have been buying what is called "hedged" cotton, and I will continue to buy hedged cotton just as long as that hedged cotton exists. The indications are that it is now pretty well cleaned up. But be that as it may, that hedged cotton has been supplying the spinner's demands during this time of unnecessary and, in my judgment, unjustifiable decline of contracts.

What is the effect of those conditions upon me as a manufacturer? I do not hesitate to tell you, gentlemen, that all the manufacturers resisted the advance in spot cotton this season. I myself was mistaken. I thought that the crop was going to be a good deal larger than it was. The speculator (who foresaw conditions better than I did), I think, this particular season has been of benefit to the producer as a whole, because he has been able to advance the price faster than the spinners would have been able to advance it. He has done that this particular season. But what is the result of this condition on the exchanges? The speculator advanced it beyond the point where the spinner was willing to follow, and therefore the spinner did not follow and has not followed this season above a price of about 15 or 15 cents, because we have not been able this season to get our goods on a parity with cotton even quite as high as 15 cents a fair, legitimate parity, so as to allow us a fair, legitimate, manufacturing profit. Twice during this season, however, we have gotten goods to a parity of 15 cents. In the early part of November our goods had reached a parity with 15-cent cotton. As a manufacturer I began to feel encouraged. I began to feel that I had some reasonable prospect of fair profits during the season. But suddenly futures declined, spots did not, and I was again left in the position of having the buyer of my goods judge of the market not by the spot cotton but by futures, because you might as well recognize that the world at large thinks erroneously. They think that futures are responsive to spots. They judge, therefore, of what the manufacturer is doing by what the future market shows. And when a decline of 2 or 3 cents a pound takes place in futures, the consuming world, the jobber, the converter, the man who is going to buy my goods, thinks that there has been a reduction in spot cotton, and that I should therefore make a corresponding reduction in my goods. Again, in January, after a hard struggle, we for the second time had gotten goods back to a parity with spots. We began again to be hopeful, but this last break has had identically the same effect that it had in November. It unsettled the whole trade, and yet there has not been a break in spot cotton. To-day I can not buy my spot cotton one-quarter of a cent cheaper than I could when it was 164 cents. Cotton has been down as low as 13 cents on futures, and yet spot cotton remains practically unchanged. So the result is, as I said a moment ago, that it is a curse to the manufacturer to have a fluctuation unjustified by spot conditions. So far as fluctuation is justified by spot conditions, we recognize that we have to submit to it; we recognize the fact that we must take the effects of it. But we do protest against any condition in which the influence of the cotton exchanges is such as to give an erroneous impression to the consumer of goods as to what we are doing in the purchase of our raw material, and that has been the effect of the fluctuations on the exchanges..

The CHAIRMAN. Is there any way, by hedging or otherwise, in which you can protect yourself against such fluctuations?

Mr. PARKER. Well, sir, I use 75,000 bales of cotton a year, and I have never yet been able to find a way. I study the subject every year, and think I have got something, and I have never yet been able to find a way. If I do it by buying futures on the exchange, before I get through I will find that the futures are away below a parity with spots; I have lost on my futures and have to pay a high price for the spots. If I do it the other way, by buying the spots and selling the futures against them, I am buying the spots before I have sold my goods; then the futures are put up on me, I have a loss on my futures, and I have my spots at the high price. So I have never yet found a way of hedging the cotton.

Mr. HOWELL. In the case of futures being lower than spots, would it not be possible for the speculator to sell spot cotton and buy futures, and make a sure profit?

Mr. PARKER. He does that constantly, sir; and I would not have the slightest objection to his doing it-in fact, I advocate that-if there were such a condition on the exchanges as would keep futures and spots responsive. I contend that they can be kept responsive. I contend, as I shall show your committee, that if the New York Exchange, for instance, decided to adopt rules which showed an intent to make spots and futures responsive, it could be done. But I say that our New York friends, with all deference to them, and in a lesser degree our New Orleans friends, do not desire spots and futures to be responsive. They wish to retain the power of manipulation of futures, which will be to the benefit of the speculator and to the serious disadvantage of the spot dealer.

Mr. BROOKS. Could Congress regulate the rules of an exchange? Mr. PARKER. No, sir; I do not suppose Congress could regulate the rules of an exchange. And if the rules of the exchange are not regulated so as to be just to the producer and just to the manufacturer, and if their power of speculation is so reserved to them as to be an unreasonable and unfair speculation, to say the least of it, then I contend that Congress in its power must come to the relief of the producer and the consumer, and say to the exchange: "Under your present conditions you are doing an illegitimate and a gambling business, and therefore we must exclude you.'

The CHAIRMAN. Just what is the practice of the exchanges which gives rise to this illogical difference between spots and futures?

Mr. PARKER. I am going to read you, if you will allow me, a report of a committee which emphasizes those conditions two years ago; and I will show you how conditions have changed since that time.

This is a report of May 21, 1908, and is a report of representative cotton spinners. The chairman of the committee making the report is Mr. Ellison A. Smyth, of Greenville, S. C., who is president of the Pelzer Manufacturing Company, and one of the largest spinners in the South. On the committee was Mr. Arthur H. Lowe, of Fitchburg, Mass., one of the leading spinners of the East; and there were other representative spinners on the committee from both North and South. Our report is as follows:

Your committee would express their hearty commendation and approval of the recent report made by Herbert Knox Smith, of the Bureau of Corporations, with reference to the question of cotton exchanges. This report exhibits great care and study of the situation, and is so manifestly just and the criticisms made of the exchanges so true that your committee can but express their hearty approval of the report. We

feel that the cotton trade at large is under obligations to the commissioner for the care and study he has given to this matter.

In view of this report it is needless to review the conditions so clearly pointed out applying on the New York Cotton Exchange, and to a much less extent on the New Orleans Exchange, tending to make a contract purchase on these exchanges of less value than it should be. Theoretically the cotton contract on the exchanges should represent the value of spot cotton, and it is an absurdity when there is such a variance in the price of cotton as represented by the contract on the exchanges and the price of the contracts themselves. These differences on the New York Exchange are so great as to render practically valueless a hedge made by a cotton broker on the exchange or a purchase made by a cotton spinner. Indeed, the differences between the value of the contract and spot cotton being so great have caused enormous losses to both classes of operators, and based upon the experience of the past several years would make it imperative that these operators cease the use of the New York Exchange for the purposes stated.

In that connection I want to give you gentlemen a practical illustration of the effect of the rules of the New York Cotton Exchange. The CHAIRMAN. Before you do that, do you refer to all the rules or some of the rules?

Mr. PARKER. I am going to refer to some particular rules that I regard as being the ones which are objectionable, and which we think tend to keep this disparity and to make illegitimate speculation possible.

The CHAIRMAN. Suppose you mention the rule to which you are going to address yourself.

Mr. PARKER. The committee then goes on:

In 1906, at the Asheville meeting, your association considered carefully the question of the character of cotton to be delivered on contracts. We reaffirm the position taken by our association at that time. That position was as follows:

"Cotton to be of any grade from low middling to fair, inclusive, and if tinged or stained, not below low middling (fair color) in value.

"Price to be based on middling, with additions and deductions for other grades to be made according to rates of cotton exchange existing on the afternoon of the day previous to the date of notice of delivery."

In other words, we want to get away from that question of fixed differences which the New York Exchange operates on. I presume the committee understand the rule of fixed differences. Nevertheless, I will take the liberty of explaining a little bit more about it.

The New York Cotton Exchange, through its committee, meets in November of each year. At that time, although only a very small portion of the crop has been gathered, it, in effect, undertakes to say what is going to be the character of the crop for the year, and therefore it undertakes to say what is going to be the value of stained cotton, as contrasted to white middling cotton, or what is going to be the value of middling fair. Middling fair is the very finest character of cotton, just as white as snow, and has no defects, no leaf, or no trash in it. They undertake at that time of the year to say what shall be the differences. They say, in effect, that middling fair is to be worth a cent and a half, we will say, on middling, or middling stained is to be worth a cent off from middling. Of course, those differences are afterwards fixed commercially by the conditions, depending on how many bales of middling stained appear on the cotton-crop market that year, how many bales of middling fair appear, how many mills can use middling fair, and how many mills are using middling stained. Therefore the market differences will vary very greatly from the fixed differences made by the New York Exchange.

The New York Exchange says that cotton must arbitrarily be worth so much more or so much less than the middling. We say it ought to be fixed by commercial differences, so that I could go there and take up a certain character of cotton and get it at its true commercial value, regardless of what New York arbitrarily says it is worth. Therefore, to the extent that the option is given to the seller to do the delivery, it is he who must determine what class of cotton he is going to deliver to me as a spinner. If I buy cotton, basis middling, it is the seller who is going to say whether he is going to give me middling fair or give me middling stained. He, of course, is always going to give me that class of cotton which is most undesired at those arbitrary differences; and to that extent he depresses the general run of cotton.

To illustrate that, Mr. Chairman: In January, 1908, I bought 5,000 bales of cotton from a certain intermediate man, a thousand bales a month, for delivery in January to May, inclusive. At that time New York contracts were selling at 9.90 for May. I bought those 5,000 bales of cotton at 110 points on May. To begin with, that was an absurdity—that I should be buying cotton in South Carolina and having to pay, where the cotton is raised, 110 points more than it was theoretically worth in New York. That was an absurdity on its face. But the New York Exchange quotations then were away below the parity, away below the price of spots. Therefore the intermediate man said: "I have got to ask you 110 points on New York." I agreed to pay 110 points on New York for those 5,000 bales. Futures were 9.90. That made the spot cotton cost me 11 cents.

What happened? Spot cotton advanced; and when my freind went to deliver the spot cotton to me, he had to pay 12 cents for it in place of 11 cents. What became of futures? Although spot cotton advanced a cent and a half, futures went down a quarter of a cent. What was the result? The man broke. He could not stand the strain. He has a loss there. That was only one of many contracts he had. It was a perfectly legitimate sale.

The CHAIRMAN. Do you know whether he had attempted to protect himself?

Mr. PARKER. Oh, yes; he bought futures. He had the futures. He bought futures at 9.90.

The CHAIRMAN. And he "went broke" because futures went down? M. PARKER. Futures went down, and spots went up.

Mr. BEALL. He lost on both sides?

Mr. PARKER. He lost on both sides of the market; and that is constantly happening. I say to you as a spinner, to-day, that I do not care how strong an intermediate man may be; I do not care whether it is George H. McFadden or not; I do not care how strong he is—it is always a serious question with me, when I buy up spot cotton from the intermediate man, as to whether he will be able to stand the strain of the differences existing between spots and futures.

Mr. CONE. Was not that the result of abnormal conditions?

Mr. PARKER. It was; it was the result of abnormal conditions. But I say abnormal conditions ought to be represented in spots and contracts at the same time. If the conditions were abnormal, they ought to respond. Both spots and futures ought to respond to those abnormal conditions. The condition was that although the exchange met in November and said that middling stained or low ordinary (which is a very low grade of cotton) was to be so many points less

than middling, as a matter of fact there was such a great proportion that year of middling stained and strict low middling stained and low ordinaries that the price of those low grades became very much less than the New York Stock Exchange said they were. Therefore futures went down, but the man who wanted white cotton had to pay for it. White cotton went up, and middling is white cotton. Theoretically, middling cotton should have been delivered to me. Practically, if I went to get a delivery, I would have got that class of cotton which was least in demand, of which there was the greatest quantity, which would have had the effect, they knew, of making me run away from the New York Cotton Exchange and take my losses rather than take up the cotton.

I contend that that is a defect to-day in the rule of the New York Exchange. In the first place, they deal on what they call arbitrary differences, and do not recognize the differences fixed by the law of supply and demand, which I contend they should recognize. But in addition to that, with all deference to my New York friends, I am willing to take my chance on speculation if I am going to speculate. Personally, I never do it. I have never bought a bale of cotton on speculation in my life, and never expect to. But I am willing to take my chance in speculation if I have an even chance. But I say that any man who speculates is entitled to an even chance. Now, do they give a man an even chance?

Suppose I take up, as I did last year, 1,200 bales of cotton. I took up last January 1,200 bales of cotton on the New York Exchange. Futures were away below the price of spots. I could not buy spots in the South for within a cent of what they said they were worth in New York. I therefore said: "I will take up my cotton in New York and ship it back down South." I would pay the freight and still be a winner on the cotton. When I go to take up that cotton, you must recognize, first of all, that every option is given to the seller. It is the seller who is going to say what kind of cotton he is going to give me. I have bought basis middling. I was simple enough to think I was going to get something approaching middling cotton, anyhow. I soon learned very differently. I soon learned that I would get the most undesirable cotton to be seen in the United States, that congregates and is drawn to New York, as a rule. This season there has not been that class of cotton. Therefore they can say, very truthfully, that this season there is a very good class of cotton up there. But we have been "burned" so often that I do not dare, even this season, to take up cotton.

To come back to last season. What happened? I took up 1,200 bales of cotton. I was given certificates with every grade that could possibly be found in the United States which was liable to be passed on the New York Exchange on the certificates. In other words, take a certificate of 100 bales of cotton. I had 18 different grades on 100 bales of cotton. I had the expense of my going to New York, or of my sending a representative there, to sort out that cotton. The same mill does not use middling fair cotton that uses good ordinary, for instance. Good ordinary is used for one purpose and middling fair is used for an extreme purpose. Middling fair cotton will be used in making the finest hosiery or the finest underwear. Good ordinary will be used for making the coarsest articles of the same kind, where the matter of color, etc., does not make any difference.