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Mr. MARSH. Mr. Lever, people are always coming to the New York Cotton Exchange with the idea that they can lead the horse to water and make him drink, but nobody has ever yet succeeded in doing it. The price of cotton is determined by what the consumers of dry goods will pay for those dry goods and by what the producers of cotton will sell the cotton for. I said on Friday that the cotton merchants are not interested in the price of cotton.

Mr. LEVER. I have been very much interested in your characterization of yourself and other members of the exchange as cotton merchants. You gentlemen are not in business for fun, of course, nor for philanthropy; we have always understood, at least I have, that a merchant was a gentleman who proceeded in his business on this kind of hypothesis: That he would buy goods as cheaply as possible and sell them as dearly as possible. Do you proceed upon that assumption ?

Mr. MARSH. I certainly do not, Mr. Lever; I think that even a casual study of the great merchandising of the world will show that that is not the case; the tendency of the great merchandising of the world for many years has been to bring the merchant's compensation rather in the shape of a reasonable commission than in the shape of a profit derived from buying cheap and selling dear. Now, that process has gone so far in the cotton trade that every cotton merchant speaks of his merchant's profit as a commission. In figuring the price at which I, as a cotton merchant, will sell cotton to a spinner, I always figure my own merchant's profit as a commission, and that is the tendency of all the great merchandising.

Mr. LEVER. So you think, then, that the business of merchandising has changed since the days of Edmund Burke when, in his great speech at the trial of Warren Hastings, he said, “The merchant is the same the world over and gold is his God, the exchange his church, his desk his altar, his ledger his Bible, and he has faith in none but his banker?”

Mr. MARSH. There is no greater admirer of Edmund Burke than I am, but in economic questions he was a child and an Irish child at that.

Mr. LEVER. You don't agree to that? You said the other day that you had 425 active members of the New York Cotton Exchange; do you happen to know just what proportion of that membership engages in the handling of actual cotton ? ..

Mr. MARSH. I think that question was asked me on Friday, and I said I could not give an accurate answer to it; that there were no figures available to me that would give an accurate answer; that I could simply say that I felt sure that a majority of them were engaged in what I called the primary merchandising function. I distinguished, if you will remember, between primary merchandising and those subsidiary merchandising functions which are performed by brokers. I should say that a majority of the members were so engaged, and I should think the proportion would run up to 60 or 70 per cent; I am not willing to put myself on record or to swear, however, that the number is at least 60 or at least 70 per cent.

Mr. LEVER. You wouldn't be willing to say that not more than a dozen of the members of the New York Cotton Exchange are really representatives of spot houses?

Mr. MARSH. I should be willing to say that over 200 are representatives of large spot houses; my impression is that over 300 are, but I am perfectly willing to take oath to the fact that over 200 are. Mr. LEVER. Represented in the actual handling of cotton? Mr. MARSH. Yes. Mr. LEVER. What grade of cotton regulates the price of futures? Mr. MARSH. No grade of cotton, sir. Mr. LEVER. If a man went out in the field, however, to buy a bale of spot cotton, the grade would regulate the price of that spot cotton? Mr. MARSH. No, sir. Mr. LEVER. It would not ? Mr. MARSH. No, sir. Mr. LEVER. You would give a man just as much for low middling as you would for strict middling? Mr. MARSH. I did not say that. Mr. LEVER. That is what I am driving at; can you answer it now in the light of that explanation? Mr. MARSH. The price of any given grade of cotton is of course *. by the demand and the supply of that grade. LEyFR. For instance, Mr. Marsh, May went up to 15.05, for futures, of course—15.05 for what? For strict middling, or low middling, or ordinary middling, stained, or what? Mr. MARSH. For 100 bales of cotton which might consist of any or all of those grades? Mr. LEVER. Which might consist of any or all of those grades? Explain what you mean by that. Mr. MARSH. A contract on the New York Cotton Exchange is exactly like a contract which an interior merchant makes with the producer of cotton; as the interior merchant takes the producer's cotton as it runs, so the merchant on the New York Cotton Exchange takes cotton as it runs—takes it in gross. Now, cotton runs in gross from good ordinary up to fair, with certain grades also of tinged and stained cotton; the contract on the New York Cotton Exchange is devised to cover that range of grades, to reflect cotton as it is produced in gross. Mr. LEVER. If I, as a farmer, should sell 100 bales of cotton— farmers sometimes do it, because they need the money at the time— and have an idea that the price in the fall was going up and should buy 100 bales on the New York Exchange, under your contract, even though I had sold my strict middling cotton, you would assume the right, under your contract, to deliver me any one of 23 grades of cotton? Mr. MARSH. We should. Mr. LEVER. Cotton that I could take home and sell to my local merchant, perhaps, and perhaps could not sell at all because it was not usable P Mr. MARSH. I should not admit that, because if that cotton were sold to the local merchant he might sell it again on the New York Cotton Exchange. Mr. LEVER. Suppose I was a spinner and wanted to spino Mr. MARSH. I said on Friday that the contract on the New York Cotton Exchange is a merchant's contract. It is not a spinner's contract. Mr. LEVER. That is very true, that is one of the points we are trying to get at. Is it true that about eight-tenths of the spinners of this country use from low to good middling cotton? Mr. MARSH. How many Mr. MARSH. Well, whenever a man says that we ought to do right I agree to it; the question, however, always arises, and the difficulty always comes in human affairs, of determining what is right. Now, I think that Mr. Thompson's statement is, in its general moral purposes, admirable; I fully agree with him; his ideas as to what is right I do not agree to in all their details.

Mr. LEVER. About eight-tenths.

Mr. MARSH. I should think that the proportion could not be as large as that.

Mr. LEVER. Not quite eight-tenths? Well, seven-tenths, something like that?

Mr. Marsh. I am not willing to say seven-tenths, six-tenths, or five-tenths.

Mr. LEVER. Your largest customers, I should think, would be the spinners of the world ?

Mr. Marsh. Our largest customers ?
Mr. LEVER. Yes.

Mr. MARSH. Well, we have just as many customers who sell us cotton as we have customers who buy cotton from us.

Mr. LEVER. Who are your largest buyers if not the spinners of the world?

Mr. Marsh. They are our only buyers.

Mr. LEVER. Then as merchants catering to their trade, it seems to me you ought to make a contract that would please your only buyers.

Mr. MARSH. But we are always ready to sell the spinner what he wants.

Mr. LEVER. A spinner who buys a thousand bales of cotton under contract and asks for strict middling would have a right to get it?

Mr. MARSH. That I didn't say, Mr. Lever.
Mr. LEVER. Well, what did you say?

Mr. MARSH. I said that we as members of the New York Cotton Exchange are always ready to sell a spinner what he wants. If a spinner wants a thousand bales of strict middling cotton he has only to come to the members of the New York Cotton Exchange and he will get it. I will tell you what the trouble is with the spinners, and this has been the source of a very large part of this agitation, so far as the spinner is concerned. The cotton merchant, who is a member of the New York Cotton Exchange, is constantly exercising his judgment as to the relative value of the different grades of cotton throughout the United States from information which he has derived from his correspondents all over the South; he is making up his mind that there will be or will not be a relatively large supply of strict middling cotton, and when he finds that it is going to be a relatively small supply, he requires the spinner, when he makes the contract with him, to pay a premium for that grade of cotton which the merchant finds out is not to be largely supplied. The kick of the spinner is that he should not be charged that premium; what the spinner desires to force upon the New York Cotton Exchange is such a system that he can make a merchant's contract on the New York Cotton Exchange and then demand a spinner's contract in fulfillment of the merchant's contract.

Mr. LEVER. That is the contract to which Mr. Parker referred the other day; and in that connection I would like to say, Mr. Marsh, that Mr. Parker was here yesterday and was in my office. He told me to say to the committee and to you gentlemen that you should not hesitate to criticize his position freely, because he would be here at the call of the committeo on Wednesday to answer back, as it were. Now, I understood you to say a moment ago that if the spinner wanted a thousand bales through the New York Cotton Exchange of strict middling cotton he could get it.

bodge; it then the spinnerhat you realizes ng

Mr. MARSH. He can.

Mr. LEVER. So, then, there is no real necessity for this system of hedging, is there?

Mr. MARSH. On our part, sir? Mr. LEVER. Upon the part of the spinner ? Mr. MARSH. There is not; he can hedge any time he sees fit by going to the spot merchant and making a contract for the cotton he wants.

Mr. LEVER. There is no necessity for his hedging on the exchange?

Mr. MARSH. I have said, Mr. Lever, that the whole system of hedging is a merchant's contract.

Mr. LEVER. And that there is no necessity, as far as the spinner and those on the outside are concerned, to have this hedging go on at all?

Mr. MARSH. I can not say that there is no necessity. Of course, when I say that I assume that you realize and take into account that the reason why the spinner can do this is that the spot merchant can hedge; if the spot merchant can not hedge the spinner could not buy his cotton at any time he saw fit; so that in the last resort the spinner's hedge is absolutely dependent upon this hedging among merchants.

Mr. LEVER. If a spinner desired a thousand bales of cotton from a spot dealer he could get strict middling if he wanted it?

Mr. MARSH. He could.

Mr. LEVER. The spot man selling a thousand bales would hedge himself with a purchase of a thousand bales on the New York Cotton Exchange, in all probability ?

Mr. MARSH. He would.

Mr. LEVER. Now, then, if the spot merchant who has hedged desires strict middling from the New York Cotton Exchange, could he have that delivered to him under this contract ?

Mr. MARSH. Certainly not, and he does not want it delivered to him.

Mr. LEVER. He couldn't do it? You could deliver one of 23 grades; you could deliver 10 bales of one kind, 5 of another, 10 of another, and 50 of another?

Mr. MARSH. Certainly; he has bought in New York a contract for cotton in gross and he will get cotton in gross.

Mr. LEVER. What is the difference on this particular point between the rules on yourexchange and the rules on the New Orleans Exchange?

Mr. MARSH. I am not familiar with the rules of that exchange; I do not know of any difference.

Mr. LEVER. Have you seen President Thompson's statement to this effect, “I believe that a law making effective the following principles would suffice: A law providing for a national standard of classification of the merchantable grades of cotton, upon which standard all arbitrations on contract deliveries shall be made, and further, prohibiting any contract under which unmerchantable and useless stuff can be delivered, and providing that all cotton delivered on contract shall be paid for by the receiver on the basis of the actual spot value of the several grades delivered on the market and at the time of delivery.Have you seen that statement ?

Mr. MARSH. I have seen it.
Mr. LEVER. Do you agree with his suggestion?

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Mr. LEVER. Let me ask you specifically as to this proposition, “Prohibiting any contract under which unmerchantable and useless stuff can be delivered," you agree to that?

Mr. MARSH. I think it is certainly expedient that no contract should be made on which unmerchantable and useless cotton should be delivered.

Mr. LEVER. Would you be willing to go so far as to say, "Prohibiting any contract under which unspinnable cotton could be delivered ?

Mr. MARSH. I think it inexpedient that a contract for general use should be made by members of an exchange on which unspinnable cotton should be delivered.

Mr. LEVER. Is it a fact that a great deal of the New York stock is unspinnable cotton ?

Mr. MARSH. I have never heard of a bale of cotton in the stock of cotton in New York which was unspinnable; as a matter of fact the spinners have bought and spun all the cotton which has been in the stock of New York for many years past.

Mr. LEVER. Do you agree with the Commissioner of Corporations in this proposition: “One of the leading members of the New York Cotton Exchange said on this point, ‘Contract cotton is cotton for which there is no other market at the moment; that is practically universal ?'

Mr. MARSH. I was the member who said that.
Mr. LEVER. So you agree to it?
Mr. MARSH. So I agree to that.

Mr. LEVER. But the New York Cotton Exchange is not willing to give to the spinner a contract which will permit him to call for such cotton as he desires ?

Mr. MARSH. It is willing, but on this point, perhaps, after what you have said about Mr. Parker, I may explain the steps that were taken to give the spinner this contract. A committee of the American Manufacturers' Association, consisting of Mr. Parker, Captain Smythe, and a spinner by the name of Lowe, of Fitchburg, Mass., some two years ago, came to the New York Cotton Exchange, explaining that the spinners found that the contract which the merchant members of the Cotton Exchange were using was not adapted to their needs; they stated that they desired a contract which they could take up, as the expression is, if they wanted to, and which, as they put it, the average spinner could be able to use. This committee was met by a committee of the New York Cotton Exchange, of which Mr. Hubbard, Mr. Neville, and I were all members; we had a long discussion of the requirements of the spinners; we pointed out to this committee of spinners that the contract of the New York Cotton Exchange, as it is, is a merchant's contract, that it would be absolutely destructive to the business of these merchants, so far as these contracts are concerned, to make the changes which would make the contract a spinner's contract, but we proposed to establish a second contract to be traded in

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