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be sold to some other person, and backward and forward that October contract for a thousand bales might be operated in a hundred times, with the result that every man . has handled it has either lost or made without any reference to the value of cotton in October or as to the final execution of that contract. What we want to do, if we know ourselves and can find a way to do it, if possible, by legislation, is to prevent that character of trading where—I say intention; I do not mean corruptly intending not to comply with the contract, but really delay in the execution of it and the possibility of fluctuations growing out of it between the date made and the date of execution. That is all, if I understand, the cotton man, the cotton grower, the spinner, wants, if that can be done. Iunderstand that, sofar as the kind of transaction here possible and carried on in the exchange or through its instrumentality, it may never know a thing about it—that it is a public evil just as much as betting on a horse race would be, because somebody is always bound to lose in a horse race what the other person makes; in other words, it does not encourage industry, it does not encourage the creation of wealth. It is only the division of a certain amount of money between parties who are in the game. I do not use that word offensively, because I believe the gentlemen on the exchange use it themselves. If I understood you the other day I understood you to say that if I sell a contract, say, now, for next February cotton in New York, at the time I sell not intending myself to deliver that cotton, it would be a fraud, and it would be immoral upon my part to do such a thing as that. To-day I understood you to say in effect the opposite, that if I intended myself to sell that out or too a counter contract from somebody else, that was legitimate. Is that what you mean? Mr. MARSH. What I said the other day was that if it was your intention not to fulfill the terms of your contract when you entered into it, it was fraudulent. Mr. SIMs. Do you mean by that fulfill it through myself, or through somebody else I might sell it to ? Mr. MARSH. I mean your personal intention to fulfill that contract. Mr. SIMs. By actually delivering what I sell six months ahead mvself? 3. MARSH. Is that the only way in which men in business fulfill their contracts? Mr. SIMs. If my personal intention is to repudiate it in every way possible, when I make a contract for a day certain and then do not expect to incur the liabilities of the contract; but you must have understood, at least it is natural to suppose you did, what I mean is that we are speculating in contracts and not in cotton; that we are investing in contracts and not investing in cotton. I think investment speculations are always good things for the property invested in, but the contract is not property—it may be potential property; I see you frown; I suppose that is what you mean. Anything is H.". that you can measure in damages. But I can buy 100 bales of cotton, and I can keep it and sell it to the chairman of the committee for a dollar profit. You sold it to me for what it was worth at the time. I make money out of it. He can sell it to Mr. Lever and make money, and Mr. Lever can sell it to Mr. Beall and make 50 cents profit. Everybody who has touched that cotton has made money. But in this dealing in cotton where it is for a future date, future month, where the contract if bought and sold backward and forward, up and down, according to the fluctuations of that contract by perhaps 50 or 100 men before the day arrives, that there are sums of money made by the fortunate ones that must in every instance be lost by the unfortunate ones. Investment speculation in spot could not, as I understand it, have any such effect; is not that true? Mr. MARSH. Let me answer that by describing the situation of the market for the past year, up to the 31st of December, 1909. Your contention is, as I understand it, that among speculators, pure and simple, in so far as the speculative transactions in the market are concerned, the successful speculators simply take away from the unsuccessful speculators. Everybody knows that for a year past, steadily, without any interruption, there was large speculation in cotton. Mr. SIMs. You mean contracts. Mr. MARSH. I mean both cotton and contracts. Mr. SIMs. But more largely in contracts? Mr. MARSH. Not more largely in contracts, I should say, because the southerner who was cut off from entering into contracts on the exchanges has speculated very heavily in cotton. But leaving that aside, there has undoubtedly been very heavy speculation in cotton for future delivery, cotton bought or contracted for for future delivery. During the course of the year 1909 cotton advanced in value nearly 100 per cent. The speculators who early in the year had bought contracts for the future delivery of cotton to them made very large sums of money. I have yet §. anybody who lost a cent. Mr. SIMs. Now you mean cotton; you do not mean contracts. Mr. MARSH. I mean contracts. Mr. SIMs. Do you mean that persons who bought contracts in that time you specify from other persons who themselves did not furnish the cotton, but took the loss on their contracts, incurred no losses? Mr. MARSH, I did not say from persons who did not furnish the cotton. I said who bought contracts from other persons who sold contracts. Mr. SIMs. I am speaking of the Cotton Exchange contracts, not private contracts, individual private contracts. Mr. MARSH. I can illustrate by a transaction in which an enormous profit was made, in all probability, and in which that profit was furnished by a party who did not lose a cent. I was told shortly before the turn of the year by one commission merchant in the market that he had just bought in for a continental spot merchant 200 bales of futures which showed a loss of over 6 cents a pound, over $30 a bale. That spot merchant on the other side did not lose a cent. He had bought that cotton away back when cotton was around 8% cents a P.": and he had sold and hedged against it in the New York maret and carried the cotton on that in Havre. Finally he found a |. who wanted to buy that cotton, and he sold the cotton to the spinner and covered his hedge in New York, and the money which he remitted in New York was in all probability turned over to some successful speculator. I simply mention that as a case that happened to come to my attention, that was mentioned to me as unusual because of the length that that hedge had been allowed to remain out. But

the advance in the price of cotton has not hurt speculators in this country. The profits of speculators on the bull side of cotton have not come out of speculative shorts; there have not been any speculative shorts. That is the reason why the market broke $15 a bale, when the speculative longs tried to sell out. .

Mr. Sims. How can there be a long without a corresponding short exactly the same amount in the same month, and yet their trades be made according to the rules of the New York Stock Exchange? In other words, are they not always absolutely balanced, that there is as much sold as bought, and as much bought as sold, in futures ? Mr. MARSH. Exactly.

Mr. Sims. Now, then, our short supply of contracts close for the month of delivery, say, for instance, shorts in October that existed in January are all closed out during January, both longs and shorts.

Mr. MARSH. How is that?

Mr. SIMs. Let us suppose that all the dealings that existed in the October month that were made in January, from the first to the last, between the original parties, were closed out during that month.

Mr. MARSH. During January? Mr. Sims. Yes. Mr. MARSH. That is an impossible proposition. Mr. SIMs. I know perhaps impossible; I do not think it is impossible.

Mr. MARSH. It is like supposing what would happen if two and two make five.

Mr. Sims. I think you will get at it, though I do not think it is necessary to explain it to you, though it might be necessary to have it in the hearings. In December there is a large amount of cotton bought and sold for July delivery?

Mr. MARSH. Yes, sir. Mr. SIMs. In January these original parties, the sellers all buy in their contracts and quit, take their loss, and the buyers the same way; but in the month of January you have not a single man on your books for July contracts. I do not mean you will not have July contracts, but of the original dealers you will not have one on your books in January. How is it that all those dealers who made their deeds in December and went out in January can all make money?

Mr. MARSH. In the first place, let us take the place of the people who in December sold October.

Mr. Sims. Can you not take it the way I did ? All these contracts must close in January that were made in December, by the same parties.

Mr. MARSH. That is something that never has happened since cotton trading was begun.

Mr. Sims. Could it not happen?
Mr. MARSH. No, sir.
Mr. Sims. Why? Explain why.

Mr. MARSH. Any more than a man's heart can stop beating without his dying.

Mr. Sims. Do you mean if I sell or buy cotton for July delivery in December I can not sell it out in January?

Mr. MARSH. Certainly you can sell it out.

Mr Beople in and and gorduals who

Mr. SIMs. Then, if a man sold a contract for July, why can not he buy it in January ?

Mr. MARSH. Certainly he can.
Mr. Sims. You just announced a minute ago that was impossible.

Mr. MARSH. I did not say that was impossible. I said it was impossible as the cotton business exists for all the buyers of July to sell out in January and all the sellers of July to buy in in January.

Mr. SIMs. That is only begging the question, if I understand it. Mr. MARSH. No, sir; I do not want to beg the question.

Mr. Sims. I mean individuals who in December buy July, those individuals changed and got their cotton contracts into the hands of other people in January.

Mr. MARSH. I did not understand your question. I must beg your pardon. I did not understand what your point was. I understood you to mean that the original buyers of July and the original sellers of July would get together in January and close out.

Mr. SIMs. Oh, no; I meant that they are selling out and buying out. How is it possible for them all to go out, long and short, and all get out of the market in January, without a loss to a number of those dealers ?

Mr. MARSH. First, the case you suppose actually never has happened and never will happen.

Mr. Sims. Can it not happen to some extent, whether it is all or not?

Mr. MARSH. To some extent, yes.
Mr. Sims. Then it is possible.

Mr. MARSH. But let me draw your attention to the practical method of conducting the hedging operations of a spot merchant. If a spot merchant has a thousand bales of cotton which he buys in December and which he has in Galveston or Bremen or somewhere in the world, and sells a thousand bales of July as a hedge against it, which is a very common operation, if in January he has not yet sold the cotton, has not yet sold the cotton to a spinner and bought in his hedge, but he makes up his mind that he does not like to be short of the July contract as a hedge and wants to be hedged somewhere else, and buys in July in January, but sells March or sells May, or sells May-June, in Liverpool

Mr. Sims. You mean buys it in at a loss?
Mr. MARSH. Yes, sir; certainly.
Mr. SIMs. Who has got that loss ?

Mr. MARSH. It may have been got by a speculative long; but mind you, the spot man has not lost anything yet.

Mr. Sims. I am talking about transactions that are, in their nature and effect, wagers, gambling, artificial transactions, that are made in advance, closed out in advance of the month upon which delivery could be made.

Mr. MARSH. Let me put this case, and see if it clears the matter up at all. I buy 100 bales of cotton in December and sell 100 bales of July contracts as a hedge. The market goes up $3 a bale. In January I make up my mind that I would rather be hedged somewhere else rather than in July. I buy in my January, and my account sales come in from my commission house debiting me with $300,

Mr. Sims. Charging you up with it?

Mr. MARSH. Instead of selling July I sell March. I have already been debited and somebody is credited.

Mr. Sims. With the $300 ? Mr. MARSH. With the $300; but I still have my cotton. A few days later I make up my mind that rather than having March sold in New York I will sell March-April for Liverpool. Meanwhile the market has gone up $2 a bale more. I buy in my March contracts in New York and am again debited with $200.

Mr. Sims. Five hundred dollars there.

Mr. MARSH. But I again sell my contracts in Liverpool. Three weeks later I may make up my mind again that I would rather hedge in May in New York than in March-April in Liverpool. Again the market has gone up and I am debited with a loss of $300 on my Liverpool transaction, and sell May in New York. I may do that, not once or twice, but twenty times, and be debited on every one of those transactions and still I have not lost any money. Mr. Sims. Did that fellow make it who got the $800 ?

Mr. Marsh. He made it if he was a speculator; he did not make it if he was a spinner or a merchant.

Mr. Sims. I am talking about speculators.

Mr. MARSH. If he was a speculator he made it; if he was a spot merchant or a spinner he did not

Mr. Sims. Then that proves, if I understand the way you answer, that in the very operation you have mentioned, having operated in months and closed or changed your operations before those months arrived, there was a loss of $800 to you, which became a profit of $800 to another party, without any reference whatever Mr. MARSH. If he was a speculator it was a profit of $800. Mr. Sims. That does not make any difference who he was.

Mr. MARSH. Yes it does. If he was a spot merchant he did not make it.

Mr. Sims. Why?

Mr. MARSH. Because he had already sold to a spinner at a lower price. So what he was making on future contract, his hedge, he was losing on what he sold to the spinner. Mr. Sims. You assume he did. Mr. MARSH. I know he did. Mr. SIMs. Can not a spot merchant speculate as well as an outsider ? Mr. MARSH. If he does he is a speculator.

Mr. Sims. He is that, of course; but he is a spot merchant, too. You have proven, and I am glad you did, because you are candidyou have shown that the dealing in futures is attended with a loss by one party and a profit by the other party in advance of the day of delivery, in advance of the execution of that contract, without any reference whatever to the final outcome of that contract. That is the very thing, if we can do it, that we want to eliminate, and why? When a man can make money by speculating on contracts six months or a year before contracts are to be executed, it tempts the party who can do that in doing just what man has always done, try to create a sentiment for or against the side he is on, and in that way affecting temporarily, if not permanently, the price, by way of sentiment or otherwise, of those who are buying and selling at the time. That is what we want to eliminate, and if the New York Cotton Exchange can do that through their own rules and yet retain an exchange that

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