The CHAIRMAN. To a layman, that sounds a little bit like a distinction without a difference. Can you explain the difference? Mr. LATHAM. Yes, sir; I can.

the time we had the panic?

In the summer of 1907—was that

The CHAIRMAN. Yes; the fall of 1907.

Mr. LATHAM. We had the panic in the fall of 1907. In the spring and summer of 1907 I believe cotton was selling around 11 cents. May I ask some of the members of the cotton exchange here, who may be more conversant than I am with that matter, about that? Was 11 cents about the price, Mr. Marsh?

Mr. MARSH. From 11 to 12; yes.

Mr. LATHAM. About 11 cents, or around that. Cotton goods at that time would average at a higher price than they are selling now, with cotton at about 15 cents to the manufacturers. Cotton is selling at primal points throughout the South at about an average of 15 cents, at any rate. That makes the cost to the manufacturer about 15 cents on the average.

The CHAIRMAN. You say cotton goods were selling higher in the spring of 1907, with cotton at 11 cents, than they are now with cotton at 15 cents?

Mr. LATHAM. Yes, sir.

The CHAIRMAN. Evidently one of those conditions is abnormal. Mr. LATHAM. Yes, sir.

The CHAIRMAN. Which was the abnormal condition? Were cotton goods abnormally high in 1907, or are they abnormally low now? Mr. LATHAM. They were high then, sir. In answering that question, I can hardly make all my illustrations here at home. As I said in the first part of my testimony about 65 or 70 per cent of all the cotton we produce in America goes across the seas. If we had very bad business abroad (which might or might not have been the case at that time, because I have not the figures before me), we might have had wonderful prosperity in this country, as we did have; and therefore we might have been able to have kept the price high here at home. I will further mention the fact that since that time, or certainly in the past five years, there has been a perfectly tremendous increase in spindlage and loomage here in the United States. I think in five years it has increased at least 20 per cent.

Mr. MENDELBAUM. May I ask the gentleman a question in that connection? Was the increase in spindlage only in the United States, or was not the same thing true in Great Britain and Europe?

Mr. LATHAM. I do not think it has increased relatively so much. there.

The CHAIRMAN. The increase of that spindlage would have a tendency to introduce greater competition?

Mr. LATHAM. To place the markets more in competition with each other. In addition to that, up to that time we had been exporting a great many cotton goods, and here in the last few years (which would account for the relatively low price of cotton goods now) we have largely lost our export trade in cotton goods. The buyers of export goods have either not bought at all, or they have supplied themselves from some other section than the United States.

The CHAIRMAN. But as a general proposition, I presume it is true that a low price of cotton means a low price for cloth? Mr. LATHAM. There is that natural relation; yes, sir.

The CHAIRMAN. And if the elimination of future dealing on the exchanges should mean a permanent depression in the price of cotton to the grower, it must mean ultimately, at least a permanent decline in the price of goods to the consumer?

Mr. LATHAM. I would not consent to that, sir-not wholly. It might do so in part, but not wholly.

The CHAIRMAN. You stated, when expressing your opinion of the effect which the elimination of futures would have upon the manufacturer, that on account of the necessity on the part of some growers and the inclination on the part of others to rush their crop to the market as soon as it was ready, you thought the spinner would be able to buy cotton cheaper. Is it not true that cotton is rushed to the market now just as soon as it is ready by these same classes of people?

Mr. LATHAM. Yes; that is true.

The CHAIRMAN. In what way, then, does the existence of a future market enable these early sellers to get a better price than they otherwise would; or do they, as a matter of fact, get a better price?

Mr. LATHAM. Yes, sir. The advantage to the early sellers of the existence of a future market is that it places a great many buyers in cotton that are not buying for the legitimate purposes that they would if they had to spin the cotton. In other words, there are a great many buyers of cotton in the early fall months based upon the actual short crop, or the low price, or the belief in a short crop, that go in and buy cotton because they believe it is a good article of merchandise to buy; and to that extent the market is not left entirely alone to the spinner.

The CHAIRMAN. Do you think that is more of a stimulant to the market than would be afforded, if there were no futures, by the actions of spinners who would feel that the best policy for them was to accumulate a supply of cotton to carry them through the season?

Mr. LATHAM. It is human nature, when they go to accumulate a large stock of anything, to wish to buy it cheaply.

The CHAIRMAN. Yes; but if a large number of people are seeking at the same time to accumulate a large stock, would not the natural result be to enhance the price?

Mr. LATHAM. I think that would depend entirely upon that price, which is movable. Some economists in the country have tried to figure out to a nicety-I have even tried to do so myself-what it costs to produce a pound of cotton. No two authorities will agree as to the exact figures. But there are a great many intelligent men in the South that can tell you to-day, with the new cost of labor and the high cost of living, approximately what it costs, on the ordinary valuation of lands, to produce a pound of cotton.

The CHAIRMAN. But it rather looks to me-and I should like your opinion on this as if the competition between men who want real cotton, to make real cloth, to fill real contracts, to get real money, would be quite as apt to stimulate the price as the competition between men who want phantom cotton, to fill phantom contracts, in the hope of getting real money.

Mr. LATHAM. I think, sir, that you are possibly not looking at that in this way: The ordinary man that objects to trading in futures believes that when a bale of cotton is sold, that is the end of the cotton. But that is not so by any means. That cotton will go back to the mill store, and will be used twelve months after that. I paid

a claim a few days ago from a local mill down in North Carolina on some bolly cotton bought in Texas fourteen months ago. So that cotton has been in existence until two weeks ago, when it was opened, and found to be partly mixed in the middle. It had some imperfections in it-I do not know what. The claim was something like 20 pounds off on one bale of cotton. But you only start on the cotton when the farmer sells it. It has to be stored away to use. We use 1,000,000 bales of cotton a month, or approximately so. For the past few years that has been our approximate consumption. Some months it has run more than that, and some years less. Last year we ran considerably more than that.

The CHAIRMAN. How much was that?

Mr. LATHAM. A million bales of American cotton a month.
Mr. SIMS. You mean the world uses that much?

Mr. LATHAM. The world; yes.

Mr. CONE. May I ask Mr. Latham a question, Mr. Chairman?
The CHAIRMAN. Yes.

Mr. CONE. In the fall of 1908, when it was known that we had made the biggest crop the world had ever made, is it not your opinion that if it had not been for the speculators of the East and of the North, cotton would have gone very much lower than it did go, if they had not come in as purchasers?

Mr. LATHAM. I believe it would.

The CHAIRMAN. To get at my idea and to follow Mr. Cone's question with another one, your answer to his question was made upon the assumption that there was a future market, and that into that market speculators came; and of course you could not have answered differently from the way you did. Every one who has given even the most casual study to this question must admit, I think, that the existence of a future market must have a tendency to stimulate the price at the beginning of the season, for the very reason that you suggest.

Mr. LATHAM. Yes.

The CHAIRMAN. That is because of the competition of men who believe that cotton is going to be higher in the course of the year than it is at the particular time. But the point upon which I was asking your opinion was this: Suppose that for the competition of these speculators who are buying for no other purpose than speculation there were substituted the competition of men who had to have the cotton, or they could not deliver their contracts. What then would be the effect upon the price? Taking Mr. Cone's question, if there had been no future market in 1908 and the dealers had known that they could not buy a future and tie up somebody else with a contract to deliver cotton to them, but that they must go out and get their own cotton, would not that have furnished a stimulant quite as much as was supplied by the future market?

Mr. LATHAM. No, sir; because the number of the force would be so much less. You have the spinner there all the time, who is going to buy a certain amount of cotton. The dry goods business is a very variable business. In some years you can go into North Carolina or Georgia or New England, and you will find the mills on an average at least six months ahead. In the spring of 1908, preceding the panic, I believe all the mills in America were committed ten months ahead. At the present time the mills are not committed ahead at all. Therefore if this crop had been a very large one, without the

aid of speculation the disposition of the manufacturer would have been to let the farmer carry his cotton, unless it should get down to the cost of production, when it is always safe to buy.

Senator SMITH, of South Carolina. Mr. Chairman, right in that connection, may I be allowed to ask Mr. Latham a question? The CHAIRMAN. Certainly.

Senator SMITH. I want to bring out just one thing. In the dispatches in the papers we very often see that on a scale-down, on a declining market, stop-loss orders were reached, and that broke the market still further. Those stop-loss orders are fictitious sales. Now I want to ask this question:

We are trying to get at what relation hedging bears to stimulating or tending to control the price of cotton. Take the little exchanges, the warehouses, your connections all through the South: You are a member of the cotton exchange. You drop a wire into every little village, town, hamlet, and city of the South. Here is a contract: I put up $100 to buy 100 bales of cotton. I put up 20 points to cover it. Five times 20 is 100. That is $200 on one contract. I put up that 20 points. I tell my broker or agent down in Georgia or South Carolina, "When the market has gone down 20 points I can not protect it any further, so let it go. By letting it go I have lost, not simply the commission, which is $15-$7.50 to the man who is your agent in my town, and $7.50 to you in New York-but I have lost the $100 I have bought it with, and the $100 margin I put up to protect it with.

Do you not honestly believe that the wild fluctuations in the cotton market are due entirely to the easy means by which the members of the different exchanges can get together, compare their sheets, know how many orders they have gotten throughout the country, and then, irrespective and without any regard whatever to whether the crop is 100,000,000 bales or 500,000,000 bales, drop it down and clean up these fellows who have no way of protecting themselves? Is not that so?

Mr. LATHAM. I do not think I can answer that question.

Senator SMITH. Do you not believe that is the cause of the fluctuations the desire to clean up these fellows who have no way of protecting themselves?

Mr. LATHAM. I do not know of any commodity in the United States, from eggs to buttermilk, that does not fluctuate.

Senator SMITH. But the point I want to make is this

The CHAIRMAN. Pardon me, Senator. I understand that Mr. Latham is a citizen of North Carolina, engaged in manufacturing and brokerage, and has not had any personal experience on the floor of the exchange. Perhaps your question would be a little more pertinent when some of these other gentlemen take the stand.

Senator SMITH. But, Mr. Chairman, he is a member of the exchange and I am not a member of it, but I know that to be a fact.

The CHAIRMAN. I should assume, however, that the question you are asking him could only be answered by a man who was right on the floor of the exchange.

Senator SMITH. Yes; but as he is under oath and I have to leave, and I am vitally interested in this matter

Mr. LATHAM. Inasmuch as the Senator has to leave, may I ask him a question?

The CHAIRMAN. If he will submit to it.

Senator SMITH. Why, certainly.

Mr. LATHAM. Senator, you asked me if I did not know that it was a fact that when these stop-loss orders are placed in New York, the fellow having to pay $100 first, and second to put up another hundred dollars, and saying to the broker, "I can not respond any further, and you must sell me out when I get down to that point," the members of the New York Cotton Exchange or New Orleans Cotton Exchange I do not know which you are illustrating on; but I suppose both come under the same head, do they not?

Senator SMITH. Yes.

Mr. LATHAM. That the brokers would get together and compare sheets and force a decline down, and that you knew that to be so? Senator SMITH. No; I did not say that. I did not say that they would get together. I said they did it. Just two weeks ago I was in a place where these little orders were coming in; I do not know whether it was a "wild cat" or whether it was what we call a "blind tiger." I saw in there fellows of such a class that if you cut off their heads you would not have got blood enough to wet a pocket handkerchief. That break came, and all the little fellows were gone.

Yesterday the question was asked by this committee, or this morning, why these dealers go to New York and hedge. It is not the commission on cotton they are after; it is those margins of a dollar a bale that are put up that they clean out. Now, listen and I want the committee to catch this idea clearly: It was obligatory upon New York to cease to be a spot cotton market for the reason that if they wanted to take the risk of selling thousands of bales on contract and be forced

Mr. MENDELBAUM. Mr. Chairman, I should like to ask the Senator whether he is asking questions of Mr. Latham or whether he is testifying? If he is testifying, I wish you would put him under oath, as you do the rest of us.

The CHAIRMAN. He is always under oath.

Mr. MENDELBAUM. He has stated here several things as absolutely true from his knowledge, and I dispute that they are true. him put under oath.

Senator SMITH. I am perfectly willing.

I want

The CHAIRMAN. The committee will come to order. Senators and Representatives are always under oath, and their testimony before any committee is so regarded. Gentlemen who think that Senators. or Representatives making statements here are misinformed will have an opportunity at the proper time to give their views.

Mr. MENDELBAUM. I know; but, Mr. Chairman, if they make their statements as witnesses under oath I agree with you fully. I have no fault to find. Then they are placed in a position where we can get at the truth and can cross-examine them. We believe that we have the same right to cross-examine a Senator or a Congressman as we have to cross-examine any other witness.

Senator SMITH. I shall be glad to have you cross-examine me, sir. The CHAIRMAN. The Senator will proceed with his statement. Senator SMITH. I want to make this further statement, Mr. Chairman. It was brought out in the cross-examination of Mr. Parker, to which I will refer, that the "tail wagged the dog." I want the committee to see clearly what, in my mind, the connection is. If the persons making these enormous sales of cotton on the New York