HL Deb 01 May 1896 vol 40 cc323-35

*LORD STANLEY OF ALDERLEY rose to call attention to the alleged depreciation in the prices of wheat, cotton, wool, silver, coffee, and other agricultural products, owing to the international system of trading in ''Options and Futures,'' representing fictitious or non-existing produce, and to ask Her Majesty's Government why Mr. Charles W. Smith's evidence, prepared in 1893 and 1894 at the request of the Royal Commission on Agriculture on this subject, has been suppressed after having been printed; whether it would be laid upon the Table of the House; how it is that after hundreds of failures due to these systems, hardly one has been brought before the Bankruptcy Court for fear of exposing the system; and whether Her Majesty's Government will appoint a Select Committee to take evidence on the subject? The noble Lord said that when he last addressed the House on the subject of wheat, the noble Marquess at the head of the Government said that the question of prices was one of great complexity. With that opinion he entirely agreed, since papers by experts seemed to prove that the low price of wheat everywhere, which is driving it out of cultivation, is caused more by the gambling in fictitious wheat than by the competition of free imports of the actual produce, Mr. Charles Smith prepared some evidence for the Royal Commission on Agriculture, which took him three months to do. In 1894 he gave in this evidence, and it was ordered to be printed; and it was printed and yet suppressed. The late Government was asked in the other House to lay it before the House, but would not do so, and the only reason given by the Commissioners was the expense, and that it would make the Blue-book too bulky. Neither of those excuses was of any weight, for he had a copy of the evidence. It was still in type, and in all printing the chief expense was the setting-up of the type, and the cost of paper and printing did not come to much. As to making the Blue-book bulky, in very many cases Blue-books are artificial bundles of hay in which to hide the needle the public wishes to find. He knew of at least one Public Office which had boasted that it would conceal the needle in that way. It was a mystery what was the motive for this suppression. One supposition was that the Commission contained strong parties of monometallists and bimetallists, and that this evidence did not suit either party. This was hardly probable. It was the duty of the Commission to inquire into the state of agriculture, and not currency. Besides, even if they wished to sift the metallic question, this evidence threw much light upon the depreciation of silver, which, like wheat, was the victim of the fictitious sales that were complained of. He feared the real motive was a less avowable one, and that it came from persons interested in maintaining these fictitious yet highly-profitable sales. Neither the late Government nor the present Government could treat Mr. Smith's evidence as visionary, for it had been translated into German by Count Arnim for the members of the German Reichstag, and the German Ambassador has notified to Mr. Charles W. Smith the acceptance with thanks by His Majesty the German Emperor of this paper published in Berlin. On the 24th of February last a committee of the German Reichstag reported in favour of the total prohibition of time-bargains. He had a telegram from Berlin stating that a vote would be taken that afternoon on an Anti-Option Bill, and that a majority was assured. Two very drastic Bills were passed, one in the House of Representatives last year, the other by the same body of the United States in 1894. Mr. Alfred Paisant, President of the Civil Tribunal of Versailles, had published in the Journal of Agriculture a translation of a great part of Mr. Smith's evidence, interspersed with comments, examples, and legal opinions as to the best way of strengthening the French Code, and of putting down this system of gambling, which was ruining agriculture all over the world. Austria-Hungary was also taking measures against these fictitious sales. He therefore asked Her Majesty's Government to lay Mr. Smith's evidence on the Table of the House; and also a translation of the article of Mr. Alfred Paisant, who, like most French writers, was very clear. He would now endeavour briefly to explain the system of fictitious sales of wheat and other commodities. Very few outside people knew much about it, since those who entered into this gambling conspiracy kept the knowledge of it to themselves, and the French Judge who had now explained it so lucidly, said that at first and for a long time he could hardly believe in these transactions, so contrary were they to recognised commercial practice and morality. Last year the Foreign Office was in complete ignorance of this system of gambling, and this was the proof of it. Here was a Parliamentary Paper presented in April 1895, under the title of Legislative Measures for Suppressing Gambling in Fictitious Wheat Contracts. It contained a Dispatch of 15 lines at the beginning from Her Majesty's Ambassador at Berlin giving a statement by the Prussian Minister of Agriculture; and at the end there is a Dispatch of eight lines from Sir Julian Pauncefote forwarding copies of a Bill respecting options and futures; but the Bill is not printed, and a footnote says it has been sent to the Library of the House of Commons; so it was kept back from the public. But the bulk of this paper, three pages and a half, is taken up with a Dispatch from Brussels relating to a duty on flour, imposed on Belgian wheat which went to France to be ground, and came back as flour. When he read this he was grateful to the Foreign Office for information which strengthened the arguments of Sir W. Cunliffe Brooks in favour of a duty on flour; and at that time he knew nothing of these fictitious sales; but the gentlemen who did know and were interested in the question were angry at this Dispatch on a duty on flour being given them instead of the information asked for, and one of them went to Her Majesty's Legation at Brussels to ask for an explanation. Her Majesty's Minister was not then at Brussels, but the Attachés put all the blame upon the Foreign Office for not explaining clearly what was wanted. However, they took this gentleman to a Department of the Belgian Government. Here at first it was not understood what was the subject of inquiry, until a copy of the Belgian Bill of 1894 against gambling contracts was shown to the Belgian official. But why did the Foreign Office print and present to Parliament a Dispatch on a duty on flour under the title of Legislative Measures for Suppressing Gambling? No Secretary of State could exonerate the Foreign Office from a stupid blunder, except by the alternative of Machiavellic duplicity, or the wish to conceal the needle in this Belgian bundle of hay. The most charitable supposition was in favour of stupidity, but there were also reasons to fear duplicity. The gambling system of options, futures and settlement were introduced from America into England in 1883 for operating on wheat and maize, also beet-sugar, coffee, tea, cotton, silver and silk. Very similar systems had also been in vogue under what were termed ''warrants'' in pig-iron, copper and tin. These American practices were introduced into the Liverpool Produce Exchanges in 1883, but not extensively used, combined with a settlement in wheat till 1889. The London Produce Clearing House was registered in 1888, but established before that. The French Judge pointed out that a bona fide holder of wheat intending to sell it would be glad if the price went up at the time he delivered and completed his sale; but the reverse occurred under the system. Peter sold to Paul 1,000 quintals of non-existing wheat for the 31st December delivery at 20 francs, but on the settlement on that day wheat was quoted at 19.50. Paul had to pay 500 francs difference on this paper-wheat to Peter. Both Mr. Smith and the French Judge established the fact that there were, as a general rule, nine Bears to one Bull, or nine who sought to lower the price to one who was interested in a rise, and that the Bears constantly won. Both stated this latter. They neither of them tried to explain the reason of this, but they stated it as a fact, and Mr. Smith, who had been a broker for 30 years, was in a position to know. Another further reason is that it was much easier to invent rumours to cause securities to fall, than to invent rumours to cause a rise. Sometimes the Bears accumulated stocks when their detention had caused a rise, and by throwing them on the market caused a fall, but the previous rise was of no benefit to the farmers, as this generally happened only after the wheat had left their hands. It was most important to state that it was only since 1889 that the settlement or ''liquidation'' had become daily; and the prices for these fictitious sales of paper-wheat, in quantities largely in excess of existing quantities governed the market and prevented farmers getting more than the prices quoted of "Futures" by the Produce Exchange. Mr. Smith pointed out that if America and the European Governments put down this gambling by legislation, England would be obliged to do so also in self-defence, or else ''become the sole hell of the worst form of gambling." A proof that this gambling did depress the price of wheat was given by the fact that barley, which was not gambled with at all, and oats only very little in America, had not been depressed to the same extent. Further, that as these gambling systems became rampant all over the world, and of an international character since 1889, the decline in the value of wheat alone had become most pronounced. For instance, since 1891, it fell 51 per cent. In the 29 years from 1846–1874, prior to the inventions of the systems either in America or in Europe, the average price of English wheat was 53s. 3d.; barley, 35s. 4d.; and oats, 23s. 6d. Since then, from 1875–1893, the average prices had been in 19 years: wheat 38s. 6d., a decline of 27 per cent.; barley 31s. 3d., a decline of 11½ per cent; oats, 21s. 4d., a decline of 9 per cent. In 1872 wheat was 20s. higher than barley, and 34s. higher than oats. In 1882 it had sunk to 14s. higher than barley and 23s. higher than oats. In 1893, wheat was 8d. higher than barley and 7s. 8d. higher than oats. In October 1894, English wheat was 6s. 5d. lower than barley, instead of 20s. higher, as in 1872. It was shown and acknowledged that this is not due to over-production. The United States producer had suffered as much as their own, and far worse than if his price had been diminished by 5s. a quarter duty levied on him here. In 1881 his average price per bushel was 119 cents; in 1893 only 53 cents; while in Germany last year, the farmers had a forcible object-lesson brought home to them—one Jewish house on the Berlin Produce Exchange, by the power of Bear operations, causing a loss of millions to them by depreciating the value of their home-grown wheat. On this subject he should like to quote from The Farmer's Voice (Chicago), of March 21st, which said:— The National House Committee on Agriculture has voted to take the Bills against anti-option. This move leaves the Chicago Board of Trade to continue its gambling in grain without interference. It is not too much to say that our Boards of Trade are the worst nest of gamblers that there is in this country. They are the most subtle, the most infamously designing crowd, the most audacious robbers of the farmers that this country has ever produced. A short time ago an Essex farmer would have been excusable had he wished that every American cargo might be cast ashore on the Galway coast; but now he would be full of sympathy for his fellow sufferer in America. The French Judge had written that the American people were extreme, and that their Bill against options might be excessive, and so fail. If so the Americans had a national Judge to be found in every settlement, and the men of Kentucky would appeal to him when they discovered how they were being ruined by the Chicago gamblers. With regard to gambling in silver, the French Judge only says that it is still more pernicious than the wheat gamble. Mr. Smith says:— It is only since silver has been recognised as a gambling medium in our registered institutions in 1888, that the price of that metal has been influenced and depreciated by the values quoted 'ahead' of such in the shape of futures. For instance, since 1873, the year of the demonetisation of the white metal, the average lowest price for 15 years, say from 1873 to 1887, was 551/16; as against 39⅝ for the following six years, 1888–1893. At the time of writing (January, 1894) Bears were offering to sell distant months at 30½. In October 1894, in a lecture at Bristol, Mr. Smith related a striking example of the loss caused by silver gambling some two years before, and given to him by an eminent authority:— The Indian Budget had just been brought out, and the Estimates for the then ensuing year were all upset, and the gold value of the rupee knocked down one penny by an operation of a sale of silver in New York; which subsequent investigations seemed to prove was not more than 1,000 ounces, sold at a "give away" price for the purpose of influencing the market. The price was telegraphed over here, and speculators in London and in New York beared the market and really made the price of the 1,000 ounces the market price, entailing an extra loss to the Indian Government of over £1,000,000 sterling that year on their Exchange Estimates.

With regard to cotton, Mr. Smith further said that in the past 12 months (1893) there were three or more violent fluctuations in price at Liverpool, first a rise of 45 per cent., then a fall of 35 per cent., then a rise of 10 per cent., then another fall. At that time Lancashire had only one supply to deal with, and no laws of supply and demand justified such fluctuations. This season, and in the face of a very small American drop, the Liverpool Cotton Association had witnessed one of the greatest panics on record, the differences paid by gamblers in one week's settlement being estimated at more than a million. The export of raw cotton from India had been nearly stopped. The values of cotton exported from India were in the years—

1888 … … £3,063,000
1889 … … 5,223,000
1890 … … 4,740,000
1891 … … 1,850,000
1892 … … 1,164,000
1893 … … 800,000

Now Lancashire had almost ceased to spin Indian cotton. At the same time the value of American cotton had been so much reduced that the supply from that country threatened to run short. The circular of Whitaker and White-head, Liverpool, cotton brokers, of April 23 last, stated that the total movement of the cotton crop from September 1st to 17th April showed a deficiency of 2,848,000 bales in comparison with 1895, and of 493,000 bales as compared with 1894. The visible supply of American cotton showed a deficiency of 1,217,000 bales as compared with 1895, of 578,000 as compared with 1894, and of 547,000 as compared with 1893. The Bears were fixing the price 12 months beforehand, before the seed was sown, and reducing the price below the present one, or to about half its highest value in 1890–1. Sir Courtenay Boyle, of the Board of Trade, had expressed himself in the following words as to this gambling system, in September, 1894, at the meeting of the Associated Chambers of Commerce:— Commercial gambling stands condemned by the common consent of all those who have any knowledge whatever of the subject. It stands condemned by every writer upon political economy who has given his views to the world, and it needs no representation from anybody whatever to convince those who watch the progress of trade that commercial gambling is an evil, and an unmitigated one. How to put down commercial gambling is a problem of the greatest intricacy. I feel it will almost be beyond the wit of the wisest man in this room to lay down a clause which will prevent gambling and not interfere with legitimate business.

Another Board of Trade official, the Inspector General in Bankruptcy, in his official Report of 1895, said:— It is alleged, and apparently with good grounds, that the operations of speculators in what are termed futures … have tended 'to depress the prices of commodities below their natural level.' The prices are thus largely determined, not by the natural laws of supply and demand, but by the action of a comparatively few reckless competitors.

Here were two Board of Trade officials condemning this gambling and calling for a remedy, but what right had Sir Courtenay Boyle to assume that because he and the traders he was addressing could not draw a clause discriminating between legitimate trade and gambling, that such a task was beyond the powers of the heads of the legal profession. The French Judge had shown that such a clause could be framed. This subject had been twice brought under the notice of the head of Her Majesty's Government last year by Mr. Jasper More and by Mr. Smith. The reply to their letters had been published, and he feared that his noble Friend the Marquess of Salisbury had been too much occupied at the time, last October, and had also been misled by Sir Courtenay Boyle's observations into exaggerating the difficulty of distinguishing between gambling and ordinary commercial contracts; and he had certainly been misinformed with regard to what he had called the overwhelming majority at Huddersfield in favour of the ''previous question." The previous question had been moved instead of the resolution out of courtesy and deference to the permanent Secretary to the Board of Trade, and as a due acknowledgment and thanks for his presence at that meeting. He had said in the notice that hardly any of the failures caused by this gambling wore investigated by the Bankruptcy Court. He would read a case taken from Mr. Smith's evidence of— A Liverpool broker who held £2,000,000 worth of produce in the shape of future contracts, against which not one pennyworth of actual produce did he ever intend to demand delivery of, nor had the sellers also any intention of delivering. This enormous gambling transaction was known to all, and everyone recognised with apprehension that, sooner or later, the same quantity had to be resold. Further that even a slight fall in the market would render it impossible for this broker who had no capital of his own worth mentioning, to find margins to pay into the clearing house. The market did fall, reselling commenced and the inevitable smash came, accompanied as usual with the failure of the broker, and with a heavy decline in values. The above broker held the position of President of the Produce Exchange, and his clients, who were two clerks, were afterwards convicted of robbing their employers of £180,000 which sum had been paid to that broker on account of differences due on their gambling contracts. I may mention in connection with this swindling operation that in order to save a wholesale financial disaster, the Produce Exchange had to imitate the Bank of England's action in 1890 after the Baring collapse, but I may add without any outside guarantee.

He would now recapitulate the proofs that these fictitious sales had depressed prices. (1) Barley and oats were not depressed in proportion to wheat; (2) the depression was not caused by overproduction; (3) American growers got less than half former prices; (4) general agreement of other Governments as to necessity of checking this gambling; (5) 25 resolutions condemning these sales passed in England; (6) endeavours to choke and suppress evidence and inquiry; (7) numbers of failures which have checked inquiry by the Bankruptcy Court, hundreds of failures by produce brokers, and thousands by their clients; (8) deputations received by the present Government from the wheat, cotton, London coffee trade, and West India cane-sugar interests, all of which were depressed by the fictitious sales. He would ask Her Majesty's Government whether they wished to see that feeling in this country against capitalists, and especially Jewish capitalists, which existed throughout the countries of Europe. A warning note had been sounded in the Quarterly Review of January last, which said:— The whole world may become a universal gambling house with this compact syndicate holding the bank, and who from outside will play and not lose? All the commodities which are of prime necessity shall be exploited in their turn; wheat and coffee, copper and iron, cotton and linen shall become suddenly enchanted and lie under a spell by which thousands of families are hurled into ruin, trades are disorganised, and an economic earthquake is artificially produced.

Further on, the writer said:— For such Free Trade the believer in liberty need not scruple to express his detestation.

Speaking of Jewish capitalists, he quoted another writer:— They make nothing; they seem on their way to possess all things.

He could not agree with the statement that it was useless to struggle against these gamblers on the Liverpool Produce Exchange as so many people made their living by it. If Her Majesty's Government should do nothing, language as bad as that used in the case of the Chicago Board of Trade will be used with respect to our Board of Trade. It is said that nothing will be done because so many people make a living by the Produce Exchange, but there is another community and more numerous than that of the gamblers, one of whom once used similar language as to the necessity of making a living, to Cardinal Richelieu, who nevertheless hanged him forthwith. He would conclude with a formal Motion for Papers on the subject, to secure a reply.

*THE SECRETARY TO THE BOARD OF TRADE (The Earl of DUDLEY)

I do not think that the matter which has been brought forward by the noble Lord is one which calls for any action by Parliament at the present time. It has been discussed pretty freely by many commercial bodies throughout the country, and, although it is perfectly true, as the noble Lord says, that some of those commercial bodies have passed resolutions in favour of legislative action, still, on the other hand, the Associated Chambers of Commerce, at both their last two conferences, have refused to bind themselves in any way to such an expression of opinion. Moreover, the matter has been brought forward by Mr. Smith, a gentleman who has taken a leading part in this question, before the Central Chamber of Agriculture on more than one occasion, but that Chamber has not seen fit to make any representation to the Board of Agriculture. The Agricultural Commission have had before them evidence bearing on this question, and they will no doubt deal with it in their Report. Under these circumstances I feel sure that your Lordships will not feel inclined to adopt the suggestion of the noble Lord and appoint a Select Committee to inquire into this subject. The noble Lord has drawn the attention of the House to the alleged depreciation in the price of certain products owing to the system of what is called dealing in "futures" or ''options." Of course there can be no doubt that there has been a very large fall in the price of some of the products to which the noble Lord has referred, but I venture to think that it is by no means proved, even after the speech of the noble Lord, that that fall in price is in any way due to the system of which he complains. To say that price is governed by the laws of supply and demand is merely to use a truism, but it is, I believe, a fact that that law holds good even in the speculative market, and that the unanimous opinion of the best experts is that the price in those markets follows and does not lead the price dictated by the laws of supply and demand. In fact, they are of opinion that this system of dealing in ''futures'' instead of deteriorating prices, rather tends to equalise them and to counteract the fluctuations that always must exist. The noble Lord refers, in his question, to coffee as one of the products the price of which has been depreciated by this particular system. My information, however, is totally at variance on that point with that of the noble Lord. Although I understand that it is perfectly true that this system enters very largely into the coffee trade, and that, in fact, the coffee trade is to a great extent carried on in that way, yet coffee happens to be a product the price of which does not fluctuate and which has not depreciated of recent years. The circumstances of coffee in particular, therefore, point to a totally different conclusion from that drawn by the noble Lord. But, even if the arguments of the noble Lord were sound, and even if one had reason to believe that this system of gambling had depreciated prices, I very much doubt whether it would be possible to check it by legislative action. The noble Lord has referred to the many attempts that have been made, chiefly by Mr. Smith and others, to distinguish between purely legitimate speculation and gambling enterprise, but all those attempts to differentiate have failed, and I doubt very much whether it would be possible to draw any distinguishing line of that kind in an Act of Parliament, without running very grave risk of hampering trade and checking legitimate enterprise. The noble Lord also referred to several attempts which had been made by foreign Governments in this direction, but in no single instance have those attempts been successful, and no Bill drawn with this object has as yet passed into law, and I understand that only last month an anti-optional Bill was thrown out by the Agricultural Committee in the House of Representatives at Washington. With regard to Mr. Smith's printed evidence, which the noble Lord seemed to think has been suppressed, I believe what really took place was that Mr. Smith prepared a précis of the evidence which he intended to give before the Agricultural Commission, and he was cross-examined upon that précis and that it was not published for the very good reason that it is not usual to publish a précis of intended evidence. With regard to the last point referred to by the noble Lord, the Government have no information that the proceedings in bankruptcy do not include as large a proportion of failures by gambling in ''futures'' as of failures from any other cause, and the reason that they are not more frequently heard of is probably because relatively few of such failures take place. The translation which the noble Lord asks for does not seem to the Government to be one which can rightly be put on the Table of this House.

*LORD STANLEY OF ALDERLEY

said, he hoped he should not be understood as showing any want of courtesy or respect to the noble Earl who had just replied, but he did object to have an answer on a matter of agriculture by the Board of Trade. The Board of Trade was already committed to the opinion that there was no means of giving legislative check to these malpractices. He did not think Sir Courtenay Boyle was competent to give an opinion upon a legal matter, and he ought not to have pledged the Government in the way he had done. Trade and commerce were usually hostile to agriculture, moreover, the Board of Trade had been poisoned by Mr. Mundella's sojourn there, and he did not think the present President was likely to disinfect it.

THE PRIME MINISTER

On the question of the distribution of duties, I would like to point out to my noble Friend that undoubtedly a question of buying and selling is a matter for the Board of Trade and not a matter of agriculture. The buying and selling of corn is not an agricultural act.

Motion by leave withdrawn.