1. The decision of this Court in
Hill v. Wallace,
259 U. S. 44,
holding that local dealings on boards of trade in grain for future
delivery, could not constitutionally be brought under federal
control by means of the taxing power, as was attempted by the
Future Trading Act, is not an authority against the Grain Futures
Act of September 21, 1922, c. 369, 42 Stat. 998, which is an
exercise of the power to regulate interstate commerce. P.
262 U. S. 31.
2. The flow of grain shipped into the Chicago market from other
states, stored temporarily or held on cars, sold on the Chicago
Board of Trade, and reshipped in large part to other states and
foreign countries, is interstate commerce subject to regulation by
Congress. P.
262 U. S. 33.
3. The fact that such grain is shipped under through bills of
lading from western to eastern states giving shippers the right to
remove the grain at Chicago for temporary purposes of storing,
inspecting, weighing, grading, or mixing, and of changing
ownership, consignee or destination, and then of continuing the
shipment under the same contract at the same rate, while it does
not prevent the local taxing of the grain while in Chicago, does
not take it out of interstate commerce so as to deprive Congress of
the power of regulation over it. P.
262 U. S. 33.
Stafford v. Wallace, 258 U. S. 495.
Page 262 U. S. 2
4. Neither does the fact that grain so shipped is temporarily
stored in Chicago in warehouses and mixed with other grain, so that
the owner receives other grain when presenting his receipt for
continuing the shipment. P.
262 U. S. 33.
Eureka Pipe Line Co. v. Hallanan, 257 U.
S. 265.
5. Sales on the exchange of the Chicago Board of Trade are
indispensable to the continuity of this flow of grain in interstate
commerce. P.
262 U. S. 36.
6. Congress having reasonably found that sales of grain for
future delivery (most of which transactions do not result in actual
delivery, but are settled by off-setting with like contracts), are
susceptible to speculation, manipulation, and control, affecting
cash prices and consignments of grain in such wise as to cause a
direct burden on and interference with interstate commerce therein,
rendering regulation imperative for the protection of such commerce
and the national public interest therein -- had power to provide in
the Grain Futures Act,
supra, for placing grain boards of
trade under federal supervision and regulation as "contract
markets," as a condition to dealing by their members in contracts
for future delivery. P.
262 U. S. 36.
7. The provision of the act requiring each board so designated
to adopt a rule permitting the admission, as members, of authorized
representatives of cooperative associations of producers engaged in
the cash grain business, who comply, and agree to comply, with the
rules of the board applicable to other members, and forbidding any
rule to prevent the return of the commissions earned by such a
representative, less expenses, for division among the members of
his association on a
pro rata patronage basis -- does not
take the property of the members of the Chicago Board of Trade
without due process of law. P.
262 U. S. 40.
8. The Chicago Board of Trade is engaged in a business affected
by a public national interest, and subject to national regulation
as such. P.
262 U. S. 40.
9. And Congress therefore may reasonably limit the rules
governing its conduct to prevent abuses and secure freedom from
undue discrimination in its operations, even if, incidentally, the
value of memberships is decreased. P.
262 U. S. 41.
10. The constitutionality of provisions of the above act
forbidding use of the mails or interstate means of communication,
to offer or accept sales for future delivery, except through
members of boards of trade, is not here involved, since the
plaintiffs are not affected by them, and, under § 10, invalidity of
part of the act is not to affect the validity of the remainder. P.
262 U. S. 42.
Page 262 U. S. 3
11. Section 9 of the act, declaring it to be a misdemeanor for a
member of a board of trade, designated as a "contract market," to
fail to evidence any contract mentioned in § 4 by a written record
as therein required, is constitutional. P.
262 U. S. 42.
12. The Constitutionality of the part of § 9 providing
punishment for delivering through the mails, or interstate means of
communication, false or misleading crop or market reports, is not
involved in this case. P.
262 U. S. 42.
13. Neither is the constitutionality of paragraph (b) of § 6,
giving the commission power to exclude from "contract markets"
persons violating the act or attempting to manipulate the price of
grain in violation of § 5, or of any rule or regulation made in
pursuance of its requirements. P.
262 U. S. 43.
Affirmed.
This is an appeal from a decree of the District Court for
Northern Illinois dismissing a bill in equity. The appeal is under
§ 238 of the Judicial Code (as amended Act January 28, 1915, c. 22,
§ 2, 38 Stat. 803, 804), the case being one in which the
constitutionality of the Grain Futures Act (enacted by Congress
September 21, 1922, c. 369, 42 Stat. 988) is drawn in question.
The bill was brought by the Board of Trade of the City of
Chicago, and a number of its members representing each class of
traders on the exchange of the Board, to enjoin the United States
District Attorney at Chicago, the Secretary of Agriculture, and the
United States postmaster at Chicago from taking steps to enforce
the provisions of the act against them on the ground that it
violates their rights under the federal Constitution.
The purpose of the act is expressed in its title to be for the
prevention of obstructions and burdens upon interstate commerce in
grain by regulating transactions on grain future exchanges and for
other purposes. Its second section, par.(a), is one of definitions.
Its definition of interstate commerce, in the sense of the act, is
as follows:
"The words 'interstate commerce' shall be construed to mean
commerce between any state, territory,
Page 262 U. S. 4
or possession, or the District of Columbia, and any place
outside thereof, or between points within the same state,
territory, or possession, or the District of Columbia, but through
any place outside thereof, or within any territory or possession,
or the District of Columbia."
Paragraph (b) contains the following addition to the foregoing
definition:
"(b) For the purposes of this Act (but not in any wise limiting
the foregoing definition of interstate commerce) a transaction in
respect to any article shall be considered to be in interstate
commerce if such article is part of that current of commerce usual
in the grain trade whereby grain and grain products and byproducts
thereof are sent from one state with the expectation that they will
end their transit, after purchase, in another, including, in
addition to cases within the above general description, all cases
where purchase or sale is either for shipment to another state, or
for manufacture within the state and the shipment outside the state
of the products resulting from such manufacture. Articles normally
in such current of commerce shall not be considered out of such
commerce through resort being had to any means or device intended
to remove transactions in respect thereto from the provisions of
this Act. For the purpose of this paragraph, the word 'state'
includes territory, the District of Columbia, possession of the
United States, and foreign nation."
Section 3 is in the nature of a recital and finding as
follows:
"Sec. 3. Transactions in grain involving the sale thereof for
future delivery as commonly conducted on Boards of Trade and known
as 'futures' are affected with a national public interest; that
such transactions are carried on in large volume by the public
generally and by persons engaged in the business of buying and
selling grain and the products and byproducts thereof in
interstate
Page 262 U. S. 5
commerce; that the prices involved in such transactions are
generally quoted and disseminated throughout the United States and
in foreign countries as a basis for determining the prices to the
producer and the consumer of grain and the products and byproducts
thereof and to facilitate the movements thereof in interstate
commerce; that such transactions are utilized by shippers, dealers,
millers, and others engaged in handling grain and the products and
byproducts thereof in interstate commerce as a means of hedging
themselves against possible loss through fluctuations in price;
that the transactions and prices of grain on such boards of trade
are susceptible to speculation, manipulation, and control, and
sudden or unreasonable fluctuations in the prices thereof
frequently occur as a result of such speculation, manipulation, or
control, which are detrimental to the producer or the consumer and
the persons handling grain and products and byproducts thereof in
interstate commerce, and that such fluctuations in prices are an
obstruction to and a burden upon interstate commerce in grain and
the products and byproducts thereof and render regulation
imperative for the protection of such commerce and the national
public interest therein."
The act in § 4 forbids all persons to use mails or interstate
telephone, telegraphic, wireless, or other communication, in
offering or accepting sales of grain for future delivery or to
disseminate prices or quotations thereof, excepting the man who
holds the grain he is offering for sale, and the owner or renter of
land on which the grain offered for sale is to be grown, and
excepting also members of Boards of Trade located at a terminal
market on which cash sales occur in sufficient volume and under
such conditions as to reflect the general value of grain and its
different grades, and which have been designated by the Secretary
of Agriculture as "contract markets."
The act puts these boards of trade under supervision of the
Secretary of Agriculture and imposes conditions
Page 262 U. S. 6
precedent and subsequent on his power to designate or continue
them as "contract markets."
The conditions are:
(a) The keeping of a record with prescribed details of every
transaction of cash and future sales of grain of the Board or its
member in permanent form for three years, open to inspection of
representatives of the Departments of Agriculture and of
Justice.
(b) The prevention of the dissemination by the Board or any
member of misleading prices.
(c) The prevention of manipulation of prices or the cornering of
grain by the dealers or operators on the Board.
(d) The adoption of a rule permitting the admission as members
of authorized representatives of lawfully formed cooperative
associations of producers having adequate responsibility engaged in
the cash grain business, complying with and agreeing to comply
with, the rules of the Board applicable to other members, provided
that no rule shall prevent the return to its members on a
pro
rata patronage basis the money collected by such association
in the business, less expenses.
The Secretary of Agriculture, the Secretary of Commerce, and the
Attorney General are made a commission to hear and determine after
due notice, whether any board of trade has failed or is failing by
rule to do the things required above, and, if found in default, to
suspend its functions as a contract market for a period not to
exceed six months, or to revoke its designation as such, with an
appeal on the record to the circuit court of appeals within the
circuit where the board is situate. Such commission, too, is to
hear appeals from the Secretary's action in refusing to designate
any Board of Trade as a contract market.
There is a further provision for excluding from all contract
markets and trading privileges any person violating
Page 262 U. S. 7
the provisions of the act or the regulations in pursuance
thereof.
Section 9 declares anyone trading in futures in violation of §
4, or sending intentionally or carelessly false or misleading
quotations or information as to the prices of grain guilty of a
misdemeanor.
The bill of the plaintiffs describes the organization of the
Chicago, Board of Trade as a corporation under a special act of the
Legislature of Illinois, passed in 1859 (Priv.Laws 1859, p. 13),
with a membership of 1,600 and a board of 18 directors, of whom one
is president. It avers that the Board does no business in selling
or buying grain, but only furnishes an exchange and offices where
such business can be done by its members; that it does not deliver
any market quotation through interstate means, but it does cause to
be collected the first price and each change of price on its
exchange in cash and future sales during the regular hours in the
exchange hall, and delivers them to certain telegraph companies,
who pay the Board for this information.
The bill further avers that it is sustained only by the
initiation fees and dues of its members, the former being $25,000
for each member, and the latter being in the form of annual
assessments; that it has, from these sources, accumulated funds
with which to provide a large building and offices for the
exchange, from some of which it receives rental and so has property
worth $2,000,000 or more; that its existence depends on keeping its
memberships valuable; that it does this by requiring character and
financial responsibility as qualifications for its membership and
by a requirement that a member shall charge for every sale a fixed
minimum commission to a nonmember principal, and a less minimum to
a member who shall be his principal; that corporations are not
permitted to be members, but that, when two of the stockholders and
officers are members, the corporation
Page 262 U. S. 8
is permitted as a member to make contracts on the exchange. The
bill further avers that, if the Board were required to admit
representatives of cooperative associations of producers, with the
privilege of dividing with their members the proceeds of
commissions, less expenses, it would greatly impair the value of
its memberships to other members.
The bill further avers that the members of its exchange engage
only in three kinds of trading:
(1) Many act as commission merchants, and receive from producers
and country grain dealers grain in cars and boats consigned to
them, which as agents they sell for immediate delivery and account
to their principals for the proceeds of such sales, less their
commissions and other expenses, and many members, as principals or
agents, purchase and sell grain in Chicago which is in cars or
elevators for immediate delivery, and all of these transactions are
known as "cash sales."
(2) Many members send out in the afternoons, whenever market
conditions are favorable, telegrams or letters to country grain
dealers offering to buy grain, or to millers and other nonresidents
of Chicago, probable buyers, offering to sell grain at released
prices and to be shipped within a certain time, on condition that
these offers be accepted before regular market hours the next
morning. These are known as "cash sales for deferred shipment," or
as "sales to arrive."
(3) Many of the members engage either as principals or agents in
making on the exchange contracts with other members for the
purchase and sale of grain for future delivery by which the seller
agrees to deliver in Chicago the grain covered by the contract upon
any day of the named month that he shall select. More than 75
percent of the volume of all trading in the exchange is for future
delivery, and, under the rules, it must be done in the exchange
hall and between regular fixed hours; that both buyers
Page 262 U. S. 9
and sellers in all such contracts are personally present when
the contracts are made.
The bill further avers that all contracts for future delivery
are under the rules of the Board fulfilled only by delivery of
warehouse receipts for the grain issued by twelve warehouses in
Chicago, selected by the Board and having a capacity of 13,000,000
bushels and licensed by the State of Illinois to do a public
warehouse business; that the grain is mixed with other grain, so
that the receipt holder never gets the grain deposited when the
receipt was issued; that, while a rule of the exchange makes grain
in railroad cars deliverable in future cars the last three days of
the month, the transaction is not fully completed till the grain in
those cars is deposited in a regular warehouse and receipt issued;
that, in the trading for future delivery, more than three-quarters
of the many millions of bushels contracted to be delivered are
settled for without delivery by offsetting purchases; that a large
part of the future trading is done by grain merchants, millers, and
others only for the purpose of insuring themselves against price
fluctuations in respect of like grain owned by them and held for
sale, shipment, or manufacture, and is settled by offsetting.
The bill further avers that another large part of future trading
is done by speculators, so called, who make a study of market
conditions affecting prices, and try to profit by their judgment as
to future prices; that few of such speculators have capital enough
to make large single purchases in any way affecting the market;
that six-sevenths of all the trading in futures in the country take
place in Chicago; that no corners have been run on the exchange for
15 years, due to the enforcement of rules against them by the Board
and "perhaps to the Sherman Anti-Trust Act;" that manipulation has
never been successfully resorted to to depress prices; that the
selling of futures has no such effect; that the law of supply
Page 262 U. S. 10
and demand regulates prices and prevents violent fluctuations,
and that, before hedging was made possible by this future trading,
the cost of the middleman between producer and consumer was much
greater.
The defendants filed an answer admitting much of the bill, but
specifically denying the averments included in the last foregoing
paragraph.
The plaintiffs submitted a large number of affidavits in support
of a motion for a temporary injunction. These contained opinions of
many professors of political economy in the colleges of the country
to the effect that trading in futures in the long run did not
depress prices, but stabilized them.
The court denied the motion for a temporary injunction, and, of
its own motion, dismissed the bill for want of equity.
The conclusions of Congress expressed in the recital of § 3 as
to the detriment to interstate commerce from constantly recurring
manipulation of sales for future delivery were reached after many
years of investigation and examination of witnesses, including the
advocates of regulation and those opposed, and men intimately
advised in respect to the grain markets of the country.
The Senate Committee on Agriculture and Forestry reported to the
Senate as follows:
"Every member of a grain exchange who testified before this
committee acknowledged that there is at times excessive speculation
and undesirable speculation in the futures market. Furthermore, it
was brought out that a few big traders at times influence prices --
manipulate the market -- by the great volume of their operations.
Also it was shown that a continually fluctuating, and not a stable,
market is the desire of speculators. Such a market is against the
interests of the producer; he must have stable prices in order to
market his crop to best advantage. A market without wide and
frequent price fluctuations
Page 262 U. S. 11
would greatly benefit the producer. The reason for this is that
rapidly fluctuating prices cannot be fully reflected in the prices
paid at country stations, so an additional margin must be allowed
for buying in the country."
Sen. Report No. 212, 67th Congress, 1st Sess.
Witnesses testified before the committee that a calculation
based on commissions showed the total bushels of grain sold for
future delivery on the Chicago Board of Trade in a year reach
nearly 20,000,000,000 and that the amount of grain actually
delivered under such contracts is not 1 percent of this. Objectors
to future trading insisted at first that future trading put in the
hands of desperate speculators an easy opportunity to corner the
market and to promote great and rapid fluctuations in value, and
was wholly vicious, and should be forbidden. Further investigation
and consideration have satisfied many that the law of supply and
demand operated on futures as on cash sales, and that futures are
very useful in certain respects, notably in offering a means by
which, through "hedging," owners of grain can, to some extent,
protect themselves against the danger of losses by fluctuation.
The government did not, in this hearing and argument, maintain
that, by manipulation, the operators can permanently depress the
prices of grain, but insisted and cited the actual quotations from
time to time, some as late as the summer of 1922, showing violent
fluctuations through "deals" of large operators engaged in
manipulating the futures market at intervals since 1900, before
which corners were ever recurring but since which they have been
infrequent. Much evidence was adduced before congressional
committees that the sales of futures on the Chicago Board dominated
the prices of wheat in this country and the world. The injurious
effect of these recurring fluctuations in such futures upon the
consignment of grain by owners and producers was asserted by
witnesses. Mr.
Page 262 U. S. 12
Herbert Hoover, whose experience as Food Administrator gave his
opinion weight, said to the House Committee on Agriculture (Future
Trading Hearings-66th Congress, 3d Session, pp. 909, 910):
"The second form of manipulation, and the one that I feel does
at times take place, is the making of a drive on the price by
either the sale or the purchase of such quantities as will affect
the price by the volume of material coming to the market at that
particular time. I would regard those transactions as an attempt to
dislocate the normal flow of the law of supply and demand, and any
attempt of any individual to dislocate a free market must be
against public interest. I feel it is also against the interest of
the individual producer, because a drive on the market that
depresses the price must find a considerable number of farmers who,
through the fall in price and their outside obligations, are
compelled to liquidate, and they have been done an injury.
Incidentally the commodity has been brought into the market, and an
acceleration to depression has been created."
Mr. Julius H. Barnes, the head of the United States Grain
Corporation during the war, and of widest experience in the grain
markets of the world at the same hearing, after explaining that
future dealing stabilizes prices and helps legitimate hedging, and
that a drive on prices worked its own cure in the long run, as did
the distinguished economists whose affidavits were exhibited in
this case, said (pp. 839, 840):
"But it is also true that, even though such a price depression
must be temporary in character, it may, during its period of
effectiveness, do substantial injustice by forcing the liquidation
of grain held on margins, or, by the price tendency thus displayed,
frightening owners otherwise confident of the ultimate value of
their goods."
The Federal Trade Commission, in its report on wheat prices to
the President, December 13, 1920, said (p. 8):
Page 262 U. S. 13
"Prices of wheat futures, the decline of which has been
especially the subject of criticism, are susceptible of
manipulation. Wide fluctuations in prices and large discounts of
the future price below the cost price have prevailed. This has made
it unsatisfactory for 'hedging,' and hedging sales may also appear
to be manipulation because, if they are large, they may cause sharp
depressions. Wheat futures are not functioning well, even according
to the standards of their advocates."
Mr. Julius H. Barnes, in his evidence before the Federal Trade
Commission, in October, 1922, describes the effect upon interstate
commerce of a "deal" in May, 1922, wheat on the Chicago Board of
Trade, when the price of futures rose rapidly. Large operators
collected cash wheat all over the country and headed it for Chicago
for delivery at the attractive prices. This took wheat away from
all the other wheat centers of the country, where it normally would
have remained for consumption, and accumulated it in almost
unsalable quantity in Chicago, greatly disturbing the normal and
useful flow of wheat in its ordinary and proper distribution and
precipitating a crash in prices. [
Footnote 1]
Page 262 U. S. 14
It was charged before the congressional committees that the
limitation of deliveries under contracts for futures to warehouse
receipts of twelve regular warehouses aggregating but 13,000,000
bushels capacity, with the privilege of a tender of grain in cars
on the last three days of the delivery month and a power in the
board of directors to enlarge the privilege in case of an
emergency, casts another element of speculative doubt into the
prices of futures, and puts too much control in the board of
directors. In view of the fact that the total capacity of Chicago
for storing grain in public and private warehouses is 45,000,000,
it is urged that this rule of the futures market is sinister and
dangerous in affecting the prices of a market that are worldwide in
their influence by such a narrow limitation of deliveries subject
to
Page 262 U. S. 15
arbitrary and uncertain change at the discretion of the Board,
and that it is a factor in frightening shippers and lawful hedgers
in making opportunity for speculative manipulation and burdening
the flow of grain in normal interstate channels. [
Footnote 2]
Page 262 U. S. 31
MR. CHIEF JUSTICE TAFT, after stating the case as above,
delivered the opinion of the Court.
Appellants contend that the decision of this Court in
Hill
v. Wallace, 259 U. S. 44, is
conclusive against the constitutionality of the Grain Futures Act.
Indeed, in their bill, they pleaded the judgment in that case as
res adjudicata in this as to its invalidity. The act whose
constitutionality was in question in
Hill v. Wallace was
the Future Trading Act (c. 86, 42 Stat. 187). It was an effort by
Congress, through taxing at a prohibitive rate sales of grain for
future delivery, to regulate such sales on boards of trade by
exempting them from the tax if they would comply with the
congressional regulations. It was
Page 262 U. S. 32
held that sales for future delivery where the parties were
present in Chicago, to be settled by offsetting purchases or by
delivery, to take place there, were not interstate commerce, and
that Congress could not use its taxing power in this indirect way
to regulate business not within federal control. We said (p.
259 U. S.
68):
"Looked at in this aspect, and without any limitation of the
application of the tax to interstate commerce, or to that which the
Congress may deem from evidence before it to be an obstruction to
interstate commerce, we do not find it possible to sustain the
validity of the regulations as they are set forth in this act. A
reading of the act makes it quite clear that Congress sought to use
the taxing power to give validity to the act. It did not have the
exercise of its power under the commerce clause in mind, and so did
not introduce into the act the limitations which certainly would
accompany and mark an exercise of the power under the latter
clause."
Again, on page
259 U. S. 69, we
said:
"It follows that sales for future delivery on the Board of Trade
are not in and of themselves interstate commerce. They cannot come
within the regulatory power of Congress as such unless they are
regarded by Congress, from the evidence before it, as directly
interfering with interstate commerce so as to be an obstruction or
a burden thereon."
The Grain Futures Act which is now before us differs from the
Future Trading Act in having the very features the absence of which
we held in the somewhat carefully framed language of the foregoing
prevented our sustaining the Future Trading Act. As we have seen in
the statement of the case, the act only purports to regulate
interstate commerce and sales of grain for future delivery on
boards of trade, because it finds that, by manipulation they have
become a constantly recurring burden and obstruction to that
commerce. Instead,
Page 262 U. S. 33
therefore, of being an authority against the validity of the
Grain Futures Act, it is an authority in its favor.
The Chicago Board of Trade is the greatest grain market in the
world.
Chicago Board of Trade v. United States,
246 U. S. 231,
246 U. S. 235.
Its report for 1922 shows that, on that market in that year were
made cash sales for some 350,000,000 bushels of grain, most of
which was shipped from states west and north of Illinois into
Chicago, and was either stored temporarily in Chicago or was
retained in cars and after sale was shipped in large part to
Eastern states and foreign countries. This great annual flow is
made up of the cash grain sold on the exchange, the cash sales to
arrive (
Chicago Board of Trade v. United States,
246 U. S. 231),
and the comparatively small percentage of grain contracted to be
sold in the futures market not settled by offsetting.
Chicago
Board of Trade v. Christie Grain Co., 198 U.
S. 236,
198 U. S. 248.
The railroads of the country accommodate themselves to the
interstate function of the Chicago market by giving shippers from
Western states bills of lading through Chicago to points in Eastern
states with the right to remove the grain at Chicago for temporary
purposes of storing, inspecting, weighing, grading, or mixing, and
changing the ownership, consignee or destination, and then to
continue the shipment under the same contract and at a through
rate.
Bacon v. Illinois, 227 U. S. 504.
Such a contract does not prevent the local taxing of the grain
while in Chicago, but it does not take it out of interstate
commerce in such a way as to deprive Congress of the power to
regulate it, as is plainly intimated in the authority cited (p.
227 U. S. 516)
and expressly recognized in
Stafford v. Wallace,
258 U. S. 495,
258 U. S.
525-526. The fact that the grain shipped from the West
and taken from cars may have been stored in warehouses and mixed
with other grain, so that the owner receives other grain when
presenting his receipt for continuing
Page 262 U. S. 34
the shipment, does not take away from the interstate character
of the through shipment any more than a mixture of the oil or gas
in the pipelines of the oil and gas companies in West Virginia,
with the right in the owners to withdraw their shares before
crossing state lines, prevented the great bulk of the oil and gas
which did thereafter cross state lines from being a stream or
current of interstate commerce.
Eureka Pipe Line v.
Hallanan, 257 U. S. 265,
257 U. S. 272;
United Fuel Gas Co. v. Hallanan, 257 U.
S. 277,
257 U. S.
281.
It is impossible to distinguish the case at bar, so far as it
concerns the cash grain, the sales to arrive, and the grain
actually delivered in fulfillment of future contracts, from the
current of stock shipments declared to be interstate commerce in
Stafford v. Wallace, 258 U. S. 495.
That case presented the question whether sales and purchases of
cattle made in Chicago at the stockyards by commission men and
dealers and traders under the rules of the stockyards corporation
could be brought by Congress under the supervision of the Secretary
of Agriculture to prevent abuses of the commission men and dealers
in exorbitant charges and other ways, and in their relations with
packers prone to monopolize trade and depress and increase prices
thereby. It was held that this could be done, even though the sales
and purchases by commission men and by dealers were in and of
themselves intrastate commerce, the parties to sales and purchases
and the cattle all being at the time within the City of
Chicago.
We said (pp.
258 U. S.
515-516):
"The stockyards are not a place of rest or final destination.
Thousands of head of livestock arrive daily by carload and
trainload lots, and must be promptly sold and disposed of and moved
out to give place to the constantly flowing traffic that presses
behind. The stockyards are but a throat through which the current
flows,
Page 262 U. S. 35
and the transactions which occur therein are only incident to
this current from the West to the East, and from one state to
another. Such transactions cannot be separated from the movement to
which they contribute and necessarily take on its character. The
commission men are essential in making the sales without which the
flow of the current would be obstructed, and this, whether they are
made to packers or dealers. The dealers are essential to the sales
of the stock farmers and feeders. The sales are not in this aspect
merely local transactions. They create a local change of title, it
is true, but they do not stop the flow; they merely change the
private interests in the subject of the current, not interfering
with, but, on the contrary, being indispensable to, its continuity.
The origin of the livestock is in the West, its ultimate
destination known to, and intended by, all engaged in the business
is in the Middle West and East, either as meat products or stock
for feeding and fattening. This is the definite and well understood
course of business. The stockyards and the sales are necessary
factors in the middle of this current of commerce."
This case was but the necessary consequence of the conclusions
reached in the case of
Swift & Co. v. United States,
196 U. S. 375.
That case was a milestone in the interpretation of the commerce
clause of the Constitution. It recognized the great changes and
development in the business of this vast country and drew again the
dividing line between interstate and intrastate commerce where the
Constitution intended it to be. It refused to permit local
incidents of great interstate movement, which taken alone were
intrastate, to characterize the movement as such. The
Swift case merely fitted the commerce clause to the real
and practical essence of modern business growth. It applies to the
case before us just as it did in
Stafford v. Wallace.
The distinction that the exchange of the Chicago Board of Trade
building is not within the same inclosure as the
Page 262 U. S. 36
railroad yards and warehouses in which the grain is received and
stored on its way from the West to the East as it is being sold on
the exchange, while the stockyards exchange and the actual receipt
and shipment of cattle are within the same fence, surely can make
no difference in the application of the principle. The sales on the
Chicago Board of Trade are just as indispensable to the continuity
of the flow of wheat from the West to the mills and distributing
points of the East and Europe, as are the Chicago sales of cattle
to the flow of stock toward the feeding places and slaughter and
packing houses of the East.
The question under this act is somewhat different in form and
detail from that in the
Stafford case, but the result must
be the same. It is not the sales and deliveries of the actual grain
which are the chief subject of the supervision of federal agency by
Congress in the Grain Futures Act, although a record of cash sales
is required, and a corner in cash sales would be a violation of it,
and there are other provisions equally regulatory of them. It is
the contracts of sales of grain for future delivery, most of which
do not result in actual delivery but are settled by offsetting them
with other contracts of the same kind, or by what is called
"ringing."
Board of Trade v. Christie Co., 198 U.
S. 236,
198 U. S.
246-247. The question is whether the conduct of such
sales is subject to constantly recurring abuses which are a burden
and obstruction to interstate commerce in grain? And further, are
they such an incident of that commerce and so intermingled with it
that the burden and obstruction caused therein by them can be said
to be direct?
In
United States v. Ferger, 250 U.
S. 199, the question was of the validity of a statute of
Congress punishing the forging of bills of lading used in
interstate commerce, and altering them. The lower court had
dismissed an indictment charging the offense denounced in the
statute,
Page 262 U. S. 37
on the ground that Congress could only deal with real bills of
lading where there was an actual shipment in interstate commerce,
and had no power to punish a fraud and fiction where there was no
such commerce, and where the bills of lading whose fabrication was
the subject of complaint were mere pieces of papers fraudulently
inscribed, and did not relate to any actual interstate commerce.
This Court, speaking through Chief Justice White, rejected the view
of the lower court, on the ground that interstate commerce would be
directly impaired and weakened by the unrestrained right to
fabricate and circulate spurious bills of lading apparently
connected with such commerce. The Court, in
Stafford v.
Wallace, supra, adopted and applied this principle, and said,
258 U.S.
258 U. S.
521:
"Whatever amounts to more or less constant practice, and
threatens to obstruct or unduly to burden the freedom of interstate
commerce is within the regulatory power of Congress under the
commerce clause, and it is primarily for Congress to consider and
decide the fact of the danger and to meet it. This Court will
certainly not substitute its judgment for that of Congress in such
a matter unless the relation of the subject to interstate commerce
and its effect upon it are clearly nonexistent."
In the act we are considering, Congress has expressly declared
that transactions and prices of grain in dealing in futures are
susceptible to speculation, manipulation, and control which are
detrimental to the producer and consumer and persons handling grain
in interstate commerce and render regulation imperative for the
protection of such commerce and the national public interest
therein.
It is clear from the citations, in the statement of the case, of
evidence before committees of investigation as to manipulations of
the futures market and their effect, that we would be unwarranted
in rejecting the finding
Page 262 U. S. 38
of Congress as unreasonable, and that, in our inquiry as to the
validity of this legislation, we must accept the view that such
manipulation does work to the detriment of producers, consumers,
shippers, and legitimate dealers in interstate commerce in grain
and that it is a real abuse.
But it is contended that it is too remote in its effect on
interstate commerce, and that it is not like the direct additions
to the cost to the producer of marketing cattle by exorbitant
charges and discrimination of commission men and dealers, as in
Stafford v. Wallace. It is said there is no relation
between prices on the futures market and in the cash sales. This is
hardly consistent with the affidavits the plaintiffs present from
the leading economists, already referred to, who say that dealing
in futures stabilizes cash prices. It is true that the curves of
prices in the futures and in the cash sales are not parallel, and
that sometimes one is higher and sometimes the other. This is to be
expected, because futures prices are dependent normally on judgment
of the parties as to the future, and the cash prices depend on
present conditions, but it is very reasonable to suppose that the
one influences the other as the time of actual delivery of the
futures approaches, when the prospect of heavy actual transactions
at a certain fixed price must have a direct effect upon the cash
prices in unfettered sales. The effect of such a "deal" as that of
May, 1922, as explained by Mr. J. H. Barnes, shows this clearly,
and illustrates in a striking way the direct effect of such
manipulation in disturbing the actual normal flow of grain in
interstate commerce most injuriously. Mr. Barnes also points out
the effect of the operation of the rule limiting deliveries to
warehouse receipts from warehouses selected by the directors of the
Board, whose unregulated power to suspend or modify the rule
pending settlement adds to the speculative character of the market
and frightens consignors.
Page 262 U. S. 39
More than this, prices of grain futures are those upon which an
owner and intending seller of cash grain is influenced to sell or
not to sell as they offer a good opportunity to him to hedge
comfortably against future fluctuations. Manipulations of grain
futures for speculative profit, though not carried to the extent of
a corner or complete monopoly, exert a vicious influence and
produce abnormal and disturbing temporary fluctuations of prices
that are not responsive to actual supply and demand and discourage
not only this justifiable hedging, but disturb the normal flow of
actual consignments. A futures market lends itself to such
manipulation much more readily than a cash market.
In the case of
United States v. Patten, 226 U.
S. 525, an indictment charged a conspiracy to run a
corner by making purchases of quantities of cotton for future
delivery, by means of which the conspirators were to secure control
of the available supply of cotton in the country and enhance the
price of cotton at will. It was contended that, even if the
necessary result of this was an obstruction of interstate trade, it
was so indirect as not to constitute a restraint of it within the
federal Anti-Trust Law under which the indictment was drawn. This
Court held otherwise and sustained the indictment.
Corners in grain through trading in futures have not been so
frequent as they were before 1900, due, as the plaintiffs aver, to
the stricter rules of the Board of Trade as to futures and to the
Sherman Anti-Trust Act, though they do seem to have since occurred
infrequently. The fact that a corner in grain is brought about by
trading in futures shows the direct relation between cash prices
and actual commerce on the one hand, and dealing in futures on the
other, because a corner is not a monopoly of contracts only, it is
a monopoly of the actual supply of grain in commerce. It was this
direct relation that led to the decision in the
Patten
case. If a corner and the enhancement
Page 262 U. S. 40
of prices produced by buying futures directly burden interstate
commerce in the article whose price is enhanced, it would seem to
follow that manipulations of futures which unduly depress prices of
grain in interstate commerce and directly influence consignment in
that commerce are equally direct. The question of price dominates
trade between the states. Sales of an article which affect the
countrywide price of the article directly affect the countrywide
commerce in it. By reason and authority, therefore, in determining
the validity of this act, we are prevented from questioning the
conclusion of Congress that manipulation of the market for futures
on the Chicago Board of Trade may, and from time to time does,
directly burden a & obstruct commerce between the states in
grain, and that it recurs and is a constantly possible danger. For
this reason, Congress has the power to provide the appropriate
means adopted in this act by which this abuse may be restrained and
avoided.
The next provision of the act which is attacked as invalid is
that which forbids a board, designated as a contract market, from
excluding from membership in, and all privileges on, its exchanges
any duly authorized representative of a lawfully formed and
conducted association of producers having adequate financial
responsibility, engaged in the cash grain business, and complying
or agreeing to comply with the terms and conditions lawfully
imposed on the other members, and which bars any rule forbidding
the return by such association of the commissions of its
representative, less expenses, to the
bona fide members of
the cooperative association in proportion to their consignments of
grain to the exchange. It is said that this will impair the value
of memberships in the Board and will take the property of the
members without due process of law.
The Board of Trade conducts a business which is affected with a
public interest, and is therefore subject to
Page 262 U. S. 41
reasonable regulation in the public interest. The Supreme Court
of Illinois has so decided in respect to its publication of market
quotations.
New York & Chicago Grain Exchange v. Chicago
Board of Trade, 127 Ill. 153. In view of the actual interstate
dealings in cash sales of grain on the exchange, and the effect of
the conduct of the sales of futures upon interstate commerce, we
find no difficulty under
Munn v. Illinois, 94 U. S.
113,
94 U. S. 133,
and
Stafford v. Wallace, supra, in concluding that the
Chicago Board of Trade is engaged in a business affected with a
public national interest and is subject to national regulation as
such. Congress may therefore reasonably limit the rules governing
its conduct with a view to preventing abuses and securing freedom
from undue discrimination in its operations. The incidental effect
which such reasonable rules may have, if any, in lowering the value
of memberships does not constitute a taking, but is only a
reasonable regulation in the exercise of the police power of the
national government. Congress evidently deems it helpful in the
preservation of the vital function which such a board of trade
exercises in interstate commerce in grain that producers and
shippers should be given an opportunity to take part in the
transactions in this world market through a chosen representative.
Nor do we see why the requirement that the relation between them
and this representative, looking to economy of participation on
their part by a return of patronage dividends, should not be
permissible because facilitating closer participation by the great
body of producers in transactions of the Board which are of vital
importance to them. It would seem to make for more careful
supervision of those transactions in the national public interest
in the free flow of interstate commerce. Under the present rules of
the Board, corporations are permitted to enjoy the benefit of
membership by reason of the membership of two of their executive
officers who are
bona fide stockholders, and all their
stockholders
Page 262 U. S. 42
are thus given a chance to enjoy the commissions earned and the
benefits to the corporation of other membership privileges to the
extent of their stock ownership. The provisions of the act objected
to are to be sustained on the principles laid down in
House v.
Mayes, 219 U. S. 270.
Broadnax v. Missouri, 219 U. S. 285, and
Grisim v. South St. Paul Live Stock Exchange, 152 Minn.
271. We think the objection to this feature of the act
untenable.
We do not find it necessary to our decree in this case to
consider the constitutional objections made in the bill to that
part of the fourth section which forbids he use of the mails and
interstate facilities of communication to offer or accept sales for
future deliveries or to send quotations of prices thereof except
through members of a board of trade, because the plaintiffs are not
affected thereby. Section 10 of the act reads as follows:
"If any provision of this act or the application thereof to any
person or circumstances is held invalid, the validity of the
remainder of the act and of the application of such provision to
other persons and circumstances shall not be affected thereby."
The unconstitutionality of these provisions, if they be
unconstitutional, would therefore not invalidate the rest of the
act.
Section 9 declares it to be a misdemeanor for a member of a
designated board of trade to fail to evidence any contract
mentioned in § 4 by a record in writing as therein required. This
is only a legitimate means of enforcing the statutory regulations
of the Board of Trade which we have found to be within the power of
Congress.
As to the power of Congress to provide in § 9 for the punishment
of any one who shall knowingly or carelessly deliver through the
mail or interstate means of communication false or misleading crop
or market reports, it will be time enough for us to consider its
existence when some one is charged with the offense and is brought
to trial therefor. The plaintiffs present no such case.
Page 262 U. S. 43
Paragraph (b) of § 6 which gives to the Commission the power on
complaint after investigation by the Secretary of Agriculture, and
after a hearing, to exclude from all contract markets any person
violating any of the provisions of the act or attempting to
manipulate the market price of any grain in violation of the
provisions of § 5 of the act or of any of the rules or regulations
made in pursuance to its requirements, is attacked as invalid
because a jury trial is not afforded. The plaintiffs do not aver
that they are committing acts which will subject them to such
exclusion, or that charges have been made and proceedings have been
begun or are about to be begun against them by the Secretary of
Agriculture. Until they are thus in danger of suffering prejudice
from the operation of the paragraph, they cannot invoke our
decision as to its validity.
For the reasons given the decree of the district court is
Affirmed.
MR. JUSTICE McREYNOLDS and MR. JUSTICE SUTHERLAND dissent.
[
Footnote 1]
In response to Senate Resolution 133, the Federal Trade
Commission prepared to make a report by conducting, in October,
1922, an inquiry into the market manipulation of grain. Mr. Julius
H. Barnes was a witness, and, in the course of his examination,
said (pp. 74-76):
"Now, in May, 1922, we had the same spectacular gyrations in
prices, starting earlier in the month and falling into a complete
collapse in price. Why?"
"COMMISSIONER MURDOCK: In the middle of the month this
time?"
"MR. BARNES: Yes, starting early in the month, rising to a peak
and then falling to an early collapse. Without knowing the facts,
because these things are detected by commission merchants, it seems
quite clear that there were two or three large lines of wheat
bought in Chicago for delivery in May, 1922; that at least one of
those, on popular report, was a man who could easily pay for
5,000,000 bushels of wheat; that he intended to take the wheat as a
merchant; that he was going to pay cash for it and not squeeze
somebody to make a settlement. He expected to get delivery of that,
did not buy it in anticipation that it could not be delivered, and
therefore he could force a settlement, and he was going to act as a
merchant on the belief that wheat was worth more in the world's
markets than the prices then ruling in Chicago; but, on top of
that, there developed that two or three other men, who were
evidently clear speculators, not acting with that conception, had
also lines of wheat, and the aggregate of those made a shortage in
Chicago exceeding the stock of wheat in Chicago or naturally
tributary thereto."
"The result of that was that, as this situation developed, the
buyer, miller, or exporter began to get afraid about the Chicago
market, that he might have to buy his hedges in higher, and began
to buy in those hedges, and the market advanced under that kind of
apprehensive buying, the buying of legitimate merchants who were
frightened to leave their hedges in that month any longer. That
helped make the peak, plus perhaps some buying by interested people
who wanted to see the price marked up, and those large cash
interests in Chicago began to collect all over the country wheat
and head it to Chicago for delivery at these attractive prices,
which by this time had reached a relation in respect to all of the
markets which attracted wheat from every direction to Chicago."
"The result of that was that, by the end of the month, there was
accumulated in Chicago a stock of 10,000,000 or 12,000,000 bushels
of wheat, which was beyond the normal absorbing capacity of the
consumption trade that rests on Chicago, and that wheat had been
lifted by the incentive of these apprehensively made prices from
centers where it should have remained for the consumption which
normally overtakes it from those centers -- Omaha, Kansas City,
Minneapolis, all these other points. So that the country stocks
which should normally supply mills west of Chicago or south of
Chicago were lifted out of their natural place and directed to
Chicago by these apprehensively made prices, and there was
collected in Chicago an almost unsalable quantity of wheat which
could only press in one direction, could not go back."
"COMMISSIONER MURDOCK: So that we had a price collapse by
that?"
See also letter of J. H. Barnes to Chicago Board of
Trade, p. 69, Grain Future Hearings before Committee on Agriculture
and Forestry, U.S. Senate, 67th Congress,2d Session, on H.R. 11843,
containing the following:
"Present conditions lay an economic burden on distribution cost
by drawing wheat to Chicago out of its accustomed channels and from
points of supply needed shortly for actual consumption elsewhere.
These evil effects are solely from apprehension of a forced
settlement at artificial prices on hedges properly used as
insurance against price level fluctuations."
[
Footnote 2]
Evidence of Julius H. Barnes before Federal Trade Commission in
October, 1922 (page 77), on inquiry in response to Senate Res. No.
133:
"MR. BARNES:: In the demonstration for several years that the
chief abuses of the trade were deliberate manipulation and
congestion, the deliberate forcing of settlement by artificial
prices, the trade step by step tried to make it more difficult for
any one to obtain that control of the market. They made No. 1, 2, 3
wheat, and on all varieties deliverable. That was not sufficient,
as demonstrated in Chicago two years ago to the market committee of
1917. I suggested to them that the trade ought to seriously
consider a widening of the contract basis once more, so as to make
wheat at Omaha and Kansas City and Minneapolis at points of
accumulation on the normal flow. So that there was not any
substantial injustice done a buyer; deliverable at a freight cost
difference and a small penalty, so that it would not be abused, and
I stand today for that as being the one real constructive thing
left for the Chicago market today, if Chicago is to be the liquid
grain future trading market of America, as it should be, if there
is a natural advantage in concentrating all the trading of the
country in one market, so that you can send an order through and
get 100,000 or 500,000 bushels in a minute, to answer a cable from
abroad or a milling order, because the volume of trade there is
liquid all the time, and I believe that is in the public
interest."
"If it is to do that, then Chicago ought to widen this wedge
against these shippers, and it can be done by taking into contract
delivery the wheats in these other markets. The effect last May
would have been that that wheat would have been delivered, but the
wheat itself would have physically been in Omaha and Kansas City
and available for milling in June and July, when it was needed, and
it would not have been in Chicago to press direct on East and the
world's market and cause a further decline in price."
"MR. WATKINS: Mr. Barnes, what you would include for delivery at
Chicago markets you would include for delivery at seaboard markets,
would you not?"
"MR. BARNES: No. I would not, because, as I say, on the natural
flow, a buyer in Chicago for actual delivery of wheat must in the
normal process of trade move that wheat east. His consumption both
for export and milling is east of Chicago. Therefore, for him to
take delivery west of Chicago at a freight difference and a small
penalty is no substantial injustice; but to force him to take wheat
at the seaboard at the transportation cost when maybe he is buying
in Chicago to supply a mill in Omaha, might be a very substantial
injustice."
