New-York tribune., 1909-12-29
TRADING IN FUTURES"

The national administration is report
ed to be interesting itself in the ques
ton of legislation in respect TO dealins
In futures on the commodity markets
Presuma bly its attention is directed
solely 10 the gambling on those markets,
and it is considering the possibility of
making laws that will check the gam
bling without interfering with legiti-
mate speculation. This topic has often
been studied In the past. The commits
sion appointed by Governor Hughes two
years ago went into 1t exhaustively, and
though it recognized the prevalence Of
gambling came to the conclusion that it
would be impossible to single out gam
bling operations from legitimate specu-
lation and prohibit the one while per-
mitting the other. 1t left the whole
duty of regulating gambling to the ex-
changes themselves. If the President
and his advisers have any plan by which
gamblers can be kept out of the mar
kets they will have the hearty support
of the country, but they will probably
find, as all other investigators have
found. that it is difficult to discriminate
by law between gambling and specula-
ton. and any one who gives the sub
ject consideration will see the disad-
vantages of interference with specula-
ton
The useful role that speculation plays
is discussed at length by Mr.. Herbert
Knox Smith. the Commissioner of Cor
porations, in his recent exhaustive re-
port upon cotton exchanges. In that
report Mr.. Smith criticises severely the
practice on the New York Cotton EX-
change of adhering TO an arbitrary scale
of difference in prices on different
grades of cotton in settling future con-
tracts, but TO the benefits of proper
speculation he gives his unqualified as
sent. He says: Speculation, If proper
"ly conducted and safeguarded. affords
advantages Of almost incalculable ser
"vice. Under an ideal system Of specu-
"lation the risks which inevitably result
from unavoidable changes in value
would be thrown on the speculative
"claSs, to the relief of the nOn-specula
tive class The system, as shown, Is
"far from ideal; nevertheless its pos
"sible benefits are enormous and its
actual advantages are probably great"
We have often before illustrated the
advantages of future trading to the cot
ton manufacturer. He has an inquiry
from a customer regarding cotton goods
tC be made six months later In order
TO quote a price to his prospective Gus
toner he must know what mis- material
will cost him. There being market in
cotton futures" he makes his price
based on the quotation for the month
in which he will need his material. and
by purchasing n future" contract for
cotton at that time the manufacturer
/ is freed from all risk in filling the order
of his customer The risk is taken Nv
the speculative classes. The result is
| that he can quote a lower price on Il
! future" contract for manufactured ar
/ ticles than he could if he had to allow
/ for possible loss due to price fuctua-
tions.
Mr.. Smiths report shows many other
benefits of speculation-that is TO say,
of dealing in futures" Prices are
steadied by the wide market that is
created and by the vast information
that is collected about the crop in the
interests Of spectators. The risk being
taken off dealings in actual cotton nv
/ the process of hedging in futures" lit
tie capital is needed in the cotton buSi-
ness. 50 that where before future" trad
ing began. it was in the hands of a few
very wealthy factors to-day there is a
vigorous competition for cotton. which
benefits the producer. Iiddlemens
charges. moreover. have been reduced,
largely as Il result of the elimination
of risks through future" trading, from
81 % TO 80 cents a bale. This saving
benefits both producer and consumer.
As 10 the effect of future" trading m
cotton prices. it is perhaps enough TO re-
mark that producers are firm in the
conviction that it depresses prices. while
manufacturers are equally sure that It
! forces them up. 1t evidently cannot do
both and probably does neither exceDt
so far as the elimination of risks affects
! prices. Everything that Mr.. Smith has
/ 10 say regarding the benefits of future"
trading in cotton can be affirmed equally