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the matter. They used to talk, with a great deal more freedom than they do now. These future men, in defending their business, have said that Liverpool dominated the cotton market, that she fixed prices, and I have heard that stated by very intelligent business men, southern men. Now, the law of trade on this point is just this: Wherever the demand is greatest and the supply is lowest, there the best prices should prevail. Where the demand is lowest and the supply greatest, there the lowest prices should prevail. In this way the law of supply and demand works. This one market may control prices at one time, another at another time. If Liverpool happened to be well stocked with cotton and we were offering another crop to her, and she did not need to take our cotton, she would control; but as a general thing the owner of any property controls the price of that "... That is also the law of trade. No man can put his price on my property; I have got to say what it shall be. If, however, I am in a close corner, have got more of a thing than I want and no money, and am bound to sell it, and if the buyer is not pressed and is free to take his time, probabl he can have more to say in the price of my property than I can. But there is this about the Liverpool cotton market: I have known again and again in the past year or two, on our cotton exchange, when Liverpool reported cotton firm and strong and higher, the very next morning New York would come in with a decline of 10, 15, or 20 points, and knock it all out, and, of course, as the United States has the cotton and Liverpool wants to buy it, if we are .inf to sell it to her for less than she is willing to pay, she is not going to hold it up. After Liverpool had shown a disposition to give an advance, New York knocked it all out; and it has been done when New York was oversold on futures and was unwilling to have cotton advance. It would have cost her too much. Thus futures overturned the law of supply and demand, and New York controls.

One more sentence, Mr. Chairman, from this witness, and we will pass on. Page 68 he says: The whole object of this future system is for the benefit of the man who controls it. That is the only reason why it exists, and it has proven a benefit to them of countless millions, which have been drawn from the producers of this country unjustly, and, I might say, dishonestly. Mr. Chairman, I would call your attention to page 9 of the report from which I have been reading and to an introductory statement by the commission on these hearings printed with the evidence. The report says: But it is also shown very conclusively that the actual deliveries as they are claimed to be are in fact fictitious. It is shown that a certain number of bales are classed, weighed, and certificated, and deposited in the warehouse. Each certificate is for 100 bales and is a legal tender for delivery under one of these contracts. It is negotiable and passes around from hand to hand as other negotiable paper. It is tendered and accepted on an average at least thirty times before it rests. In this way, it is claimed, 3,000 bales are delivered through one certificate; yet in all these various transactions not a bale of cotton is seen or actually passes from one man to another.

Now, Mr. Chairman, passing from these witnesses that o before that commission and their testimony, in which I think they have thrown some light upon some transactions of the exchange, and without recapitulating, we will go on.

Mr. HAUGEN. Are we to understand now that the fluctuation of

rices is wholly due to the boards of trade and to speculation in

tures?

Mr. BRooks. Not wholly.

Mr. HAUGEN. Largely so?

Mr. BRooks. Largely so.

Mr. HAUGEN. How does the gentleman account for the fact that the prices of cattle, for instance, will fluctuate in a single day, say, 50 cents a hundred, which is more than the number of points of fluctuation of cotton referred to. Seventy-five cents a hundred on a steer would amount to $12 or $15 a head. The fluctuation would seem to be quite as great in cattle as in cotton.

Mr. BROOKs. Do you suppose that an exchange on cattle would prevent them from fluctuating? Mr. HAUGEN. What? Mr. BROOKs. Would an exchange on cattle prevent those fluctuations in the price of cattle? Mr. HAUGEN. No. Mr. BROOKs. If they do not prevent fluctuations, but aggravate them, where is the good of them? Mr. HAUGEN. I understood you to say that the fluctuations were due to speculation. Mr. BROOKs. There was fluctuation before there was an exchange, and there would be some changes in values after the future-dealing features of the exchange were abolished; but they aggravate the fluctuations and cause this continuous tremor in the prices for the purpose of keeping people investing in futures and handling the immense amount of business through the exchange, for which they get an advantage in the rise and fall by understanding what is going to be done, and getting the commissions. Mr. HAUGEN. §. the gentleman claim that if the exchanges were abolished it would stop fluctuation? Mr. BROOKs. It would not, because prices naturally go up or down; but the fluctuations would then be based on the law of supply and demand, against which no man has a right to complain. These are abnormal fluctuations of the exchange, and we are opposed to them.' Mr. HAUGEN. Is it possible for a number of men with capital to manipulate prices by combinations and monopolies? For instance, at the present time it is very well understood that there is an understanding between the packers in Chicago and other places that the railroad companies shall not furnish cars to the shippers, and as a consequence the cattle on the farms and in the yards can not get cars, thus enabling the packers to put prices up, as has been done. Mr. BRooks. It takes more capital to cause a fluctuation in price by investing in the entire value of your product than it does to affect the price of it by future dealings, but where persons have absolute control of the commodity, perhaps they can raise or lower the price as much as the exchange can on an article that it does not own. Mr. BEALL. The gentleman has just said that the fluctuation of the cattle market is due to some artificial cause; that it is not caused by the law of supply and demand. Mr. Brooks. The cause of the fluctuation to which the gentleman referred would come under a different head. Mr. BEALL. It is an unnatural one? Mr. BRooks. Yes. Mr. HAUGEN. It makes no difference whether it is a trust or a board of trade; the board of trade itself is a trust, so far as controlling the price is concerned. Mr. BRooks. If we demonstrate or prove or satisfy your minds that the exchanges do affect prices, that is what we are trying to prove, and we are repeating testimony here to that effect given by men who have a chance to know; and as to whether some other influence or trust affects the price of some other commodity or not would come under a different discussion. It is hardly necessary, I suppose, for me to go into an extended discussion, but I will call attention to one feature of the methods of the

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exchange, to illustrate how the exchanges handle cotton. I will state some statistics of reports of cotton at the leading ports, where these exchanges are located. Take the year 1907. During this year New York received 23,108 bales, and had on hand at the end of the season 169,975 bales. The receipts for the three preceding years were in the aggregate less than 65,000 bales. During this same year New Orleans received 2,296,971 bales, and had on hand at the end of the season, 31,964 bales. During this year Galveston received 3,891,695 bales, and had on hand at the end of the season, 30,820 bales. This shows that at New York they had a great deal more on hand at the end of the season than they had received during the year, and it has been charged without successful refutation, time and again, by those who are in a position to know, that a great deal of this cotton is absolutely unspinnable, it is of grades that no manufacturer could use, and even were some of it other grades, that they could use, the seller, in order to keep from delivering cotton, could tender other grades above or below those required by the manufacturer who had bought for future delivery, thereby ruining New York as a spot-cotton market.

In order to keep from delivering cotton they have to adopt this plan, because if they had to deliver every time according to contract it would have to be a spot market; and as they can not make it a spot market in competition with other points and ports, these rules are adopted of delivering cotton that is not wanted. If I should advertise that I had 20,000 bushels of peas to sell at 80 cents a bushel when peas were $1 a bushel, I would doubtless get the orders; but if the rules allowed me, when I went to deliver, to deliver rotten peas, I would soon cease to be patronized; and that is the way the cotton-exchange business is run now. The rules of the cotton exchange of New York allow that sort of thing. I am not discussing this from the standpoint of the consumers or manufacturers or farmers, but from the standpoint of all, and those who are in the manufacturing business, some of them, have expressed themselves just as firmly on the side that it is not necessary for their business as any farmer could. Even Mr. McColl, ex-president of the New England Manufacturers' Association, testified before this committee of the previous Congress that thousands and thousands of spinners did not hedge at all. I heard Mr. Coats, who controls 6,000,000 spindles, before the International Congress of Spinners and Cotton Growers, in October, 1907, say that 97 per cent of it was evil, and that if that could not be eliminated you had better destroy the whole. As a rule, it is claimed that investors in futures are from the cotton belt. This throws the manipulators of the exchanges on the bear side as a natural eonsequence, so that the professionals must load down the market until the bulls are frozen out and the margins are captured.

Then the professionals are bulls and take in the sale as fast as offered till the boom is over, and get the advantage of the rise, but take care to stop before it gets to the top and unload again. The exporter who is using the exchange to cover his sales, who hedges as a so-called protection, may hold his futures till after delivery of cotton, if the price of futures and spots are going up; but if the price of both spots and futures are on the decline, he may sell his futures before the spot cotton is delivered which he has contracted to deliver to the spinner.

Now, Mr. Chairman, let us consider again the point of the influence of futures on spots. In the first place, if futures do not affect spots they are useless, and if futures do affect spots they are a nuisance. The trouble is that no one can be helped in the influence that futures may have upon prices without a corresponding injury to another person, and vice versa. The fact that futures do affect spots is brought out so clearly and absolutely conclusive by the report of Mr. Herbert Knox Smith, Commissioner of the Bureau of Corporations, in his investigations of the exchanges, we think this can not be disputed. Numerous charts are given in his report bearing upon this point, and invariably they demonstrate that spot prices follow future quotations. By referring to diagram on page 39 of his report, as an example, we see this demonstrated.

If spot prices follow future prices up and down, that surely is evidence sufficient that futures do affect spot prices, and this then shows absolutely conclusive that the producer and the consumer are dependent for the price they get, or the price they pay upon the exchanges, who handle but very little cotton comparatively, but hundreds of millions of dollars' worth of fictitious sales made for no other purpose than to rake in the margins placed by investors on cotton futures. Why should the actual value, the commercial value, of a commodity that is an absolute necessity to more people than any other product grown from the soil be dependent upon such uncertain, unreliable, and unsteady source of influence ?

Mr. Chairman, the cotton States have to a great extent legislated to the full extent that they had the power to do so against future dealings. Bucket shops have been legislated out of nearly all the cotton States, and we were told that numerous calamities would follow in case that was done, and I have a compilation here that I will hand in, and will not take the time to read it, of the daily spot prices in Galveston and New Orleans. There have been no laws passed against future dealings, as I understand, in Louisiana, while there have been such laws passed in Texas. These are two neighboring ports with identically the same conditions surrounding them, and there is very seldom an exception to the rule that the prices since the passage of that law are higher in Galveston than they are in New Orleans.

(The lists referred to are here printed in the record in full, as follows:)

New Orleans Cotton Exchange Market.

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a Holiday.

New Orleans Cotton Exchange Market—Continued.

New Date. Orleans. Galveston. 1910 January 3----------------------------------------------------------------------- 15? 15? January 15 15 - 15 January 17 15 15 January 22 15 15 }} } # 1 io, 1 101*. 1 1 10 1 10 1 1 12 12!

By the way, it is not often that the exchange advocates are opposed to the abolition of bucket shops. The fellow who wants to patronize the bucket-shop man goes there, and he and the bucketshop man, have it up and down on the fluctuation of the prices, between themselves, but that does not influence the market. He keeps the money from going to the exchange, and when the man that wants to gamble must go to the exchange it throws that custom to the exchange to have the bucket shop knocked out.

The question is sometimes raised, as it was raised a while ago about stock, that perishable products like truck-farm products fluctuate very much, and therefore the fact that cotton fluctuates is no sign that exchanges have anything to do with it. There is a great deal of difference between the fluctuation of a very perishable product like vegetables, peas, cabbage, and things like that, which have to be marketed during a certain season and used then or not at all, and the fluctuations that should occur, under a natural operation of the law of supply and demand, in a product like cotton. For instance, cotton is ...” by more people, more different individuals of the human race, than any other one product, perhaps. The whole world is a customer to the cotton raiser, and the product is nonperishable in quality; it can be kept for ten years without material deterioration, o it will stand more rough handling than almost any other farm product, and it should be more stable in value than any of the other products of the soil, and for that reason there is no comparison between what ought to occur in the natural market in the way of fluctuations of cotton and of vegetables.

Mr. Chairman, under the shadow of these exchanges and their methods there has grown up a condition in the South, both in the tobacco and in the cotton bests, that is very unfortunate to the farmer. Competition among buyers is practically eliminated. The territory is divided between the large cotton handlers, and there are more or less well-defined limits beyond which buyers are not to go. For instance, you may go to Memphis and want a certain buyer to go out to a certain warehouse in Mississippi and buy a certain lot of cotton, and he will tell you that that is . territory, but that Mr. So-and-so will accommodate you. There is no law by which any man is prevented from going anywhere he pleases and buying any quantity

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