Mr. MORRILL. It is determined by the Secretary and by the commission.
The CHAIRMAN. How is it in the first instance?

Mr. MORRILL. It is determined in the first instance by the Secretary and by the commission, and it is subject to review by the courts.

Mr. KINCHELOE. It was the same in the original act?

Mr. MORRILL. Yes.

Mr. MCLAUGHLIN of Michigan. My recollection is that it was taken up in the House and that some one offered an amendment.

Mr. GERNERD. You offered an amendment.

Mr. MCLAUGHLIN of Michigan. I had something to do with it but do not know who framed the amendment.

Mr. MORRILL. There was something in the way of an amendment in the House that had that in view.

Mr. MCLAUGHLIN of Michigan. To put up to the Secretary of Agriculture to determine whether these regulations as to admission to membership were reasonable.

Mr. MORRILL. I think that would follow anyhow, because these are conditions of designation.

Mr. MCLAUGHLIN of Michigan. Of course, he makes the suggestion of regulation, and perhaps may actually make the regulation in the first instance, but this would be some authority to pass on it.

Mr. GERNERD. Would it be possible to clarify this very section by inserting that the Secretary of Agriculture shall pass on it?

Mr. CLAGUE. That is already in it.

Mr. MCLAUGHLIN of Michigan. I do not know what that word “lawfully means because there is no other law relating to it. It may be that a board of trade can make any kind of regulation that is not forbidden by law and it will be lawful.

Mr. KINCHELOE. It is that word "lawfully" that I wondered about. Does it mean anything anyhow?

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Mr. MORRILL. Suppose you read it with the word "lawfully" left out.
Mr. STEENERSON. You might say reasonably " imposed.
Mr. MORRILL. It seems to me you have some qualifying clause.

"other

Mr. MCLAUGHLIN of Michigan. I do not see why you should say members of the board" because any other member seeks admission under the same circumstances.

Mr. MORRILL. They do it under the same circumstances except as to patronage dividends.

Mr. KINCHELOE. I understand that the same rules as to admission apply to all, except as to distribution of dividends.

Mr. MORRILL. That is all.

Mr. KINCHELOE. I do not see where the word "lawfully" really has anything to do with it at all. I think it is all right without that word. Strike it out and say as may be imposed by the board."

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Mr. MCLAUGHLIN of Michigan. I have no objection to a court reviewing it. I think a man should have his day in court on about everything. Mr. KINCHELOE. So do I.

Mr. MCLAUGHLIN of Michigan. But I do not know what the word "lawfully" here means.

Mr. MORRILL. I make no particular point about that word, or even about the whole clause.

Mr. CLARKE. Do you think it is necessary to put this in?

Mr. MORRILL. Yes, sir. The object to be accomplished was the thing I had in mind, to place them all on a parity with other members of the board in all respects, so that the only distinction that could be made between them and others is the question involved in the payment of patronage dividends. There are other things that a board undertakes to regulate with respect to its members, that are not in any way covered by this bill, but presumably are covered either by statute or the common law in the States where they operate. Mr. KINCHELOE. Do you really think that the word “lawfully has any significance there; I mean answering the question as a lawyer?

Mr. MORRILL. I think it is significant. I think it would enable us to deal a little more satisfactory with arguments that might come up as to regulation, as to conditions that might be imposed, as was suggested from the other side of the table awhile ago, with the object in view of excluding a cooperative association without making it appear that way.

Mr. TINCHER. There are some States that have legisiation on the question of cooperative associations.

Mr. MORRILL. Yes; I think Missouri and Minnesota have legislated on that matter.

Mr. KINCHELOE. Let us take up section 8.

The CHAIRMAN. It is now mandatory on the Secretary to admit these boards of trade if they are good.

Mr. MORRILL. It is absolutely mandatory on him.

Mr. CLARKE. There is no discretion left to him?

The CHAIRMAN. Where in this bill does it provide that the Secretary may determine the question of lawfulness?

Mr. MORRILL. That is, as to whether they have made proper terms and conditions.

Mr. TINCHER. It is just like ne old bill in that respect.

The CHAIRMAN. Where do you give the Secretary of Agriculture power to determine the question of lawfulness?

Mr. MORRILL. In section 2 it is provided that any board of trade desiring to be designated a contract market shall make application to the Secretary of Agriculture for such designation and accompany same with a showing that it complied with the above conditions and with a sufficient assurance that it will continue to comply with the above conditions.

The CHAIRMAN. That is a promise to be good, but suppose they are not good? Mr. MORRILL. Following that up, on page 9, beginning line 12:

“(a) A commission composed of the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General is authorized to suspend for a period not to exceed six months or to revoke the designation of any board of trade as a contract market' upon a showing that such board of trade has failed or is failing to comply with any of the above requirements or is not enforcing its rules of government made a condition of its designation as set forth in section 5."

The CHAIRMAN. That is as the commission may determine. But where do they determine the question of lawfulness? Does not that have to be determined by a court?

Mr. MORRILL. The question of lawfulness is one of the things embraced in the terms and conditions set out in section 5.

The CHAIRMAN. Who determines whether it is lawful or not?

Mr. MORRILL. Necessarily, in order to determine whether they are entitled to designation as a contract market or not, the Secretary of Agriculture and the board would have to consider whether they had imposed lawful conditions.

The CHAIRMAN. Would that be set out in the application, or provided in detail in their rules and regulations?

Mr. MORRILL. They have to set out in their application facts that are necessary to show that they come within this law, and to furnish with their application all their rules and regulations, their forms of contract, and the like, to enable the Secretary to determine whether they meet the conditions.

Mr. TINCHER. There is some objection to subsection (f). I wish you would get to that.

Mr. MORRILL. Subdivision (f), page 8, beginning line 15, is entirely new. It is not embraced in the future trading act.

"(f) When the governing board thereof provides for making such changes from time to time in the terms and conditions of the forms of contracts of sale to be executed on or subject to the rules of such board as may be necessary to remove or overcome any material prejudice or disadvantage to sellers or buyers thereof found by the Secretary of Agriculture after investigation and public hearing and communicated by him to such board, which substantially affects the price or prices of such contracts so as to render them hazardous or unre liable as hedges or price bases for transactions in interstate commerce in cash grain or the products or by-products thereof.

Mr. KINCHELOE. What does that mean?

Mr. MORRILL. That language is designed to cover questions which arise from time to time in the cash-grain trade and on the futures markets as to terms of contracts in their application to sellers and buyers. Such, for example, as the matter of fixed or arbitrary discounts between the grades deliverable on a contract as distinguished from commercial discounts; such as the question whether the grades deliverable on a contract are such as to afford opportunity for depressing the market or getting it out of line with true commercial conditions ;

or the question that has arisen from time to time as to the capacity of storage in the market available for delivery of grain on contracts.

I use these as illustrations because these are the thing that come up quite generally for discussion in the cash-grain trade and are embraced in letters to the Secretary of Agriculture from time to time making complaints about future exchanges. And an analysis of these conditions will show that they do affect the price of a contract. It is necessarily the case that any substantial condition in a contract affects its value to the seller and the buyer.

Mr. CLARKE. Mr. Chairman, we can not possibly finish this hearing to-day. Let us adjourn. I want to get over on the floor, and still I want to be here when this hearing is going on.

The CHAIRMAN. This is all new matter.

Mr. MORRILL. Subdivision (f) is enirely a new matter.

Mr. KINCHELOE. It is not even subdivision (b) of section 6.

Mr. MORRILL. No, sir; it is not the same as any provision in the old bill.

Mr. TINCHER. Is there any substantial difference besides in this subsection (f)?

Mr. MORRILL. There is no substantial difference after subsection (f) except section 7 of the old bill is eliminated because it only relates to the taxing provision of the old bill, and section 9 of the new bill is changed in the penalty clause merely to correspond with the change of provisions from a taxing measure to an interstate commerce measure.

Mr. CLARKE. I would like to go into all these in detail and we can not do it

now.

Mr. TINCHER. Let us find out how much time is desired by the gentlemen representing the exchanges. Can Mr. Wells tell us?

Mr. WELLS. I will say a very short time. Is it my understanding that you do not care to hear anything at all except on the new features of this proposed legislation?

Mr. TINCHER. That is all. I now make a motion that we hear the other side to-morrow morning.

Mr. RAINEY. I do not think we ought to limit the other side to to-morrow morning's session. If they make an effort to get through as quickly as they ean I do not think we ought to limit them.

Mr. TINCHER. Well, as a matter of courtesy to these gentlemen who have come from a distance I am proposing that we give them to-morrow morning, and if it should turn out that they can not possibly get through to-morrow we can decide that then.

(The motion was duly seconded and unanimously adopted.)

The CHAIRMAN. The committee will now stand adjourned until to-morrow morning at 10 o'clock.

(Whereupon, at 12 o'clock and 5 minutes p. m. the committee adjourned until to-morrow, Thursday, June 8, 1922, at 10 o'clock a. m.)

COMMITTEE ON AGRICULTURE,
HOUSE OF REPRESENTATIVES,
Thursday, June 8, 1922.

The committee met at 10 o'clock a. m., Hon. Gilbert N. Haugen (chairman) presiding.

There were present: Mr. Haugen, Mr. Purnell, Mr. Voigt, Mr. McLaughlin of Nebraska, Mr. Riddick, Mr. Tincher, Mr. Williams, Mr. Hays, Mr. Thompson, Mr. Gernerd, Mr. Clague, Mr. Clarke, Mr. Rainey, Mr. Aswell, Mr. Kincheloe, Mr. Jones.

STATEMENT OF HON. WALTER H. NEWTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA.

Mr. NEWTON. Mr. Chairman, as I have to leave for another committee meeting, I would like to make a brief statement in connection with the pending

measure.

On page 6 there is a change in the present bill as compared with the provisions in the present law, which, in the judgment of the officials of the State of Minnesota, would seriously interfere with the present method of grain weighing and their own service. I refer specifically to the provision with reference to contract markets and the provision where the Secretary of Agriculture is

given in effect veto power over the action of a State agency. Various protests have come to me from the office of the governor and from the railroad and warehouse commission protesting against subjecting the State service, about which there has been no complaint, so far as I know, to the veto power of a Cabinet officer.

Mr. KINCHELOE. Was not that in the original act?

Mr. NEWTON. No; it was not in the original act.

Mr. KINCHELOE. What section is that?

Mr. CLAGUE. Section 5a.

Mr. NEWTON. Commencing on line 13 of page 6 the change is "and where there is available to such board of trade official weighing and inspection service approved by the Secretary of Agriculture for the purpose.' So that on a contract market, if the Secretary of Agriculture does not care to approve the inspection service of the State of Minnesota he withholds his approval, no matter what kind of system we may have. Now, we have the utmost confidence in the present Secretary of Agriculture, but as a matter of principle we do not feel that a State service of this kind, operating under a State law, ought to be subjected to the veto power or the approval of the Secretary of Agriculture.

Mr. KINCHELOE. Did he recognize your State in the original act?

Mr. NEWTON. Oh, yes; there was no trouble at all, but it merely sets a precedent here which it seems to us is a very bad precedent both as it affects this particular business, for one thing, and very bad as a principle of constitutional law.

Mr. JONES. Have you talked that particular phase over with any of the officials of the department?

Mr. NEWTON. I have not; no.

Mr. JONES. You do not know what their attitude is with reference to that change?

Mr. NEWTON. I do not know, because I would prefer talking it over with the members of the committee.

Mr. CLAGUE. Mr. Morrill said yesterday that they really did not intend to make any change. That was the statement he made to Mr. Steenerson, but we prefer to have it as it is in the old law.

Mr. NEWTON. I know they have never had any expressed or announced intention of making any change, but this would establish a precedent which would permit it, and if there should be a change in the office of the Secretary of Agriculture he might think differently from the present Secretary of Agriculture. Mr. JONES. Do you think there is any great amount of difference in the language.

Mr. NEWTON. Yes; very much so, because in the proposed bill it is all up to whether or not the service is approved by the Secretary of Agriculture.

Mr. JONES. In the original act the language is, "and having recognized official weighing and inspection service."

Mr. NEWTON. But the question of recognition there is a question of fact that is not necessarily to be left arbitrarily to the Secretary of Agriculture.

Mr. JONES. Would not the Secretary of Agriculture under the original act pass on the question? Would he not be the one to pass on the question of having a recognized official weighing and inspection service?

Mr. NEWTON. But not arbitrarily, as he would have the power under the bill as it is written here. Under this language it is made subject to his express approval, and he can approve or disapprove as he sees fit.

Mr. JONES. Under the original act could he not say that it was not a recognized official weighing and inspection service?

Mr. NEWTON. But the word "recognized " is not whether he would recognize it, but whether, as a matter of fact, by custom, by practice of shippers and of buyers that is a recognized market.

The CHAIRMAN. Would you prefer the language in the cotton futures act? Mr. CLAGUE. No; we want the language in the old grain future act, which is on page 2, the last words in section 5a, "and having recognized official weighing and inspection service."

The CHAIRMAN. I take it that all of us are in favor of the official grades and standards.

Mr. CLAGUE. This does not refer to the grades.

Mr. KINCHELOE. Is not that the language that Mr. Morrill referred to in connection with some southern concern that wanted it, and wanted it in order to get some advertising out of it?

Mr. CLAGUE. I do not recall.

The CHAIRMAN. Let me call your attention to the language of the cotton futures act; the same object is sought to be accomplished in this act:

"Second. Specify the basis grade for the cotton involved in the contract, which shall be one of the grades for which standards are established by the Secretary of Agriculture."

The Secretary establishes the standards. There must be some way of ascertaining the value and quality of the product described in the contract. What standard do you want; the Minnesota standard or the official standard?

Mr. NEWTON. The point here, as I see it, is that under the existing law there has been no complaint, and there has been no announced reason for a change, and here, without any apparent reason for a change, comes a proposed bill, which subjects the whole matter to the absolute approval or disapproval, with reason or without reason, of the Secretary of Agriculture. Now, if there is a reason for that change, we ought to have it.

The CHAIRMAN. There certainly should be no question as to the standards and the grades to be applied. There has to be some standard. Shall it be the Minnesota standard, the Federal standard, or the Kansas standard, or what? Mr. TINCHER. Mr. Newton, you are going to be here right along?

Mr. NEWTON. Yes; but as I announced at the start, I must now go to another committee meeting, and I wanted to present the protest of the members of the Railroad and Warehouse Commission of Minnesota and also the protest from the governor's office.

Mr. KINCHELOE. My recollection is that Mr. Morrill covered that point very fully yesterday.

Mr. NEWTON. Unfortunately I had to leave before Mr. Morrill concluded and I did not hear his complete statement, but I intended to read it when it was printed.

Mr. KINCHELOE. I do not remember his exact language, but I think he covered that point.

Mr. CLARKE. H's statement with regard to that paragraph was that there were two slight changes in it.

Mr. KINCHELOE. And he gave the reasons for this change when he cited the case of this southern concern.

Mr. CLARKE. Yes; with reference to the publicity and the advertising value connected with it.

Mr. WELLS. Mr. Chairman, as you gentlemen know, it has only been within a few days that this bill has been available to the grain trade of the country; in fact, the latter part of last week before we saw a copy of the bill. We have taken you at your word, as we understood your wishes, and we have not seen fit at this time to call any large number of people to testify before you. We understood you wished to hear comments on the new features of the bill alone. We could have called in a large number of millers and others interested, but we thought that the opinion of all could be expressed by a few, thus saving your time. Mr. Gates, of Chicago, has been over the bill as carefully as any of us, I think, and I would ask that he be heard touching the various new features of the bill.

STATEMENT OF MR. L. F. GATES, MEMBER OF THE FIRM OF LAMSON BROS. & CO., CHICAGO, ILL.

Mr. GATES. Mr. Chairman, yesterday you discussed with a representative of the Department of Agriculture the question as to whether you could legally do this thing. You will not expect me to follow that discussion because I have neither the ability nor the disposition to touch upon the legal phases, but I would like to discuss with you, briefly, as to whether you should do it even if you have the legal right to do it, and what the practical effect of the law would be, touching only on the new features of the bill, in the main, but, briefly, on some of the matters which were up before the Senate committee but which have not been discussed before this committee.

I am sure no one here will seriously expect us to favor a bill of this character, but I would like to go a little further than that and say that we will not approve or favor any bill that carries the degree of control which this bill carries.

This, as I understand it, is not an attempt to regulate commerce in graininterstate commerce in grain. It is simply an attempt, through the invocation of the commerce act, to put future trading, which is a purely intrastate transaction, under the control of the Secretary of Agriculture.