Mr. Cocks. I can not quite get your point. As I understand, you would try to make me believe that the cotton spinner is going to buy this cotton anyhow, whether he is going to make a profit or not, because there would be a riot if he did not. That is the point I do

not see.

Mr. BURLESON. I do not say that he has to buy cotton anyhow. He can not buy it unless the producer sells it. If the producer burned his cotton, of course the spinner could not buy it. But, Mr. Cocks, it is a law of economics that when one man has something he wants to sell and another man has a use for that something and wants to buy it, it is natural that they should get together, and I have no fear that the cotton grower and the cotton spinner will fail to get together. When the New York Cotton Exchange started upon its career under its rules it fixed the difference between the grades of cotton in accordance with the values as determined by the law of supply and demand. During the first ten years of its existence the New York exchange fixed these differences just as they are now fixed in Liverpool and just as they have always been fixed in New Orleans. Then the period arrived when New York commenced to decline as a spot market. As you know, it is impossible to operate the exchange without having some cotton there to be used for purposes of tender on contracts. If cotton will not go there at a loss, they must create a condition that will bring it there. How did they do it? Why, it was a serious problem confronting these gentlemen, how they were going to get the necessary cotton to come there. Now, who is my authority for that? Mr. Marsh. He says:

One of the most serious problems of the cotton exchange has been and is to so frame these contracts that a sufficient supply of actual cotton will readily come to New York to insure the maintenance of the reserve.

How can they get the necessary cotton to come there? He tells you now that the cotton that comes there is the cotton that is not being freely bought by the spinners.

Mr. MARSH. At the time.

Mr. BURLESON. At the time. Oh, yes; at the time. Now, gentlemen, I will tell you how they do get the necessary cotton there, and this is the secret of the adoption of the fixed difference plan, their fixed difference system. The exchange would not have it if it could exist without it. They would prefer, if it were possible, to adopt some other system, but the only way they can get the cotton there for this necessary reserve is by an arbitrary overvaluation of certain grades. This action draws these grades to their reserve. Do they overvalue it? Let us see. By reference to the chart opposite page 160 in volume 1 of this report and you gentlemen will have this before you when you come to the consideration of this bill-it will be seen that for several years past the New York differences for low middling and good ordinary cotton have as a rule been much too narrow. In other words, these grades were overvalued relatively to middling. What is the effect of overvaluing them? The grades thus overvalued seek the place where they command the best price. Understand, Mr. Chairman, that these grades are not being bought freely by the spinners. Why is it that in a crop year where it is a low-grade crop they overvalue the lower grades and if the crop is a high-grade crop they overvalue the higher grades? Why is it they overvalue the grades that

the spinners are not buying freely? I will show you why. I read from page 291:

At the same time there can be no doubt, in view of statements obtained in the course of the investigation, that large operators, in the New York market particularly, were able years ago, when the commercial differences were applicable on future contracts or when revisions were made monthly, to manipulate prices on a rather extensive scale. This raises the question whether this manipulation may not have been due in large degree to the narrowness of the New York spot market. As shown elsewhere (see p. 247), transactions in spot cotton in New York at that time had already decreased very sharply from the totals of earlier years. Furthermore, the range of grades principally received in the New York market had narrowed greatly, that market in the main receiving only the surplus or temporarily undesirable grades. It is obviously easier to manipulate the prices of such grades than of those which are in active demand, since in the case of the latter any important change in price ordinarily will be vigorously contested as the result of free competition.

For instance, they could not easily manipulate the grades that the spinners wanted. They could not overvalue the grades that the spinners wanted, because the spinners would say, "We want these grades, and we will contest the matter with you." They overestimate the value of those grades that the spinners do not want. In a low-grade crop the lowest grades are least in demand, in a highestgrade crop, ordinarily the highest grades are being bought less freely. Now, directly on that point, go back to page 253:

For the high grades the differences on the New York Cotton Exchange have been more nearly in line with commercial differences. Nevertheless, in the high-grade crop year of 1903-4 the difference at New York for good middling was, for a considerable period, materially greater than the commercial differences existing at New Orleans, thus overvaluing that grade.

Good middling is one of the higher grades and hence in 1904, a high-grade crop year, it was overvalued

Mr. Cocks. How did the overvaluing of these low grades that the spinners did not want, hurt the producer?

Mr. BURLESON. Because they sell a basis contract, and it pulls down the price of the futures.

Mr. Cocks. That is a future for that stock?

Mr. BURLESON. Yes.

Mr. Cocks. And yet you say it is overvalued; and yet the cotton would be overvalued, the spot cotton?

Mr. BURLESON. The seller would not have to deliver to you a single bale of that. As a matter of fact, the buyer bids less because of this overvalued cotton. The seller could deliver any of the different sorts of grades on this contract but of course will deliver such grades as will prove most profitable to him.

Mr. Cocks. But that would be quoting the future that day in New York, upon which would be based the pay at Houston, we will say, for spot cotton?

Mr. BURLESON. Yes.

Mr. Cocks. Would not that be a little bit higher than usual, then? Mr. BURLESON. Because of the fact that certain grades are overvalued, if a man was going to buy one of these future contracts, it is natural that he would bid lower for it because he would probably have to take these grades at a price higher than their commercial value. Every contract on the New York Cotton Exchange is of that character. They do not sell a contract for a particular grade of cotton; they sell a basis contract upon which at present 28 different grades are deliverable.

Mr. LAMB. Before my friend finishes his earnest speech along this line, I want to say that this committee, and I am a member of it, is deeply interested in this question, and if we look at it purely from an economic and business standpoint, as he has been arguing it so well here, I claim that this Congress has no right in this matter to pass this bill. On the other hand, if the New York Exchange is engaged in a gambling enterprise, and this is a moral question, such as the question in regard to the Louisiana lottery was, then we have some right. I would like to hear the gentleman on that point.

Mr. BURLESON. I want to be perfectly candid with the committee on that point. I will not say that the moral phase of this matter does not appeal to me, but I have not considered these moral phases in arriving at my conclusions nor do I make them the basis for my earnest insistence for the adoption of this measure. It is true, gentlemen, that the Federal Government passed a law that destroyed the Louisiana lottery, denying it the use of the telegraph and the telephone and the mails, solely because of its demoralizing effect on the people. It is true there is no one here who will say that there ever was a suicide that resulted because of the existence of the Louisiana lottery; there never was a bankruptcy brought about by the existence of that institution; there never was an embezzlement or a defalcation or a betrayal of trust by reason of the purchase of a dollar ticket in order to secure a chance for the capital prize in the New Orleans Lottery. It is true we can not say that with reference to the New Orleans Cotton Exchange.

Mr. BEALL. You mean the New York Cotton Exchange?

Mr. BURLESON. Well, the New Orleans Cotton Exchange or the New York Cotton Exchange, either; it makes no difference to me, because I am against them both. You can not say that with reference to these exchanges. But that phase of this matter has not controlled me in the least in the conclusions I have reached on my earnest insistence that this bill should become a law. I am opposed to these future-trading exchanges, because I believe they have become an incubus on the cotton trade. They are a great burden on the spinners and the producers of cotton in this country, who have a right to look to the Federal Government for relief after having done everything possible to relieve themselves. Their practices interfere with the freedom of trade between the cotton producer and consumer, obstructs and hinders trade between the cotton-producing States and cotton consumers, domestic and foreign. Mr. Chairman, we have passed laws in the Southern States driving the representatives of these exchanges from their confines; in every State with the exception of two. This action has, in a measure, curtailed their hurtful operations, but we have not been able to interfere with the interstate traffic in these future contracts. The Senate bill strikes at that evil. When the propaganda was inaugurated in the South against these exchanges, a seat on the New York Cotton Exchange was worth about $23,000, or in the neighborhood of that sum. As we passed laws excluding them from the States, thus diminishing the supply of "lambs," year by year the value of a seat on this exchange depreciated in value until the year 1908, and I have not looked into it since then, but I did look into it then, getting the information that a seat had gone down to $10,000. Mr. Chairman, I deplore the moral degradation caused by these exchanges; I regret the crimes and suicides traceable to specula

tions thereon, but for the purposes of this discussion what I object to is the uneconomical practices of this exchange and the resulting obstructions and interferences with commerce and to think that these exchanges have the hardihood to contend that they are necessary because of the assistance they render the cotton trade. But I desire to return to a discussion of the fixed-difference system, the crux of this whole controversy. The fixing of the differences in September amounts to but little.

The CHAIRMAN. Before you start on that fixed-difference proposition, let me make this suggestion, which I think will come in properly in connection with that discussion.

Mr. BURLESON. Yes, sir.

The CHAIRMAN. That one of the features of this whole controversy which I am sure interests every member of the committee, is the contention on the part of the representatives of the exchange that elimination of the exchange would harass and hamper the whole cotton trade to the detriment of the producer, to the detriment of the merchant, and to the detriment of the spinner, for the reason that it would compel all of them to transact their business on wider margins and that it would force out of the trade the small man who would not command great capital. Before you close, I hope you will touch on that point.

Mr. BURLESON. I will, Mr. Chairman, before I conclude. But let me show you what the fixing of the differences under the rule of the New York Exchange involves. In November, before it is possible for human wisdom to forecast the character of the crop

The CHAIRMAN. In September, you mean?

Mr. BURLESON. No; the September fixing amounts to very little. Mr. BEALL. Is it not a fact that in many instances, even since the September fixing was adopted, there is no action taken?

Mr. BURLESON. Frequently it happens that there is no action taken at the September meeting, sometimes only to reaffirm the action taken at the last November meeting. They will not deny that. This practically means the fixing of the differences in value between these grades of cotton only once during the year. Now, gentlemen, is such a thing possible, considered either economically or from a standpoint of justice and fairness? How can these men making up the revision committee determine the character of the crop yet to be matured and gathered? Even if it were possible to eliminate selfishness on the part of the individual member entirely from consideration, how can this committee know whether the crop is to be of low or high grade, whether there are to be a small per cent of the higher grades or a large per cent? And these factors determine the value of the different grades. How can they tell what these differences in the value between the grades will be? They can not forecast the weather. And right on that point-I will return to a discussion of this-I want to tell you of a conversation I had with Col. John H. Inman, who in his time was the greatest spot-cotton merchant in the world. On one occasion I met him, and in conversation the topic arose as to the real cause of gambling in cotton. I said "You have devoted your life to the cotton trade, and I want you to tell me this. Here are four textile fibers-silk, flax, wool, and cotton-out of which the raiment of the world is manufactured. Why is it that those who want to speculate select cotton, and cot

ton alone, for that purpose?" He replied, "Mr. Burleson, it is easy of explanation; there are more elements of doubt and uncertainty entering into the making and marketing of a cotton crop than of any other crop in the world. He further said "Speculation thrives upon uncertainty, and for that reason speculators have seized upon cotton as the product with which they will gamble." Do you not see how convincing and satisfying this explanation is? And yet I have lived to see the time when Mr. Mandlebaum and Mr. Marsh come here and assert that there are more uncertainties, more different conditions, environing the wool trade and the manufacture of wool than the cotton trade. Gentlemen, just in a word I want to say to you, and I speak from an experience of twenty-odd years, cotton is a most uncertain crop to plant and the most difficult in the world to In the first place it is dependent upon a proper season to bring up the seed after it is planted. If you do not get a proper season, and then plant at the proper time, the uncertainties of the weather are against you. Your seed may lie dormant in the earth and never come to the period of germination.

Mr. BEALL. Just as it did in my county this year.

grow.

Mr. BURLESON. Just as it did this year in Ellis County, the greatest cotton-producing county in the world. They produce more cotton in Mr. Beall's home county than in any other in the world; and yet Mr. Beall will tell you that the conditions were such this year that the cotton did not properly germinate in that county and from a practical standpoint did not germinate at all. That is not the only uncertainty the cotton planter must contend against. Cotton, to be successfully grown, must be planted during the early part of the year. There is the uncertainty of the effects of inclement weather. It is the tenderest plant in the world, as Mr. Neville knows and as these gentlemen know; the lightest frost destroys it. It is more tender than any pot plant grown in hothouse.

Mr. NEVILLE. And it is likewise the toughest plant in the world. Mr. BURLESON. In a certain way, yes; when it reaches a certain stage of growth it is capable of great resistance, especially to heat. Mr. NEVILLE. Yes.

Mr. BURLESON. I repeat, it is the tenderest plant in the world, and the most difficult to secure a proper stand. Are these the only uncertainties? Oh, no. After you have germinated your seed, escaped the frost, and secured your stand, gentlemen, I assert, and without fear of successful contradiction, as I speak from a store-house of sore experience, there are more creeping, crawling, flying, boring insects that prey upon cotton than upon any other plant ever tended by man. Now, after the uncertainties of weather, after all these insects are combated, after the Mexican boll weevil has preyed upon it, is it possible that you are going to deliver the producer of cotton over to the tender mercies of the worst pests of all, the bull and the bear? [Laughter.]

Mr. HEFLIN. The chairman asked you if the New York Cotton Exchange, or the speculative features of it, were abolished, would it not injure the three or four different classes of people that dealt in cotton-the producer, the spinner, and the mill man, and so forth? Mr. BURLESON. I will come to that.

Mr. HEFLIN. Do you think that if the speculative features of the exchange should be abolished we would have spot cotton exchanges all over the South?