFFICE; Hi CORN EXCHANQE, MINNEAPOLIS, MINN. LICENSED AND BONDED IN THE STATE OP MINNESOTA.] (Directors: Thos. Ealeigh, Lake Elmo, Minn; O. H. Olson, New Rockford, N. Dak.; F. B. Wood, Deering, N. Dak.; J. D. Myers, Black Water, N. Dak.; J. C. Bergh, Hendrum, Minn.; A. W. Ditmer, Velvs, N. Dak.; J. C. Leum, Mayville, N. Dak.; W. I. Lowthian, Milbank, S. Dak.; A. S. Mueller, Madison, Minn.; Geo. S. Loftus, Minneapolis, Minn.; James Manahan, Minneapolis, Minn.; Morris, Schliney, Lake Elmo, Minn.; C.E.Whitaker, Hastings, Minn. National officers: M. J. Chryst, president, Hudson, Wis.; M. W. TubDs, secretary, Madison, Wis.] Mr. Simpson. I will state these same letterheads were introduced in evidence during the investigation in Minnesota, and they evi- dently continued to be used long after Mr. Manahan's attention was called to their character. I would like to state as a fact, also, that Mr. Loftus occupies the offlce of the Equity Cooperative Exchange. I offer in evidence a hmited partnership agreement between Mr. Manahan and Mr. Loftus, and in connection with that make the statement that for a long period of time — ^from August, 1912, down to the middle of the year 1913 — the Loftus-Hubbard Co., in which Mr. Manahan was special partner, financed the Equity Cooperative Exchange, and as a company was the sales agent of the Equity Cooperative Exchange. Mt. Cantrill. What is the date of the agreement ? Mr. Simpson. The date of the agreement is September 7, 1910. GilAIN l^XOHAlsfdBS. 305 (TMe agfefeitieiit liere submitted by Mr. SMpsdri is as follows:) CHAMSiiR ExHliiT "3"— JCS— MAfeCH 1, 1913. Doc. No. 572987. Filed Sept. 7, 1910, at 1.30 o'clock p. m. G. S. LoFTUs ET AL. TO' PuBLic No! 393913, ss: This is to certify that the undersigned have formed a limited partnership pursuant to, the provisions of the revised laws of the State of Minnesota. The name uhder which such partnership is to be conducted is the Loftus-Hubbard Company. That the general iiatiire of the business to be transacted is the buying, selling, and handling on coilsig(fmient of hay, grain, and farm produce geiierally; and buying, owning, build- ing, and oipeirating the necessary elevators and warehouses incident to that business. That the names of all the partners are as follow^:, George S. Loftus, who resides at Minneapolis, Minnesota, and Charles F. Hubbard, who resides at St. Paul, Minne- sota, are the general partnersj and Lucius F. Htibbard and James Manahan, both of' whom reside at St. Paul, £tre the special partners, and that the said Lucius F. Hubbard has contributed $7,343 and the said James Manahan has contributed $2,423 as capital to the common stock of said company; .and that the said partnership is to commence on the 31st day of December, 1909, and is to terminate on the 31st day of December, ml Dated this day 26th of Augtist, one thousand nirle hundred and ten. Maey McDo^fNELL. G. S. LoFTtrs. Ray TftAUTMAN. CnABLfis F. HtrBBARD. Lucius F. Hubbard. James .Manahan. State op Minnesota, County of Hefiiiepin, sS: On this 26 day of Augiist, A. D. 1910, before tue a hotafy public, within and for said c6unties, personally appeared George S. Loftus, Cha;rle8^ F. Hubbard, Lufeius F. Hubbard, and James Manahan, to me known to be the persons described in and who executed the foregoing instrument, and each acknowledged that they executed the same as their free act and deed. [seal. J Ray TRAtfTMAN, Notary Public, MinneMta. (My commission expires Sept. 30, 1912.) State of Minnesota, County of Hennepin, ss: George S. LoftuS, being duly mota, ssJys that he is one of the general partners named in the above certificate, and that the sums specified in said certificate to have been contributed by the special partners to the common stock, has been actually, and in good faith, paid by each of the Md partners in cash. G. S. Loftus. Sworn before me this 26th day of August, 1910. [SBAI/.] Ray TEAUTltAN, Notary Public, Hennepin County, Minnesota. My commission ex|rires Sept. 30, 1912. Filed for record on the 29th day of August, A. D. 1910, at 2.30 o'clock p. m. Office of Register of Deeds, Ramsey County, Minnesota: I, M. W. Fitzgerald, register of deeds of said county and_ State, do hereby certify that I £ave compared the foregoing paper writing with the original record now renmin- ing in this office, and that the sstme is a; correct transcript therefrom and of the Whole of said original record as the same appears in Book "P " of Incorpoi'ations, page 134. In wftness whereof, I have hereunto subscribed my name and affixed my official seal at tjie city of St. Paul, in said countyj this 30th dlay of August, A. D. 1910. • [seal.] M. W. Fitzgerald, Register of Deeds. Office! of Register o* Deeds, County of Hennepin, State of Minnesota: I, August W. Skog, register of deeds, within and for said county of Hennepin and State of Minnesota, do hereby certify that I have carefully compajred the above and foregoing copy of certificate of limited partnership with the record thereof as recorded 37214—14 20 306 GRAIN EXCHANGES. in my office, in book 1 of limited partnership, page 322, and that the same is a true and correct transcript and copy of the same, and of the whole thereof, and I do further certify that I am the officer in whose custody said record is required by law to be kept. In witness whereof, I have hereunto set my hand and official seal this 24th day of February, A. D. 1913. , ^ „ [seal.] August W. Skog, Register of Deeds, County of Hennepin, State of Minnesota. And if there be any question about this relationship between the Equity Cooperative Exchange and Mr. Manahan, I have here certi- fied copies of a case pending in the district court of Hennepin County, between the Equity Cooperative Exchange, plaintiffs, and the Cooper Co., defendant, in which Mr. Manahan appears as, counsel for the Equity Cooperative Exchange. -His signature appears to affidavits sworn to by him and necessarily these affidavits must have been signed by him or else somebody has committed a more serious offense than signing his name without authority to a letter. Mr. Manahan. May I see them ? Mr. Drake was substituted as the attorney in that case immediately after it was commenced. Mr. Simpson. I got these with the promise to return them. I will be glad it you will keep them together and return them to me. That grows out of the case in which the present sales manager of the Equity Cooperative Exchange had his predecessor indicted, a man by the name of Cooper, who for some years was sales agent for the Equity Cooperative Exchange in the city of Minneapolis, upon a charge of stealing grain. A nolle was entered in the criminal pro- ceedings, and this civil action is pending. I would hke to offer in evidence, from the advertising matter of the Equity Cooperative Exchange, a few advertisements just simply to show that the same kind of contest against the MinneapoMs Chamber of Commerce that has been made here has been going on continuously up through that northwestern country for years, and the same class 01 statements against the chamber have been made in the effort to get business for the Equity Co. I would like to offer the parts from this pubhcation — their own pubhcation — that are inclosed in pencil brackets on page 1, page 2, page 11, page 13. On page 13 is a bill of lading with indorsement on it, "Sold on the Independent Exchange." The Chairman. You will mark all the parts you want inserted. Of course, all of these things can not go in. Mr. Simpson. Mr. Chairman, I think perhaps you did not catch my statement. I said the parts inclosed in pencil, and those parts are very small. The Chairman. Very well. Mr. Simpson. I am now referring to pages on which those brackets occur, and on page 24 appears "Grain Growers of the Northwest." (The portions of the National Grain Grower of February, .1913, designated by Mr. Simpson are as follows:) THE VICTORY IS OURS. The fight that is now on between the Equity Cooperative Exchange and the Min- neapolis Chamber of Commerce has yielded its first fruit, and the chamber of commerce is forced to make concession. GEAIN EXCHANGES. 307 Uniform bill of, ading— Standard form of order bill of lading approved by the Interstate Commerce Commission by Order No. 787 of Jane 27, 1908. Minneapolis, St. Paul & Sault Ste. Marie Ry. Co. ordbb bill op lading original. Received, subject to the clasBifications and tariffs in effect on the date of issue of this original bill of lading, at Grain Belt, N. D., Dec. 5, 1912, from Farmers Elev. Co., the property described below, in apparent good order, except as noted (contents and con- dition of contents of packages unknown), marked, consigned, and destined as indi- cated below, which the Minneapolis, St. Paul & Sault Ste. Marie Railway Company agrees to carry to its usual place of delivery at said destination, if on its road, other- wise to deliver to another carrier on the route to said destination. It is mutually agreed as to each carrier of all or any of said property over all or any portion of said route to destination, and as to each party at any time interested in all or any of said property, that every service to be performed hereunder shall be subject to all the conditions, whether printed or written herein contained (including conditions on back hereof), and which are agreed to by the shipper and accepted for himself and his assigns. The surrender of this original order bill of lading, properly indorsed, shall be required before the delivery of the property. Inspection of property covered by this bill of lading will not be permitted unless provided by law or unless permission is indorsed on this original bill of lading or given in writing by the shipper. The rate of freight from Grain Belt via Kramer, N. D., to — is in cents per 80 pounds. Consigned to order of Equity Cooperative Exchange; destination, Minneapolis, State of Minn. ; notify Geo. S. Loftus, sales manager, at Minneapolis. Oar initial, C. M. & St. P. ; car No. 35206. Weigbt. Wheat 80, 000 If charges are to be prepaid, write or stamp here, "To be prepaid." This chamber of commerce crowd now boasts of having made Minneapolis a closed market. They claim that no one can sell grain there without being members of their combine, without to their dictates and submitting to all the rules which they see fit to impose. We ask you in all earnestness, is this condition satisfactory to you? Do you consider that your interests are protected by being turned over to a combine of man over which you have absolutely no control, men who pose as your servants but in reality are your masters? The Equity Cooperative Exchange offers you relief. It is making Minneapolis a free and open market where anyone may come to dispose of their grain without sub- mitting to combines of any kind. It is making Minneapolis, in other words, as free and open a grain market as your little local market is and should be. Equity Coopbrative Exchange. Members of Independent Grain Exchange, Minneapolis. Geo. S. Loftus, sales mgr., Minneapolis. J. M. Anderson, president, Fargo, N. D. G. A. Thiel, secretary, Fargo, N. D. Minneapolis Duluth Superior Milwaukee One other " National Grain Grower" introduced a new idea here, an advertisement on page 19, which I would like to offer in evidence, which reads as follows. [Eeading:] discovered at last — WHAT? A good foundation for your local elevator. The Equity Cooperative Exchange has established an auditing and bookkeeping department, which is in position to keep your books in first-class shape. ^Write for particulars to the auditing department. Equity Cooperative Exchange. Fargo, North Dakota. 308 GBiAliif EXOHAilGfiS. And 1 state as A fact that actually these men wkb ship grain to the Equity Cooperative Exchange, have in many instances pursuant to that advertlsenlent, allowfed the Equity CoopiefAtive Exchange to keep their books and the records of their transactions with the Equity Co. and their accounts sales made by ttie Eqmty Co. I waiit to offer in evidence — and this matter has been frequently i'jefewed to here in referesi^ce to ptice-— pride cards sent out by the Equity Cooperative ilxchange through the Northwest. I have pinned to these price cards the closing price on the Minneapolis mtdhMge mktket, the closing brice on the Dultith Exchange Hiarket dU the same day. Let tne say there, so thei'e will be rto tnisunderstand- ing, that these closing priced on these chambers are not fixed by afly body of men, but the last actual cash transactions that occur belore the closing, ate taken and published in the papers as the closing pride. I Mil call the cbnitnittee's attention to the fact that if yoti wiQ read them through you wiU find in every instance that they keep from pne-f durth to a lialf dent above the Duluth prices and the Min- neapolis Chattibef of Commerce prices, thus Conveying the informatitti <^at the closing prides on the Independent Grain Eifcfiangd, Wfaidh does not exist, were from one-fourth to a haK cent liiglier than pji the actual exdhanges. From a description of the different grades of grain in these car's it is absolutely impossible that any concern ot the siisfe of the Equity Cooperative Exchange and doing the business it doe& could make anything but a fictitious closing price as to a large number of those cars. (The price cards here submitted by Mr. SimpSon, with attached dftta, are as fdlloiii^s:) [Baaly Usltkit Record.) Min/tieapoUs eash grain market. a Minneapolis to-day. Delivered. To 6tr. teg. Ulnneapolis jesieiiaj. Delivered. To arr. reg. IfeM ago. Delivered. To arr. (eg. Ihard 1 northern...... 2norUisni.. Ssfiifmg 1 durum 2duium 2 hard Montana j 3 yellow com.. 4«bnl.. Swhiteioats... 2 rye. Flax. Barley. 86-87f 80J-81'J teg. ch. 86^87 1 ml 82^S3i 87i-88 85i-87i/ 83|-g5i 81|-&} S2|-83| 80J-81t reg. 85^863\ ch. 87i| 80J-81J 855-86J 62}- 63 SSi- 61 37J- 37} 34- 86 65 - S7i l.«J-l.«} 37i 61i 3S 55 - 67J 1.44J-1-47J 43- 67 69- 37i- 34 - 30 55 - 57i 1.45 -1.48 44 - 68 62 37i 65 1.46 ■ 67i ■1.48 83J 81J-82I 771-784 84* 42 38-41 63 -5V 1.26i 40-59 GKAIN EXCHANGES. Dulpih clo^ng priees of cash grqin. 3oe CloaeDec.J?,l?t3. Duluth to-day. Yesterday. Year ago. Delivered. To arr. reg. Delivered. To arr. reg. Delivered. Tow- rgg- Ihard 8^ 84J- 85 87* 86| m- 85 83 82 80 Inorthem 2 northern 86i 86J 82 i'i^lirnrn.. . . 81J- 82 81i- ti 86} 83i 81^ 82i S6i m 81J- 82i 86 82I 84 92i 2 hard 'Montana . . . 3 yellow com "" - " 4corn .'.' ' Swhiteoats m 37} 37} 37} 30 30 2 rye 62- 55 1.47 52- 55 1.47i 52- 57 1.26} 52- - 67 Flax 1.47 1.47i 1 M^ Not quote!}. Not quoted. 40- 60 [Duluth-Superior. Chicago. Milwaukee. Equity Cooperative Exchange, Farmers' BeUing Agency. V Com Exchange, Minneapolis, Minn., Dec. 12, 1S13,] Cash market close. Minneapolis. Spot. To arrive. Duluth-Superior. Spot. To arrive; No. 1 hard wheat No. 1 northern wheat. No. 2 northern wheat. No. 1 durum No.2durum No. 2 bard Montana. No. 3 yellow com No. 3 white oats No. 2rye Barley Flax 1^ 82i- 801- 86J- 62J- 37*- 55}- 42J- 1.45-1. 86}- 87i 84} 82J- 831 SOJ- 81} 87i 86} 84i- 85" 83i 81i- 82 m 37* 66i- 571 37i !- 56 1.45 -1.48 1.47 8fr m ^7} 53- 66 1.47 ANOTHER ATTEMPT OP HOLDUP. The chamber of commerce now requires ita members to sell grain delivered at the buyer's mill or elevator aaid thereby place the burden of expense for such delivery, upon you. Every independent shipper shoul4 challenge the com^nigsion firm's right tQj)bserve ' this arbitrary rule. There is no more reason why the switching should be charged you thaa the charge for unloading or transferring through the elevator. The shipper's responfflbiUty ceases after cars reach their destination. It should be borne in mind that this is the only terminal market in the United States where the shippers were foip^^ to bear such expense. Write us for particiiliiis as to the line of action necessary to head off this holdup. Attend the Sioux Falls convention December 16-18. Equitt Coopebative E^c^ai^g:?. 310 GEAIN EXCHANGES. Minneapolis cash grain market. [Daily Market Record.] Close, Dec. 31, Minneapolis, to-day. Minneapolis, yesterday. Year ago. 1913. Delivered. To arr. reg. Delivered. To arr. reg. Delivered. To arr. reg. 1 hard 871- 88} 85F 87t{ 82}- 85} 80}- 83} 82- 82} 80- 80} 86|- 87} 84}- 86}| 79f- 82} 82 80 Holiday. i 1 northern reg.85i- 86|1 ch. 871/ reg.84^ 85}\ oh. 86}/ 1: 82- 82} 80- 80} 84^ 85 82 80 83}- 85} S yellow com 4 com 61 53- 57 35} 31 - 34 52- 54 1.441-1-47} 60} 60 - 60} 63- 56 35}- 36 31 - 34 62 - 53} 1.44}-1.47} 60 35} 35} 52- 64 1.44}-1.47} 52- 63} 1.44^1.47i """ Flax Barley 44-66 44-66 Duluth closing prices of cash grain. Oose, Dec. 31, Duluth to-day. Yesterday. Year ago. 1913. Delivered. To arr. reg. Delivered. To arr. reg. Delivered. To arr. reg. Ihard 86} 83}- 84} 86} 85} 83}-83} Holiday. 85} 85} 3 spring 84 82 - 82} 62}- 63} 84 82- 82} 85} 83} 81^82| 85 60} 83} 81}- 82| 85 !R-HlirnTn 2 hard Montana Syellowoom 4 com. 36} 36} 36} 36} 3 oats 50-63 1.47} 44-67 50-53 1.47} 44-67 Flax 1.47} 1.47} Barley f Dniuth-Superior. Chicago. Milwaukee. Ei^ulty Cooperative Exchange. Farmers' Selling Agency. Com Exchange, Minneapolis, Minn., Dec. 31, 1913.] Cash market close. Minneapolis. Spot. To arrive. Duluth-Superior. Spot. To arrive. No. 1 hard wheat No. I northern wheat No. 2 northern wheat No. 1 durum No.2 durum No. 2 hard Montana.. No. 3 yellow com No. 3 white oats No 2rye Barley Flax 85J-87} 83-86} 82}-83 80}-81 84i-86 61} 36 62}-54} 44-66 1.45-1.48 87} ■86J 84 -83 -81 'm 36} 54 86} 83J-84} 84 82-82} 86{ SH 1.45-1.48 851 62-63} • 36} 60-53 49-67' 1.47} GBAIN EXCHANGES. ■ 311 AT THE DAWN OP THE NEW YEAR — 1914. We extend to you the most seasonable and cordial greetings. We hope and wish you are as happy and contended with the future outlook for your business venture as we have reasons to be with the future outlook for the Equity Cooperative Exchange. THE OLD TEAR — 1913 has been rich in developments. It has brought the cooperative movement forward as never before. Its onward and upward march has become rapid and decisive, with many victories won and others sure to follow. The closing days of the old year brought the finest victory — ^the strongest indorse- ment. The annual convention of the Farmers' Cooperative Association of South Dakota, held at Sioux Falls, December 16 to 18, approved the action of its directors who had indorsed the Equity Cooperative Exchange and reelected them with an overwhelming majority. The farmers of the Northwest will meet in Fargo, N. Dak., January 20 to 23, when the Equity Exchange and the cooperative movement will receive their indorsement. The searchlight of publicity is shining, lighting up the dark crevices of corporate greed and grasping combinations, revealing to the public view a condition which will no longer be tolerated. ' If you are undecided as to the merits of our movement, come to the Fargo meeting January 20 to 23. Equity Cooperative Exchange. These cards are dated in December. I have seen many issued at earlier dates. Prior to December and during the fall of 1913 the rail- road and warehouse commission of Minnesota, under authority, sent out to independent lines and farmers' cooperative elevators daily cards showing closing prices at Minneapolis and Duluth, and these cards which were sent out by the Equity Cooperative Exchange dur- ing that time seemed to follow exactly the same principle, as illus- trated by these two filed with your committee. They kept from one- fourth to a half cent, in most instances, above the closing prices sent out by the official department of the State of Minnesota as well as above the published closing prices of the chamber. Thus the Equity cards were a continual representation that wheat was selling higher on the so-called independent grain exchange than it was elsewhere. I want to introduce in evidence a reprint from the National Grain Growers' Association, containing information that I have already referred to as to prices at which the grain was actually sold in the Minneapolis market by the Equity Cooperative Exchange. [Beprint from recent issues of the National Grain Grower and Equity Farm News, official organ Amerlcu Society of Equity.) AN OPEN LETTER OF IMPORTANCE TO EVERY FARMER GRAIN DEALER IN THE NORTHWEST. The best way to sum up any proposition is to deal with cold, concrete facts, not generalities, but specific cases. Therefore, to place before our readers documentary evidence tending to sustain our attitude toward the Equity Cooperative Exchange, we pubb'sh the following letter: Minneapolis, August ^2, 191S. Mr. P. V. Collins, Editor Northwestern Agriculturist, Minneapolis, Minn. Dear Sir: In your August 16, 1913, issue you announce in your editorial that the Equity Cooperative Exchange will be conducted on a cooperative basis, beginning August 1, 1913. Your editorial proceeds to give your approval to the Equity Coopera- tive Exchange, and apparently recommends its support by the producers of the Northwest. Your editorial also states that the Equity Cooperative Exchange handled 1,800 cars in the past year, or 10 per cent of the total receipts of grain and seeds in Minneapolis and Duluth; and, further, predicts that this year the Equity Cooperative Exchange gi2 GRAIN EXOHAfTGiBS. will handle one-fourth pf the receipt^ jn tfieap t^o pj^rjcejis, ftnd the year foUowmg one-half of the total receipts. that your paper is published in the interests of the farmers in general of the Nortkwest, and believing such to be the case I defiR} it jny (Ji^iiy to give you the following facts and figures, together with a copy of an affidavit of James De Veau, and also a letter from tSje Piscreiary of state of If orth D^jkota, finsi ^§lf th3.{i you publjph tjie a^pxfi fpf the bepefit of the people who re9,d your paper; p,nd I am gJv^Pg you thi^ belf^^ypg tl^at you tave heen deceived to a certain extenf. lyith reference tp this Eqmt'Jf Cooperatiyg Exch^inge, aud knowing that you do ijo^ wis)} to decpiye your readers I finj submitting the fojlowing fapts, alEdavits, etp., for your pwp benefit, as well as your re^"4srs: In tbp first placp, if the Equity Cppperative Exchange Ijapdled 1,800 ciffs during tbe pfiist year, I wish, to cal} yoiir atj;eption to tlje feet that tlje tpf^l number pf c^rg oj grain and iSa^^epd recpiyed at Minneapolis au4 Quluth, fronj August 1, 1912, to July 31, 1913,'was 1^8,797 pars in Sfinneapolis, and Dulijth received aboijt 105,500, making total nuraber of cars of grain and flaxseed received in jihe twp markets of §i,lDput 274,297. If your stateijippt of the receipts of the Equity Exchange dljring );hp paai ye?,r, vi^., 1,800 cafs, is pprrepj;, tlpi^ TTopld repre^efft a Utii^ ovpj- 0.6 o^ 1 per cpg'i pf );}ie total receipts in these two markets, or, to be exact, 0.00648, iugtead of the 10 per cepi yqu stated jn youf editRfial- I was much surprised at your indorsement of the Equity Exchange, ip view pf fh© fact that accprcjing to your qyp editorial, they have been falsely using the word "cooperative " during the past year, and posing as a cooperative institution, when in fact their use of the word "cppperative" was a fraud uppu the cpuntry ghipp^r, and misleading to the Jast degree. ' Second, if you had f ollpwe^ the evidence produced during the recent lfegiBlg,tive , investigation, you would be aware that for about a year past,' the Equity E&change falsely advertised "Our terminal elevator in St. Paul," and stated below the picture of this alleged elevatpr, "We are in a position to store your grain," this ad's^ertisgjiipnt being absolutely false, as the pquity Exchange npither owned npr poiftrolle^ ^ny eleyator in St. Paul, as advertised. Your editorial states tUat " the shipper receives at pnce as much fpr his graip as if he had sold it through the line elevators and the cljamber of commerce," etc. I call your attention to the-foUoying copy of an affidayit signed by Jawe^ Pp VpaUi vhich was read a* a meeting oJE t;he farmers' ejevator at ^^rjamer, N. IJal^'i iu July. This affidavit sufficiently demonstrates the attitude of those in charge of tlje Equity Cooperative Exchange towai'd the farmer elevator company and the producer, and needs no cpmment: Distript Court, Ninth Judicial Distrjct. State op Minnesota, County of JSennepjn, ss: ' James De Veau, being duly sworn, deposes and says that he is a resident of the city of Minneapolis, State of Minnesota, County of Hennepin, and that fromi the 1st day of August, 1912, to October 15, 1912, he was working for the Loftus-Hubbard Co. of said city of Minneapolis, of whom (jeorge S . Lpf tus is the manager and the sates mftsager of the Equity Cooperative Exchange; and that this affiant worked at the above- described time under George S. Loftus, as sales manager of the Equity Cooperative Exchange, and sold and disposed of all grain during the above-mentioned time that was shipped to Duluth for the Equity Cooperative Exchange, of which George S. Loftus, sales manager, and that the same was sold at Duluth, under the direction of George S. Loftus, to the Atwopd-Stone Co., for 1 pent per bushel under the market (that is barley and wheat), and oats sold at one-half pent per bushel under the market; and after said sales were made, George S . Loftus charged 1 cent commission per bushel on barley and wheat, one-half cent on oats. Affiant states that this was all done imder the direction of George S. Loftus, and he well knew that by doing this the shippers were paying 2 cents per ))ushel commission on wheat and barley an4 1 cent per bushel on oats. And that at' the time these sales were ma4^ there was no misrepresentation made to George S. Loftus as to tlie market price, because Atwpod-Stone, through this affJaU*) PptifieS George S. Loftus tftat the markpt yfSB a certain price; and affiant further states that this is the only way that he knew how to get a commission on the sale of said grain, for George S. Loftus, sales manager for Equity Cooperative Exchange, withput notifying the sai4 shippers, and that said confirmatipn on sales were made in this indirect manner tP enable tne Equity Cppperative Exphange to get their 1 cent per bushel and net evade the law ef Mmne- G|^/VI?f EXPHANGES. 313 BOta. p#p?ge §. l(0ft)|8 w^ll Ifnew lip vs-s up.ablp to get tl).e saijie price as other poni- missjqp houses, afld ]£iveiv Ithat I)e v^ cjjsifging liiojjble the coniinig^ipix ^ny othe!" PPm- »}g^9n pf^H^ VQwld charge 4oiilg husineae ;ii P\ijuith. fhJP affi^'Ht further stq^ej that tip j^^p rt^js aflfiq^yJI^ ppvers the above tiflie is hf^ause the affip.?it left George S, L'ohus on tJ}p 15th figiy qf' October, an4 refused to ^qt^ fpr the Loftus-IIubt(?fd Co. ^y longer. Fufljier than this apiauit s^th I'flt'- Suhscribed and sworn to before me this 14th day of July, 1913. [notarial SEAlJ. F. E. POMEpY, Notary Public, Herinepin 0qunty. My comjiiissipn pxpires August 27, 1915. It is mpre nonseijge to claim that grain can be sold as advantageously or at a^ high a price outbids pf the rpgular grain exchanges, a^ is thp case in the exchange rooin of these org^giz^tipns. The grq.in exchanges furnish their members a vast amoupt of valuable mforB^atipn, gathered at'gre^t expense from many sources, TV'hich naturally gjyes thp members of mese orgauizations an enormous advantage in the s^Je of grain oyer those not members of these pxchanges. Practically all the buyers of any conse- quence are members of the recognized grain exchanges, aud make their purchases only in the exchange room of these organizations, because of the safeguards throisrn around the contracts and the respon^ihility of the parties frpm whom purchases are made. (Jraiji which is peddlpd around by anyone not a, member of the chamber of commerce roust necessarily he saicrificpd in price, bppau^e of the fibsence of competition between buyers. 4s an illustration of this my attention has been called to the followii)g letter frojn a farjiierfe' elevator cpmpany, which shipped a ca,r of barley tp a member of the ch9,mber of commerce, and another car to the Equity Cooperative Exch^ijge, both cars being loadpd out of the saine bin. This letter needs no comment, but it further appears that the car sold Jby the Equity Cooperative Exchange was sold to a member of the chajpber of conmierce, who promptly resold the same for 58 f . 0. b. Minneapolis, the ^aipe price at whiph the cgi shipped direct to the member of the chamber of commerce ^^9 sold. A very large proportion of the grain received by the Equity Cooperative Exchange for several years past, including last year, has been sold upon the floor of the chamber of cpminercp, 3Jid in pur opinion the meipbers of the chamber of commerce on the whole make a largeir profit of the grj^in shipped to the Equity Cooperative Exchange as if ^hipped direct to th? members of the phambpf pf commerce to be sold pn the UBuiil GopuBiasion: Shelly, Mjnn., Av,gust 16, 1913. Kejj^el-Todd & Co., Minneapolis, Minn. Gentlemen: I wired you to-day to demand car barley No. 211613 from the Equity Cooperative Exchange. The reason is gimply this: Qn the 14th of August we got your notice of sale of car No. 11596 at 58 cents, the same identical barley, we got notice from the Equity that they had sold their car for us at 53 cents. In looking up the reports for August 13 and 14 I find that no barley was sold as low as 53 cents, and besides this barley was taken from the same bin as yours. Hope you will look into this matter and demand the car. H. G. Aanenson, Agent, Shelly Elevator Co. The chamber of commerce possesses no monopoly whatever, farmers' elevator com- panies or farmers are free to ship their grain wherever they see fit, regardless of the result financially. If shipments are secured, however, from farmers or farmer elevator companies, based upon false or fraudulent statements, this is entirely another matter, and an institution of this character should not receive the indorsement of a prominent agricultural journal such as your own which should naturally be interested in the pro- tection of its subscribers' interests. In fact, it is mere nonsense to ipiagine that two market places can exist in the same city. The result of an effort to establish a second market place siinply results in sub- jecting the grain to two or more commissions. A very large proportion of the grain shipped to the Equity Cooperative Exchange is immediately sold by the Equity Exchange to members of the chamber of commerce, and immediately resold by the members upon the floor of the exchange at an advance of one to several cents a bushel. As nearly as I can ascertain, from February 1, 1913, to August 11, 1913, the Equity Exchange appears to have received about 400 cars of grain at Minneapolis; about 280 of these cars, or about 70 per cent, were sold to members of the chamber of commerce; and all these cars but two were purchased at a price which allowed the purchaser a 314 GBAIN EXCHANGES. profit of at least 1 cent a bushel. These cars bought from the Equity Cooperative Exchange by members of the chamber of commerce were placed upon the tables in the exchange room of the chamber of conunerce and sold on the same day at an advance of at least 1 cent a bushel, or, in other words, the shipper paid what amounted to at least two commissions upon the 70 per cent of the cars sold to the Equity Exchange. Instances can be given where profits much greater than 1 cent per bushel have been made on grain bought from the Equity Cooperative Exchange, and sold immediately on the floor of the chamber- of commerce. I wish to call your attention to the record of the following shipment: "The Farmers' Elevator Co., of Breckenridge, Minn., shipped car 25751 N. P. to the Equity Cooperative Exchange, Minneapolis, on November 6, 1912, and made draft on me Equity Cooperative Exchange for $800. On November 9, 1912, the Equity Cooperative Exchange paid the draft of the Farmers' Elevator Co. of Brecken- ridge, and on the same day billed for an advance on the Big Diamond Milling Co., to whom they sold the car, to go to their mill at Morristown, Minn., for $800 advance. 'The car was not unloaded at Morristown until 30 days later, but when the Equity Cooperative Exchange made up its account sales to the Farmers' Elevator Co. at Breckenridge they charged the Farmers' Elevator Co., at Breckenridge, $4.66 interest, although at no time were they out any money for any advance made to the Farmers' Elevator Co. at Breckenridge." The claim that the company is now cooperative, and the claim that the shipper will receive dividends which will amount to a rebate of a portion of the commission, seems quite amusing, in view of the plan as set forth in a letter of D. 0. Henderson, on page 5 of your August 16 issue. The plan provides that out of the commission earned all of the salaries of officers and employees will first be paid, also necessary expenses for rent, stationery, advertising, etc. Second, stockholders will receive 8 per cent divi- dend out of any balance that may remain. Third, out of any further balance which may remain after this 8 per cent dividend is paid, a fund will be set aside for deprecia- tion of property values; second, a reserve fund not to exceed 20 per cent of the total net profits, and third, an educational and development fund not less than 5 per cent nor more tlian 20 per cent of the total net profits. If there are any other profits still remaining they are to be divided among the patrons as a patronage dividend in pro- portion to the quantity and value of the patronage given. Even if the grain consigned to the Equity Exchange were sold for as high prices as would be the case ill the exchange room of recognized grain exchanges, a simple perusal of this plan should point out to any patrcn the chance he had of securing a patronage dividend. In other words, if this institution has falsely advertised itself for more than a year as a cooperative institution, and has made use of false pictures in advertisements regarding a terminal elevator, claimed to be owned by them, and which enabled them to store the shippers' grain, and if the facts set forth in the affidavit of Mr. JamBs DeVeau are true regarding the manner in which the shippers' grain was received at Duluth, it would seem strange if a publication such as yours would give its approval and recommendation to this organization, regardless of its past history. I am at a loss to know what reason you have for believing that the future operation and management of this organization would differ from its record in the past. Yours, very respectfully, E. J. Gkoveb. How many of the stockholders of Equity Cooperative Exchange are weU satisfied with their investment? We would like to know. If you are not satisfied with your returns nor the outlook of the business, write us and tell us the amount of your stock and when paid in. We have some names; how about yours? If you are satisfied, write us so we can find out. LET THE FARMER FOOT THE BILL. This seems to be a favorite ideawith many business concerns who find it necessary to eke out their income by adding to the expenses of their customers an extra toll in more or less secret ways. These concerns have all their pet methods for doubling the toll so as to collect the money without the farmer knowing it. The Equity Exchange certainly has one of the nicest little schemes of their own to collect a little extra toll that has appeared lately. We refer to selling the grain shipped to them to other concerns in such a way that the other concern quotes the price 1 cent below the market price, thus enabling the exchange to send the farmer a report of the sale showing the selling price and their own 1 cent of commission subtracted and making him believe that the price quoted was the market price at the time. The other concern had their cent commission and often a nice profit over that. If the exchange had not GRAIN EXCHANGES. 315 been unfortunate enough to stir up that investigation last winter they might have gone on for a long time and the farmers would have been no wiser, but the investi- gation happened to throw the light upon some rather shady practices of the concern. This has been rather troublesome as before it was so fine to make the farmer pay his two commissions and then have Mm write a letter to the exchange telling how well satisfied hie was with the treatment. That ought to be satisfactory to everyone if it was satisfactory to the one fleeced, was evidently the reasoning of the Equity Exchange However, the public prefers to have things done right, even 5 some of the victims are willing and satisfied to be victimized. Public opinion is a strong thing even for the Equity Exchange to oppose,, and so they are making frantic appeals to clear them- selves of the charge of wrongdoing, and try to make people believe that they are no doing it now. The list of cars sold to two commission firms during one month from October 13 to November 13, 1913, will speak for itself in regard to that question. Count the number of cars sold to these two firms in every case with the reported price at least a cent below the market price and try to figure out where the profit to the farmer comes in on this deal. Of course he has the satisfaction of selling his grain to an "inde- pendent" exchange and that ought to be worth a sacrifice of a cent or two per bushel. The only trouble is that this "independent" exchange is really more dependent than any of the dozens and scores of commission houses in the Twin Cities. Hardly any of these other commission houses need to peddle their grain around to others and sell it at several cents below the true market price in order to dispose of it. But what of that, as long as the farmer is willing to foot the bill the game goes on merrily and the farmer pays the fiddler. J. H. Riheldaffer Co., a commission merchant, member of the chamber of commerce, reports the following list of cars purchased from the Equity Cooperative Exchange, through Nels Enge, their salesman; each of these cars having been handled in the form of a purchase, with at least 1 cent or the full commission deducted, resold almost without exception promptly thereafter in the exchange room of the chamber of commerce. R. J. Johnstone, a licensed commission merchant, member of the chamber of com- merce, furnishes a list of some of his purchases, every car having been purchased with the deduction of at least the full commission below the chamber of commerce market values at the time of the purchase. Both of these commission firms state that on every purchase made by them from the Equity Cooperative Exchange the full com- mission is deducted in making the purchase. Other commission merchants, members of the chamber of commerce, report pur- chases under similar conditions: PURCHASES OF J. H. RIHELDAFFER CO. Date. Car No. Initial. Com- modity. Date. Car No Initial. Com- modity. 8-29-13 84612 86872 72925 202421 62733 71894 47411 32922 25676 502890 13172 22074 48335 18598 111465 110348 21970 108070 208049 103096 11130 54198 31356 2138 200001 40629 202791 8798 207628 136126 128392 29436 Mil... Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Barley. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. Wheat. ■ 9-25-13 9-26-13 9-27-13 9-29-13 . 9-30-13 10- 1-13 10- 3-13 10- 4-13 10-6-13 10-8-13 10-13-13 10-17-13 34350 85120 85076 109786 28662 26736 27664 27804 28702 18766 33592 62844 18606 37354 92772 209601 60836 16260 43463 22960 34475 35600 103844 34906 120999 9538 7764 2084S1 8900 23202 4419 105300 G.N Wheat. C Mil Wheat. G.N Mil Wheat. 8-30-13 G.N G.N »- 6-13 N.Y.C G.N N.P Wheat. N. P N.P Wheat. G.N N.P Wheat. N.P N.P Wheat. 9-&-13 MU W.C Wheat. 9-11-13 Soo O.N Wheat 9-12-13 G.N Mil Barley Wheat. »-16-13 N. P G.N G.N C. &E.I Wheat. G.N Mil .. Wheat. G. N G.N Wheat. 9-19-13 Soo... Mil Wheat. G. N St. L Wheat. 9-20-13 G. N N. P Wheat. 9-22-13 N.P Wheat. W C N. P Wheat. 0. P Soo G. N Wheat. goo Wheat. Soo Soo Rye. Mil G.N Wheat. N P St. L Wheat. 9-24-13 Mil St. L Wheat. W.C G.N Wheat. O N St.L Wheat. p. p S. P Wheat. G.N B.A.P Soo Wheat. 9-25-13 N.P Wheat. 316 pyKCHA^ES OF J. p. Jj,I^pLpAFf ¥^ pp.— Continued. Date. Car No. Initial. Com- njftdity. Dafie. Gar Nq. Initial. Cqpi- W')4*tr- 10-18-13 127612 72538 J81fi2 3612 1P6958 C Wheat. Wheat. Wlj^t. 10-25-13 10h?7-13 22334 86986 88386 18358 N.P Wheat. C Mil Whsat. 10-20-13 W c Mil. . - ^l^^ Soo Soo Q,: :.... PURCHASES OF E. J. JOHIJSTONE. 9-2-13 31984 66524 200711 202866 35760 9-3-13 203.02 57182 65220 m6 107588 21663 9- 6-13 122294 45154 9-S-13 104710 9-10-13 2723S 16:741 106762 200724 31426 101956 9-12-13 21243 9H6-13 20^771 76248 9-22-13 16826 ' 16356 :?3948 9-29-13 21692 10- 1-13 22317 Mil-- Mil-. Mil.. Mil.. G.N MU.. Mil.. Mil.. Soo.. B. N. N.P Mu:. Mil.. G.N. N.P MU.. G.N, G.N, M-C. SCO.. Soo.. G.N, G.N, G.N, Soo.. Soo.. G.N, G.N, N.P, Wheat. 10- 1-13 104074 Wheat. 26368 Wheat. Wheat. 48636 10-6-13 11932 Wheat. 33304 Wheat. Wheat. 10248 1(8282 Wheat. 10-13-13 Rye. 90734 Wheat. 10-16-13 101Q66 Wheat. 72pg8 wSeat. 10-17-13 46422 Wheat. 10-21-13 54200 Wheat. 104261 Wheat. 10-25-13 26171 Wheat. 307^ Whe«t. 2J84fi la H06fl 120444 Wheat. 70308 Wheat. 11- 4-13 5142 Barley. Wteat! 65084 83608 32406 Wheat. 11- 6-13 m^82 y^elt. 11- 6-13 32680 36748 Wheat. 11-11-13 104014 Wheat. Wheat. Wheat; Wheat. Barley. Barley. Wheat. Wheat. Wheat. Barley. B^ley. Barley. Wheat. Barjpy. heat. Wheat. tVheftt, arley. Barley. Bafjey. BftTjey Barley. Wheat. Wheat. piTIPPfNG THE FAJIMEB. Under the captivating title "A challenge to the chamber," Mr. Benjamin Drake, as attorney for the Equity Exchange, has sm interesting epistje in the Noyennber 8 iasue of Northwestern Agriculturist which is worthy of a lawyer and the firm represented in saying one thing and at the same time not saying it. The exchange feels very much hurt by the statements that it makes the consumer pay two cflmmissions on the grain sold ^,nd so takes a spectacul^ way of showing that it does not do such wicked things. He sends the Agriculturist a check for $1,000 from the Equity Exchange in favor of tjie board of charities and requests that the chamber of commerce he invited to do Ukewiae. Then if the chamber can prove that the exchange sold a single car on which it charged two commissions, the e?;change check is to be turned over to the boaird of charities; if they can not, the chamber check is to be turned over to the board. Now this sounds very fair and open. No doubt the f^ripers wilj say, "Oh, the exch^ge must be ^11 right, otherwise the chamber would have showed them a thing here if they could, but they dare not." A fine bluff! Notice the wording of the challenge, if the ckamber can prove that it (the exchange) charged ^ double commission. No one has ever accused the exchange of charging two comn^issions. The farmer would not pay it if they did. But what has been charged is that the exchange arranges to have its sales to other commission houses reported in such a vay that the sale from the exchange is reported at 1 cent below the market price. This conceals the double commission, but the commission has been made nevertheless and the exchange is cognizant of the fact that the price reported is^below the market price at the time and the reapon why the price is so reported is to enable the other commission firm to make their full com- mission. This is the rake-off to the commission firm from the exchange for selling the grain which the exchange is not able to sell because they have not the buyers. There is a great difference between buying a car of grain at a certain price and later selling it at a higher price as the price went up, and reporting a car sold at a cent less tiian GRAIN EXCHANGES. 317 the price was at tie time the car *as sold iti ordet to hide the eitra dommission. The second is double commission; the first is not whether the car is sold by the exchange or anjr other commission firm. So the challenge stands. It is a fine piece of grand- stand play for the farmer. Wonder if the exchange will be able to fool very many farmet^. If it does, how long are the farniers going to Stay fooled? "we are the people." Certain individuals were busy during the Minnesota State Cohvention of the A. S. of E., railroading throilgh a resoMtioil dendUting the National Grain Grower for its editorial stand. The reason given is that the National Grain Grotrer i^ Tforking diaihetridalljr against the principles of equity and the American Society of Equity. To Speak plainly, that was a lie and the ernes that pushed it through knew it to be so. The Grain Grower is a believer in the principles oi equity and will continue to work for thefll through thick and thin. But as we have said before we do not believe that one private company has any patent right on the principles of equity so that they can use fiiem as a shield and an opportunity for private gain. This Equity Exchange says in fact: "We, the exchange is the American Society of Equity and beyond us there is no Sgdety, no principles of equity. The exchange is the one whom every one inust WOTdnip and obey. When it Sends forth its Inaildated, the others niust hasten to bend the knee and woi'shij* the itaage of King." It seems queer that ih this day we Still haVe these remnants of the dark ageS that one little clique can say to the rest: We are the p^oplS. If yoti are a supportel: of eqtiity you must do aS *e say. You must let us do your business far you. If you do business with anyone else you are a traitor, a thief, a Scoundrel. tJnleSs yovt cry HoSahna when we appestt on the Scene you are a par,tner with thieves and robbers and you have sold your birthright for the "flesh pots of Egyjtt." It used to he the cominon J)fadtice of the politidal demagogue to, throw this land of dust into the people's eyes and they very often succeed as well now. Farmers have begun to think a little for themseltes and the ' ' we are the people " talk does hot take as well as it did. FaTmerS wiU Say to the exchange: "If you clainl to be the only ones trho aid honest in, thfeir dealings with the farmer, show us your faith by yotlr i^orks. frue coopierdtioh would Seek to get as full value to the farmer for his gTaili as possible instead 6f frying to beat him out of a f e* cents by hiddfeh coihmiSsions. It is Wefl to be able to show by or(6'^ work the faith that is in one tad not think that oiie can gain all by call, all wlo do not follow their whistle for thieves ahd traitors. Talk of that sbrt, the reipertoire of a fishwife seerns to be the main stock in trade of this cohderh, and they are iildeed fortunate if they can make the fariher swallow it all. Bntthe exctange will disCoveT that the old trick of crying "stop thief " will not be enough to keep people froin asking hdw its affairs Stand. The exchange got sore because we stated some time ago that we supposed the exchange knew what happSnSd to the fflofley paid in for Stock, because we did not. We understand some $50,000 was subscribed and paid in to the exchange some time ago arid the intention as reported was to build a terminal elevator. The eXchsiBge adver- tises that it h^ done business a little over a year. . Where is the terminal elevajtor? Wherfe is the $50,000? Financial Statements are well enough, but some of our "Blue Sky" companies have had fine financial statements, but the farmer stiH has is certifi- cate for bin? sky and that is all. The money has been paid ia. Where is the terminal elevsltor? Why did the exchange have to borr6w $50,000 to finance them through the present yestr as reported? From which fund iS the $2,000 guaranteed the "farmers papeir" which the exchajige established this faU to be taken? People are getting curious and would like to know. THE "switching GRAFT." The "lieutenants" of the Equity Exchange have never failed to score the average switching charge and proclaiming to the people how they abolished the "switching charge. " In reality no switching cha,rge has been abolished but the railroad and ware- house commission isMed a ruling forbidding the "average" switching charge of $1.50 and leaving the switching to be assessed against each car, making the switching charge tary from $1 to $3, depending on the number of lines it had to be switched over. The only change is that the charge varies and whenever a car is sold the commission mer- chant must figure out how the car is to be switched in order to reach the buyer, as the buyer Usually buys wheat " delivered " at his warehouse or mill. This makes neces- sary comparisons between these buyers' offers after switching charges are deducted and wtat other buyers on the road where the car is located would offer for the same. If the offer is the best he can do, he sells the grain delivered and deducts the switching charges whether they be $1, $2or$3. The net result is practically the same. Onsome 318 GRAIN EXCHANGES. cars it will be notMng or little, on other cars, perhaps $2 or $3. The farmer is no better off than before. Yet the Equity Exchange hollers about abolishing the switching charges and then resorts to some rather questionable tactics to conceal from its customers the switching charge which is always imposed whenever the car is switched to some other line. Why the exchange does not want the truth told to the shipper is beyond our ken, but it may be that if the farmers knew the truth thejr would not think so much of the " charitable " and " cooperative " business tactics of Anderson, Loftus & Co. It is hard to shout so loud for this bunch of "reformers" when the farmers know how the conditions of the grain business are "reformed" for the benefit of the Equity "Co- operative" Exchange. The following is an example of how these "reformers" endeavor to inake farmers believe that there is no switching charge and it shows how it "benefits" the farmers or the farmers' elevator. Why not do business on the square? This is how it is done: On Friday, December 5, 1913, Mr. Nels Enge, salesman for the Equity Cooperative Exchange, called at the office of Mr. Riheldafier, a licensed commission merchant, and member of the Chamber of Commerce of Minneapolis, and offered a car of No. 2 northern wheat which had been consigned to the Equity Cooperative Exchange. Mr. Riheldaffer stated, "The market (meaning the chamber of commerce market) for tills class of wheat is 84 cents, so I can give you 83 cents ' delivered,' with the chamber of commerce commission of 1 cent commission per bushel deducted." Mr. Enge stated that Mr. Loftus would not permit him to sell grain "delivered," as he did not desire any switching charge to show upon the account sales to the shipper. Mr. Riheldaffer said, "Very well, then I shall make my bid 82^ cents, taking off one-half cent on account of switching charge necessary to deliver this grain to the buyer's industry." Mr. Enge accepted this bid of 82^ cents and Mr. Riheldaffer promptly thereafter sold the wheat for 84 cents, making .the regular commission of 1 cent per bushel and in addition, receiving an allowance of one-half cent per bushel on account of switching charge, which would amount to between $5 and $6; whereas the maximum switching charge which Mr. Riheldaffer would have to pay would be $3. In other words, nearly twice the maximum switch was allowed to Mr. Riheldaffer in a deduction of one-half cent from the price, in order that the shipper should be deceived into thinking that he paid no switcMng charge. And in addition, the full chamber of commerce commission of 1 cent per bushel was deducted from the price. Mr. Farmer, you didn't pay any switching charge on that car, remember, and only one commission. Anderson, _Loftu8 et al. abolished the switcMng charge, you remember, and sell your grain direct to the consumer thus saving you the extra commissions which other firms would charge you. How do you like it? The " reforms " are fine, are they not? BOOKKEEPING POK THE FARMERS' ELEVATORS. One of the shrewdest ways of controlling the business of an elevator and leaving the owners of the elevator in absolute ignorance of what goes on was brought to our noticR recently by a letter written by the secretary of a farmers' elevator asking for informa- tion concerning one of the cars in the list published last month. He stated that the books were kept by the Equity Exchange and in their report to them the purchaser of the car was not mentioned and he had no way of getting at the facts as the books were kept by the exchange. Indeed a fine arrangement. But why not demaiid that the exchange give you a full accounting? According to the law you are entitled to a full and complete record of the business. Find out how your business is being cared for. It ought not hurt anybody to know or tell the truth. TRACE TOUR CARS. We have been requested to publish some more lists of cars sold by the Equity Exchange to chamber of commerce firms with full commission deducted from the selling price. Ordinarily we care very little where the exchange sells its grain, but when it tries to hoodwink its patrons in such a flagrant manner it is time to investigate and find out what is done to your cars. It seems to be the custom of the exchange to report the cars sold at a certain price without telling to whom it was sold . Why should the Equity Exchange not be willing to report to whom the cars were sold? Is it because they are afraid that the farmers will try to find out what was done with the car? According to the sales manager of the Equity Exchange all the chamber of commerce people are thieves and robbers. AVhat about the exchange if they deal mainly through them and make use of their help to hoodwink the farmer? We care little where the GRAIN BXCHANGEtJ. 319 grain is sold, but the faxmer selling his grain through any agency is entitled to a true report of the sale. The grain is his and the exchange in charging and taking com- mission is simply acting as the farmers' agent in selUng the grain and as such should render a true account of its dealings. Every firm that wants the farmers' business ought to be willing to deal in the open and not try to hide its dealings from the ones who have a right to know. Study these lists carefully and if you find any cars you have shipped, send us the number of the car and evidence that you are the one entitled to me information and we will have the cars traced for you. You are entitled to know. It will not cost you any more than the stamps needed to write us. The New Prague Roller Mill Co. of New Prague, Minn., operating a flour mill at that point, is a member of the chamber of commerce, and has purchased quite a num- ber of cars from the Equity Cooperative Exchange. They furnish a list of cars piu:- chased by them during the past few months, and state that "AH the cars were bought at a basis of full commission off." This is another illustration of the fact that where grain is purchased by members of the chamber of commerce, operating country mills outside of Minneapolis, the full commission is deducted in making the purchase, so that the country shipper really pays at least two commissions if the Equity Exchange charges a commission for mak- ing the sale: Date purchased. Car. No. Sept. 12, 1913 40927— N. P. Sept. 17, 1913 28357— Soo. Sept. 17, 1913 6632— Soo. Sept. 17, 1913 25591— N. P. Sept. 17, 1913 23066— N. P. Sept. 12, 1913 7228— Soo. Sept. 25, 1913 71103— Erie. Sept. 26, 1913 2924r-Ia. C. Sept. 26, 1913 105974— G. N. Sept. 26, 1913 128464— G. N. Sept. 26, 1913 5264— L. & N. Sept. 26, 1913 100456— Soo. Sept. 26, 1913 23286— Soo. Sept. 26, 1913 27226— Soo. Date purchased. Car. No. Sept. 26, 1913 2850— Soo. Sept. 26, 1913 200078— P. S. Sept. 25, 1913 27146— G. N. Sept. 25, 1913 48101— N. P. Sept. 25, 1913 24963— N. P. Sept. 29, 1913... 67897— L. S. & M. 8. Sept. 29, 1913 102926— Soo. Sept. 29. 1913 33974— G. N. Nov. 1, 1913 202075— Mil. (Out of 16254) Sept. 12, 1913 11336— St.L. (Out of 103232— Soo) Nov. 4, 1913 32644— Soo. WHAT OTHERS SAY. -, N. Bak., December ^9, 1913. The National Grain Grower, Fargo, N. Dak. Gentlemen: I see in your December issue of the Grain Grower that you want names of stockholders of the Equity Exchange. As I am a holder of above stock I would like to get my money out of it. In July last J. M. Anderson promised me when I met him at a meeting at N. Dak., that he would see to it that I should get my money by August 1, 1913, but up to date I have not heard from him in regard to this. Now I am in need of that money and as it is not earning me a cent there I would Uke to get it from those men, J. M. Anderson and Geo. S. Loftus. Please let me hear from you at once as to what you think you can do for me. I remain. Yours, very truly, (Signed.) F. S. INCONSISTENCY OP DIRECTORS. The inconsistency of the South Dakota directors, who passed the resolution last summer indorsing the Equity Cooperative Exchange, is shown by the fact that Secretary Belk's company of Henry has shipped that institution but two cars since that time. E. H. Day's company at Clark, has not shipped a single car. W. H. Meis, Geddes, not a single car. O. D. Anderson, the president's company at Corsica, not a single car. Mr. Creighton's company at Wessington Springs, two cars. John E. Kelley's company, Coleman, oniy one car. Wm. Seipp, Grover, one or two cars. The largest number of cars shipped by any of the directors since that resolution, has been shipped by Director Solem's company, Baltic, which totals about 15 cars, Those who talked with Mr. Solem, aftsr the convention was over, gained the impres- sion that he now sees things in a new light. It will be of interest to know if, in the future, a single car from his company is sent to the Equity Exchange. 320 GiiAiN ExckAiirc^M. Those who talked intimately ^ith the director^ ^Jio signed the resolution lag* Jiili^, said thfe directors confessed that they thotight they Vere signing tHfe f e'Sblutioii fi^i- Bonally, as a tr^-ofut, and had no idea the fact would be recoi-ded as ah act of the About one company in four is a member of the State dssociatioii; 64 Of the 80-Odd members were present. WILL THE FAEMBK NEtES SEE THE TRUE CONDITIC/N d* THINGS? Aa dri ilitistration of the fact that thfe Equity Cooperative Exchange continufe^ to sell gfaii to the commission, merchants, members of the charnber of commerce, on -Which purchases thfe metobers of the chataber of commerce make from one to several conlmissions, attention is called to the following sale^ made by thfe Equity CooberWte Exchange to R. J. Johnatone, a member of the chamber of eotiiftierce! tad 4 licfensed commission merchant, showing the pificefs paid to the Equity Cooperative Exehaage and the prices for *hich Mr. Johnstone prOmjrtly sold these cars. Mr. JOHnstOSe'S profit in more than one case shows 2| commissions. Purchases ofB. J. Johnstone. Car 61106. eSr 13290. Car 6404. Car 46335. Car 128526. G.N. BMef. soo. i-ijty. 9. Soo. 1-li. N.P. I-J., Soo. i-o. a. 11-2S-13. n-: Car 201268. G.N. H-Z. '-28-13. Cat 4678. N. P. Ba*l«^. 12- 3-13. ear 25886. Soo. H-1. 12-5-13. Cafl0369tf. G.N. 2-1.- 1^S-13. CSr 20645*. Q.N. 2-3j.- 11-13-1S(. 11-2W3. 11-26-13. The Eic^hrty BxchaMe claims to sell graiin to eoufrfi;*^ mills outside oi Minn6a|l6l|s at the ful} chamber Of comiAgicd values. Ml?. ,C. G. Ladd; president of lie OaiSm Mill & Elevator Co., Oseeoli, Wl^., membe# (fi th^ fetamber of eonsiB^iKA, i^hd Usih ptirehasfed a very large nuAb* of cars from th§ Ecjuity Cooperative Bsi^aiige, fftf- nisbes iM following list of caf^ pairffla:sed during thfej^asj few montM; ajift states that it is his belief that all the cars were bought at * full cent under ohswBei* of tonl- merce ^oarket price. He further states that tfiey had aiveraged more thta t&is, MA states that some cars were purchased at a dis<;6tint of about 5 cents- belo\^ tme Citafltbe'r of commerce values : 1913 Car. Initial. Grain. 1913 Car. Initial. Grain. 9-19-13 19662 12819 89078 39608 10214 3708 173(26 45180 617S 47489 107534 7396 f07502 36502 20088 32398 13634 21602 103028 78238 34892 20508 27228 G N No. 4 W. oats. No. 4 W. oats. No. 4 W. oats. No. 4W. oats. No, 3 com. No. 3 Y. corn. No. 2 rye. No. 2 rye. No. 2 rye. No. 2 rye. No. 2 rye. 1 H. wheat. 1 H. wheat. 1 H. whesit. 1 H. wheat. 1 Nor. wheat. 1 Nor. wheat. 1 Nor. wheat. H. wheat. 1 Nor. wheat. 2 Nor. wheat. 2 Nor. #iieat. 1 H. wheat. 11- 7-13 11- 7-13 11- 4-13 H- 4^13 11- 41-13 11- 6-13 ll- 8-lS 11- 6-13 11-10H3 fl-10-13 11-13-13 11-13-13 11-19-13 li-2l-13 : 11-19^13 11-25-13 11-25-13 12- 3-13 12- 4-13 12- 4-13 12- 4-13 12- 5-13 12-10-13 126181 25740 203230 18624 501046 4*0 g6882' siiil 15366 22938 106200 375,42 17326 208299 31690 23622 3000 23444 18194 66512 127133 1650 G.N 1 Nor. wheat. 0. W.R.N... Mil IS?;::::::;::: 2 Nor. wheat. i Nor. wMat. 11-10-13 N. P W.C. Soo Mil 1 N. wheat. St L 1 Nor. wheat. 1 Nor. *Mat. 12- ^l3 St. L BnsKei^....... Slil 11 21 13 W C . 1 Nor. wheat. l^ri? N. P Mo,-P 1 Nor. wheat, 1 Nor. -BTheat. St P Stif 10-27 13 N. P W.C ■ 3 Nor. wMat. ll-tO-13 Soo Mil 1 Nor. wheat. 10^ 1-13 G.N 1 Nor. wheat. 2 Nor. wheat 2No*.wteSl 10- 2-lS Soo N. P, 10-16-13 G.N W.C. 10-16-13 G.N 1 Nor. wKeat. 10-16-13 Soo Soo 3 Nor. wheat. 10-16-13 Mil 3 No*. wtiSt. 10-23-13 Soo Bushels N. P i N6r. wheat. 10-23-13 Soo 1 H. wheat. 10-23-13 Mil 1 Nor. wheat. 10-23-13 G.N Mil N. G. wheat. 10-23-13 W.C... G.N 1 H. wheat. 11- 7-13 N. P.. Soo 1 Nor. wheat. The McCauU-Dinsmore Co., members of the chamber of commerce and licensed commission merchants report purchase of the following cars from the Equity Coop- erative Exchange, and state that "these cars were all purchased at 1 cent or more under what we could sell the wheat for." 9-22-13 No. @ 125652 G N. 2 fi. wtr. wheat mo- 5608 Soo i Nor. li lb slf°; 10918 G N 1 Nor 6 lb GRAIN EXCHANGES. S21 Additional list of cars purchased from the Equity Cooperative Exchange by members of the chamber of commerce, vnth the deduction of the full commission, below chamber of commerce values. The Concrete Elevator Co., members of the chamber of commerce, report the fol- lowing list of cars purchased from the Equity Cooperative Exchange,, and state that these cars were purchased with the full commission taken oft: Car No. Date. Grade. Grain. 108754 M 11-20-13 25 No.lNor. Wheat. 206577 M 70345 Mil 71196 Mil 55274 Mil 55978 Mil.. 8295 Mil 2805 Mil 205863 G.N 200799 Mil 64644 Mil The Cereal Grading Co. report the purchase of the following cars of rye from the Equity Cooperative Exchange, through. Mr. Enge, their salesman, and stated: '/'This rye was all bought at what we considered its value on the Minneapolis market less 1 cent per bushel commission." Oct. 4,1913. Car 75108 Wab-Soo Rye. - Oct. 14,1913. Car 18284 Soo-R. I Eye. Oct. 23,1913. Car 35482 Soo Eye. Deo. 5,1913. Car 34714 N.P Eye. As we are going to press we receive a copy of a new paper called the Cooperators' Herald. In his editorial announcement Editor Nelson strikes for the cause of the farmers and farmers' interests. He announces his purpose to be to work for the ad- vancement of whatever will promote farmers' interest and better his conditions. This is, indeed, a worthy purpose, and we wish to welcome him amo?Lg our number. We are glad to have men take up the work for the betterment of rural conditions and help to insure to the farmer a just return for his work. The farmer is the foundation of our economic life, and whatever advances the interests of the farmer, the producer, wUl also advance the interests of all. Too many do not see the value of cooperation. They dig for themselves and never give a thought for the welfare of others. "They see only the little immediate field about themselves and do not lift up their eyes to how their help will come as the wings of the morning if they will work for others as well as for themselves. We hope, therefore, that Editor Nelson will continue to stand for the best interests of the farmers and each week do more and more for the advance- ment of the common good. But we were a little surprised to see in the same number also an announcement by the Equity Cooperative Exchange, in which we find the following interesting state- ment: "The National Grain Grower and Equity Farm News is no longer the official pub- lication for the equity movement." Following this comes an explanation even more interesting and wonderful than the first. Among other things we are told: "Not a single word has been published to date on all the recent developments in the move- ments which has been prepared for publication by the officers. We have been informed that this policy will be continued, and that henceforth no more Equity matter would be published in the Grain Grower. For this reason we have withdrawn oursupport." This is rich stuff . Whatofficers to they refer to? We have published, and will continue to publish, all articles and reports on the Equity movement that have been sent us by parties willing to sign their name and writing for real advance- ment of the Equity movement. We have refused some unsigned articles sent by par-, ties connected with the Equity Cooperative Exchange, consisting for the most part of irresponsible ravings, unfounded accusations, laudatory comments on themselves, matter which has been rehashed time and time again the last year. We will continue to do so in the future. We are working for the cause of the farmer. The record of the Equity Cooperative Exchange does not show it to be very help- ful for the farmer. A great many farmers have sunk money in it. Perhaps the officers of the exchange could tell where the money went to. We can't. And we have spoken. 37214—14 21 322 GRAIN EXCHANGES. with farmers who can't and who could get no reply to their letters asking for infor- mation. The exchange has been a commission house, like all the others; it was incorporated as such. And no objection can be had against it. But it does not work well to sail under false colors. The Equity Exchange is so only in name. There can be no exchange where there are only sellers and no buyers. A commission house that has to peddle its grain to other commission houses to sell on the floor of the cham- ber of commerce can hardly with justice lay claim to be a grain exchange. And peddling grain to interior mills, who are not subject to the rules of the State inspec- tion board as to grade and weight, does not offer any great safeguard to the farmer who ships his grain to them. And a number of farmers have found it out to their sor- row. Therefore the exchange will not be perniitted to dominate the editorial as well as the advertising department of this paper, as they did before we found out about their dealings. We will control the editorial policy ourselves, and the columns of the Grain Grower will be open for a full and fair discussion of all topics relating to farmers' interests, producing, marketing, farmers' elevators and their problems, grain exchanges, what they are and how best adapted to the farmers' interest, uniform accounting, uniform inspection, and the many other subjects of vital interest to farmers. But we do not propose to aid in deatroying a movement for the aid of the American farmer simply to fill a little money in the coffers of a private grain commis- sion firm. We do not like to see the American Society of Equity made the scapegoat and shield for those who are working only for selfiati ends and whose motives are only personal preferment and gain. Very likely it is true the exchange is going to support this new paper. But if the matter published there is to be on par with what they wanted us to pubhsh, we hope, for Editor Nelson's sake, that he will be very busy and write the articles himself. It IS far safer. If the Herald has to depend on misrepresentations and falsehoods for its support from its very first issue, we venture to predict that it will have a hard row to hoe. On the other hand, if Editor Nelson wishes to serve the farmers, he has a wide field for work and honest endeavor which will not be unrewarded. It is no doubt apparent, gentlemen, that much of this matter I have been introducing m evidence is relevant not only for the purpose of showing the exact relationship of the grain growing interests of the Northwest to this resolution, but also to make the point that I want to make with reference to the investigation in the Mionesota Legis- lature, and to meet the suggestion which, to my mind, involves an entire lapse of memory, that any books were withheld that the com- mittee makiQg that investigation wanted access to, or that they were refused any information from any grain dealer in the Chamber of Commerce of Minneapolis during that investigation, and I will demonstrate conclusively that no such thing occurred. First, in reference to the nature of this investigation, something has been said about that. The gentleman from Minnesota said that the Senate investigation was controlled by the interests and some reac- tionaries put on. Senator Works was chairman of the Senate investi- gation committee and is here and will speak to you. I want to just say in reference to the House investigation committee, that by some strange circumstance Mr. Ijoftus, the sales manager of the Equity Cooperative Exchange, in January, 1913 — ^long before the appoint- ment of this committee — announced in a speech in Fargo that the Legislature of the State of Minnesota was going to investigate the Minneapolis Chamber of Commerce, and the Duluth Board of Trade; that one Bendixen was chairman of that committee, that one Teigen, a member of the Equity, would be a member of that committee, and Mr. James Mananan would be counsel of that committee; and when the committee was appointed Mr. Teigen, whose name appears here as a representative of the Equity Cooperative Exchange, was on that committee with Bendixen, as chairman, and three others. With the committee so appointed, we did hold an investigation in the year 1913, that winter, running practically through the entire GEAIN EXCHANGES. 323 session — not one investigation, but two, because the Senate after- wards appointed a committee, and that in part accounts for the number of attorneys engaged, because we were often in attendance on two committees on opposite sides of the Capitol at one time. Right there I want to call attention to the fact of tne peculiar faculty of the gentlemen who spoke on that subject to give a colored im- Eression of what occurred. He refers to the eminent counsel engaged y the chamber, referred very flatteringly to me, and I thank him for it. He referred to the fact that my partners were in attendance. In fact. Judge Purdy, whose name he mentioned, never went near any of those hearings, and never had anything to do with them, and Judge Lancaster attended two, I think, although rather more as a spectator than as coimsel. My firm was represented by myself. He failed to state, although he was giving a list of the attorneys, that John Lind, a name know^n to all of you, represented some of the commission merchants in that investigation, and was in almost continual attend- ance. It occurred to me at the time — although it is almost incon- ceivable that men would think that — that counsel did not want to suggest John Lind was on the side of the chamber lest it should carry weight with this committee. I simply refer to it to show the diffi- culty that you gentlemen are laboring under in getting a true picture of this situation. I suppose Mr. Manahan will not object to the fact be'ing stated into the record that after he was appointed as attorney for this committee there were objections made to the committee by the attorneys of the chamber of commerce, that as the resolution was drawn to include an investigation of all agencies handling grain, including therefor the Equity Cooperative Exchange, that the attorney of the Equity Cooper- ative Exchange should not oe in charge of that investigation for the State; and that was a subject of serious and continual discussion, and I am inclined to think that these records contain many more pages taken up with speeches by the lawyers than by the evidence, although we did succeed in calm periods in getting into the record a great deal of valuable testimony in reference to conditions surrounding the graia trade. Here is a statement from Mr. Manahan that is somewhat in line with his suggestion to-day, in which he states — and I wiU take it from the record, page 48 [reading]: I am not the attorney in this matter of the Equity Cooperative Exchange. It has heen suggested before. He says they have proof. They may have produced witnesses who claim it, but they haven't proved that I have ever been attorney for the Equity Cooperative Exchange. Mr. Manahan. This case [indicating the papers in case the Equity Cooperative Exchange against Cooper Co.], you wiU notice, was after that hearing was entirely over, and in this I was its attorney only nominally and never was paid a fee for it. Mr. Simpson. I so understand it, because that case Mr. Manahan. Yes, sir. Mr. Simpson (continuing). Occurred this last summer. Mr. Manahan. I recaU it. I was home on vacation from Congress. Mr. Simpson. I have introduced evidence for the purpose of show- ing Mr. Manahan's connection with prior investigation, that the stationery used by the Equity during the investigation, and its own advertisements showed Mr. Manahan's connection with it; and 3^24 GRAIN EXCHANGES. , further, away along down the summer of this year, after Mr. Manahan Was in Washington acting as a Member of this House. The Chaieman. Not this year, last year ? Mr. Simpson. Last year. We have had no summer yet, but from the appearance outside we have prospects. And another interesting thing, I do not know that Mr. Drake is identified here, except as a representative of 2,000,000 farmers, but it appears he also is attorney for this corporation, the Equity Co- operative Exchange. The Chairman. What is the date of this suit ? Mr. Manahan. This suit was during vacation last summer. I remember I was in the office, and learned that the suit was started by my assistants, an^ I signed my name. Mr. Simpson. May 28, 1913; and we can complete the statement that after the strenuous resumption of his duties in Congress in the summer, and when Mr. Manahan could no longer attend to the suit, the other attorney for the Equity Cooperative Exchange who has appeared here, Mr. Drake, was substituted as attorney in the case; this proves substantially that you have here supporting this resolution the Equity Cooperative Exchange Mr. Manahan. I never tried the case; I did sign those papers, but their regular attorney was immediately substituted in my place. Mr. Simpson. It has not been tried yet; and that is the reas n why I am supposed to get these papers back. They say it will be an interesting trial. Mr. Manahan. It will be, if you are in it. Mr. Simpson. I wiU not be in it. There are some things I am thankful for, and I am thankful I am not in that case. We did have numerous discussions about the production of evi- dence. The representatives of the chamber of commerce took the position that the committee was entitled to every bit of information that would throw any light on the handling of grain in the terminal market; that we would assist in tracing any car and every car from the point of origin to its destination, giving them the exact charges, the exact toll, and the exact results from that car. In furtherance of that proposition Mr. Manahan was permitted to go into the offices of one of the very largest companies engaged in handling grain in Minneapofis — the one Mr. Ewe represents; I think, possibly, one of the largest concerns handling cash grain in any place — and was given card after card out of their files; he could caU on the clerks to give him the opposite cards showing the sales, and did so ; he could have had any information from the records in that room, and that atti- tude was kept up continuously. Not only did we give them that mformation, access to books and records, but we made tables for them, showing summaries, of all the grain transactions. They speak about future trading. There is no record kept of the aggregate amount of future trading. There is no necessity for keep- ing the footings of the volume of future trading; but the man repre- senting the clearing association made, by assembling all the different trades in futures for one day, an accurate footing for one day. Of course it was received confidentially, and I could not disclose it now, but it was furnished for the guidance of the committee. We said to the committee, "If there is anything you want to know about this business you may have it; if you will not pubUsh the private busi- ness of these people, you are very welcome to it." GRAIN EXCHANGES. 325 We never had an issue on anything. There was a great deal of talk between us about books. In fairness, I will say that Bendixen, the chairman, while he is unalterably prejudiced against the city markets in grain, is a fair man. His methods are fair, and outside of this deep-seated prejudice he is as fair a man as I would ask to submit any proposition to; and after we talked over the methods of getting information he always ruled with us. We always gave the committee what they wanted and they were entirely satisfied. And now the suggestion is made by counsel of some concealment at a hearing held in the chamber of commerce. Let me tell you what occurred. These gentlemen, the committee, wanted to know about future trading; they wanted to get as near putting their hand on it as they could. They wanted to know the class of traders who dealt in futures and the extent of their dealings. We took them down to the chamber and said: "If it were pubMshed that a certain commis- sion merchant was giving out the names of the people trading with him, disclosing private business, that merchant could not continue to do business, so do not ask us to disclose these names. We will give you big men, the biggest traders here, and you probably know them, and I think they all did know them; but we will not talk names or put names in the record. More than that, you gentlemen are riot interested whether John Jones or Smith is doing this trading. We wiU describe them, tell you whether they are elevator men or millers or exporters, what they are, and we will give you every bit of information about their trading, their hedging operations, every- thing as it is showing now. We will show you the account, just how he trades — the whole thing." They went to the chamber and we brought down the books of the biggest concerns, concerns having the largest future accounts with the bookkeepers and managers to ex- plain the items. Mr. Manahan was there, and they saw accounts of future trading until they said they had seen enough. After all that, we are met here with the suggestion that we did not furnish the books, and why ? We did come to one issue in the committee. They wanted to go down to an office in St. Paul and examine the books of one commission merchant who had been attacked in that hearing rather vigorously. Mr. Manahan himself reduced his request to writing. The request was that the committee go down and examine those books, and they were to see the names and they were to see everything; a rather unusual thing to go into a man's office and get his private records. Now, the reason business men do not want to disclose these matters is not because there* is anything improper in them, but it pertains to their private business, involves private and confidential matters. We are all familiar with the fact — it is the law, and it is the general policy of the nation, just as it is the general policy of our State — that where information is given by a business concern to serve a pubhc purpose such information shall be regarded as confidential as to purely private matters, and the information obtained should not be given out to competing concerns. Having reduced this request to writing, we saw the commission merchant, and he said, "Yes, go down." Later Mr. Manahan dis-. closed that it was his intention to accompany the committee. Partly because of personal feeling aroused by some things that had occurred during the investigation, and partly because this commission mer- chant was not willing to give Mr. Manahan, a partner in the Loftus 326 GEAIN EXCHANGES. Hubbard Co. — a competing concern, who were then dealing in futures, in handling grain for uie Equity Cooperative Exchange — the names of his customers and their accounts and their dealings. The merchant refused to give Mr. Manahan access to his books, and I think every member of this committee would justify that refusal. They said, "We will take this thing before the legislature, and get an order requiring you to do it." We said, "Take it before the legislature." They did not dare to bring it up in the legislature. We would have met them in that body and would be willing to meet them in any other body on the fairness of the position, that an attorney of one concern ought not to be privileged to get the private information of a competing concern. That is the only time that there was ever an issue about informa- tion in that investigation, and I want to just show you, to bear out the statement that there never was any trouble on that score The Chairman. Suspend just a moment. It is a little after 12, and some of us have to be on the floor of the House. We will now take a recess until 2 o'clock. (Whereupon, at 12 o'clock and 3 minutes p. m., the committee tpok a recess until 2 o'clock this afternoon.) AFTER EECESS. Mr. Canteill. The chairman of the committee is absent, and has instructed us to go on with the hearing. Judge Simpson, you may proceed. STATEMENT OF DAVID F. SIMPSOBT, REPRESENTING THE MINNEAPOLIS CHAMBER OF COMMERCE— Continued. Mr. Simpson. Gentlemen of the committee, at the time of adjourn- ment I had referred to the investigation of the Minnesota State Legislature and had made the statement that aU evidence required by the committee had been furnished, and aU. books and records. And as further verification of that statement I want to call your attention to the report of the House committee, in which the com- mittee refer to the fact that the bookS: had. been submitted to them and that there was a fuU investigation, and in no place is it sug- gested that they were denied access to any books or records. If they had been d.enied access to any books or records, would not the report disclose that fact ? I wish to refer to the fact that this report of the House committee was some time in May, 1913, introduced by Mr. Manahan and made part of the Congressional Kecord, and was sent out under frank all through the Northwest as a public document. But I am afraid it is not fully pubhshed. Mr. Manahan. Yes; I think it is. Mr. SmpsoN. I have looked very carefully for the statement con- tained in the ori^al report with reference to future trading, and I can not find it in this report as published in the Congressional Record. Mr. Manahan. It ought to be there. Mr. Simpson. Yes; it should be there, and I have looked for it, be- cause I want to refer to it. Mr. Manahan. I think it is in there; but possibly jt may not be. GRAIN EXCHANGES. 327 Mr. Simpson. If it is not in this report, that was published as the complete report, I would ask to leave to incorporate m the record the actual report and my statement of the fact, to the effect that the com- mittee imanimously stated that they beUeved that trading in futures was necessary to the conduct of the grain business in so far as such tradingin futures was necessary to hedge against purchases of wheat. Mr. Pou. What is it you want to put into the record ? Mr. Simpson. That statement from the report. Mr. Manahan. The report itself should be there in full. Mr. Pou. You mean you want permission to put it in ? Mr. Simpson. Unless this report as published in the Congressional Record is not complete, it will be here — unless something is omitted. And in that connection I want to state that Mr. Tiegen, a member of the committee and a representative of the Equity Cooperative Exchange, had at that time pending in the Minnesota Legislature a biU to prohibit future trading; but after the investigation in the Minnesota Legislature Mr. Tiegen concurred with his associates in this report, expressing the belief that future trading should not be prohibited. And I want further to state, as a fact that can be supplied in the record, that during that investigation in, the Minnesota Legislature a message was sent from North Dakota, from the Grain Shippers' Association of North Dakota, in which the request was made that the legislature do not pass the Tiegen bill against future trading. Now, the very last part of the discussion of future trading in the report of the house committee of the MuineapoHs Legislature, as published in the Congressional Record, contains this statement: ,At the same time we wish to affirm that we believe that trading in futures is legiti- mate and commendable, where the parties engaged in the actual purchase or sale of grain hedge or protect their purchases and where, by reason of experience they are fitted to engage in such business. I want to caU attention to the fact that this bill against future trad- ing that was pending in the legislature did not pass, and I submit to you gentlemen that the report of that committee, which was known as the farmers' committee, expresses much more truly the prevailing sentiment of the State of Minnesota and the farmers of the State of Minnesota in reference to future trading than the statements that have been made here. I want also to call attention to the fact that in the house Mr. Tiegen was unable to pass his bill against future trading, showing that the^real sentiment in the State of Minnesota is not in favor of such legislation. One further point that developed during that investigation: The grata shippers from all over the Northwest were brought to St. Paul to testify. These grain shippers were selected arbitrarily out of lists furnished. In addition to that, hundreds of letters were sent in to the chairman of the committee — letters were sent out asking shippers " to express your views as to the manner in which grain is handled by the commission merchants at the Minneapolis market." Several ses- sions of the house investigation were devoted to a consideration of the testimony of these grain shippers, representatives of farmers and independent elevator companies, who had come to the capitol to testily in that investigation. I want to quote from page 1629 of the record of the house committee a statement made during the taking 328 GEAIN EXCHANGES. of this evidence. Mr. Manahan, who was acting as attorney for the committee, made the statement— I want it understood that, so far as I know, the regular comTniasion men on the cham- ber of commerce are very square and honorable in their dealings, and I doubt if you will find any witnesses in the State who will say otherwise. Again at page 1695, at the conclusion of the testimony of A. L. Johnson, Mr. John Liod, who was conducting the examination for the commission merchants, said: "We have some more commission men here that we would like to call, according to the understanding." The understanding was that we would have a right to call a certain number. Mr. Manahan stated: Mr. Manahan. While I do not object to any other evidence, it seems to me, inas- much as it is practically conceded here that you can get more than four dozen wit- nesses that will testify just like these men to-day, that the experience of the trade, so far as the way the commission men try to get the best possible price on the market is concerned, so far as their methods of accounting, their methods of reporting, their treatment, their call for reinspection and appeals — that the commission men do every single thing in their power to protect their customers, and I do not think you need to prove it. It will appear that the commission men are not controlled by mem- bers of the Minneapolis Chamber of Commerce; that they have an opportunity to say whether State inspection and State weighing is fair, and when that confession is made — at the end of the investiga- tion — by Mr. Manahan, it seems to me to show a state of affairs very much at variance with the suggestion made here- that through some pecuhar influence or control these elevator men and farmers that consign their grain to commission merchants are not able to get a fair price for it. Now, gentlemen, I have referred to the fact that there was in the Senate committee at the same time an investigation. At the end of that investigation a report was filed, two reports were filed, a majority and minority report, but neither of these reports were adopted. They came into the House on the very last — or into the Senate on the very last day — and the Senate refused to consider them and did not adopt either one. But I want to put into the record the majority report of that investigating committee. I have some copies here, and if the members desire, I will be very glad to furnish the members with a copy, and simply state whether the members of the committee agree with the position taken in that report or not, it is a very thoughtful, comprehensive, careful discus- sion of practically all the questions that nave been discussed here before you. It goes into the whole matter of conditions of things in the market there. It goes very carefully and fully into the matter of hedging and dealing in futures, and makes such recommendations as it seems are necessary to further perfect the system of handling grain through these exchanges. Mr. Manahan. May we not have all three reports placed in the record ? Mr. Simpson. As I have said, the report of the House committee was introduced in the Congressional Record and franked all out through the Northwest last May. It is already pubhshed and accessible. Of course, if the committee desires, there is no reason why it should not go into this record, only I do not want to introduce it as standing sponsor for it, for I do not approve of many things contained in it. GEAIN EXCHANGES. 329 The sameis true of the minority report of the Senate. I am per- fectly willing it shoiild go in the record with the explanation that I do not agree with the results stated in the minority report, and we do not offer it as expressing our views. Now, gentlemen of the committee, this concludes substantially the ground I intended to cover, and I have taken more time than I should have taken, and I want to make the suggestion again, before I close, if I may have the privilege. There was a statement made by Mr. Drake in his testimony that I desire to refute if it remains in the record. The refutation by me disconnected from the statement would be meaningless, and I will ask the indulgence of the committee if the statement I am about to make be printed in the record imme- diately following the statement by Mr. Drake, to which I refer. The statement was a matter that it seems to me was clearly scandalous; reflected on the membership of the chamber of commerce; reflected on the reporters of the papers, and I would simply like to state the facts in reference to it. Mr. Lbnroot. You- may make the statement and the committee will afterwards dispose of it. Mr. Simpson. I wish to make the statement that I was present at the dinner referred to ; that there were no excesses in eating or drink- ing at that dinner; that the dinner was given by Mr. Wells to a number of gentlemen, including newspaper reporters, who, during the investigation that had a short time before been concluded in the legislature, had been brought into almost daily contact, and it was simply such a dinner as a gentleman at any time may give to his friends, and should not be a subject for unfavorable comment, and, ' in my judgment, it is an outrage to assume or suggest that the news- paper m.en who were invited to that dinner were subsidized thereby, or that their attitude toward the chamber of commerce or the Equity Cooperative Exchange was in any degree changed by the fact that the dinner was given. In conclusion, gentlemen, I think perhaps I have made my position sufficiently clear that we are not opposed to an investigation, a com- prehensive investigation, by a high impartial committee or commis- sion; but we are opposed to the passage of this resolution, because this is a narrow resolution. This resolution omits one of the agencies handling grain in the Northwest that should be investigated if any agencies or exchanges are investigated. If any investigation is had, it should cover the whole grain-growing and grain-handling area, not merely two States. The charges against the exchanges at Duluth, Minneapolis, and Chicago, it seems to me, have not been established by any evidence fairly considered in this case. The only statements tending to substantiate in any degree these charges, are statements that arbitrarily and without foundation in facts call into question the integrity of individuals and officials and States, as well as the integrity of the exchanges against which the charges are made, and it seeins to me that this committee ought not to in any way sanction those unsupported charges or lend itself to this campaign of the Equity Cooperative Exchange. 330 GRAIN EXCHANGES. Report of the Majority op the Committee op the Senate op the Minnesota Legislature, Session op 1913. [To investigate tlie grading, cleaning, and mixing of grain; the spread between primary and terminal market prices; tne methods of the chamber of commerce, the independent grain exchange, the hay exchange; and all matters pertaining to the grain markets.] Hon. J. A. A. BuRNQUisT, President of the Senate: Your committee, appointed under resolution S. F. — to investigate as to the grad- ing, cleaning, and mixing of grain, prices at the primary and terminal markets, the methods of tixe chamber of commerce, the independent grain exchange, the hay- exchange, and all matters pertaining to the grain markets, beg leave to submit the following report: Your committee appointed H. L. Schmitt, Esq., as attorney for the committee. Beginning Tuesday, February 18, 1913, the committee held many public hearings. At these hearings various attorneys appeared for the different exchanges and for members of the same and for persons called before the committee as witnesses. To these attorneys the committee accorded the privilege of fully examining and cross- examining witnesses. While in this way considerable time was wasted and the tes- timony was unduly extended, yet there was afforded each interested party an oppor- tunity to bring out any fact which he deemed favorable to his position or unfavorable to the position of any other interest. The committee feels warranted in the belief, therefore, that the evidence submitted to it covers quite fully the matters it was re- quired to investigate. A large number of witnesses were sworn and examined and their testimony re- ported. A transcript of this testimony is submitted herewith. Numerous reports, documents, letters, and memoranda were received in evidence. The State railroad and warehouse commission and different elevator companies prepared, verified, and submitted to your committee a table showing the quantities and grades of grain re- ceived in elevators and the quantities and grades delivered out of these elevators. Other tables and statements were prepared, verified, and submitted, giving data con- cerning grading, storing, buying, and selling grain. This documentary evidence is submitted herewith. There is little conflict in the evidence heard by your committee relating to the in- spection and grading of grain, the purchasing and handling of grain in the primary and terminal markets, the organization and methods of the exchange investigated, or the conduct of the members of such exchanges. The facts are, flierefore, not in doubt, and the actual conditions surrounding the handling of grain in the primary and terminal markets may be stated with reasonable certainty. STATE INSPECTION AND GRADING. A careful investigation was made by your committee of the methods of grading grain by the State at the Minneapolis and Duluth terminals. The State grades of oarley are not considered to any appreciable extent in buying and selling barley. It is sold by sample. The variations in price between different samples represent generally not a difference in State grade, but a difference in the value of the barley for malting or feed purposes in the judgment of men engaged in buying and selling barley. As to wheat, It is largely sold by grade. The same is true of flax and, to a lesser extent, of oats and other grains. Therefore, the fairness and accuracy of the oflicial inspection and grading is a matter of the greatest importance to all interests — the farmers, elevator companies, and millers. Your comroittee found no evidence of any attempt to favor any interest in the matter of grain inspection. Indeed, under the conmtions sur- rounding the inspection it would be practically impossible for an inspector to favor any individual or interest. The grade is given by the inspectors upon samples taken from the cars by samplers, the inspector not knowing, when he gives the grade, to whom the wheat belongs. It is estimated that the farmers sell approximately 95 to 99 per cent of their wheat at the primary market to a line, independent or farmers' elevator company, and consign to some commission merchant for sale at the terminals the balance. At the time the wheat arrives at the terminal market, therefore, it is largely owned by elevator companies. The owners and consignees of the wheat, as well as the inspectors, obtain samples of the wheat on its arrival at the terminal. In case the owner or commission roerchant having charge of a car of wheat is dissat- isfied with the grade given by the inspector, he may call for reinspection, and, if still dissatisfied, may appeal to the appeal board, the decision of this board being final. In the same way, the purchaser of a car of grain, usually either a milling or terminal elevator company, if dissatisfied with the grade given the grain by the original in- GRAIN EXCHANGES. 3S1 spection, may call for reinspection and may take an appeal to the appeal board, and in practice reinspection is called in a large percentage of the cars, appeals are taken, in. a lesser but still a substantial percentage. It thus appears that the inspection of wheat is always subjected to the scrutiny of expert representatives of both the buyer and the seller. Under this system there is little opportunity for mistake and none for fraud. The number and results of reinspection and appeals are shown by two tables prepared by the railroad and warehouse commission, and attached to this report. From these tables it appears that of the total cars inspected during the past 10 years — 0.184 were reinspected as to grades. 0.052 raised on reinspection. 0.009 lowered on reinspection. 0.0017 lowered on appeal. 0.028 per cent crop changed on appeal, or less than 3 cars out of each 100 originally inspected. The grading of wheat necessarily is a matter of judgment, and different men will arrive at different conclusions as to the proper grade of a sample of wheat that is near the border line between two grades. Naturally there are and will be buyers and sellers who are dissatisfied with the inspection of a particular car. Unquestionably, however, the Minnesota inspection and grading is fairly and accurately done by competent men. The inspection department is well organized and efficient. The Minnesota, grades are accepted wherever wheat from the Minnesota terminals is sold. The inspectors are appointed on a merit basis from the ranks of the samplers. This is the established practice of the railroad and warehouse commission. The grain-inspection boards are, by the manner of their appointment, made wholly independent of the balance of the grain-inspection department. To make their inspection and grading of grain oh appeal likewise entirely independent it would be well if each board selected a special sampler to obtain new samples to be used on ap- peals in extraordinary cases. The railroad and warehouse commission favors this plan. As these boards not only may finally determine the grade to be given a car of grain, but as well annually establish the "Minnesota grades" for all grain subject to State inspection, it is of the greatest importance to all grain interests that the members be experienced, skilled, and competent in all matters pertaining to establishing and passing on grades of grain. The law should require that appointments to these boards should only be made from men whose competency has been established in some proper manner. CLEANING, DRYING, AND MIXING GRAIN IN TERMINAL ELEVATORS. Your committee investigated the cleaning, mixing, and drying of grain, as carried on in the terminal elevators. Tables submitted show that the terminal elevators shipped out in two years more No. 1 and 2 wheat than they received. This result is brought about by improving and mixing the wheat. During some seasons a consider- able quantity of wheat is received at the terminals containing a surplus amount of moisture. Such wheat is graded, "no grade" by the: State inspection. After it is dried sufficiently it may be entitled to a higher grade. Again, by mixing some No. 2 wheat with a sufficient amount of choice or premium No. 1 wheat, the whole quantity will grade a medium or thin No. 1. A similar increase in quantity of any grade may be brought about by reducing the quality within the grade through additions of lower- grade wheat. The possibility of mixing a certain amount of the lower grades of wheat with higher grades increases the demand for and advances the price of the lower grades. "No grade" wheat frequently sells within 3 or 4 cents of No. 1, and the average price of the purchases of " no grade " by one terminal elevator company during the present season was 5| cents below No. 1. The same company purchased its No. 4 wheat at an average of 5i cents below No. 1. The possibility of improving and using these grains with higher grades undoubtedly was a factor in making these prices; that is, the value which the wheat has for mixing purposes is paid for by terminal elevator companies as well as by millers. Section 2053, Revised Laws 1905, as amended by chapter 82, General Laws 1909, requires any warehouseman operating a terminal elevator to store grain in separate bins on the request of any owner or consignee, and requires the warehouseman, at the request of the owner or consignee, to clean, dry, mix, or otherwise improve the condition of or value of such grain, and to deliver the same separately from the grain of any other owner or consignee, upon order. Therefore, any owner or consignee of gram, unless he is offered full value for that grain in its condition on track, may use the same facilities the elevators and mills have to clean, dry, and mix and improve the 332 GEAIN EXCHANGES. conditions of the grain. The fact that owners of grain seldom avail themselves of this privilege would seem to indicate clearly that buyers of grain at terminals pay the full value of that grain with reference to the possibility of improving it by drying, cleaning, or mixing. Experience in the Canadian markets is interesting and instructive on this point. There are certain standard grades of wheat established by statute in the Domimon of Canada, and, in addition, each season a varying number of intermediate comnlfercial grades are established by a commission, thus making a total of from 30 to 50 esta^iahed grades of wheat. There are no sample markets, wheat is sold by these, established grades, and the mixing has not been permitted. Under this method of marketing the crop, there is frequently a difference of 30 cents between the price paid for the highest and the price paid for the lowest established grades of wheat, a very much wider spread than exists in Minnesota. After an investigation covering two years, a law has been passed in Canada, to become effective September 1, 1913, establishing sample markets, and providing for mixing grain under established regulations. This new statute closely follows and adopts our methods. It seems clear, therefore, that the cleaning, drying, and mixing of wheat carried on at the terminals is of indirect advantage to the farmer and does enhance the price of his grain, especially of the lower grades, through the introduction of competition for these grades, which otherwise would not exist. While the warehouseman may and does improve the average grade of the wheat taken into his elevator by cleaning, drying, and mixing it, thus raising it into commercial grade, when he buys this wheat the competition forces him to pay for it at a price having a direct relationship to the possibility of such improvement. SPREAD IN PRICE BETWEEN THE PRIMARY AND TERMINAL MARKETS, AND CONDITIONS SURROUNDING THE PRIMARY MARKETS. The price paid to the producer for wheat and other grain at the primary or local market is necessarily based on the price of the same wheat or grain at the terminal mar- ket. The spread between the two markets must be sufficient to cover freight, the cost of elevating and loading out grain, the proportionate share of the expense of operat- ing and maintaining the elevator, and a fair profit. A less spread than this results in loss and impairment of necessary facilities. A greater spread deprives the prg- ducer of a fail- price for his grain. At present some stations show a considerable variation in this spread. Complaints are made that some buyer raises the price paid for grain at certain stations to a point at which the grain must be handled at a loss by the warehouseman, or without any return on his investment. At other stations the price paid seems below the point at which a reasonable profit only may be obtained. Such instances are exceptional, however. Generally, there is keen competition in buying grain at the primary or local market, and this competition keeps the price up. This price-raising competition exists not only with farmers and independent elevators, but among line elevators as well". One line elevator company, with houses at 56 stations in Minnesota, showed that at 18 of these stations where there were no independent or farmers' elevators the price paid for grain throughout the season was from 1 to 2 cents above the price card. There is a greater spread in the price of flax between the country and terminal market than in wheat. The greater expense and waste in warehousing and shipping flax is responsible for pait of this difference. Then, the risk in buying flax is greater because of sudden fluctuations in price. Again, there is no speculation in flax futures. The trading on the buying side is largely confined to interests engaged in the manu- facture of linseed oil and other products of flaxseed. For this reason not infrequently consecutive quotations in flax futures vary from one-half to 1 cent per bushel, and large offerings of futures at times reduce the price several cents before a buyer is obtainable. The resulting uncertainty aa to the price at which country buyers of flax can hedge their purchases leads them to adopt, for safety, a wider margin. The same principle applies to barley. There is no opportunity to hedge barley by the sale of futures, and, as a result, the spread of price between the country and ter- minal market is greater in barley than in wheat. This competition not only tends to keep prices up, but in an even more marked degree results in giving to the farmers favorable grades and dockage on grain. The following tables, showing the grades actually given wheat by Une elevator buyers and the grades given the same wheat by State inspection when diipped to the ter- minal, market, indicate a general higher grading by the buyers in the country than wheat is entitled to under the established rules for grading. The first table shows wheat graded below No. 3, handled from August 1, 1912, to January 31, 1913, at 56 country elevators in Minnesota operated by one company. . , GRAIN EXCHANGES. 333 No. 4. Rejected. No grade. Total. Purchased and graded by country buyer Shipped and graded by State inspectors Balance in houses should be Balance actually in houses by agents' estimates. Amount decrease in No. 4 Amount increase in rejected and no grade Showing amount decrease in higher grades. 16,021.15 4,654.25 11,366.50 2,650.00 8, 716. 50 3,882.00 12,958.50 -9,076.50 14,002.45 235,897.50 -221,895.05 9,076.50 221,895.05 33,906.00" 253,511.05 -219,605.05- 2,650.00 8,716.50 230,971.55 222,255.05 The second shows the grades given by country buyers and the actual grade as shown by State inspection, on wheat, between July 1, 1912, and February 1, 1913, handled at 22 country elevators in Minnesota owned by one company. Hard. 1 2 3 -4 Purchased and graded by country buyer. . Shipped and graded by State 1,647.40 229,681.30 99,801.50 129,847.40 148,225.50 110,022.60 38,203.00 30,709.40 55,952.40 7,929.30 5,621.30 Losg 1,647.40 2,308.00 Gain .. 25,213.00 Rejected. No grade. Total. 1,249.20 9,205.20 7,956.00 687.40 61,923.30 61,335.50 420,061.10 Shinned 342,527.40 gSt ; : : : ::::::::;:::::::::: 'Ralftnnnfn hniinen 77,533.70 - 1 A grain price card is sent out daily from Minneapolis to most of the line, independent and farmers' elevators in Minnesota and some adjoining States. The price card sent to elevators at a particular station purports to show the value of grain at that station. It is baaed on the closing price of the preceding day on the terminal market. In case of wheat this card gives a country station price 4 cents plus freight under the terminal price, unless some buyer at that station notifies the card publisher that he will pay a higher price, then the card shows this higher price. The figure 4 cents was arrived at by the publisher of the card after consulting grain men, and represents his conclusion as to a proper margin to cover operating expenses and profit. The Minneapolis Chamber of Commerce has no conneption with the Grain Bulletin or the sending out of these price cards. The cost of this service is borne by the sub- scribers. No subscriber is bound to follow the price card. It serves merely as a guide. As a guide for both buyers and sellers, such a price card posted at the different stations throughout Minnesota would be of great use, if the price shown was a fair price and uniform at all stations, allowing for difference in freight. Such a card itiight be sent out under the supervision of the railroad and warehouse commission if it was authorized to do so, after an investigation determining the necessary and fair spread to cover expense and return on investment to the country elevator. At most stations there is a surplus of elevator capacity. The line elevators have during the ^ast 10 years handled a continually decreasing percentage of the grain at country stations, and the farmers and independent elevators a continually increasing percentage. (See table attached.) The larger volume of grain purchased by farmers and independent elevators indicates that there is no control of the primary markets by line elevators and no combination among buyers. The owners of line elevators in Minnesota generally are now selling these elevators whenever a reasonable oppor- tunity to sell is presented, even at prices considerably below the cost of the elevator. It has been suggested that the aggregate expense of marketing the grain at country stations could be greatly lessened if some of these elevators were jointly owned or operated, provided always there be at least two competing elevators. This would permit a narrower price margin between primary and terminal markets. It has been suggested also that coimtry buyers of wheat be licensed by the State rail- road and warehouse commission after an examination determining their competency. This suggestion has much to commend it. Even though the margin on which grain is bought on the average is fair, and storage rates are regulated by law, there may be. 334 GEAIN EXCHANGES. thiough the incompetency of a manager of an elevator, great inequality in the grade or dockage given grain received for storage or bought from different owners. While referring to certain possible changes as worthy of consideration by the legis- lature and the railroad and warehouse commission, it appears from the evidence sub- mitted to the committee that the conditions now surrounding the marketing of grain at the country stations are with very few exceptions favorable to the producer. The competition for his grain is keen, and, as a result, the price, grade, and dockage given are fair. DEALING IN WHEAT FOR PUTUHE DELIVEBY. The buying and selling of wheat for future delivery serve an important function in the handling of the wheat crop of the Northwest. The wheat tributary to the Minne- sota terminals is generally thrashed and ready for market during the three months September, October, and November. The period within which this wheat is used — made into flour — extends over the entire year — 12 months. During the time between the thrashing of this grain, and the time it is required for milling, the market price of wheat fluctuates. There may be a marked decline or a marked rise in price during the crop year, this change of market price not being wholly to changes, actual or existing, in local supplies and demand, but more largely to the changes in foreign . supplies and foreign demand, and the condition of cropsbeing harvested or not yet matured in other sections of this country or abroad, where the harvest takes place dur- ing a period differing from that in our Northwestern States. It is apparent that some one must hold the wheat of the Northwest between the time it is produced and the time it is consumed and whoever holds it must carry it subject to these changes in price; they must assume the risk of loss through a decline in price, as well as having the opportunity for gain through a rise in price; that is, they must speculate on the future price of wheat. They are performing a necessary industrial and economic function, and in performing it, they gain or lose through changing con- ditions wholly beyond their control. Who performs this function under present methods? The farmer does not do it. The bulk of this wheat is sold by the farmer, as thrashed, during the first few months of the crop market year. The'country elevators — line, independent, and farmers' elevators — ^buy the bulk of this wheat from the farmer and ship it to the terminals and there sell it, but these elevators generally, we may say always, as fast as they buy wheat from the farmer, sell an equal amount at the terminal market for future delivery, thus hedging against any change in the market. As fast as they ship their wheat and sell it as spot wheat at the terminals, they close out their hedge in futures. It is apparent that the country elevators do not carry this wheat by assuming the speculative risk or opportunity of a fall or rise in the market price. The terminal elevators, in turn, buying largely this wheat when it arrives at the terminal, immediately sell equal amounts for future delivery, and thereby take insur- ance against a change in the market, so that while large quantities of wheat remain in the Minneapolis terminals for months, the owners of the terminals do not carry the wheat as an investment or speculation, with the attendant chances of profit or loss through a, rise or fall in the market. The millers are large buyers of wheat as it arrives at the Minneapolis terminal. It is sometimes said by traders, that the millers, by their large demands, make the market for cash wheat in the chamber of commerce, the chamber market for cash and milling wheat frequently being relatively higher than the markets in other cities. But the demand of the millers is in the main for wheat for immediate milling, or for future delivery to meet sales made of flour for future delivery. Flour is Gixgely sold for future delivery, often months in advance of its manufacture. The selling price in such case is based upon the price of cash wheat, plus carrying charges. Under modern conditions, the millers' margin between the cost of the wheat used to make a barrel of flour and the selling price of the barrel of flour is very small. This margin would be entirely wiped oiit by a rise of 2 or 3 cents a bushel in wheat. The miller, therefore, having sold flour for future delivery, buys at the same time wheat for future delivery, thus eliminating any speculation in the wheat to be used in the manufacture of the- flour sold. To a limited amount this buying of futures by the mills meets the selling of futures by the elevators. If the flour jobber who buys flour for future delivery in turn sells this flour for future delivery to smaller dealers, and they in turn make contracts for future delivery with bakers, the consumer buys at the producer's selling price, with elevator, trans- portation, milling, and carrying charges added. But this does not apply to the great GEAIN EXCHANGES. 335 bulk of the wheat crop, and in the actual conduct of business, the purchase of wheat for future delivery to meet flour sales, does not coincide either in time or amount with the sales of wheat for future delivery made as a hedge against the purchase of spot wheat by elevator companies. It is essential to the system of hedging by purchases and sales for future delivery that therfe be a continuous market in futures large enough to immediately take trades equal in amount to the trades in cash wheat, both at coun- try and terminal elevators, and trades in flour for future delivery. Such a market now exists. It is apparent, therefore, that the risk of fluctuations in the price of wheat between the time it is first marketed and the time it is consumed is borne, not by farmers or elevator men or millers, but by those who take the other side of the hedging trades — by a class of men who may be described as investors or speculators in wheat. These men, as a class, have the opportunity to gain full information upon all price-making conditions. They are experienced and trained investors, who voluntarily assume the losses and gains through price changes incident to carrying the wheat crop from the time it is first marketed by the farmer to the time it is consumed. As already sug- gested, this is a necessary function in transferring this wheat from the producer to the consumer. Such dealing in futures is a speculation, and is not in any respect a gambling transaction. Gambling consists in placing money on artificially created risks. Speculation consists in assuming an inevitable economic risk. A gambler seeks and makes risks which it is not necessary to assume, because not involved in any economic or industrial process. The speculator in wheat assumes risks of busi- ness which must inevitably fall somewhere, because inherent in industrial and eco- nomic conditions. The legality of sales and purchases of grain for future delivery has been fully established in the courts. It appearing, then, that the inevitable risk incident to price fluctuations of wheat is now largely borne by speculators through dealings in wheatfor future delivery, is there any advantage to be gained by interfering with or preventing dealings in futures, and thus transferrmg this risk to some class other than the speculator who now vol- untarily assumes it? We think this question must receive a negative answer. The farmer certainly should be permitted to sell his wheat, if he so desires, when it is ready for the market. With the cash market now afforded, the facts show that he prefers usually to sell his wheat rather than to hold it and speculate upon an increase or a decrease of the price in the future. By comparison, farmers as a class would engage in such a speculation at a disadvantage, because of higher rates of interest, less adequate facilities for storing, greater distance from, and, hence greater time required to deliver wheat at the terminals, and less information as to the vary- ing conditions affecting the price. The farmer who sells wheat not required for immediate milling, thereby refusing to hold it as a speculation, passes the wheat on to the country and terminal elevator companies. Here, again, it is in the hands of a class, who, under the present prac- tice, refuse to speculate in that wheat, who insure against changes in the market by selling equal quantities of wheat for future delivery. If it were possible so to do, what would be the effect of forcing these buyers to hold the wheat and assume the risk of market changes? It would require warehousemen to become speculators against their wish. Handling large quantities of wheat,^ a small decline in price would subject them to a large aggregate loss. To protect themselves in part, they would be obliged to widen the margin on which they bought the wheat, that is, they would pay the farmer less for his wheat relative to the spat wheat price. The extent to which warehousemen could borrow money would be greatly curtailed, because of the increased hazard banks would assume in making them loans. The business of handling the wheat crop would pass into the hands of fewer men having larger resources. With fewer men controlhng the visible supply of wheat, and no trading in futures there would be a continual invitation to combinations and the control of the price of wheat. A like train of results would follow if the millers were required to assume the risk of fluctuations in the price of wheat. Undoubtedly the opportunity of hedging against such fluctuations has narrowed greatly the margin on which elevator companies buy, handle, and sell wheat, and millers buy wheat, mill it, and sell the flour. This margin between the producer and the consumer should be kept as small as possible; any increase in it means either that the producer must sell hia crop cheaper or the consumer must pay more for his flour, or both. This result would undoubtedly follow any regulation of the grain business that eliminated hedging. 336 GBAIN EXCHANGES. If the warehouseman and miller are to have the opportunity to hedge their wheat bought and flour sold, there must be a continuous volume of trad.ing in futm-e deliveries sufficient to absorb the hedging operations at all times and quicldy. This volume is supplied by the trading of speculators. There seems to b^e no practical way to limit trading in wheat for future delivery to sales by persons having wheat in their possession. Under a rule making invalid all other sales, purchasers would disappear because the legality of a sale might always be q^uestioned and the investor would not be given an opportunity to deal on his chosen side of the market. Even though actual hedging operations, the volume of trading in wheat for future ■delivery must greatly exceed trading in spot wheat. The ordinary transaction, in which wheat owned by a country elevator and shipped to Minneapolis is sold to a miller to meet a sale theretofore made of flour for future delivery involves buying and selling an equal amount of wheat for future delivery as a hedge four times; that is, the trading in futures would be four times the trading in spot wheat. If the wheat were sold first to a terminal elevator, then to the mill, two additional trades for future delivery would result. Again the visible supply of wheat accumulated since September 1, 1912, in Minnesota terminal and line elevators tributary thereto is approximately 54,000,000 bushels. All this wheat is being carried hedged; that is, with wheat for future delivery sold against it. The purchasers of these futures make transfers to others from time to time. Thus the trading in futures incident to the actual hedging of this volume of wheat is very large and necessarily much larger than the initial pur- chases of the spot wheat. This trading in futures is not only useful because it relieves those engaged in hand- ling and milling the wheat from the risk of market fluctuations and mus narrows to the minimum the necessary margin of price between the producer and consumer, but it also serves a useful purpose in equalizing markets and making the movements of wheat respond not merely to temporary, but to ultimate dero^nds. For illustration: Owing to the large 1912 spring wheat crop throughout the Northwest and the small winter wheat crop in Chicago territory, the unusual situation exists of the Minneapolis market being relatively lower than the Chicago and other markets. The Minne- apolis market is thus a favorable market in which to purchase wheat for future de- livery. This fact is known to exporters, millers, and owners in every exchange. As a result, from Eastern and European points large purchases have been made in the Minneapolis market for future delivery. These purchases sustain the Minneapolis market and carry the local supplies of wheat until required by Minnesota miUers. Without this tradiag in futures the Minneapolis market would tend downward until wheat at Minneapolis terminals moved east by rail, notwithstanding the fact that this wheat would be later needed in Minnesota tor milling. Such a movement of wheat to equalize markets might benefit the railroads, but it would place a burden more than equal to such benefit on the consumer. This, on a much greater scale, was the result of the elimination of future trading in Germany. On closing the Bourse to future trading, it was found that the price of wheat could not be maintained at the time of the large crop movement. As a con- sequence, quantities of wheat were exported soon after harvest at a low price; and later wheat was imported at a high price. The wheat producers would hot carry the crop till needed, and the speculators were prevented from carrying it. The Berlin market has changed from an important to unimportant market, and German experts unite in stating that the elimiuation of future trading worked to the disadvantage of both producers and consumers. The report of the Kyle Industrial Commission, discussing tradiag in wheat for future delivery states: "It has been found best for the producing and consuming interests of the com- munity that the risks of distribution should be localized in a separate commercial class, whose members are in a position to inform themselves as to all the factors, past, present, and prospective, affecting the future course of prices." And again — . "These two kinds of services are peculiar to speculative distribution — the service of assuming the risks that arise from the change in supply apd demand, and the ser- vices of giving the right direction to the commodities available for consumption." The usefulness, even the necessity, of trading in wheat for future delivery as a factor in the economical handling of the wheat crop— and thereby the payment to the farmer of the highest possible price for his wheat at the time he desires to sell, and charging to the consumer the lowest possible price at the time he desires to buy- seems clearly established. As in other investments and speculations, some persons assume the risk incident to carrying wheat who are neither financially able nor sufficiently informed to justify them in so doing. This dtnger might be greatly reduced by the following requirements: GKAIlSr EXCHANGES. 337 A larger initial margin in small sales and purchases. No brokers' oflSces for future dealing in grain except in cities of the first class. The elimination of suggestions of possible profits in buying or selling futures from brokers' advertisements. The chamber of comrnerce has recently passed a resolution inviting other exchanges to unite with it in putting in force the first suggestion above. Your committee investigated the Chamber of Commerce of Minneapolis and the so-called Independent Grain Exchange. Because of lack of time, no testimony was taken concerning hay exchanges or hay dealings, but letters were received, some of which are herewith submitted, making complaints and requesting an investi- gation of methods of handling hay, and volunteering evidence in reference thereto. These letters would indicate that shipments of hay need added safeguards. In view of these facts, the railroad and warehouse commission might well be requested to investigate the hay exchanges and the methods now followed in handling hay and feed. THE MINNEAPOLIS CHAMBER OF COMMERCE. The Chamber of Commerce of Minneapolis is an incorporated, voluntary associa- tion, having 550 piemberships. It owns and maintains an office building, in which many members of the association occupy offices. In this building also is a large tradittg or exchange room, where, between the hours of 9.30 and 1.15 o'clock, spot or cash wheat and wheat for future delivery is bought and sold by members, either on their own account or as commission merchants acting for members and noimiem- bers of the chamber of commerce. The chamber of commerce does not itself deal in grain. It provides and main- tains an exchange or market place for trading in grain, and it establishes and enforces rules designed to facilitate such trading and aiming to insure its integrity and fair- ness. Complaints against a member as to any transaction in the chamber of com- merce, either with another member or with a nonmember of the chamber of com- merce, are promptly investigated by the officers of the chamber, and action taken thereon. All disputes arising out of any such transactions may be referred for settle- ment to a committee named for that purpose. A member may be disciplined for any infraction Of the chamber rules, and expelled for any fraudulent dealings, either with a member or nonmember. Evidence was presented to the committee that a number of the members of the chamber of commerce had been disciplined, but no record of such cases was brought before the committee, so that it is unable to state for what offenses members were disciplined or the nature of the punishment inflicted. Rates of commission for sales or purchases of grain are established. The chamber continuously employs an inspector of terminal elevators to supplement the State inspection, and therebv helps to insure the integrity of warehouse receipts. 'The market affordecf by the chamber of commerce is a competitive market. No evidence was submitted or claim made to the committee that there was any com- bination among the buyers of grain or among the sellers of grain to control sales or influence prices. All the evidence submitted tended to show, on the contrary, that the keenest competition prevailed among the milling companies, terminal ele- vator companies, and others in buying grain. Because of this competitive demand therefor, spot grain can be and is almost without exception sold on the floor of the chamber at its full value, according to the then market price of such grain. The Minneapolis wheat market is the greatest primary wheat market in any country. Substantially all outlets for wheat are represented on the floor of the chamber of commerce, either directly or through brokers. Local, eastern, and country mills are continually seeking in the chamber their needed supplies of wheat, and the terminal elevators, with an aggregate capacity of upward of 38,000,000 bushels, widen and extend this market by purchasing and holding or by storing the wheat of the Northwest until it is required for milling. Before your committee representatives of the so-called Independent Grain Ex- change, Loftus-Hubbard Co. , and the Equity Cooperative Exchange made the cMm that the chamber of commerce was a monopoly and that, being a private corporation with a limited membership, it did not afford a free and open market for the disposal of grain. The evidence submitted to your committee shows that no one has been de- nied membership in the chamber of commerce who was of good character and financial standing. It does not appear that any farmers' cooperative companies are members of the chamber of commerce, nor that there is anything to prevent any such company from becoming a member. A number of memberships are not used for active trading, and memberships are bought and sold, and it does not appear that the right to mem- bership has been denied or restricted in such a manner as to tend to produce a monopoly. 37214—14 ^22 338 GRAIN EXCHANGES. The requirements for membersMp in the chamber and the careful investigation of applicants as now existing and made are necessary to the maintenance of the integrity of the trading in the chamber. The value of the membership safeguards dealers •with the member, and the danger of forfeiture and loss of membership for any violation of law or the rules regulating commercial practices tends to maintain a high standard of commercial conduct within the chamber and to make members deal in accordance with that standard. The different commission merchants who are members of the chamber are ready to sell on the trading floor any grain consigned to them, and, in fact, many commission merchants employ traveling men to solicit from elevator companies and other owners consignments of grain. Members of the chamber are limited in receiving consign- ments of grain and selling the same on the floor of the chamber by the terms of a reso- lution passed by the board of directors prohibiting any member from disposing of grain for another when the circumstances indicate that such other person is dealing fraudulently with the owners of grain. They are also limited by the requirement of the chamber that they must charge a uniform commission for all grain handled, and they are punishable by large penalties if in any manner by any device they handle grain for anything less than the prescribed commission. There is no evidence that the chamber of commerce or its members constitute a monopoly in any respect. COMMISSION MERCHANTS. No evidence was submitted by your committee showing or tending to show unfair dealing on the part of the members of the chamber of commerce with farmers or ele- vator companies consigning grain to them for sale. On the contrary, the evidence submitted clearly establishes the fact that commission merchants who are members of the chamber of commerce are complying with the laws of the State regulating grain commission merchants. The minimum commission established by the rules of the chamber of commerce for selling grain consigned by a nonmember is 1 cent per bushel for wheat, barley, or rye; one-half cent per bushel for oats; three-fourths cent per bushel for corn; and for flaxseed, in carloads, 1 per cent of gross proceeds. This commission seems reasonable for service performed. In addition to the actual selling of the grain on the floor of the chamber the commission merchant pays drafts against shipments, procures samples of consigned grain, demands reinspection, and appeals when in ms opinion the shipper may gain thereby.. He attends to transferring the car after a sale, to getting weights, to settling freight bills, and to collecting the pur- chase price. He promptly sends confirmation and account sales and payment to the shipper. All witnesses appearii^ before the committee who testified on the subject testified that the aboye commissions for handling grain were reasonable and entirely fair and satisfactory to consignors of grain. As a method of increasing their business, commission merchants often advance money to independent and farmer elevator companies, to be used by such companies in buying grain, with the understanding that a substantial part of such grain when shipped will be consigned for sale to the commission merchant advancing the money. Usually the country buyer uses this credit as he needs it, paying interest on balances. In view of this fact the rate of interest charged is low and the arrangement seemed fair and of mutual benefit to the parties to it. It seemed to your committee a remarkable fact, and one that spoke very highly for the integrity and eflSciency of the ccmmission merchants in the chamber of commerce, that no consignors to them of grain appeared before the committee to make cornplaini that their grain was not being properly handled. The record of the house investigating committee is before this committee, and while weeks were taken up in the investiga- tion of the methods of the chamber of commerce and the dealings of commission merchants, members thereof, no shipper of grain to the commission merchants appears to have complained of the treatment they were receiving. A number of shippers of grain to commission men in the chamber were called and testified before the house committee near the close of its investigation. When it was suggested by the attorney for the chamber of commerce merchants that other shippers were in attendance and prepared to testify, the attorney of the house committee, Mr. Manahan, who is also the attorney for the Equity Cooperative Exchange and a member of the Loftus- Hubbard Co., copartnership, referring to members of the chamber, conceded that the "commission men do every single thing in their power to protect their customers, so far as trying to get the best possible price on the market, their methods of accounting, their methods of reporting, their treatment, their calling for reinspection and appeals. That will be conceded on all hands, and I don't think you need to prove it." This statement was apparently accepted by the house committee and the attorney for the commission men, no other witnesses being called. GRAIN EXCHANGES. 339 During tlie investigation it developed that consigned gi-ain was sometimes sold by by commission merchants to subsidiary companies owned or controlled by them, pursuant to the express consent of the consignor. There was no evidence that the sales were unfairly made and no complaints were made by the parties interested. It is apparent, however, that such a practice might be decidedly unfair to the consignor. It leaves a wideopen door which might easily result in fraud and unfair dealing. The chamber of commerce, before the investigation concluded, passed a resolution pro- hibiting such disposition of consigned grain in the future. In the opinion of your committee, the passage of this resolution was wise and timely, and the resolution should be permanently enforced. The only complaint made by your committee in reference to any commission merchant connected with the chamber of commerce related to a transaction which took place eight years ago, but it was carefully investigated by your committee. It appeared that in 1904 and 1905 a corporation, known as the Minnesota Farmers' Exchange, consigned and delivered 36 carloads of grain to Alexander McKinnon to be sold by them. McKinnon sold this grain to the E. L. Welch Co. The E. L. Welch Co. paid McKinnon in full for all this grain and had no notice or knowledge that McKinnon was not paying to the owners of the grain the proceeds of the sales. McKinnon did not in fact pay over to the Minnesota Farmers' Exchange all pro- ceeds of the sales, and later failed while owing a balance, on account of these 36 cars of wheat, of more than $12,000. The books of the E. L. Welch Co. were produced before the committee and the fullest examination by the committee and by expert accountants invited. The books clearly sustained the testimony of E. L. Welch that he had paid McKinnon in full for this wheat. THE FUNCTION OP A GRAIN EXCHANGE. During the investigation of the methods of the chamber of commerce, the attomej^s appearing for Loftus-Hubbard Co. and the exchange assumed a position of opposi- tion to fne chamber of commerce, its members, and its methods. This opposition appears also in advertisements and literature sent out by them to grain shippers and producers throughout the Northwest. The charges thus in efiect preferred against the members of the chamber of commerce and the fairness of the dealings of its mem- bers with shippers and producers of grain were not sustained by any evidence sub- mitted to this committee, and do not appear to be sustained by any evidence contained in the record of the House committee. One claim made by these attorneys and the interests represented by them before the committee and through the Northwest, is that the establishment of an independent grain exchange at Minneapolis would be of advantage to grain producers and shippers. This claim is so frequently and persist- ently made that a brief discussion of it, in view of the evidence submitted to your committee, is timely. A grain exchange is merely a market place where the buyers and sellers of grain may meet and trade. The value of the exchange to dealers in grain depends upon the number of different buyers and sellers who trade thereon in competition, and the extent and diversity of the interests thus represented. That is, the broader and more extensive the market the better it is. As heretofore stated, it appears that the Minneapolis Chamber of Commerce is an open, broad, competitive market, both as to buying and selling grain; but it is restrictive, however, because no one but a member is entitled to do business on the floor of the chamber, and out- siders, who do business through the members, must pay commissions as above stated- The word "independent," as applied to any grain market, is a misnomer, inasmuch as the market for grain is world-wide, the price dependent upon a thousand conditions, some local, some -nation-wide, and others world-wide. No exchange in any market can he absolutely independent of any other exchange market or condition — they all have their effect upon each other in me price of grain. SWITCHING CHARGES AT THE MINNEAPOLIS TERMINAL. Cars of grain arriving in Minneapolis and delivered to mills or elevators may be delivered free, or may be substituted to a switching charge varying in amount from $1 to $3. At other terminal markets no switching charge is generally exacted by the railroads from shippers of grain. An effort is now being made to secure the elimina- tion of switching charges at the Minneapolis terminal, and an application, supported by the chamber of commerce, is now pending before the Railroad and Warehouse Commission, which, if successful, will eliminate most of the switching charges. It ia of course to the interests of the g^in producers that there should be no switching charge for delivering cars loaded with grain to the elevators and mills at a terminal 340 GRAIN EXCHANGES. market. The switching charge, if any, should be absorbed by the carrier transport- ing the grain. It harf been the practice for years among commission merchants handling grain at the Minneapolis terminal — in order to facilitate sale of spot grain and to equalize so far as possible the burden of these switching charges — to sell grain subject to a uni- form switching charge of $1.5,0 per car. This amount is allowed the purchaser of each car and is charged to the consignor. The equal distribution among all cars of the aggregate of switching charges seems fair to shippers, and no shippers have complained to the committee of this customary method and chai;ge. If consignors were charged in each case the actual switching charge, the resulting inequality in the expense in selling difierent cars would probably result in continual dissatisfaction and distrust of the correctness of the charge amon^ consignors. One dollar and fifty cents per car hafl been taken to be a fair distribution of this aggregate switching charge. Tables prepared and submitted to the committee show that the aggregate switching charges on all cars of grain arriving in Minneapolis and delivered to the mills or elevators, divided among all the cars, would make an average of $1.14J per car. In these tables, however, are included a large number of cars received by line elevator companies on which these companies allow $1.50 switch to purchaser, and also other cars not con- taining consigned grain. It does not appear, therefore, what the average would be on cars containing consigned grain. This figure, however, can be accurately deter- mined upon the business of any crop year. This average amount should be ascer- tained, and until such time as the switching charge upon consigned grain can be entirely eliminated, such average amount, and no more, should be placed against each car of consigned grain as a switching charge in settlements between the consignor and consignee. THE EQUITY COOPERATIVE EXCHANGE PBIOR TO AUGUST 1, 1912. In the year 1907 there came into existence a selling association, in the State of North Dakota, of members of the American Society of Equity. This association arranged with one Pliney E. Cooper to sell grain consigned to it at Minneapolis, Minn. The association later assumed the name The Equity Cooperative Exchange, and became incorporated in the State of North Dakota as a private corporation for the purchase and sale of grain on consignment. By the terms of the articles of incorporation 8 per cent annual cumulative dividends are payable to the stockholders, but no evidence was submitted to the committee that any dividends were ever paid. It was incorporated in 1911, and for two years prior to its incorporation stock subscriptions were solicited. J. M. Anderson has been president of the Equity Cooperative Association since its incorporation and since said time has been the principal executive officer of the cor- poration. A. A. Trovaten is employed to solicit shipments of grain and work up business for the Equity Cooperative Exchange. Prior to August, 1912, the grain consigned to the Equity Cooperative Exchange was sold by Mr. Cooper, as agent and sales manager thereof. A large part of such grain was sold by Cooper to the Cooper Commission Co., a corporation controlled by Mr. Cooper, and at a price fixed by him. Such grain was thereafter merchandized by the Cooper Commission Co. at such price as could be obtained for it — usually at a profit but some- times at a loss. The account sales on this grain were made by the Equity Cooperative Exchange to the shipper of the grain showing a sale from the shipper to the Cooler Commission Co., and copies thereof were sent to Anderson,, president of the Equity Cooperative Exchange, so that the method of doing business wasknojvnto Anderson. The evidence shows that neither Gecrge lioftus ncr the firm of Loftus-Hubbard Co. had any connection with any of the foregoing transactions, no* any business connection whatever with the Equity Cooperative Exchange until August 1, 1912. In August, 1912, Cooper terminated his connection with the Equity Cooperative Exchange and George S. Loftus succeeded him as sales manager, and since that time grain consigned to the Equity Cooperative Exchange at Minneapolis or Duluth has been disposed cf under the direction of George S. Loftus, manager. I^oftus is also the active partner of Loftus-Hubbard Co., a partnership, in which James Manahan is a special partner with a substantial financial interest. The business of the I/oftus-Hubbard Co. and the Equity Cooperative Exchange since August, 1912, has been carried on in the same offices under the direction of Loftus, and the Loftus-Hubbard Co. since said time has financed the Equity Cooperative Exchange. In January, 1913, Anderson, Loftus, and Trovaten met at the office of the Equity Cooperative Exchange and designated Mr. Loftus, president, Mr. Trovaten, secretary, of a proposed corporation to be known as the Independent Grain Exchange, and pre- pared a draft of articles of association and by-laVs. This corporation has not been organized and no proposed members, other than those named, were disclosed to the committee. The evidence shows that an ordinary office room in the Corn Exchange GRAIN EXCHANGES. 341 Building, Minneapolis, occupied prior to August, 1912, by the Loftus-IIubbard Co., and since that time by the Equity Cooperative Exchange, was set aside for the so-called Independent Grain Exchange for trading purposes, but no owners or commission mer- chants, except the Equity Cooperative Exchange, have sold any grain in such room. There was no evidence that this room was or could be used for a grain exchange in the ordinary acceptance of the meaning of the term. For a long period of time the Equity Cooperative Exchange has advertised that it was, or conducted through the Independent Grain Exchange, a market or exchange for grain in the city of Minneapolis similar to but independent of the market main- tained by the chamber of commerce. Such advertising has appeared upon the letter- heads of the company, and also that it had a terminal elevator at the city of St. Paul. And such letterheads bore the statement: "We are in a position to store your grain." The Equity Cooperative Exchange is organized to do a commission business — ^not operate a grain exchange. It has not operated a terminal elevator owned or leased by it, but has the same facilities or opportunity to store grain at the Minnesota terminals that any other individual or company doing a commission business not owning ah elevator has. Samples of such advertising and letterheads are annexed hereto. Grain consigned to tie Equity Cooperative Exchange is not sold at any trading room except tJb.e room in the Corn Exchange Building above described, nor directly in any exchange or public or open grain naarket. The evidence shows the bulk of tlie grain is sold to consumers, such as interior millers, through correspondence or upon solicitation, in tlie same rnanner as any comtnission merchant might dispose of grain that is not sold in the trading room of me chamber of commerce or other public grain market. Some of the grain sold by the Equity Cooperative Exchange in the Minne- apolis market has been sold to members of the chamber of commerce at prices below the market price of that grain as shown and established by the sales of such grain in the chamber of commerce market. On October 8, 1912, the Minneapolis Chamber of Commerce passed a resolution pro- hibiting members of the chamber of commerce from selling grain for any individual firm or corporation when by eg doing titie shipper of such grain would be required to pay a double commidsion^ or be otherwise deceived aa to the conditions under which such grain was sold. Prior to the passage of this resolution a commission merchant testified that he had sold grain on the floor of the chamber of commerce for the Equity Cooperative Exchange under an agreement with Mr. Loftus that the commission merchant was to buy the grain from the Equity Cooparative Exchange at a sufficient discount under the actual selling price to cover ihe regular commission which would be received had the grain been consigned to the member of the chamber direct. Mr. Loftus denied having made such an arrangement and denied that he had ever sold grain where a double commission was in fact paid or that he concealed such commis- sion by reporting the transaction as a sale to me second commission merchant. Subsequent to October, 1912, it appeared that a number of members of the Chamber of Commerce had frequently purchased grain from the Equity Cooperative Exchange and thereupon, either on the same day or the following day, had sold such grain on the floor of the chamber of commerce at from 1 to 4 cents advance in price over the price paid the Equity Cooperative Exchange therefor. There was also evidence showing that the Equity Cooperative Exchange purchased grain from members of the chamber of commerce and resold the same at a varying profit. In these latter cases the date of purchase of the grain was shown, but in no instance was the date of sale shown. Your committee investigated the dealings of the Equity Cooperative Exchange with some shippers of grain to it since August, 1912, or during the time George S. Loftus has acted as sales manager of the company. During the progress of our inves- tigation Fred Schmidt, manager, and H. G. Bundy, treasurer, of the Farmers' Ele- vator Co., of Voltaire, N. Dak., were in Minneapolis seeking a settlement on 41 cars of grain shipped to the Equity Cooperative Exchange. They were sub- poenaed to appear before tihe committee and testified. Later F. H. King, a book- keeper of the Equity Cooperative Exchange, and Ed. Holt, secretary of the Voltaire Farmers' Elevator Co., were called by the Equity Cooperative Exchange to testify concerning the same transaction. Prom this testimony your committee finds that the Voltaire Farmers' Elevator Co. began shipping wheat to the Equity Cooperative Exchange November 6, 1912. After a number of cars had been shipped, to be sold on arrival, Schmidt;, the manager, shipped, between the 13th and 17th of December, 1912, 10 carloads of wheat to the Equity Cooperative Exchange, with directions to store the same. In response to the notification of the first of these shipments, the Equity Cooperative Exchange replied that the wheat would be stored as directed. No notice of any other disposition of the grain was given the Voltaire Farmers' Ele- vator Co. 342 GRAIN EXCHANGES. On January 3 Schmidt directed the sale ol 5,000 bushels of the stored wheat, and on January 10 directed the sale of the balance of the stored wheat. No acknowledge- _ ment of mese selling orders was made by the Equity Cooperative Exchange until January 14, when a wire was sent stating that the wheat was sold as ordered. There- after account sales were sent by the Equity Cooperative Exchange from time to time, showing apparent sales of these 10 carloads of wheat — six dated January 13, two dated January 17, one dated January 30, and one dated December 27. Upon the heariog before your committee it was admitted that no sales were made of any of these cars at these times; that employees of the Equity Cooperative Exchange determined from the market reports what the average price of 'cash wheat of the same grade was in Minneapolis on the day of the receipt of the order to sell and rendered to the Vol- taire Elevator Co. accounts of sales at those piices. If such average prices were fairly arrived at, then the consignor, Voltaire Farmers' Elevator Co., did not sustain any loss by the failure to store the grain as. directed. However, this committee strongly disapproves of the practice here shown of a commission merchant disre- garding the directions received by his consignor and failing to store grain in accord- ance with directions and in accordance with the statute of this State-estabUshed custom. The actual sales made of this stored wheat were not reported to the con- signor, nor were confirmations thereof given as the law requires, but instead accounts of sales were rendered showing an apparent sale at the average price of cash wheat of the same grade, as above set forth. For some time prior to March 1 it appears that the Voltaire Farmers' Elevator Co. and 'the Equity Cooperative Exchange were in a dispute concerning the amount due from the Equity Cooperative Exchange to the Voltaire Parmeis' Elevator Co. on account of wheat shipped up to lliat time. It appeared from the evidence before the committee that there had been some misun- derstanding as to a draft remitted by the Equity Cooperative Exchange, and that liiere were a number of errors in the account with the Voltaire Farmers' Elevator Co. as kept on its books by the Equity Cooperative Exchange. On February 26 the Equity Cooperative Exchange sent a statement showing a balance of $3,273.71 due the Voltaire Farmers' Elevator Co., but this statement did not include returns for one car of grain. At this time the Voltaire Elevator Co. claimed a balance of about $4,700. As a result of these differences Messrs. Schmidt and Bundy came to Minneapolis, pursuant to the action of their board of directors, to attempt to settle the account. At that time the investigation made by your committee was in progress. At that time Messrs. Schmidt and Bundy visited the office of the Equity Cooperative Exchange; Mr. Loftus was not present. They saw Mr. King, a bookkeeper, and Mr. Anderson, president of the Equity Cooperative Exchange. Mr. King stated to them that a full settlement would be made as soon as the amount due could be ascertained. After several hearings before the committee, at which the statements of the respec- tive parties with reference to the account and the items of it were gone over in detail, a settlement was made by which the Equity Exchange paid the Voltaire Farmers' Elevator Co. about $4,750. In the account on the books of the Equity Cooperative Exchange the Voltaire Farmers' Elevator Co. was charged $84 for storage and unload- ing of eight carloads of wheat, which wheat was, in fact, never stored. At the time of the settlement between the Equity Cooperative Exchange and the Voltaire Farm- ers' Elevator Co. all of the items of the account between me parties had been fully reviewed by the parties, both before the committee and in the office of the Equity Cooperative Exchange, and evidence was given before the committee relating to the negotiations for settlement at the office of the Equity Cooperative Exchange, so that at the time of the settlement the parties were fully informed in respect to the errors and other matters in dispute. The committee was not informed by evidence as to whether upon the final settle- ment the amounts charged for storage were actually retained or paid over to the Voir taire Farmers' Elevator Co. However, it did appear in the evidence before the com- mittee that the settlement arrived at was entirely satisfactory to the Equity Cooperative Exchange and the Voltaire Farmers' Elevator Co. The transactions between the par- ties showed many errors in the method of keeping the accounts and books of the Equity Cooperative Exchange. Many items of this dispute arose from the fact that the Equity Cooperative Exchange sold the wheat instead of storing it, and rendered ac- counts sales from the a,verage price of wheat on the day they were directed to sell the stored wheat, attempting to adjust such account by deducting the storage charges so as to render final account upon the transaction in the same way that it wouldliave resulted had the directions as to storage been carried out. There was another transaction of the Equity Cooperative Exchange investigated by your committee. It was the sale of a car of barley for the Madison Farmers' Mer- cantile & Elevator Co., of Madison, Minn. It appeared that the Madison company GKAIN EXCHANGES. 343 submitted samples of a car of barley to the Equity Cooperative Exchange and they later notified the Madison company that it could sell the barley for 55 cents. A sale at this figure was directed and the Equity Cooperative Exchange sent a confirmation of sale to the Madison company, showing a sale to the Osceola Milling Co. at 55 cents. Pursuant to this notice, a car of barley was shipped by the Madison company which was not the car sampled but was said to be exactly the same in quality. On October 28 Mr. Loftus notified the Madison company that N. Olsen, to whom the car had been sold, had rejected it because not up to sample, and advised the Madison company that the' car was sold to an outside buyer at 54 cents per bushel, and on the same day a confirmation of the sale of this barley to the Skewia Grain Co. at 54 cents was sent to the Madison company. The Madison company protested that the barley shipped was in every way equal to the sample, although not taken from the same car. Mr. Loftus stated that while in his judgment the car was like the sample, the purchaser had refused it and he offered to refund the commission of $10.87, but the same had not been refunded up to the time of the hearing before this committee. Mr. Ladd testified that the Osceola Milling Co. had not purchased the car of barley, and Mr. Olsen testified that he had never refused to accept such a car of barley and that he had had no connection with any such transaction. The Mr. Olsen referred to as having refused the car, and Mr. Ladd, manager of the Osceola Milling Coj above referred to as having purchased the car, appeared before the committee and testified that they had not purchased this car. The record does not disclose any explanation of this transaction by the Equity Cooperative Exchange. It does not appear that the committee directed the attention of any witness for the Exchange to this transaction. However, it would seem to be conclusively established that the reported sale at 55 cents was never in fact made and that the reported rejection of the car on a claim that it was not up to sample never in fact took place. This was the only shipment made by the Farmers' Mercantile & Elevator Co. of Madison, Minn., to the Equity Cooperative Exchange, although in a circular published by the latter, among a list headed Some of our regular shippers," appears the Farm- ers' Mercantile & Elevator Co., of Madison, Minn. The manager of this company testified titat he had never authorized such use of his company's name and strongly objected thereto. The Equity Cooperative Exchange is now licensed as a grain commission merchant of Minnesota and is subject to the jurisdiction of the Railroad and Warehouse Com- mission. Its transactions with customers are hardly the proper subject for legislative investigation, but should be investigated by the Railroad and Warehouse Commission. SUMMARY OF RECOMMENDATIONS. Your committee finds that the inspection and grading of grain by the State depart- ment is fair and accurate; that the inspectors are trained and efllcient men, appointed on a merit basis, and recommends that the rule of the commission in appointing inspectors be continued; and further, that the same principle be applied as well to the appeal board so that no one shall be eligible to appointment on that board until his experience and competency be established by proper requirements and tests. Your committee finds that the condition surrounding the puying of grain at coim- try stations is usually competitve, and that this results in prices, grades and dockage fair to the producer; thatii a price card is to be sent out to country stations, it should show uniform prices as between stations, allowances being made for freight differences and a fair spread in prices between primary and terminal markets, and should be posted for the information of buyer and seller alike. And recommends for consideration the question of whether such a price card might advantageously be sent out under the supervision of the grain and warehouse com- mission. Your committee finds that the chamber of commerce is an open, broad, competi- tive market, of advantage to the producers of grain;. that "hedging" through pur- chases and sales of grain for future delivery, against flour sold and wheat purchased, as practiced by millers and operators of elevators, serves a useful function m carrying and handling the grain crops; that by eliminating a risk it reduces to the minimum the cost of carrying and nulling grain, and thereby the price margin between the producer and consumer, and that any legislation which would prevent such hedging would be detrimental to grain growers and consumers of grain products. We commend the effort of the chamber of commerce to secure in exchanges gen- erally a regulation of trading in grain that will tend to prevent or limit improvident and ignorant speculation, and we favor the restricting of brokers' offices for trading in futures to cities of the first class. 344 GRAIN EXCHANGES. Your committee believes that switching charges by subsidiary switching companies at the Minneopolia terminal should be eliminated and that any other switching charges at Miimesota terminals should be absorbed in the freight charged, thus relieving the shipper of grain of all switching charges incident to delivering his grain to a mill or elevator at such terminals. Your committee finds that representations are being made that there is at Minneap- olis a so-called Independent Grain Exchange, and that the Equity Cooperative Exchange, a licensed commission merchant, solicits consignment of grain to be sold on such exchange, while in fact there is no such exchange, and grain consigned to such commission merchant is sold elsewhere. And we recommend that the railroad and warehouse commission be requested to investigate these facts and the dealings disclosed by this record, and evidence relative thereto, and take such action thereon as may be required of it by law. We fiu:ther recommend that the railroad and warehouse commission be requested to investigate hay exchanges in this State and the methods and practices of commis- sion merchants in handling hay and feed. Respectfully submitted. Samuel D. Works, Chairman, George P. Sullivan, Victor L. Johnson, Committee. minority report. To the President of the Senate and the Senate of the State of Minnesota: The following resolution of the Senate was adopted February 7, 1913: "Whereas there is general discontent among the general public regarding the grain situation in the Northwest, a feeling that the methods of grading, cleaning, and mixing are not in accordance with the best interests of the farmer; and "Whereas it is generally conceded that the spread between the primary and terminal * market is too great on same, especially that of flax, now therefore be it "Resolved, That a committee of five be appointed by the President of the Senate to investigate the above-mentioned features of the grain market, the methods of the chamber of commerce, the Independent Grain Exchange, the Hay Exchange, and all matters so far as possible pertaining to the grain markets; be it further "Resolved, That said committee shall have power to employ a competent attorney, stenographer and subpoena witnesses and report their findings as soon as possible to the Senate. "The total expenditures of said committee shall not exceed $500 and the fees of attorney shall be $10 per day." By virtue of the foregoing resolution the following committee was appointed: S. D. Works, chairman; G. H. Sullivan, V. L. Johnson, O. A. Lende, and A. L. Hanson. The undersigned members thereof beg to submit the following report: H. D. Smith was employed by the chairman as counsel for the committee, and 29 public hearings were held at the capitol in St. Paul, between the dates of February 18 and April 1, 1913. With tne exception of about 12 sessions, the time of the committee was devoted to the investigation of the affairs of the Equity Cooperative Exchange and the Independent Grain Exchange. Nine of these twelve sessions were mostly devoted to the examination of witnesses who were testifying for the chamber and its members. A part of one day's session was devoted to hearing charges against the chamber of commerce preferred by EUas Steenerson, of Crookston, Minn. One session was devoted to inspection and weighing and at one session no testimony was taken. With these exceptions nearly all of the balance of the time of your committee was devoted to the investigation of the affairs of the Independent Grain Exchanges. Practically no time was devoted to the hearing of charges claimed to be ready for presentation against the chamber of commerce -organization, or to the affairs of the commission, elevator and milling firms doing business upon its floors, except such as appeared casually and incidentally from the examination of the Independent Exchanges, or from cross-examination of witnesses brought forward by the chamber of commerce during the investigation. The investigation disclosed the fact that prior to the year 1909, the sale and distri- bution of grain at the Minneapolis terminal was in the hands of the chamber of com- merce. About that time the American Society of Equity attempted to organize and institute what was at first known as a Grain Growers' Department, and afterwards organized as the Equity Cooperative Exchange. This exchange was at ficst organized as a voluntary unincorporated association and was actually incorporated in February, 1911, under the laws of North Dakota. During the years 1909, 1910, and 1911, the GRAIN EXCHANGES. 345 Equity Cooperative Exchange marketed grain through a sales agent located at Minne- apolis, but made no attempt to establish an independent oflElce at the Minneapolis terminal or to do business within the State of Minnesotaj as a corporate entity. August 28, 1912, the Equity Exchange filed its articles of incorporation with the secretary of State of Minnesota, and opened offices at the Minneapolis terminal and actively undertook to do business as a commission firm. The Equity Exchange was not then and is not now a member of the chamber of commerce, but is a competitor of the members thereof. The testimony adduced before the committee shows that a system of advertising was then begun by the managers of the Equity Exchange and in many instances, in the usual manner of advertisements, larger claims were made in its behalf than were justified by a cold and deliberate consideration of the facts. In some instances, called to the attention of your committee, these overstatements can not be dismissed without notice. The Equity Exchange is and at all times has been, merely a sales commia- sion house. In the real sense of the word, it never was a grain exchange at all. From the very first, by virtue of its name, to wit, "Equity Cooperative Exchange," the organization has existed under a name which may iiave confused the public mind. We find, however, that the present management of the Equity Exchange is not in any sense responsible for the name of the organization, which was adopted more than four years ago, and has stood as the official name of the organization since. It has also been called to our notice, that the words "Cooperative Exchange" are frequently attached to farmers' cooperative organizations. One instance of this was the Minne- sota Farmers' Exchange hereafter mentioned, which also was not an exchange in fact, but merely a sales commission house. The claim was also made that the Equity Exchange had advertised itself as the owner of a terminal elevator and as being in a position to store grain. The evidence adduced showed that the Loftus-Hubbard Co. had been the owner of an elevator located at St. Paul; that upon the dissolution of the Loftus-Hubbard Co., George S. Loftus, sales manager of the Equity Exchange, became the owner of this elevator, and it was at all times available for storage purposes. It was also claimed before the committee that the Eqiuty Exchange was guilty of misrepresentation by reason of representations made that it could obtain just as high prices for grain as could members of the chamber of commerce. And it was claimed m addition, that grain was frequently sold by the Equity Exchange to members of the chamber of commerce under a definite agreement that the price paid should be 1 cent per bushel less than the market price, and that in this way the shipper was in reality made to pay two comnussions; one to the Equity Exchange and one to the member of the chamber of commerce to whom the grain was sold. The evidence adduced before the committee disproved these claims. The testimony showed that the bulk of the grain handled by the Equity Exchange was sold direct to consumptive interests located outside of Minneapolis and Duluth. Practically the only grain sold to mem- bers of the chamber of commerce consisted of coarse grains and wheat of no grade and inferior type. This, except 15 cars, was sold to jobbers of the^ chamber of commerce not engaged in the commission business. In the opinion of the undersigned, the prices obtained were average market prices. It is true, in some instances where grain was sold to a member of the chamber of commerce^ it was resold at a higher price, which was the object of the purchase. But in view of the fact that the evidence also showed that during the same period the Equity Exchange bought grain of members of the chamber of commerce and resold the same at greater advances in price than was claimed in any instance to have been obtained by members of the chamber of com- merce on grain bought of the Equity Exchange, we do not consider the claim to have substantial merit. The evidence before this committee would indicate that the Equity Exchange can obtain the same prices for its grain as can members of the chamber of commerce. The claim was also made that the Equity Exchange had shown by its advertising a picture of the Com Exchange Building, Minneapolis, the building in which the Equity Exchange is located. It was further claimed that this misled the public into believing that the Exchange occupied the entire building, and was a larger institu- tion than it really is, as a matter of fact. The evidence showed that the Equity Exchange occupied the bulk of the space on the first floor of the Corn Exchange. Stationery used by a member of the chamber of commerce was also submitted to the committee, upon which appeared a cut or representation of the Chamber of Commerce Building, Minneapolis. As a matter of common knowledge the practice is common on the part of occupants of a single office in an office building to print a cut of the entire building upon its stationery. During the progress of the investigation the claim was made that the Equity Cooperative Exchange was accused of lax business methods with regard to its dealings Si6 GBAIN EXCHANGES. with the Voltaire Farmers' Elevator of North. Dakota, and of refusing to account for the proceeds of the grain received by it from this elevator. These cnarges were pre- ferred, by the manager and treasurer of the elevator in question. It was also diown that grain shipped to the Equity Exchange by the Voltaire Elevator with directions that the same be stored had as a matter of fact been sold as soon as it reached tlie ter- minal and a hedge bought against the sale. On his direct examination the manager of the Voltaire Elevator testified that this was what he expected and wished done and that previous to tiiis time commission firms upon the chamber of commerce had handled the grain of iiis company received for storage in this way. At a subsequent •examination he denied this testimony. It appears from the testimony that the Equity Cooperative Exchange had advanced $6,200 against these 10 cars of grain, which amount had been charged to the account of the Voltaire Elevator Co. It does not appear in evidence that any statement was sent the Voltaire Elevator Co. as to what had been done with the proceeds from the sale of these cars nor as to the purchase of the hedge against such sale. It appears from the evidence that the purpose of the shipment of this grain to be stored was that it had not been purchased Dy them iioia. the producers, but was shipped out to make room. We believe it is a practice with country elevators that have no terminal facilities, when receiving more grain than they have room to store and which is not purchased by them, to ship and sell such grain and buy a hedge against such sale. The purpose of this practice is to avoid storage and handling charges and the depreciation in value attendant on the placing of grain in a terminal elevator considering that it is likely to be purchased in a very short time and would then be sold. In addition to the controversy in regard to the 10 cars shipped to be stored, there were differences in accounts due to clerical errors, which were adjusted between the parties during the progress of the investigation. In the opinion of the undersigned these differences should not have occupied the attention of your committee. The evidence showed thafr on or about November 30, 1912, the organization of the Independent Grain Exchange was undertaken by a number of men interested in pro- viding for what they believed to be improved facilities for the sale and distribution of grain at the Minneapolis and Duluth terminals, The Independent Grain Exchange- was not then nor at the time of the hearing incorporated. It is closely connected with the Equity Cooperative Exchange, and has offices on the same floor of the Corn Ex- change Building of Minneapolis. From the time of its organization, it has maintained an exchange room and has provided the facilities of a small exchange. It is indepen- dent of the chamber of commerce, and is a small competitor of that organization. It was not claimed before this committee, that the Independent Exchange was fully organized or completed. We are of the opinion that a considerable number of ^e advertisements and claims made by the officials of the Independent Grain Exchange were not wholly justified, in view of the fact of its unorganized condition. We recognize the fact, however, that such claims are generally made by the promoters of any enterprise, and we believe that no injustice has resulted on account of the -claims made. The formation of the Independent Grain Exchanges, in our opinion, is a manifestation of the cooperative principle among farmers now prevalent in this country. It is an effort on the part of the grain growers to market their prod- ucts upon a cooperative basis, and without the intervention of middlemen. It is also an effort to provide an open grain market at terminals where the grain grower may follow his grain and sell it in a public market. Prior to the 1st of August, 1912, at •which date the Equity Exchange under its present management began to do business, the handling and distribution of the grain products of Minnesota and the two Dakotaa was, generally speaking, in the hands of the members of the Chamber of Commerce of Minneapolis and the Board of Trade of Duluth. With the establishment of numerous farmers and independent elevators, which now handle about one-half of the grain of the Northwest, was apparently conceived the idea of providing a grain-selling agency along cooperative lines. It was admitted freely before this committee that outside of certain ■ consumptive interests which bought their grain direct from the producer, and aside from a few individuals and firms who merchandise such grain to consumptive interests located outside the State, the Chamber of Commerce of Minneapolis had a practical monopoly of the grain business of this section of the Northwest. We are satisfied that no trade organization ought to have exclusive control of the grain business, and that no condition of trade is healthful or salutary where keen and actual competition does not exist. We are satisfied, further, that the Equity Exchange adds, in a limited way, to the competitive conditions which should always exist within the trade. We be- lieve further, that the development of the cooperative principle which the Equity Exchange claims to assert, is an economic one that will m time result in savings and improved market conditions to the grain growers of the Northwest. GEAIN EXCHANGES. 347 The rules, by-laws, and resolutions of the Minneapolis Chamber of Commerce, with numerous tabulations, statements, and exhibits concerning the organization and its members, and also the rules and regulations of the State railroad and warehouse com- mission and numerous statistical tables prepared by the commission, together with many miscellaneous exhibits, were received in evidence and offered as a part of the evidence considered by the undersigned in connection with the testimony in making this report. The Chamber of Commerce at Minneapolis is a voluntary association organized under chapter 138 of the General Laws of Minnesota for 1883, and consists of a limited number of members elected by a conimittee appointed by the board of directors of the association under rules which at this time confer upon the board of directors substan- tially absolute control over the admission of new members. The number of member- ships is limited to 550, and any member may own an unlimited number of member- ships. The membership of the chamber of commerce has not been enlarged for more than 10 years. For years the price of these memberships has ranged from $3,500 to $5,000. For the past six years the mUlers and elevator men have had control of the Ijoard of directors of the association. Two firms of the chamber of commerce own, control, and yote 21 memberships each. Some firms own and control a large number of memberships; 10 firms upon the chamber of commerce own, control, and vote at least a hundred of these limited memberships. An applicant, after he has purchased a membership, must receive an affirmative vote bf a majority of the board of directors before he becomes a member of the associa- tion. The board of directors have arbitrary and unlimited power to reject any appli- cant for membership whose application is objectionable to them for any reason what- ever, and the rejected applicant in such case has no appeal. In the case of the Minne- sota Fanners' Exchange, hereafter alluded to, the exchange was refused admission to the association even after it had bought a membership. The rules of the chamber of commerce are secret and the book of rules bears upon its cover "for use of members only." These rules provide for the punishment and disci- pline of members. Upon the violation of any rule, regulation, or custom of the associa- tion^ any member may be punished by a fine, suspension, or expulsion from the asso- ciation by a vote of the board of directors. Members are disciplined in secret and no publicity permitted. A list of all disciplined, together with the nature of the charge, was demanded of the secretary of the chamber by this committee. The request was not complied with and the list was not produced, although it appeared from the testi- mony given that the members were frequently disciplined and that in at least one instance a member had been expelled from the association, while in another instance a member had been disciplined for bribing the manager of a farmers' elevator to ship him grain. In a similar manner the rules of the association provide that all differences with regard to financial matters between members of the association shall be arbitrated and adjusted by a committee whose hearings and report are not made public, but whose decisions have the same force and effect as a judgment of a court of law. By another rule of the chamber of commerce in eases where one member becomes indebted ,to another, the creditor is given a lien upon the membership of the debtor, and this lien has been held by the courts to be superior and paramount to the claims or ordinary creditors of the member. It appears from the evidence adduced that memberships which, in liie case of at least two firms represent an aggregate invest- ment of over $70,000 each, are construed by our courts to be exempt from levy and sale upon execution. The injustice of several rules of the association, and particularly the rule of prefer- ence last alluded to, is weU illustrated by the case of Elias Steenerson, a witness before this committee. Mr. Steenerson was a member and a director of an incor- porated organization known as the Minnesota Farmers' Exchange, organized in 1904. After considerable time a membership in the chamber of commerce was found for sale and actually bought for $4,000. The directors of the chamber refused to sanction the application for membership or grant the farmers' organization or its representative admission. By this time grain was arriving in large quantities from the farmers' organization, and arrangements were made with Alexander McKinnin, a member of the chamber of commerce, to handle it. McKinnin, in turn, turned the grain over to E. L. Welch, another member of the chamber. Thirty-six carloads of the value of $12,000 had thus been turned over to Welch when McKinnin was declared insolvent. It tiien developed that McKinnin was largely indebted to Welch on ac- count of option speculations, and Welch appropriated all of the grain in question to apply upon McKinnin's debt. Welch availed himself of his lien, as a member, upon McKinnin's membership and took that also, and applied it upon McKinnin's debt to him. There was nothing at all left to the farmers' organization for their 36 cars of grain. It failed soon after and went into bankruptcy. 348 GRAIN EXCHANGES. The rule of the aaaociation with regard to the election of officers lends itself to the easy control of a comparatively small number of the larger firms devoted to the milling and elevator interests. The ballot cast at elections is in no sense a secret ballot, as an exact record of the vote of each member of the association is kept by the election tellers, submitted to the board of directors, and preserved for at least 60 days after the election. It clearly appears from the testimony that the chamber of commerce by the strict and literal enforcement of a rigid rule, absolutely prevents any member from handling consigned grain for less than the commission rates established by the association. The established rates are higher for nonmembers than for members, and no reduction of charges is tolerated or permitted on the part of any member. Among members of the association all commission charges are uniform, and no competition whatever is permitted between members so far as charges are concerned. By another rule of the association aU track bids or offers for grain at country points in carload lots for shipment to Minneapolis are noncompetitive. Such bids or offers must be baaed upon the Minneapolis market fixed charges and no member can bid above the market even for a carload lot of the choicest seed grain. The effect of this rule, which is rigidly enforced, is to absolutely eliminate competition in the pur- chase of grain in the country in carload lots when intended for shipment to Minne- apolis. This fact was admitted by an official of the chamber. Under circular 215 on page 66 of the rules of the association, a member is forbidden to pay the price of a telegram above the amount that is permitted to be paid for grain. The rules of the chamber of commerce do not seem to provide specifically for the im- position of a switching charge, nevertheless a custom has grownup among' the mem- bers, and it may fairly be assumed the charge is made with the sanction of the chamber, to impose a switching charge of .$1.50 per car. This custom is now and has been in effect for over 20 years. It was explained that 20 years ago this sum was an approximate average of the charges actually imposed by the railroads. With regard to the present time, however, the statistics of the railroad and warehouse commission show the charge to be greater than the actual average imposed by the railroads. Minneapolis appears to be the only grain exchange in the country where such charge is assessed to the shipper. It was admitted by a member of the chamber of com- merce that the charge is now annually assessed against thousands of cars at Minneapolis where the railroads impose no switching charges whatever. Under circular No. 286, which has the full force and effect of a rule, no person can- be employed as a traveling agent by any firm upon the chamber of commerce unless such person first makes written application and is licensed by the board of directors. In such application he agrees to abide by all of the rules, regulations, and customs of the chamber and to be amenable to discipline in the same manner as a member. For a number of years what is known as the Grain Bulletin has been in the busi- ness of furnishing subscribers with a daily price card indicating prices to be paid for grain at such local stations and to be used as a guide by the buyer at such station. The prices upon the card are normally based upon closing price of the day before at the terminal market, after deducting freight and other fixed charges and what is. to be the margin of profit. Under the practice now in vogue the prices quoted upon the card can be changed for any given station, and are changed when any subscriber desires to pay more for grain than what is known as the list or normal price at any given station. The testimony showed that in the neighborhood of 100 times each year, the publisher of this card received requests to raise the prices at given points above list or normal price. That these requests usually came from line ele- vator companies for points where competition was keen. In a sense the card is ofiicial; and the prices quoted are usually followed at country points by the buyer. On ac- count of the practice of raising prices above normal at given points, at the request of any subscriber, it has often been used to fight competitors. We believe that no agency should be permitted to quote a price to be paid for grain at given points, and that no such price quotations should be circulated except the actual market value of the grain at the terminal, and that such price quotations should be sent out by the railroad and warehouse commission. The Grain Bulletin and the rules and practices of the association disclosed at your investigation have the effect of limiting and in some instances completely destroy- ing the competition which should exist between members. They vest in a board of directors almost complete control of the grain trade, and in our opinion this consti- tutes a practical monopoly. The conception of the chamber officials as to the nature of the association, as was stated before your committee, is that it is a private market place — ^a private corporation — and as such not subject to public supervision and direc- tion. We can not concede this view. Every organization or institution whose opera- tions directly affect the public and its welfare, as does the chamber of commerce of GKAIN EXCHANGES. 349 Minaeapolis, is by that veiy fact clothed with a quasi public interest which should make it subject to State supervision and regulation. The association should be an open market place operated under public sanction, public knowledge and approval. The present rules and practices enumerated above are made and enforced under the theory above stated, that the association is a private corporation in whose business and activities the public has no interest. Before proceeding with any recommendations, the undersigned desire at this time to call attention to some of the results already accomplished by lie investigations and the consequent publicity. 1. The evidence showed that in 1906 the chamber of commerce entered in a com- pact with certain railroads, the effect of which was to charge the shipper with de- murrage within 24 hours after his car arrived at the terminal. Whether or not this agreement was continuously enforced from 1906, and just how much was charged to shippers under it, does not appear from the testimony. On December 31, 1912, the board of directors of the chamber of commerce met and revoked this agreement. 2. During the progress of this investigation the Federal Government filed a suit • against the Chicago Board of Trade and demanded its dissolution on the ground that its closing price rule, which fixed a maximum price at the close of the day's market above which the members could not bid for or purchase grain, made and constituted that body a monopoly in restraint of trade. The Minneapolis Chamber of Commerce had maintained a closing rule substantially similar in its effects, so far as the under- signed can determine, to the Chicago closing rule. Three days after the public press announced the Government's suit against the Chicago Board of Trade the board of directors of the Minneapolis Chamber of Commerce met and revoked its closing rule, thereby permitting its members to pay any price for grain between the closing of one day's operations and the opening on the next day. 3. The evidence adduced during this investigation showed that in certain instances commission firms which were members of the chamber of commerce had sold con- signed grain to subsidiary and affiliated companies and firms. It was admitted that in at least one instance a number of cars of gram had been sold by a commission firm of the chamber of commerce to its subsidiary firms without the consent or knowledge of the consignor. It was also shown that a considerable practice, in fact, almost a general practice, was followed by certain firms of the chamber of commerce in selling consigned grain to their subsidiary and affiliated companies, where the consent of the diipper to this procedure had been previously obtained. On March 30, 1913, after this state of affairs had appeared from the evidence adduced before the investiga- tion, the board of directors of the chamber of commerce met and adopted a rule for- bidding any member to sell or buy consigned grain to or of a subsidiary company, whether the consent of the consignor had been obtained or not. This action on the part of the chamber of commerce was a recognition of an existing evil. The under- signed members of your committee are informed that the railroad and warehouse commission of the State have also taken cognizance of this evil and have announced then' determination of laying down a rule which will positively forbid the practice above described, and will forfeit the license of any company found guilty of the practice. In view of the action already taken by the directors of the chamber of com- merce, and in view of the prospective action of the railroad and warehouse commis- sion, the elimination of this practice may now be counted as one of the actual results of this investigation, and no further recommendation of your committee is needed. 4. The investigation of your committee disclosed the fact that a considerable part of the transactions in futures taking place upon the floor of the chamber of commerce were not entered into for the purpose of hedging or protecting any actual purchase or sale, but were speculative or gambling transactions. It was further shown that in many instances the individuals who bought and sold futures, in addition to the fact that they had no real interest to protect, were also inexperienced men of small means who possessed neither the financial ability to carrj- the speculative risk nor the judgment and experience requisite to protect themselves against the hazard incurred. It also appeared from the evidence and was freely admitted by the secretary of the chamber of commerce that every transaction in futures, whether it be a legitimate hedge or purely speculative, tends to influence the market to the exact extent of the transaction — ^in other words, that every transaction in futures registers its effect upon the cash price of grain. In recognition of this condition of affairs, the board of directors of the chamber of commerce on March 31, 1913, adopted the following resolution: "Resolved, That the president and secretary of the chamber of commerce be in- structed by the board of directors to immediately confer with the officers of other grain exchanges upon which grain is sold for future delivery, and endeavor to secure an agreement upon the part of the leading grain exchanges that a rule or regidation 350 GRAIN EXCHANGES. be adopted which would make it necessary for members of the various exchanges to require an initial margin of at least 10 per cent on all speculative purchases or sales of grain or seed for future delivery in lots of not less than 5,000 bushels." It was claimed by the president of the chamber before this committee that if this rule were generally adopted by the grain exchanges of the country, it would go far to eliminate the gambling element in future transactions and would at the same time practically prevent the small inexperienced and financially unfitted speculator from undertaking to carry the burden of speculative risks involved in future transactions. The undersigned members of your committee are of the opinion that the action taken as outlined above is an official recognition of an evil which should be made prohibitive. There can be no doubt that a large proportion of the present transactions in futures are of a purely speculative nature and that the parties engaged have no actual interest to hedge or protect. We recommend — 1. That the legislature so far as possible provide for full and complete publicity as to the rules, regulations, practices, and procedure of the chamber of commerce. 2. That legislation be enacted to abolish the switching charges now charged to . shippers. 3. Legislation to abolish the rule of the chamber of commerce which eliminates competition in track bids for grain at country points. 4. The abolition of that rule of the chamber of commerce which gives to one member of the association a lien on the membership of another^ superior and prior to ordinary , claims and demands on account of indebtedness existing between such members and persons not members of the association. 5. Legislation which will make the membership of a member of the chamber of com- merce liable to seizure and sale upon execution in the same manner as other unexempt property. 6. Legislation making the number of memberships of the chamber of commerce unlimited, and enabling an applicant for admission to appeal from an adverse decision by the board of directors to the vote of the membership at large, and thereafter to any court of competent jurisdiction in any case where he is denied admission to such asso- ciation arbitrarily or in bad faith. 7. Legislation which will permit a member of the chamber of commerce to sell con- signed grain for any charge or margin of profit which he sees fit. 8. That the railway and warehouse commission be authorized and directed to take the necessary steps to send daily quotations of actual market prices paid for all varieties of grain at terminal points. 9. Finally, that legislation be enacted covering the entire field pertaining to the handling and marketing of the farm products of the State. Bespectfully submitted. 0. A. Lende. S. L. Hanson, STATEMENT OF S. D. WORKS, OF MINNEAPOLIS, MINN. Mr. Works. Mr. Chairman and gentlemen of the committee, my friend, Mr. Drake, in passing his compliments about yesterday, gave me a very pleasant one, in one respect, in which he stated that the Senate of tne State of Minnesota was absolutely under the control of the Democrats. The situation in brief is this: There are 63 mem- bers of the senate • Mr. Drake (interposing). Mr. Chairman, a point of order. I made no -such statement whatever. Mr. Works. There were 63 members of the Minnesota Senate. In that number 19 were Democrats, and I am very glad to say, not only for our State, but that the news may be carried to other States, that the Democracy is beginning to come into its own. When one Demo- crat can outweigh two or three Republicans it certainly means a little something. The legislation which has been referred to before the Minnesota State Senate was one that was born of conditions that existed upon the other side of the house. The legislation that called for an inves- GRAIN EXCHANGES. 351 tigating committee from the house side simply "embraced two parties to the OTain trade, the Minneapolis Chamber of Commerce and the Duluth Board of TVade. It was apparent to every unprejudiced man at the very beginning that it had a single purpose in mind, that of injuring the reputation of those two exchanges mentioned, and boost- iog as much as possible the so-called Equity Cooperative Exchange. Without consulting an outside member and simply upon my own volition, desiring to put it before the Minnesota Senate, I did so in the form of a resolution, which is very brief, and I will read the sub- stance of it: "The committee appointed to investigate the grading, screening, and mixing of grain and grain prices at the primary and terminal markets, the methods of the chamber of commerce, the hay exchange, and all matters pertaining to the grain trade." That was the scope of the resolution that cdled for the appointment of the senate committee. And it extended an invitation throughout the entire State that any charges that might be made should be brought to the attention of the committee. The committee at once entered upon its arduous work, and I do not think that a committee has ever sat — at least in my time — ^in the Minnesota Legislature that has worked so diligently and so faithfully as did this committee. My recollection is now there was somewhere in the neighborhood of 30 days of almost constant sessions, sometimes running two or three days. It was during the recess period, when the balance of the legis- lature was in adjournment. There was no attempt upon the part of that committee to do anything but examine conditions fairly. They went, I believe to extreme length, they did things that I have never known an investigating committee to do before, for the simple desire upon the part of the members of that committee, backed up by the sentiment of the Minnesota Senate, that there should be a full and complete and fair investigation of these various enterprises. It was recognized, of course, that we in the Northwest are a grain- growing people. It is recognized that the great business of the North- west is the grain business, and if there are any tendencies upon the part of any agencies that were handhng this business that are unfair to the farmer, that are unfair in any possible respect, it was the desire and attempt upon the part of the committee to go to the very depth of this and find out conditions and apply the remedy. It is true that there were found by that investigation things that might be regarded by those who "did not understand as unfair. A question was raised here in the course of this hearing as to the matter of grain elevators selling to subsidiary companies, and you wiU find, if you will read the report, that it does recommend upon the f)art of the committee that this be remedied. WhUe not particu- arly regarded as an evil, it is regarded as something that might lead to an evil, and the sentiment is against it, and the cessation of this practice that might lead to unfair dealing with the farmer was rec- ommended. You will also, Mr. Chairman, should jou read this report, find that there is a strong recommendation in favor of doing away wioh the switching charges the switching charge that has been spoken of two or three times as being unfair and which was elaborated upon by Mr. Drake. This evicfently has been brought about by railway conditions not controlled by grain dealers. The committee recog- nized those conditions, and thought it possible to have those con- 352 GRAIN EXCHANGES. ditions done away with, so that there could be.no attempt or no thought upon the part of anybody that the people engaged in the train trad^ were disposed to take advantage oi shippers in those ealings. ■ And it might be said in passing that it was very clearly brought out during the course of the investigation that while the Mmneapolis Chamber of Commerce charged switching charges, these same charges were found in the reports of the dealings of the Equity Cooperative Exchange. In this connection I wish to call your attention for a moment to one specific charge that was made — and by the way it was the only charge that was made by anyone from the outset regarding the conduct of any single member of the chamber of commerce. That was the charge that was referred to by Mr. Drake yesterday, regard-, ing the firm of E. L. Welch in his dealings. I think that the com- mittee spent nearly two days in probing this matter to the very bottom, and when once it was probed it was so simple I beUeve the conclusion reached will commend itself to the fairness of the members of this committee, and I want to take the hberty of reading briefly the findings on this particular charge. The committee says: The only complaint made to your committee in reference to any commission mer- chant connected with the chamber of commerce related to a transaction which took place eight years ago, but which was carefully investigated by your committee. It appears that in the year 1904 or 1905 a corporation known as the Minnesota Farmers' Exchange consigned and delivered 36 carloads of grain to Alexander McKinnon to be sold by. him. McKinnon sold this grain to E. L. Welch & Co. — I might add that McKinnon was a friend and neighbor who had lived in Crookston, lived in the vicinity where this organization existed, and had recently gone to Minneapolis to become a grain merchant, but owing to the fact that he had so recently entered the field he was not in a position to handle this grain successfully for his client, so it was turned over to E. L: Welch & Co. — McKinnon sold this grain to E. L. Welch & Co., and the E. L. Welch Co. paid McKinnon in full for all this grain, and had no notice or knowledge that McKinnon was not paying to the owners of the grain the proceeds of the sales. McKinnon did not in fact pay over to the Miimesota Farmers' Exchange all of the proceeds of the sales, and later failed, while owing a balance on account for these 36 cars of wheat of more than $12,000. The books of E. L. Welch & Co., were produced before the com- mittee and examined by the committee and by expert accountants and sustained the testimony of E. L. Welch and others that he had paid McKinnon in full for the wheat. I think, possibly unintentionally, this statement was made in error, that the State Farmers' Associa- tion lost the 36 cars of wheat — that they lost that money, whatever it may have been. This, however, is not correct. The members of the Mnnesota Farmers' Exchange went down into their pockets, and these farmers were paid, dollar for dollar, for the grain which they had consigned to this company; and I may add further than this, that so well satisfied were the members of this exchange during its brief period of existence that it continued to sell and consign grain to the firm of E. L. Welch & Co., which doubtless they would not have done if there had been anything in the nature of fraud in the transaction with them. GRAIN EXCHANGES. 353 I want to say another thing on the situation in Minnesota. Min- nesota has been regarded as one of the States that has been in the very forefront of progressive legislation. I believe that there are few States in the Union that have better laws than has Minnesota. I believe that there are few members of Congress that stand higher than the members of the bar and bench in the State of Minnesota. They are men of high character and above reproach in every sense of the word. I have been for a number of years a member of the Miimesota State Legislature, and a cleaner, more honorable body of men I have never associated with, and the laws upon the statute books of that State bear evidence of the fact that the State is high in regard to these matters. I want to refer to another thing that has been hinted — or suggested, rather — that the State is not in a prosperous condition. I do not beUeve that there is a State in the Union that is more prosperous than the State of Minnesota. I sat as a spectator a short time ago in a large bankers' meeting and I heard this statement made, which to my mind fully illustrates the condition of things in that State. The bankers were talking over the situation in various parts of the coun- try, and one of them made this statement: "Minnesota is the oasis in the desert of finance at the present time." The sturdy viking who addressed you the other day regarding conditions there found himself reverting naturally to a condition that every man ought always to have — position, rather — and that was to point with great pride to the situation in his own State. He declared that the banks in the village of Litchfield were hterally bursting with money. He declared at that time that the whole country was prosperous in that territory because of cooperation among the farmers and the splendid crops that have been raised; and, Mr. Johnson, I know that that is true, and what is true of the county of Meeker is true of every county, practically, in the State of Minnesota. Some are more prosperous. I am told that in one county, the coimty of Blue Earth, m which there is one city of possibly 10,000 people, that there is on deposit in that city more than 15,000,000, and more than 80 per cent of that money is money that belongs to farmers of that district. It is true that there is prosperity upon every hand. It is a prosperity that is deserved. It is a pros- perity that has come to them by the industry, by the careful hus- bandry by the great mass of farmers that hve in that particular sec- tion of the country. A few days ago I was talking with a friend who was conducting a large department store — or general store, as we call them out there — in one oi the small towns in the southwestern part of the State. He has foimd it necessary during the past season to employ a footman who shall stand in the afternoon at the door of his store to open the doors of the automobiles driven in by the farmers as they come in from the country to trade. The census of another county in that State shows that the farmers — that there are 600 automobiles in the county, and 300 of them belong to the farmers. Now, it does not appear from that condition of things that the people of Minnesota are suffering a great deal of the hard times because of the condition of the grain market, because they are not getting a square deal when they send the products of their farm in to the chamber of commerce. 37214—14 ^23 354 GBAIN" EXCHANGES. I believe, Mr. Chairman, that in no, part of the world is there a call for a change in the condition less than there is in Minnesota. I believe that to-day I far better represent the farming interests of Minnesota than any one of these gentlemen who have spoken here. It is a comparatively easy matter for a man to get up and say, "I represent 100,000 farmers, or 200,000 farmers," or any other number. I have had my deaKngs with them and they usually deal in very large figures; but I beheve — I repeat it — that I am m closer touch wim the great farming interests of Minnesota than a single one of these gentlemen who have come before you at this time. That is my business. It has been my business for a number of years. And, Mr. Cantrill, I wish to call your attention, you asked ' the other day as to whether the farmers of Mumesota were finding it profitable to engage in farming. I wish that I could take you on a trip through the Red Eiver Valley. I wish I could take you into some of the beautiful sections of this State, and I would not need to say a word, but the condition of the country would answer that question and answer in the affirmative. And I am going to caU your attention at this time to some examples with which I am personally familiar. The first one is this : When I first came to the Eed River Valley, there was a very large farm in the southern part that was being broken up. It was a farm that belonged to Mr. Dwight, formerly a Member of the Congress of the United States. There was a young man living in the town who was casting longing eyes, as every sen- sible young man does, upon some of the farms in the outlying terri- tory. Mr. Dwight said to this young man, There is such-and-such a section, which lay about 5 miles out of town^ — I am weU acquainted with it and have driven over it a hundred times — and he said to this young man, "I wiU seU you this farm for so many dollars per acre." My recollection is that it was $12 per acre. The young man employed all his finances; he strained his credit to the breaking point to break and prepare this piece of land for a crop, and he succeeded in doing it. The land was broken, the crop was garnered, and the proceeds of that crop paid for the farm entirely. I know of other instances where men have told me — men who are reliable^ — that they have raised several crops in the course of their lifetime that have practi- cally paid for the farm. And along this line I want to call your attention again, referring to the sturdy viking from Meeker County, in which, coming down on the train, he told me about his farm, cost- ing $15 per acre, if I remember correctly, and now that he regarded it as worth $150 per acre. It does not look very much as though the farmer were suffering from the condition of the grain market in the State of Minnesota, and I have no doubt it is true that farms have increased in the. last 10 years more than 100 per cent in value, because of the ability of the farmers farming them, and because of the natural rise in land; and at this time, Mr. Chairman, the farmers from Illinois and the farmers from Indiana, the farmers from Iowa, are literally flocking into the State, of Minnesota and buying land. Why do they do uiisl Mr. Chairman, why is it that it has apparently been reported that Honus Wagner and Christy^ Mathewson and certain other lords of that great fraternity that might be mentioned are simply given a check and simply fill out the sum they would require for their services during the season? Why has this been done? Because they know that GRAIN EXCHANGER. 355 Honus Wagner and Christy Mathewson will deliver the goods. And the same reason is why the farms of Minnesota are being so eagerly sought at this time, simply because they know that the farms of Minnesota when the time comes will dehver the goods, and that it will be a splendid and profitable investment. Mr. Canteill. Eight there, Mr. Works, at that point— what is the average wheat production of your State ? What was it last year « Mr. Works. Approximately 90,000,000 bushels. Mr. Canteill. Per acre, what was it? Mr. Works. The figures are not made up at the present time, but I should presume likely that throughout the State it would be some- where in the neighborhood of something like 15 or 16 bushels to the acre, but in the Red River Valley, and some i)arts of southern Minne- sota where conditions are more favorable, it is a very common thing for the yield to run above 35 bushels. Mr. Canteill. I mean, taking the State as a whole ? Mr. Works. Well, as I told you, I think about 15 or 16 bushels — approximately that. Mr. Cantrill. What would be the average value of that wheat land per acre ? Mr. Works. The average value varies very much. We have land in southern Minnesota which sells for $125. Land in the Red River Valley averages probably $45 per acre. Mr. Cantrill. Now, at an average of 15 bushels per acre, what does it cost to pr^are and sow and harvest and get to market an acre of wheat in your State 1 Mr. Works. Mr. Chairman, I am farming — if you will pardon a personal reference — approximately 10,000 acres of land. In the very nature of things I am obliged to hire everything done, and I wish that I had my books here, because I open a ledger account with every farm. What I produce is credited, and what I pay out is charged. I have just made some figures here from memory, which are not very far from correct, and I usually charge off $1.50 for plowing the land, $1 per acre for seed, $1 for planting, $1.50 for the harvesting of the crop. Thrashing cost, on an average, 3 cents per bushel. Of course, the amount of the thrashing bill will depend a great deal upon what the crop produces per acre. Mr. Cantrill. Three cents a bushel for thrashiag wheat, you say ? Mr. Works. Yes; 3 cents a bushel. Although I consider that there is a profit on all this land, of course in my business I use prob- ably the most economical methods that can be used. I have two large gasoline engines with which I plow from 30 to 50 acres per day with each one. Of course, the planting is done along the same fine, and harvesting in like manner. It has been said by the Dalrymple Farm managers, who farm and own the largest farm in the North- west, that the wheat can be raised at a cost of less than 50 cents per bushel. I have never figured it that way. I have always figured it and entered it on my books as an acreage proposition, but I have not any doubt but what they are correct, and that there is a profit in raising wheat if you can raise 10 bushels per acre and the price averages as it has averaged for the last 10 or 15 years. Before that, I know nothing about it except what I am told, but I have no doubt it is correct. 356 GBAIM" EXCHANGES. Now, I want to call the attention of this committee to another matter, and that is in reference to the handling and marketing of the crop. As I said before, I am in close touch with the farmers of my locality, and, Mr. Chairman, I have never heard a single complaint charged up against the chamber of commerce. I have heard people say that they have sent wheat there that they thought ought to grade No. I and it had been graded No. 2. But that, of com-se, is a matter which the State law has to do with, and in this connection I want to say further that the system of handhng the grain, weigh- ing, sampling, and grading by the State is as near perfect as any human system in the world can be. But I have thought a great many times, when I have shipped my wheat or my flax or my Oats, or any other grain, to members of the Minneapohs Chamber of Com- merce, and when the returns came in and I would look it over, so many doUars for freight and then $10 for commissions — an average of about $10 for commissions per car — and it seemed to me a ridicu- lously small thing. How would it be possible for a man, a farmer, to market his own crop if it could not be done through the medium of these commission men or middlemen ? Then, again, I wish to refer to the matter of hedging, as it applies to the farmer. Now, there are to-day in Minnesota, among the more progressive farmers, an increasing number of farmers who recognize the. value of selling their crops when a good price can be obtained. Some years ago — to make the illustration absolutely concrete — I looked over a crop of wheat growing in July, and I figured that we would have 20,000 to 25,000 Dushels of wheat. The wheat market at that time was very strong, owing to the conditions in the Southwest, and I am quite sure that it was the house of Van Dusen & Harrington through which the deal was made. The wheat was sold at $1.13 for delivery in September, and when the new crop commenced to come in the price went down, and when the deal was closed it was closed at 92 cents. The wheat was then put into the bins and it was carried through December and sold at $1.06 or $1.08, if I remember correctly; not very far from that. Another instance comes to my mind, which I wiU relate briefly. During the season of 1912 I had quite a large crop of flax. In July the flax market was up around $1.75, and I sold aggregating 10,000 or 12,000 bushels to the firm of E. L. Welch & Co., to be dehvered in October at $1.74. Flax continued to" go down until the time of delivery it was somewhere in the neighborhood of $1.35 or $1.40, and I closed the option. I carried it in the bins until the next season, and in the spring, when I desired the bins to be emptied for other pur- poses, I put it into the Minneapolis market and sold flax for later delivery, and so did fairly well on that deal. Now, those are some things, the value of hedging — future sales rather — as it appeals to the farmer, and there is to-day an increasing number of them that are taking advantage of tins opportunity for Erofit. It can be done, even with a small crop of about a thousand ushels,just as well as it can with more, and the services that will be rendered by these men are sure and quick, and I am sure entirely satisfactorily to aU parties concerned. Now, I am not a member of the chamber of commerce; I am not a member of the board of trade, but I am interested in seeing a fair deal and a square deal consummated to all parties, and I have come GRAIN EXCHANGES. 357 before this committee and made these statements because I beheved that it might be of some value to the members of this committee, as it appears from the farmer's standpoint. STATEMENT OF G. F. EWE, OF MINNEAPOLIS, MINN. Mr. Ewe. Mr. Chairman, I am here in behalf of the Minneapolis Chamber of Commerce, of which I have been a member for a good many years. At one time I was the president of the Minneapolis Chamber of Commerce, and I come here for the purpose of trying to throw some light upon this question which is before j'ou for consider- ation. The resolution introduced for consideration by this committee implies that there is a monopolistic condition existing in the graim trade in the Northwest, and I want to say that my many years of experience in the grain business, extending over a period of 35 years, having followed all branches of the grain trade, mcluding the cash grain business, convinces me that such a condition does absolutely not exist, and can not exist by virtue of the conditions and facts that we have furnished here. We have a great number of elevators in the country, far in excess of those required to handle the crop, and the result is that there is the keenest competition existing between the elevators who buy grain from the producers. And as indicated by the report of the Depart- ment of Labor, which has been referred to in the matter this morning, the 3-cent margin mentioned by that report is about in accord with our actual results in our relations with the farmer in the handling of his grain through these elevators. This margin, it must be borne in mind, is not the net margin per bushel, but is the gross margin out of which must come the cost of operation of these elevators, the cost of interest, insurance, and so forth, so that the net results to the man that handles these country elevators, with all the protection, all the safeguards he can throw around himself, leaves his profits not to exceed possibly 1 cent a bushel. These elevators are not only actually competitive among themselves, but representing as they do line elevator companies, independent elevator companies, farmers' ele- vator companies, and local organizations, which are created for that Eurpose, they are also under the jurisdiction of the railroad and ware- ouse commission which makes such rules and regulations for safe- faards for the producer in the conduct of these elevators, and they ave got to give bond to the State of Minnesota to indemnify the producer against any loss. They also fix. the maximum charge that can be exacted from the producer in handling the grain from his wagon to the car, and for the storing of this grain for the producer until such time as he may elect to sell it. And we have to give bonds to indem- nify the producer against loss by fire and also against loss by financial difficulties. The grain passes from these elevators to the open market, the Minneapolis and Duluth markets, where it is exhibited on the ex- change floor for sale to all the buyers that congregate there, perhaps 25 or 30 in number, and representing as they do local mills in the Minneapolis market, as well as millers in other markets and cities, and including exporters, so that there is. at all times the keenest competition that it is possible to have in any market in the land. 358 GEAIN EXCHANGES. A great deal has been said about the mbdng of grain in our ele- vators — before I touch upon that I want to make mention of the fact that the inspections of grain as it comes into the Minneapolis and Duluth market is by the State irispeotion departnient, which is created by the railroad and warehouse commission under a statute for that purpose. These men are the only men that inspect this grain, the only jnen that have access to the cars containing this grain. They do not know who shipped it, or to whom it is shipped, and the grain is. inspected under the rules and regulations laid down by the railroad and warehouse commission, and created for that purpose. After the grain is unloaded at the mill or elevator to which it is to go, it is weighed by the State weighman, appointed and cre- ated by the railroad and warehouse commission for the purpose of obtaining the actual contents of the car. Now, to say that there is collusion, or to say that there is the least bit of influence exercised between the grain men and the inspection department is absolutely without foundation. Mr. Simpson. How much of the grain that comes into the Minne- apolis market is owned by farmers, and how much is owned by the elevators ? Mr. Ewe. There have been some figures made on this question, Mr. Simpson, and, as I remember it, it was shown that the farmers severed the relations with the grain when he markets it to the local elevator man to the extent of about 95 per cent of the production of the country. So that of the grain that leaves the farm 95 per cent is not such grain as the farmer has any further interest in when it arrives at the market. And I want to say in that connection that it was shown by the Senate investigating committee, that has been referred to on several occasions, that invariably and without excep- tion the grade placed upon the grain bought from the farmers by the country elevator men and the grade received for the same grain at the terminal is in favor of the farmer as compared with the grading of the same grain at the terminals. You understand these country elevators have to make a report to the railroad and warehouse commission every year showing the grades f (laced on grain they receive from the farmers and the grades received or the same grain at the terminals. I simply cite this to show that there could not be any collusion, that the competition is the very keenest, and that the business could not be conducted on more economical lines than it is being conducted. Now, as to the mixing of grain. A great deal has Been said to indicate that the farming interest is being imposed upon because the mixing of grain is allowed at terminals. I have already shown, gen- tlemen, that 95 per cent of the grain thatcomes into the terminals is grain that the farmer has lost interest in. It is owned by the country elevators, and the question of what it brings at the terminal can not affect the farmer. The terminal elevator man is in constant competition with the mills for this wheat, and he is forced by virtue of conditions to take everything into consideration, including the mixing, when he makes his initial purchase. In other words, if he has got to pay expenses, including 2 cents a bushel for carriage, and he can, by securing the wheat at a discount suflB.cient to justity it, clean it and treat it and remove the obnoxious features and produce a grade of wheat that will grade higher, by so doing he will possibly eke out a GRAIN EXCHANGES. 359 meager margin of profit. There can not be any tremendous margin of profit in this mixing, for the reason that elevator conditions in Minneapolis are in the very keenest competition. To illustrate that, it was only just recently one of the large elevator companies in Minne- apolis wrecked an elevator for the lumber in it. Another large ele- vator company recently sold an elevator that would scarcely pay the price of the material in it. A big railroad company there recently wrecked a big elevator because it had no more value as an elevator proposition. I simply make reference to these things to show that there can not possibly be any collusion between the elevator com- panies; that the margin of profit is so low that there is nothing in it. A great deal has been said about the right to hedge in futures and the advantages and disadvantages. If it were not possibly for us to protect ourselves against purchases of grain as they are made either from the farmer or at the terminal, we would beforced to exact a much larger margin of profit than we do to justify the assump- tion of the business hazard, because if we did not we would be out of business — we would be forced out of business. Take to-day, we are buying No. 1 northern at one-half a cent bushel over the May price, and we are selhng May against this purchase just as fast as we buy cash wheat. Now it costs about 1 cent a bushel in the way of interest and insurance for us to carry that wheat; therefore when we reach May 1, this wheat has cost us li cents a bushel over the May price, and when we deliver out those warehouse receipts that IJ cents a bushel follows the receipt, as provided by the laws of the State of Minnesota, and the only earning power on that proposition is dependent on the amount ~ of storage which would follow that warehouse receipt. Now, can you think (-f any method that could possibly result in a more economic method to the producer than this method of handling the grain business? Now, then, the fact that this competition does exist in the market, and that the terminal elevator man does go in and compete with all other competition and pay the prices, were not permitted to mix this grain this way, the result would be that he could not buy the grain at all and that the grain would remain on the track until such time as the exporter and miller could come in and furnish a market. In other words, if this constant price-making factor were destroyed, it would mean that, on accoiuit of the increased hazard of carrying this grain until the exporter or miller can use it, the middleman would have to have a bigger profit for carrying the hazard from the producer to the consumer. These terminal elevators are also under the supervision of the rail- road and warehouse commission of the State of Minnesota and the rules and regulations are fixed by that commission. We give bond to the State of Minnesota to the extent of 15 cents a bushel to indem- nify anybody who intrusts the property to us for the faithful per- formance of our duty. The weighing into the elevator and the weighing out of the elevator is done by the State authorities. The inspection of all the grain that passes into and out of these elevators is by the- officials of the State of Minnesota, and we as elevator men, or we as grain men, have nothing whatever to do with it. The board of appeals is a separate and distinct organization from the inspection department. The inspection department is created by the railroad and warehouse commission, and the board of appeals is 360 GRAIN EXCHANGES. created by appointment by the governor of the State of Minnesota. When the grade that is placed upon this grain when it comes in from the farmer or the country elevator is not satisfactory to the com- mission man to whom the property is entrusted for disposition, he calls for a reinspection upon it, either for grade or dockage; and if that is not satisfactory, he carries it to the board of appeals, whose decision in the case is final and binding. I simply cite that to show that the keenest competition exists among the commission men, that they do everything in their power to protect the interest of their principal, otherwise they would not be in business. And gentlemen, the men employed for that service are just as competent and know their business just as well as anyone possibly could, and they offer the very keenest competition on the exchange; so that the suggestion in this resolution that there is a collusion or monopohstic condition existing either in the terminals or in the country or between anyone, is absolutely without foundation. Judge Simpson has called my attention to the fact that the rail- road and warehouse commission under the statutes control not only the terminal elevator men but every country elevator man as well, and the charges that they fix by statute, the charges that I have been referring to, are the maximum charges for receiving the grain from the farmer, putting it through the elevator and delivering it into the car. So that if the farmer is not satisfied with the treatment he gets as to price or grade, he is privileged to take a storage ticket for his grain — to take a storage ticket and carry it to some point where he thinks the market will be higher and sell his grain then, by paying a small amount for storage charges. The railroad and warehouse commission makes it mandatoryforus to extend to everybody all the facilities at the terminals or country eleva- tors that the elevator man enjoys himself, so that anybody who has grain for sale and wants to can place it in a special bin, or do anything that the terminal elevator man can do, and the millers do, except grind- ing it into flour, and we have to extend to that farmers' elevator man, or_ whoever it may be, the same privileges that we would to the ter- minal elevator man, with that same grain under similar circumstances, similar conditions. It has been suggested that possibly the members of the committee might want to ask some questions on some of these matters I have called to your attention, and if that is the case I will be glad to answer any questions that I can. Mr. Lenroot. In reference to the competition existing in country elevators, you said it was very keen. Does that apply to the price ? _ Mr. Ewe. It applies to everything. I am glad you asked that ques- tion. It was shown in the investigation last winter that the grade allowed to the farmer at the country elevator point, the inception where he markets his grain^ — at the country point — was a great deal higher than that allowed at the terminals. In other words, more Northern No. 1 hard wheat was bought and paid for than was received of the same grain by shipments to Minneapolis or Duluth. Does that make your point clear ? Mr. Leneoot. That would not necessarily mean that there was competition between the buyers at the point of inception.' Mr. Ewe. Yes; there is tihe very keenest competition, not only as to price, but as to grading and dockage. So that, as I have indicated GRAIN EXCHANGES. 361 before, the maximum margin of profit, as indicated in the report of the Bm-eau of Labor, is 3 cents a bushel gross, out of which comes the cost of interest, insurance, etc., of that country elevator, which leaves a net margin of not to exceed probably 1 cent a bushel. Mr. Lenroot. You do not have the system that seems to prevail upon the Chicago Board of Trade, that if the last price is not a fixed price there must be a record upon the Chicago board of the different price ? Mr. Ewe. The Minneapolis Chamber of Commerce does not exercise any control or attempt to control the price that any of its members pav in the country for any grain bought of the farmer. And the facts are that thefarmer receives from the country elevator man very frequently a price far iu excess of what that grain would bring if it were snipped to the terminal market on the date of the purchase. Mr. McHuGH. Mr. Chairman, it was understood between the repre- sentatives of the Minneapolis Chamber of Commerce that we were to discontinue at this time and take up one or two points that have been brought out by those who appear m behalf of the resolution. But I am advised that the chairman of this committee has assured Mr. Sager, of the Chicago Board of Trade, ah opportunity at some time this after- noon to be heard for a few minutes, and I wish to extend at this time the courtesy of the floor and give him an opportunity to make some statement which, I believe, he wishes to make to the committee. Mr. Pou. I am informed that it was agreed that this gentleman was to have 10 minutes. ADDITIONAL STATEMENT OF HIEAM N. SAGER, OF THE CHICAGO BOARD OF TRADE. Mr. Sager. In my remarks yesterday I intimated to the com- mittee that I considered Mr. Greeley, the chief witness for the other side, an incredible witness, and it has been suggested by the chairman of the committee that I might indicate to you why I hold that beUef . In my making these few hurried remarks, please bear in mind that at the time I heard of Mr. Greeley's attack on me I had absolutely no opportunity to bring any evidence from Chicago. I received a tele- fram in the nighttime from a friend of mine here that Mr. Greeley ad made this personal attack on me, and I took the first train for Washington. So what evidence I have to present here is such as I had to pick up here in Washington after I arrived, but I am sure it win convince your committee. Monday night of this week — ^Monday afternoon about 5 o'clock of this week— 7Mr. Greeley sought an interview with the newspaper reporter of the Price Current and Grain Reporter — and Mr. Greeley came to that reporter and editor and gave him an outline of what he intended to present to this committee — of what he said he intended to present to this committee — and I am going to call on that editor to verify my statements. In that interview he outlined what he said was to be his argument, and he did it for the purpose of having it telegraphed to the newspapers in advance, and he never mentioned my name in regard to the evidence he was going to introduce. He asked that reporter and editor who were going to be present from Chicago, and fc. PickeU, the editor and reporter I refer to, gave the name of every man that was coming from Chicago, and my name, of 362 GKAIN EXCHANGES. course, was not in the list, because I h^d not been^ summoned and did not expect to come. But, to be sure of his position, Mr. Greeley asked Mr. Pickell, "Is Mr. Sager going to be present?" and Mr. Pickell said, "No;" and Mr. Greeley said, "I am glad of it." Mr. Pickell, is that statement true ? Mr. Pickell. Absolutely true; and I say, sir, that Mr. Greeley deliberately took advantage of the fact that he knew you were not to be here to attack your name. Mr. Sager. Now, gentlemen, I only offer that in eTidence as to the methods of the man and his absolute unreHabiHty, and this man who attacked me when I was nearly a thousand miles away asked you to take his unsubstantiated word against mine, backed up by the evi- dence of Mr. Eckert and Mr. Griffin, and the documentary evidence I have introduced, and the evidence of Mr. Pickell here, and the evidence later to be introduced bv Secretary Merrill, of the Chicago Board of Trade. You gentlemen may not know why Mr. Greeley hates me so; why he attacked me in this manner, and I want briefly to tell you why it is. Mr. Greeley is a professional agitator on the elevator question. He makes a business of it. He makes his living in that way. He goes about the country delivering addresses for hire, for remuneration, for pay, against the association of which untU recently he has been a member. He does not do it for principle; he does not do it for ethics; he does it for money. He betrays his friends for a bag of silver. Now, gentlemen, I tried to settle the elevator question, and fairly well succeeded, and from that moment Mr. Greeley has hated and opposed me on every occasion he possibly could, because when the elevator question is settled, which he does not want settled, his poHtical thunder will be taken away; his opportunity to go about this country as he has done for years, lecturing for hire to farmers all over Illinois, Iowa, Minnesota, and South Dakota, at meetings advertised in advance to the effect that Mr. Greeley will talk on the elevator iniquity, on the alleged injustices of the grain exchanges, will be gone. And he does that for money; he makes his living mat way, and when I attempted to settle this question and take away that opportunity from him to ea,rn his living in that dastardly way, he began to attack me, and he has done it ever since. Now, gentlemen, what is my attitude toward Mr. Greeley? On my honor, never since he issued that open letter to the members of the exchange against me in December, 1907, have I spoken to him. I never have recognized him. I pass him on the street as I would a snake Mr. PoTJ (interposing). The committee would very "much prefer that you would not introduce into the hearings these epithets. We do not beheve you ought to do that. Mr. Sagek. All right, Mr. Chairman; just give me a moment more and I will confine myself as nearly as I can to facts only. Mr. Pou. We want the facts, and I think it is better to leave out those things. Mr. Sagee. Very well; let me give you a few facts. A few days ago, just recently, Mr. Greeley, who all these years has been a member of the Chicago Board of Trade, concluded to withdraw from that association. I shall tell you in a few minutes why he con- GRAIN EXCHANGES. 363 eluded to do so. Now, I wish to establish in your minds the credi- bility of the man — or rather the incredibility of him. Mr. Greeley posted his seat on the 'change for sale, for transfer. Now, what did the association do about this man who had maligned it for so many years when he concluded to sell his exchange seat and convert his privileges on the exchange into money ? Nothing, except this: It is one of the customs of the exchange that when a man is leaving it he shall pay up all of his honest indebtedness to members of the exchange if they so request. One of our most honored members, an ex-president of the exchange, asked Mr. Greeley to pay an honest debt which he had owed that man for years. Mr. Greeley denied that he owed the debt; he stated that he did not owe the money, and refused to pay it. He refused to pay an honest debt and denied that he owed this debt. This man then went back to his office and dug out of the archives of years ago Mr. Greeley's written obhgation, which that man, out of kindness, had never pressed until this time, and when confronted with that written obhgation Mr. Greeley paid the debt, and not until then. Now, Mr. Chairman and gentlemen, I submit to you is the testimony of a man who will state that he does not owe money when he does owe it, who will refuse to pay when he owes it — is the unsupported evidence of that man to be taken against the supported evidence of the men who in their absence he attacks ? Now, just one more point: Why did Mr. Greeley sell his member- ship on th« exchange at that time? and then I am done. All these years the board of trade has submitted to Mr. Greeley's attacks, his unjust attacks, his untrue and unfair attacks in these lectur(s which he gives for hire. They felt that the dignity of that great association required that they should not notice such a creature; but when Mr. Greeley in his heart knew that he was coming down hero to the Congress of the United States to betray his association and friends, he knew that ii h'^, did not s:ll his membership at that tim'^ and get the money in his pocket he never would have an opportuinty to sell it, because he would havo been expelled on his return for uncommer- cial or dishonorabb conduct. And yet I am told that that man had the effrontery to come down here and quote to you the beautiful lines: "To thine own self be true, and thou canst not then be false to any man." And I ask the gentlemen on Mr. Gre^' ley's side of the house to join with me in wond:r why those lines did not choke him in the utterance. Now, Mr. Chairman and gentlemen of the committee, I am leaving that subject; but I want, as an American citizen, just to say a word to this committee, and I hope you will not take it as any criticism of the committee, for it is not so meant, but is the criticism of a system. I am an American citizen, a quiet, unassuming business man, not a professional agitator, not a public speaker, just an oridnary worker at home. This is my first appearance on any such occasion as this, and do you know I have been startled at the possibility that an American citizen at home, a thousand miles away, can be assailed, can be stabbed in the back down here in your committee room by an irresponsible, untruthful man and not be given notice by the' com- mittee so that he could come down here and protect his good name and answer the allegations. Why, gentlemen, a 25-cent telegram to the men being attacked would put them on their guard. 364 GEAIN EXCHANGES. I have disclosed to you how this man kept me from being notified. Let me just cite my case, only as an illustration of the attitude of the American people and their position in such instances. I was at home, in the night. I got a telegram from Mr. Canby, my friend, the president of the Chicago Board of Trade, and what did that telegram say? "Your honor has been attacked. Take the first train for Washington." It was in the night, gentlemen. I was not well. I had recently undergone a surgical operation on my throat - perhaps you have noticed that I can not speak well. I oudit not to have taken the journey. I had sickness in my family. 1 had promised to act as pallbearer - a most solemn obligation . to a dear neighbor and friend who was to be buried the next day, and at night I received this telegram that my honor had been attacked. I sat on my bedside for half an hour and did not know what to do. My wife asked me, "What is the matter?" I showed her the telegram. Now, gentle- men, she knew my physical condition; she knew what I had promised to do in the last sad rites for my friend on the morrow. She knew that my business associate was sick. But she just read those four words, "Your honor is attacked"; and I thank God, I shall ever thank God, for her answer, and for the fact that back in the country there are such American men and women. Her answer was only this, "When does the first train leave for Washington?" Gentlemen, I was on that first train, and I am here, and you may thank God, as I do, that there are men and women back in these United States who thjnk more of their honor than they do of their health, or their family, or their own sacred obligations to the dead. Mr. Pott. I will state, Mr. Sager, in justice to the committee, this committee would have no idea of closing these hearings without giv- ing every man who had been attacked an opportunity to be heard. There was no possibUity of the hearings being closed without giving you an opportunity to be heard and make such statement as you desired. Under no circumstances would we think of allowing the character of any citizen to be assailed without giving that citizen, before the hearings closed, full opportunity to produce any matters he might see fit in justification. Mr. Sagee. And would I have been notified by the committee? _ Mr. PoTJ. Assuredly you would. Perhaps not by telegraph imme- diately, but the clerk of the committee would, in case any attack were made upon you, or in case an attack were made upon any other man. I think I am justified in saying any of these gentlemen, or all of them, would have been notified and an invitation given to them to come here and say anything they cared to. Mr. Sagee. I thank you, gentlemen, for that assurance, and it makes me more proud than ever of the fact that I am an American citizen. Before I stop, I wish to ask Mr. Merrill if my statement in regard to Mr. Greeley's leaving the exchange was true ? Mr. Meeeilli I so understand it; yes. Mr. Manahan. In view of the assault made upon Mr. Greeley, the first witness called in support of the resolution — of the two assaults made upon him — I think it would be only proper that he should briefiy be given an opportunity to defend himself. QEAIN EXCHANGES. 365 Mr. MoHtjgh. I submit that the MinneapoUs delegation have been assured that they would have until 5 o'clock without interruption. I was riven that pledge by the chairman of this committee. Mr.FoTT. If you gentlemen insist on it, you can proceed until 5 o'clock. Mr. Manahak. Then, at 5 o'clock Mr. Greeley will have an oppor- tunity to reply ? Mr. Pou. At 5 o'clock, unless you gentlemen would be willing to mutually agree to give Mr. Greeley, say, 10 minutes now. Mr. Greeley. I ask that privilege at this time, in view of the attack that has been made on me. Mr. Potr. It is up to you_ gentlemen. Mr. McHuGH. I regret to say that I can not grant the privilege. Mr. Greeley. That privilege is refused, as I understand it? Mr. Potr. There is no refusal of the privilege, because there is no privilege to which you would be entitled. These gentlemen have the floor untn 5 o'clock. At 5 o'clock the committee will give Mr. Greeley a reasonable opportunity to be heard. STATEMENT OF JOHN G. M'HUGH, SECEETARY OF THE MIlT- NEAPOIIS CHAMBER OF COMMERCE. Mr. MoHuGH. There is one other matter, the statement made by Mr. Shorthill, of Nebraska. He stated that he had some questions he wished to ask the officials of the Chicago Board of Trade and the Minneapohs Chamber of Commerce. He did not read the questions, but he said they could be read and answered here. As he wishes those questions answered specifically, I am yielding the floor to the president of the Chicago Board of Trade, who will answer those questions and dispose of that matter and get it into the record. Mr. Canby. These are questions asked of officials of the Chicago Board of Trade by J. W. ShorthUl, of Hampton, Nebr.: 1. Is there a lim it, to the number of memberships in the Chicago Board of Trade? If so, what is that limit? A. No limit. 2. Are those memberships now all sold? A. No limit. 3. Can memberships be bought and transferred at the present time? A. Yes. 4. If so, what qualifications or requirements are required of the purchaser before transfer will be made? A. Any male person of good character and credit. 5. About what is the market value of a membership at the present time? A. $2,400 net to the buyer. 6. What are the transfer fees? A. $100. 7. What are the annual dues of a member? A. $75. 8. Doe? the board have a nile or policy that would prevent, either directly or indirectly, a cooperative company from having a representative to sell grain or do business on the floor and return the net profits of that business to his cooperative company to be divided cooperatively? A. A corporation may do business in its own name if two of its executive officers are members. The corporation can, of course, divide its part of the money among its stockholders whether they are few or many. Mr. McHuGH. Mr. Chairman and gentlemen of the coinmittee: I find myself somewhat embarrassed in addressing you at this time by virtue of the fact that it appears that I am the only individual here 366 GEAIN EXCHANGES. addressing this committee who has suffered the misfortune to have been indicted by grand jury. The assault upon my personal reputa- tion, however, is not one that will require to be dealt with with any feeliug on my part, and I will only go mto it for two purposes. First, because it happily illustrates the unfairness and lack of courtesy displayed by those — by some of those — ^who are supporting this reso- lution; and second, as illustratiiig a grain situation which is impor- tant in this hearing and which has a bearing upon the general propo- sition. Although, I hope that when a statement has been made of the circumstances surrounding this indictment of which you have heard that the result may be that the testimony or evidence which I am to give will have as much credibility as the average witness that has appeared before you. A number of years ago — some eight years ago — I was a member of the Winnipeg Grain Exchange and in the grain commission business. At that time an organization known as the Grain Growers Grain Co. made application for membership in that organization. I was a member of the board of directors of that organization at the time of the apphcation, and they were admitted to membership. Directly after their admission they proceeded to circularize the country west of Winnipeg, soliciting shipments from my customers and the customers of all the commission concerns', which was per- fectly legitimate except in this : In their application for membership in the Winnipeg Grain Exchange, which is an organization very similar to all other grain exchanges and whose rules correspond very nearly to all of the others, they had agreed to abide by the rules of the organization which they were joining. Among those rules was one which provided for the charge of a commission, the commission chai'ges being fixed. This organization in soliciting business sent out a great deal of literature, and among other things proposed and advertised in this literature that they would return to the shipper who shipped them a portion of the commissions in the way of a patron- age dividend system which they had adopted, or would aaopt, in dealing with their customers. This was, of course, a rebate of a portion of the commissions to the customer, something which I or no other member of the Winnipeg Grain Exchange could do, and cer- tainly we protested against this matter, and it fell to my lot to make charges against this company for violation of the commission rule, in that the circular matter sent out was in fact an offer to rebate a portion of the commissions. This charge was made, and upon its hearing they were found guilty and deprived of the provisions of membership. As a result they proceeded to institute an attack upon the grain exchange, and of course the element of politics entered into all this. Later — very shortly after this — an indictment was issued,' * and it happened to be my misfortune to be selected as one of three who were to represent the exchange. The indictment was an indictment of the Winnipeg Grain Exchange and charged sthat the rules of the Winnipeg Grain Exchange were in restraint of trade. Mr. Pou. You were indicted as a representative of the exchange more than in a personal capacity ? Mr. M6HuGH. Yes; there was no element of personality in it at all. The charge was that we three, myself as representing the ex- change, and two others, one of whom was a line elevator man — that we three "et al. " had conspired together, in that we had agreed GRAIN EXCHANGES. 367 to have certain rules whicli were in restraint of trade. There were 12 counts in the indictment, each count carrying a maximum penalty of 4 years in the penitentiary and $2,000 fine, or something of that kind. This matter was tried in the court of the King'.s bench for 5 consecutive weeks. After a very long and exhaustive hearing, during which time practically all the members of, the Winnipeg Graia Exchange were called as witnesses, and an enormous number of farmers of the Northwest had also been called, the court declared that we three, the defendants, were not guilty, and in the report went on to state that nothing had been produced to show that these rules were in restraint of trade and that this conunission rule was not in restraint of trade, simply because of the fact that the members had agreed that a minimum commission should be charged. Mr. Pou. I would Hke to ask you, was this indictment against you in Canada under a statute, or was it under the common law ? Mr. McHxjGH. As to that I could not state. I think it was under a statute. Mr. PoTJ. It is held by a good many eminent lawyers that aU of these antitrust statutes that we have been passing are simply declara- tory of the common law. Mr. McHuGH. I feel quite sure it was a statute, because I think in those recitals and those counts — those 12 different counts — they recited various portions of the statute. The point I wish to make is that all the processes of the Winnipeg, Grain Exchange and its rules and customs of the trade were brought to the attention of the court, and the court declared that we were not guilty; that its rules were not in restraint of trade. It was a complete victory for the Winnepeg Grain Exchange, in that it was enabled to and- did put in force its rules, and, so far as I know, they have ever since charged to aU their customers alike a rate provided for imder the rules. So the complaint I had made originally was wholly sustained by the court, and the Winnepeg Grain Exchange was entirely victorious in the attack that had been made upon it. But the point I wish to make is this. I presiune one man's word is just about as good as another's. I do not know what the committee's opinion is of me average grain man after hearing the testimony pre- sented, but I want to assure you that, as I did originally, there was not element of personality in this attack at all. It was merely the trial of the Winnipeg Grain Exchange, and I submit that in this hear- ing was it not distinctly unfair to me and unfair to this committee to leave the impression prevailing that the only reason I was at large and at liberty to appear before this committee was that there was a miscarriage of justice in the Canadian courts or because a compromise had been arrived at whereby I escaped the just deserts of my mis- conduct ? That is the point I wish to make, that there was nothing fair about it; nothing courteous about it. One member of the com- mittee asked whether I was declared guilty or not guilty, and this individual who had addressed these remarks to the committee did not even then show me the courtesy to state^ — ^which was the fact — that not only the lower court, but that when it was carried to the King's bench the decision there also was absolutely in my favor. I might state, as illustrating the unfairness of at least this iadi- vidual who appears in behalf of this resolution, that this entire explanation in detail had been made by me in his presence a very 368 GRAIN EXCHANGES. short lime ago. It is impossible that he should not have been familiar with every particular of it, because in his presence at a meeting at Sioux Falls I had occasion by virtue of the fact that this same matter is raised from time to time by these same individuals and representa- tives of the Equity Cooperative Exchange, and I had occasion to explain in detail this very same matter, as I have to you. Before proceeding to discuss any of the items which I intended to take up in this matter, I wish to reply to some of the questions presented by Mr. ShorthiU. I will read the questions and answers m order that they shall be incorporated into the record at this point [reading] : Questions asked Officials of the Chicago Board of Trade by J. W. Shobthill, OF Hampton, Nbbr. 1. Is there a limit to the number of memberships in the Chicago Board of Trade? If so, what is that limit? A. No limit. 2. Are those memberships now all sold? A. No limit. 3. Can memberships be bought and transferred at the present time? A. Yes. 4. If so, what qualifications or .requirements are required of the purchaser before transfer will be made? A. Any male person of good character and credit. 5. About what is the market value of a membership at the present time? A. $2,400 net to the buyer. 6. What are the transfer fees? A. $100. 7. What are the annual dues for a member? A. $75. 8. Does the board have a rule or a policy that would, pre vent, either directly or indirectly, a cooperative company from having a representative to sell grain or do business on the floor and return the net profits of that business to his cooperative company to be divided cooperatively? A. A corporation may do business in its own name if two of its executive officers are members. In order, however, to meet this question squarely, I want to state that a cooperative company, in so far as it solicits business from those not coimected with the company would be bound by the commission rule, and required to charge the regular rates of commission. I had occasion to make notes on one or two matters mentioned during the hearings, and which we desire to touch upon at this time item by item. They may have no connection one with the other; yet, since they were mentioned in the statements in support of the resolution we wish to touch upon them in reference to it. Something has been said regarding - and the term has been used —that there is a "switching graft," so-called, in the Minneapolis market, the inti- mation being that the commission merchants or members of that market place have been charging the country shipper a switching charge on cars where no charge was in fact collected. This switch- ing charge, it was intimated, was a graft, and that this graft had been ended by reason of a ruHng of the railroad and warehouse commis- sion. This item also aptly illustrates another lack of fairness in the statements presented in support of this resolution, as I think will appear from the statement of what .the switching situation is. It is simple and easily understood. The Minneapolis market place is the only market place that I know of where the railroads bringing grain GRAIN EXCHANGES. 369 into that market will not deliver that grain to any other industry in the city off of the rails at the end of their line mthout charging a switching charge to the shipper. All the other market places, such as Chicago, where there may be a switching charge for delivery from the end of the rail of the incoming road to the industry on the rails of some other road if the switching charge is paid it is absorbed by the incoming road so that there is one initial delivery free of charge, so far as the shipper is concerned. This is a matter regarding which the Minneapolis Chamber of Com- merce has expressed itself in no uncertain terms time and again, and the grain trade was as much opposed to this practice on the part of the raih-oads as any country shipper, for the reason that it naturally miUtates against the market place and embarrasses members in com- petition for_ the grain to other market places. It is a fact, however, that the switchingwas paid and required to be paid by the railroads, and that resulted in considerable confusion and inconvenience in the purchase and sale of grain in the exchange room, and so, some 20 years ago, the practice arose between the buyers and sellers to sell grain delivered, subject to a $1.50 switching charge. The point I wish to make in discussing this is, first, that the buyers in the Minneapolis market and in most markets make their prices based on delivery of the article at the industry, the mills, or the terniinals._ The switching charge varies from nothing when it was^ when the industry was located on the rails of the incoming railroad to $3, where it was on the rails of some other road, and at the time that this practice arose it was beUeved that $1.50 represented the average switch that was paid by the buyer to get the grain to his industry. At that time, too, it must be borne in mind that the grain that came into the Minneapolis market was almost entirely the prop- erty, when it reached the market, of the hne elevator, because the farmers' elevator movement at that time had scarcely begun and nearly all of the grain that came into the market at that time was the property of the line-elevator companies. The reason I mention that is that it might be inferred that this practice arose for the purpose of imposing an unjust charge upon the country shipper. The sellers of the grain at the time this prac- tice arose were the owners of the grain, the commission merchant being a small factor. And I will say that when this practice arose the sellers of the grain when acquiescing in this arrangement were the owners of the grain, and were familiar with every feature of it. The practice continued from year to year until recently, during which time — during the last 10 years, of coarse — there has been very great growth in the farmers' elevator movement. A very large proportion of the grain now received is their property, but there has been no change in the practice, nor did it originate for the purpose of imposing upon the farmers' elevator companies any unjust charge. Recently the railroad and warehouse commission has issued an order to the effect that they disapprove of the practice of a com- mission merchant selling grain with $1.50 allowance on account of switching. The result is that grain must now be sold delivered, and whatever switching is paid will be charged to the shipper. The farmers' elevator company shipping grain in the past has found a 37214—14 24: 370 GEAIN EXCHANGES. uniform deduction on account of switching of $1.50. In the future some cars will show no switching charge, while others will show as much as $3. There is no probability that the net returns to the farmers in the grain trade so far as the switching element is con- cerned will be any greater than has been the case heretofore, and it was the opinion of both buyers and sellers that this $1.50 repre- sented the average switch that the buyer paid. Now, the condition which this practice resulted in, and which was the purpose of its origin, .was that a buyer in maldng the price did not have to take into account what the actual switch was on every par^, ticular car on which he bid. That was the cause of it in the begin- ning! The buyers desired — and of course the sellers desired — that for the same identical class of grain the buyer would be able to make the same identical price, and that this interminable computation of switching to the particular industry of the bidder on the particular car should be ehminated; so this practice arose for the purpose of eliminating this confusion and expediting business, it being beheved that this was for the convenience of everybody concerned and that no wrong was done whatever. Now, a statement was prepared hy the railroad and warehouse commission covering that matter, which showed that the switching charge actually paid by the computatioii was less than $1.50 on the average — I believe it was something Mke $1.14, whereas the commission merchants had been allowing $1.50 — and by virtue of that difference the sellers and shippers had been wronged in the sum of sixty or seventy thousand dollars a year. I wish to call your attention to the fact that this statement which was prepared at this investigation by the railroad and warehouse commission took no account of this very important fact, which entirely destroys the statement so far as being illustrative of the facts. It happens to be the case that there are a number of line elevator com- panies in the country who bring in about one-half of the grain into that market and whose elevators in most cases are located upon the rails of the line of railroad upon which they also have their line of country elevators, with the result that the grain coming into the market from the line of country houses, to this Minneapolis market would in the very large majority of cases be unloaded in the terminal elevator of the company that owned both the line and terminal ele- vator, and both would be located on the same line of railroad, where no switching charge would be paid. It is the belief oi the grain trade, notwithstanding the statement of the railroad and warehouse commission, which did not attempt to eliminate the line elevator cars coming into the terminals on the end of their own rails, that the average switching charge paid by. the buyers was at least $1.50, and that the farmers' elevator company- shipping grain to the market and being sold in the market from one buyer to another — somebody has got to pay the shipping charge, aiid it may be $1 or $2 or sometimes $3. It is the contention, therefore, that the failure of the railroad and warehouse commission in preparing this statement to ehminate the line elevator cars, on which no switching charge was paid, increased the apparent amount; that the average switching the buyer paid was at least $1.50, and that was that the switching allowance made by the commission men to the buyers did not exceed in any appreci- able degree the amount of switching charge that the buyers actually GEAIN' EXCHANGES. 371 did pay to the railroad companies on these cars, taken as a whole, and therefore that there is no truth or soundness in the contention that any one received an advantage in the sum of $70,000 a year in switching charges, or any such sum, by reason of the 11.50 allowance. Not only did not the buyers receive the $70,000 as their part of the graft by virtue of the freight allowance being in excess of the average actually paid, but the commission merchants handling this grain certainly received no advantage whatever. The allowance he made to the buyer was of course charged up, and it was no advantage or profit to him. The $1.50 allowed by the commission merchants in selling grain to the buyer as an average switching charge may not be precisely and absolutely an average. The average may have been a little higher than that, but when the freight was added, it was the belief or both sides that that was a fair average, and the fact that the sellers of the grain at that time were the owners thereof — that it was line elevator wheat — illustrates the point that the prac- tice did not originate by any conspiracy in the dark, and was not the result of any desire to wrong any one. Second. This practice, of course, was discontinued by the com- mission merchants upon order of the railroad and warehouse com- mission, because the railroad and warehouse commission, having supreme authority over the commission merchants, as well as the liae elevators, terminal elevators, etc., refused to issue a license to a commission merchant who did not abide by their wishes in the mat- ter, their policies, and the result is that the grain is now sold, delivered as in the past. But whatever shipping charge follows the grain is paid by the seller, whether it is $3 or whether it is nothing. The buyer still makes his bid at present as he has at aU times in the past, delivered, and so the shipper wUl now receive account sales of some cars with no shipping charge paid and some as high as $3. I wish to further call your attention to the fact that the chamber of commerce, as an organization, has nothing in its rules, and never had, requiring any shipping charge of $1.50 or in any manner covering this point. This was not a rule of the chamber of commerce as an organization in any sense; it was a mere practice that arose between the buyers and sellers on the floor for the greater convenience in the transaction of business. And, as illustrating the unfairness of those who make this attack upon this organization, it might be interesting to the committee to refer to the practices of the Equity Cooperative Exchange. I had occasion recently to run across tms policy, in a specific instance, where, as is frequently their practice, the salesman of the Equity Cooperative Exchange came over and offered to sell to one or our commission merchants a car received by them from a country shipper, and this conversation took place. This was shortly after — I believe the railroad and warehouse commission had made this order requirmg the commission merchants to refrain from selling with $1.50 al- lowed Mr. Cantrill. As I understand it, your chamber of commerce is under the control of this State commission ? Mr. McHuGH. That is just the point. The chamber of commerce in its organization is a voluntary association, in the form of a cor- poration, organized under a general statute, which provides for organizations of that character. Any group of five men in any town 372 GKAIN EXCHANGES. in the State can organize a similar organization, and they will have all of the powers and privileges which we now possess. There is a general statute providing for organizations of this kind, and under that the chamber of commerce is organized. "What I said about the railroad and warehouse commission was that they had control over the commission merchants under a statute which gave them that authority, and they licensed these commission merchants. They also have control over the terminal elevators in that market, not because they are members of the chamber, but because of their business, the same with the license of the commission merchants and the members of the chamber of commerce. The Equity Cooperative Exchange is a licensed commission mer- chant; it is not a member of the chamber of commerce; and so any member receiving agricultural products from the country must get a Hcense from the railroad commission. That is the law. So that the general statutes give the railroad and warehouse commission supervision not merely over the railroads but over the warehouses — that is, both line elevators, farmers' cooperative and independent dealers at terminal points, and terminal elevators in the centers — and it also gives supreme authority over the commission merchants, who receive and solicit shipments of farm products from the coun- try. Does that explain your point? Mr. Cantrill. Yes, sir; that is the point I was trjdng to get at. Mr. McHuGH. It is because that line of business Mr. Manahan. May I ask the gentleman a question ? Mr. McHiJGH. I am not willing to answer any question. Mr. Manahan. I will make a suggestion, then, -to the chairman, that the railroad and warehouse commission has absolutely no con- trol over the chamber of commerce as an association itself. Mr. Cantrill. The point I was trying to bring out was this: That you commission merchants, if they are members of the cham- ber of commerce, which I guess a great many of them are Mr. McHuGH. Most of them are, yes. . Mr. Cantrill. In the conduct .of their business — in fact, they are controlled by this' State commission that you speak of ? Mr. MoHuGH. Yes. Mr. Cantrill. They have to run it along certain lines? Mr. McHuGH. They are so completely under the control Mr. Cantrill. The point I wanted to get at was this, to make it clear. I wanted to find out whether the indictment brought in this resolution is really an indictment against the commission merchants and members of your exchange or whether it is an indictment against the State of Minnesota and of law ? Mr. McHuGH. I am glad you raised that point, because it is clearly an indictment against the State of Minnesota and its laws. Mr. Cantrill. On this ground, I do not think that your members would be held accountable for such charges made against you if you are to comply with such laws in your State in the conduct of your business. That is the point I want to get before the committee. Mr. McHuGH. I want, right at this moment, although it is not in the order I would present it, to call your attention specially, and the attention of the members of the committee, to some articles which were prepared by myself, under the direction of the publicity committee, for the purpose of having in concrete form an expression, a state- GEAIN EXCHANGES. 373 ment from the organization of its purposes, of the nature of its busi- ness, and such a statement of affairs as should interest those desiring to have a grasp of a grain exchange and its various activities. To secure that and to place it in language that the average man would understand, by direction of the publicity committee I have prepared four articles, to be printed in pamphlet form and for gen- eral circulation, and I wish to file and will file with your cjerk a number of copies. This pamphlet is not lengthy, and I call your attention to the different features of it. The first article relates to the formation, development, and economic function of a grain exchange. It states the law of Minnesota under which the chamber of commerce first organized and the general purposes and nature of that organization, and its attitude toward the general public. That is comprised on three pages of this pamphlet and is the posi- tion taken by the organization ofiicjally. Second, I prepared an article relating to future trading, hedging, and speculation on grain exchanges. That is comprised in four pages, and states precisely and exactly what a future contract is, the operations of the clearing-house association, and points out the problems that confront the grain exchanges in eliminating the petty speculation which brings disaster upon the small individual, and at the same time preserve the great economic value of future trading as a hedging process. The third article took a car of wheat from the time of its initial shipment at a country station, and traced its progress from that time through to its arrival at the terminal, the manner in which the State samplers sample the car, the sealing record, the way the inspection department inspected the grain, the way it was reinspected, and the operation of the board of appeals, the sale of that grain on the floor. Then it is dehvered to some terminal elevator or miU. The way the State of Minnesota again took possession of the car, how it weighed the grain, and all of the safeguards which the State of Minnesota, from every standpoint, has surrounded the shipment of grain that is consigned to that market, so that the inspection and the weighing, and sampling bureaus were carefully and fully gone into, and that article comprises but four pages. The fourth article, and last, is to be found on less than three pages and treats of this grain commission merchant, and gives the statute in full under which the grain merchant is authorized to act; sets forth the position of the commission merchant and the license he is bound to have and the bond he must give, and says what the powers of the railroad and warehouse commission are. Since you raised the question, I wish to read just that portion, these extracts from the statute which has some bearing on the matter [reading].* I read that paragraph of the statute to show that the railroad com- mission not only can have control of the individuals by virtue of the fact that no individual can sohcit grain shipments without securing a license and giving bond, but that after he has done so the commission can require every detail of his books to be displayed to them at any time, and can require all sorts of confidential statements from him trhich relates to it. 1 Matter referred to not lurnbhed. 374 GEAIN EXCHANGES-. The statute goes on to say what is required of the grain commission merchant, and the regulations governing the duties and responsibili- ties of a grain commission merchant are set forth in great detail. So, not because they were prepared by me in any sense at all, but simply because they are the best expression we were able to produce of the workings of an exchange, I am submitting a number of copies of these four articles to your committee, for such value as they may be to you in giving a Hght upon the problem that you, have before you. In those four pages, on future trading and on speculation and hedging, we have placed before you, and all of these articles were written for the benefit of the individual not familiar with the intrica- cies of the grain trade. Any business which had become so highly organized as the grain business necessarily becomes intricate; and, consequently, the general pubUc seems to find some difficulty in grasping its various features, and it was thought it would be a lirst- class thing for the organization to have in what appears in the com- pact form in less tiian 15 pages, a pamphlet, which one could hand to any individual inquiring; and they were distributed in enormous numbers and are being distributed. Last winter, during the legislative investigation at St. Paul, we were greatly embarrassed by virtue of the fact that we had not really had this matter about the grain exchanges in this form. The general public desired to know, and the explanation required time, and we believe that this pamphlet, in less than 15 pages, has been and will be of great value to us m giving the people of the Northwest and the producers, especially, that grasp of the actual conditions surroimding the grain trade of the operations of the grain exchange shall disabuse their minds of the many false impressions which they now have, and which in many cases are brought about maliciously by those whose business it is to exploit them. The Chairman. Before you conclude, there is one question that I woidd like to ask. I expect it has been discussed here during the several days of these hearings. The gravamen of the offense against you, gentlemen, is that certain men at Minneapolis, St. Paul, and other cities in the Northwest who, by reason of their speculative powers, absolutely control the price of grain in defiance of the law of supply and demand. I would like to ask you if there has been any considerable period of time within your recollection when there has been an abnormal difference in the price of wheat, oats, and other grains in which there is speculation, in the Northwest and the balance of the United States and the commercial world. For instance, take London and Chicago. Has there been any period of time within your knowledge where there has been an abnormal difference between the price of wheat in Chicago and London, taking into consideration the carrying charge ? _ Mr. McHuGH. I am very glad you raised that question, and I think it might be well for me to add a word in connection with future trading, wmch may supplement some of what has already been said. I never have, since the organization of the chamber of commerce, known a time when I considered the price situation was abnormal in any respect. There have been situations arose which were unusual, and I wUl cite one instance. There was a period of two years, or two or three years, when the spring wheat crop in the .Northwest was quite short, and the consequence was that the Minneapolis mills' GEAIN EXCHANGES. ' 375 in order to keep their mills going, were compelled to go into Kansas, Nebraska, Oklahoma, and the Southwest to buy great quantities — • unusually large quantities — of winter wheat and smp it to that mar- ket for their requirements, and that condition prevailed on account of this shortage of the spriag wheat crop in the Northwest. The result was that that would be in some sense an abnormal situation, although not correctly so. It was not abnormal, taking all of the situation into account. The Minneapolis mills require enormous amounts of wheat. The grinding capacity of wheat is enormous, and the tributary country not being able to furnish it and the boun- dary line of Canada forbidding the importation of spring wheat from western Canada, they were compelled to go into territory where they usually did not go so largely south, and they drew quantities of wheat out of that territory which were abnormal, with the result — and the only way it could be drawn from there was by paying the price — was that the Minneapolis price of wheat over quite an ex- tended period was relatively high as compared with Chicago and other markets. And that condition prevailed because of the short- age of the territory normally tributary to our own market. But I never have seen the time since I have been connected with the insti- tution — some seven years — when the price of wheat at any time was abnormal, "abnormal" being used in the sense of being caused by the manipulations of individuals, either in that market or any other markets, or by joint action. The Chairman. What is the cash wheat market of Europe — what cities would you designate as being the principal markets ? Mr. McHuGH. The wheat market of Europe ? The Chairman. Yes. Mr. McHuGH. That is a question I am not really competent to answer. The markets of Europe are not organized exactly on our own lines. I should be glad to submit to your committee, if you so desire, a volume published in Minneapohs by a student of the foreign markets, in which he discusses every foreign market and explains their operations ; but the exact relation between the Antwerp market and the Liverpool market and other markets is something I would not be able to testify upon. Some one in touch with the export sit- uation would be able to give you that information. The prices that I compared the Northwestern prices with were the Liverpool prices, and I believe the Minneapohs price at times equaled the Liverpool price by virtue of that situation^ because we are not on an export basis, at least for the upper grades of wheat. Mr. Lenroot. Is the Minneapohs market normally higher -than the Wianepeg market % Mr. McHuGH. It has been higher over quite a period. I prefer the questions— in order that you may not be misled in any way regarding prices— be asked of men like Mr. Ewe, cash grain handlers, who can speak with accuracy, and the questions that refer to organization matters or the general situation be asked of me. In speaking of future trading, I wish to suggest one matter which has not been touched upon, a matter which I think may interest you. The future market as a means of furnishing protection to those engaged in the merchandising of grain, from the speculative risk, has been discussed here at some length, and it has been shown to be a practice that- is interwoven very widely in the entire movement of the 376 GKAIN EXCHANGES. grain crop. There is one kind of grain that I think throws a httle light upon the situation that is not traded in for future dehvery, and that is barley. Barley is just as good a grain, from the keeping standpoint, as wheat, relatively, but it is not traded in for future delivery on any exchange I know of, and the rep,son is this: That it happens that that grain does not lend itself readily to descriptions which will enable a contract grade to be described and arranged for in sufficient volume to furnish the basis for future trading, and so, as a practical proposition, barley can not be and is not traded in for future delivery, and the result is that all of those who handle barley, whether they handle it at the country station or at the terminal, or wherever it may be, must assume a speculative risk connected with the handling of barley; it must be merchandised, in other words. A great deal has been said in favor of future trading, and there is no one who is more of a behever in future trading as an economic advantage than I, but it is idle to assert that business could not be done without future trading. All kinds of grain can be merchandised, just as barley is merchandised, but they have to handle it at a merchandizing profit. No one handles or can handle barley at the same margin that they handle wheat on. It is out of the question ; and barley frequently over a period of years causes very severe losses to buyers engaged in the business; and the barley price, that is, the spread between the price that the producer gets and the price the consumer pays is always and must always be wider in barley than in wheat; it can never be otherwise; and that is a situation due to the fact that the handling of barley carries with it the speculative risk, which in wheat can be transferred by those engaged in the actual merchandising of the grain to those who specialize in assuming that risk. The risk is there just the same in wheat as barley. ' In barley, those who handle it also have to handle the risk, which is just as though no fire insurance company existed, and every mer- chant must carry his fire hazard whether he would do so or not. The speculative hazard — that is, hazard ri suiting from variation in price — is just as real as fire hazard, and the consequence is it is a thing to be taken account of, and if the future trading were abolished in wheat it would simply result in wheat being merchanchsed as barley is to-day, on a merchandising profit. The great work which the future trading does is this: That by throwing the speculative risk upon a special class of speculators it relieves those engaged in all of the various branches, not merely of the grain handhng and the flour handhng and ehfferent fines of manufacturers, from taking that risk into account; and so they are able to do business on an extremely narrow margin, something almost incredibly small, because of this abifity to shift the risk; and that results in narrow margins, and it is only that class of products that can be sold for future dehvery that can be or is handled on a narrow margin between the producer and the consumer; and the problem of marketing consists in devising such a system as will narrow that gross margin which is necessary to be had in the distribution from the producer to the consumer. It has been narrowed in wheat to the last possible point almost. It is hard to conceive how a much greater economy can be effected than in the case of wheat. Another illustration that may assist you in this matter: Mr. Frank Crosby, the president of the chamber of commerce at the present GRAIN EXCHANGES. 377 time, and a representative of the Washburn-Crosby Co., the great millers, told me as an illustration of the fact. They are also large grinders of rye flour, as well as wheat. Rj^e can not'be hedged with convenience. A small quantity of hedging for a certain amount is done at Chicago, but I do not know of any other market furnishing any facilities for it, and even there the hedging operations are limited. So that rye is a difficult thing or almost impossible thing to hedge, at least in our market. The result is that the Washburn-Crosby Co. buy rye as they buy wheat in order to make flour out of the same. The same men buy the rye as buy the wheat. They are ground in nulls that adjoin each other; the same skill prevails in the operation of the plants. But because they must assume the speculative risk in rye, which they can shift in wheat, they have to make a marginal profit; that is, they have to buy the rye cheap enough to make mem feel secure, and the fact is that they take a margin that is sufficiently large. So that their experience has shown them they make more money oul of a barley or rye flour right along than they make out of a wheat flour. They make probably the same milling profit, but in the rye flour they make a speculative profit, and they do not want that speculative profit. If to-morrow a broad, comprehensive, reliable hedgtQg market were to be had they would hedge the rye as they now do the wheat, and eliminate that speculative profit from the profit not speculative. If a man is going to speculate, he does not need any machinery and he does not need any elevators; he can speculate without them. Another point I wish to call your attention to is this, which may be well to bear in mind, and that is no legislation can destroy speculation; that is, the spectdative risk will always, of course, be inherent in the ownership of the grain or any kind of property; and, furthermore, even the destruction of future trading will not prevent the speculation in large way by those who have large means and sufficient nerve. Speculation in prices takes place continuously in things not traded in for future delivery, and so it is idle to think that the destruction of future trading will prevent speculative operations in a large way. They do not do so in eggs and other lines of farm products, and they wiU not in wheat. The main thought is that since grain is a com- mercial product of such a high value it can be financed, not as great as it is to-day, but to quite a degree, when it is not hedged, and men of large resources, of course, would be able to speculate even though the facility offered by future trading were not at hand. One other point' — ■ — Mr. Lenkoot. What, in your opinion, is the largest factor in determining the price of a future bid by the speculator ? Mr. McajGH. The largest factor is the probable demand relative to the supply. Mr. Lenroot. The conditions of supply and demand in the world ? Mr. McHtjgh. If you watch the papers from day to day you wiU see. _ I have noticed in the Minneapolis market a certain future would close day after day with a variation of a quarter cent or half a cent, a surprisingly narrow fluctuation. Speculation does this': The speculator never buys \mless he thinks the price is a little below what the theoretical price woidd be, and the speculator never sells unless he thinks the price is a little above what the theoretical price would be^ And so the powerful pressure of speculation above and below 378 GRAIN EXCHANGES. would tend to force the theoretical price in line with the actual, if the total supply and demand were known. The consequence is that the actual effect of speculation is to prevent serious fluctuations, and to narrow those fluctuations, and the result is that if this future trading, if speculation was eliminated in the futures, the tendency would be for the fluctuations to be very much more extreme than they are now, because any slight fluctuation wiU result in speculative pressure from that side at once, which wQl tend to moderate the fluctuation. When you come to the question of large operations it might be interesting to consider this fact, and that is one thing that the rules , of the grain exchanges must comply with. It may be presumptive on my part to mention the cotton exchanges. In this future trading it is based upon a contract grade. If that contract grade is narrow, if it should be one hard, the total supply of that grain would be so small relative to the total amount of grain which was to be hedged or protected by that future, it would be the plaything of the specu- lator. It would not bear sufficient relation in proportion to the total amount of grain to be hedged. The consequence, a grain market, such as the MinneapoHs exchange, should have a contract grade — should have a sufficiently large volume or quantity of contract grades so that its relation in total to the total amount of grain of that Irind raised to make these hedging operations safe. It would not be safe to hedge No. 2, No. 3, or low-grade wheat in the Northwest in one hard sales in Minneapolis, because the total supply of that would be so small as to make it a dangerous proposi- tion. So that the contract grade must be wheat. As one Minneapolis miller said to me, "We are perfectly wilting that all of the soimd milling wheat that is produced in the North- west shall be in the contract grade, so we will not be handling dam- aged wheat, poor stuff." In other words, they want to be able to take delivery and be sure when they do take dehvery it shall be good milling wheat. Our rule there is most excellent. We have contract grade No. 1 northern. No. 1 hard can be apphed, and also No. 2 northern at a discount of 3^ cents. This is rarely applied, and yet it is an enormous protection to the seller. Suppose the weather con- ditions in any crop season were such that the supply was small and relatively scarce and the price came to be high, the sHght increase in the grade between No. 2 northern would bring up the contract grade, and a large increase in the supply of that would give great security to the seller. , At the same time the No. 2 nothern grade, which is supphed as good, sound milling wheat, so that the receiver is not willing to take delivery or unwillmg to. I may be in error, but I have been told by those who have given the subject some thought that a great deal of the outcry which has been made against the cotton exchanges, in part at least, is due to the fact, which I understand the fact to be, that their contract grade requirements permit the apphcation of a great many grades of the lower kinds of cotton upon the future, with the result that the spin- ners, who correspond to our own millers, are afraid to take delivery, or at least if they buy the future they are Hable to receive delivery of a class of cotton for which they have no use. I know of no reason why contract grades should not be broad enough to comprehend all of the article which the buyers would normally be willing to take> gkaijSt exchanges. 379 at least in wheat. It is highly important that the buyers should be willing to take delivery of this contract grade, and if the grain exchanges provide a contract grade of wheat the volume of which is large enough to make a safe hedging market, then the operation of the large speculator is hmited to speculation, and manipulation is eliminated. We have a rule in the MinneapoUs Chamber of Commerce, which I wish to call your attention to, as showing the attitude of the organi- zation; that is, the organization beheves that the speculator who is competent financially and intellectually to speculate performs a useful function in the speculation, because in the heavy crop-moving season, when the surplus of the crop is put on the market in the Northwest all out of proportion to the consumption demand, if it were not possible for speculators to purchase those surplus suppHes, and correspondingly in the summer, there might be an exaggerated value which would be all out of proportion to the market; and the speculator coming into the market and buying this and holding for future delivery takes off of the market that enormous surplus and enables the farmers to market their grain for cash in the fall at a price which is, considering the cost of carrying it over until the midsummer following, approximately what it should be. That is the service performed by the speculator, and it is believed that that is the situation which should exist. But, while speculation is a useful thing, in the opinion of those who have given it a great deal of thought, mampulation is entirely a different thing. To manipulate a market, to endeavor to bring about a condition of affairs which you desire, to sell a thing because you beheve it is too high, and that you can buy it later for less, if that relates to the movement of the crop it is performing a useful service; but to be guilty of any activities which look to bringing about that sort of a situation is entirely another matter. We have a rule which forbids the offers to buy or sell large quantities of wheat — "aU or none." The reason is this: We would not permit a man to enter the wheat pit and to offer to sell 100,000 bushels, "all or none," at a slightly lower price than the market then offered, or offer to buy 100,000 bushels or over at a price slightly higher than the market, "all or none," because such offers would naturally tend to affect the price, and be made solely for that purpose, and we have a regulation that such offers are open to acceptance, or any offers of large sums are open to acceptance in lots of 5,000 bushels by any bidder. The result is that if a man offered to buy "all or none" at a price somewhat below the market he would have that 100,000 all grabbed at once by a dozen different individuals, any one of whom might not feel equal to taking the whole quantity. So that a loss would imme- diately be inflicted upon the man making the offer. This allows the speculator a reasonable liberty of action, and this rule of the organiza- tion illustrates the policy of the organization toward the general public. One of the great problems which the organizations all have in the matter of future trading is the well-known fact that individuals specu- late in grain futures, in real estate, or many other things who are not competent financially or in any other manner to do so ; and the prob- lem^ as has been stated here before, of finding some method which " allow the farmer or the farmers' elevator company or independ- 380 GRAIN EXCHANGES. ent dealers, or small miller or others, to hedge their property ia a small way and at the same time prevent petty speculation, is a very difficult one. A great majority of members of all ^rain exchanges regret the losses suffered by incompetent individuals in wheat specu- lation, because it brings upon the grain exchanges an amount of criti- cism which is very considerable in the total and which has been taken account of, and that is one of the problems confronting the exchanges to-day, and one which is being given serious thought. How can this very useful function, which so greatly concerns the entire movement of the crop, and is of such great advantage to the milling interests and to the linseed-oil manufacturers, etc., and which has succeeded in narrowing the margin between the producer and consumer, so as to prevent any individual coming here and by "monkeying" with some- thing which they should have nothing to do with, and that problem has not been solved, but is receiving the serious consideration of grain exchanges, and while it presents difficulties, it is entirely possible and even probable that some solution wiU be found. This discussion of future trading is somewhat of an education. I would like to ask if there are any questions, you would like to ask on the question of future trading or hedging ? Mr. Lenkoot. What is the minimum quantity of wheat sold for future hedging on your exchange ? Mr. McHuGH. The ordinary quantity is 5,000 bushels. Mr. Lenroot. Is that the minimum quantity? Mr. McHtJGH. There is a certain amount of trading — I do not know howconsiderable it is — in 1,000-bushel lots; the bulk of it is in 5,000- bushel lots. There is no minimum requirement, except that the clearing house association, I believe, will only clear in 1,000-bushel lots; less than 1,000-bushel lots would not be convenient for the operation. Before my time is entirely gone, I wish to run over one or two matters. I was about to speak of this switching graft, which has been spoken of before, and to illustrate the lack of sincerity upon the part of those who represent this Equity Cooperative Exchange, and to tell this circumstance as an illustration. These salesmen of" the Equity Cooperative Exchange came over to one of our members, a commission merchant, and offered this car of No. 2 Northern wheat. This member said — our exchange market was, we will say, 84 cents — "I can give you 83, the commission less, delivered." The salesman said, "You know Mr. Loftus does not wish to show this switching charge on the account sales. He will not allow me to sell dehvered." "Very well," this gentleman said, "if that is the case, I will have to make it 82 J, a deduction of a half a cent a bushel on account of switch- ing," which this salesman accepted, and the car of No. 2 Northern wheat sold to our member at 82^ cents. He immediately sold it on the market on the floor at 84 cents, which was the going price, and made his cent commission, and in addition secured an allowance of a half cent a bushel, which would mean $5 to $6 a car on account of the switching. In other words, this institution posing as a friend of the farmer, and holding itself out as being holier tha,n the organization I represent, allowed nearly twice the maximum switching to the buyer, for the sole purpose, as was clearly shown by the conversation, of con- cealing from the shipper that the switching charge at all was paid. This is a happy illustration of the character of the institution, which in a GEAIN EXCHANGES, 381 very large measure is connected with this inquiry that you are now considering. I do not wish to mention the c[uestion of competition between exchanges. Of course, these organizations have nothing whatever to do with each other. They furnish the market place ; they provide for the conveniences of members; they gather the iaformation by tele- graph from other markets for the benefit of their members, and they fix rules. The members of every market place not only compete between theinselves in the keenest degree, but the members of one market place m common territory compete very keenly with members of other market places, and there is a great deal of territory in the West which is tributary in a sense to more than one market, and in that territory especially the competition is very keen. Another point you must bear in mind is that in this statute of Minnesota it is not a charter granted by the State ; it is not a special privilege; it is an ordinary general statute. Any five men in the State of Minnesota could organize another organization to-morrow, and they would have every privilege which the chamber of commerce possesses from every standpoint. The experience of the grain growers' company of Winnipeg and their entire inability to do business illustrates the fact that it is an impracticable thing to have more than one grain market at any one f(omt of any consequence. There is no possible excuse or necessity or duplicating all the expensive machinery of the market place in the same town. It is a waste of money and. an undue burden on the community. This Equity Cooperative Exchange, which falsely rep- resents that it possesses an exchange, sends out closing-price cards, poses as a market place — of course it is a mere joke, as far as being a market place is concerned — is a selling agency, licensed commission merchant, and a very large proportion, probably 75 per cent of the total receipts are immediately sold members of the chamber of commerce, and resold by them on the floor of our own exchange. I have personally pubhshed gi-eat lists of cars, which I think are in evidence, sho-wdng this to be the case. The market place naturally covers all of the buyers of any consequence. There are no buyers of any consequence within 150 miles of Minneapolis that are not mem- bers of the Minneapolis exchange. The country mills are all membeis. Aside from the buying interest in that market, there are no bidders of consequence. A market place is not established by establishing selling agencies. You have got to have buyers, and the buyers will only buy where they can buy intelligently. When a hnseed-oil manufacturer, malster, or what not buys grain on the floor of the chamber, he buys under regulations which secure him from any loss,~ but the title to that grain must be guaranteed, and he buys it under conditions which make it safe to buy, and so he pays the price he would not do aside from that. I think it has been mentioned that the North Dakota Grain Dealers' Association, which combines the bulk of the farmers' elevators of the State, happened to have a convention last winter, I think at Valley City, N. Dak., during the time this Minnesota Legislature was in session; and this so-called Teigen anti-future bUl was under considera- tion, and the association wired to the Minnesota Legislature urging the defeat of this anti-future bill, as an interesting exprsssion of 382 GEAIN EXCHANGES. opinion from the farmers of North Dakota that this future trading was entirely satisfactory and that thej_ were not against it. Something was said regarding the circular issued by the chamber of commerce forbidding its members to handle grain on commission on the floor for those soliciting shipments in fraud on the outside. Of course, if ever a circular issued by the chamber of commerce reflected credit, it was that circular. That circular said: No member shall act as agent for a crook. If you have any reason to believe that a man is soliciting shipments from the country based on fraud, you shall not assist him in carrying out that fraud by carrying his grainon a commission basis on the floor, if you have reason to believe that another commission will be deducted from the shipper. It was one of those resolutions which simply tended to assert the high moral standing required of the members in relation to the country shippers. Something has been said about the number of commission houses. A computation was made here which would indicate there were 200 commission concerns, and shown by some mathematical computation that their expense account was enormous. The result was that the inference left with the committee that the number of commission houses was so great and the expense was so great that, taking the total amount of commission business received by the commission merchants in the market, it would be impossible for them to pay their expenses on the 1 per cent per bushel commission; and therefore they had some scheme of fictitious sales, one to another, whereby they managed to take two or three more commissions down the line before they really sold to some consumer. Of course, it is almost an insult to the com- mittee to even discuss a nonsensical proposition. I should state that it was a safe assertion that 99^ per cent of all the grain received by commission merchants was sold direct to the consumer, either the miller or otherwise. I do not think that more than one-half per cent of the grain received by commission merchants is scalped upon by the commission merchants. That is not because of any connivance with the commission merchant. In fact, the commission merchant who sells a car to another mem- ber is able to scalp a profit at the time; it produces a state of chagrin on the part of the commission merchant that he was not able to get as high a price as the scalper. The result is that Minneapolis being a consumptive market in the last degree, the vast bulk of all its grain is sold directly by the commission merchant to a miller, linseed-oil manufacturers, or to one of the great terminals, who buy and store for these consumptive industries. It is a mere slander and nonsense to assert that more than one commission is paid. The probability is that roughly it costs these commission merchants about half a cent a bushel to do business, and that their profit exists in the other half cent, and that it depends upon the volume of business they do whether the business is prosperous. Somebody has said something about national legislation against future trading as compared with legislation in the State. Of course, if it is true that antilegislation should exist, it should be national and not local. It would be folly for one State to prohibit future trading in that and interfere and injure its own market places, because it would only result in the transfer of these hedging operations to other markets to the advantage of those other markets. GEAIN EXCHAHGES. 383 Somebody said something about the fee paid to our attorney during this legislative investigation. A gentleman, I believe, said that Mr. Mercer, our attorney, received a fee of $16,000, and that he received a fee of $200 for approximately the same length of service. Even though the amounts were correct, it probably might represent the relative value of the services, but it does not happen to be the case. Mr. Mercer, our attorney, received no considerable fraction of the amount mentioned, and it was mere nonsense to suggest, and the individual who made the statement, of course, had no knowledge on the subject whatever, and was in no manner authorized in making such a statement. Mr. Chryst, representing the Equity Society, did me an injustice in his opening remarks, which I am sure was entirely due to a lapse of memory and not from any unfriendhness. He, as I recall it, stated that in my address, which I delivered at their request at this convention of the Equity Society to the delegates in St. Paul about two years ago, the siibstance of what I said was that the grain trade had organized a grain exchange in their own interest. I have for- gotten exactly how he put it, but the effect of it was that we were entirely indifferent to the welfare of the producer, and more or less ridiculed them or laughed at them for having allowed the grain trade to seize upon this privilege. The lapse of time has been considerable. I think Mr. Chryst did not intend to do me any injustice. The fact was that this equity convention was being held in St. Paul and Mr. M. Johnson called on me, as one of the delegates, and invited me to address them next day. He stated that when he notified the convention I would come a "roar" went up. Probably if I had heard that "roar," I would have reconsidered my agreement to be present. I did not Icnow about this "roar" that went up, however, when he went back, and so had the temerity to go over and address the convention. But I did not say what Mr. Chryst has alleged. What I said was this: They presented to me a list of some 10 questions which they dared me to answer. The essence of all these questions amounted to why the chamber of commerce should not be wiped off the map by legislation, but it was a question of the legislation eUminating the chamber of com- merce as an organization, and aU that I did was to point out the fact that the organization of a chamber of commerce was not the result 'of any conspiracy; that these market places had to exist if the grain of the country was to be profitably distributed. Their contention was, in a general way, I presume, that the State or the Nation should provide pubUc market places at the public expense, etc., and all my contention was that it could not be properly urged there was any conspiracy in connection with the organization, but that the moment the grain trade of the country became a fact, the market had to exist and the grain trade therefore proceeded to organize these exchanges, and organized them under a statute which the State had provided. In closing, I present to you a number of copies of these articles, which, by virtue of their brevity— being contained in less than 15 pages and treating of the four generail divisions of the grain trade- may be of some value in connection with your deliberations. 384 GRAIN EXCHANGES. I wish to yield the time now. My time is up and Congressman Miller is here and desires to be heard. Mr. Manahan. I believe it was understood I was to have 5 o'clock to commence the time against him. The Chairman. I think we agreed to give Mr. Greeley 10 minutes. STATEMENT OF H. GREELEY— Resumed. Mr. Greeley. Mr. Chairman, in reply to the statement- The Chairman. Pardon me. There seems to be a good deal of feehng between you gentlemen. I hope you will be moderate. Mr. Greeley. I tmnk I can be moderate. The Chairman. All right. Mr. Greeley. In reply to this statement made a few moments ago by Mr. Sager, I would state, first, to the farmers present at this inquiry, that it must be very encouraging to them indeed to realize that in defense of th'^ enormous charges which were presented by us at the beginning of this inquiry, so much of the answer to those charges has been in the nature of a personal attack directed toward me. The facts are, gentlemen, very modestly stated, in reference to Mr. PickneU, the Grain Trust newspaper reporter, calling on me for information in regard to this hearing, he did so call in my room at the hotel, where I stated that we were to take up general questions in regard to the conditions at market centers, and he asked me for details of what we intended to present, and although I mentioned warehouses and inspection and future trading, I refused to give him an outline, as presented at the introduction of this investigation, because I was associated with others on the committee, and did not consider it wise to do so without their consent, although I saw no reason myself why it should not have been presented; we have no secrets. In relation to my charging Mr. Sager with something "behind his back," it happened to be mentioned to PickneU a committee was coming to Washington, and Mr. PickneU either stated the names of the committee or I stated them to him, having known them, and I said, "How does it happen that Sager is not on that committee ? He usually attends gatherings of this kind, and I am surprised he is not here." I had no intention at that time of trying to figure out any plan behind Mr. Sager's back or any attack upon him, because Mr. Sager knows and every man in this room knows that any man on the board of trade who says a word against the good name of a member of that association is subject to expulsion; and when you, Mr. Sager, were president of that exchange, the very same words that appeared in this record I stated publicly on the floor of that exchange to dozens of members, and I published a circular in writing, over my own sig-' nature, a copy of which I submitted in this record, of which you com- plain, and you had not the courage and did not dare nor did your associates dare to discipline me at that time, and you all know it, and for six years I have held my membership on that exchange, talking constantly to the farmers of this country about you and your associates on that exchange in a similar manner as discussed here, and although you had the disciplinary power to expel me from that GBAIN EXCHANGES. 385 association there was -not one of you had the courage to expel me as a member. Now, then, having waited 6 years — never having made a contract or a transaction on the exchange, talking all the time — you boast that I came to Washington and behind your back try to accuse you of something. Is that a reasonable argument ? It is simply a time- consuming argument of a moral coward. As far as PickneU, the newspaper man, is concerned, I will dismiss you, sir, with this sug- gestion merely: That you, like Sager, "heard your master's voice." Mr. Chairman, something has been said in regard to owing money. For 28 years I was a member of that exchange, and never owed a man a dollar — never. Never did I have a complaint against me as a member of that organization for debt or otherwise; and if any charge could ever have been preferred against a member, certainly that charge in the possession of the puppets of this elevator monopoly would long since have sent me to oblivion; and you men all know it. Another thing in regard to that money, which Sager claimed I never paid; how simple it is. It happened that a man speculated through another firm. He lost $163.75, through the curses or specula- tion, of which we complain, and that man applied to me for a position as a telegraph operator in my office. He applied for a membership on the exchange. When he applied for that membership that firm objected and came to me and said, "Mr. Greeley, this man wants a membership, and he is going to be in your employ, I understand. Will you endeavor to assist in the collection for us of that $163.75 V 1 said, "I will do all I can to get it." It was not long before that man became indebted to me in my own office, through the same kind of transactions and, becoming indebted to me, I did nothing with the other firm in regard to assisting them in the collection of the $163.75 for their account. The firm to whom he owed the $163.75, never said a word to me from that day up to the time I was about to transfer my membership, or seven years. But just previous to the transfer of my membership they recalled my statement that I intended to see that this firm got its money, and that I wanted him to pay it to them as soon as possible, that I had assured that firm they would get that $163.75 which he owed them; and, as I say, about the time I was to transfer my membership, this firm came to me and said, "Mr. Greeley, you guaranteed when this man was admitted to membership and was about to become- an em- ployee in your office that you would see that we got this money." I said, " I do remember something of that nature, but seven years have passed and I do not remember exactly what it was. Why did you not ask me for the money before these seven years had expired"? "Well," they said, "these old accounts of this firm have been turned over to us, and the firm has retired from business, and we find that you did make this guarantee." I said, "I believe I made some kind of a guarantee. What was it ? Have you any record of it ¥' And they showed me the memorandum. I said, "I guaranteed you that money. I do not believe that there is any doubt I guaranteed it." They said the account was not paid by the man himself. I took my check book out of my pocket, without 30 seconds intervening, and wrote a check for that $163.75, and, on a basis of that transaction, this man comes in and accuses me of being a man who owed money 37214—14 25 386 GliAlN EXCHANGES. on the exchange, my credit unreliable, and brings that personal item as an argument to consume time in a suit involving hundreds of millions of dollars, and comes here as a puppet of the men who refuse to appear here themselves — Armour, Kosenbaum, Shaffer, and Bartlett-Frazier — and he becomes the excusing mouthpiece of the trust in Washington, endeavoring to put me into disrepute for their scoundrelism, which they dare not attempt to defend. Sager, it took us some years to get back of your smooth voice, your sanctimonious appearance, and your black whiskers to find the real man; but in the report submitted in this record, you are, sir, dis- covered as linked up with this aggregation, and on that exchange your name will go down in history as one of the blackest of those who have combined with that monopoly to pilfer the American farmer and double-cross your friends. The Chairman. Mr. Greeley Mr. Greeley. My 10 minutes have expired. I have had quite sufficient tim.e. I thank you. Mr. Manahan. Now, for a few minutes, I would like to have Mr. Drake given an opportunity also. STATEMENT OF BENJAMIN DRAKE— Resmed. Mr. Drake. In the first place, I wish to call the attention of this committee to the fact that the time which is allotted to me at this time in rebuttal, as one of the proponents of this resolution, is neces- sarily inadequate to a complete traversing of the ground covered by the speakers of the chamber of commerce. Necessarily, many pointe wUl remain untouched. I make that explanation in the beginning. Another thing, I shall not be drawn into personalities. My per- sonality, the personality of no man on this delegation, Mr. Chairman, is of the slightest importance. The question is the real merits of these issues. Those are what I propose to discuss. So far as Judge Simpson's remarks are concerned, they are entirely beside the merits of this controversy. I shall not allude to them. Calling your attention to some of the remarks of Secretary McHugh, you heard him say, in an indirect way, by intimation, that a coopera- tive concern could do business upon the chamber of commerce. I ask my fellows upon this delegation — ^Mr. Kelley, Mr. Solen, and any others who may be here — if it is not true that at Sioux Falls, S. Dak., and at Fargo, N. Dak,, on both occasions, Mr. McHugh stated that no cooperative concern could do business on the floor of the chamber of commerce. Is it not true, Mr. Kelley ? Mr. Kelley. Absolutely true. Mr. Drake. Is it not true, Mr. Solen ? Mr. Solen. Yes, sii-. Mr. Drake. Yes. This man has no hesitation whatever in con- tradicting his previous statements. Again, he has illustrated his fairness about this switching charge. He says to you the average charge was 11.14 per car as shown by these exhibits. This is true of cars which came into the Minneapolis terminal and were there consumed. So far as cars were concerned, which went through by consignment, through the Minneapolis termi- nal, as this exhibit shows, the actual shipping charge did not amount to as much as 10 cents per car. So much for h^s fairness on that point. • GBAIN EXCHANGES. 387 Again, he says to you in these words: "Any suggestion that the speculators to any great extent or degree control the price is idle." I quote from the sworn testimony before the Minnesota investi- gation. [Reading:] Q. Now, it is a fact, is it not, that every transaction in futures, either purchase or sale, on the floor of the chamber of commerce — -your chamber or any other chamber — • tends to influence the market price? — ^A. Yes; I think that is correct. Q. Now, if the purchase or sale of futures was very great, it might tend very greatly to sustain the price, might it not? — ^A. Yes. Q. And if the sale of futures was very great it -might tend very greatly to depress the market, might it not? — ^A. Yes; it would have some influence along that line. Again [resumes reading] : Q. Now, then, is it not true that the only difference in the world which exists be- tween the man who goes into a bucket shop and bids with the proprietor on the price of wheat or grain going up or down and a member of the chamber of commerce who buys futures without having any actual purchase to hedge or protect, that the only difference that exists between those two men is that the bucket-shop patron has no influence whatever on the market price, while the member of the chamber of com- merce to the exact extent of his purchases influences the market price? — ^A. No, I should not consider that was the case. Q. Now, is not that one difference between them? — A. That is one difference; that is, one has no effect upon the price Q. And the other makes the price? — A. No, not makes the price Q. Tends to make the price?— A. No, not makes the price, it affects the price. Q. It is not true? — A. Of course it is true. And he comes before you to-day and says that the gigantic bidding upon futures, does not make the price, does not affect the price. Now, then, gentlemen, he tells you this story of the salesman of the Equity Exchange going to a member of the chamber of com- merce and selling a car of grain to him. That salesman is a Mr. Enge. The member of the chamber of commerce, whom Mr. Hugh claims bought this grain — his name was familiar to me, but it has escaped me for the minute — that member told Mr. Loftus, the man- ager of the exchange, that whole story was a lie, and he used an expletive. Mr. Enge says it is a lie and is wiUing to come here and make his affidavit to that effect. The story is false; it is made of whole cloth, like thousands of the calumnies which this grain com- bine is circulating about the Equity Exchange, its operations, and its practices. "The Equity Exchange is a joke." It is no joke to tha combine. I say to you, .gentlemen, it is getting 15 to 20 per cent of all the consigned grain which comes into the Minneapolis terminal. That is the reason they are here to-day opposing this resolution. Mr. Hugh says 75 per cent of the grain of the exchange is sold to his own members. The manager of the Equity Exchange tells me for more than three months past not a car of grain has been sold to the mem- bers of his organization, and that by reason of the fact that wherever a car was sold they came back with a malicious fabrication, just as you come back, Mr. Hugh, with your atrocious fabrication with regard to the sale of the car of grain you described to-day. More than one commission, he says, is chai'ged. I say to you the Equity Exchange put up a check for $1,000 to hand over to this combine, or rather to the associated charities of Minneapolis, if they could prove the sale of a single car of grain where more than one commission was charged, and that check is still available if they can show it. 388 GRAIN EXCHANGES. The proponents of this r( solution say the chamber of commerce is a club or corporation, absolutely controlling and responsible for the acts of its members. Its proceedings are secret. It is dominated by a combination of 30 or 40" gigantic milling and elevator firms. Its policy is absolutely opposed to the interests of the producers, whom it IS supposed to serve. For 20 years it robbed the producers of thou- sands of dollars each year in extortionate and unlawful switching charges. For six years it or its members collected extortionate and illegal demurrage charges. Until prevented by rule of the railway and warehouse commission, November 28, 1913, its members con- stantly sold consigned grain to subsidiary companies, and presumably still continue the practice by means of dummy sales. The bulk of its commission houses are owned by terminal elevators and mills, mere purchasing agencies for the very interests which consume the ^ain. Many of its commission houses sell consigned grain in compe- tition with grain they own. It has eliminated all competition in country track purchases by direct rule. Mr. McHugh has not denied his sworn testimony, before both committees, which I quoted. It promotes unfair discrimination and further ehminates competi- tion by the price list known as the "grain bulletin;" it discriminates without just justification against the variety of wheat known as "vel- vet chaft." It disseminates false and misleading crop news, and in- formation manufactured in the interests of the millers, and designed to mislead the pubHc and promote activity in further speculation by the indiscriminate public. Its terminal mills and elevators mulct the shippers of grain by the employment of an inaccurate method of weighing grain. It fixes the price of the producers' grain by transactions in futures, the magnitude of which is almost incomprehensible. Its rmlls and elevators have estabhshed a complete and admitted boycott of all grain handled by the farmers' exchange. It controls the subservient press. This is the showing made by the proponents of this resolution. Practically none of these facts which have been shown have even been alluded to by the gentlemen who have spoken in opposition to the resolution. As further evidencing the control of the grain- combine over sub- servient newspapers and as an instance of the vituperative campaign of falsehood and abuse against the equity exchange, I offer in evidence an article pubhshed by the Ward County Independent, of Minot, N. Dak., such article being entitled "American Society of Equity in the hands of grafters." This article is typical of many circulated by the grain combine regarding the equity exchange. The article quoted below was given the widest circulation, a circulation only made possible by the use of the combine's money. [From the Ward County Independent, Minot, Ward County, N. Dak., Thursday, March 13, 1913.] THE AMERICAN SOCIETY OF EQUITY IS IN HANDS OF GEAETERS — SOME OP THE MEN HIGHER UP HAVE HOODWINKED THE FARMERS WHO SHOULD BEGIN THEIR SPRING HOUSE CLEANING EARLY — THE ST. PAUL INVESTIGATION. When the American Society of Equity was launched a few years ago, the Inde- pendent welcomed the organization, in hopes that it might accomplish something for the betterment of the most useful class in society — for the farmers and producers, who feed ur all We were aware of the tact that all other classes had organized and GRAIN EXCHANGES. 389 were working together for tlieii- own interests, while the farmers toiled from sun to sun as though all they had to do was to work and produce and know the road to town. We had the idea that by rooperation they could so control the production and marketing of the necessaries of life that, by retaining the tariff and regulating produc- tion so as to merely keep pace ^vith the growth of population, the American farmer could command such prices for his products as to allow him a good interest on his large investments and a liberal reward for his toil. But, alas, recent developments go to show that the erstwhile promising organization has drifted into the hands of selfish business men of questionable repute; that the farmers instead of getting any benefits out of their organization have allowed these irresponsible demagogues to use it to promote their own selfish schemes; in other words, the farmers have simply jumped from the ashes to the fire. And why? Simply becausethe farmers have been swayed by some of these smootih talkers who have attended their meetings and have cried "stop thief," and succeeded in making honest farmera believe tiiat they were being robbed out of a large share of the value of their products at the terminals, and soon as these wolves in sheepskin garb had- succeeded in creating such prejudice In the producers' minds, then they very naturally offered to become the Moses who would lead them out of the desert. Suie enough it appears that a large number of farmers swallowed fie bait, hook, and all. They lost simt of the original caUing of their organization and allowed their selfish leaders to drag them into the grain business at me terminals, in order to get better prices for their grain, as the promoters had promised them. The farmers paid their hard-earned money for regular dues and for stock in what the smooth promoters called "our own terminal elevators at Miimeapolis and Duluth," and were jollied along until they began to believe that the millennium was near at band. The promoters sent out broadcast the most alluring advertisements, about how they could obtain higher prices for grain than the regular commission men; how they could store the fanners' grain in "our own terminal elevators"; that the chamber of com- merce, Minneapolis, and the board of trade, Duluth, were gambling institutions which farmers' elevator companies should steer clear of and ship only to "our own exchange," thereby inferring that the equity fakirs had their own market prices, an exchanaa where buyer and seller could meet and where higher prices were obtained than at the regularly established markets; in fact, on some of their fake advertisements appeared a large picture of a building purporting to be the "exchange" or the great market place of the equity organization. In their official paper and in speeches at farmers' gatherings these same promoters charged that all managers of farmers' elevators who failed to ship to this myth, the equity terminal, were being bribed by regular commission men, thereby libeling honest and competent men who knew that the so-called Equity Exchange was a fraud to begin with and that they had no facilities to obtain full market value for grain. These same accusers have utterly failed to prove that any bribe has been paid by reg- ular commission men; but on the other hand it has come to our notice that a bribe of $3 per car has been offered a manager at Glenburn by these same men who for years have been making the charge. When we now read reports from the investigations in the Minnesota Legislature, it is a wonder to us how these Equity promoters can escape prosecution for having sent fraudulent advertising matter through the mails. These same men have had to admit on the witness stand^ that the so-called Eq uity Exchaage exists only in name ; that they have no terminal elevator; that they sell some of the grain shipped to them outside of the regular exchanges without having the benefit of competition; and by sworn testimony of country shippers and buyers at the terminals it now appears that grain shipped to the so-called Equity Exchange has been sold for from 1 cent to 3 cents below the regular market price; that in many instances cars shipped to the Equity Exchange were turned over to regular commission men and were sold by them at full market price all right, but in such cases the shipper had to pay two commissions, one to the regular commission man and another commission to the Equity Exchange; but on report to the country shippers the equity people reported sales as being 1 cent less than was actually obtained, to cover up the extra commission charged. It is thus shown that instead of "eliminating the middle man," as has been the cry of the equity boosters, they have added an extra middle man and paid an extra commission to get their grain sold through their "own exchange," and while they have been preaching against buying and selling of futures, it developed at the hearing before the legislative committee last week that the equity men themselves have been hedging in futures, which was brought out plainly during the testimony of the farmers' elevator men from our own neighboring town of Voltaire, when these men had failed to get returns and payment for shipments to ' ' our own exchange " and had to go down to Minneapolis and fight for it. The Voltaire people had sent the equity exchange 390 GRAIN EXCHANGES. 10 cars of wheat and ordered it stored in "our own terminal elevator." The equity men explained to the shippers and said they had stored the wheat, but had, never- theless, sent no warehouse receipt to show for it. At the hearing it was brought out, however, that the equity people, instead of following instructions and storing the wheat, had sold it on arrival and had had the free use of the money. It appears to the Independent that- a general spring housecleaning would be in order m the equity camp; that the actual farmers in these great Northwestern States should come together and resolve to go back to the original principles of the American Society of Equity and at the same time drive the rascals out of their organization, then begin to work up and build up again from the bottom on the solid foundation of truth and righteousness — begin from home instead of following strange gods and chasing rainbows and imaginary enemies abroad. Remember that even under the most advanced form of government (even under socialism) we will necessarily have to have these three principal classes, producers, refiners, and distributors. We admit cheerfully, as said before in this article, that the farmers constitute the main foundation of society in a material sense, and it behooves all right-thinking men and women to assist in keeping that foundation intact and strong and sound lest the whole building of society may suffer and sink out of shape. As our own Bryan so well said in his famous speech at Chicago in 1896 : "You may bum down the cities, but if you protect the farms the cities will rise again; but destroy the farms and the grass will grow in the streets of your cities." But while we admit that the farmers constitute the foundation of society, who would -ever think of placing that foundation on the top of the building? If we should try all at once to turn the building of society upside down so the foundation came on the top of the building, there would surely be something like the same disaster as we read about in the Bible, when old Sanlson was crushed under the ruins of the temple. We need both producers and distributors; but all of us can give the best service only in the field were we have had the proper training. If the producers, refiners, and distributors should start to jump from one field to another, if all these three classes should mix so that each individual tried to cover the three fields, there would be chaos, disarrangement of the whole social structure. As further showing the relations of the chamber of commerce to the metropolitan papers who seem to serve its interests, I would say that after the Minnesota investigation was finished, and apparently in recognition of the j'eoman service done by the Journal and the Tribune, the president of the chamber of commerce gave the reporters of these papers a dinner. I am informed that nine courses of wine were served and that after the orgy some of the boys were put to bed that night in the building where the feast was held. Then also the combine, Sunday after Sunday succeeding the investigation, pub- lished a full page advertisement in both papers, a course unheard of until that time. Yet it is pleasing also to note that there are papers in Minnesota which are fearlessly telling the facts. The St. Paul Daily News, the Minneapolis Daily News, and to a considerable extent the Duluth News-Trib\ine, are papers of this character. One farm paper, and only one, in the State of Minnesota is fighting the farmers' fight against monopoly. It is the Northwestern Agriculturist. The pro- ducers of the Northwest owe to all of these publications a debt of gratitude. I have apparently been drawn away for the last few minutes from the direct theme of the facts which I expected to prove — namely, that the Minneapolis chamber of commerce was controlled by a com- bination of millers and elevator men who have succeeded in eliminat- ing practically all competition, and who are now employing every device to beat down the price of the producers' grain. Another device of this nature has been frequently characterized in Minnesota as the "conspiracy against velvet chaft'." Velvet chaff is a comparatively new variety of spring wheat. It possesses some qual- GRAIN EXCHANGES. 391 itics which distinguish it to some extent from the older varieties of fi^e and bluestem. On account of these different characteristics some different milling machinery is required to grind velvet chaff' than is necessary to grinding the older varieties of fife and bluestem. Gen- erally speaking, the large milling concerns of Minneapohs, all of whom are members of the chamber of commerce, are the only mills which are equipped with machinery necessary to blend velvet chaff' with other varieties and necessary to grind the mixture into flour after it is so blended. Also the great terminal elevators of Minneapolis are prac- tically the only interests which possess machinery and facihties for blending velvet-chaff' wheat with other varieties in order to secure the mixtiu-e of greatest milling value. These mixing houses do blend enormous quantities of velvet chaff' with other varieties. The millers do use the mixture so blended and then claim to produce the finest flour in the world. By mixing velvet chaff' with no-grade wheat the mixing houses of Minneapohs advance the grade of mflhons of bushels of wheat of other varieties. Velvet chaff' is recognized by experts to be practically equal in milling value and flouring qualities to the accepted varieties of fife and bluestem. The weight of expert opinion incHnes to the behef that velvet chaff' is slightly inferior to some other varieties in miUing value, but so shghtly that the difference is wholly negligible so far as it should be reflected in the price. At Duluth, which is an export terminal, there is no discrimination against velvet chaff as a variety. Indeed, at the iavestigation con- ducted in Minnesota one of the largest export dealers of Duluth testi- fied that he had frequently paid a premium for velvet chaff over fife and bluestem. At Minneapolis, however, a market controlled and dominated by millers, who are interested in buying producers' grain at as cheap a price as possible, there has always been a discrimination in-^price against velvet chaff. In times past the amount of this dis- crimination has equaled fuUy 10 cents per bushel as compared with other wheats. It is now from 2 to 4 cents per bushel. It exists be- cause the Minneapolis millers control the market; because they alone have the necessary machinery for blending, naixiag, and grinding velvet-chaff wheat. From 25,000,000 to 30,000,000 bushels of velvet chaff are shipped into the Minneapolis terminal each year. This is approximately one-fourth of all the wheat entering the terminal. The action of the millers in discriminating against this wheat, when re- peated tests have shown that its actualmflling quality is substantially equal to fife and bluestem and while, at the same time, for blending purposes it is admitted to be superior to these varieties, is what is termed in Minnesota the "conspiracyagaiastvelvetchaff." Producers of this grain are absolutely helpless to-day. Practically speaking, at" certain periods of the year when the Duluth export market is closed on account of the close of navigation, the producers of velvet chaff are obliged to accept the discount arbitrarily set upon their product by the nuUmg interests of Minneapolis. It is interesting to note that the variety of wheat Icnown as durum went through identically the same process of discrimination at the hands of the Minneapolis millers. Durum wheat, too, was one of the later varieties of wheat. When it first appeared in the Minneapolis market the millers discriminated against it at times to the extent of 20 cents per bushel. Gradually the milUng quahty of the grain was proved, in the same way that the milling quality of velvet chaff has 392 GKAIN EXCHANGES. now been established — to be equal, if not superior, to the older estab- lished grades. Gradually, reluctantly, and by sheer force of pubhc opinion the Minneapolis millers were forced to withdraw their dis- crimination against durum wheat. To-day the variety known as durum actually commands a premium above fife and bmestem; yet for years it was discriminated against to the extent of 10 and even 20 cents a bushel. The present discrimination against velvet chaff is as unjust and unreasonable as was the former discrimination against durum wheat. It is costing the producers at the very least $600,000 J)er year. It illustrates one of the serious disadvantages of a monopo- izea private market place. Another abuse practiced by the Minneapolis elevator and milling combine is closely linked with the State system of weighing grain. Under the present system of State weighing two kinds of scales and two distinct methods of weighing are permitted. One consists of weighing the grain in carload lots upon a track scale. The car of grain is first weighed "heavy" upon the scale. The grain is taken out and the car is weighed empty. The difference between the two weights obtained represents the weight of the wheat in the car accurately and practically with no chance of error. This system, according to all information which I have been able to obtain, is not used at more than one-third of the terminal elevators of the great mills of Minneapolis. At the remaining elevators and mills another system is employed which almost always results in a loss of weight to the shipper. Under the practice last referred to the grain is lifted in quantities of perhaps a hundred bushels at a time to the cupola of the mill or elevator where a small scale is installed. Under this method the grain is usually carried one or two hundred feet from the car. Some of the grain is usually lost to the shipper in the transaction. Sometimes the amount is so small that it is neghgible. At other times it is considerable in amount. Aside from the mechanical imperfection of the system it affords considerable opportunity for dishonest manipulation. The method of weighing last referred to is an injustice to the shipper which constantly results in loss of his product, and should be abolished at once. The Grain Bulletin is still another device maintained by the com- bine largely for the purpose of ehminating competition and for the f>urpose of furthering unfair methods of price discrimination as against armers' elevators coihpeting at country points with old-line elevators of the combine. Under the Grain Bulletin system a price fist pur- porting to indicate the price to be paid for grain of various grades at the local point where the subscribing elevator is located is sent to the great majority of elevators of IMinnesota. The Bulletin purports to compute the freight from the local point to the Minneapohs market, together with aU fixed expenses, and after allowing a reasonable margin of profit to name the price to be paid for grain of the several grades and kinds at the local points in question. The prices quoted are not always normal prices. At local points having the same freight rate to the Minneapolis terminal the Bulletin in me past has often quoted prices differing as much as 5 cents per bushel. It has often quoted prices at the request of the old-line elevator companies which rendered it impossible for competing farmers' elevators to handle any grain at the shipping point except that it be handled at an actual loss. The publisher of the Bulletin testified before the GKAIN EXCHANGES. 393 Minnesota investigation tliat on an average of about 100 times a year in the past He had quoted these abnormal prices, and that in the great majority of cases he quoted them at the request of the old- line elevator companies. These old-line companies were, of course, backed with ample capital, and at any particular point they could afford to buy grain at a loss for an entire season provided they could destroy competition of the farmers' elevators at the same point. The farmers' elevators, on the other hand, are invariably backed by extremel}'- limited capital and wholly unfitted to defend themselves against the price discrimination of the combine. Below appears the testimony of two witnesses who testified before the IMinnesota investigation with regard to the price discrimination and imfair competition practiced through the instrumentahty of the Grain Bulletin. [Jobn Hagen, manager Farmer's Elevator at HoUoway, Minn.; House committee, vol. 1, pp. 786, 787.] By Mr. Tbigen: f Q. Of course, you are getting a great deal more grain on account of the prices here from near-by points? — A. You mean to HoUoway? Q. Yes. — ^A. Part of the grain would not have come there. Q. How is your neighboring town, Danvers? — ^A. On the 25th of January I tele- phoned over to Danvers to send me a Ust. He said, yes; and in the afternoon I didn't get the Ust but got the paper supposed to be the Ust, and compared that with ours. ■ There was all the way from 3 to 5 cents difference. Q. Have you those in your pocket? — ^A. Yes, sir. These are my figures, and there is die 25th, the Danvers prices, and here are the HoUoway prices. Q. On the 25th of what? — ^A. January. By Mr. Hopkins: Q. There is a farmers' elevator at Danvers? — A. No, sir. These prices were on the 25th of January at Danvers; this column was blue stem, and that velvet chaff. (Kgures were read into the record as follows: At Danvers the price on No. 1 was 78 cents, and at HoUoway it was 81 cents. No. 2, at Danvers, 76; and HoUoway, 79 cents. Flax, at Danvers, $1.19; HoUoway, $1.24. No. 2 flax,. Danvers, $1.14; HoUo- way, $1.19. No. 3 white oats, at Danvers, 26 cents; at HoUoway, 29 cents. No. 4 white oats, Danvers, 25 cents; HoUoway, 28 cents. No. 3 barley, Danvers, 43; HoUo- way, 47 cents. No. 4 barley, Danvers, 41; HoUoway, 45 cents.) Q. Was the freight rates the same from both points? — A. It is more; Danvers is closer to the cities. Q. Is it on the same line? — A. Yes, sir. Q. How far from HoUoway is Danvers? — A. Eight miles, on the same road. Q. On the same road HoUoway is 8 miles further from the market? — A. Yes, sir; 8 miles further from Minneapolis. Q. So, if there is any change in the freight rate, it should be less from Danvers? — A.- Yes, sir. Q. Tiat price has been maintained right along ever since Hannah wrote the Van Dusen people, threatening you? — A. Yes, sir; I beUeve so. [N. Smokstad; House committee, vol. 1, pp. 159-160.] Mr. Smokstad, being duly sworn, testified as foUows: By Mr. Manahan: Q. Your name is? — A. N. Smokstad. Q. Of the firm of Johnson & Smokstad?— A. Yes, sir; Hancock, Minn. Q. You are in the elevator business there? — A. Yes, sir. Q. Now, make your statement to the committee regarding the prices there prevail- ing? — A. Well, the cards liere show the conditions, and I nave a Uttle circular. Q. As I understand you, 1iie cards sent out to that point show the price Ust which you can not buy at wimout losing money? — A. Without losing money. Q. That is true, is it?— A. Yes, sir. Q. Here is what purports to be a letter of the Grain BuUetin^ated September 4, 1912, addressed to the CaxgiU Elevator Co., Duluth Elevator Co., Hancock Market Co., Johnson & Smokstad, Northwestern Elevator Co., stating that the card at Hancock 394 GKAIN EXCHANGES. will be as follows: Wheat, 5 cents off; oats, 3 cents off; barley, 5 cents off; rye, 5 cents off; to arrive in Minneapolis. You received this in your mail from the Grain Bulletin? — A. Yes, sir. Q. These are prices at which you can not buy? — A. Can not help but lose money. The freight to Minneapolis from Hancock is [>-^ cents. Q. Per bushel?— A. Per bushel. Q. So, that if you paid this price, you would not have anything for your work, but you would have to pay a commission and freight? — ^A. Pay all these handling charges. Q. The prices they quoted for this town are in round numbers and 4 cents above a fair price? — A. Just about. At the Minnesota investigation- tiie secretary of the chamber of commerce and other ofl&cials testified that the Grain Bulletin had absolutely no connection with the chamber of commerce. However, the testimony already quoted from the Interstate Coromerce Com- mission hearing of 1906 shows that at that time the Grain Bulletin was in fact published by and under the authority of a committee of the association. It was then published in the chamber of commerce building at Minneapolis. It is still published in the chamber of commerce building and by the same individual who published it in 1906. This tardy disavowal of the chamber's connection with the Grain BuUetiti is not accepted by the people of the Northwest, and it is believed to be one of the many devices employed by the combine to crush competition and promote unfair price discrimination. It is generally believed that the Grain Bulletin is the lineal descendant of the device employed prior to 1904, whereby prices were absolutely fixed and the amount of grain received by supposedly competitive old-line elevators pooled and divided at more than 950 elevators throughout the Northwest. Another grave objection to the monopolized and private market place known as the chamber of commerce is the fact that the market news, as well as price and crop prognostications, are all within the control of that organization, and may easily be manipulated to suit the purposes of the consumptive interests who control the market place. It is the general opinion of producers throughout the North- west who are acquainted with the many abuses practiced at the Miune- apoUs terminal that the crop news and gossip disseminated by the chamber of commerce is wholly and absolutely unreliable. Jt is believed that in times of threatened crop scarcity such news is dis- seminated in such a way as to produce enormous early shipments before the price of the commodity affected has risen to any consider- able extent. It is beheved, on the other hand, that if the crop is plentiful and the price of the commodity likely to become lowered as a result of such abundance, crop news and reports are disseminated which induce producers to hold their grain until the market price has reached the lowest ebb. It is an undisputed fact that -almost invari- ably when the price of grain rises at the Minneapolis market the farm- ers' granaries are depleted, and, on the other hand, when the price of grain goes down the farmers' granaries are usually well filled. The Cahfornia Fruit Growers' Exchange is a cooperative institu- tion, which markets from 65 to 80 per cent of the total citrus fruits of California. The sole function of the central exchange is to supply its district associations with market news and market reports. This organization, whose success is a byword throughout the entire United States, expends tens of thousands of dollars every year for the simple purpose of obtaining and disseminating accurate and unprejudiced GKAIK EXCHANGES. 395 crop news and information. Under the system employed at the Minneapolis terminal the collection and dissemination of crop infor- mation, outside of public governmental reports, is entirely in the hands of a secret monopolized club, dominated by the very interests which buy the grain. This situation is intolerable. Beyond question a cooperative organization collecting and disseminating accurate and unprejudiced crop news could and would effect a saving to producers of grain amounting to millions of dollars annually. Again I repeat, the collection and dissemination of this news is the sole function of the California Fruit Growers' Exchange and the secret of its phenomenal success. Were such a system instituted at the Minneapolis terminal a rise in price would not find the farmers' granaries empty and a drop in price would not usually find them well filled. At this time I submit the indorsement of the Equity Cooperative Exchange adopted by the Farmers' Cooperative Elevator Association of South Dakota. This indorsement was made after actual investiga- tion of terminal conditions at Minneapolis and sets forth many of the abuses practiced by the grain combine. The Rbstjlt of an Investigation. At the annual meeting of the Farmers' Cooperative Elevator Association of South Dakota held at Watertown, S. Dak., in Januarjr, 1913, the question of a selling agency in the terminal markets was taken up for consideration. After a thorough discussion it was decided that a committee should be appointed to make the necessary investigation and report its finding to the board of directors. A committee of three was appointed. This committee met in Minneapolis in the early part of May, when it made a most careful and painstaking investigation, with the result that the following resolutions were adopted: REPOHT OF SPECIAL COMMITTBE ON SELLING OP GRAIN IN TERMINAL MARKETS. Mr. President, your committee appointed to look into the matter of the farmers cooperative elevator companies entering the terminal grain markets for the purpose of selling their own grain through an agency controlled by them, begs leave to re- port as follows: In our judgment the conditions in the terminal markets justify a serious considera- tion of the subject of seUingor handling our own grain there. First, because by being on the ground will enable us to make sure that all our grain is treated fairly and justly in the matter of selling, grading, testing, and dockage. Second, a selling agency of our own will enable us to sell all grain on a single com- mission, thus preventing a duplic?,tion of charges as is now the complaint against mem- bers of the chamber of commerce. Third, if the cooperative shippers of North Dakota, South Dakota, Minnesota, and other States could unite and federate in this terminal grain-selling movement, we be- lieve that the assured volume of business as well as added strength of the combined forces would tend toward the creation of a more public and open market at the great grain terminals. We believe that the interests of these three States are mutual in this matter because we are all equally or proportionately affected by any irregular practices prevailing in the terminal grain trade. We believe that the selling agency should be begun or established before investing in terminal elevators for storage facilities, for the reason that storage can be engaged readily as needed and at minimum cost. We believe further that by selling their grain cooperatively in the terminals at actual cost, the farmers' companies can thereby save an amount greater than the commission now charged because all speculative cost which now enters in the handUng of grain at said points is ultimately charged against the producer. We recommend that our secretary, Mr. Belk, call a meeting of the board of directors to be held in the city of Sioux Falls, S. Dak., on the first Wednesday in June, 1913, at Hotel Carpenter, and also to invite delegates from North Dakota, Minnesota, and lowafor the purpose of discussingthe feasibilities of establishing a selling agency 396 GKAIN EXCHANGES. as hereinbefore described, and also for the purpose of devising plans for the organization of same. We further recommend to said Mr. Belk that he notify all interested parties in the above-named States by personal letter with a request to attend this meeting and to participate in the discussions thereof. Signed by full committee. 0. D. Anderson, ChairmM. H. G. SOLBM. William Seipp. '' REPORT OP committee OP BOARD OP DIRECTORS APPOINTED TO DRAFT A STATEMENT FOE THE BOARD OP DIRECTORS TO SUBMIT TO THE MEMBERS OP THE STATE ASSO- CIATION. We, your committee appointed for the above-named purpose, beg leave to report as follows: To the members of the Fanners' Cooperative Association of South Dakota, greetings: We, your board of directors assembled in the city of Sioux Falls, on the 11th day of June, 1913, for the purpose of receiving and considering the report of tlie special com- mittee on selling grain in terminal markets, appointed by the board of directors at a meeting held in Sioux Falls, March 24, 1913. The said committee was appointed in conformity with instructions contained in the resolutions and adopted at the late convention at Watertown, January, 1913. After having carefully considered the report of said committee consisting of 0. D. Anderson, H. G. Solem, and William Seipp, accepts and approves of the entire committee report. In conformity with the conclusions and recommendations of said committee, we respectfully submit the following: We believe it to be in the best interest of the members of the Farmers' Cooperative Association of the State of South Dakota to direct all shipments of grain, as far as practicable, to the Equity Cooperative Exchange, of Minneapolis, Duluth, and Milwaukee, a corporation formed under the laws of the State of North Dakota, and now established and maintained by the farmers of North Dakota and Minnesota, in the city of Minneapolis, for their mutual benefit and protection. We find that the said Equity Cooperative Exchange is an establishment organized in good faith by the farmers of the respective States above named, and that it is now doing a legitimate grain commission business; and that said corporation has been established upon the cooperative basis whereby profits above necessary expenses are to be returned to the shippers of grain proportionately to the grain shipped, and that by its fair dealings and upright conduct it is justly entitled to the support of this association. We further believe that the methods practiced at many of the terminals under the old system of docking, inspecting, and grading, vast sums of money have unjustly and wrongfully been taken from the farmers of the Northwest. In view of the above reasons, we earnestly recommend that all local elevator companies belonging to this association consign their shipments of grain to the organization above named; and we advise them to investigate the efforts made by the said Equity Exchange in the interests of fair grading and inspection of grain, to the end that the next State con- vention of the Farmers' Cooperative Association of South Dakota may take the neces- sary steps to establish a permanent selling agency, either in conjunction with the said Equity Cooperative Exchange or in such other manner as may seem advisable. Respectfully submitted. J. E. Kelley, Matt Wan kin, J. H. Creighton, Members of Subcommittee. The above report was unanimously adopted by the board of directors, and is hereby respectfully submitted to the members of this association. 0. D. Anderson, President, W. H. Meis, First Vice President, JH. G. SoLBM, Second Vice President, Matt Wankin, Wm. Seipp, E. H. Day, Jno. E. Kelley, J. H. Creighton, Directors. J, T. Belk, Secretary- Treasurer. GEAIN EXCHANGES. 397 I further submit the unanimous report and recommendations of the House investigating committee of the Minnesota Legislature. This report was duly adopted by that body and sustains practically all of the claims made by this delegation as to the abuses practiced at the Minneapolis terminal : - REPORT OF THE SPECIAL HOUSE QRAl>f-INVESTIGATING COMMITTEE. To the speaker and the Home of Representatives of the State of Minnesota: Your committee, appointed under resolution of January 21, 1913, to investigate the organization, management, control, and methods of doing business of any and all corporations or copartnerships and of every person in any manner engaged in the busi- ness of buying and selling or handling of grain or live-stock products in the State of Minnesota, and into the details in every respect whatsoever referring to the State board of grain inspection and its methods of procedure and (f doing business, authrrized by such resolution to employ counsel to assist the committee in the examinaticn of wit- nesses and of books and papers and other instruments of evidence in the matter of this investigation and to assist in the preparation of its report on the conclusion of such investigation; this committee, consisting of C. M. Bendixen (chairman), A. F. Teigen, Martin Schwartz, D. P. O'Neill, and Frank Hopkins, respectfully make the following report: James Manahan was employed as counsel for the committee and public hearings were held in the capitol at St. Paul, as well as at Minneapolis and Duluth, at which repre- sentatives of all parties interested appeared in person and by attorney. The rules, by-laws, and reports of the Minneapolis Chamber of Commerce and of the .Duluth Beard of Trade, together with many lettors from shippers, statements and tabulations prepared by commission merchants and elevator companies, and the rules, reports, and statistical tables prepared by the railway and warehouse commission regarding the inspection and moving of grain, were received in evidence and con- sidered in connection with the testimony of a large number of witnesses, who testified, as shown by the transcript of such testimony submitted herewith in connection with the exhibits offered in evidence as a part of this repoit. Your committee thoroughly investigated the manner in which grain received at the terminal markets of Minneapolis and Duluth is sampled, inspected, and marketed, taking the testimony of samplers, inspectors, and officers of the railway and warehouse commission and of the State beard of appeals, officers of the Chamber nf Commerce of Minne3.poIis and Duluth Board of Trade, managers of terminal elevator companies and commission merchants, pit traders and independent dealers, as well as a large number of county elevator men. managers of farmers' cooperative concerns, represent- atives of the American Society of Equity, and farmers. We find that the grain markets of Minneapolis and Duluth handle the bulk of the grain produced in the Northwest. The business of buying and selling grain at each of these terminals is well organized, and the commission men generally have adopted a method of promptly and accurately reporting all trades made by them. There seems to be no opportunity or inclination for individual traders on these markets to engage in any practice detrimental or unfair to either the shipper or receiver of grain, but in certain respects conditions have prevailed which your committee considers unsatis- factory and tending to burden the producers and to some extent the general public, and regarding these conditions ■we find and recommend as follows: Committee's recommendations. — First The Chamber of Commerce of Minneapolis and the Board of Trade of Duluth are voluntary associations organized under the general laws and consisting of a lindted number of members elected by the board of directors of these associations under rules which at the same time confer upon such board of directors substantially absolute control over the admission of new members. The number of members is limited, but any member may own an unlimited number of memberships. Notwithstanding the tre- mendous increase in the grain business of the Northwest, the number of members of the chamber of commerce has not been enlarged for more than 10 years past. Your committee therefore recommends that the State should assert and have suffi- cient control over the internal management of these associations to insure at all times freedom of the market from any possibility of control by any combination (should such combination be attempted) and recommends that the by-laws and rules of such 398 GRAIN EXCHANGES. associations should be so made and enforced that the general ofBcers and directors and membership committees should be elected by the full membership by secret ballot, and that all nominations for such offices should be made by a suitable primary system. Your committee also recommends that suitable rules and by-laws be adopted to enable an applicant for admission to membership to such associations to appeal from an adverse decision by the board of directors tq the vote of the membership at large, and your committee further recommends that such legislation be enacted as Tvill enable such applicant to appeal to a court of competent jurisdiction in any case where he is arbitrarily denied admission to such associations. Rules criticized. — Second. The following rules of these associations your committee believes are arbitrary and objectionable: (a) Upon violation of any rule, regulation, or custom of the association any member may be punished by a fine, suspension, or expulsion from the association by vote of the board of directors only. (b) Another rule provides that members can not bid against each other for carload lots on track at country points. This rule makes such bids absolutely noncompetitive, which your committee believes is against the best interests of producers and shippers. Your committee believes and recommends that aU secrecy as to the doings and rules of the Chamber of Commerce of Minneapolis and the Duluth Board of Trade should be eliminated so far as that may be done without unduly disclosing what may be termed private business relations of the members of these associations. Publicity is the greatest possible corrective of ail public evils, and your committee believes that publicity in this would result in a wholesome improvement in matters referred to as well as strengthening of public confidence in the doings and practices of said Minne- apolis Chamber of Commerce and Duluth Board of Trade. 3. Your committee also finds that for a number of years a private price-list bureau has been operated, with offices in the Chamber of Commerce, Minneapolis, and with access to the floor and in close relation with the quotation committee of said chamber. The business of this private price-list bureau is to furnish subscribers at country points a daily card showing what purports to be the price on grain at the local station where such card is sent and as a guide to buyers at such station, which price card is based upon the closing prices of that date at the terminal markets, with freight charges and what is supposed to be a reasonable margin of profit deducted. Under this practice this card is sent to subscribers at the various stations upon the theory that the prices quoted may be changed at any station whenever any subscriber at that station de- sires to pay more for the grain than is quoted by the card itself. The prices quoted on this card are generally followed at country points by the buyer, and on account of the recognition of the right of the buyer at any station to raise the price as given on these cards sent to that station it has often been used to crush out competition. We believe that this grain bulletin should be substituted by a public agency, and that the railroad and warehouse commission should be authorized and directed to adopt suitable rules and take the necessary steps to send daily price cards to all subscribers willing to pay therefor, showing on a uniform basis the prices that are being paid at the terminals and that may be paid at the country stations after allowing for freight and a uniform and reasonable margin of profit. Switching charges. — For years the members of the Chamber of Commerce of Minneap- olis have imposed an arbitrary- charge of $1.50 switching charge upon every car of grain handled at Minneapolis. This charge has been imposed under authority of the association and was made to appear to be justified on the ground that it was an ' 'average' ' of the charges actually imposed by the railroads for switching services. As a matter of fact, the statistics of the railroaa and warehouse commission show the charge to be in excess of the average imposed by the railroads. Moreover, according to the testimony adduced before this committee, Minneapolis is the only grain terminal in the United States where a switching charge is charged against the shipper; and, as was admitted by addresses before your committee, this arbitrary charge of $1.50 a car has been assessed annually upon thousands of cars which actually paid no switching charge whatsoever. Consequently, tMs excessive and unjust switching charge has been an unfair burden inflicted upon the grain growers of the State, and your committee therefore recommends: Fourth. Legislation that will abolish these unfair switching charges against grain marketed at Minneapolis and that the railroad and warehouse commission make and enforce such regulations as will secure to shippers and consigners of grain at terminal market at Minneapolis a free switching service to any industry located in said city. Fifth. Under the law of Minnesota corporations arepermitted to transact business with subsidiary corporations when the dealings are fair, and, as a result, the buying and selling of grain by commission merchants at terminal markets to their own sub- GEAIN EXCHANGES. 399 sidiary companies lias been practiced to a considerable extent, generally with the knowledge and consent of the customer, in some instances where no such consent hae been obtained. We think this is an unwise practice and one which, if continued, would afford opportunity for abuse, and we therefore recommend legislation to prevent the sale of any sort of product or grain by any broker or commission merchant to any company, with or without the consent of its consignor, in which such broker or com- mission merchant has any interest, either direct or indirect. Selling to subsidiaries. — That this custom of selling grain to subsidiary companies is recognized by the chamber of commerce to be an unwise custom, likely to be abused, is shown by the fact that the board of directors of said chamber of commerce during this investigation has made and adopted a rule forbidding any member to sell or buy consigned grain to or of a subsidiary company, whether the consent of the consignor has been obtained or not. Sixth. A large part of the business at the terminal market is closely connected with what is known as future trading. The operations in the ' ' pit, " so-called, and the prices listed from similar future markets at other terminal points like Chicago to a very large extent fix the prices paid for a car of wheat on its arrival at Minneapolis, as the same is offered for sale by and inspected on the floor of the trading room in the Chamber of Commerce of Minneapolis and the Duluth Board of Trade. It is claimed that this so-called future market serves a useful purpose by permitting what is known as "hedg- ing," and what may be termed investment by those who wish to speculate and are competent to assume and carry the commercial risk of a change in prices between the gathering and distribution of the crops. It also appears evident from the testimony adduced before your committee that there are some small investors and poorly informed speculators who are not financially able to incur such risk and who do not know enough about the business to justify their deaUngs in futures, and they should be protected against this inclination toward gambling so far as such protection is possible. We therefore recommend: (a) Such rules and legislation as will confine dealing in futures to the "hedging" of grain and grain products actually bought and sold to investors who are ready, wflUng, and able to carry the burden of the purchase or sale as a straight investment on a reason- able margin. (6) That brokers' offices for future dealings in grain should be confined to cities of the first class and to the principal place of business of such brokers, who should be prohibited from operating branch offices in the same city where the principal office is located. (c) That the initial margin required of investors in futures be not less than 10 cents per bushel on lots of less than 5,000 bushels. Apparently recognizing the evils of this indiscriminate speculating in futures, the chamber of commerce directors during the closing days of March, 1913, passed a reso- lution instructing the officials of the chamber of commerce to enter into correspond- ence with the officials of other grain exchanges throughout the country and arrange if possible so as to require the purchasers of futures to comply with the conditions recom- mended above. It was admitted by the officials of the chamber of commerce before this committee that if these rules were generally adopted by grain exchanges of the country it would go far to eliminate the gambling element in future transactions and would at the same time practically prevent the small, inexperienced, and financially unfit speculators from undertaking to carry the burden of speculative risk involved in future transactions. At the same time, we wish to affirm that we believe any trans- action in futures is legitimate and commendable, where the parties engaged have an actual purchase or sale to hedge or protect, and where by reason of experience, busi- ness sagacity, and ample means they are fitted to engage in such business. Seventh. It is the opinion of your committee that the State board of appeals is, under the present law, too intimately connected with the railroad and warehouse commission and too restricted in its operations to enable it to fully and satisfactorily perform the dutiesimposed onit by law. Your committee would therefore recommend that legislation be enacted that would make the State board of appeals an independent body in fact as well as in name and confer upon it such authority as will enable it to provide for the necessary help and facilities for carrying on its work in the most thor- ough and efficient manner possible. Inspection commended. — Eighth. The railroad and warehouse commission has per- fected a system of sampling and inspecting grain well designed to protect producer and consumer and secure uniformity and stability of grades. Under the rules and practices that have prevailed in the grading and inspecting department of the board of appeals and the railroad and warSiouse commission, the reliability of the grades shipped in Minnesota are recognized by markets of the_world generally. Producers everywhere know that the grain they buy on Minnesota inspection will not fall below 400 GRAIN EXCHANGES. the grade designated. But your committee believes that the desire of the boards and departments to maintain this reputation for its grading has unconsciously led them to an unnecessary Severity in grading grain on its arrival at the terminal markets from country points, and that the terminal elevators and mills at the terminal markets have, by taking advantage of the right to mix and blend wheat, secured large quan- tities of newer, inferior, and no-grade wheat at prices that were lower than the pro- ducers should receive; and it is me belief of your committee that an absolute separa- tion of the board of appeals from the regular grain-inspection department will result in a more efficient check on the first inspection and thus secure more exact justice to file producer without in any degree lowering what is known the world over as "Minnesota grades." In connection herewith it should be borne in mind that what is known as Minnesota grades" is established on the grading of the wheat out of the terminal elevators, and not on the wheat arriving at these terminals from the country elevators. Consequently the price received by the producer is not based on the severe grading of wheat on its arrival from the country, but is based on the more lenient grading out of the terminals; and to the extent that these two grades differ, to that extent the producers are deprived of what is justly due them. The testimony adduced before ^fotir committee proved that what is known as no- - grade wheat is lowered from the higher grades principally because it is presumed to contain a percentage of moisture exceeding the limit for safe storage, but testimony adduced would tend to prove that under the present method of inspection it is a mere matter of guess as to whether wheat, being somewhat damaged, should be placed in the no-grade class or in the class of the higher grades. As the difference in price between No. 1 northern and no-grade wheat is considerable, ranging all the way from 5 to 15 cents per bushel, your committee believes that the board of appeals and the railroad and warehouse commission should provide facilities for ascertaining what per cent of moisture wheat may contain and still be safely stored, as only by this method can a fair and just grading be established on this class of wheat. In connection here- with your committee feels it is its duty to state that the testimony before this com- mittee proved that the board of appeals had at various times requested the railroad and warehouse commission to furnish it with such facilities; but as yet this request has not been granted. Ninth. We recommend that more attention be given to determining the commercial value by laboratory and baking tests, particularly of the newer grades of grain, and in establishing grades, and that the benefit of the doubt be given the wheat in deter- mining the grade. Tenth. We recommend further that the rules of inspection and the practice of the inspection department be so revised and changed as to secure on the inspection of grain shipped into the terminal markets a more liberal and fair grade. That the grading of so-called "plugged" cars should be changed so as to protect innocent ship- pers from being penalized to the profit of the purchaser in cases where poor or inferior wheat may be shipped in the same car, and suitable legislation should be enacted that will severely punish a shipper who deliberately plugs a car, but the penalty should not work to the benefit of the purchaser of that car, but rather to the State. Eleventh. We find that the variety of wheat known as velvet chaff has been un- justly discriminated against, both as to its milling and its true commercial value, as certified to by millers and exporters testifying before this committee, causing great loss to the producers of the State. The fact is shown in the testimony that as an export wh^at this variety will command a premium over No. 1 northern. On account of its merits, particularly as to weight, it has been used for mixing purposes to lift millions of bushels of no grades into No. 1 and No. 2 northern. Therefore we further find that its classification as No. 1 northern was justified by the authorized board. Price cards sent out. — But this established grade has been absolutely disregarded by the buyers who have, as above referred to, arbitrarily discriminated against thia variety of wheat, and this private price-list bureau previously referred to has abso- lutely disregarded the established grade on this wheat and on the price cards sent out to country points has put this wheat in a different class and at a lower price than was warranted by the grade established by such authorities. This your committee deems unfair. (12) In view of that fact the testimony adduced before your committee proved that millions of bushels of low-grade wheat had been raised to higher grades by drying, blending, and cleaning, which has resulted in large profits to those engaged in the business without corresponding benefit to the producers; and in view of the further fact that this question of blending, cleaning, and drying wheat, judging from past expe- rience ana attempts along this line, is too large for farmers' cooperative associations to solve, your committee would therefore recommend that suitable legislation be enacted that would enable the State to provide facilities for this purpose, and that such facilities GRAIN EXCHANGES. 401 be operated by the State at least until such time as farmers' cooperative associationa have developed to such an extent that they will be strong enough to undertake this business. (13) As to equity ejxhange.— Some time after the appointment of this committee by the speaker of the house the senate appointed a similar committee, ostensibly for the same purpose. This senate committee devoted nearly all its time and effort to in- quiring into the busine^ methods of what is generally known as the ' ' Equity Exchange of Minneapolis." In view of the fact that this senate committee went into this matter 80 thoroughly, your committee considered that it would be a duplication of effort and a waste of time and money to devote any great amount of time to this subject, as the senate committee will undoubtedly in due time make its report to the legislature. The only witnesses in regard to these matters that appeared before this committee were Messrs. Holt, Bundy, and Schmitt, who appeared m behalf of the Voltaire Farmers' Elevator Co., of North Dakota. Messrs. Bundy and Schmitt made charges of irregular practices on the part of the Equity Exchange. Mr. Holt testified that the business relations between the Voltaire Farmers' Elevator Co. and the Equity Exchange had been entirely satisfactory to his company and repudiated manjr of the statements made by Bundy and Schmitt, pointing out the inconsistencies in their claims. Your committee feels that it would not be doing its full duty if it should refrain from mentioning that certain undesirable features of future trading do not prevail in the Duluth Board of Trade to any considerable extent. Your committee also found that all switching charges were eliminated at Duluth, and consequently to that extent the expense against grain arriving at that market is lessened. Your committee also believes that the market bulletin published and circulated by the various members of the Duluth Board of Trade comes nearer to reflecting and quoting the exact market conditions than does the Minneapolis so-called price-list bureau card. Respectfully submitted. C. M. Bendixen, Chairman. Martin Schwartz. A. F. Teigen. We concur in the findings of the majority report of the committee, except in the following respect: We do not believe that the grain board of appeals has been limited in any respect in doing its duty under the present law, and therefore dissent from section 7 of the report. Frank Hopkins. D. P. O'Neill. The above was the only report adopted by the legislature. The reactionary report brought in by three of the five men composing the Senate committee was tabled and so repudiated by that body. This report was a whitewash of the chamber of commerce, the reac- tionary members joining in it having before them all ofj the evidence introduced at this hearing. The remaining members of the senate committee adopted a minority report, which I herewith submit : The undersigned members thereof beg to submit the following report: H. D. Smith was employed by the chairman as counsel for the committee, and 29 public hearings were held at the capitol in St. Paul between the dates of Feb- ruary 18 and April 1, 1913. With the exception of about 12 sessions, the time of the committee was devoted to the investigation of the affairs of the Equity Cooperative Exchange and the independent pain exchange. Nine of these twelve sessions were mostly devoted to the examination of witnesses who were testifying for the ehamber and ite members. A part of one day's session was devoted to hearing chafes against the chamber of commerce, preferred by Elias Steenerson, of Crookston, Junn. One session was devoted to inspection and weighing, and at one session no testimony was taken. With these exceptions nearly all of the balance of the time of your com- mittee was devoted to the investigation of the affairs of the independent grain exchanges. Practically no time was devoted to the hearing of charges claimed to be ready for presentation against the chamber of commerce organization or to the affairs of the commission, elevator, and milling firms doing business upon its floors, except such as appeared casually and incidentally from the examination of the inde- pendent exchanges or from cross-examination of witnesses brought forward by the chamber of commerce during the investigation. "The investigation disclosed the fact that prior to the year 1909 the sale and distri- bution of grain at the Minneapolis terminal was in the hands of the chamber of com- 37214—14 26 402 GBAIN EXCHANGES. merce. About that time the American Society of Equity attempted to organize and institute what -was at first known as a grain growers' department, and afterwards organized as the Equity Cooperative Exchange. This exchange was at first organ- ized as a voluntary unincorporated association and was actually incorporated in February, 1911, under the laws of North Dakota. During the years 1909, 1910, and 1911 the Equity Cooperative Exchange marketed grain through a sales agent located at Minneapolis, but made no attempt to establish an independent ofBce at the Min- neapolis terminal or to do business within the State of Minnesota as a corporate entity. August 28, 1912, the equity exchange filed its articles of incorporation with the secretary of state of Minnesota and opened offices at the Minneapolis terminal and actively undertook to do business as a commission firm. The equity exchange was not then and is not now a member of the chamber of commerce, but is a com- petitor of the members thereof. The testimony adduced before the committee shows that a system of advertising was then begun by the managers of the equity exchange, and in many instances, in the usual manner of advertisements, larger claims were made in ita behalf than were justified by a cold and deliberate consideration of the facte. In some instances called to the attention of your committee, these overstatemente can not be dismissed without notice. The equity exchange is and at all times has been merely a sales commission house. In the real sense of the word it never was a grain exchange at all. From the very first, by virtue of its name, to wit, "Equity Cooperative Ex- change," the organization has existed under a name which may have confused the public mind. We find, however, that the present management of the equity exchange IS not in any sense responsible for the name of the organization, which was adopted more than four years ago and has stood as the official name of the organization since. It has also been called to our notice that the words "cooperative exchange" are frequently attached to farmers' cooperative organizations. One instance of mis was the Minnesota Farmers' Exchange, hereafter mentioned, which also was not an exchange in fact, but merely a sales commission house. The claim was also made that the equity exchange had advertised itself as the owner of a terminal elevator and as being in a position to store grain. The evidence adduced showed that the Loftus-Hubbard Co. had been the owner of an elevator located at St. Paul; that upon the dissolution of the Loftus-Hubbard Co. George S. Loftus, sales manager of the equity exchange, became the owner of this elevator, and it was at all times available for storage purposes. It was also claimed before the committee that the equity exchange was guilty of misrepresentation by reason of representations made that it could obtain just as high prices for grain as could members of the chamber of commerce. And it was claimed, m addition, that grain was frequently sold by the equity exchange to members of the chamber of commerce under a definite agreement that the price paid should be 1 cent per bushel less than the market price, and that in this way the shipper was in reality made to pay two commissions, one to the equity exchange and one to the member of the chamber of commerce to whom the grain was sold. The evidence adduced before the committee disproved these claims. The testimony showed that the bulk of the grain handled by the equity exchange was sold direct to consump- tive interests located outeide of Minneapolis and Duluth. Practically the only grain sold to members of the chamber of commerce consisted of coarse grains and wheat of no grade and inferior type. This, except 15 cars, was sold to jobbers of the chamber of commerce not engaged in the commission business. In the opinion of the undersigned the prices obtained were average market prices. It is true, in some instances where grain was sold to a member of the chamber of commerce, it was resold at a higher price, which was the object of the purchase. But in view of the fact that the evidence also showed that during the same period the equity exchange bought grain of members of the chamber of commerce and resold the same at greater advances in price than was claimed in any instance to have been obtained by mem- bers of the chamber of commerce on grain bought of the equity exchange, we do not consider the claim to have substantial merit. The evidence before this committee would indicate that the equity exchange can obtain the same prices for its grain as can members of the chamber of commerce. The claim was also made that the Equity Exchange had shown by its advertising a picture of the Corn Exchange Building, Minneapolis, the building in which the Equity Exchange is located. It was further claimed ftiat this misled the public into believ- ing that the exchange occupied the entire building, and was a larger institution than it really is, as a matter of fact. The evidence showed that the Equity Exchange occupied the bulk of the space on the first floor of the Com Exchange. Stationery usedoy a member of the chamber of commerce was also submitted to the committee, upon which appeared a cut or representation of the chamber of commerce building, GBAIN EXCHANGES. 403 Minneapolis. As a matter of common knowledge the practice is common on tte part of occupants of a single oflSce in an office building to print a cut of the entire building upon ite stationery. During the progress of the investigation the claim was made that the Equity Cooperative Exchange was accused of lax business methods with regard to its dealinga with the Voltaire farmers' elevator of North Dakota, and of refusing to account for the Eroceeds of the grain received by it from this elevator. These charges were preferred y the manager and treasurer of -the elevator in question. It was also diown that grain shipped to the Equity Exchange by the Voltaire elevator with directions that the same be stored, had as a matter of fact been sold as soon as it reached the terminal and a hedge bought against the sale. On his direct examination the manager of the Voltaire elevator testified that this was what he expected and wished done and that previous to this time commission firms upon the chamber of commerce had handled the grain of his company received for storage in this way. At a subsequent examina- tion ne denied this testimony. It appears from the testimony that the Equity Coop- erative Exchange had advanced $6,200 against tiese 10 cars of grain, which amount had been charged to the account of the Voltaire Elevator Co. It does not appear in evidence that any statement was sent the Voltaire Elevator Co. as to what had been done with the proceeds from the sale of these cars nor as to the purchase of the hedge against such sale. It appears from the evidence that the purpose of the ship- ment of this grain to be storea was that it had not been purchased by them from the producers but was shipped out to make room. We believe it is a practice with country elevators that have no terminal facilities, when receiving more grain than they have room to store and which is not purchased by them, to ship and sell such grain and buy a hedge against such sale . The purpose-of this practice ia to avoid storage and handling charges and the depreciation in value attendant on the placing of grain in a terminal elevator considering that it is likely to be purchased in a very short time and would then be sold. In addition to the controversy in regard to the 10 cars shipped to be stored, there were differences in accounts due to clerical errors, which were adjusted between the parties during the progress of the investigation. In the opinion of the undersigned, these differences should not have occupied the attention of your committee. The evidence showed that on or about November 30, 1912, the organization of the Independent Grain Exchange was undertaken by a number of men interested in providing for what they believed to be improved facilities for the sale and dis- tribution of grain at the Minneapolis and Duluth terminals. The Independent Grain Exchange was not then nor at the time of the hearing incorpo- rated. 1 1 is closely connected with the Equity Cooperative Exchange, and has offices on the same floor of the Corn Exchange Building of Minneapolis. From the time of its organization, it has maintained an exchange room and has provided the facilities of a small exchange. It is independent of the chamber of commerce, and is a small competitor of that organization. It was not claimed before this committee, that the independent exchange was fully organized or completed. We are of the opinion that a considerable number of the advertisements and claims made by the officials of the independent grain exchange were not whoUy justified, in view of the fact of its unorganized condition. We recognize the fact, however, that such claims are generally made by the promoters of any enterprise, and we believe ttiat no injustice has resulted on account of the claims made. The formation of the independent grain exchanges, in our opinion, is a manifestation of the cooperative principle among far- mers now prevalent in this country. It is an effort on the part of the grain growers to market their products upon a cooperative basis, and without the intervention of middlemen. It is also an effort to provide an open grain market at terminals where the grain grower may follow his grain and sell it in a public market. Prior to the 1st of August, 1912, at which date the Equity Exchange under its present management began to do business, the handling and distribution of the grain products of Minnesota and the two Dakotas were, generally speaking, in the hands of the members of the chamber of commerce of Minneapolis and the board of trade of Duluth. With the estab- lishment of numerous farmers' and independent elevators, which now handle about one-half of the grain of the Northwest, was apparently conceived the idea of providii^ a grain-selling agency along ^cooperative lines. It was admitted freely before this committee, that outside of certam consumptive interests which bought th«ir grain direct from the producer, and aside from a few individuals and firms who merchandise such grain to consumptive interests located outside the State, the chamber of commerce of Minneapolis had a practical monopoly of the grain business of this section of the Northwest. We are satisfied that no trade organization ought to have exclusive con- trol of the grain business^ and that no condition of trade is healthful or salutary where keen and actual competition does not exist. We are satisfied further that the Equity 404 GRAIN EXCHANGES. Exchange adda in a limited way to the competitive conditions which should always exist within the trade. We believe further that the development of the cooperative principle which the Equity Exchange claims to assert is an economic one that will in time result in savings and improved market conditions to the grain growers of the Northwest. The rules, by-laws, and resolutions of the Minneapolis Chamber of Commerce, with numerous tabulations, statement's, and exhibits concerning the organization and its members, and also the rules and regulations of the State railroad and warehouse commission, and numerous statistical tables prepared by the commission, together with many miscellaneous exhibits, were received in evidence and offered as a part of the evidence considered by the undersigned in connection with the testimony in making this report. The chamber of commerce at Minneapolis, is a voluntary association organized under chapter 138 of the general laws of Minnesota for 1883, and consists of a limited niunber of members elected by a committee appointed by the board of directors of the association under rules which at this time confer upon the board of directors substantially absolute control over the admission of new members. The number of memberships is limited to 550, and any member may own an unlimited number of memberships. The membership of the chamber of commerce has not been enlarged for more than 10 years. For years the price of these memberships has ranged from $3,500 to $5,000. For the past six years the millers and elevator men have had control of the board of directors of the association. Two firms of the chamber of commerce own, control, and vote 21 memberships each. Some firms own and control a large number of memberships; 10 firms upon the chamber of commerce own, control, and vote at least 100 of these limited memberships. An applicant, after he has purchased a membership, must receive an affirmative vote of a majority of the board of directors before he becomes a member of the asso- ciation. The board of directors have arbitrary and unlimited power to reject any applicant for membership whose application is objectionable to them for any reason whatever, and the rejected applicant in such case has no appeal. In the case of the Minnesota Farmers' Exchange hereafter alluded to the exchange was refused ad- mission to the association even after it had bought a membership. The rules of the chamber of commerce are secret, and the book of rules bears upon its cover "For use of members only." These rules provide for the punishment and dis- cipline of members. Upon the violation of any rule, regulation, or custom of the asso- ciation, any member may be punished by a fine, suspension, or expulsion from the asso- ciation by a vote of the board of directors. Members are disciplined in secret and no pub- licity permitted. A list of all disciplined, together with the nature of the charge, was demanded of the secretary of the chamber by this committee. The request was not complied with and the list was not produced, although it appeared from the testimony given that the members were frequently disciplined and that in at least one instance a member had been expelled from the association, while in another instance a member had been disciplined for bribing the manager of a farmers' elevator to ship him grain. In a similar manner the rules of the association provide that all differences with regard to financial matters between members of the association shall be arbitrated and adjusted by a committee whose hearings and report are not made public, but whose decisions have the same force and effect as a judgment of a court of law. By another rule of the chamber of commerce in cases where one member becomes indebted to another, the creditor is given a lien upon the membership of the debtor, and this lien has been held by the courts to be superior and paramount to the claims of ordinary creditors of the member. It appears from the evidence adduced that memberships, which in the case of at least two firms represent an aggregate investment of over $70,0p0 each, are construed by our courts to be exempt from levy and sale upon execution. The injustice of several rules of the association, and particularly the rule or prefer- ence last alluded to, is well illustrated by the case of Elias Steenerson, a witness be- fore this committee. Mr. Steenerson was a member and a director of an incorporated organization known as the Minnesota Farmers' Exchange, organized in 1904. After considerable time, a membership in the chamber of commerce was found for sale, and actually bought for $4,000. The directors of the chamber refused to sanction the application for membership or grant the farmers' organization or its representative admission. By this time grain was arriving in large quantities from the farmers' organization, and arrangements were made with Alexander McKinnin, a member of the chamber of commerce, to handle it. McKinnin in turn, turned the grain over to E. L. Welch, another member of the chamber; 36 carloads of the value of $12,000 had thus been turned over to Welch when McKinnin was declared insolvent. It then developed that McKinnin was largely indebted to Welch on account of option specu- GRAIN EXCHANGES. 405 lations, and Welch appropriated all of the grain in question to apply upon McKinnin'a debt. Welch availed himself of his lien, as a member, upon McKinmn's membership and took that also, and applied it upon McKinnin's debt to him. There was nothing at all left to the farmers' organization for their 36 cars of grain. It failed soon after, and went into bankruptcy. The rules of the association with regard to the election of officers lends itself to the easy control of a comparatively small number of the larger firms devoted to the milling and elevator interests. The ballot cast at elections is in no sense a secret ballot, as an exact record of the vote of each member of the association is kept by the election tellers, submitted to the board of directors, and preserved for at kast 60 days after the election. It clearly appears from the testimony that the chamber of commerce by the strict and literal enforcement of a rigid rule, absolutely prevents any member from handling consigned grain for less than the commission rates established by the association. The established rates are higher for nonmembers than for members, and no reduction of charges is tolerated or permitted on the part of any member. Among members of thq association all commission charges are uniform, and no competition whatever is per- mitted between members so far as charges are concerned. By another rule of the association all track bids or offers for grain at country points in carload lots for shipment to Minneapolis are noncompetitive. Such bids or offers must be based upon the Minneapolis market fixed charges and no member can bid above the market even for a carload lot of the choicest seed grain. The effect of this rule, which is rigidly enforced, is to absolutely eliminate competition in the purchase of grain in the country in carload lots when intended for shipment to Minneapolis. This fact was admitted by an official of the chamber. Under circular 215 on page 66 of the rules of the association, a member is forbidden to pay the price of a telegram above the amount that is permitted to be paid for grain. The rules of the chamber of commerce do not seem to provide specifically for the imposition of a switching charge, nevertheless a custom has grown up among the mem- bers, and it may fairly be assumed the charge is made with the sanction of the chamber to impose a switching charge of $1.50 per car. This custom is now and has been in effect for over 20 years. It was explained that 20 years ago this sum was an approxi- mate average of tJie charges actually imposed by the railroads. With regara to the present time, however, the statistics of the railroad and warehouse commission show the charge to be greater than the actual average imposed by the railroads. Minne- apolis appears to be the only grain exchange in the country where such charge is assessed to the shipper. It was admitted by a member of the chamber of commerce that the charge is now annually assessed against thousands of cars at Minneapolis, where the railroads impose no switching charges whatever. Under circular No. 286, which has the full force and effect of a rule, no person can be employed as a traveling agent by any firm upon the chamber of commerce imless such person first makes written application and is licensed by the board of directors. In such application he agrees to abide by all of the rules, regulations, and customs of the chamber and to be amenable to discipline in the same manner as a member. For a number of years what is known as the Grain Bulletin has been in the business of furnishing subscribers with a daily price card, indicating prices to be paid for grain at such local stations and to be used as a guide by the buyer at such station. The prices upon the card are normally based upon closing price of the day before at the terminal market, after deducting freight and other fixed charges and what is to be the margin of profit. Under the practice now in vogue the prices quoted upon the card can be changed for any given station and are changed when any subscriber desires to pay more for grain than what is known as the list or normal price at any given station. The testimony showed that in the neighborhood of 100 times each year the publisher of this card received requests to raise the prices at given points above list or normal price. That these requests usually came from line elevator companies for points where competition was keen. In a sense the card is official, and the prices quoted are usually followed at country points by the buyer. On account of the practice of raisiag prices above normal at given points, at the request of any sub- scriber, it has often been used to fight competitors. We believe that no agency should be permitted to quote a price to be paid for grain at given points and that no such price quotations should be circulated except the actual market value of the grain at the terminal and that such price quotations should be sent out by the Raihoad and Warehouse Commission. The Grain Bulletin and the rules and practices of the association disclosed at your investigation have the efiect of limiting and in some instances completely destroying the competition which should exist between members. They vest in a board of directors almost complete control of the grain trade, and in our opinion this constitutes 406 GRAIN EXCHANGES. a practical monopoly. The conception of the chamber oflBcials as to the nature of the association, aa was stated before your committee, is that it is a private market place, a private corporation, and as such not subject to public supervision and direc- tion. We can not concede this view. Every organization or institution whose opera- tions directly affect the public and its welfare, as does the Chamber of Commerce of Minneapolis, is by that very fact clothed with a quasi-public interest which should make it subject to State supervision and regulation. The association should be an open market place, operated under public sanction, public knoweledge, and approval. The present rules and practices enumerated above are made and enforced under the theory above stated that the association is a private corporation in whose business and activities the public has no interest. Before proceeding with any recommendations the undersigned desire at this time to call attention to some of the results already accomplished by the investigations and the consequent publicity. 1. The evidence showed that in 1906 the chamber of commerce entered in a compact with certain railroads, the effect of which was to charge the shipper with demurrage within 24 hours after his car arrived at the terminal. Whether or not this agreement was continuously enforced from 1906 and just how much was charged to shippers under it does not appear from the testimony. On December 31, 1912, the board of directors of the chamber of commerce met and revoked this agreement. 2. During the progress of this investigation the Federal Government filed a suit against the Chicago Board of Trade and demanded its dissolution, on the ground that its closing price rule, which fixed a maximum price at the close of the day's market above which the members could not bid for or purchase grain, made and constituted that body a monopoly in restraint of trade. The Minneapolis Chamber of Commerce had maintained a closing rule, substantially similar in its effects, so far as the under- signed can determine, to the Chicago closing rule. Three days after the public press • announced the Government's suit against the Chicago Board of Trade, the board of directors of the Minneapolis Chamber of Commerce met and revoked its closing rule, thereby permitting its members to pay any price for grain between the closing of one day's operations and the opening on the next day. 3. 'The evidence adduced during this investigation showed that in certain instances commission firms which were members of the chamber of commerce had sold con- signed grain to subsidiary and affiliated comjjanies and firms. It was admitted that in at least one instance a number cars of grain had been sold by a commission firm of the cbamber of commerce to its subsidiary firms without the consent or knowledge of the consignor. It was also shown that a considerable practice, in fact, almost a general practice, was followed by certain firms of the chamber of commerce in selling consigned grain to their subsidiary and affiliated companies where the consent of the shipper to this procedure had been previously obtained. On March 30^ 1913, after this state of affairs had appeared from the evidence adduced before the investi- gation, the board of directors of the chamber of commerce met and adopted a rule forbidding any member to sell or.buy consigned grain to or of a subsidiary company, whether the consent of the consignor had been obtained or not. This action on the part of the chamber of commerce was a recognition of an existing evil. The under- signed members of your committee are informed that the railroad and warehouse commission of the State have also taken cognizance of this evil and have announced their determination of laying down a rule which will positively forbid the practice above described, and will forfeit the license of any company found guilty of the prac- tice. In view of the action already taken by the directors of the chamber of commerce, and in view of the prospective action of the railroad and warehouse commission, the elimination of this practice may now be counted as one of the actual results of this investigation, and no further recommendation of your committee is needed. 4. The investigation of your committee disclosed the fact that a considerable part of the transactions in futures taking place upon the floor of the chamber of commerce, were not entered into for the purpose of hedging or protecting any actual purchase or sale, but were speculative or gambling transactions. It was further shown that in many instances the individuals who bought and sold futures, in addition to the fact that they had no real interest to protect, were also inexperienced men of small means, who possessed neither the financial ability to carry the speculative risk, nor the 'udgment and experience requisite to protect themselves against the hazard incurred. [t also appeared from the evidence and was freely admitted by the secretary of the chamber of commerce that every transaction in futures, whether it be a legitimate hedge or purely speculative, tends to influence the market to the exact extent of the transactioUj — ^in other words that every transaction in futures registers its effect upon the cash price of grain. i GEAIN EXCHANGES. 407 In recognition of this condition of affairs, the board of directors of the chamber of commerce on March 31, 1913, adopted the following resolution: "Resolved, That the president and secretary of the chamber of commerce be in- structed by the board of directors to immediately confer with the oflBcers of other grain exchanges upon which grain is sold for future delivery, and endeavor to secure an agreement upon the part of the leading grain exchanges that a rule or regulation be adopted which would make it necessary for members of the various exchanges to reqmre an initial margin of at least 10 per cent on all speculative purchases or sdes of grain or seed for future delivery, in lots of not less than 5,000 bushels." It was claimed by the president of the chamber, before this committee, that if this rule were generally adopted by the grain exchanges of the country, it would go far to eliminate the gambUng element in future transactions and would at the same time practically prevent the small inexperienced and financially unfitted speculator from undertaking to carry the burden of speculative risks involved in future transac- tions. The undersigned members of your committee are of the opinion that the action t^en as outlined above, is an official recognition of an evil which should be made prohibitive. There can be no doubt that a large proportion of the present transac- tions in futures are of a purely speculative nature and that the parties engaged have no actual interest to hedge or protect. We recommend — ; 1. That the legislature so far as possible provide for full and complete publicity as to the rules, regulations, practices, and procedure of the chamber of commerce. 2. That legislation be enacted to abbUsh the switching charges now charged to shippers. 3. Legislation to abolish the rule of the chamber of commerce which eliminates competition in track bids for giain at country points. 4. The abolition of that rule of the chamber of commerce which gives to one mem- ber of the association a lien on the menxbership of- another, superior and prior to ordi- nary claims and demands on account of indebtedness existing between such members and persons not members of the association. 5. Legislation which will make the membership of a member of the chamber of commerce liable to seizure and sale upon execution in the same manner as other unexempt property. 6. Legislation making the number of memberships of the chamber of commerce unlimited, and enabling an applicant for admission to appeal from an adverse decision by the board of directors to the vote of the membership at large, and thereafter to any coirrt of competent jurisdiction in any case where he is denied admission to such association arbitrarily or in bad faith. 7. Legislation which will permit a member of the chamber of commerce to sell con- signed grain for any charge or margin of profit which he sees fit. 8. That the railway and warehouse commission be authorized and directed to take the necessary steps to send daily quotations of actual market prices paid for all varieties of grain at terminal points. 9. Finally, that legislation be enacted covering the entire field pertaining to the handling and marketing of the farm products of the State. Respectfully submitted. O. A. Lends. A. L. Hanson. This report condemns the chamber of commerce as a monopoly and urges practically all of the legislation which we demand. Sen- ator Works, who is here to-day to speak for the grain combine, was chairman of the senate committee. He admitted upon oath at the investigation that his conduct was inspired largely by a personal grudge against George S. Loftus, the reformer-manager of the Co- operative Exchange. The Works report failed of adoption in the senate and is utterly repudiated by the people of Minnesota. In this connection I deem it proper to submit the public record of Senator Works as compiled by the Citizens' League of Minnesota. It is as follows : S. D. Works, eleventh. Blue Earth County.— A leader of the Stephens-Farrington combination and voted for both; opposed county option and woman suffrage; has a bad reactionary record except on election issues and the distance tariff. 408 GRAIN EXCHANGES. As bearing also upon cooperative methods in grain terminals, I would call the attention of this committee to the fact that iii Canada the farmers are organized and are successfully doing an immense grain business at tne Winnipeg terminal. Last year the farmers marketed over 28,000,000 bushels of grain through their terminal organization. I submit a summary of the annual statement of the Grain Growers' Grain Co., of Winnipeg, showing the amount of grain marketed, as well as the resources and capitalization of the body. Comparative statement. Opened business Sept. 1, 1908. June 30, 1907. June 30, 1908. June 30, 1909. June 30, 1910. June 30, 1911. June 30, 1912. Shares allotted Capital subscribed. . . Capital paid up. ..... 1,000 $25,000 $5,000 1,853 $46,325 $11,795 2,340,000 $790 2,932 $73,300 $20,385 4,990,541 $30,198 7,558 $188,950 $120,708 7,643,146 $52,902 14,131 $353,275 $292,957 16,332,645 $95,663 24,602 $615,050 $492,062 18,845,305 $69,575.46 $90,000.00 27,321 $683,000 $586,472 27,656,430 $121,614 $200,000 Profits Total farmers' grain handled since September 1, 1906, 77,707,067 bushels. THE GRAIN GROWERS' GRAIN CO. (LTD.), WINNIPEG AND CALGARY. Capital, $2,000,000, divided into 80,000 shares; par value, $25. T. A. Orerar, president; E. J. Fream, vice president; John Kennedy, second vice president; Wm. Moffat, secretary. Directors, Manitoba. — T. A. Crear, Russell; R. McKenzie, Brandon; John Kennedy, Rosser; Wm. Moffat, Souris. Directors, Saskatchewan. — Hon. Geo. Langley, .M. L. A., Maymont; J. A. Maharg, Moose Jaw; F. W. Green, Moose Jaw; John Morrison, Yellow Grass. Directors, Alberta. — E. J. Fream, Calgary. Capital stock, $2,000,000; present assets, $1,265,344.29; paid-up capital, $586,472; present reserve, $260,520.50; donated to western association for organization purposes, $5,500; donated to western association for educational work, $15,502.25; net profit for the year's business, $121,614.13. Farmers' grain handled this year, 28,000,000 bushels. OUR COMPANY. The Grain Growers' Grain Co. is not a commission firm; it is a farmers' organization. It is the outgrowth of the great western farmers' movement. From it has come the sinews of war, which have made it possible to meet the organized capital in the grain trade and place the marketing of our grain on a sound business principle. It has blazed the trail through the underbrush of greed and selfishness. It has given the farmers confidence that men of their calling can enter the business arena and handle their own production successfully. Its splendid success has made it possible for the Saskatchewan Cooperative Elevator Co. to build up a farmers' elevator company with 140 elevators in less than two years, backed up by 10,000 shareholders. The Alberta farmers have such confidence in the movement that they will organize an elevator system in the near future. The Grain Growers' Grain Co., besides doing its large commission business, is oper- ating about 150 local elevators in Manitoba, besides the C. P. R. terminals shown on the back of the book. The men who have made this company what it is are still guiding its destiny, and their ideal is the emancipation of the farmer from the yoke of the middleman, thus bringing the producer and consumer together. Every man in an organization must support every other man. "A chain is no stronger than its weakest link." The leaders can not complete the unfinished task without the support of the farmers. GKAIN EXCHANGES. 409 I also submit an address delivered by J. Kennedy, second vice president of the Grain Growers' Grain Co. This address was de- livered at Fargo, July 3, 1913, and describes the desperate but suc- cessful fight of the farmers' company to free itself from the grain combine of Canada. It also alludes to the episode growing out of which John J. McHugh was indicted for criminal conspiracy to throttle the farmers' organization. Progress Made in Western Canada. J. Kennedy, second vice president of tKe Grain Growers Graia Co., tells of the struggles and achievements of the fanners terminal market company — ^Fierce fight with the Winnipeg Grain Exchange — Government intervenes in farmers' behalf--Comhiae using same line of attack in Canada as in fighting farmers in the American North- west — ^Urges farmers to be on guard against misrepresentation by combine's solici- tors and servants — Speech delivered at meeting of Farmers' Elevator Association of North Dakota, July 3, 1913. Mr. Kennedy said in part: The farmers of western Canada, 10 or 11 years ago, found, from the heavy toll imposed upon them by local elevators and many other tricks in the trade, that liey were forced to organize to get a square deal. Our grain growers' association of the three provinces is just an educational body, not a trading concern. It is used practically for legislative purpose. It costs $1 a year to become a member, 50 cents going to the local association and 50 cents to the central to defray working expenses. We worked along under this association untU 1905, when it was plainly seen that the mysteries and intricacies surrounding the grain trade were such that it made it neces- sary that we should enter the grain trade as a company owned and controlled by the farmers themselves. STARTED IN 1906 IN DEBT. We started this company in the spring of 1906, by selling stock to the farmers at $25 per share; and by July 15 we had 1,000 shares sold and 10 per cent paid. We called a meeting of our shareholders and held our meeting on the exhibition grounds during the exhibition of 1906. We secured a tent 16 feet square and the management of that -exhibition taxed us $50, just the same as it would any side show or a little circus, although notwithstanding the fact that it was purely a farmers' meeting for the im- provement of conditions. The company was formed and officers were elected, myself being made vice president. THROWN OUT OF WINNIPEG GRAIN EXCHANGE. On the 5th of September we started handling grain. When we paid $2,500 for a seat in the grain exchange, furnished our office, and met several other expenses, and we were about $1,700 or $1,800 in debt. We proceeded along very nicely until late in October, when we were ordered out of the grain exchange; the charge against us was that we were doing business on a cooperative plan, which was contrary to the rules of the grain exchange. The only way it could be construed that we were doing business contrary to the rules of the exchange was the fact that we issued a circular in which we stated that we would divide the profits, when we had them, on the cooperative plan; but at this time we were heavily in debt and had no profits to distribute; but that was sufficient reason for this very august body to throw us out on the street. We were then posted in the grain exchange and no member of the exchange was allowed to buy a bumel of grain from the farmers' company, the penalty attached being expulsion from the grain exchange. This embraced all the purchasers for grain in Canada worth speaking of. You may plainly see we had a struggle for existence when the farmers were consigning from 20,000 to 30,000 bushels per day to us and nobody would buy it from us at any price. We finally secured two expert grain men, sent them away East, and by the following January and February we were getting sales for most of our grain. ATTACKED THROUGH THE BANK. The bank at this time began making it hot for us. The head office in Toronto received friendly advice from many men in Winnipeg and the West that the sooner they closed out the Grain Growers' Grain Co.'s account, the better they would be off 410 GEAIN EXCHANGES. and the less money they would lose. The head office continually kept boring the manager in Winnipeg, calling upon him to reduce our account. He finally came in one morning in February, 1907, and said: "It is all up unless I can get additional security." We asked him what he would suggest. He said, "I will suggest that the president, vice president,and secretary give us a note and sign a contract protecting the bank against loss on the full amount of their holding. ' ' We met his desire and in a very short time we were marketing our grain more successfully in the East, so reliev- ing us of any particular danger on this point. GOES TO GOVERNMENT FOR SQUARE DEAL. In the meantime we worked hard with the Government of Manitoba, demanding reinstatement on the Winnipeg Grain Exchange. This was a long and hard-fought battle with the Government, the grain exchange pleading their cause and we, with the farmers at our back, fighting our cause; but in April, 1907, we were reinstated through the power of the Government, by abolishing those words in our circular which said we would distribute the profits on the cooperative plan. We now have to distribute our profits based on the amount of stock each individual holds and not on the amount of grain he contributes to the company, which is abolishing the true cooperative spirit; but I am glad to say this is working out better with us under the present form than we expected. This ends our battle of our first year's experience so far as opposition from the outside is concerned. GRAIN EXCHANGE TRIES ANOTHER ATTACK — REDUCES THE COMMISSION. In 1908 or 1909 another action was taken by the grain exchange which they believed would put us out of existence. Thejr decided to reduce the commission for handling grain from 1 cent to one-half cent, giving as their reason — that is to their own friends — that if they handled grain for one-half cent we couldn't charge any more and that would put us out of existence, because, they said, "Those men cannot handle grain for less than one-half cent; then they will have no profits to pay fat salaries with and create fat officials." Once more equal to the situation, we took a referendum of our share- holders, which was in the neighborhood of 8,000 or 9,000 at that time, with the ques- tion, "Will we reduce commissions to one-half cent, or will we stay with the one cent." SHAREHOLDERS REMAIN LOYAL. About 75 per cent of our shareholders replied, and about 97 per cent of those signi- fied bjr the remark on the referendum, "Stay with the 1 cent commission and we will stay with you. We know what this gang is after; they want to drive our agencjr out of existence, then God help us when they have accomplished it." We stayed with the 1 cent commission in every particular. The others went out howling for grain at one- half cent commission and some of them no commission, pointing out to the people in the country, "See your farmers' company now, charging double the commission we willhandle yourgrain for." Notwithstandingallthisourbusinessdoubledand trebled and kept increasing all the time, and when the next annual meeting of the grain ex- change came around they quietly went back to the old commission, "1 cent a bushel," while we fought to have oats reduced to one-half cent. We were beaten out just the same. That shows plainly where the farmers' friends are. COMBINE AGAIN ATTACKS THROUGH THE BANK — ^IS ROUTED. Up until this time there was great influence used by the powers that be, from a financial standpoint, and strong efforts were made to cut us out of a line of credit. Finally the first bank that carried our account called the Winnipeg manager down to head office and told him that he must reduce the Grain Growers Grain Co.'s account to one-third of what it had been in the past. The Winnipeg manager, who has always been friendly to the farmers' company, said, "If you are going to run the western busi- ness, I can not run it, therefore you will have my resignation." In a day or two after he was made manager of the Home Bank of Canada, so far as the western business was concerned, and we entered into a working arrangement whereby we took a large block of the Home Bank stock and secured the line of credit desired, and from that date to this we have been masters of the situation from our standpoint. Our effort is to make the Home Bank of Canada the great farmers' bank of the West. We have opened a number of branches throughout the West and it is admitted at any point where one of our branches is now in effect that the farmers generally are getting better treatment than the farmers are where we have no branch. I hope to see the whole West covered by branches of the Home Bank of Canada. GRAIN EXCHANGES. 411 SPLENDID RECORD AND STANDING OF THE FARMERS* COMPANY. The standing of the Grain Growers' Grain Co. to-day is as follows: We have $700,000 paid up capital, nearly $900,000 subscribed; with something over $300,000 of a reserve fund. The strongest grain institutions fear us, and we are respected by the strongest financial institutions. The grain institutions fear us because they plainly see '"the handwriting on the wall," that if this farmers' company continues to grow in the' future as it nas done in the past, that very soon the millions of easy money they were making out of the grain trade will be a thing of the past. We are respected by finan- cial institutions because of the fact that to-day we have a line of credit exceeding flometimes $5,000,000, arranged chiefly through our own bank, the Home Bank. An evidence of this is the fact that when we leased the Manitoba Government system of line elevators we required $1,250,000 capital to take care of the street purchases of ^ain. Now, our bank was not capable of handling that line, our commission business and our export business being all that they were able to take care of; and the other banks in Canada did not care to advance money on country warehouse receipts; therefore, we were compelled to go to New York, where we were successful in getting a line of credit of $1,250,000 to take care of the street buying of grain. This will give you some idea as to whether we are respected by the financial institutions or not when we were compelled to leave Canada and go to New York City and get this accommodation . PROFITS GO TO THE FARMERS. Now, I have pointed out to you our financial standing and oui- ability, our paid- up capital and our reserve fund, and I would like to point out to you that all this great movement that I have pointed out, all this paid-up capital and reserve fund as never cost the farmers one fraction of a cent. It is true the farmers bought the stock and it is true they paid for it, but it is also true that they never received less than 10 per cent dividend in cash on the par value of their stock. It is also true that their $700,000 worth of paid-up stock all lies intact; and it is also true that some- thing over $300,000 is added to that in a reserve fund. It is also true that were we to wind up the company to-day our shareholders would receive about $47 for every $25 share that they hold. Then am I not correct in saying that all this has never cost the farmers 1 cent? That they simply loaned the money to themselves for the purpose of improving conditions, and that their money is still there for that purpose, while they are receiving not less than 10 per cent interest on their investment; and when they want to withdraw the money they subscribed for, they will get more with it. Therefore, I am absolutely correct in stating that it has never cost the farmers 1 cent, as this is their own company; they own it and control it, and in it they have direct legislation in the true sense of the word in the fact that when their man- agement does not suit them they can remove them and put men of their choice in their place. A BIG year's BUSINESS. Again, in the last year's business we handled 28,000,000 bushels of grain. We came forward with $142,000 profits after paying all expenses of every description and nature — advertising and pushing the work in the fields. Out of that $142,000 we donated several thousands to our provincial associations. We also donated several thousands to the maintenance of our own farmers' paper. The Grain Growers' Guide, a weekly journal, a journal that is recognized by all interests, and feared by many because it fearlessly tells the truth. We then came to our annual meeting with $121,000 left. The shareholders at that annual meeting declared a 10 per cent divi- dend on the paid-up capital, which amounted to $50,000 and a fraction; therefore, leaving $60,000 and a fraction to go to the reserve fund; therefore, the shareholders really received 21 per cent on their investment, but they only took 10 per cent of that in cash as a dividend, and 11 per cent went to the reserve fund. Now, where did this money come from? is another important question. Did it come from the farmer? No; not in the true sense of the word. It came from the 1-cent commission; and had that 28,000,000 bushels of grain gone through any other course — I care not what course that might be — the $142,000 profits wolud have gone with the 28,000,000 bushels and would have gone into the pockets of men who are working against the interests of the farmer. Therefore, I am again correct in sayin" that this $142,000 profits this year was not contributed by the farmer, but he placed that much money into his own company by not giving the grain to other men in the business, as it takes about half of that 1 cent commission to handle the grain, and we preserve the other half for the matters just outlined. 412 GEAIN EXCHANGES. BE ON GUARD AGAINST THE COMBINE'S MISKBPKESENTATION. In conclusion I would say, do not expect too much from the men at the head of affairs in our farmers' movements. They have much to contend with that the local men can not see. Do not pay attention to statements made that your own organiza- tion is not getting as much for grain as others are. Those matters are easily misrepre- sented for a cause and a purpose. We have seen this every j^ear, and particularly this year. We belive the interests against us have spent $5 this year to the $1 they ever spent in other years, in order to keep the grain from coming to the farmers' com- pany. They had a large number of men traveling in the country, bidding strong for the gi-ain; and where they knew that men would sell their grain to us in any case, they would go to him and offer him more than the grain was worth, knowing that they could not get him; but when his grain was shipped and sold through his own com- pany, the farmers' company, he found he had not got as much as he had been ofiered ■ by the other people; and thousands of farmers would turn around and use this and give it to the other agencies and to the thousands who were ready and willing to knock the farmers' company. In doing this those foolish farmers never go on to the real meaning of their act. We have suffered very much by this misrepresentation, but we have suffered more from the short-sightedness of our farmers and from the lack of confidence of our farmers than we have from all other causes; farmers by the thousand coming to conclusions based on false reports, coming to conclusions before any investigation takes place, coining to conclusions without having all the facts properly placed in the scales of justice; but I am glad to say we are outgrowing this fact, and a great deal of the mis- representation that has been directed against us is coming out in its proper colors and is now reacting, helping us and hurting the others; and I wish to say to the farmers of this great country to the south of us that if you have not already met those things that I have outlined in these lengthy remarks, you certainly will meet them in the near future, and I trust that my few remarks may help to guide you and protect you, making you stronger in the defense of men who honestly work for your best interests, but are so cleverly misrepresented by men who are not working in your best interests. The Equity Cooperative Exchange came into existence as a com- petitive force in the Minneapolis terminal in August, 1912. It is a cooperative organization; its by-laws providing that all earnings above expenses and interest upon capital stock shall be repaid to patrons of the institution. From the very first the cooperative exchange has been the object of the bitterest attacks of the grain combine. To-day, as already shown, the milhng and elevator inter- ests of MinneapoHs, acting imder agreement, refuse to buy or handle a bushel of grain coming through the cooperative exchange. They have established a complete boycott of the Equity Cooperative Ex- change and its grain. There are in the neighborhood of 400 traveling sohcitors of the chamber, and this small army has been employed in falsely accusing the officers of the Equity Exchange of dishonesty, embezzlement, uncommercial conduct, and almost every conceivable misdemeanor. They and the members of the chamber whom they represent have falsely stated that the cooperative exchange had no adequate financial backing and that all shippers dealing with it were taking perilous chances; this in spite of the fact that the exchange is bonded to the extent of fully $50,000, and in spite, also, of the fact that the aggregate wealth of its backers amounts to nearly a milhon dollars, 'fiiey have falsely circulated the report that the Equity Exchange charges two commissions for the sale of grain and that all grain received by the exchange is sold to members of the chamber of commerce at a discoimt equivalent to the regular commission. Frequently, when the exchange is regularly handling the business of a farmers' elevator, members of the chamber or their representatives GKAIN EXCHANGES. 413 will offer the particular elevator ia question a price in excess of that which can be obtained for the grain under actual marketing condi- tions then existing. This overbidding of the market is accomplished by false statements regarding the inabflity of the cooperative exchange to secure the market price for the grain and is so frequent in occur- rence as to amount to a general practice. Through uie subservient press and subsidized trade organs the grain combine carries on a constant campaign of viUification, falsehood, and abuse against the cooperative exchange. For example, one of its organs is known as the Cooperative Manager and Farmer and is published at Minneapolis. In a late issue this organ proposes that an organization of travehng representatives of the chamber be formed which should make it the systematic busi- ness of the organization to exert every means to dissuade the direc- tors of the farmers' elevators from ordering shipments to the Equity Cooperative Exchange. In case such efforts were not successful, the organization purposes to then go to the manager of such ele- vator and persuade mm to quit his post as manager by offering him another position wherein he would not be obliged to ship grain to the Equity Cooperative Exchange. The chamber of commerce induces the managers of farmers' elevators whom it controls to ship carloads of grain to the Equity Exchange which are "plugged," in order that the claim may be made that the Equity Exchange can not obtain market price for grain. For example, a carload of wheat was received a short time ago which had 8 inches of screenings in the bottom of the car. Other cars have been received which have been short in weight and where the shipment was shown to be a "plant" on the part of the chamber. Every car of grain marketed by the cooperative exchange is traced by the members or employees of the gram combine. This is done in the hope of showing that the grain was not sold for the full market price, or that some irregu- larity may be discovered or that in some way trouble can be made between the Equity Exchange and the shipper. Below I submit a letter requesting such information over the signature of E. S. Hughes, assistant secretary of the chamber of commerce. In this case as in practically all cases the shipper of the car mentioned had made no request whatever that the chamber of commerce investigate the sale of the car. The statement contained in this letter that the shipper has requested an investigation is, of course, false. Chamber op Commerce of Minneapolis, February 2, 1914. OscEoiA Mill & Elevator Co., Osceola, Wis. Gentlemen: We have a request from the shipper of G. N. car 102764 to trace the car and find out to whom it was sold and the price paid. This car was reported pur- chased by you on January 22 fi-om the Equity Exchange, \yill you kindly advise the price which you paid for the same by return mail, and oblige. Yours, truly, E. S. Hughes, Assistant Secretary. In every way possible and by every method of unfair competition and price discrknination the combine is seeking to destroy the Cooperative Exchange. 414 ■ GEAIN EXCHANGES. STATEMENT OF HON. J. E. KEILEY, FORMER CONGRESSMAN FROM SOUTH DAKOTA. Mr. Kelley. I am the chairman of this committee, sent here by more than a million farmers, I believe, and I have had 48 minutes to present the case of the real farmers upon the proposition. The Chaikman. The committee wants the fullest possible light, and, of course, you can supplement your remarks and put in any brief to such reasonable extent as you see proper. Mr. Kelley. Yes, sir. Mr. Chairman, it is a profound delusion to imagine that the farmers of the Northwest are up in arms as they never were before, at least within my time, over imaginary grievances, and I want to thank the legal gentleman from Minneapolis who, to-day, put into the record what he did. He imagined, it appears, he was putting it in in behalf of the Chamber of Commerce of Minneapolis and against an organiza- tion of the farmers of the Northwest. Why, gentlemen, the only indictment that was contained in the argument made by that learned gentleman from Minneapolis, the only construction that can be placed upon the argument he made, was that it was a crime for the farmers to think of such a thing as to organ- ize in self-defense. He specifically stated that the farmers of the agri- cultural Northwest were making the same argument there that they have made here, and I want to tell you, gentlemen of the committee, it is absolutely true; I want to tell you that the arguments that have been made here have been made there. I am not playing the hypo- crite; we are not telling you here of the wrongs that exist and tellmg the people there that it is for some other reason that the farmers are up in arms. Why did this organization of 600 farmers come together in self-defense in order to promote an independent selling agency for themselves in the city of Minneapolis ? Have you imagined that this was done without a grievance ? I can not go into that and give a lengthy argument upon the proposition, but I say it was because of the unfair methods and the unfair action of the Chamber of Com- merce of Minneapolis, although there are many honorable men in that organization. I want to call your attention to the reply that was made by a member of the Chamber of Commerce of Minneapolis to the indict- ment that I brought against them before and which I bring now: That they have beaten the price of corn down to the American com growers more than 12 cents a bushel this very season. My proof, sir, IS the fact that corn in Liverpool has actually advanced a cent and a half a bushel in the last 65 days, while they have beaten it down 12 cents a bushel in almost every market of the United States. The records will show that the gentleman here, in reply to my statement, made the statement that this condition only obtained in the markets of Liverpool for two days. 1 ask the mtmbers of this committee to take the files of any one of the papers I mentioned, either the Chicago Eecord-Herald, the Chicago Tribune, the Minneapolis Journal or the Minneapolis Tribune, or any oth^r paper in the United States that gives the market reports, and you will find the statements there as I give them, that while the prices have been beaten down in the past 65 days from where they stood at 72^ cents in Chicago, 82^ cents in New York, and 88^ cents GRAIN EXCHANGES. 415 in Liverpool, about 70 days ago, they to-day stand somewhere around 66 cents in Chicago and 70 cents in New York, while they have raised in Liverpool, to be exact about it, to 90,3^ cents for 56 pounds of American mixed corn. Mr. Chairman, I have got to leave that phase of Che question, and I want to come hurriedly for a few moments to the grading and inspec- tion of grain. That is what the farmers of the Northwest want, and I win tell you why they want it done by the National Government. It is because they believe and know they have not been getting a square deal through the local inspection of grain. It has been stated here, iterated and reiterated, that the combine controls and influences grading and inspection. We believe that we receive too severe inspection when the grain goes in, and perhaps it is inspected upon its merits as it goes out. A gentleman of the committee asked a question the other day, and it was answered by somebody who made the statement that the extra amount of grain that was shipped out over the extra amount of gjrain that was shipped in was because of treating the grain and raising it to a higher grade. Gentlemen, I want to dissent from that statement, and I want to call your atten- tion to the fact that it is wholly unsustained by practice. It is true that if you put grain through a cleaner, it makes that grain look better, but it is also true to the experienced eye that that grain is absolutely no better than it was before. Grain receives a sufficiently severe dockage at the initial point of shipment by the local men who buy the grain; it receives sufficient dockage at the point of arrival, and I say that the dockage is taken out of that grain for all the dirt that it contains, and to the experienced eye that train is made no better by going into the fanning mill. It is true it oes make it look better, but the man who is a judge of wheat and knows what that wheat is, knows that when it is cleaned it is actually no better than it was before, and I charge up to unfair grading and inspection the fact that nearly 5,000,000 bushels more wheat in a single year was shipped out from the terminal markets of Minneapohs than was shipped in. I have in my possession, and I am going to submit it for the record, the testimony taken before Judge Sanborn in a case tried in the city of Madison, in the seventh judicial circuit of the United States, whereby a man in the cities oi Superior and Duluth testified before the court, and he swore that he had been a member of that grain exchange for 14 years, that in 10 years, 26,000,- 000 bushels more grain was shipped out and manufactured into flour in the cities of Duluth and Superior than was shipped in. I also have the decision of Judge Sanborn in summing up the case, and he said nowhere in the evidence has this statement been disputed. 1 ask, gentlemen, to put that in the record as it stands, and I say to you gentlemen of this committee that all the farmers of the agricul- tural Northwest ask is absolute justice when they ask for Federal grading and inspection of grain. We do not ask that because we want an advantage over the Minneapolis Chambei' of Commerce, or because we want to put the chamber of commerce out of business; but what is the object of the gentlemen opposing our proposition ? You have had an unfair advantage over us in grading and docking grain, and your purpose in trying to evade national inspection is to retain the graft you have had aU these years. I have not hee^ here aU the afternoon 416 GEAIN KXCHANGES. and I do not know what has taken place, but if a pubHc investigation is demanded or is had by the reconamendations of this committee, the facts will be established beyond guesswork that every allegation made here wHl be brought out substantially before an investigatmg commit- tee that will go into all the details. They have been treating the farmers unfairly; they have beaten down the price. As I stated before, whenever you find the price at Minneapolis falling below the price at Winnipeg you may know they have an advantage in that place. There is no speculative interest in Winnipeg. Why ? Because the farmers have an export organization in Canada and no exporter can buy grain in Canada for less than a satisfactory price. You may draw an imaginary horizontal line of the price established in Liverpool, and that is the price that should govern grain in the United States, and it does govern except when the speculative interests either force the price above, as Leiter did in Chicago, or sell heavily and short to beat the price down. Yet they will come before you and tell you those speculations have nothing to do with it. Mr. McHugh just made a statement that no man could sell more than 5,000 bushels at one time on the Board of Trade of Minneapolis. Mr. McHuGH. Less than 5,000 bushels. Mr. Kelley. Less than 5,000 bushels. There is nothing, at least, to prevent 20 men each selling 5,000 bushels apiece, making 100,000 bushels of it; and I ask the gentleman from Cnicago, Hare you the same rule as to Chicago ? How does Armour sell 200,000 bushels ? Mr. Manahan. You misunderstood Mr. McHugh. He did not say there was any limit as to the amount. He said the minimum; they could sell more if they want to. Mr. Kelley. I thank you very much for that correction. I was astonished when I heard the gentleman make the statement as I un- derstood it, for I had never heard anything of that kind. We will take the statement as it stands corrected, then. There is no limit to the amount they can sell, and any man with due respect for your in- telligence wUl not say that if a man puts 1,000 or 5,000 or 10,000 bushels of grain on the market that he can not thereby beat down the price of grain. He can do it, if there was no other way, in this way: Sir. Armour sells 10,000,000 bushels of grain. He sells for June de- livery. Now, his interests demand cheaper wheat, so he bears the mar- kets. All he has got to do is to keep selling. Where is the power to stand against him ? He can sell a million bushels, ten million bushels, until takers can not be found, and the little buyers are swallowed up in the whirlpool. He can do the same way if he goes on the other side of the game, as Leiter did, and force it up, and then they will tell you it is a good thing for the American people, but the consumer or the producer pays it in every instance. When wheat runs up, flour is quick to follow the price of wheat, but when the price of wheat goes down flour is slow to follow the price. If I am imposing on the time of the committee, I shall close. I do not know how long I have been speaking. The Chairman. Your 10 minutes are about up. Mr. Kelley. I wUl say this, gentlemen, in closing: All we ask is a square deal. We ask the committee to go into the proposition, and see for themselves whether the fai'mers have a just grievance. When and where did they ever rise up in righteous indignation without a justification? GRAIN EXCHANGES. 417 [Figures from Agricultural Department as to price of com.] CORN. 1911 1912 1913 1914 January Cents. 48.2 49.0 48.9 49.7 61.8 55.1 60.0 65.8 65.9 65.7 64.7 61.8 Cents. 62.2 64.6 66.6 71.1 79.4 82.5 81.1 79.3 77.6 70.2 58.4 48.7 Cents. 48.9 50.6 52.2 53.7 56.8 60.6 63.2 65.4 75.4 75.3 70.7 69.1 Cents. 69.6 February 68.3 March April , May Juno.. .•■...•..->.>•-> . July Ss^iombor OotobfiT November ... We claim the Chamber of Commerce of Minneapolis is a close corporation and is, by its action and by reason of its rules, an organi- zation in restraint of trade. First, because, organized 38 years ago its membership consisted then of some 550 men or firms. Although business has increased in a very large percentage since that time, the membership of the chamber of commerce has not been increased. When they say that anybody may obtain a seat in the Chamber of Commerce of Minneapolis they say what they know can not be the case and what their very rules have prevented. A seat in the chamber can not be obtained unless one can be found that is for sale. If no seat should be offered for sale then membership could not be obtained. If a seat in the chamber were obtained by a farm- ers' organization, organized along true cooperative lines, such organization would not be permitted to do biisiness on the floor of the Chamber of Commerce of Minneapolis for the reason that the rules of the chamber of commerce absolutely prohibit the cooper- ative prorating of earnings on commissions. It is ui restraint of trade further for the reason that the chamber arbitrarily fixes the price of graui marketed at that terminal and takes the close of the market the previous da,y to start the price paid for the following day. It is further in restraint of trade, mas- much as members buying grain in the rural districts under the management of any member of the chamber of commerce are abso- lutely prohibited from paying any fraction of a cent more for grain on track than the price stipulated by the chamber of commerce itself. If anything could be more directly in violation of the terms of the Sherman antitrust law and of free and open commerce in general I have failed to discern it. The action of the chamber of commerce is in opposition, further, to the best interests of the farmers and the producers, because the organization is absolutely under the domination of the Milling Trust of Minneapolis and a few of the great elevator combines, such as are known as the Washburn-Crosby Co., the Van Dusen Elevator Co., the Peavey Elevator Co., and a few others. Thus, by reason of the great power the great Milling Trust and the other organizations named obtain, largely through their subsidiary companies, freedom of commercial transactions is practically prohibited. The action of the Chamber of Commerce of Minneapolis is further in restraint of trade for the reason that no person or institution out- 37214—14 Zl 418 GBAIN EXCHANGES. side of the membership of the chamber is permitted to bid upon sam- ples of consigned grain until such grain has first been sold to a mem- ber of the chamber itself. This, if it means anything, must mean two commissions. The first sale which is made by a member of the chamber of commerce to another member of the chamber 19 usually the sale reported, and the profit for handhng said grain is usually referred to as a commission. The price obtained for said grain as thus sold by one member of the chamber to another is always based upon the price fixed by the chamber itself. The price paid when an outside firm or person afterwards is permitted to buy said consigned grain may be any price that can be obtained, and is nearly always a fraction of a cent, or a cent, or 3 to 4 or 5 cents, more than the price paid on the original sale which was between the members themselves. This is thought to be one of the most pernicious practices perpe- trated by the chamber of commerce. We further believe the chamber to be in violation of business ethics and fair dealing inasmuch as members who are operating lines of rural elevators are at the same time commission firms re- ceiving consigned grain and selling such consigned grain in open competition with tiieir own grain which they nave received and bought through their country elevators. It is impossible to believe that, when a person or a corporation is selling the grain of a patron while they themselves own grain which is placed on the market ia open competition with the grain of the said patron, the latter's grain will be pushed to the highest market against the interest of the com- mission merchant's own grain. It is also believed that the grading aud inspection of grain should be done by the National Government and not by the several States, for the reason that there is great diversity of action between the States, and in many instances the greater amoimt of grain received comes from ter- ritory where no terminal market exists, as for instance. South Dakota, North Dakota, and Montana furnish the larger percentage of grain received in the terminal markets of Minneapolis, yet such States have no voice whatever in making the laws or the arrangements governing the inspection, grading, and weighing of said grain. It is apparent that a great injustice is done the grain growers of the North- west through the present system of grading and inspection. When we read the record of the amount 01 grain received and graded as No. 1 and No. 2, and compare with the amount of No. 1 and No. 2 that is shipped out, we find a discrepancy of several million bushels each year in favor of the grain shipped out or manufactured into flour, thus proving beyond flie possibility of a doubt that the farmer did not receive fair inspection on his grain; that his grain was better than the public inspector gave him and that when the grain was shipped out, when it left the hands of the elevator combine or the milling trust who bought it directly from the farmers, it received its true inspection and was sold for what it was worth. This happens because the combine known as the milling trust and the grain comoine of Minneapolis, by its power, is not only able to control and say who shall be inspectors but is very largely able to influence the entire State, and in many instances control legislative enactment. The unfairness and the chicanery of the members of the chamber of commerce is quite apparent when we know, as was brought out GEAIN EXCHANGES. 419 in the legislative investigation had at the last session of the Minne- sota Legislature, that for more than 20 years a charge of $1.50 had invariably been made for the switching of cars whether such switching had actually taken place or not. This is freely conceded, and Mr. McHugh, the high-salaried secretary of the chamber of commerce, in his speech at the city of Sioux Falls, S. Dak., on the 18th of December, 1913, admitted that in a majority of instances no switching had actually taken place. The only justification for this kind of stealing offered by Mr. McHugh was that the custom had been established more than 20 years ago. It is quite material, however, that the custom or the steal was persistently adhered to and practiced until the farmers of the Northwest became aroused to their own interests and caused the thing to be stopped. As a parallel to this petty manner of stealing might also be cited the steal commonly known as the 24-hour demurrage. The laws of the State of Minnesota and of the State of South Dakota allow 48 hours for the filling and unloading of cars. While the farmers were apparently asleep, nowever, and while they were taking the word of the grain combine without question, the latter formmated a little scheme whereby in violation of law they took from the farmer de- murrage charges if more than 24 hours were taken in the filling or unloading of cars. This practice was continued for many years and was only discontinued when the farmers themselves began to take an interest in the maimer in which their grain was being handled at the great terminal markets. It is further held that wrongful practices are had by reason of the methods commonly known as cupola weighing. Instead of there being track scales where grain received might be weighed as it arrived in sight of everybody and before it left the track on which it arrived, the grain emptied and the empty car weighed to determine the amount of graia it actually contained, said grain is emptied from the car into an elevator box, hoisted usually 150 feet to the top of an elevator and there weighed, and while we do not question the honesty of the weigher, who is a State officer, we do question the sys- tem and the methods employed in the weighing. We allege that said system of weighing, in hoisting grain to me top of the elevators, has been employed in preference to the simple method of weighing on the ground and in open sight of everybody, for the purpose of affording additional manipulation of the grain of the consignee. In connection also with this system of cupola weighing is that of the suction cleaner which is so arranged and may be so manipulated as to take from the grain not only all the dirt and foul stuff that it may contain, but whatever quantity, in Hke manner, of grain that the manipulators think it is safe to take. Mr. Chairman, I am somewhat surprised at the attitude of the attor- ney for the Chicago Board of Trade as to the constitutionaUty of the remedy which I have proposed for the prohibition of speculating in imaginary grain. I made three citations in support of the plan sug- gested, but the learned gentleman relegated each and all to the scrap heap with as little consideration as if he had been considering a ques- tion of mental arithmetic. First, as to the taxing power of the Government as it was appHed to ridding the country of a faulty and imsafe monetary scheme. This monetary system was know in common parlance as " the wildcat State 420 GRAIN EXCHANGES, bank plan" and was put out of commission, through the Federal Gov- ernment exercising its taxing power, more than 50 years ago. The constitutionality of the act was never before questioned, but the great legal mind of Mr. Robbins grasped the point so quickly that he accom- phshed the extraordinary feat almost with a wave of his hand. The second citation was brushed aside with even less ceremony, for, if my memory serves me well, he never touched the proposition at aU, but took it for granted that the unconstitutionaHty of that should fol- low the disposition he had made of the former as a matter of course. Yet in this case, as in the former, the Government exercised the power of taxation, which is inherently vested in it to prohibit the sale of oleo- margarine which was colored to make it appear like butter. That law stiU stands and is accomplishing its piu'pose, notwithstanding the extraordinary deductions of Mr. Robbins. The third citation, by which the Government prohibited the manu- facture di phosphorous matches, was disposed of by this great legal luminary with equal faciUty. Then, following this wonderful exhibition of legal erudition by the gentleman from Chicago, another profound student of the law — • a most distinguished disciple of Blackstone, who comes from Min- neapolis and whose heart beats in perfect unison with the heart beats of the members of the Minneapolis Chamber of Commerce — arose in his place and assured the committee that he agreed to every proposition laid down by the great legal hght from Cmcago. All of which would lead even an "untrained mind" to conclude that if the ^colossal brains and the unconstitutional minds of those two legal philosophers continue to expand in direct ratio with the connections made with a fat salary they will yet be able to declare against the constitutionahty of the Ten Commandments; The Chicago trust protector also expressed his gladness because so great an unconstitutional proposition had not come from a lawyer. Mr. Chairman, I have great respect for the legal fraternity, so much so that in my younger days I took law, but through the mutations of events never practiced. But if the gentleman will give me his attention for a few minutes, and if he will make an honest effort to acquire a little general information to mix with his unconstitution- aUsm, I will convince him that I am not only in the company of some very good lawyers but a very goodly number of them. There probably never has been a time during the past 50 years but what over 75 per cent of the Members of Congress have been -law- yers — many of them very able lawyers — yet three different Congresses enacted the three laws to which I have referred, and by such enact- ments declared their constitutionality. This, taken with the fact that those laws have passed the scrutiny of the greatest lawyers this country has produced and have never been declared in oppo- sition to the Constitution by any court, places Mr. Robbins and his associate in gloomy isolation on the sea of unconstitutional despondency. Accordingly I would advise those men to avail themselves of the only remedy that can by any chance prove of any benefit to them less law and more knowledge. Mr. Manahan. Mr. Chairman, I have a few telegrams and letters from individuals and associations in different parts of the country- Missouri, Wisconsin, Dakota, and Canada, even — simply expressing GBAIN EXCHANGES. 421 in their own way their support of this resolution, which I would like to have entered in the record. The Chairman. They will be printed in the record. Mr. Manahan. That is all our case. There are some Congress- men — Mr. Miller and some others —who want to say just a word. Omaha, Nbbk., March 2, 1914-. Hon. James Manahan, M. C, Washington, D. C. Farmers of West watching with deej) interest your resolution for investfeation grain combine. You have done great service in openii^ up this matter. Urge that no effort be spared to get the facts before Congress. Farmers' organization believe that interlocking corporations operating as commission houses practically control terminal markets and sell consigned grain to concerns in which they have direct financial interest, as indicated in Minnesota investigation. This situation, if true, makes con- gressional invest^ation imperative. Fbank G. Odell, Chairman Legislative Committee Nebraska Farmers' Congress, Secretary Executive Committee Fanners' National Congress. February 23 1914. Mr. Robert L. Henry, Chairman Rules Committee, House of Representatives, Washington, D. C. On behalf Northwestern Agriculturist's 150,000 subscribers we urge adoption Mana- han resolution to investigate grain exchanges. Last winter's Minnesota legislative in- vestigation proved gross abuses, yet no State action taken until 10 months after, when Northwestern Agriculturist made legislative evidence public and demanded action. Since December State officials have been forced, through our campaign of publicity, to institute reforms which save farmers $2,000,000 yearly on Minneapohs market alone. This is typical and illustrates tangible evidence and need of investigation as per Manahan resolution. Traffic is interstate chiefly. Farmers are aroused and demand exposure and justice. We are forwarding to Manahan petitions signed by thousands of farmers. More following. P. V. Collins, Editor. Chamber of Commerce, Milwaukee, February 20, 1914. Hon. James Manahan, M. C, Washington D. C. Dear Sir: I have just read in our papers of your proposed congressional probe of the elevator trust in the grain business, and from over 40 years' experience in Chicago, Minneapolis, and Milwaukee I think you are on the right track. I inclose herewith a copy of a letter to Mr. Clark on the subject of another form of monopoly, which I woiild be glad to have you include in your investigation. I think it is a part of the machinery of the same scheme, or is at least made use of by these parties, and is a plain violation of law. I understand that the Interstate Commerce Commission has such a mass of business on hand that it would be months before they can give this matter attention, which is one reason for my asking for your able investigation of the subject. I will also call your attention to another attempt at monopoly by the Chicago Board of Trade. A rule expellii^ any member of their board trading on any other board (this hits Milwaukee) making their public warehouse receipts deliverable on future trades. This matter is now in the hands of the United States Department of Justice, and will probably be brought to trial. I inclose an explanatory circular. Yours, very truly, George W. Shepard. 422 GEAIN EXCHANGES. Farmers' Elevator Association of North Dakota, Fargo, N. Dale., February ^1, 1914. Congressman James A. Manahan, House of Representatives, Washington, D. C. Dear Sir: I am instructed by the board of directors of tbe Farmers' Elevator Association of North Dakota to extend to you our thanks for your efforts in behalf of the grain growers of the Northwest in endeavoring to secure a congressional investi- gation of the commercial grain exchanges of Chicago, Minneapolis, and Duluth. I am further instructed to inform you that the board of directors desire that you shall understand this communication to be your credentials to act for the North Dakota Cooperative Elevators, and that the sentiment of this State-is overwhelmingly with you in your fight. Again thanking you and assuring you of our support in every angle of this fight for decent marketing conditions and a reform of the admitted abuses of the commercial grain exchai^es, we are, Very truly, yours. A. M. Baker, Secretary- Treasurer Farmers' Elevator Association of North Dakota. Valley City, February ^7, 1914. Hon. Jambs Manahan, M. C. Dear Sir: We sent the inclosed telegram to George M. Young, and he sent an encouraging reply. Now, I intend to publish in our Cooperators' Herald how all members of Congress from North Dakota vote on that resolution, as it ispf vital interest to us. Yours, very truly, L. NoLTiMiER, Valley City, N. Dak. . BoGEESViLLB, Mo., February ^6, 1914. Representative Manahan, Washington, D. C. Dear Sir: I see in the good old Globe-Democrat that you have introduced a reso- lution in the House looking after the dealers in wheat and flour; that is a step in the right direction, but it should go much further. Here in southwest Missouri the millers axe in a combine in restraint of trade. Just about the time the threshing of wheat begins the millers have a convention to which they all attend; they set a price on the farmer's wheat. Now, last summer they made the price 75 cents for the top, and then bought most of the grain for 73 cents per bushel. Now they are selling to the same farmers bran at $1.40 per 100 pounds and flour at $3. After the farmers had sold their wheat at such a low price other crops failed, so they have to buy the same product back at an awful price. The mill men were overrun with wheat so much that they had to ship out car after car to make room -for more wheat. I believe something should be done to prevent the millers from combining. You see, most all the grain is being taken in milling account. As there are no more shippers of the wheat, and as the mill men are in this combine, they buy the wheat at their own price. All make the same price, no difference where you may go. In the first place they make the farmers believe that they can buy wheat of Canada or Argentina for 50 cents per bushel, as it can be placed on the market here free of duty. So the farmer tumbles to the racket and lets go what he has, as most of tiiem have to sell to make ends meet, and they run over each other to get to market. I have been making reports to the department for many years as to the condition of growing crops, but I tire from the, fact that it keeps the grain sharks posted as to what is coming. I hope you may be successful in your undertaking. Yours, for better conditions, J. J. Watts. Fargo, N. Dak., February Z3, 1914. Jambs Manahan, Washington, D. C: North Dakota delegation will be urged to support your resolution providing for in- vestigation of grain exchanges; same should prevail. Do your best to have a moiough investigation made. J. M. Anderson, Secretary North Dakota Society of Equity. GBAIN EXCHANGES. 423 „ _ Lamoube, N. Dak., Feb. M, 1914. Hon. James Manahan, Congressman, Washington, D. C. We and hundreds of others tributary to Lamoure, Edgeley, and Boylin, wish to offer our support to the Manahan resolution. Ohas. L. Boylin. A. H. Freie. E. Bowman, Mayville, N. Dak., February Z6, 1914. Hon. Congressman Manahan, Washington, D. C. Dear Sir: I am very much pleased with the work you are doing for us as farmers, and as you have taken stand to have a thorough investigation of the grain exchanges, I wish you all the success in your effort to bring this about. And I am herewith sending you a copy of a letter on this subject that I have written to Hon. H. T. Helgesen, our North Dakota Eepresentative. Yours, truly, Albert G. Moen. Mayville, N. Dak., February 26, 1914- Hon. H. T. Helgesen, Washington, D. C. Dear Sib: I have been following the doings at the Capitol during the winter, and am glad to see some bills coming up that will be of benefit to us as farmers, such as the bill of Hon. Borah and Hon. Manahan's resolution, which provide for a complete investigation of the grain exchange, which are charged with controlling the wheat market in the interests of big operators and to the detriment of the farmers; and as our Representatives, I hope you will work and vote for same, and hope you will have a bona fide, thorough investigation. Yours, truly, Albert G. Mobn. De Marion Musical College and Chicago Opera School, Chicago, February 25, 1914. Representative Manahan. Dear Sib: In reading your attack on the Chicago Board of Trade, I am convinced there is not one to be found in Chicago who was caught in this gamblinginstitution will not agree with you. So many of my acquaintances have been ruined there. There is absolutely no chance for the outsider. I have been informed a house like Armour & Co. must know with each commission house if their customers are on the buying or selling side, and as they own about all the cash wheat they clean them out each way. There is not a good citizen in Chicago that would not like to see this gambling institution closed, for if left to a vote on same it would long ago been a thing of the past. I make a good suggestion how to make a proper investigation. Summons commission houses and quietly have the pit surrounded one day and sum- mons all there. There is no doubt that Ihe worst gambling detrimental to the unwary public will be exploded. Hoping you will succeed in your great efforts, I remain, yours, respectfully, Henry Cohen. Carrington, N. Dak., Marches, 1914- Hon. James Manahan. Dear Sir: I have been in Minneapolis for the past four weeks,- and I have studied the grain situation there. I have found that many abuses exist on that market that should be remedied; therefore I ask that you use your influence for the passage of the Manahan resolution, directing an investigation by Congress of the terminal grain mar- kets of this country. Respectfully, yours, E. A. Bowman, Assistant Secretary North Dakota Grain Dealers' Association. 424 GBAIN EXCHANGES. We, the undersigned, wish to support tlie Manahan resolutions. Pbtee Gergen, Turtle Lake, N. Dak. Louis BBRoauisT, Underwood, N. Dak. P. M. Casey, Lisbon, N. Dak. (And 43 others). We, the undersigned, wish to support the Manahan resolutions. A. M. Bakek, Fargo, N. Dak. A. Olmess, Sheyenne, N. Dak. E. J. Bbleal, Valley City, N. Dak. (And 52 others). We, the undersigned, wish to support the Manahan resolutions. H. H. DiLLiNGBERG, Bremen, N. Dak. Jbtjs Myheb, New Rockford, N. Dak. H. T. Henbkick, Sheyenne, N. Dak. (And 46 oliers). STATEMENT OF HON. CLARENCE B. MILLER, CONGRESSMAN FROM MINNESOTA. Mr. Miller. I have but a very little to say. I appear in behalf of the Duluth Board of Trade, one of the institutions named in the pending resolution. The board mentioned did not send a delegation here to present testimony or arguments in the case, their position being such that they did not think it necessary, but were perfectly willing to come and still are willing to come if the committee desires. The position taken by the board, which' they desire me to express to the committee; their transactions are open, square, honest, plain, susceptible of immediate investigation and ascertainment by the com- mittee; and if it is desired to make any investigation whatever of the character of the institution or of its operations, they welcome any investigation. I am not familiar with the Chicago Board of Trade or the methods followed by its members. I know something of the operations of the chamber of commerce of Minneapolis, and know quite a great deal about the operations of the Duluth Board of Trade. I believe that institution has been investigated ia one way and another by the State on two different occasions, and that each time has been given a clean bUl of health. Their position is simply as I have indicated, and in further reference thereto, have sent me a telegram, which they desire incorporated in the record, and which I will now take the liberty of reading to the committee. This is dated yesterday. Duluth Minn., March 6, 1914. Clarence B. Miller, Souse of Representatives, Washington, D. 0. Press reports of this morning state that Henry I. Robbins, attorney for the Chicago Board of Trade, before the Rules Committee of the House yesterday denied the author- ity of Congress to investigate the grain exchanges complained of ia the Manahan resolution. Whether Mr. Robbins is right or not, the Duluth Board of Trade desires it to be distinctly understood that it is not taking that position it Congress should in ita wisdom, determine to investigate the workings of the grain exchanges of the country. The Duluth Board of Trade will welcome the inquiry, and will afford every assistance in its power toward acquainting the investigators with every phase of the grain busi- QBAIN EXCHANGES. 425 nesB. The poEiition of the Duluth board from the first, and we desire to renew it now, IS tiiat if Oiere is to be an investigation it should be a broad one, including all of the gram exchanges, and should be made by a commission that will give the time and attention necessary to a full understanding of the subject. The grain business is of enormous importance, and its ramifications are many and wide, and no legislation should be determined upon until after a clear appreciation of its consequences has been attained. The perfection of marketing methods for turning enormous crops of grain each year into money with the least possible undue depression of price, anathe elimi- nalion of every possible expense between grower and consumer^ as represented by the grain exchanges, is 20 years in advance of marketing methods in other farm products and because of its very enterprise and perfection, attracts the attacks of those unable to comprehend its eflBciency. The Duluth Board of Trade would appreciate the judg- ment of the high-minded and competent public Representatives on uiese very points. W. J. McCabe^ President Duluth Board of Trade. And I would supplement what is therein stated, Mr. Chairman, by the further statement that I firmly believe it is impossible to acquire anything like an adequate imderstanding of the operations of the board of trade without a very full and complete investigation. I am free to say that I do not think it can possibly be attained by an oral hearing such as this has been, and I therefore earnestly recommend that if it be desired to make a full investigation of the subject, it be a full one by the commission properly appointed with full power to act, and that it not be confined to any one or three boards, but include all the 20 in the United States. Very naturally some of them would not require much attention, and possibly the larger ones would receive the major part of the investigation, but it ought to be done fairly and in a comprehensive way if it is to be attacked at all. I beheve the grain busmess, or at least the Duluth Board of Trade, is unquestion- ably for the marked advantage of the producers of grain throughout the Northwest. There is not the slightest question in my mind as to that, having given several years some considerable investigation of the situation ; and before I conclude, if Mr. Kelley would be so kind, I call attention to the statemeUt that you desired to put in the record with reference to the testimony of Judge Sanborn may reach the board. Mr. KJELLBY. It is not lengthy. I- have the original document with me and I can produce it instead of this. Mr. Miller. I have no objection. Mr. Kellet. Here is the closing opinion of Judge Sanborn, here are the two extracts where he alleges that the testimony given was undisputed. Mr. Miller. There are not asked this — there is no testimony dis- puted in that hearing. It was practically an ex parte hearing on a motionpending before the supreme court of Wisconsin. Mr. Kelley. I take Judge Sanborn's word on such testimony as is given here, and if the gentleman wants to take the position in con- tradistinction to Judge Sanborn Mr. Miller. I am sure, Mr. Kelley, you would not put it in that way. I beg to advise the gentleman that he is entirely misinformed as to the character of that hearing. Mr. Kellet. Not at all. Mr. Miller. It is not necessary to discuss it. Mr. Lenroot is famihar with it. Mr. Kellet. I wiil ask the gentleman to read it. , Mr. Miller. That was an ancillary proceeding. 426 GRAIN EXCHANGES. Mr. Kelley. Mr. Chairman, since he has questioned it I will ask him to read the extract. Mr. MiLLEK. The gentleman can read it. The Chaikman. It will all be incorporated in the record. Mr. EJELLBY. He questions the statement. Mr. MiLLEE. I undertook to suggest that the finding was never made that any such quantity of grain was shipped 9ut in excess of that shipped in, and has never been ascertained judicially. The figures are absurd and ridiculous. I have no doubt the gentleman fave the testimony before Judge Sanborn entirely to a letter as it is ere. I desire to say that it was not a lawsuit. There was not any attempt to reduce that any more than a lot of other things. I tmnk that is all, Mr. Chairman. (Mr. Kelley here submitted the following:) [Fart of opinion by Judge BarLbom.] What has been said in this opinion respecting changes of weight, dockage, and arbitrary changes of grades is borne out by the record as presented on these motions, nor was there upon the argument any substantial denial of the facts charged. It should be stated, however, that the Minnesota Railroad and Warehouse Commission, under whose jurisdiction these frauds are alleged to exist, is not a party to these pro- ceedings, and has no right to appear in any way. [Extract Jrom opinion by Judge Sanborn.) It is also clear to me that so important a matter as fixing the grades by which grain in interstate transportation can be sold, and without which it can not be sold on any large scale, admits of one uniform system or plan o f regulation, and only one; and therefore falls within the exclusive power of Congress. Certainly it can not readily be bought and sold according to two systems of inspection. It can not be bought by one and sold by another. Conflicting State systems would only obstruct. [In Circuit Court of the United States, Seventh Judicial Circuit, Judge Sanborn presiding.] Frank R. Obumpton, sworn on behalf of the defendants, on being examined by Mr. Luse, testified as follows: Q. Where do you reside? — ^A. Superior. Q. How long have you lived there? — ^A. About 16 years.- Q. And what has been your business during that time? — ^A. Grain and insurance business. Q. How long have you been carrying on a grain business? — ^A. Fourteen years. Q. Continuously? — ^A. Yes. Q. Alone or in a firm? — ^A. Firm. Q. What is the name of the firm? — ^A. Crumpton & Crumpton. Q. And consisting of what members other than yourself? — ^A. W. H. Crumpton, my brother. Q. Until last fall where were your offices? — A. In the board of trade, Superior. Q. Board of trade building? — ^A. Yes, sir. Q. And you had offices there for how long? — ^A. In that building? Q. Yes. — ^A. Oh, eight or nine years, I think. Q. Continuously? — ^A. Yes. Q. And during the period you were in the grain business, speaking generally, what kind of grain business were you doing — your firm? — ^A. Commission business, handling on commission. Q. And that means receiving grain, speaking genera,lly, from where? — ^A. From farmers in Dakota and Minnesota, and also independent and farmers' elevators. _ Q. Most of the grain, I take it, coming into Superior, came from the West? — A. Yes, GBAIN EXCHANGES. 427 (Question read: "What was the fact with reference to the amount of grain reported by the Minnesota Railroad and Warehouse Commission as received in Superior, and the amount, allowing also for the amount manufactured at the mills, slupped out, as to which wasthe greater and how much the greater?") A. Well, I will have to answer this question more fuUy. These figures here are taken for Duluth and Superior. Q. That is for the market there and here?— A. Yes. _Q. They were all under the management and inspection and we^hing of the Minnesota Railroad and Warehouse Commission and its appointees were they not? A. Yes. Q. Very well; taking the whole thing in, Duluth and Superior? (Objected to as irrelevant and immaterial.) The Court. I suppose he wants to get those figures before the court for the purpose of ha,ving the court know generally ttie general amount of business, and then aiter- wards, by other evidence, show what was in this particular locality in Superior. I assume that. Is that right, Mr. Luse? Mr. LtrsE. Certainly. It is true, as the witness stated, that the Minnesota depart- ment put all grain in Superior and all grain in Duluth, as it were, in one pot and reported it all together. Now, in a general way, we have already shown that about forty millions of grain came into Superior, and we want to show in what way they man- aged this market for the purpose of showing there was a large amount of grain, much larger shipped out than in from year to year, by reason of improper dockage. The CoiTRT. This evidence is offered as tending to show tiiat their inspection was unfair? Mr. Luse. Certainly. A. These figures show the State reports show receipts greater than shipments. Q. That is, you mean without taking into consideration the amount manufactured at tiie mills? — ^A. Yes^ sir. Q. Now, then, making the allowance for the amount manufactured at the mills, how does it show? — ^A. Shows more shipped and manufactured than was received. Q. To what extent? — ^A. Accoraing to these figures, twenty-six million. Q. For what time? — A. _ Ten years. Q. For 10 years, covering a period of 10 years, twenty-six million more shipped out — ^that is, taking the amount manufactured— than received into the market?— A. Yes, sir. Q. What 10 years does that cover?— A. That's from 1893 to 1902, inclusive. Q. Were these facts, as you have testified to them now, from reports of the Railroad and Warehouse Commission, brought before the committees of the Legislature of Wis- consin by yourself? — A. Yes. Q. I might ask if copies of this paper shown you, Exhibit A, were given to the com- mittees or members of the legislature? — ^A. I think they were. STATEMENT OF HON. PATRICK D, NORTON, MEMBER OF CONGRESS FROM NORTH DAKOTA. Mr. NoETON. Mr. Chairman and gentlemen of the committee, the farmers in the State which I have the honor, in part, to represent are ve:^ much interested in the subject covered by this resolution. North Dakota raises now approximately 100,000,000 bushels of wheat yearly. Practically aU of that 100,000,000 bushels, outside of what IS kept for feed and a small part that is miUed in the State, is mar- keted at Minneapolis and Duluth. It is veiy important to the peo- ple of North Dakota whether the price of wheat is unfairly reduced even a cent a bushel, and a reduction of the price of wheat 2 cents a bushel means to our people nearly $2,000,000. I might say that the sentiment of a large number of the farmers of NorQi Dakota is that these boards or these exchanges at Minne- apolis, Duluth, and Chicago are not altogether for the best interests of the producer. It is quite noticeable that during the months when the great bulk of the wheat produced in my State is marketed at these terminal exchanges, or terminal markets, the price is considerably less than a few months before a principal market time or a few months afterwards; and, in consequence, as many farmers are as in 428 GBAIN EXOHANGBS. a position to do so hold their wheat untU in the wintertime or the foUowing spring, and by doing this they obtain a better market. I think I am fairly stating the sentiment of the people in my State when I say that it would be most satisfactory to them if a luU and thorough mvestigation of these exchanges were made by the Federal Government, if fids resolution were adopted by the Congress. Now, I have listened with much interest to the discussions of the iattorneys representing the Chamber of Commerce of Minneapolis and the Boards of Trade of Duluth and Chicago. I have listened to the statement of attorney Robbins, who says that in his opinion he beheves the Federal Government has no right to prevent future trading in wheat prices. I have listened to some of the statements here of the gentlemen who claim that the machinery of government in Minnesota and Illinois is ineffective to properly regulate these exchanges. Now, representing the farmers of North Dakota, I say. What are we to do out in North Dakota? We can not step in and control things in Minneapolis, Duluth, or Chicago. If an mjustice is being done us, as we fear, and as we are led to beheve from evidence that has been brought out in different investigations, I believe that the Federal Government has a right to control future trading in grain prices, and I believe it should do so, and I am confident that if a fuU investigation under this resolution is made a great good will result therefrom. I do not think the people of North Dakota feel that these exchanges are all bad, but they do feel that there are serious abuses carried on, and abuses that are to the injury, to the detriment, to the loss of the man who toils early and late to produce the materials with which they carry on their gambling processes. I think, gentlemen, that is all I wish to say here. I trust that the gentlemen who have appeared here and have stated their per- sonal feelings will not be given by this committee as much consid- eration as the men who produce the products which you are considering. STATEMENT OF HON. ANDREW J. VOLSTEAD, A MEMBEE OF ^ CONGRESS FROM MINNESOTA. Mr. Volstead. Gentlemen, if you will permit me just a word, I shall not occupy your time for any length, oecause I reaUze that you are tired and want to go home. I have not listened to this hearing except to-day for a few minutes, so that I am not familiar with the evidence as it has been given. I simply want to call your attention to this, that I have received quite a number of letters and telegrams urging me to take an interest in the matter. I have become satis- fied from what I have already heard that there is a demand for some sort of investigation. It seems to me, in view of the fact that we have legislation pending before us relating to this same subject, and that there is likely to be an effort made to have like legislation perhaps considered at this session or next, that it may be well for us to investigate these charges. I suppose they may be properly called charges. There are no doubt grievances in the minds of a good many of tJiese people, whether they are justified or not. GEAIN EXCHANGES. 429 Now, I think we have a perfect right, and it seems to me it is a thiog we ought to do, to remove that feeling of uneasiness, of dissat- isfaction, if we can, and at the same time satisfy ourselves whether any legislation ought to be passed. I do not think there can be any c[uestion that Congress has the power, if these exchanges are obstruct- ing the flow of commerce, if they are fixing the prices of wheat or corn and other products, not only in the State in which they operate but in other States — that Congress must have and does have the power to in a measure regulate that matter. I listened to an argument made here to the effect that we could not regulate future sales, but I must confess it did not strike me as being very forceful. It seems to me perfectly clear that if they fix E rices for products that come through those exchanges from a num- er of different States, Congress does have the power, because it must then be interstate commerce. I simply wanted to urge that one con- sideration upon you, to investigate not only the boards of trade or chambers of conunerce in the three cities that I believe are mentioned in this resolution, but generally, so that we may have before us the necessary information in case legislation is proposed on this subject. I thank you. The Chairman. I think it might be well to say, in view of the suggestion that some gentlemen were not afforded sufficient time to present their views, that this is the fifth day of this hearing, that this is merely a preliminary hearing, and that gentlemen will have the oppor- tunity to present briefs and they will also be included in the record. The committee has tried to get the fullest possible light, and if any- body has been cut off from a fuU presentation of views here, that has not been the intention of the committee. Mr. Manahan. As the author of the resolution, I desire to express very great appreciation of the generosity and kindness of the com- mittee in givmg us the time we have had, and I want it to go in the record. (Thereupon at 5.55 o'clock p. m., the committee stood adjourned.) Cincinnati Price Current, Chicago, III., March 19, 1914. Hon. R. L. Henry, Chairman Committee on Rules, House of Representatives, Washington, D. C. Dear Sir: During the hearings before the Committee on Rules, which had under consideration the Manahan resolution, the attorney for the Equity Cooperative Exchange of Minneapolis asserted that the editorial policy of the Price Current- Grain Reporter, of which the writer is the editor, was controlled by the "grain com- bine." I msb. to respectfully deny in every particular this allegation, and to add that if Attorney Drake has any evidence that any editorial matter appearing in the columns of the Price Current-Grain Reporter has in any way, either directly or indirectly, been paid for in cash or through the promise of advertising, said attorney should immediately submit this evidence to the postmaster in Chicago. The Price Current-Grain Reporter would then, under a Federal statute, be pro- hibited from using the mails for the circulation of its second-class matter. Thia would force the Price Current-Grain Reporter out of business, because we could not Ihen compete with other papers catering to the same field and enjoying the second- class privilege. T T> T> ■^ J. Ralph Pickbll, Editor the Price Current-Grain Reporter. X