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Mr. LEVER. You do not agree with Mr. Cone, do you, when in his testimony he said you could not borrow money on hedges ?

Mr. LATHAM. Well, I could not agree with that.

Mr. CONE. I beg your pardon, if I made any such statement as that I must have been so embarrassed I did not know what I was saying:

Mr. LATHAM. I think, Mr. Lever, in order to answer your question, that these hedges are considered by people that are in the business of cotton dealing as insurance more than anything else. If you were to ask me if I could borrow money on my policy, on which I had covered my cotton, it would be about the same as your question as to borrowing money on hedges.

Mr. LEVER. I. understood your testimony and that of Mr. Cone to go to the effect that the hedging system permitted small dealers in cotton to do business.

Mr. LATHAM. It does make it easier for them.

Mr. LEVER. That they could borrow money on hedged cotton anyway?

Mr. LATHAM. Yes, sir; that upon cotton that is hedged the risk is, to a large extent, eliminated.

Mr. LEVER. You are not a banker?
Mr. LATHAM. Well, I am interested in a bank.

Mr. LEVER. Well, how much money per bale will your bank loan on cotton ?

Mr. LATHAM. At the present time?
Mr. LEVER. Yes.

Mr. LATHAM. Well, that depends largely upon the borrower; the first risk that a bank must determine is the moral risk, and then comes in the ability risk, and next the question of collateral; that is the manner in which I look at it as a banker.

Mr. LEVER. So that your bank would be willing to loan money to a man of good moral standing on his hedged cotton ?

Mr. LATHAM. Yes, sir.

Mr. LEVER. Cotton that your bank knew did not exist, as a matter of fact?

Mr. LATHAM. Then how could it be hedged if it did not exist ?
Mr. LEVER. Does all your hedged cotton exist?
Mr. LATHAM. Yes, sir; it does exist.
(Thereupon a recess was taken until 2 o'clock p. m.)

AFTERNOON SESSION.

The committee reconvened at 2 o'clock p. m., Hon. Charles F. Scott (chairman) presiding. TESTIMONY OF MR. ARTHUR R. MARSH, VICE-PRESIDENT OF

THE NEW YORK COTTON EXCHANGE. (The witness was sworn by the chairman.)

The CHAIRMAN. Will you be kind enough, Mr. Marsh, to give your name and official designation to the stenographer ?

Mr. MARSH. My name is Arthur R. Marsh. I am vice-president of the New York Cotton Exchange. I am engaged in the cotton commission and brokerage business.

The CHAIRMAN. Would you prefer to proceed for the present without interruptions, until you have made the statement you have in mind?

Mr. MARSH. Mr. Chairman, if it is agreeable to the committee, it seems to me that it might be well for me to make a portion of my statement, covering a certain portion of the ground, and then give an opportunity to the members of the committee and to others to ask questions which might bring out the matters indicated in my statement or connected with my statement which they feel require further illustration.

The CHAIRMAN. Very good; then if you will indicate when you are ready to submit to questions, we will govern ourselves accordingly.

Mr. MARSH. I will do so; thank you. Mr. Chairman, the present situation with regard to future trading in connection with cotton, which I have particularly to speak of, is another chapter in the long history of the uneasiness of the producers and the consumers of various commodities with regard to the price which they shall be paid or shall pay for those commodities. It is a well-known fact that when a period of uneasiness of this kind comes along, the class who get the criticism in the first place and most heavily are the merchants who stand between the producer and the ultimate consumer. People generally can not get it out of their minds that the merchant makes the price both ways. It is very hard for the ordinary casual observer to get it into his head that the merchant is not interested in the price, either to the producer or to the consumer. The only thing the merchant is interested in is a sufficient supply and a sufficient demand and a sufficient margin between the price paid the producer and the price which the consumer pays to cover the cost of the merchant's function and to give him a reasonable profit for the capital which he employs and for the brains which he employs in the function which he performs. In spite of that fact, however, Mr. Chairman, it is a well-known fact—and this was pointed out certainly a century and a half ago by the first of the important students of political economy, Adam Smith—that the target, the corpus vile into which the arrows of criticism are discharged, is the merchant. If the price of a given commodity is low, the merchant is charged with making it low. If the price of that commodity is high, he is charged with manipulating the market, enhancing the cost, enhancing the price, and bleeding the consumer. I make this preliminary statement, Mr. Chairman, because the whole position of the New York Cotton Exchange is connected with this elementary proposition in economics in such a way that if this elementary proposition in economics is not borne in mind, a correct conclusion with regard to the New York Cotton Exchange or any cotton exchange or any exchange of a similar character can not be arrived at.

Now, sir, the New York Cotton Exchange is an exchange of cotton merchants. The New York Cotton Exchange has 450 memberships, it has about 425 living members, and those 425 living members are primarily cotton merchants. The function of the members of the New York Cotton Exchange in the world is the function of merchants. It will seem at first sight that I must be emphasizing wrongly the facts when I make this statement. I am not emphasizing wrongly the facts; I am stating exactly what is the case. If I should—and I think I should-amplify that statement a little, it would be merely to say that the merchant's function is to a certain extent subdivided, and that among members of the New York Cotton Exchange are some who perform that general function of merchant which the world at large knows and sees the merchant perform, and that there are other members of the New York Cotton Exchange who perform subsidiary functions connected with the merchandizing of the cotton crop, subsidiary functions which are essential to the larger and general function of the merchant, but which none the less are in themselves merchandizing functions.

Mr. Chairman, the members of the New York Cotton Exchange handle every year over 80 per cent of all the cotton produced in the United States. They use their capital and their credit for the distribution of this very large percentage of the total cotton production of the United States. They make the banking connections, they make the insurance connections, they make the spinners' connection, they make the connections with the smaller, lesser merchants in the interior who come in immediate contact with the farmers. It is to them that the existence every day and every hour of every day of a market in every town in the South where any farmer can sell his bale or his 100 bales of cotton if he chooses is due. The ramifications of the obligations of these merchants are indescribably great. It would be absolutely impossible for me to enumerate them. It would require a volume to enumerate them, and even then much would escape my attention.

As the world has gone up to date, as the cotton business has developed up to date, this responsibility has fallen upon this class of cotton merchants to perform this function of distributing the cotton crop. I now hear it proposed and advanced that this method of distributing the cotton crop is not a good one; that to leave upon the shoulders of this class of merchants the responsibility of providing the necessary capital and the necessary facilities of every kind from one end of the world to the other is not working satisfactorily to the producer on the one hand or to the spinner on the other. As I understand the position of the gentlemen who have appeared here representing southern farmers' associations, it is that the merchant class which has hitherto carried this responsibility is not doing its work well, from their point of view; that that merchant class, which has been doing this work ever since cotton began to be raised in this country, is affecting the price of cotton injuriously to the producer, or is exacting too large a toll from the producer, or is not giving the spinner the service which he requires for the compensation which he is willing to pay. That, as I see it, is the essence of the proposition advanced by these representatives of the southern farmers' associations; and it seems further to be advanced by these gentlemen that the novel method which they propose of distributing the cotton crop should be fostered by the Government of the United States, that the Government of the United States should step in, should interfere with the methods which the cotton merchants have worked out for themselves, should throw its weight against the longestablished usages of this class of cotton merchants, and in other words put these old and established competitors of the new scheme out of business. That in its essence, Mr. Chairman, seems to me to be the proposition of these gentlemen from the South. I state this

in order that we may have it perfectly clear before us, or at any rate that I may have it perfectly clear before me, what the question is essentially which I am to discuss before you.

I shall not undertake to discuss the propriety of the intervention of the Government between two methods of handling and distributing the cotton crop further than to say that it seems to me that in a land of free competition, in a land in which every man who does his business openly and aboveboard and is supposed to have the opportunity to make a success of it if he can-in a country like this, I say, Mr. Chairman, it would seem to me that the reasonable and just attitude of the National Government would be to say to the representatives of these competing methods: “Let the world decide between you. If the one of you has a method better than the other, you will prevail. If the method which is proposed is more just to the farmer, more just to the spinner, more economical, serves the public better, it is a certainty that it will prevail.” There is no earthly way in which an unjust and an uneconomical and an unwise method of performing a great function like this can be kept alive. That, Mr. Chairman, I say, would seem to me to be the reasonable method or the reasonable attitude for the Government of the United States to take in regard to these competing and opposing methods of handling this great business. But I will not pursue that matter further. I will come back immediately to the New York Cotton Exchange.

I have said, sir, that the New York Cotton Exchange is an association with 450 memberships, with about 425 living members. Each one of these members is a member of the New York Cotton Exchange purely and simply as an individual cotton merchant. No corporation is allowed to hold a membership in the New York Cotton Exchange. These memberships, with the exception of a comparatively few partnerships among them, are held by cotton merchants who are individually in the freest and keenest competition with each other. There is no business with which I am acquainted in which the principle of absolutely free competition is carried to the extent to which it is carried in the cotton business. There is not a shadow of an agreement between the distributers of cotton, excepting so far as two or three of them may form a partnership with each other. There is the greatest divergence of opinion, there is the greatest divergence of financial connections, the greatest divergence of methods of handling the actual cotton which these merchants buy and ship and dispose of. In other words, there is absolutely free competition.

These cotton merchants, both the merchants whom I may call merchants in a large way and primary merchants, and those merchants who fulfill the subsidiary functions of the merchandising of cotton, have formed this association, called the New York Cotton Exchange, purely and simply for the purpose of agreeing together upon certain rules which they will follow in their trading with each other. The by-laws and rules of the New York Cotton Exchange are simply the rules which have been adopted by this great body of people in free competition with each other, under which they will make contracts with each other. There is, to be sure, the subsidiary function of the *exchange fostered by these merchants, that they will gather every kind of information which they can, to be freely used by every one of these competing merchants in his business and in his trading with

every other one of them; there is the further purpose of providing a room in which these competing merchants may meet and may make contracts with each other; but the one great object of their association is to have a body of rules under which they may make contracts with each other—rules which have been worked out little by little through the experiences of different members of the fraternity to guard against mistakes, to guard against misapprehensions, to make every contract which is entered into absolutely free and aboveboard, devoid of all subintentions, devoid of all those elements which cause doubt and lead to embarrassment and to litigation; and that, Mr Chairman, is what the present body of rules of the New York Cotton Exchange consists of...

Now, sir, I desire to lay especial stress upon the fact that this body of rules is a body of rules resulting from the experience of a body of men who have a certain function in the body politic, and that function in the body politic is one which, as things have been organized in the world heretofore, has fallen upon these men. This responsibility is the responsibility of distributing the cotton crop of the United States. Here is a class of merchants. They have grown up because they were needed, as things have been. The world wanted them. They did not embark upon this business, because they were not wanted; they embarked upon it because they were wanted, because no way had been pointed out to get along without them. I understand that now we are to have a way to get along without them. We are no longer to require cotton merchants. We are to have a new order of things, in which the producer of cotton and the manufacturer of cotton are to look each other straight in the face and without any expense of distributing agencies are to pass the raw commodity from the one to the other; but up to date, Mr. Chairman, cotton merchants have been wanted, have been needed, and they have little by little accumulated the capital, acquired the credit, made the multitudinous connections necessary for the performance of their business. They have learned what can be done and what can not be done from the point of view of distributers of this commodity. That is the point, I believe, which is the essential point for the members of this committee to bear in mind.

Now I come to the next point in what I have to say, and after I have spoken upon this I shall be glad to have any questions asked me that members of the committee or others may desire to ask. The particular point of attack upon these merchants who are thus associated together in this present chapter of uneasiness, is their use of what are called “contracts for the future delivery of cotton,'' or more vaguely and more generally and in the common parlance, “futures." It is claimed that the development of these contracts for the future delivery of cotton disturbs the function of the merchant, causes hardship to the producer and hardship to the manufacturer of cotton, and in particular it is declared, as I understand it, that that whole process, which is the result of a slow evolution in the cotton trade, of using these contracts for the future delivery of cotton as a hedge, is an essentially uneconomic, unwise, unjust, and destructive practice. Mr. Chairman, it is a very difficult matter to answer a contention of that kind. It would seem a priori that when a body of merchants. responsible enough in the eyes of the world to have the handling of 80 per cent of the cotton crop of the United States have arrived at a

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