AFTER RECESS. The committee met pursuant to the taking of recess, Hon. Charles F. Scott, of Kansas, in the chair. Mr. MENDELBAUM. Mr. Chairman, Mr. Burleson, of Texas, this morning offered a paper entitled "Board of Trade of the City of Chicago v. Christy Grain Stock Company," which contains, to a great extent, nothing but the personal opinion and personal conclusions of Mr. Burleson. We are entitled, it seems to me, to examine and crossexamine him in regard to the matter, as he treats of a decision of the Supreme Court in a manner which is not exactly borne out by the facts. In the concluding paragraph he states that the argument in H. Rept. 67 is contrary to the decision in the case of the Board of Trade of the City of Chicago v. The Christy Grain Stock Company. That is based upon a willful failure to distinguish between contracts. We claim we have made that distinction between the contracts. Our contract is clearly a contract within the meaning of the decision of Justice Holmes of the Supreme Court, and that is further established by the fact that in recent cases of this kind tried even in the South-I refer here to the case of Haven & Clement v. James, and Clement & Smith v. James, tried in Atlanta, and also a case in the United States court for the southern district of New York, the case of Springs Company v. James-the trial justice held that he had to follow the law as laid down by the Supreme Court of the United States, and took particular pains to enunciate the doctrine that even if the party sending in the order had in his mind that he would not perform the condition imposed by that contract-in other words, that he would neither receive nor deliver-that decision would be without any effect whatsoever as long as he had not entered into a positive agreement with a party in New York or Chicago to the effect that it should be a contract in which no delivery or receipt of goods was intended, and that the fact that he had no right to receive them on the contract in Atlanta would not render that contract illegal if they had the intention to receive or deliver, for the reason that the party in Chicago or New York could not read the mind of the man in Atlanta who has not the order. That is all I want to say at this time; but it seems to me it is not fair to us that such testimony should be read into the record by Mr. Burleson without giving us an opportunity to examine what has been put into the record, and to cross-examine him as to his conclusions and opinions. The CHAIRMAN. I take it that Mr. Mendelbaum has examined pretty carefully what Mr. Burleson has said, and therefore I suppose his statement is made as a brief reply to Mr. Burleson. Mr. MENDELBAUM. That it is not in accordance with our information, and anything offered at this meeting, as I understand it, should be testimony. So it seems to me that one class of testimony should be handled like another, and for that reason we would like to have an opportunity at some other time to examine him upon that statement. The CHAIRMAN. I have no doubt that Mr. Burleson will be willing to be examined. Mr. MENDELBAUM. The committee will understand that I refer to Mr. Burleson's statement, and I have no reference whatever to the committee in my criticism. Mr. BURLESON. In explanation I will say that Mr. Mendelbaum, not being a lawyer, does not understand that in order to properly discuss the decision in the case of the Board of Trade v. Christy it was necessary to in a measure detail the facts of the case as set forth in the opinion of the court. Mr. MENDELBAUM. I do not take issue with Mr. Burleson in that; I simply claim we ought to have the right to know what is in that paper, as he knows. The CHAIRMAN. We will not pursue this matter any further at this time. Mr. Burleson has expressed his desire to appear before the committee at a later date if anybody desires him to do so. The committee has questioned Mr. Marsh at such length that members have said they did not care to continue further at this time, and Mr. Burleson desires to ask him some questions. Mr. SIMS. I would like to ask Mr. Marsh a few questions that I intended to ask Mr. Neville. In discussing this matter with Mr. Neville he said that all subjects pertaining to the economics of the question should be asked Mr. Marsh. The CHAIRMAN. If you will make your questions as brief as you can, we will shorten the inquiry. Mr. SIMS. Yes; I will do so. TESTIMONY OF ARTHUR R. MARSH-Resumed. Mr. SIMS. You stated in substance that the reason daily transactions on the cotton exchange were not made public was because of the inaccuracies and errors that necessarily occurred on account of the hurry and confusion of doing the business of the day. That is in substance correct? Mr. MARSH. I think so. Mr. SIMS. And that did not so much apply to the stock exchange, for the reason that they delivered their stock the next day and errors could be corrected? Mr. MARSH. Yes. Mr. SIMS. Are not all transactions on the cotton exchange for future delivery, or otherwise, noted, and is not a record made of them; is not some record of them kept in the cotton exchange? Mr. MARSH. Not in the cotton exchange, no; only the price. Mr. SIMS. Is there no way to keep that report by or through the cotton exchange? Mr. MARSH. They attempt to keep a record Mr. SIMS. I do not mean for current publication, but to keep a permanent record? Mr. MARSH. I should not like to say that some means could not be found to keep it, but the physical difficulties are found to be almost insuperable. Mr. SIMS. What I mean is this: At the end of the month or at the end of the year is there not a method or are there not facilities in the cotton exchange by which it can be ascertained-the number of transactions in bales that took place, say, the previous year? Mr. MARSH. There is no machinery at present for ascertaining that. Mr. SIMS. Well, do you not think that that would be good information for the country to have? I will withdraw that question, because that is only a matter of opinion. But, anyhow, there is no method at the present time by which they could publish accurately, either monthly or semimonthly or every six months, or at the end of a year, the actual number of transactions in bales? Mr. MARSH. No; there is not. Mr. SIMS. I want to ask you if there was no speculative business done at all, would it be practicable and possible for members of the exchange to hedge against actual business in the way of spot delivery? I say speculative business, which is sometimes referred to by persons who are not acquainted with the proceedings of the exchange as what would be illegitimate; but I will say speculative business. If there was no speculative business done at all, would it be practical for members of the exchange to hedge against actual business in the way of spot deliveries? Mr. MARSH. My impression is that it would still be possible. I have stated to the committee that there are months at a time when there is practically no speculation being done in the cotton market, and yet the process of hedging continues through those periods. Mr. SIMS. If I understand you, then, what we call a pure speculator-I mean a man who buys a contract for the future who does not intend to carry it out literally, but intends to sell out before the month of delivery arrives-that the business of that man is not necessary to the real function of hedging upon the exchange, that such an element of business and that such people-people who do that kind of business are not necessary to hedging. Mr. MARSH. I should say not. Mr. SIMS. Therefore, if purely speculative transactions were eliminated by any process, it would not injure the cotton exchange so far as the hedging business is concerned? Mr. MARSH. I think the process of hedging would still go on. Mr. SIMS. I wanted your notion as to that. Now, Mr. Marsh, is it a fact or not that in a certain year-I do not remember the year-Mr. Sully carried on a campaign in the May delivery, as was stated in the public press, after which it was represented in the paper that Mr. Brown and Mr. Hayne, of New York, came to the cotton exchange and carried on a campaign of July, August, and September? Do you remember what year that was? Mr. MARSH. My impression is it was 1903. Mr. SIMS. Well, I wanted to be accurate about it. Is it a fact that that year, especially for the September contract, cotton to the extent of thousands of bales was returned or shipped back or shipped from spinners in New England and some other places, and even Europe, and carried to New York, for the purpose of delivering upon contract to New York? Mr. MARSH. I was not then, myself, on the floor of the New York Cotton Exchange or living in New York. I was a member of the New York Cotton Exchange at that time, but I was not living in New York. So I can not answer that question. Mr. SIMS. I will state to you, if my recollection is correct, that that same year the official report of the movement of cotton shows that between 40,000 and 50,000 bales of cotton were returned from Europe after being shipped over there, and freights paid and insurance paid, that that many bales were returned and delivered on contracts to New York, because it was more profitable for the spinner not to spin, but to get a contract delivery value in New York; it was more profitable for him to do that than it was to go ahead and spin the cotton. If such was done, do you, as an authority on the subject, regard that as good economics, applying to the general cotton trade? Mr. MARSH. I do not see anything uneconomic about it. Mr. SIMS. Then do you think it is proper to promote a business which disturbs the consumption of cotton in the way you said it could be consumed, by being spun or manufactured, and bringing it to New York and keeping it there, simply as a means of liquidating or receiving a profit upon a tender through the rules of the exchange? Mr. MARSH. Mr. Chairman, my recollection is that in 1903 spinners were carrying what we call an invisible supply of cotton; that is, a stock of cotton at their mills sufficient to last them about two months, to go on spinning the cotton for two months without buying any more. I can see nothing destructive or disturbing to trade, for some of those spinners, if it was spinners who entered into this transaction, who had on hand cotton enough to run them for several weeks or months, to resell a part of it to Messrs. Brown & Hayne, if they were the speculators in question, and turn it into money, knowing that within a month or two the new crop of cotton would be moving freely and that they could easily repurchase what they had sold out. Mr. SIMs. Right there you have come to a very important matter. The natural course of cotton is to be manufactured, and currently manufactured, if possible, each year. When a large amount of cotton was diverted from natural channels of consumption, sent back and delivered upon the September contract in New York to these speculators, and therefore held over and added to the current crop that year, did that not have a tendency, and necessarily have a tendency, to depress the value of the new crop, because that much of the old crop was held over through this speculative arrangement, and augmented the new supply to that extent? Mr. MARSH. Am I to understand Mr. Sims to mean that if that cotton had not been shipped to New York it would have passed out of existence? Mr. SIMS. No. This is what you should understand me to say. If it had not been for what they call a bull campaign-you know what that means, literally and technically-that this cotton.never would have been shipped back from Europe and delivered in New York, and would have been manufactured in Europe, where it went for the purpose of manufacture, or to New England, or wherever else it might have gone, that it would have gone the way you say-and we are admitting that the right and proper and natural way for cotton to go is into the hands of the manufacturer. Therefore the manufacturer, by this operation of the exchange, was delayed in manufacturing the cotton, and this accumulation of stock, accumulated by reason of this campaign, did not go into consumption in the year it would have gone into consumption, but was held over, and augmented the next crop to the extent of this unnatural or speculative dealing on the cotton exchange. Mr. MARSH. I am not aware, sir, that any spinner consumed a pound less of cotton during that period than we would have consumed if this operation had not been entered into; and as far as the effect of cotton upon the market is concerned, cotton in existence, no matter where it is, is the real market factor, and the only market factor. Mr. SIMS. If it had been spun, consumed, and changed from cotton into some other form of property in the month of July and Augustor June or May-I don't know when they had it-then it would not have been in existence in September in New York, and therefore could not have affected the market? The CHAIRMAN. Will you be kind enough, Mr. Sims, to shape your questions so as to bring out information and not make argu ments? Mr. SIMS. You are probably right, Mr. Chairman, and I will try to do so. I want to state the further fact, as appears from the paper, that the September futures during September were kept up to about 13 or a little over, to the last day of September, and that the Brown & Hayne pool, or whoever they were, had to take and did take altogether about 275,000 bales of cotton which they then had, and had to merchandise, and I will ask you if it is not a fact that they had to sell that cotton afterwards at a lower price than the contract price was at the time the cotton was accumulated? Mr. MARSH. I can not answer that question, because I do not know what Messrs. Brown & Hayne's operations were. I never saw their books. I have no information as to whether they made money or lost money in their operations. All I can say on this subject is that so far as I know no single spinner in the world at any time during the summer of 1903 curtailed the consumption of cotton in his mill a single pound by reason of what was going on in the New York or New Orleans markets for futures. Mr. SIMS. Only one more question. Is it not a fact when what you call the bull campaign as being run on the exchange is under way that gentlemen who receive delivery sell some of the cotton that they have received to parties with the contract stipulation that they must ship it out of the New York stock and not run it or tender it on contracts or sell it to anyone for that purpose? Mr. MARSH. I have never had personal cognizance of such a transaction, although I have heard that it has been done. Mr. SIMS. If done, is it not uneconomic? Mr. MARSH. These "if" questions, Mr. Chairman, I am afraid my brain is not able to deal with. Mr. SIMS. Well, Mr. Chairman, if Mr. Marsh's brain is not equal to the task of answering the questions I shall give it up. I am without real information and I am not trying to ask questions that can not be answered; and if I ask questions along this line that can not be answered by Mr. Marsh, I do not think it is worth while to ask anyone else. Mr. BURLESON. Do you operate on the New York Exchange as an individual or as a member of a firm? Mr. MARSH. As an individual. Mr. BURLESON. How many years have you been a member of the exchange? Mr. MARSH. I think I was elected in 1901, but I have not kept it as an anniversary. Mr. BURLESON. What office do you now hold on the exchange? Mr. MARSH. Vice-president. |