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The CHAIRMAN. Let him state it, then.

Mr. BURLESON. You say that the members of the New York Cotton Exchange actually buy and sell 80 per cent of the cotton crop of the United States ?

Mr. MARSH. I do, sir..

Mr. BURLESON. Now, of course, they do not buy this crop from anybody except the producers? They buy the crop from the producers ?

Mr. MARSH. They buy it from those who produce it and they buy it from small interior merchants who buy it from the producers.

Mr. BURLESON. You say they sell it as they buy it?
Mr. MARSH. Yes.

Mr. BURLESON. Do they make those sales through the medium of the New York Cotton Exchange?

Mr. MARSH. The New York Cotton Exchange is not a medium for any sales or purchases or trades of any kind or description.

Mr. Sims. Is it the practice of your cotton exchange or any other cotton exchange to establish rules that would eliminate the character of trading which you have just described, which means that parties buy or sell cotton, whether they are members of the cotton exchange or not, through members of the cotton exchange—not cotton but contracts, buy and sell in and out—just simply for the purpose of getting the benefit of the hoped for profit in the mere trading in a contract, with no intention of that contract ever being executed by an actual delivery? Is it possible for you to so amend your rules or your operations as to eliminate that kind of trading which you mention without eliminating the agency of this function that tends to promote real good ?

Mr. MARSH. It is not possible so to amend those rules without becoming an association in restraint of trade, without interfering with the fundamental right of every American citizen to buy whatever he wishes to buy or to sell whatever he wishes to sell.

Mr. Sims. Under the law of New York is not the contract which you have just described a void contract, where the parties on both sides have no idea of complying with the terms of the contract?

Mr. MARSH. I have never known such a contract to be made on the floor of the cotton exchange.

Mr. SIMs. Not on the face of it. Of course, on its face it says that it is the actual intention of the party who sells to deliver and of the party who buys to receive. That is the way it reads. But whatever it says on its face, you know as a man of experience—and you have just described it—that a great deal of that business is in fact not as stated on that contract, and that the parties who buy do not intend to receive and do not expect to, and the parties who sell have no idea of delivering. Is it practical to eliminate that and still have the practical work of your exchange go on?

Mr. MARSH. Mr. Chairman, the question, with the accompanying statement, is in itself an insult to me and to every member of the New York Cotton Exchange.

The CHAIRMAN. I do not think it was so intended.
Mr. SIMS. Wait a minute-

The CHAIRMAN. Mr. Sims was simply stating what was the general understanding, and there was no such thought, I am sure, in his mind.

Mr. Sims. Let him finish. He understands what I mean, I am sure.

Mr. MARSH. Every member of the New York Cotton Exchange when he enters into a contract with another member of the New York Cotton Exchange enters into as solemn a contract as is made in this world, calling for the delivery of that which is sold and the receipt of that which is bought, and the intention of every contract made on the floor of the New York Cotton Exchange is that there shall be delivery of that which is sold and receipt of that which is bought; and to assert that our rules call for one thing and that we consciously and intentionally and dishonestly conduct our business in contravention of those rules is to assert that we are business men unfit to have the credit which we have; to carry the responsibilities which we carry; to fulfill the place in the world's economy which we fulfill.

Mr. Sims. Now, Mr. Chairman, let me state it. I think the gentleman became insulted either through having misunderstood me or else, perhaps, to make his own position impressive. I did not mean to infer that you entered into those contracts meaning that; but if I go and buy 10,000 bales of cotton on the floor of the exchange through you, you being a member of the exchange and you thinking I intend to do what I propose to do, and some man, some outside operator, sells 10,000 bales of cotton that he does not intend to deliver, those contracts are void under the laws of New York and under the laws everywhere else. What I intended to ask, and a gentleman of your position and experience must have seen what I meant, was this: Could you so manage the cotton exchange as to prevent people from using it for such a purpose—not that you would use it for such a purpose? I did not intend to say anything that would imply any such thing. Is there any way to keep those people who want to do what we call a "gambling" business from doing it through your exchange—not that you gentlemen consciously do it? Nobody thought of making any such charge as that.

Mr. MARSH. Mr. Chairman, every communication between a member of the New York Cotton Exchange and any outside person who desires to buy or to sell contracts for the future delivery of cotton bears printed upon it a statement that it is understood that the transaction is entered into with the intention that the cotton sold shall be delivered and that the cotton bought shall be received. If there is any outsider who will come to a member of the cotton exchange and in the face of that statement, which is put under his eyes from the very start, deliberately request that member of the New York Cotton Exchange to execute for his account a contract which he does not mean to fulfill, then, Mr. Chairman, I do not think there is any system of affidavits or anything else that will protect us from the iniquity of persons of that kind.

Mr. Sims. Now, then, you have pronounced any such dealings as that which I have described as being iniquitous.

Mr. MARSH. I pronounce all undertakings entered into by any human being with the intention of not fulfilling that which he undertakes to do as iniquitous.

Mr. Sims. Then, do you blame us for trying to establish legislation, if we can, to avoid that iniquity, if it does exist ?

Mr. MARSH. Mr. Chairman, I am against all iniquity. I wish it did not exist.

Mr. Sims. Further, Mr. Marsh, do you not know—I do not mean as a legal witness but as a matter of those things you know that you can not legally testify—that if I go there and buy 10,000 bales of cotton I am here in Washington and I do not sign it, I do not know what is signed, and yet I may not in my heart intend to receive one bale of that cotton; and you pronounce that as a very great iniquity ? Mr. MARSH. I do, sir.

Mr. Sims. Is there anything wrong in so legislating, if we can, to prevent men from using the members of the New York Cotton Exchange for such an iniquitous purpose ?

Mr. MARSH. Mr. Chairman, I had supposed that under our system of government the punishment of frauds was left to the States. I had not supposed that it was the duty of the National Government to chase down the fraudulent, the perjured, and the malefactors of the community, nor had I supposed that it was the function of the National Government, in its efforts to punish frauds and iniquity, to interfere with that normal and natural and free business intercourse between upright citizens upon which the economic welfare of the country depends.

Mr. Sims. Now you have, as I think, very honestly and truthfully pronounced such things, such transactions, iniquitous of themselves. They are not crimes; they are not punishable by statute. Mr. MARSH. My dear sir, they are frauds. Mr. Sims. No; how are they frauds ?

Mr. MARSH. Mr. Sims, if I show you that every transaction you request me to enter into for your account is a transaction involving the delivery or the receipt of that which you contract for, and you, without telling me that your intention is quite different, still instruct me to enter into that contract for your account, is not that a fraud ?

Mr. Sims. Now, I am going to ask you a question that involves nothing but common sense. Take a merchant who is buying and selling actual cotton—who is a dealer in actual cotton. If you were to receive an order of that sort from him it would not raise any suspicion in your mind; but take me as a practicing lawyer who never saw a bale of cotton in my life, never bought one, and never sold one; if you receive an order of that kind from me you have every reason to believe that I do not intend to receive that cotton. Your common sense tells you so, and you know it. You do not have to have an affidavit put under your nose to make you assume that I am doing that which, as you announce, is a fraud.

Mr. MARSH. Mr. Sims, I see lawyers buying real estate which they have no means to pay for

Mr. Sims. There is no use getting off on that. We are talking about cotton now.

Mr. MARSH. I see them speculating in more different directions than any other class of men in the community.

Mr. Sims. They are very great speculators; but you have denounced these particular transactions as frauds. I say, such an order coming from à merchant or a member of the cotton exchange, there would be no indication to your mind that he did not intend to deliver or receive the cotton; but coming from a man that does not deal in cotton, and who, as you know, has never had anything to do with it, there is at least good ground for you to suspect that he is doing that which you have pronounced an iniquity and a fraud.

Mr. MARSH. And you suggest that the rules of the New York Cotton Exchange could compel me to refuse to take that gentleman's order, telling him to his face that he is a fraud and that the natural presumption as to a citizen of the United States in his favor, that he does not mean what he says, should not apply in his favor in this case ?

Mr. Sims. I do not agree with you that he is a fraud or a cheat, like you say; but you have given us ground to stand on here which we have never had before. The United States Government has the right to withdraw the use of its agencies from such a fraud as this bill is designed to prevent, the use of the mail between States, and of telegraphic and telephonic communication between States, where the use of United States Government facilities is made primarily to aid a fraud and a cheat. Now, how are we infringing on the rights of the State when we are doing that which no State can do—to suppress a fraud and a cheat?

Mr. MARSH. Mr. Chairman, I hardly know what to say in reply to that. The presumption in business circles is that honorable men, occupying an honorable position in the community, are not frauds and are not cheats. When a man holding an honorable position in the community tells me that he believes cotton is a good thing for him to buy, even though he have no use for cotton himself, I do not think that I am in any other position or entitled to any other presumption than if he were to tell me that there is a good piece of real estate up the street which he has not any use for, which he does not want to build a house on nor to have his office on, but which he thinks is a good thing for him to buy because he thinks it will improve in value, and he gives me an order to go and buy it.

The CHAIRMAN. Mr. Marsh, I think it is generally understood, as you say, that the contracts into which you enter call for the actual delivery of cotton if it is demanded; but one of the criticisms against the New York Cotton Exchange, as you are doubtless aware, is that under its rules the option of the delivery rests with the seller, and that you permit so wide a range of cotton to be delivered on your contracts that a man who is actually desiring to buy cotton for use in his mill can not take the chances. Before you answer, in order to make that statement a little clearer, let me read from a letter which I have received this morning. This letter is addressed to the House Committee on Agriculture, so that I take it there is nothing of a confidential nature about it. You may perhaps know the writer. This is written on the letter head of Carpenter, Baggot & Co. and is signed by H. L. Scales.

Mr. MARSH. I know Mr. Scales.
The CHAIRMAN. The letter is as follows:


New York, February 10, 1910. GENTLEMEN: The present contract of the New York Cotton Exchange is a menace to legitimate trade, as it permits many different grades certificated cotton delivered on contract of 100 bales.

If each 100 bales certificated cotton (which is one contract) was required all to be of one grade, spots and futures would maintain proper relations to each other. Spinners can not afford to buy future contracts on the New York Cotton Exchange and ask for delivery of the cotton, because they want their cotton to all be of one grade to suit their particular need. Some spinners probably would use another grade, but none of them can possibly use many different grades at the same time.

Wheat has about twenty different grades; still only three grades of wheat are tenderable on contract, and a miller buying a contract of wheat invariably gets one grade, viz, No. 2 red winter, No. 2 hard winter, and No. 1 northern spring, all firstclass milling wheat. Not so in cotton; a spinner buying a contract on the New York Exchange must accept whatever is tendered him, usually several grades in the same contract. Therefore, the present contract on the New &. Cotton Exchange is a menace to legitimate trade interest and in all fairness and justice should be changed, so that spinners can specify and buy such grades as suits their requirements.

In my opinion only those grades of cotton most commonly used, middling strict and good middling, should be tenderable on contract.

Yours, very truly, H. L. ScALEs.

Washington, D. C.

Mr. MARSH. I am very glad that that letter has come in here, and I am very glad that you brought the matter up. It gives me an opportunity for bringing out more clearly even than I have before brought out the character of the New York Cotton Exchange. The New York Cotton Exchange, Mr. Chairman, is an association of cotton merchants who have made the by-laws and rules which govern their trading with each other in the light of what they have to do as merchants distributing the cotton crop. The New York Cotton Exchange has not a contract for spinners. It has not a contract for spinners because it is not an association of spinners; it is an association of merchants. . The business of the exchange is the business of men who have to take all kinds of cotton as the producer sells it; who have to carry that cotton as they get it, containing all kinds of cotton, and gradually work out this lot for this spinner and that lot for another spinner, until they finally get it distributed. I said a moment ago that when we reach a period of uneasiness with regard to price the merchant is the man who is the target for all the arrows that are shot. On the one side the producer shoots at him and on the other side the consumer shoots at him. Mr. Chairman, one of the reasons for the criticism which has been current for the last two or three years with regard to the New York Cotton Exchange is that certain spinners desire to shove aside the merchant, to get in back of him, and use that contract, the contract which the merchant devised for his own use, for a purpose for which it was not intended and for which it can not be used without destroying the body of merchants who use it. The CHAIRMAN. Will it interrupt you if I ask you a question? Mr. MARSH. No; not at all. The CHAIRMAN. You said this contract is not made for spinners? Mr. MARSH. Yes, sir. The CHAIRMAN. Do not the spinners use a great proportion of the cotton that is consumed in the United so Mr. MARSH. They use it all, sir. The CHAIRMAN. Then if you have a contract which is not made for spinners and under which, according to this letter, spinners can not afford to buy future contracts on the New York Cotton Exchange, how are you able to handle 80 per cent of the cotton crop 8 Mr. MARSH. Mr. Chairman, spinners use all the cotton that is produced in the United States. No one spinner uses all the kinds of cotton that are produced in the United States. It is the business of the cotton merchants to acquire the cotton in bulk as it is sold in the South, and then separate it out into these various characters and qualities and distribute it to the spinners who need each character

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