These injuries, as compared with those coming from the bucket shop, would be like comparing the misery, woe, and misfortune that comes from Monte Carlo, where they say there is an average of a suicide a month, to the effects coming from a couple of little pickaninnies shooting craps for pennies in a back alley.

Now I want to read a little further from Commissioner Smith's report. I do not want anyone to ask me what certain of these terms or expressions mean, because, as I told you, I understand the effect of the exchange rules, these uneconomical rules, upon the cotton trade as affecting both the producer and the consumer-I think I understand that-but there are certain phrases used in transactions which take place upon this great mart where merchants are engaged in business with which I am not familiar and which I can not elucidate for you if you ask questions about them.

Mr. MANDELBAUM. I think I have some questions that had better come in before you read that.

Mr. BURLESON. I am perfectly willing to be interrupted.

Mr. MANDELBAUM. I want to ask only one question, and I have to frame it a little, because I want to ask you only one question. Mr. BURLESON. All right.

Mr. MANDELBAUM. You stated at first that the cotton exchange dealt only in spook and phantom cotton.

Mr. BURLESON. I will tell you what I will do

Mr. MANDELBAUM. Wait, and let me ask my question, and then you answer it.

Mr. BURLESON. All right, if I can.

Mr. MANDELBAUM. After that you stated about the great wrong that is brought about in cotton or in the fixing of grades or valuing of grades. Of course the spook and phantom grades are not interested in that; and in fact, in accordance with your own conclusion, nobody is, because you stated that neither the producer nor the consumer trades on the New York Cotton Exchange. Now, if that be the case, they certainly do not pay the charges, either the one or the other, because neither of them trades there.

Mr. BURLESON. Mr. Mandelbaum

Mr. MANDELBAUM. Wait a minute; there is something else in this. Then comes the question of the revision committee made by a lot of spot men. Now, I ask you in all fairness, by whom should they be made unless by the men who are familiar with the cotton? Do you want them made by the speculator or the gambler?

Mr. BURLESON. Oh, no.

Mr. MANDELBAUM. Then by whom do you want them made? Mr. BURLESON. I am trying to show here that the way you make them

Mr. MANDELBAUM. No; you said that the biggest spot dealers in the country make those differences. I will nail you down exactly to what you said.

Mr. BURLESON. Well, I stick to that statement.

Mr. MANDELBAUM. I nail you to it. Now, who should make the differences the speculators and the gamblers?

Mr. BURLESON. That is not what I call them, but what you call them.

Mr. MANDELBAUM. The speculators and gamblers? Who under heaven should make them?

Mr. BURLESON. I can answer you in a word. I think they should be made in accordance with the law of supply and demand.

Mr. MANDELBAUM. By whom?

Mr. BURLESON. There are a dozen different ways they might be reached.

Mr. MANDELBAUM. By the gambler and speculator, or by whom? Mr. BURLESON. By the way, since Mr. Mandelbaum has alluded to the gambler, I want to direct the attention of these gentlemen to the fact that the bill introduced by the chairman of this committee deals alone with the transaction where the seller does not expect to deliver and the buyer does not expect to receive. A transaction denounced by the Supreme Court as a gambling transaction.

Mr. MANDELBAUM. This is no answer to my question. You can go to that after you answer that question. Your oratory must stop somewhere. [Laughter.]

Mr. HEFLIN. Mr. Chairman, Mr. Mandelbaum said "Who in hell" should make these differences.

Mr. MANDELBAUM. I did not say "Who in hell."

Mr. NEVILLE. He said "Who under heaven." [Great laughter.] Mr. HEFLIN. Oh, I beg your pardon.

Mr. MANDELBAUM. I said who under heaven should make them. The CHAIRMAN. This is a serious matter, gentlemen.

Mr. HAUGEN. Have you any remedy to suggest?

Mr. BURLESON. Pass the Scott bill; it will remedy the evil.

Mr. HAUGEN. That has nothing to do with the revision.

Mr. BURLESON. Why?

Mr. HAUGEN. I understand this bill does away with the whole business, the whole transaction?

Mr. BURLESON. Oh, no. It is directed against only one character of transaction.

Mr. HAUGEN. Oh, yes, it does.

Mr. BURLESON. Well, if the New York Cotton Exchange people say that by the elimination of transactions which the Supreme Court of the United States has repeatedly held were gambling transactions their business will be destroyed, then I say it ought to be destroyed. I direct attention to the fact that the provisions of the Scott bill define one character of transaction, and is directed exclusively against such, "where the seller does not expect to deliver and where the buyer does not expect to receive." If no such transactions take place upon the cotton exchange in New York, then it can not be hurt. And I will get to the phantom cotton in a minute, if I am ever permitted to proceed.

And in passing I desire to say that the only way to fix these differences is to permit the law of supply and demand to fix them. Mr. MANDELBAUM. Through whom?

Mr. BURLESON. For instance, it might be ascertained what the price of spot cotton was in half a dozen different markets, the real spot cotton markets in the South, and average them. That is one way it could be done. Or it could be done (and the only reason why the New York exchange can not do this is because they can not exist if they adopt the plan) by fixing differences day by day based on their spot sales, as they do in Liverpool. They can't do this because of a lack of spot sales.

Mr. HAUGEN. Or in New Orleans?

Mr. BURLESON. Yes; as they do in New Orleans.

Mr. MANDELBAUM. I want to state right here that the prices of the revision committee in the last few years have been exactly fixed by the ruling price of the markets of the South, and that the exchange has thriven under that system.

Mr. BURLESON. "When the devil was sick, the devil a monk would be; when the devil was well, a devil of a monk was he." [Laughter.] Mr. MANDELBAUM. Would you have them quote the prices of all grades of cotton?

Mr. BURLESON. I desire to discuss that in a few minutes, and show you what grades of cotton are actually quoted in the spot market. I will do so before I conclude, but I would like to get along now; there are a number of matters I want to direct attention to, and if I am in error I want it pointed out.

Mr. Cocks. That seems to me one of the very important things, and I do not quite get it in my mind yet what it would be if we eliminate this fixed difference, how it could be provided for.

Mr. BURLESON. Fix them at what they actually are in the cotton markets, as they are fixed by the law of supply and demand. Mr. Cocks. Fix it each day?

Mr. BURLESON. Yes, each day as at Liverpool and New Orleans. Mr. Cocks. It would not be fair to fix it for a week or a month? Mr. BURLESON. Who can anticipate market conditions that far ahead?

Mr. Cocks. You can average it, and cotton runs about such grades, and it seems to me you could do that. It is all Dutch to me, of

course.

Mr. BURLESON. I understand that, Mr. Cocks.

The CHAIRMAN. I hope the gentlemen of the committee will allow Mr. Burleson to proceed.

Mr. BURLESON. This part of Commissioner Smith's report has some bearing on the matter of differences and I was about to read it when interrupted. I read from page 261 of the report:

In addition to the charge that the fixed-difference system of the New York Cotton Exchange has tended to attract mainly the surplus grades of cotton to that market, the further complaint is made that this stock has been used by large operators, in connection with the fixed-difference system, to systematically hammer the New York contract price. It has already been shown that the effect of differences which overvalue certain grades of cotton when delivered on contract is to depress the contract price. A striking illustration of this occurred in the New York market in November, 1906. It is charged that such sacrifice of contracts as took place at that time has occurred again and again on a smaller scale in the New York market as a result of improper difference in connection with an undesirable stock of deliverable cotton. The argument is that because the New York contract differences frequently overvalue certain grades, and because deliveries of cotton are usually so mixed as to be undesirable to the receiver, holders of contracts, even though they were aware of these conditions at the time they bought such contracts, nevertheless, when the date of delivery actually arrives, are unwilling to take up the cotton, but instead "run from notices;" that is, sell out their contracts when they receive notice of delivery from the seller.

The charge here outlined is substantially that large spot houses on the New York Cotton Exchange have taken advantage of the general character of the New York stock, and of the artificial differences established by the New York Cotton Exchange, to "milk" the market by tendering undesirable deliveries at false differences, thus inducing the buyers of such contracts to sell them out at a sacrifice. In this case, it is alleged, these same spot interests have purchased these contracts at the decline, thus making a profitable turn. It is alleged that spot merchants in the New York market have thus been able to keep in their possession a stock of cotton and to use it over and over again as a very effective weapon for clubbing the New York contract market.

Now, is that true? If that is true, will anyone say it is not a grievous wrong? Do I offer it as my ipse dixit? Why, no; I offered it as defined by Mr. Smith in this report. But suppose my friend here says he will not accept that?

Mr. MANDELBAUM. I do not want to say that, but I say, Did you yourself not find some fault with some of his conclusions?

Mr. BURLESON. I find fault with his conclusions. I agree with Mr. Marsh that the burden of marketing the crop does not fall on the speculator, but is borne by the producer and the consumer. I agree with Mr. Marsh on that, and not with Mr. Smith. I accord to Mr. Smith honesty in the conclusion that he reached, but I do not agree with him; just as Mr. Mandelbaum and I do not agree about many things. It is the viewpoint. But suppose there is somebody here who says, "Well, I will not take this disinterested government official; I decline to accept his statement." Then let me read you this: In this connection one of the largest spot merchants in the New York market, who is also a member of the exchange, said

Mr. MANDELBAUM. Who said?

Mr. BURLESON. Who is the member? Gentlemen, that is one of the mysteries I am unable to fathom. I receive letters from the members of the exchange denouncing the nefarious practices that they say exist there, and yet they are unwilling to come forward and speak before this committee. I could have explained about the yellow paper, but I will not, because I am not authorized to do so. Mr. MCLAUGHLIN. But it is evidently somebody that Mr. Smith thinks worthy of being quoted.

Mr. BURLESON. Yes; and who, Mr. Smith says, is a large spot dealer and a member of the exchange.

Mr. MCLAUGHLIN. Or he would not have quoted him.
Mr. BURLESON. I so understand it.

Mr. MCLAUGHLIN. Let us see what he says.

Mr. BURLESON. Unless Mr. Smith is a liar, he is a large spot dealer and a member of the exchange. Are you not willing to take out of the mouths of these people themselves what they say about it; when the spinners themselves come here pleading that they be relieved of this great burden that has been placed upon them? He says:

In this connection one of the largest spot merchants in the New York market, who is also a member of the exchange, said: "There is no question but that there is a large amount of that (i. e., inferior cotton) here. These men who get control of a lot of contracts and want to weaken the market-that is, the spot brokers."

That is, the spot brokers want to weaken the market; these large spot dealers, nine of them, on the revision committee, who want to weaken the market before they buy-ought such power to rest with men who are buying the product of a helpless people, to weaken the market price and then buy? I want some man with a conscience to answer that question. Should this be permitted? Hear the further reading from this member of the exchange:

These men, who get control of a lot of contracts and want to weaken the marketthat is, the spot brokers-do not want to handle and finance actual cotton. They will throw a lot of this stuff over which they have got to transfer to a different month or themselves finance it. This has been acting as a club, and I think it is one of the worst features of the exchange. A combination will get together a lot of this low-grade cotton, and before notice day there would be a high market and they would throw it right on the market, and of course it would force the market down-sometimes a half a cent.

Q. And then they take back their contracts?-A. Yes; and very often at a lower price and thereby make what is called a "turn." They might have sold short and they throw this low cotton on the market and lower the price a half a cent and then buy it in again.

Q. Has that been an extensive practice?-A. Right along.

Q. So that the same cotton has been sold again in this way a great many times?—A. Without question.

The CHAIRMAN. Let me interrupt you there to make a suggestion. Mr. BURLESON. With pleasure.

The CHAIRMAN. I think the committee is quite willing to agree to a proposition which nobody would deny, that with fixed differences which did not represent actual commercial relations between grades, manipulation might be possible under which the market could be unfairly depressed or advanced.

Mr. BURLESON. It is undeniably true.

The CHAIRMAN. And the emphasis which you have laid upon the proposition I think might perhaps fairly warrant the conclusion that if this one wrong practice could be remedied, you might have no objections to the exchange?

Mr. BURLESON. Oh, no; there are many others.

The CHAIRMAN. And I think before you close it would be a good idea for you to bring up other reasons, if you have any other reasons. Mr. BURLESON. I have. I think this is the most indefensible practice of the exchange under their rules. And I contend it can not correct it; that is the point I make. The New York Exchange can not abandon this system of fixed differences, because if it did it could not draw cotton to New York upon which to bank as a reserve; it must have a certain amount of actual cotton in New York or it can't operate. It can't draw this cotton there if it abandons its practice of overvaluing certain grades. That is the point that I make, and it can not be gotten away from.

Mr. BEALL. Bearing on the question of this quotation that Mr. Burleson has just read, I notice that it is in the form of question and answer. This statement must have been made in some investigation.

Mr. BURLESON. Yes, sir; an investigation by Mr. Herbert Knox Smith, and he put the questions and answers in this report so that you could get exactly at the meaning of the member of the exchange who was speaking.

The CHAIRMAN. Were the witnesses under oath?

Mr. BURLESON. I do not know whether they were or not; but they are a lot of reputable merchants who, when the suggestion was made that there might be transactions through the exchange where there was no expectation of delivery or receipt of the actual cotton, became much offended. Now I will proceed to other matters, although I have not exhausted this subject of fixed differences.

Mr. LEVER. I would like you, before you get away from that point, to answer this question. Why is it necessary to keep a reserve of cotton in New York?

Mr. BURLESON. Because they are bound to have a certain amount of cotton there to tender on these future contracts if the cotton should be demanded. And now, right on that point, how many bales on contracts are demanded? I want to be perfectly fair to the exchange about it; I want to take what they say about it themselves. On page 264 we find table No. 23, which is headed "Total tenders of cotton on contract in New York and contract deliveries in New