Mr. HEFLIN. The only bill that was ever reported out of Congress, I believe, was the Hatch bill, and the report on that bill said that what the great body of producers of the United States now complain of is that this principle of delivering cotton is daily, hourly, and almost universally violated, pretending to enforce the delivery of the commodity sold, they have invented ways and means and methods to evade the plain provisions of their own laws and their own rules.

Mr. NEVILLE. Mr. Cone is not acquainted with that business. You could get that information from him in a round about way, but the gentleman who will follow will give it to you much better. Mr. HEFLIN. Very well.

Mr. LEVER. We understood this morning that there had been an attempt to establish a future market exchange at Galveston which had failed as a future market exchange, but that there does exist there a kind of spot exchange. I want your judgment as to this question. Do you believe if we abolished future dealings in New York and in New Orleans there would not grow up throughout the cotton belt, at Galveston, Charleston, S. C., Wilmington, and Birmingham, and throughout the entire cotton belt, various spot-cotton exchanges which would give to the cotton trade all of the functions. now given to it by the present system, without the evil of the present system?

Mr. CONE. Personally I do not think that those exchanges would ever amount to much. I believe if the exchanges were put out of business, the spot-cotton business would fall into the hands of such men as George H. McFadden & Bro., whose business is estimated now to be upward of 2,000,000 bales of cotton a year. It would fall into the hands of those men, and there are a number of other such dealers. There are some merchants that now handle upward of 500,000 bales of cotton, people that are able to gather information and to handle their business in large volume, systematically and most economically, making their business so large that the fixed charges would be lessened and at the same time making their business so large that they could kind of keep control of the situation, as the big mill corporations, of which there are some very large ones, and the big spot dealers, do. I believe that they would really control the situation.

Mr. LEVER. And that these exchanges would not spring up?

Mr. CONE. I believe that in minor degree they would be there, but they would not amount to very much.

Mr. LEVER. Very well; thank you.

Mr. HUGHES, of Georgia. I wish to correct what seems to be an erroneous impression made upon the mind of Mr. Cone, Mr. Chairman, when you made the statement that you had received 200 letters on this subject in one day. Mr. Cone expressed his surprise at the indifference of the producer on this great question. I wish to say to Mr. Cone that I have never seen the producers of this country more interested in any subject ever presented to Congress than upon this important question, and if the Members of Congress were to answer all the letters that have been received on this question, they would have to double their office force and work fifteen hours a day. The CHAIRMAN. Are there any further questions?

Mr. BURLESON. No questions from here.

Mr. CONE. In reply to that I can refer you to what happened to the people in the time of the house of Pugges. I want to say that I

would not have hesitated to answer the question of Mr. Lever as applying to the cotton exchanges, but what I would have said will be said so much better by others, and you can get the information so much better from other gentlemen here who are thoroughly conversant with the subject.

The CHAIRMAN. I am quite sure that the committee understands that you had no wish to avoid or refuse to answer any question. Mr. LEVER. We understood that.

(At 4.30 o'clock p. m. the committee adjourned until to-morrow, Friday, February 11, 1910, at 10.30 o'clock a. m.)

COMMITTEE ON AGRICULTURE,

HOUSE OF REPRESENTATIVES,

Washington, D. C., Friday, February 11, 1910. The committee met at 10.30 o'clock a. m., Hon. Charles F. Scott in the chair.

Mr. NEVILLE. Mr. Chairman, before you proceed with to-day's hearing I wish to correct in the record the remark I made in reply to Mr. Lever yesterday regarding the representative of the Commercial. After we left here yesterday afternoon I got to talking with my associates on the subject, and they stated that while I was away last summer he had made the correction that the supervisory committee asked for, and the paper was permitted to have a representative on the floor. I was not aware of that at the time I made my remark to Mr. Lever.

The CHAIRMAN. I am informed that Mr. Latham, of Greensboro, desires to be heard this morning. We are ready to hear Mr. Latham.

TESTIMONY OF MR. J. E. LATHAM, OF GREENSBORO, N. C.

(Mr. Latham was duly sworn by the chairman.)

The CHAIRMAN. Give your full name and your business connections to the reporter.

Mr. LATHAM. J. E. Latham, Greensboro, N. C. I am a cotton. merchant, a cotton manufacturer, and a cotton farmer.

The CHAIRMAN. May I inquire, Mr. Latham, whether you would prefer to make your statement without interruption, and then have the committee ask questions afterwards?

Mr. LATHAM. There is nothing that I wish to address the committee upon; but I shall be very glad, indeed, to answer any questions that anyone may wish to ask upon this subject, and give you such information as I may have. I would therefore prefer to have asked such questions as gentlemen may desire to put.

The CHAIRMAN. Have you any statement that you would like to volunteer in the beginning?

Mr. LATHAM. No, sir; I have not. I have not prepared anything on that line.

The CHAIRMAN. I believe you stated that you are a cotton broker, a manufacturer, and a grower?

Mr. LATHAM. Yes, sir.

The CHAIRMAN. Which one of those interests is the larger?
Mr. LATHAM. That of a cotton merchant.

The CHAIRMAN. Do you handle cotton on commission for the most part, or do you purchase outright?

Mr. LATHAM. I purchase outright, principally. I do a very small business in a commission way. That is usually done by agreement at the time. I do not publish myself as a commission merchant. I am a dealer in cotton.

The CHAIRMAN. Do you buy from the farmer direct?

Mr. LATHAM. That is very rarely done where I am located now, because I am not located in a section of country that produces cotton of any amount. I believe my county only produces about four or five hundred bales; and that is produced on the edge of the county, right among some mills, and the cotton is usually sold down there. The CHAIRMAN. Then you buy from the smaller merchants in the smaller towns?

Mr. LATHAM. I buy from the merchants all over the South, and in every State in the South.

The CHAIRMAN. What is your practice as regards hedging? Mr. LATHAM. I find that the hedging of purchases or sales is a very useful part of the business at times and frequently enters into it. The CHAIRMAN. To what extent with regard to your purchases? Mr. LATHAM. Do you mean as compared to the entire volume? The CHAIRMAN. Yes.

Mr. LATHAM. That would be a very difficult question to answer offhand; but I should say that in the case of at least 75 per cent of all the cotton that I handle I hedge a future against it on one side or the other.

The CHAIRMAN. On what part of this 75 per cent would you say that a hedge was of advantage to you, and on what part does it cause you a loss?

Mr. LATHAM. That is a part of the bookkeeping of the business that I have never known of any dealer doing, and I have certainly never done it, because the business goes into the common mill. That is, I am either long or short, and I usually make my hedges to prevent being long or short; and when I close out 100 bales of cotton or 500 bales of cotton or 1,000 bales of cotton it may not have any reference to that particular hedge, and it may be melted at the same time into a relative transaction.

The CHAIRMAN. The reason I ask that question is because I have a great many letters from millers who say that while they formerly did so, they have now abandoned the practice of hedging in the grain market, because they found that on account of the manipulation of the market they lost more frequently than they gained. I wondered whether the cotton merchants had had a similar experience, or whether their experience was the reverse of that.

Mr. LATHAM. I will venture the opinion, sir, that in the case of the cotton merchant that systematically hedges his purchases and sales, and is sufficiently acquainted with the merits of the different hedging markets of the world (which are New York, New Orleans, and Liverpool), the hedging market ought to be of advantage to him.

The CHAIRMAN. May I inquire if you deal on the exchanges in any other way than for the purpose of hedging?

Mr. LATHAM. Do you mean in a speculative way?

The CHAIRMAN. Yes.

Mr. LATHAM. Yes; I have speculated in cotton.

The CHAIRMAN. In that practice do you execute a contract which obligates you to either receive or deliver cotton?

Mr. LATHAM. Yes, sir.

The CHAIRMAN. The contract is precisely the same as you make in the ordinary hedging operation, is it?

Mr. LATHAM. Yes, sir; the same contract.

The CHAIRMAN. Do you practice hedging as a manufacturer ?
Mr. LATHAM. Yes, sir.

The CHAIRMAN. Can you give any reason, based on your observation or business experience, why the cotton trade should have a future contract, that does not also apply to the hay trade or the wool trade or the iron trade?

Mr. LATHAM. I think I might suggest some reason for that. In the first place, we make here in America practically the cotton product of the world. We make a large part of it, at any rate. We make such a large proportion of it that 65 or 70 per cent of all we produce here in the United States is sent out of the country; it is not consumed here in the United States. It goes out; and the foreign countries have cotton exchanges that deal in futures. That seems to be one reason, at least, why we should have cotton exchanges. But another reason is this: I remember that you asked the same question in relation to hay of one of the witnesses you had here before you yesterday. Hay does not change its nature in any respect, but when it is sent up to the market it goes to the horse or to the bull yearling, as the case may be. But cotton does not. A manufacturer buys 100 bales of cotton or 1,000 bales of cotton or 10,000 bales of cotton, according to the size of his plant, and on account of its being seasonable goods it is necessary for him to manufacture that cotton in the spring of the year to sell next winter; and then, again, he manufactures in the winter time to sell the following summer. The seasons reverse themselves. Another reason is that there are so many different kinds of cotton. Cotton is cotton to the ordinary mind; but there are great differences between the various grades of cotton to people that are informed. The gentlemen here from Texas will particularly bear me out in that, because they know the difference between the length of the fibers and the strength of the fibers and things of that kind, more than the ordinary man does.

The CHAIRMAN. And yet, when the cotton is purchased by the mill it is always bought on sample, is it not?

Mr. LATHAM. No, sir; it is not always bought on sample. In fact, I do not suppose 5 per cent of the cotton that the mills buy is bought on sample.

The CHAIRMAN. The mills buy without knowing what they are going to get, do they?

Mr. LATHAM. No, sir; they do not. They buy on description, and they buy from good, responsible dealers usually.

Mr. BURLESON. They do not have the sample, but they indicate the grade.

Mr. LATHAM. That is buying on description.

The CHAIRMAN. The description is equivalent to the sample? Mr. LATHAM. Yes, sir. To further explain my idea, suppose that a mill is using full inch and an eighth hard staple cotton. It would be runious to the product of that mill to place in it the ordinary upland cotton that we get from Georgia or from Carolina, where I

live. It would be equally ruinous to put in the inch and three-eighths cotton or the inch and five-sixteenths cotton that would come from the Mississippi Delta or from some of the new sections in Arkansas and Texas. The mill to-day is getting an opportunity to sell its product of goods six months in advance. I do not know what other manufacturers and dealers will tell you, but there are times when I can not buy cotton from any of my correspondents, and I probably have a hundred scattered in every cotton State in the Union. There are times when I inquire for 500 bales of inch and an eighth good middling cotton, and do not receive a single quotation. If that business is offered to the mill man on a parity which ought to be good, based upon the known quotations of other grades of cotton, one of the uses of trading in futures at that particular point would be for him to make a hedge against the ordinary contract of cotton, so that he might be able to convert his contract into the extraordinary grade of cotton as soon as an opportunity presented itself.

The CHAIRMAN. And yet, the fact that he is able to buy a future would not make it possible for him to get cotton when the cotton was not to be had?

Mr. LATHAM. The swing of cotton, the different grades and the different staples, is not exactly fixed, but it is nearly so; and if one goes up, the other is apt to go up, too.

The CHAIRMAN. Why would not that argument apply to the manufacture of wool? Is not that pretty closely allied to the manufacture of cotton?

Mr. LATHAM. I do not know, sir; I am not prepared to say much about that, except that I do know this: Cotton can be substituted for wool, but I do not believe wool will ever be substituted for cotton. The CHAIRMAN. That is probably because wool is more valuable than cotton, and the more valuable article is never substituted for the less valuable one.

Mr. LATHAM. Yes, sir; I think they do have some wool exchanges. Whether or not they trade in futures on wool, I am not able to say. But in reading the Journal of Commerce, or some of the papers of the country, it seems to me I have seen the Boston Wool Exchange mentioned.

The CHAIRMAN. I think there are no futures in wool.

Mr. LATHAM. No futures in wool?

The CHAIRMAN. At least that is the information I have.

Mr. LATHAM. I am not prepared to say whether there are or not. The CHAIRMAN. As a cotton merchant, I should like to inquire whether you find pretty free competition?

Mr. LATHAM. As a cotton merchant?

The CHAIRMAN. Yes.

Mr. LATHAM. Yes, sir; it is very warm.

The CHAIRMAN. You do not know of any arrangement by which the big cotton dealers divide up the cotton territory?

Mr. LATHAM. I do not, sir.

The CHAIRMAN. Or eliminate competition in any other way?

Mr. LATHAM. No, sir; I do not.

Mr. HAWLEY. If such a combination existed, would you know it? Mr. LATHAM. I can not answer as to that, sir. It might exist without my knowledge, but it does not exist to my knowledge.