The CHAIRMAN. There are about 100,000,000 bales sold annually on the New York Cotton Exchange?

Mr. CONE. I could not say. I do not know; but there are gentlemen here who could tell you.

The CHAIRMAN. Will you let me ask you that question just now, Mr. Neville; about how many bales of cotton were sold on the New York Cotton Exchange last year?

Mr. NEVILLE. With all due deference to the statements made to this committee on that head, I consider them estimates, absolutely, and there is no way of getting at the number of bales traded in. The CHAIRMAN. Well, I will not pursue that further now. Whatever the amount may be, the charges for the handling of this phantom cotton must be paid by somebody. Would it be fair to say that the charge is paid either by the producer or by the ultimate consumer of the cotton?

Mr. CONE. Well, sir, I wish to say this, that 100 bales of cotton amounts, in round money, to about $8,000, and the commission on that transaction is such a per cent that it figures out infinitesimally in the deal that is, in the average deal; I would not say infinitesimally, either, but I would think that the average cotton man in the South under this hedge system figures to make 50 cents to $1 a bale on his cotton, and he is willing to take that; he will do it gladly, to be able to know exactly "where he is at."

The CHAIRMAN. I am not questioning the locus of the charges that are made in handling the actual cotton, but I was only figuring that if several times the total crop of cotton is sold every year on the exchange, and a charge is made for the transfer of every bale, it must in the aggregate amount to a good deal of money which somebody must pay, and I was wondering who paid it.

Mr. NEVILLE. There will be other witnesses following Mr. Cone, from whom, perhaps, you could draw that information in a more detailed way than you could get it from Mr. Cone, and perhaps more to your satisfaction.

The CHAIRMAN. Very well.

Mr. CONE. Personally, all I could say to that is that I believe in live and let live. I think everybody ought to have a chance to make

some money.

The CHAIRMAN. Do any members of the committee wish to ask the witness any questions?

Mr. Cocks. Do you think that if dealings in futures were prohibited by law the exchange would go out of business?

Mr. CONE. If in this country alone they were, and nothing was done to prohibit foreign dealings, we would necessarily be compelled to deal in foreign countries. Of course, I think that any law that was passed to stop future dealings, as the system is one that is so beneficial to my mind both to the mills and the cotton dealers and the merchants, would have to be a most radical one.

The CHAIRMAN. Do you believe that if the future deals were prohibited it would be possible for the exchanges to exist?

Mr. CONE. I think that they would be just like that Galveston Exchange, a dead letter, sir. I think, sir, that if the exchanges ceased to exist, the people who had ample means to pay for information and get information, the shrewd merchants and shrewd mill men, would eventually control the situation, and I do not think that the farmers

would be one, two, three in the control of it. Lord knows, if the Brazilian Government could not play any big part in buying 10,000,000 bags of coffee, I do not see how the farmers could play much of a part in the final economical handling of a situation like that. Mr. Cocks. Then I gather from your remarks that if futures were prohibited the exchanges would practically go out of business? Mr. CONE. Yes, sir.

Mr. LEVER. Do you think that the Galveston Exchange would be a dead letter now if it were not for the New York and New Orleans exchanges?

Mr. CONE. I do not think under any situation as it now exists in this country that the Galveston Exchange ever had any chance to be anything in the shape of governing cotton or having any influence in governing the price of cotton. In the first place, when it comes to regarding fluctuations in cotton we first turn our eyes to Lancashire, to Manchester or Liverpool, England, which give the information as to what is going on in Lancashire. I do not know whether you gentlemen noticed a little thing that happened last week, which shows you one thing that influences the market. For personal effect some scoundrel reported or spread the rumor in New York that there was sold in Lancashire 30,000 bales of cotton, on top of an enormous day's business of 18,000 bales. In other words, one day last week there was reported 48,000 bales of actual cotton sold in Liverpool to Lancashire mills. The market shot up on that, for the reason that we thought that now we were going right into the 20cent line. I myself bought a few bales on the strength of that. The next morning it was denied, and the market broke right down to where it was before; but it has since, through its own sheer strength, recovered.

Mr. LEVER. By whose buying was the market shot up in that way? Mr. CONE. It may have been by people who wanted futures, it may have been by people who were short of cotton, or it might have been by some dealer who had gone open on his contracts. The Lord knows what it could have been from. There was one thing astonishing to me in that last break, and that was where all the millions of bales of cotton came from that were dumped on the market in New York in that panic. Where they came from is something that I can not get through my mind.

Mr. LEVER. I take it this information of this large sale of cotton in Lancashire and this immediate jump in the price of cotton took place in a very short time, and I was curious to know whether or not the information had reached the mills down in the country in South Carolina, and in Massachusetts, and whether the buying came from them or from the exchange.

Mr. CONE. Where that rumor originated I do not know; but I want to say this: That there is more honor to a minute in Wall street and in Beaver street than there is in the heart of the country.

Mr. LEVER. I guess they would be proud to hear you make that statement.

Mr. CONE. That is my opinion, and I can give testimony to prove it. Mr. LEVER. My idea was this: To ascertain whether the sudden jump in the price of cotton, due to the information you had on the exchange, was from the buying of the people of the mills and men interested in spot cotton, or from buying of men interested in cotton

for speculative purposes. That is a straight question, and I would be glad to have you answer it.

Mr. CONE. Pardon me, I am down in North Carolina, and what you want here is facts, and facts in reply to that question I am unable to give.

Mr. LEVER. You are unable to give them?

Mr. CONE. Yes; but I do know this: That I bought, myself, a few hundred bales on the strength of that canard, and as soon as I found out it was false I sold that cotton.

Mr. LEVER. You were telegraphed to?

Mr. CONE. Yes, sir. But I want to say this: That that is no reflection by any means on the honor of the average member of those exchanges, because they are as high-toned a body of men as live in the United States.

Mr. LEVER. I do not doubt that, because I know some of these men in a personal way.

Let me ask you another question. You seemed to be solicitous about the small dealer or buyer, because under a system without future dealings he would not be able to hedge. Is it possible now for you to borrow money on your hedges from banks?

Mr. CONE. No, sir. The bank will lend me money on my cotton. Mr. LEVER. On the actual cotton?

Mr. CONE. On the actual cotton; and it will lend me more money on that actual cotton than it would lend me if I were unable to hedge. Mr. LEVER. Does the little buyer get that advantage?

Mr. CONE. Where he is known to be a man that is honest and of high moral character, in my section he gets it to whatever degree those considerations entitle him to. I know one man in my town who is worth less than $500 who was able to borrow money on cotton amounting to $8,000.

Mr. LEVER. What advantage do you get on your cotton from the fact that you can hedge?

Mr. CONE. I know that I am able to borrow within 10 per cent of its worth, and I believe that that banker would not lend me within more than 25 per cent of its worth if it was not for that, unless it might be through a consciousness that I am good for whatever I do. But even then I am sure he would want 20 per cent leeway if I were not able to hedge.

Mr. LEVER. Does the cotton buyer give to the banker any assurance of the fact that. he is hedged? Does the banker ask that of him? Mr. CONE. The banker is assured by me, I know, when I go to make trades, that I am hedged.

Mr. LEVER. That you are hedged?

Mr. CONE. Yes.

Mr. LEVER. You think, then, that the destruction of the exchange would militate very much against the small buyer because he could not borrow the same amount of money if he could not hedge?

Mr. CONE. Let me give you an illustration of what I think would happen. I buy cotton from a little concern in Alabama that Dun's or Bradstreet's does not show to be worth more than $50,000 or $75,000. That concern has been doing business, and it handles upward of 50,000 bales of cotton a year, and has been doing it for quite a period of years. Dun's and Bradstreet's do not show them to be worth more than $50,000 or $75,000, so that you may judge

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that they handle it on a very minimum of profit, handling that much cotton. There is no day, I would venture to say, in my judgment, that any cotton farmer will bring cotton to that man but what he will buy it, even if he thinks the market is going all to pieces, at a reasonable price and on a very small margin. The other day I got a letter from thai man. Ordinarily he has borrowed from his banks $250,000 on his cotton, and he was such a bull he took the pains to write me this letter. He said: "Now I have less than $20,000 borrowed, and that is on customers' cotton." It is not even a question of his hedging. I think it is the fact that that banker knows he has the opportunity to hedge that enables him to borrow that amount of money. In other words, with cotton at 15 cents a pound, do you think that banker would be a safe banker if he did not require a great margin when the average price of cotton for years has not been more than about 10 or 11 cents? If he would lend money on that cotton, do you not think he would be a poor banker if he would lend close up on it now? What would be the result if that banker did not know that this man has the opportunity to hedge, whether he hedges or not? I do not believe that really enters into the question at all, when you come right down to it, whether he really does hedge or not. Mr. LEVER. I thought that, too.

Mr. CONE. But the very fact that that man could not hedge would make the banker demand so much margin that that man would have to pay less for his cotton. He would not pay the farmer, I do not believe, with cotton at 15 cents, over 13 cents for his cotton. I know I would not do it.

Mr. LEVER. I may be wrong about this, because I admit considerable ignorance about the operations of the exchange. A hedge represents only so much margin put up with the banker or with somebody on the exchange?

Mr. NEVILLE. I am afraid you do not understand the meaning of a hedge. A hedge is a contract that a cotton buyer sells to protect himself against the fluctuation in the market; that is a selling hedge. A buying hedge is one that a merchant buys when he sells the cotton, 100 bales of cotton to be delivered at some future time.

Mr. LEVER. I understand that. This is the question I want to ask: If I buy and hedge 100 bales of cotton, I put up against that my check or note or money for $250 or $500, or whatever it may be, with some broker, with some gentlemen on the exchange, so that the hedge as a matter of fact does not represent actual cotton, but it represents so much money out of the pockets of some one. Mr. NEVILLE. I beg to differ with you on that.

buy or sell there represents 100 bales of cotton. Mr. LEVER. One hundred bales of cotton?

The hedge that you

Mr. NEVILLE. Yes; and the money you put up there is in the shape of a margin.

Mr. LEVER. It represents actual cotton?

Mr. NEVILLE. Actual cotton, and the money you put up is the margin that the broker exacts.

Mr. LEVER. Who has the cotton?

Mr. NEVILLE. Who has the cotton?

Mr. LEVER. Yes.

Mr. NEVILLE. If you sell it, you are supposed to have it. You sign a notice of execution in which you agree to deliver that cotton,

Mr. LEVER. That is a supposition contrary to the fact usually, is it not?

Mr. NEVILLE. No, sir; it is not. But we will develop the facts on those lines. Pardon me, Mr. Cone, I saw you were a little bit mixed on that.

Mr. CONE. This is a branch of the business that these other gentlemen can give you better than I can. You are getting me on the cotton exchange line of it now and Mr. Neville can explain better than I can on that. But I will say this, that I do sell cotton futures in New York at times with the intention of delivering and do make the actual deliveries. I sell the hedges, and if the thing does not work so I can buy in those hedges profitably, I do at times make the actual delivery of the cotton.

Mr. LEVER. But those times are very rare?

Mr. CONE. I wish to say this: The man that I sell that hedge to has an actual contract from me and unless I transfer that contract to some one else he can hold me. For instance, I bought the other day 1,500 bales of cotton when it was down for a mill in North Carolina. They did intend to demand the cotton on that contract, but the price of futures went up and they had some thousands of dollars of profit, and they could not resist the temptation to take it. But whoever sold that 1,500 bales of cotton to me that day-that person or some one who would have taken their place-would have had to deliver me 1,500 bales of cotton.

The CHAIRMAN. But they did not have the 1,500 bales at the time you made the contract?

Mr. CONE. That I do not know. It may be that the man who sold that cotton may have had 100,000 bales of cotton. I do not know.

Mr. LEVER. Just in line with the chairman's question let me ask you this: As we understand it now, according to the statement of Mr. Neville, a hedge represents actual cotton?

Mr. CONE. Yes.

Mr. LEVER. Now, I notice here on January 28, 1910, this year, the sales on the New York Cotton Exchange amounted to 450,000 bales of cotton.

Mr. NEVILLE. Might I ask what statement you have there?

Mr. LEVER. I am reading from the New York Commercial of Friday, January 28, 1910.

Mr. NEVILLE. The New York Commercial has nothing to do with the New York Cotton Exchange. In fact, there is not a representative of that paper allowed on the floor of the New York Cotton Exchange.

Mr. LEVER. Is it not a reputable paper?

Mr. NEVILLE. I do not know. You can judge what I think of the paper from what I tell you.

Mr. LEVER. All right.

Mr. NEVILLE. As to what newspapers are, I will leave you to infer from what they say about you gentlemen and the speeches you make or the opinions you express.

Mr. LEVER. I should like to ask you whether or not you deny the fact stated here that on this day sales amounted in New York on the New York Cotton Exchange to 450,000 bales?

Mr. NEVILLE. I neither affirm nor deny it, but I tell you that that paper has nothing to do with the New York Cotton Exchange, and