Most of the criticisms of the exchanges relates to the buying and selling of products for future delivery. This feature of the exchange is so vitally related to the storing and the distribution of grain and provisions, and is so impossible of elimination from it, that a brief discussion of its need and great value, as well as its abuse, is essential to even a superficial understanding of all the functions of a commercial exchange.

The modern exchange, in the beginning, made provision only for the cash business; that is, for immediate delivery for cash. For a time this method sufficed for the wants of the trade, but as the farms multiplied and the cities grew, and as the milling of wheat, the cribbing of corn and the packing of pork and other interests expanded and increased, the scope of the trade widened and the trade itself became more complex and a broader market was required. Rapidly growing business required that contracts be made for future delivery. The advantage of such forward trading to all concerned was so plain that the exchanges made the needful provisions for such transactions. These contracts, made under the rules of the exchange, are enforcible under those rules and in the courts of law.

From its beginning there has been misapprehension about trading for future delivery. No part of the business of the exchange is so little understood as this. But the farmer does not graduate his selling to just the needs of the consumer; indeed, that would be impossible. He sells when it suits his pleasure to do so. Thus receipts at terminal markets at times are enormously in excess of all requirements. For example, during August last, at Chicago, for several successive days the receipts of oats were a million bushels and more per day, being enormously in excess of daily needs. Without hedging sales for future delivery this vast quantity could not have been marketed, except at great loss to the country shippers.

Hedging contracts are those made for the purpose of eliminating risks, in other words, for the purpose of holding grain without loss. As some one must own the products of the farm from the time the crop is harvested until it is con

sumed, and as the value of it fluctuates daily, it becomes evident that whoever owns it becomes a speculator. Whether we like it or not, and call it by what name we choose, the element of risk is there and cannot be eliminated. It follows necessarily that the buyer of every hedge becomes a speculator, therefore the need of this distinct class to assume this element of risk, which is present in varying degree in all commerce.

Even the farmer, in a sense, speculates when he risks. the value of the use of his land and of his labor and seed, knowing well that the drought of summer or the frost of early autumn may place all at naught. To eliminate risk would produce stagnation; for if the farmer even declined to assume the risk of production, he would cease to raise the necessaries of life.

The speculator is a necessity not commonly recognized, to the contrary, more generally he is held as not serving a useful purpose. The abuse of speculation by those not qualified to engage in it has brought the exchanges into more or less disrepute. It is the perversion of a useful thing by an incompetent individual, or one with unwholesome intent and purpose. Many engage in it who should not. Mr. Justice Holmes, of the United States Supreme Court, defines it well in handing down a decision of that high tribunal in a Chicago Board of Trade case before it. He says:

People will endeavor to forecast the future and to make agreements according to their prophecy. Speculation of this kind by competent men is the self-adjustment of 'society to the probable. Its value is well known as a means of mitigating catastrophes, equalizing prices and providing for periods of want. It is true that the success of the strong induces imitation by the weak, and that incompetent persons bring themselves to ruin by speculating in their turn.

But legislatures and courts generally have recognized that the natural evolutions of a complex society are to be touched with a very cautious hand, and that such coarse attempts at a remedy for the waste incidental to every social function as a simple prohibition and laws to stop its being are harmful and vain. Speculation is the struggle of well equipped intelligence with the blind power of chance.

I have sometimes stated it more simply by saying, "Speculation is based on calculation; gambling is based on chance."

The man who carefully calculates from all known conditions the value of any farm product is rightly called a speculator and renders a service in helping to carry the surplus quantities from time of production to time of need. On the contrary, the individual who blindly invests in any commodity without a well-defined conception of its value, thereby depending on blind chance, is truly a gambler. He usually suffers loss and invites criticism of the exchanges. No one seeks to justify or defend this type of speculation.

Any attempt to manipulate prices cannot and does not nullify the law of supply and demand. It may suspend it locally for a time, but usually with disastrous results to those who attempt it. The law of supply and demand is supreme. The speculator who governs his actions in accordance with it reaps a profit; he who ignores it suffers loss.

It must be borne in mind that what we term speculation is not possible with all products. We meet with it only in those commodities produced in large quantities, for which there is a world demand and such as are not susceptible to deterioration, when properly cared for, by holding them in store. Commodities of this kind accumulate rapidly when harvest is over and the carrying of them devolves upon some one; thus they become subject to investment buying or speculation.

With the exception of potatoes, which are perishable, and hay, which is of great bulk, and therefore do not lend themselves to speculative trading in a general way, the only important agricultural products, the price of which is not controlled by a trust, are those dealt in for future delivery on the exchanges. The United States Government has now under indictment certain prominent men for maintaining a beef trust. These same men are large packers of hog products, yet nobody has ever heard it claimed that there is a trust in hog products. These products are heavily traded in for future delivery, thus placing them secure against trust control.

Judge Grosscup, of the United States Federal Court, in giving a decision in a case relating to the legitimate exchanges, said:

They balance, like the governor of an engine, the otherwise erratic course of prices. They focus intelligence from all lands and the prospects for the whole year by bringing together minds trained to weigh such intelligence and to forecast the prospects. They tend to steady the markets more nearly to their right level than if left to chance, unhindered manipulation.

President Hadley, of Yale University, says :

If the speculator foresees a rise, he buys wheat to-day with the hope of selling it at an advantage. If he foresees a fall, he contracts to make future delivery at to-day's prices, in the hope that he can secure the means of filling those contracts at rates low enough to leave him a profit This is the type of transactions which form the bulk of the business on all the leading exchanges of the world. When such speculation anticipates an actual demand, it is of great service to the community. If we compare the prices of the present day with those prior to the development of speculative activity, we find that the margin between the amounts paid to producers and those charged to consumers is much narrower that it was before. Part of the difference is due to cheaper transportation, but a part is due to the action of the speculators in minimizing the effect of variations in production upon prices paid the producer. This is the effect of legitimate speculation-anticipating movements of supply and demand and taking fair risks. The difference between legitimate speculation and gambling lies neither in the subject matter nor in the form of the transaction, but in its intent and purpose. Legitimate speculation involves anticipation of the needs of the market and a power to assume risks in making contracts to meet those risks.

That the increment of the undesirable, which is found in every field of human activity in a greater or less degree, is often recognizable in speculation is a matter of common regret. But its presence is no greater in proportion to the volume of business incidental to our large production than is natural or is found in all other lines of business. Its value in the commercial distribution of farm products has perhaps never been better or more authoritatively stated than in the report to Congress by the Industrial Commission appointed by the Government to investigate commercial exchanges. This commission was comprised of fiveUnited States Senators, five Congressmen and ten privatecitizens. It said:

First. They localize industrial risks among a commercial class whose special function is to distribute surplus supplies over deficit

times and places in such a way as to lessen the uncertainty of producers and consumers.

Second. They relieve producers and consumers from carrying a whole year's stock, enabling the farmer to convert his crop promptly into cash capital, and the latter to supply himself as his periodical needs may require without enhancing prices beyond the original rate of risks of returns of such capital investments.

Third. Competition of speculative traders tends more than any other force to reduce profits of these agencies to a minimum per unit of commodity handled. Released from their economic functions, it is their interest to seek to reduce the risks of distribution to a minimum. By expert acquaintance with the condition that involve risks, the hazardous elements are gradually limited, if not entirely eliminated.

Any impairment of the facilities which they have provided. for the rapid and economical marketing of agricultural products in the interest of buyer and seller, producer and con sumer alike, and which facilities conduce more than any other agency or instrumentality to the general prosperity, would result in irreparable injury to the common commercial and industrial welfare.

January 18, 1911.

J. C. F. MERRILL.

Mr. TUCKER, of Philadelphia.--Mr. President, as a delegate from the Philadelphia Board of Trade, I want to make a suggestion in regard to this most valuable paper: that in view of the accusation that the exercise of the speculative element in commercial affairs works for the harm, if not the disorganization, of the country, I think it would be very wise if the convention should see fit to have this paper printed and presented to Congress as a report. It contains a most complete answer to every suggestion of the ill effects of what is generally known as gambling, which is not at all times, as we all know, synonymous with speculation. I only throw that out as a suggestion. think it is a thorough answer to the attacks that have been made on proposed legislation looking to the hampering of proper business methods of the exchanges of the country.

I

For myself, I should like to hear some comment or expression of opinion on this subject. Perhaps Mr. ENGLAND, of Baltimore, would be willing to say a word.