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eliminated from the merchant and is eliminated from the spinner; and who does carry it?

Mr. MARSH. In an advancing market—that is, with a short supply of cottonthat ultimate risk is finally devolved upon the innumerable consumers of cotton all over the world.

Mr. HAWLEY. Of manufacturers ?

Mr. MARSH. Not the manufacturer; he does not bear it. It gets away beyond the manufacturer.

Mr. HAWLEY. I say the consumers of manufactured articles.

Mr. Marsh. Oh, yes; I beg your pardon; I did not understand you. It goes thousands of miles beyond the manufacturer. It goes away back in Manchuria and up into India.

The CHAIRMAN. Your answer, then, is that the ultimate consumer of the product is the man who bears that risk?

Mr. MARSH. He is the man who takes that risk when the supply of cotton is short and when the market is advancing. When the supply of cotton is more than the demand, unquestionably the producer takes the risk.

Mr. BEALL. On a declining market, then, the burden of this risk falls upon the producer ?

Mr. MARSH. Unquestionably.
Mr. BEALL. With an advancing market it falls upon the consumer?
Mr. MARSH. Yes.

Mr. BEALL. In the one case the people of the South bear the burden?

Mr. MARSH. Unquestionably.

Mr. BEALL. And in the other case the people of the world bear the burden?

Mr. MARSH. Unquestionably.
Mr. BEALL. It is a burden either way?
Mr. MARSH. Unquestionably. Almighty God made it so.
Mr. BEALL. Almighty God aided by anybody else? [Laughter.]
Mr. MARSH. Almighty God not aided by anybody; certainly.

Mr. BEALL. Leaving that for the present, I believe you stated that all the contracts upon the New York Cotton Exchange contemplate delivery?

Mr. MARSH. They not only contemplate it; they require it.
Mr. BEALL. They require it. You are a broker of that exchange?
Mr. Marsh. I am..

Mr. BEALL. Can you give the committee an estimate of the number of bales of cotton that, as a broker, you have sold on that exchange during the past sixty days—the number of bales that you sold on the exchange for delivery in December, if that is one of the months of delivery, and I believe it is ?

Mr. MARSH. I have not those figures in my head. Mr. BEALL. Could you form an estimate? Mr. MARSH. I am afraid I could not, because I am buying and selling all day long.

Mr. BEALL. Regardless of the number, what per cent of that number that you sold were ever actually delivered ? Could you form an estimate as to that?

Mr. MARSH. How do you mean, actually delivered ?

Mr. BEALL. You sold upon the New York Cotton Exchange for delivery in December, say

Mr. Marsh. Yes.

Mr. BEALL (continuing). A small or a large number of bales of cotton, as the case may be ?

Mr. MARSH. Yes.

Mr. BEALL. Can you form an idea as to the percentage of that number of bales of cotton that was actually delivered under the sales that you made?

Mr. MARSH. A large part of my sales were made for January delivery, March delivery, May delivery

Mr. BEALL. Well, say January?

Mr. MARSH (continuing). July delivery; naturally none of those have involved any delivery of cotton as yet, except a portion, probably, of the January sales.

Mr. BEALL. Can you form an estimate as to the probable percentage of deliveries actually made on the January sales made by you?

Mr. MARSH. This is February. Deliveries were made on all the sales of January.

Mr. BEALL. The delivery of actual cotton was made upon all the sales of January?

Mr. MARSH. I should say that that was a reasonable answer to give your question. I perhaps ought to explain this answer, as it is a fundamental point in the whole controversy. I have already said to the committee that when contracts are formed between members of the exchange, those members are constantly making new contracts with other members of the exchange to take their places under the original contract. That results in chains of contract obligations which arise under the business of the exchange. When the specific month for which the contracts have been entered into comes around, if one of my customers has sold to a member, whom we will call A, 100 bales of January cotton, and A has sold it to B, and B has sold it to C, and C has sold it to D, and D has sold it to E, I say when the current month, as we call it, comes around, a notice to the effect that there are 100 bales of cotton in a warehouse in New York ready for delivery is given by the first seller to the first buyer and by him is passed to the second buyer and by him to the third buyer, and in that way 100 bales of cotton may be delivered in the fulfillment of 10,000 bales of contracts.

The CHAIRMAN. Would not a more strictly accurate answer to Mr. Beall's question be, that you had delivered the contracts which you sold? Mr. MARSH. No, sir.

The CHAIRMAN. That you had bought the contracts for the delivery of cotton in January? It is probably impossible for you to tell whether any actual cotton has been delivered under those contracts, but you can truthfully say that the contracts which you sold have been delivered to the parties who bought them. Is that not what you really mean?

Mr. MARSH. I mean, sir, that a valid and legal evidence of the ownership of 100 bales of cotton has been delivered by the first seller to the first buyer.

The CHAIRMAN. Exactly.

Mr. MARSH. And by him to the second buyer, and there is no break in the chain. The delivery of actual cotton has taken place.

Mr. LEVER. Not in each instance, however.
Mr. Marsh. Why, certainly.

Mr. LEVER. I thought the delivery took place on a day certain, at the end of the month.

Mr. MARSH. It takes place on any delivery day during the month.
Mr. LEVER. How many delivery days do you have ?
Mr. Marsh. There are four in each week of the month.

Mr. HEFLIN. I did not catch Mr. Marsh's answer. I understand you to say that in every contract made on the exchange the actual cotton is delivered ?

Mr. MARSH. I described, sir, the process by which these contracts are fulfilled when the current month, the month called for in the contract, comes around.

Mr. HEFLIN. Is it not a fact that numbers of contracts are made where neither party ever sees the cotton, and the difference is settled in money?

Mr. MARSH. I do not see how such contracts could be made under the rules of the New York Cotton Exchange.

Mr. HEFLIN. I am just asking you if that ever does occur. Where a man will sell 100 bales of cotton and the man who buys that 100 bales never sees the 100 bales, and the difference, at a certain time, is settled in money, and no cotton ever passes.

Mr. MARSH. Well, I have been the legal owner of large quantities of cotton which I never saw. I suppose that Messrs. McFadden & Bro. in the course of every season are the legal owners of a million bales of cotton that they never saw.

Mr. HEFLIN. And they never ask to see it, do they?
Mr. MARSH. And they never ask to see it.

Mr. HEFLIN. The differences are often settled in money, are they not? That is true, is it not?

Mr. MARSH. I do not know what you mean by differences which are settled in money.

Mr. Herlin. The speculative feature of it; that they buy and sell cotton-the members of the exchangewhen no actual cotton is delivered. Can I not buy 100 bales of cotton to-day on the New York exchange, and if the price goes up get my money—the difference between now and a certain date—without taking any cotton ?

Mr. MARSH. Mr. Heflin, you can not buy 100 bales of cotton on the New York Cotton Exchange, but you can give an order to a member of the New York Cotton Exchange to buy a contract for the delivery to him for your account of 100 bales of cotton.

Mr. #EFLIN. Well, whatever you call it. Now, can I not have money paid to me if the price of cotton goes up, without ever taking any cotton or seeing any cotton? Can I not close out my deal with that member of the exchange without having the cotton delivered to me or seeing a pound of cotton ?

Mr. MARSH. If, after having given that member of the exchange an order to contract for 100 bales of cotton for your account, you subsequently give him an order to sell to somebody else a contract for 100 bales of cotton for your account, and there is a profit in the transaction, you can certainly get that profit.

Mr. HEFLIN. Without any actual cotton ever having passed ?

Mr. MARSH. With the certainty that those two contracts will ultimately be settled in the market by the passage of actual cotton.

Mr. HEFLIN. Of actual cotton. One other question while I am on that. How many bales of cotton do you suppose are contracted for on that exchange in a season, in a year, by the members of the New York Cotton Exchange?

Mr. MARSH. The New York Cotton Exchange made the most strenuous efforts for a long period to keep an account of the actual transactions which took place there. It was found that the errors which crept into the statements were so numerous, that so many transactions were erroneously reported in the rush of business and so many escaped being reported in the rush of business, that the statements arrived at at the end of each day were entirely misleading-misleading to the members, who alone had a legitimate interest in those statistics. Mr. HEFLIN. I am told, Mr. Chairman, that the New Orleans Exchange keeps books, and |. can tell, by the month, how many bales have been dealt in on that exchange every month. Mr. MARSH. I am not informed as to that, Mr. Chairman, but I am certain that in a business of the character of this, accurate statistics are a physical impossibility. Mr. SIMs. More so than in stock transactions? Mr. MARSH. Very much more so. Mr. MENDELBAUM. I would like to ask just one question in connection with what Mr. Heflin has asked. You were asked as to the firm of McFadden & Bro. holding memberships on the New York Cotton Exchange. Is it, or not, a fact that eight of the members of that firm hold memberships in the New York Cotton Exchange? Mr. MARSH. I have not the exact figures in my mind, but I think that is so. Mr. MENDELBAUM. Another question I would like to ask you. When you stated that McFadden & Bro. sometimes held a million bales of cotton, did you have in view contracts, or did you have in view cotton which they had in this country and, in fact, all over the world—the actual stuff? Mr. MARSH. I had in mind actual cotton. Mr. MENDELBAUM. That is all. Mr. LEveR. Mr. Beall asked you if you could furnish the number of bales of cotton sold by you during the month of January. I do not know that we ought to ask Mr. Marsh to do that, because it may be going too far into his personal business, but if he can furnish it, and # he does not mind doing it, I believe it will illuminate this question somewhat. Mr. MARSH. Mr. Chairman, I am competing with other members of the New York Cotton Exchange, and I do not care to give the details of my personal business. Mr. LEveR. Very well, I will not press that. Just one other suggestion. I think it will help the committee in coming to a conclusion on this very important matter if we can have Mr. Marsh or some other member bring here a copy of the rules of the New York Cotton Exchange. Mr. or. We have that here. Mr. BEALL. With the different forms of contract. Mr. LEveR. Did you ask Mr. Marsh if he could show us in just what way the delivery of 100 bales of cotton liquidated other sales? Mr. NEville. The late Mr. Lovering had a full set of transfer notices actually used in the liquidation of contracts in a current month, which I gave him, and which ought to be in his office.

(At 5 o'clock p. m. the committee adjourned until Monday, February 14, 1910, at 1 o'clock p. m.)


Monday, February 14, 1910. The committee met at 1 o'clock p. m., Hon. Charles F. Scott (chairman) presiding.


The CHAIRMAN. Will Mr. Marsh please resume the stand? Mr. Brooks, who is the spokesman for the Farmers' Union, is compelled to leave the room this afternoon and has asked me if he might ask Mr. Marsh two or three questions.

Mr. BROOKS. I understood you to say last Friday that the New York stock of cotton consisted of many kinds; is that correct? Mr. MARSH. Yes, sir.

Mr. BROOKS. Does it ever happen that the stock of New York cotton may exceed the entire year's product ?

Mr. MARSH. That can not possibly happen.

Mr. BROOKS. There is never any more stock than there is cotton available ?

Mr. MARSH. No, sir.

Mr. BROOKS. And the membership of the exchange consists of 425 members and handles 80 per cent of the cotton in the United States ?

Mr. MARSH. Yes, sir.

Mr. BROOKS. How is it you can get those statistics and yet do not know how much is handled on the exchange?

Mr. MARSH. The answer to that, Mr. Chairman, is very simple. Hedging transactions which members of the exchange may or do enter upon in the process of distributing this stock of cotton are their own private affair; it is no business of anybody except the member himself what hedges he uses, how many he uses, where he uses them; in other words, what contractual obligations he enters into in the course of distributing the cotton which he acquires for distribution.

Mr. BROOKS. Mr. Chairman, then I would like to know if you consider the functions of the exchange private or public in their nature!

Mr. MARSH. Unquestionably private.

Mr. BROOKS. Well, you also stated, if I mistake not, that the contract furnished spinners by brokers on the exchange was not suitable for spinners and therefore they had to be also merchants as well as spinners if they had their cotton delivered on the exchange? * Mr. MARSH. I believe I made that statement; yes, sir.

Mr. BROOKS. Well, then, if these cotton merchants that constitute the exchange do not perform fully the function of merchant, what function do they perform?

Mr. MARSH. I hardly know how to answer that question because of the supposition which is involved in it. It seems to me to appear on the face of things that inasmuch as these merchants do distribute 80 per cent of the cotton crop of the United States they do fully perform their functions as merchants.

Mr. BROOKS. Well, they perform that function not on the exchange, but separate and apart from it; is that the way?

Mr. MARSH. How do you mean “not on the exchange?”. Mr. BROOKS. I mean by having the cotton delivered on the contract that is sold across the cotton pit on the floor of the exchange.

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