Mr. BROOKS. Well, who is to blame if gambling is done-the exchange or the people who patronize it?

Mr. NEVILLE. I think the people who patronize it for gambling purposes should have a guardian appointed for them.

Mr. BROOKS. And you think the punishment should be placed on the victim and not on the tempter?

Mr. NEVILLE. The tempter? That is the weakest admission; honestly, I am surprised at that.

Mr. BROOKS. That logic carried out would punish the unfortunates instead of the one that got them into trouble.

Mr. NEVILLE. Now, Mr. Brooks

The CHAIRMAN. Let us not enter into speculative philosophy.

Mr. BROOKS. Well, I think it has been contended here that sometimes an investment in a cotton contract on the exchange results in profit to one and in loss to the other; and at other times it results in profit to one without necessarily the other party's losing. Is that the way you understand it?

Mr. NEVILLE. Mr. Brooks, I can conceive where a person would have a venture, as you call it, where he would lose money, and I can also see where he would not lose money. For instance, I know a planter that did not want to carry his cotton; he thought cotton was going up. He sold his spot cotton at a price and got his money, and he bought 200 bales of futures to carry for the advance instead of carrying his spot cotton, which cost him interest, insurance, and storage. The market went down and he lost the money. He would have lost it on his spot cotton, too. Consequently he didn't lose

any money.

Mr. BROOKS. The point I want to get at is this: There are two kinds of results. One is that one's profit is the other's loss; and the other is that one's profit is not the other's loss.

Mr. NEVILLE. I can not distinguish those two.

Mr. BROOKS. You do not see that far through the proposition, then. I was going to ask if the case where one's profit was not the other's loss could be designated as a case of unearned increment? The CHAIRMAN. Pardon me, Mr. Brooks, but I do not believe we can go into that. It hardly has a bearing on the question immediately before the committee, and it is too much a matter of speculation.

Mr. BROOKS. All right. I want to ask one more question and then I will be through.

You do not know what per cent of the 80 per cent that the members of your exchange handle of the cotton crop of the United States is handled on the floor of the exchange, do you?

Mr. NEVILLE. Do you mean the physical handling?

Mr. BROOKS. Yes.

Mr. NEVILLE. Not a bale of it. I think I am fair in stating that. The proportion, Mr. Brooks, that the members handle would be very hard to determine, for this reason: In the active season-that is, when the crop is being marketed actively, when a merchant has sales on his books and is buying his cotton to apply against those sales, he sometimes but not very often-is able to make further sales as he is buying his spot cotton. Consequently, there are no hedge transactions for purchase against the cotton he buys that day if he sells as much as he buys.

Mr. BROOKS. I don't think that is just what I want to bring out. I just want to know this: Of the spot cotton transactions your

members handle-you say 80 per cent of the cotton crop of the United States-what per cent is handled on the floor of the exchange and delivered on contracts?

Mr. NEVILLE. Now I catch what you are after. You did not put in the last part of it in your first query. Well, that is very hard to answer, simply because while the cotton is hedged by the members of the cotton exchange the actual delivery of that cotton very often is unnecessary. But roughly speaking

Mr. SIMS. State in answer to his question how much certificated cotton goes through the exchange.

Mr. NEVILLE. I was going to give the amount delivered on contracts in one year. In the season of 1908-9 there were 506,800 bales. Mr. BROOKS. And you handled 80 per cent of that?

Mr. NEVILLE. Yes. That was actual physical delivery through the exchange.

Mr. BURLESON. You do not mean to say that there were that many

bales?

Mr. NEVILLE. Yes.

Mr. BURLESON. Is it not a fact that the same certificate is tendered and retendered time and again sometimes?

Mr. NEVILLE. Sometimes, yes.

Mr. BURLESON. And does not that enter into the number of bales? Mr. NEVILLE. Partly it does.

Mr. BURLESON. Then, as a matter of fact, there were not 500,000 bales?

Mr. NEVILLE. Yes; five hundred thousand odd bales on contract. Mr. BURLESON. It may be noted that these tenders of cotton at New York unquestionably mean that a considerable amount of cotton was tendered again and again, since for several years the total tenders have greatly exceeded the total amount of cotton certificated.

Mr. NEVILLE. But I answered the question that he asked.

Mr. BURLESON. But you do not mean that it means 500,000 bales of cotton?

Mr. NEVILLE. I do not mean to say 500,000 bales certificated, and I did not say that.

Mr. SIMS. Then please answer that as though that were the question. How many bales came in and went out as individual bales, not tendered and retendered receipts, not that went through the port of New York, but inspected in the warehouses.

Mr. NEVILLE. I understand. I would say, roughly speaking, gentlemen, two-thirds of it. That is only approximate.

Mr. HOWELL. Is classification of cotton on the Liverpool and European markets substantially the same as it it in New York?

Mr. NEVILLE. Not grade name for grade name, sir, as I explained. Mr. HOWELL. Is there any arbitrary difference?

Mr. NEVILLE. No arbitrary difference.

Mr. HOWELL (continuing). Fixed between the different grades? Mr. NEVILLE. No, sir.

Mr. HOWELL. What does it cost to carry a bale of cotton a year in New York, not counting interest? Just take the storage and in

surance.

Mr. NEVILLE. Taking the storage and insurance without the interest?

Mr. HOWELL. Yes.

Mr. NEVILLE. Of course the insurance would be regulated a good deal by the price.

Mr. HOWELL. What does it cost to carry a bale?

Mr. NEVILLE. The average cost per year in New York for insurance is from 35 cents per $100 of value, which is the lowest insurance, up to the highest, the highest insurance being about $1.20 per $100 per The storage is 15 cents a month.

annum.

Mr. MENDELBAUM. Twenty cents a month now.

Mr. NEVILLE. Twenty cents a month, then.

Mr. HOWELL. What is the chief advantage of a dealer in cotton, engaged in what has been called a subsidiary capacity, being a member of the New York Cotton Exchange?

Mr. NEVILLE. One very great advantage is that it enables him to keep in touch with any cotton information the world over, the supplies of cotton of different growths.

Mr. HOWELL. Is not that public?

Mr. NEVILLE. The public as a rule does not get that information until the next morning, because they are not on hand to get it when it is posted in the cotton exchange. Then another thing is the value of membership in the way of meeting members and discussing anything of interest. For instance, if a man says, "I hear the spinning trade in Germany is better," we know that quicker than anybody else. Mr. HOWELL. You send that information out to your thousands of customers in your market letter, do you not?

Mr. NEVILLE. Yes, but it is old when it gets to them, even though we get it to them as soon as we can. When they get it it is old as far as we are concerned.

The CHAIRMAN. Are there any other phases of this question that you desire to touch upon?

Mr. NEVILLE. There is one other phase, Mr. Chairman, that I was hoping some of the gentlemen would ask me about.

I stated this morning that owing to the advantages of the cotton contract market, which is commonly known as trading in futures, a merchant is able to buy cotton freely from producers when they want to sell and at a time when manufacturers do not want to buy. I can best illustrate that, without wanting to appear personal to the committee, by stating that to-day we are carrying in South Carolina and in Texas thousands of bales of cotton that we have paid the farmers from 144 cents to 15 cents a pound for when there was not a mill man in this country or Europe who would bid over 13 cents a pound for it.

The CHAIRMAN. What would you have paid for that cotton if there had been no future market?

Mr. NEVILLE. About 13 cents.

Mr. LEVER. That happened this year. Does that ordinarily happen?

Mr. NEVILLE. It happens every year, except in not as aggravated a fashion as this year if I make myself clear.

Mr. LEVER. Entirely.

The CHAIRMAN. I think, then, what you have in mind will be directly in line with two or three questions I desire to ask you before you close your statement.

The underlying idea of the bill that we are considering seems to be that the speculative features of the New York Cotton Exchange

are injurious to the cotton trade and to the business of the country generally, and the bill's purpose, at least one of its purposes, is to put an end to these purely speculative features, prohibiting the transmission of telegraph or telephone messages relating to contracts for future delivery of grain, cotton, or other farm products without any intention that actual delivery shall be made.

Assuming that such law, if enacted, could be and would be enforced, is it your judgment that the interruption of interstate messages in relation to these future contracts would compel the New York Cotton Exchange to change its methods in any way, or would perhaps eliminate from that exchange the feature of future selling as it is now carried on?

Mr. NEVILLE. Mr. Chairman, as a layman-I am not a lawyer-it seems to me that such legislation as you indicate or as you state you may enact or are discussing might be construed by some people who are investors as an infringement of their rights

The CHAIRMAN. Let us waive that question. The theory of the bills is that if interstate messages to and from the New York Exchange be interdicted that future dealing feature of the exchange must fall to the ground. That assumes, I take it, that there are not enough transactions wholly within the State of New York to warrant the exchange in maintaining that feature of its business, that it depends on the business it gets from the outside. I thought perhaps your familiarity with the business of the exchange would enable you to advise the committee whether you believed that the continuance of this feature of the exchange is dependent upon the business that comes from outside the State of New York.

Mr. NEVILLE. Mr. Scott, it seems to me the question which would most occupy the minds of the gentlemen is this: Whether what is sought to be enacted is going to restrict competition for the staples raised by the farmers, rather than looking after the morals of some one that should not speculate. That is the way it looks to me, in a broad way.

The CHAIRMAN. If you will pardon me, that is hardly an answer to my question. I was asking you to assume that the feature of future dealing on the New York Cotton Exchange is to be eliminated. Would the interdiction of interstate messages bring that result about? Mr. NEVILLE. I don't think so.

The CHAIRMAN. Then, let us make another assumption. Assuming that the feature of future dealing were eliminated, to what extent, in your judgment, would it make necessary the readjustment of the cotton trade? I take it for granted that cotton would continue to be grown, cotton merchants would continue to sell it, and cotton spinners would continue to spin it. In what way would you consider the elimination of the future market to be detrimental to either one of those three classes?

Mr. NEVILLE. I think the farmer would be up against it, for this reason. My last statement, before you began examining me, will illustrate it. In the case of the cotton that I have stored in the South to-day, and for which I paid the farmer 14 cents to 15 cents, if futures were eliminated I would not think of purchasing a bale of cotton unless I saw from 8 to 10 per cent profit in it. I would want just as much profit in handling raw cotton, more perhaps, in some seasons, as the wool dealer does to-day in handling raw wool. Why?

Cotton is a very expensive commodity to carry. As it is to-day, you have quotations to assist in fixing the value of cotton; but otherwise, in case of a fire, for instance, those quotations will be so irregular, owing to the variation in values, that insurance companies would have to increase their rates in order to adjust their end of it. Bankers, that we have to depend upon for money to move this crop in its active marketing season, would exact more margin. Instead of carrying cotton for me for 10 and 15 per cent, when they know I have it protected with futures, cotton at 15 cents a pound, spinners saying that cotton is worth only 13 cents-it is only lately they said it ought to be worth 13 cents-the banker will say, "Look here, I want 40 or 50 per cent margin on this cotton." That is your local banker. Take your buyer of foreign exchange. As I stated this morning, in round figures, two-thirds of your crop is exported. The percentage of cotton exported, that is, exported under what is known as the three-day sight draft, is infinitesimal. The bulk of the exports is made on the basis of a sixty-day bill, documents for acceptance, which means the banker on whom the draft is drawn for account of the mill that has bought the cotton, accepts it and agrees to pay within sixty days after date of acceptance.

If anything should happen to that bank or spinner before the expiration of the sixty days and he has taken the cotton on the guarantee, you are still liable for the face of that draft-the shipper and merchant are.

I only mention those things in the order in which they come.

The CHAIRMAN. Those things go to bring your mind to the conclusion that the farmer would have to take a smaller price than he receives now for a corresponding crop?

Mr. NEVILLE. Absolutely.

The CHAIRMAN. Will you discuss, then, the effect that would follow upon the merchant?

Mr. NEVILLE. The merchant, Mr. Chairman, and the farmer are so closely related that what affects one affects the other. The merchant dealing with the farmer is controlled absolutely by the outlet he has for the merchandise he has, the raw cotton he buys from the farmer.

The CHAIRMAN. Yes; but it has been very correctly stated here that the merchant, as a general proposition, cares nothing for the price; all he wants is his profit. I understood you to say that the elimination of the future market would compel the merchant to give himself a wider margin in his purchases and sales of cotton. That would not necessarily interfere with his business; he would handle as much cotton and make as much money?

Mr. NEVILLE. No. On the contrary, there are none of us who would have capital enough to handle as much cotton, nor with our capital could we borrow the money to handle it with. You can see that. Mr. Lever is a farmer and has 500 bales of cotton to sell to me as a merchant. He says, "I don't need the money, but I will sell you 250 bales and keep 250 bales." I buy 250 bales and the matter of price we agree on. My interests and his are identical, except under the present system I am able to hedge my 250 bales either by a sale to a spinner-I am a merchant and I buy it to sell, and he is a farmer and he raises it to sell; he elects to keep his, and if I sell mine at a price that is satisfactory to me, that gives me my commission.