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Mr. Beall. We are working on the exchanges here at home for the present. The spinner is willing for them to be eliminated; is he not?

Mr. Latham. I do not think the spinners are, as a class.

Mr. Beall. But many of the spinners are?

Mr. Latham. I think they are, sir.

Mr. Lever. The majority are.

Mr. Beall. The majority of the spinners are willing that they shall be eliminated?

Mr. Latham. No, sir; I do not agree to that, sir.

Mr. Beall. Well, in the case of the men who handle cotton, I understood Mr. Cone to say yesterday that he could probably make more money with the system changed than he makes now. Is it your judgment that men situated as Mr. Cone is, who deal in spot cotton, with the intelligence that they possess, would be as well off with the exchanges eliminated as they are now? Do you think his statement was correct in that regard?

Mr. Latham. I believe the men who are in the position that Mr. Cone is would be as well off.

Mr. Beall. He is in the position of being a purchaser and seller of cotton.

Mr. Latham. Yes, sir.

Mr. Beall. That class of people would be as weU off with the exchanges eliminated?

Mr. Latham. Anyone that has ability to make money by the average system would not be hurt. In other words, if I am strong enough financially to buy a thousand bales of cotton at 12 cents a pound, and if it goes to 11 cents a pound buy another thousand, and if it goes to 9 cents a pound buy 2,000 more, that law of averages is bound to win in the end. But the little fellow can not average that far, and he is therefore put out of the market as a buyer.

Mr. Beall. Let us assume, then, that the little buyer would be to some extent eliminated.

Mr. Latham. Yes, sir.

Mr. Beall. But the ordinary buyer, the man who buys cotton in considerable quantities for the purpose of selling it to the spinner, would be in as advantageous a position with the exchanges eliminated as he now is?

Mr. Latham. I expect he would make as much money.

Mr. Beall. And would make as much money?

Mr. Latham. I expect he would; yes, sir.

Mr. Beall. I have heard a good deal said here about objections to the elimination of these exchanges from the producers and the opinion expressed that it would result in injury to the producers. After giving this warning to the producers and putting them on notice of the fact that they would probably be hurt by the change and be put at the mercy of the spinners, if the majority of the spinners still insist upon the elimination of the exchanges, and if the handlers of cotton (the buyers and sellers of spot cotton) would be in position to make as much money under a different system as they make now, do you not think the experiment is worth trying? If these parties, after you gentlemen have served notice on them that they will probably be injured, are still willing to take the risk, do you not think the experiment is worth trying, even if it eliminates the speculator?

Mr. Latham. So far as the speculator is concerned, I think the contract might probably be surrounded with some features, that I am not here to suggest, that would eliminate him to a considerable extent.

Mr. Beall. Do you not believe the situation would be better if the speculator, pure and simple, were eliminated to a very considerable extent?

Mr. Latham. I do not, sir; I do not. I believe the progress of the country would be hampered.

Mr. Cone. May I ask a question of Mr. Latham, Mr. Chairman?

The Chairman. Certainly.

Mr. Cone. Do you not think, Mr. Latham (you are a Democrat and I am a Democrat), that the situation as applied to cotton would be rather like the situation you and I discussed—the silver question? It would be rather like it would be with the experiment of trying free silver. [Laughter.]

Mr. Mendelbaum. Mr. Chairman, may I ask a question?

The Chairman. Let us have one question at a time.

Mr. Latham. I am afraid you gentlemen are going to find out my politics if you keep on asking questions.

The Chairman. I think Mr. Cone will realize that his question is hardly pertinent.

Mr. Beall. Let me ask you one more question: There is a certain risk in the cotton trade, is there not?

Mr. Latham. Yes, sir.

Mr. Beall. From the time the cotton is planted up to the time it is- gathered, that is the farmer's risk? lie has to bear that risk alone, has he not?

Mr. Latham. Yes, sir.

Mr. Beall. From the time it is gathered until it is made into cloth there is a certain element of risk in dealing in it. You people buy this cotton and you hedge on it. What is the purpose of that hedging?

Mr. Latham. To make the risk as small as possible.

Mr. Beall. To eliminate the risk as far as possible?

Mr. Latham. Yes, sir.

Mr. Beall. That does not lessen the risk somewhere along the line, does it? When you hedge, you simply turn the risk over to somebody else?

Mr. Latham. You say it does not lessen the risk? I rather think it does, sir.

Mr. Beall. It lessens it so far as the party who hedges is concerned; but somewhere along the line, upon somebody, rests the same risk that rested before.

Mr. Latham. No, sir; I disagree with you on that. I will illustrate what I mean.

Mr. Burleson. Does not the man who furnishes the hedge take the risk of the hedge?

Mr. Latham. He is this "outsider" you are talking about, that is going to get "skinned." [Laughter.]

Mr. Beall. I am talking about the world in general now.

Mr. Latham. The farmer is in the habit of marketing from two to three million bales of cotton a month.

Mr. Burleson. You do not understand the question he asked you, Mr. Latham.

Mr. Latham. Will you ask it again I

Mr. Beall. There is a certain amount of risk in handling cotton, is there not?

Mr. Latham. Yes, sir.

Mr. Beall. Somebody has to bear that risk. That is a fact, is it not?

Mr. Latham. Yes, sir.

Mr. Beall. When you buy the spot cotton, you want to shift that risk, and so you hedge on it?

Mr. Latham. Yes, sir.

Mr. Beall. By doing so you have eliminated the risk in that transaction as far as you could?

Mr. Latham. Yes, sir.

Mr. Beall. Now, the spinner comes along, and he buys the cotton. He hedges on it. He eliminates the risk so far as possible in his case. That is a fact, is it not?

Mr. Latham. Yes, sir.

Mr. Beall. Upon whom does the risk ultimately fall? Who is it that has to bear the burden of all that risk, from the time the seed is put into the ground until the time when the cotton is delivered to the spinner?

Mr. Latham. This process of hedging and taking care of the risk by several people might ultimately liquidate itself so that nobody would lose.

Mr. Beall. It would be a sort of a perpetual motion?

Mr. Latham. I believe, since I have been here, that a question was asked, if you will let me illustrate it

Mr. Beall. I should be glad to have you.

Mr. Latham. I believe a question was asked of one of the witnesses as to who lost the money that it was rumored Mr. Patten made. I do not remember what the witness's answer was, but my answer to that question, I think, will answer yours. It is simply this: Nobody lost that money. Somebody failed to make it. Here cotton was selling twelve months ago (as has just been stated by one of the gentlemen asking questions) at 8.75 in New York. I think that was the price, was it not?

Mr. Lever. 9.85.

Mr. Latham. 8.75 in New York. Mr. Patten probably went into some market of the world and bought a line of cotton. Perhaps he bought it at 8.75, if he was very wise. If he did not, perhaps if he was a wise man he bought it at 9.75. But he might not have bought it until he bought it at 10.75. And from whom did he buy it? He bought it from somebody that wanted to sell. More than likely that man was a farmer, because he is the man who is the original source of all the supply. He bought it from that farmer that wanted to sell the cotton, because that farmer, in the first place, might have needed the money. He might have been perfectly satisfied with the price. So Mr. Patten went ahead, and bought that cotton at 10.75, we will say, and held it until it got to 16 cents a pound; and then he said: "I am satisfied, and I am going to sell it."

I respectfully submit to you, sir, that nobody lost that money, but that the original holder failed to make it, simply because he did not have the same acumen to hold on that Mr. Patten did.

Mr. Sims. Right there, let me ask this question: Your idea is that Patten made his money by buying spot cotton, and not futures?

Mr. Latham. I do not know, sir, which he bought.

Mr. Sims. But you can not illustrate it, the way you are doing, otherwise than by his buying he actual spot cotton.

Mr. Latham. I think you can, sir; but suppose he bought futures?

Mr. Sims. Suppose he bought futures, and closed them out; did not some man always lose what he made?

Mr. Latham. Not necessarily, sir. Suppose a cotton-mill man had had 10,000 bales of cotton in his warehouse against which he had no goods sold, and he said: "Well, I can not afford to run the risk of my mill having this tremendous stock of cotton here without something sold against it." It is a speculation, you know, when he does that, to lay in these large volumes of raw material without something being sold against it.

Mr. Sims. He did not sell cotton; he sold contracts.

Mr. Latham. The spinner says: "I am going to spin this cotton as I need it, but I have no goods sold against it. Therefore, in order to limit my loss on my profit right here, I will sell 10,000 bales of futures against this cotton that I have here in my warehouse." He sells it. Mr. Patten takes the other end of it. Four months after that the spinner finds that he is ready to use the 10,000 bales of cotton. Instead of cotton being 10.75, it is up to 15 cents. "Well," he says, "my goods have gone up about the same amount as cotton." So he closes out his future end, and he still has the cotton, which he can not buy from anybody else at 10.75, but which is worth 15 cents to him then. So the spinner in that case failed to make that additional amount of money that Mr. Patten or the other speculator made; but it was not the fact that anybody lost it.

Mr. Sims. Where did Patten get his money on those 10,000 bales when he never got the bales and they were never delivered?

Mr. Latham. He transferred his contracts to somebody else.

Mr. Sims. Then was not that a speculative loss equal to a speculative gain?

Mr. Latham. I do not see any speculative loss. I see a speculative profit.

Mr. Heflin. The producer lost that difference between 10 and 15 cents.

Mr. Latham. No, sir; he did not lose it. He failed to make it.

Mr. Lever. How do you account, upon your theory, for the number of failures of speculators?

Mr. Latham. We find failures in all classes of business.

Mr. Lever. I know; but you have announced the remarkable proposition here that somewhere in the world, somehow, by somebody, something is lost which somebody finds of value which nobody lost. That is the remarkable statement you have made of the workings of the exchange. In other words, somebody gets rich off of something that nobody lost.

Mr. Latham. I have known in my life a piece of real estate to be transferred twenty times, and every man made a profit out of it. That is the result of natural accretion.

Mr. Lever. But does not your proposition prove this—that, after all, the man who gets rich on the New York Cotton Exchange is dealing in "phantom" cotton, as expressed by the Chairman, rather than something that exists?

Mr. Latham. No, sir; I do not agree to that.

Mr. Lever. You think Mr. Patten made his $5,000,000 in dealing with spot cotton, then—the actual stuff?

Mr. Latham. I have no idea how many millions Mr. Patten made. I have an idea that he did not make as much as that.

Mr. Lever. Assume that he made five millions, however.

Mr. Latham. I think that would be a very large amount to assume.

Mr. Lever. Well, one million, then. Did he make that one million in spots or futures, do you know?

Mr. Latham. I understand that Mr. Patten has a considerable stock of spot cotton in New York at the present time. I understand he has slupped some of that spot cotton out of New York City to southern mills. I am not advised as to that, because I do not know Mr. Patten myself, and have no connection with him.

Mr. Lever. As a matter of fact, Mr. Latham, do you know how many bales of cotton there are now in New York certified to-day or yesterday?

Mr. Latham. I can give you a "horseback" opinion of about 160,000 bales.

Mr. Lever. How much would that be worth?

Mr. Latham. That is worth about $75 or $80 a bale. That runs up into figures that I am not in the habit of handling, sir.

Mr. Lever. That would be divided, of course, among a large number of spot dealers—Mr. Weldon, Mr. George H. McFadden, and others there who are spot dealers. So that Mr. Patten could not have $5,000,000 worth of spot cotton in New York, could he?

Mr. Latham. I do not think he could; no, sir.

The Chairman. Have you finished your line of questions, Mr. Beallt .

Mr. Beall. Yes, sir.

The Chairman. I have just one more question to ask you, Mr. Latham. I believe you said you were a manufacturer as well as a dealer?

Mr. Latham. Yes, sir.

The Chairman. In your experience as a manufacturer, have you suffered any loss or disturbance in your trade by reason of the rapid fluctuations of the speculative market? To give you a concrete case: Mr. Parker, who was here a few days ago, testified that when cotton recently went down some fourteen or fifteen dollars a bale, it disturbed the market for cotton goods. Purchasers, noting the fact that cotton had gone down, were unwilling to pay the price which had been asked For cotton goods, and which had been fixed when cotton was up. Mr. Parker said that he frequently had that difficulty—that would-be purchasers looked at the speculative price, and did not take into account the fact that the spot price might not have followed it. As a result, he said, the disturbance to his business was so great that he thought he would be better off if there were not any speculative market. What has been your experience as a manufacturer in that respect?

Mr. Latham. My experience is that these waves of speculation come, and for a time they do unbalance business, but it speedily readjusts itself.

The Chairman. And you think that on the average it is better for the manufacturer to have the speculative market?

Mr. Latham. I think so; yes, sir.

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