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1900-1901. You naturally ask why? Mr. Chairman, there it is going to remain. New York City, as long as this cotton exchange exists, will always have spot cotton come there just about in that proportion to the main crop. Why? Because it is necessary for the exchange to have a certain reserve in New York in order to meet demands for tender upon its contracts, and by long experience through course of business they have reached a knowledge upon the subject concluding that it takes about nine-tenths of 1 per cent of the crop in order to meet this situation.

Now, as I have said, in order to be absolutely fair I want to give the average of spot sales of cotton in New York for the ten-year periods; this I read from Commissioner Smith's excellent report.

[table]

Considering these statistics, if they are based on truth, can anyone doubt that New York has ceased to be a spot cotton market?

But, Mr. Chairman, these figures show that a small lot of cotton does still go to New York. In order to get this cotton to New York it must be brought there by some one—it will not go there of itself; it will not be brought there if it is going to occasion the buyer a constant loss. Everybody is struggling for money. I do not acquit the producers of cotton of a desire to accumulate money any more than I hold up against these exchange gentlemen the desire to accumulate it. Everybody wants to make money, nobody wants to lose money. This cotton is not going to New York at a loss of a dollar and a half a bale, hence it will not reach there unless some artificial condition is created or brought into existence that will draw it there without this loss, and this has been done, and I will tell you in a moment what that artificial condition is. Now, suppose some member of this committee will say, "Well, Burleson is mistaken about this proposition. The fact that they lose a dollar and a half on each bale would not keep cotton from going to New York, and as to these statistics that Mr. Herbert Knox Smith embodied in his report, these gentlemen, representing the exchanges, have denounced his conclusions as 'a befuddlement of ideas,' and his statement of the facts." I do not remember exactly what was the expression with reference to the facts, but they were thoroughly discredited. Suppose there is some committeeman in that frame of mind; if so, will you accept an emphatic statement by a member of the exchange upon the proposition? When the producers and the consumers come nere practically united in a demand that this great incubus be lifted from them, and when they offer you admissions out of the mouths of the members of the exchange, do you propose to reject it? I do not believe you will.

Let me give you an admission deliberately made by one of their own people. But before I give to you hi:r statement let us see who he is? Is he an obscure member, some little insignificant scalper with a desk in another member's office who plies his avocation upon the floor of the exchange day by day, scalping out a miserable existence through the practice of his knowledge of the rules of the exchange? Oh, no; I do not offer you the testimony of that kind of a member of the New York Exchange. I bring before you the greatest spot cotton dealer to-day in the United States, if not in the world, a man whose firm has been and is represented upon the revision committee, and it is the revision committee, gentlemen, that wields the power that controls the organization, that shapes the action of the members of the New York Cotton Exchange, as I will show you later on. I will bring you the admissions of an exchange member, represented on the revision committee, he or his firm, year after year, and I will read you his own letter, giving his views about New York as a spot market [reading]:

Philadelphia, June 20, 1905. Mr. Atwood Violett,

New York City. Dear Atwood: I have been intending to write you regarding your circular concerning the certification of cotton in the South, so that it would be a good delivery there against contracts made on the New York Cotton Exchange.

You understand there are two factions in the New York Cotton Exchange, one faction contending that the present system of fixing differences is uneconomical, uncommercial, indefensible, who have expressed the fear that if it was not changed the people of the United States, those people who are really vitally interested in the cotton trade, would ultimately wipe the exchange out of existence. [Continuing reading:]

I agree with your opinion in the matter thoroughly, and if you ever take the matter up again—

Evidently some matter had been taken up before the Exchange on a former occasion and had been defeated, I suppose, through the power of the organization, which is possible, as I shall show you later. [Continuing reading:]

If you agree with me, I would go a step further and ask the New York Exchange to change their differences between grades, if necessary, semimonthly or monthly, depending upon the value of the respective grades of cotton.

Now, Mr. Chairman, this comes not from a spinner who wants the contract changed so as to serve his selfish ends. This is not from a spinner, and I regret that whenever anything has been read during these hearings from a spinner, or when the representatiye of the American Cotton Manufacturers' Association came before you to protest against the practices of exchanges, an effort has been made to leave the impression: "Oh, you can't accept what he wants, because he is controlled entirely by selfishness.'' Gentlemen, this man from whom I read is not controlled by selfishness, at least not from the standpoint of a spinner. I do not mean he has no selfishness in him. We all have selfishness in us. I believe that even these gentlemen are, in a measure, selfish. But he is one of the great cotton merchants who have been so graphically and so favorably described in the presence of this committee.

Mr. Neville. Won't you add "ably?"

Mr. Burleson. Yes, I do it most cheerfully, because I admit now that every word that can possibly be said in defense of the New York Exchange, its rules, its regulations, and its practices, has been most ably presented by the gentlemen selected by the New York Exchange to appear before this committee for that purpose [continuing reading]:

To avoid any effort at local manipulation of these differences it could be arranged upon the average of the differences between grades at five or six of the prominent cotton markets in the South.

My reason for the above is that the efforts of the New York Cotton Exchange for the past five or six years have been to see how poor a contract they could make in New York.

Mr. Mandelbaum says it has attained perfection, that it is without a blemish, there is nothing he would change. Mr. Neville says there is only one slight difference he would make, and he wanted a change so that the spmnable value of cotton should be considered in fixing differences between grades. If I do not forget it—and I hope I will not—I want to say a word about that when I reach that phase of the question. But here is a man who has been represented on the revision committee, as I say, for years, and one of the largest spot buyers in the world. He says:

My reason for the above is that the efforts of the New York Cotton Exchange for the past five years have been to see how poor a contract they could make in New York, and not how good a one or even fair, and I think the time has come when the New York contract should be made a better one than either Liverpool or New Orleans, for with proper differences and the certificate system there is no reason why it should not be. A vital reason for this change comes from the fact that I do not think there is any reason existing why New York should not be a cotton market for the sale of actual cotton.

You know actual cotton is spot cotton. [Continuing reading:]

It has the most perfect coastwise connections with southern ports and very reasonable rates of freight; it has frequent and cheap freight; connections with all the cottonconsuming centers of the world; it is within a night's ride of all the mills in the Middle States and New England, whose consumption is 2,000,000 bales cotton per year if not more; it has the cheapest storage in America.

Geo. H. Mcfadden.

But you will say, "He does not say in his letter that New York is no longer a spot market." I will read further in a moment but in passing I want to ask, Is there a cotton producer in America, is there a cotton spinner in America or elsewhere who could voice before this committee a severer condemnation of the New York Cotton Exchange than has been made in this letter by George H. McFadden?

Mr. Neville. What is the date of that letter?

Mr. Burleson. June 20, 1905. I will read you exactly what Mr. McFadden said two years later, when Commissioner Smith was making his investigation of the Exchange:

Mr. McFadden (the author of this letter), when asked in November, 1907, whether he cared to comment upon his letter said:

"Simply that since that time I have changed my mind regarding the situation. New features and new interests coming into the cotton market, and the development of the manipulations in the different positions and months, make it impossible for New York to be what I once hoped it would. Also, the freight situation, which has remained unchanged, has not operated to the benefit of New York as against New England and other spinning districts."

Now there you have it. First there is a loss of $1.50 a bale on each bale of cotton which is stopped in New York, which makes it impossible for it to become or continue a spot cotton market. Second, the actual statistics—and, by the way, did I tell you the sources of these statistics I read to you a moment ago from Mr. Smith's report 1 I believe I neglected to do that. In order that Commissioner Smith may not be put in the attitude of going out and cooking up statistics against these exchanges I will say that the figures for the commercial crop are from the government census publication, and the figures showing spot sales in New York are—but I will read from the report:

An idea of the shrinkage in spot sales since 1870 may be obtained from the following tableThat is, the table I read the statistics from a moment ago— Compiled from figures furnished by the New York Cotton Exchange.

Their own figures. Now, can the conclusion be escaped that New York has ceased to be a spot market?

Now, Mr. Chairman, not only will I demonstrate that New York has ceased to be a spot market, but I want to show you that it has ceased to perform every function of a legitimate exchange. What are the functions of a legitimate exchange? From the day of Adam Smith, who was referred to so glibly here by the distinguished gentlemen speaking for the exchanges, to the last man who has written upon the subject of economics, it is agreed that the primary function oi an exchange is to bring the buyer and the seller, the producer and the consumer, together. That is fundamental. It is to bring them together.

Before I proceed further I will read an excerpt from an article published in the Atlanta Constitution in 1907, which has just been called to my attention by Mr. Beall, in which it is said:

The New York market, which, as a regular market for spot cotton, was doomed early in the eighties of the last century, found a new reason for being in the immense development of the theory and practice of hedging transactions in cotton goods.

Mr. Lever. Who said that?

Mr. Burleson. Mr. Marsh.

Mr. Sims. The gentleman who testified before the committee?

Mr. Burleson. Mr. Arthur R. Marsh, the vice-president of the cotton exchange. But I wall proceed.

The second important function of an exchange is that it may enable the producer and consumer to market the product at the least expense. The third function of an exchange is to aid in the speedy distribution of the product with which it attempts to deal. I do not think there can be any division of opinion that those are the important functions of an exchange.

Mr. Chairman, I believe I can show you that the New York Cotton Exchange has ceased to perform a single one of these functions.

First. Does the consumer, the buyer, go to the cotton exchange in New York in order to get his cotton supply? Who are the sellers 1 The producers, the farmers. Who are the buyers of raw cotton? The spinners. Now, if the producer does not go there to sell, if the spinner does not go there to buy, if it can be conclusively demonstrated that they do not go there for those purposes, will you not be forced then to the conclusion that, in so far as that function of an exchange is concerned, the New York Cotton Exchange signally fails? You heard Mr. Parker when he told you that spinners required evenrunning grades of cotton. He read before you the resolutions that had been adopted by the Cotton Spinners' Association, of which he is the president. I read you yesterday, and I will read it again now ifyou want to hear it, what Theophilus Parsons said on this subject. Who is Theophilus Parsons? No antagonism can be aroused in my breast against the consumers of cotton. I am a producer of cotton myself. My entire fortune, nearly, is invested in cotton-producing lands. I realize, and every intelligent farmer realizes, that the value of our cotton depends upon the demand for this cotton for consumption. Who consumes it? As I have said, the spinners. Theophilus Parsons, a man who has been engaged in the spinning business for decades, honored by those with whom he has been associated for years by being elevated to the presidency of the greatest organization of cotton consumers in the world, as has been said by Mr. Neville, expressed himself about his ability to go there for cotton and what he would get if he went there.

You heard me read from Mr. MacColl, the president—I never can distinguish between the two manufacturing associations—the Northern and the Southern.

Mr. Neville. He is the former president of the National Association of Cotton Manufacturers.

Mr, Burleson. He is the former president of the National Association of Cotton Manufacturers, the northern organization, and you have heard his statement with reference to the proposition as to whether or not they go to the New York Cotton Exchange for the purpose of doing any sort of business. Gentlemen, it is common sense. If you were inclined to believe that Mr. Parker would come here and willfully misrepresent the facts, do you not know that it is stated time and time again in this report that even-running grades of cotton are required by spinners, generally a half grade above or below a specified grade? It is admitted that if you go to the NewYork Exchange and purchase a future contract and demand delivery on that contract, you will get or may receive 28 different grades of cotton under the same contract if they see fit to give them to you. Gentlemen, don't you know it is human nature that if I have a contract to deliver to you certain property, and I have the option, as the seller, to deliver to you, and I do not want you to call on me for delivery, that I will tender the very character of stuff you do not want to receive, in order to make you run away from the contract? That is human nature. It is conclusively shown in Commissioner Smith's report that these future contracts for the delivery of cotton are formulated, so framed, that a delivery of 28 different grades can be made if delivery is demanded. Every spinner would flee from such a delivery as he would from a pesthouse, a leprosarium.

This legislation has been under discussion for some time. Don't you know that if there could have been found in the United States a spinner who had gone to the New York Cotton Exchange and demanded a delivery for the purpose of using the cotton m his mill he would be here to tell you of it? The buyer, then, does not go there—to the New York Exchange or New York for his cotton, and I might end the discussion right there, because if the buyer, the consumer of cotton, will not go there, there would be no necessity for the producer to carry his cotton there for sale. But out of the lips of Mr. Marsh we have it that the producer, if he carried his cotton there, would lose $1.50 on each bale, and of course he will not carry it there.

Furthermore—and on this proposition there can be no mistake— Mr. Marsh in his testimony used the language that the New York Cotton Exchange is not a medium through which cotton is either

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