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similar legislation was had in Chicago, because a large part 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 legislate in Minnesota on futures-an attempt was made to pass a law, but it was not successful, because it was recognized 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 inspection 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 principal 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 against 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 inspected by the State inspection department, samples are taken, and a record is made of the grade by that department, a public record. These five carloads 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 inspection of the State department. We will 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 of 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 Eleyator Co., a terminal elevator owned by Van Dusen & Harrington, who are, as commission merchants, selling the grain. The farmers are charged a commission of 1 cent a bushe). It is bought, I say, within 10 minutes after the

Ι 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 prevailing 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 and no-grade cars of wheat. Let us assume that he buys these last three cars in competition with other buyers--assuming that there was competition-at prices ranging from 5 to 7 and 10 cents below the price of No. 1.

The farmers are also charged a commission for selling this wheat, 1 cent a bushel, although it was sold to a corporation owned by the company charging the commission. Now, this corporation, the subsidiary company, takes all of these five carloards of wheat and empties them into its terminal elevator and mixes and doctors-treats scientifically as they claim the whole mass, so that whenever they feel like putting that wheat out of their elevator it will 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 against 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 No. 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 prices.

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 hand 5,000 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 believe, 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 think 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 will explain that in this way. Of course I can not explain it as a scientist-like the expert in the elevator companies 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 carelessness, of the State officials in making a more liberal inspection grading out. I prefer to take this position, because it is more creditable 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. In 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

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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 cleaning of coaser grains, oats, and barley. Wheat taken out of those grains in cleaning 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 being inspected out of them, sometimes ingratiate themselves with the local inspectors and that the inspectors 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 Minnesota, 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 prepared by the commission, 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 delivered, 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 of 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. LENROOT. Now, have you the amount on hand at the beginning of this period?

Mr. MANAIIAN. 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.

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 available to be applied on future contracts, in settlement of contracts.

Now, to carry my illustration just one step farther, I will say this, that although this wheat coming in the 5 carloads was sold at the inferior grade by the farmers and received by the elevators and doctored 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 contractor 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 clearinghouse 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 can—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 100 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 public who are inclined 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, l'eceived letters from all over the country, telling of instances of men who have been ruined by buying and selling 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 public, would show many families 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 contrclled, 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.

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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?

Ńr. 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 dealing 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 Chicago 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 believe 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 under 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.

Mr. 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 railroad 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 commission might relax the rule, and there is an attempt to get it relaxed, as I understand, right now.

I desire to impress on this committee, and it is a vital thing in 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 mind the fact that

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