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cotton at those two points to the spinner is of approximately the same value—it would mean the same thing. But what happened? In less than one season everybody went back to the same old grades again, except the New York Cotton Exchange which preserved theirs intact, and they have them now. So to-day we welcome it because we want low middling cotton in New York the same as low middling cotton in New Orleans or any other market. The CHAIRMAN. I assume that is the case, and I asked the question only to lead up to this question. Do you believe that it would be practicable, in case these grades are accepted, to have the actual spinning value of these different grades determined, and if that could be done, is it your idea that the fixed differences on the New York market should be governed accordingly 7 Mr. NEVILLE. Yes. The CHAIRMAN. I just want to get that fixed in my mind. Mr. NEville. And I want to say to the chairman that as soon as those standards were adopted by that committee, I applied for two sets of them for the New York Cotton Exchange, and guaranteed that the New York Cotton Exchange would adopt them. The CHAIRMAN. I am very glad to have that information. Mr. MANDLEBAUM. May I ask a question, Mr. Chairman? The CHAIRMAN. Yes. Mr. MANDLEBAUM. Mr. Neville, Mr. Lever as well as Mr. Beall has asked you the question as to the interrelation between spots and contracts for the future delivery of cotton. Is it or is it not more frequently the case that the price of future contracts is dictated by the price of spot cotton than that the reverse is the case? Mr. NEville. I should say yes, sir. Mr. MANDLEBAUM. Is it or is it not a fact that the opening prices in Liverpool as well as in New York reflect the amount of offers of cotton in the spot, actually offered to Liverpool and to New York? Mr. NEVILLE. Yes. Mr. MANDLEBAUM. And it thereby dictates the price of futures? Mr. NEville. That is the point I made with Mr. Lever. Mr. MANDLEBAUM. That is all I wanted to bring out. Mr. LEveR. As a matter of fact it ought always to fix the price of futures, ought it not ? Mr. NEVILLE. What is that % Mr. LEVER. If conditions are normal, the price of spots would always fix the price of futures? Mr. NEville. As I told you, there are no two seasons that are alike, and there are outside conditions which might affect it in the way of the supply of India cotton and the fact of there being no demand from some place which would affect temporarily the price of futures. Mr. LEveR. If there is no effect upon the spots to make the price of futures, as you suggested in your question, then how is it that during the month of * of this year spots were selling for 15 and 15% cents a pound, and futures were selling down to 13% cents a ound 7 p Mr. MANDLEBAUM. Do you wish me to be sworn first before I answer this question, or will you accept this as a statement? Mr. LEVER. Oh, just answer it; make it a statement.

Mr. MANDLEBAUM. Spot cotton in the South did not sell at the price it was quoted. It was quoted that way, but no sales were made. It could not be sold at that price, and that is the reason that the future price in New York broke. Cotton for two weeks was quoted on the New Orleans Cotton Exchange at 15 cents, nominally, with no sales. Contracts sold at 131 cents.

Mr. LEVER. Then I understand you to say that because the farmers refused to sell their cotton for 152 cents a pound, and there was no supply of it, therefore futures dropped 200 points ?

Mr. MANDLEBAUM. I beg your pardon; you certainly misunderstood me. At the high price, at the time when future contracts reached this high price, so much actual spot cotton was offered that the market of the world could not take care of it at that moment.

Mr. LEVER. I understood you to say a moment ago that no cotton was offered, and therefore it broke.

· Mr. MANDLEBAUM. I did not say it was not offered; I said it could not be sold at the figure at which it was quoted in the southern market.

Mr. LEVER. Very well.

Mr. MANDLEBAUM. I did not say it was not offered. I said it could not be sold. The quotations were entirely and absolutely nominal.

Mr. BROOKS. Mr. Chairman, I rise to the point of order that this is contrary to the rules that you have adopted for these hearings, and I do not think they ought to butt in in this way.

Mr. MANDLEBAUM. I simply answered the question as Mr. Lever put it. Mr. NEVILLE. I think you both ought to be punished. The CHAIRMAN. It all goes in the record. Mr. HAUGEN. As a general thing the prices upon contracts for future delivery are higher or lower than for spot delivery ?

Mr. NEVILLE. It depends altogether on the location of the spot cotton.

Mr. HAUGEN. I say, as a general thing?

Mr. NEVILLE. As a general thing, in normal times, the future price of cotton reflects the price of spot cotton at some place, plus the freight.

Mr. Haugen. Are the prices for future delivery higher or lower than for spot delivery, as a general thing?

Mr. NEVILLE. As a general thing they are higher ?
Mr. HAUGEN. They are less ?
Mr. NEVILLE. They are higher than spots.

Mr. Sims. In selling futures or buying futures on what you call the new crop--

Mr. NEVILLE. Yes.

Mr. Sims (continuing). In other words, where the contract can not be executed until the cotton that is not now planted has been planted, grown, ginned, and delivered, any future now sold can not therefore possibly be based upon the spot value of cotton not yet planted or grown? Is that possible?

Mr. NEVILLE. Any cotton sold ?

Mr. Sims. In other words, when you are selling what they call in the papers new crop cotton; in other words, you are selling now for December delivery, and you are undertaking, as I understand, to deliver cotton grown in the year 1910 ?

Mr. NEVILLE. Yes.

Mr. SIMs. Now, there being no spot cotton yet in existence grown in 1910— Mr. NEVILLE. Yes. Mr. SIMs (continuing). The price you are willing to make on that new cotton which is not yet planted does not depend upon the existing spot price of that which does not yet exist? r. NEvillE. That depends, Mr. Sims, on the price at which I can buy contracts to protect my sales to the spinner. I will give you an illustration. Mr. SIMs. I do not think you want to evade my question Mr. NEVILLE. I am not evading it. Mr. SIMs. But you are Mr. NEville. The cotton is not created, and consequently it does not exist; that is your question. Mr. SIMs. And therefore it can not control the price? Mr. NEvillE. It does not control the price, but what does control the price is this: In March, 1907, one of my friends from Mr. Lever's State was in New York and he rang me up and said he wanted to come to see me if I would be in my office when he got down there. He came in and said, “I have just had a proposition put o to me that requires the purchase of 25,000 bales of spot cotton. It is export business to China. It will keep my mill busy an entire year, and I want to know what you will sell me that cotton for.” Mr. SIMs. The contract for delivery 7 Mr. NEville. Yes; what I ...Y sell him the quality of cotton to make those goods for. I told him what I would sell it to him for, but I said, “You can not afford to pay me that price. I have got to take all the risks of the crop, and of the vicissitudes of the weather after the crop is planted, and I am charging you for it.” . He said, “What am I going to do?” I said, “Buy 25,000 bales of October contracts.” #. said, “Well, go ahead and do it.”. I said, “Then as your cotton is marketed in your district, as you buy your cotton you sell out your contracts.” I bought them for him. Now, that cotton was not grown. Mr. SIMs. It had not been planted 2 Mr. NEville. It had not been planted; but somebody sold that cotton. Mr. SIMs. Now, the man that— Mr. NEville. Wait a minute; I will answer your question if you do not interrupt me, or I will try to answer it; and #". to do it so that you will not come back at me with another question on the same subject. Mr. SIMs. All right; I will be glad to have you do that. Mr. NEVILLE. Somebody sold those contracts that I bought, for that gentleman's account. The man that sold those contracts might have been a speculator, who sold thinking that there would be a large enough acreage to permit cotton being sold at a price when it was marketed so that he could buy in those hedges, those contracts. that he had sold speculatively there, at a profit; or they may have been sold by some large planter or some guano concern attracted b the price. The gentlemen in this room who live in Georgia and Sout Carolina know that this season, beginning in March, a year ago this coming March, planters sold cotton from 9% cents up to 13 cents

for October and November delivery, hundreds of thousands of bales. They may have made some similar sales on future contract markets. That, Mr. Sims, is an effort on the part of the man who raises cotton, or who has cotton due him by a farmer, to protect himself against an fluctuation, and he is satisfied with that price. Mr. SIMs. Now, is that what you call an answer to my question? Mr. NEville. That is an answer; yes, sir. Mr. SIMs. Now, I am bound to ask you another one. Mr. NEville. Please let me finish my answer first. Mr. SIMs. I will, if you do not stop talking and look like you are thinking. Mr. NEville. Well, this is new business to me. Mr. SIMs. What, thinking? Mr. NEVILLE. No, this talking business. I am only used to talking to the typewriter. Mr. SIMs. You talk mighty well for a new man. Mr. NEville. That mill man got his cotton, contracted for his cotton in October, and he sold his goods in China, and kept his mills oing a year, "...# the first of September following, and as he ught his cotton and liquidated the futures I sent him a check for over $250,000 on the liquidated contracts. Mr. SIMs. Now, you have made it necessary for me to ask you another question. Mr. NEville. All right. Mr. SIMs. The statement, in substance, as I have gotten it from you entlemen here, is that the price of cotton is not determined or made i. the price of futures, but the futures follow the cotton. ... In determining what the price of cotton would be in October, I will ask you if the man who sold those 25,000 bales of cotton as futures, let him be a speculator or whatever he was—he was a speculator, whatever his business was—had a single fact then existing, that is as to the existence of cotton, the existence of acreage, the existence of weather, upon which he could commercially base a price, and if it was not all a guess; if he did not put his money up essentially because he thought he could guess or was guessing in a general direction that would turn out true, and he Wii make money by it; in other words, so far as he was concerned was it not absolutely artificial, having no basis in fact, and based upon no existing conditions at the time the contract was entered into ? Mr. Cocks. Oh, I object to such long questions. It is impossible for us to get at the meaning of them. Mr. SIMs. I got a very long answer to a short question, and I thought maybe by asking a long question I could get a very short answer. Mr. NEville. In reply to Mr. Sims's question, I would like to submit an extract from the report of the Industrial Commission, section 10, pages 28 and 29, volume 6, it being the report of the Industrial Commission of 1900 made by Senator Kyle of South Dakota, who was chairman of that commission. The report of that commission answers Mr. Sims's question. I will submit it. The CHAIRMAN. Without objection, it will be inserted in the record. EXTRACTS FROM THE REPORT OF THE INDUSTRIAL COMMISSION APPOINTED BY THE

GOVERNMENT IN 1898, TO INVESTIGATE THE EFFECTS OF SPECULATION ON THE VALUE OF FARM PRODUCTS.

[SEC. X. Pages 28 and 29, Vol. No. 6 of the Industrial Commission's report of 1900, Senator Kyle, of

South Dakota, Chairman of Commission.) Why has commercial distribution in the United States become so largely identified with the speculative class of trading capitalists? The answer is, that it has been found best for the producing and consuming interests of the community that the risks of distribution should be localized in a separate commercial class whose members are in a position to inform themselves as to all the factors—past, present, and prospective affecting the future course of prices. If the risks of distribution fell upon the farmer, it would increase materially the risks of capital required and thus raise the rate of interest he should have to pay as producer, because increased risks always raise the rate of interest. This would increase the cost of production and would consequently tend to reduce consumption by rise of price to consumers. Such rise of price beyond a certain point would reduce the volume of trade. If consumers assumed the risk of distribution there would be very inadequate provision for the future. Irregular supply of subsistence soon breaks down the economic efficiency of consumers, besides impairing their regular consuming capacity as customers of the producer. Hence the community, producers, traders, and consumers, all suffer together.

These two kinds of services are peculiar to speculative distribution—the service of assuming the risks that arise from charges in the relation of demand and supply, and the service of giving the right direction the commodities available for consumption. Even in famine stricken India, the government regards speculative distribution of supplies as on the whole far more efficient than any bureaucratic distribution could be. Without this, modern markets would be deprived of a very great share of their efficiency in serving producers and consumers. In fact, those who have thought out the subject most thoroughly have found in this directive work of speculation the chief justification for its existence. Where Government has assumed even part of the risk of crop distribution, as in Russia, piles of wheat rot in one section, while people starve in the next.

(There are no grain speculative markets in Russia.)

Professor Emery gives it as his opinion that organized speculation is found to be the means of making the needed protection, and it will also prove itself the chief directive influence in the economic field in which it prevails.

Speculative dealings in farm products have then three things to consider: Concentration and distribution of surplus crops at right times and places, and the formation of a business judgment based on a ratio of the visible supply to the world's grain and cotton, for example, to the customary demand of its consuming communities. The scope of this task of forming a judgment upon world-wide conditions, and forming it accurately enough to stake millions of capital upon it, is perhaps the heaviest hazard on our whole modern economic organization of society. But some class of investors must do it, or the consumers must pay a higher price for their produce, and producers must be content to enter the market with fewer competitors, ready to buy and carry their surplus. Producers and consumers together, without the speculative mechanism at work, would have to divide the risks of distribution between them. Neither of these interests is prepared to do this. Sound commercial policy is the best served by a rational division of distributive labor, in which economic freedom and economic responsibility are equally respected. The economic services of speculative agencies engaged in distributing farm products are threefold:

I. They localize industrial risks among a commercial class whose special function is to distribute surplus supplies over deficit times and places in such a way as to lessen the uncertainty of producers and consumers.

2. They relieve producers and consumers from carrying a whole year's stock, enabling the farmer to convert his crop promptly into cash capital, and the latter to supply himself as his periodical needs may require without enhancing prices beyond the original rate of risks and returns of such capital investments.

3. Competition of speculative traders tends more than any other force to reduce profits of these agencies to a minimum per unit of commodity handled. Released from their economic functions, it is to their interests to seek to reduce the risks of distribution to a minimum. By expert acquaintance with the conditions that involve risks the hazardous elements are gradually limited, if not entirely eliminated.

Mr. Cocks. Now I would like to ask Mr. Neville a question. The cotton planter assumes here by his representatives that he takes all the risks?

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