certain method of conducting their business, have gradually evolved in their free competition with each other such a method of conducting their business, it would seem, I say, that if that method of doing business is perfectly free, published to the world, open and aboveboard, why, then that body of merchants might very properly be left to use that method as they saw fit. A priori, it would seem that that is the case; but apparently considerations of that kind are not sufficient to prevent attacks upon this body of merchants and upon their method of doing business, and subsidiary matters are brought in as additional reasons why these people should be cut off from doing business as they have learned to do it. We are told that the development of this method of doing business gives an opportunity for speculation. To make the matter worse, this speculation is, in the case of cotton, called "gambling," and we are told that the demoralizing effect of the opportunity to speculate or to gamble is such that the State ought to intervene and ought to do its utmost to prevent the continuance of this practice.

Mr. Chairman, this is all part and parcel of the old, long story of complaint against the merchant. Anybody who is familiar with economic history at all knows, as I have already said, that at recurring intervals the merchant is blamed for that which he has no control over and no essential interest in, namely, the supply of this commodity or that commodity, and the price which this or that commodity brings. Adam Smith pointed that out. He pointed it out in connection with the dealers in grain. He pointed out that no class in the community is more abused than the grain merchants, that none is more often attacked, that none is more constantly charged with evil practices, and that none is more deserving of the steadfast protection of the State. Now, the clothing of the world has become as important economically as the feeding of the world, and this bitter criticism that used to be extended mainly to the grain merchants is now extended to the cotton merchants, and in proportion as the situation in cotton becomes difficult in that proportion does the criticism increase. We are, Mr. Chairman, as regards cotton, in a most extraordinary position in the world. The world is not producing cotton enough for its needs. If you will examine the bulletins of the United States Census Department you will find that for several years past the world has consumed more cotton than it has raised. You will find that two years ago the world consumed 2,400,000 bales of cotton more than it raised. You will find that last year, in spite of the largest crop of cotton ever produced in America, we succeeded in carrying over only 140,000 bales of it, and you will find that this year the world is producing from three to three and a half million bales less than it consumed last year.

This gives us an economic situation which can be remedied only by such a readjustment of price as will draw capital and draw labor from other productive industries into the production of cotton; and, Mr. Chairman, there is no living man who can tell what price for cotton will do that. The southern cotton producer looks at it not from the point of view of the economist, but from the point of view of what he thinks he ought to get. The consumers of cotton goods, the wives of all of us, look at it not from the point of view of whether 36387-A A B-vol 2-10- -11

or not there is cotton enough to go around, but from the point of view of their weekly or monthly allowance, which is cut into too deeply by the advancing price of goods. Anybody who studies the situation from an economic point of view knows that the southern cotton producer is going to receive a price for his cotton sufficient to draw capital and labor from other producing industries into the raising of cotton, and that he is not going to receive any more; and the economist knows that our wives have got to pay a sufficient price for sheets and pillowcases to enable the cotton producer to receive a price for cotton that will draw capital and labor from other industries into the production of cotton, and that that price our wives have got to pay, no matter how unpleasant it is, and that all the criticism and all the talk which we may receive at night when we go home will not affect the situation one iota. But, Mr. Chairman, the question is ever before all of us who have anything to do with cotton, and it is an absolutely unanswerable question, a priori, what is that price that will do this, that will draw this capital and labor from other productive industries into the production of cotton; and, Mr. Chairman, nobody knows, and there is no earthly way of finding out except to try; and while we are trying, while we are oscillating near the line which will ultimately be the line, you are going to have all kinds of opinions as to what cotton ought to be worth, you are going to have all kinds of fluctuations, and you are going to have all kinds of criticisms of the cotton merchant. I do not believe there has ever been a time in the whole history of the cotton industry when there has been more uneasiness with regard to the price of cotton than there is at the present moment, and that will continue, Mr. Chairman, as I have said, until this adjustment has taken place, until the world does normally produce cotton enough for its needs, or until the needs of the world are brought down to the normal production of cotton.

That being the economic situation with regard to cotton, Mr. Chairman, you and all those upon whose shoulders rests the responsibility for the wise guidance of the affairs of the State are going to be appealed to from all kinds of directions, and you are going to hear tales of woeful character with regard to the cotton merchant and what he is doing to the price of cotton. And now I come back, Mr. Chairman, to my original statement, that the cotton merchant is not interested in the price of cotton; that it is not his business to be interested in the price of cotton; that the cotton merchant is interested in performing his function, which is that of distributing the cotton which is produced from the place of production to the place of consumption.

One more point in this connection and I am through for the moment. I have heard the question asked here, I think by yourself, sir, why should the cotton merchant or the grain merchant have a method afforded him for passing on the risks of his business which is not afforded to merchants of other commodities? The answer to that, from the point of view of the economist, is a perfectly simple one. It is so enormously important that the capital which has been gathered together for the distribution of the food, the raw material of the food, and of the clothing, of the world, should not be impaired, because the impairment of that capital instantly throws out of gear the whole immense machine of distribution, that the distribution of the risk involved in handling these huge masses and huge values, so that it

may ultimately rest where it has to rest in the last resort, upon the shoulders of the ultimate consumer and upon the shoulders of the producer-I say it is so important to the State-that any system which brings that about has to be touched only with the most careful and with the most timorous hand. That is the justification, Mr. Chairman, for the system by which the cotton merchant is able, through his hedges, through these contracts for the future delivery of cotton, to avoid the impairment of that capital which is absolutely necessary for the safe and easy and sure distribution to the millions of mankind of this indispensable product.

Now, Mr. Chairman, I will pause and will answer any questions that may occur to anybody.

The CHAIRMAN. Mr. Marsh, I wish first of all to compliment you upon and to thank you for the very illuminating and lucid statement you have made. It leaves no possible room for misapprehension upon the part of the committee as to your own attitude and point of view, and that of course is what we are trying to get at.

Mr. MARSH. Yes, sir.

The CHAIRMAN. I think, however, that you have a little misapprehension as to the purpose and intent of the measures we are considering. In the course of your observations you remarked that it was now proposed to eliminate the merchant class in the cotton trade. That is not the purpose of the bills before the committee. They recognize, as the committee recognizes, that the merchant is an indispensable intermediary between the producer and the consumer of cotton, and the committee recognizes also, as the bills recognize, that contracts for future delivery of any commodity are absolutely essential to any sort of commercial operation; so that we are not trying, there is nobody proposing, to eliminate the cotton merchant. The only purpose of the bills, as I understand them, is to eliminate the man who, buying cotton, has no intention to receive, or selling cotton, has no intention to deliver, and I should be glad if you would remember that in the questions we will ask, because they will all be directed with that point in mind. May I ask you a few questions with reference to the establishment and history of the exchange? How long has the New York Cotton Exchange been in existence? Mr. MARSH. Since 1871.

The CHAIRMAN. At what time was the practice of future delivering, as it now exists, initiated?

Mr. MARSH. It was initiated first, apparently, in Liverpool in 1868 or 1869, so far as I can find out.

The CHAIRMAN. That was prior to the organization of your exchange?

Mr. MARSH. Yes.

The CHAIRMAN. So that the system has always existed so far as your exchange is concerned?

Mr. MARSH. Always.

The CHAIRMAN. You say there are 450 memberships?

Mr. MARSH. Yes, sir.

The CHAIRMAN. Are we to understand by that that the number is limited to that?

Mr. MARSH. The number is limited to 450.

The CHAIRMAN. And there are about 425 actual members?
Mr. MARSH, Living members; yes, sir,

The CHAIRMAN. And you say its members are all cotton merchants? Do you mean to be understood as saying that all these 425 men actually buy and sell cotton?

Mr. MARSH. I do.

The CHAIRMAN. That they get legal possession of cotton when they buy it and that they make actual deliveries of cotton when they sell it?

Mr. MARSH. I said to you, sir, that a portion of the members of the New York Cotton Exchange fulfilled subsidiary functions of the merchant class. If you will remember, I made that statement.

The CHAIRMAN. I remember that statement, but I did not quite understand what you meant by "subsidiary."

Mr. MARSH. I mean, sir, that a broker who executes for one member of the exchange a contract with another member of the exchange is fulfilling a subsidiary function of the cotton merchant class.

The CHAIRMAN. Are there any merchants among these 425 who, to use the common parlance, deal in margins only?

Mr. MARSH. I have no idea, sir, of any distinct and clear kind, as to what is meant by dealing in margins only.

The CHAIRMAN. I think the common understanding of that would be this, that a merchant goes on the exchange and offers 1,000 bales of cotton for sale at a certain price, or he buys 1,000 bales of cotton at a certain price, with no expectation, on the one hand, of delivering the cotton, or, on the other hand, of receiving it, but merely backing his judgment against the judgment of the man to whom he sells or from whom he buys, as to whether or not cotton will go up or go down.

Mr. MARSH. Mr. Chairman, there is no member of the New York Cotton Exchange whose entire fortune is not responsible for the contracts which he makes with his fellow-members.

The CHAIRMAN. Do you think that is an answer to my question? Mr. MARSH. It is the only answer that I can give. I do not know exactly what you mean. You speak of trading on margin. Now, do you mean by "trading on margin," trading on credit?

The CHAIRMAN. Oh, not at all; not at all. Perhaps I can make my meaning a little clearer. It has been stated by preceding witnesses that cotton merchants in the South, when they sell cotton which they do not have immediately in their warehouses, in order to protect themselves buy cotton on the New York Exchange.

The CHAIRMAN. And I do not think anybody would criticise that particularly. It has been stated here that there are not more hedges than there is cotton; that there are not as many bales of cotton, in fact, covered by hedges as are actually handled; and yet the impression is general that there is sold and bought upon the New York Cotton Exchange, in the course of the year, many times the total cotton crop of the world. So there must be a great many exchanges which do not involve the delivery of actual cotton and which can not be accounted for by the hedging system, and it is to those exchanges that my question is directed-exchanges which do not involve either the hedging system or the actual delivery of cotton, which therefore must be made, it seems to me, upon a mere difference of

judgment as to whether cotton is going up or going down; and that is what I meant by "margins."

Mr. MARSH. As I understand your question now, Mr. Chairman, it is simply this: Is there speculation in cotton on the New York Cotton Exchange or on the part of the members of the New York Cotton Exchange, speculation conducted through the entering into of contracts for the purchase or for the sale of cotton, and with the hope of deriving a profit through buying in or selling out those contracts to somebody else at a profit. Is that your question?

The CHAIRMAN. That is a pretty fair statement of it.

Mr. MARSH. There is undoubtedly speculation of that kind on the New York Cotton Exchange.

The CHAIRMAN. Now, I come back to my original question. What proportion of your 425 members are engaged solely in the sort of speculation which you have described? Would it be possible for you to answer that question?

Mr. MARSH. I do not think that any living being could answer that question.

The CHAIRMAN. Well, am I going to gather from that that all your merchants follow both practices at one time or another?

Mr. MARSH. I am not able to say, Mr. Chairman, what all these competing merchants severally do severally and individually do— in the conduct of their business. We have no way of telling. The CHAIRMAN. Yes.

Mr. MARSH. We do not show each other our books. competitors.

We are

The CHAIRMAN. I will pass that for a moment. You stated that the New York Cotton Exchange handles over 80 per cent of all the cotton in the country.

Mr. MARSH. The members do so. The New York Cotton Exchange handles no cotton. I said that members of the New York Cotton Exchange handled over 80 per cent of the cotton crop of the United States.

The CHAIRMAN. Will you explain just exactly what you mean by that expression? Are we to understand that 80 per cent of the cotton of the United States passes through the hands of your exchange?

Mr. MARSH. I think that is a fair interpretation of my statement.
The CHAIRMAN. They acquire the actual cotton and they sell it?
Mr. MARSH. They acquire the actual cotton and they sell it.
The CHAIRMAN. You have a corporation, I presume?

Mr. MARSH. Yes, sir.

Mr. BURLESON. Will the chairman let me suggest one question? Will you ask Mr. Marsh if they sell that cotton through the New York Cotton Exchange? Following the line of your question, Mr. Chairman, do they sell it through the New York Cotton Exchange? The CHAIRMAN. You understand the question?

Mr. MARSH. I do not understand that expression. I do not know what the expression "through the New York Cotton Exchange"

means.

The CHAIRMAN. I presume Mr. Burleson had this in his mind: Do the men who use cotton buy it-buy the actual cotton-from the membership of your exchange? Was that the point of your question, Mr. Burleson ?

Mr. MARSH. I answer that question that they do, but I do not think that is Mr. Burleson's intention.