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The popular press, corporate public relations releases and publications of public hearings during the interwar years were full of colourful rhetorical flourishes aimed at establishing and defending extreme positions. For each defender of free market capitalism, several railed against the monopolistic interests of the grain trade and its choke-hold on the food supply chain. One politician debating a bill upon which the 1936 CEA was based called such proposals ‘Russian.
Only the cellars of Petrograd and mines of Siberia are missing’.116 The chair of an earlier set of hearings in Washington stated bluntly, ‘These Chicago speculators control the price of wheat.
The Chicago speculators control the market not only of Chicago and Minneapolis but New York and Liverpool and in fact the whole world’.117
The CBOT, large traders such as Cargill and Armour Grain and politicians acted like early modern pamphleteers to sway the American public.118 As such, studies of the public record by many academics and practitioners suggest that it would be fairly straightforward to interpret the struggle for the regulation of futures markets as pitting the people’s interests against those of the grain trade.119 However, a focus on the public record misses the real story about how legislation is made. In one of the few important treatises on the subject – the History of Commodity Futures Trading and its Regulation – Markham bases his conclusions on the words, but crucially not the actions, of one of the most vociferous legislative investigators into the futures market, Senator
116 Representative Chase, member of the House Agricultural Committee, as quoted in Bradford Evening Star, 15 May 1934, p. 9.
117 Chicago Tribune. “Anti-option bills in Congress. Hearing to be given Wednesday,” 2 February 1892.
118 For example, see Edward J. Grimes, The Farmer and Legislation, Address given before the 26th annual convention of the Farmers Elevator Association of South Dakota. Grimes worked for Cargill.
119 For example, see Jerry W. Markham, The History of Commodity Futures Trading and its Regulation, (Westport, Conn: Praeger, 1987); Geoffrey Poitras, “From Antwerp to Chicago: The History of Exchange Traded Derivative Security Contracts,” Revue d'Histoire des Sciences Humaines 1 (2009): 11-50.
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Arthur Capper.120 Much of the confusion surrounding the original purpose and ultimate result of the 1921-2 futures legislation stems from the contradictions between some of Capper’s public pronouncements in the press and in Congressional hearings and his dealings in private with the USDA, other government agencies and the exchanges. In 1926, for example, the Chicago Tribune quoted Capper as calling trading at the CBOT ‘an economic crime’.121 Yet, in private, Capper acted very much as if the futures markets were integral to the functioning of the grain marketing industry, as is shown in Chapter Three.
Leon Kendall called the Federal Government the Board’s ‘chief critic’.122 But he focused almost solely on the public record, concerned ‘with the reaction of the general public, government officials, and Board members to speculative trading activity’.123 Kendall readily accepted, however, that:
To the degree that the actual attitude and beliefs of the respective parties differed from their official pronouncements, the dissertation is delimited. The activities of lobbyists and resolutions adopted in the oft-mentioned smoke-filled rooms, for example, were rarely brought to public attention except under duress.124
When examining the causes of legislation, activities within the committee rooms should be considered.125 Indeed, ‘it is not far from the truth to say that Congress in session is Congress on public exhibition, whilst Congress in its committee rooms is Congress at work’.126 Powerful committee members could veto bills for their own personal reasons, regardless of the support from outside – or even inside – the committee. The CBOT executive in one instance was appalled that a bill that the committee had agreed should go forward was being held up because Chairman Norris wanted to table his own ‘pet’ bill.127
120 Jerry W. Markham, The History of Commodity Futures Trading and its Regulation (Westport, Conn: Praeger, 1987), p. 13.
121 Chicago Tribune. “Wheat Declines on the Threat of Legal Changes,” 26 February 1926.
122 Leon Kendall, “The Chicago Board of Trade and the Federal Government” (Ph.D. diss., Indiana University, 1956), p. 1.
123 Ibid., p. 3.
124 Ibid., p. 4.
125 Gary Cox and Matthew McCubbins, Agenda Power in the US House of Representatives, 1877 to 1986 (Stanford: Stanford University Press, 2002).
126 Woodrow Wilson 1885 in quoted in George B. Galloway, “Development of the Committee System in the House of Representatives,” American Historical Review, 65. (1959): 17-30, p. 25.
127 Letter, LF Gates to Carey, 13 May 1924. CME III.11.10.
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A history of legislation that does not account for back-room discussions and horse-trading is unedifying, though that has not deterred historians of futures regulation.128 The private record needs to be considered due to the ‘the incorrigible willingness of American public officials to seek the public good through private negotiations’.129 Any analysis of witnesses’ testimonies at hearings can not determine how influential said speakers are on the legislative process. One account readily admits that hearings could be held for reasons other than to actually accumulate information on which to base policy.130 Another scholar who relies on public record, falsely concludes that Capper was very much ‘anti-futures’ rather than simply ‘anti-manipulation’.131 The public justification for legislative action does not always match the substance of the law.
Even the names of bills were often directly opposed to their intent, hence the private vs public dichotomy can be viewed as a struggle between the ‘technocratic/scientific’ approach and the
‘legitimate/democratic’ approaches, where public statements either legitimise the backroom dealings, or seek to cover them up. While ‘specific experts are […] whispering [to] specific policy makers, leaders still need to justify their actions [...] with a decent regard for what makes sense as well as what non-partisan experts embrace’.132 Ironically, even the Board’s own history,
supported by an archivist and written by a derivatives (futures) expert, does not dig deeply into the archival record, relying instead primarily on hearings, FTC testimonies, newspaper articles and secondary sources for much of the interwar history.133
In summary, this thesis reveals that the private record of regulatory changes in the futures markets between 1920 and 1935 diverges from the public record. The private record reveals the false dichotomy of state versus market, since the markets, as represented by the futures
128 Two examples are Roberta Romano, “The Political Dynamics of Derivative Securities Regulation,” Yale Journal on Regulation, 14 (1997): 279-406; and Leon Kendall, “The Chicago Board of Trade and the Federal Government” (Ph.D. diss., Indiana University, 1956).
129 Robert Lively, “The American System: A Review Article,” Business History Review, 29 (1955): 81-96, p. 93.
130 Roberta Romano, “The Political Dynamics of Derivative Securities Regulation,” Yale Journal on Regulation, 14 (1997): 279-406, p. 290.
131 Cedric R. Cowing, Populists, Plungers and Progressives (Princeton, N.J.: Princeton University Press, 1965), pp 90-91.
132 Mary Furner, “From ‘State Interference’ to the ‘Return to the Market’: The Rhetoric of Economic Regulation from the Old Gilded Age to the New,” in Government and Markets: Toward a New Theory of Regulation, eds., Edward Balleisen and David Moss (Cambridge: Cambridge University Press, 2009), p. 93.
133 William Falloon and Patrick Arbor, Market Maker: A Sesquicentennial Look at the Chicago Board of Trade (Chicago: Chicago Board of Trade, 1998).
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exchanges, and the state, as represented by legislators and bureaucrats, can be clearly seen to have worked collaboratively in both the legislative developments and their administration.