Mr. MENDELBAUM. Did you buy it from parties that you had reason to believe hedged their sales?

Mr. PARKER. Oh, no; I bought spots.

Mr. LEVER. You have said something about fixed differences in the course of your remarks. Many of us do not understand the terms of the New York Exchange. Would you mind explaining that, and the effect it has upon futures?

Mr. PARKER. The marked difference between the New York and the New Orleans exchange is on that question of differences. In New Orleans you will find, as a general proposition, that spots and contracts remain on a reasonable parity with each other, because the differences between the different grades are fixed in New Orleans day by day according to the market difference of the law of supply and demand, and according to what anybody would go and pay for this cotton as contrasted with that cotton. New Orleans fixes it by the market day by day. New York says: "We have this wonderful power of anticipating, in November, and saying what is going to be the condition all the rest of the year." Therefore we will find that New York adopts arbitrary differences, and therefore does not keep the same parity between spots and futures that New Orleans does.

The CHAIRMAN. I thought New York fixed the differences twice a year?

Mr. PARKER. New York fixes the differences nominally in September, Mr. Chairman; but, you see, any man in the world who claimed to fix differences for the coming year in September would be a prophet of great wisdom. Therefore the September difference is only a nominal affair, one that is very seldom changed, I think, or changed only very slowly. The fact is, I think, the feeling generally is that September changes are sometimes made as a result of how the members of the committee happen to be on the question of spots and futures. In other words, it is too great a temptation.

Mr. CONE. Mr. Parker, let me ask you this question: If New Orleans happened to have 200,000 bales of cotton grading, say, strict low middling, and some one in New York had bought 200,000 bales of futures in New Orleans-if, considering the difference prevailing there, they had bought their futures in New Orleans-would not they be liable, when they came down there, to demand the cotton? Have you never heard of instances where New Orleans has fixed that basis against them, and said, "The market difference now is so-and-so, because there is this demand here for this cotton?"

Mr. PARKER. There was one year let me see; I can not just tell you offhand what year it was-I should say, though, about 1903; was not that the year that they made that claim? Anyhow, one year they claimed that New Orleans did vary its differences in order to meet a condition where they were afraid the spot cotton was going to be taken out of their market by this demand for delivery. That may be true. I am not defending the New Orleans Exchange. I have no brief for the New Orleans Exchange. But I do say that, as a system, the arbitrary differences tend to depress the futures; and that as a system, therefore, it is indefensible.

Mr. BURLESON. Mr. Chairman, I should like to ask Mr. Cone a question. Do you think that was right?

Mr. CONE. No; it was absolutely wrong.

Mr. BURLESON. It was robbery, was it not?

Mr. CONE. Certainly.

Mr. BURLESON. It was uncommercial, uneconomical?

Mr. CONE. But that can not be done under your fixed differences in New York.

Mr. PARKER. That particular thing could not be done in New York; and that is one of the few things they could not do.

Mr. HAUGEN. Did you say that if there were no exchanges the cotton merchants would be compelled to buy cotton offered on the market and put it in warehouses?

Mr. PARKER. I would regard that as necessary if I wanted to sell ahead on my goods.

Mr. HAUGEN. If that condition were brought about, what effect would it have on spot cotton?

Mr. PARKER. I think, on the whole, it would have the effect of "firming" the price of cotton-making it firmer-because it would mean that the invisible supply carried by the spinner would have to be always larger than it is now, and therefore it would have the effect of giving firmness to spots, in my judgment.

Mr. HAUGEN. If you had to carry that cotton in the warehouses, it would not in the end cost you more than if the farmer or cotton factories were carrying it, would it?

Mr. PARKER. Theoretically they add the carrying charge onto my price.

Mr. HAUGEN. It is always added, anyway?

Mr. PARKER. Yes, sir. For instance, if they were selling me for delivery this month, they would sell at one price. If it was for delivery next month, theoretically they would add on the carrying charges, which, at the present price of cotton and interest, amount to about 12 points on. They would add 12 points on for March, and they would add 24 points on for April. That is theoretically the case. Of course a man can not speculate as to what he thinks he is going to do with his futures.

Mr. LEVER. The statement has been made that this year, this past cotton season, speculation has had a tendency to increase the price of cotton. I rather agree to that statement. How about speculation affecting the price as a usual proposition?

Mr. PARKER My judgment is that speculation in an average year has a very serious depressing effect on cotton.

Mr. LEVER. For a cycle of five years, for instance?

Mr. PARKER. My judgment is that in four years out of five the effect is depressing rather than the reverse.

Mr. LEVER. The effect is depressing rather than the reverse upon spot cotton?

Mr. PARKER. Yes, sir. That would be a pure question of judgment, of course-one man's opinion against another's.

Mr. MENDELBAUM. I should like to ask you one question, Mr. Parker. You are very familiar with conditions through the South. You are extremely familiar with everything pertaining to cotton. You undoubtedly are aware of the fact that the bulk of the cotton crop comes in between October and November and December. In your judgment, what effect would it have if all that cotton that came in during those three months, when practically two-thirds or threefourths of the crop is coming in, should depend for a buyer exclusively on the middlemen?

Mr. PARKER. If there were no hedging possible on the part of the intermediate men by the sale of futures, and if the southern farmer were to continue the policy of marketing all of his crop during a period of two or three months, I think the effect would be depressing on spot cotton.

Mr. MENDELBAUM. There is another question that I should like to ask you.

Mr. PARKER. Just allow me to say (and I am sure my farmer friends will agree with me in this) that my fight and their fight lies in educating our farmer friends to properly warehouse their cotton, as you do your wheat in the West, and market it gradually during the season, rather than to take and put it all on the market at one time. Mr. MENDELBAUM. There is another question, Mr. Parker, which with the permission of the chairman I should like to ask you. This is not in so many words a bill to abolish the exchanges, but that is the real purpose of the bill. Suppose it were successful in that endeavor, so as to abolish all the exchanges of this country. What effect, in your judgment, would it have if the Liverpool Cotton Exchange were the only cotton exchange in the world to dictate the price of cotton? Mr. PARKER. My information-I have never traded on the Liverpool Exchange on the spot is that the speculative feature of the Liverpool Exchange is almost altogether from America; that the Liverpool Exchange is used very little for speculation by the Englishmen; that it is America that speculates on Liverpool, to bring Liverpool up or down to the American exchanges.

Mr. MENDELBAUM. But, Mr. Parker, that would be abolished in that contingency, would it not?

Mr. PARKER. Yes, sir; in that case.

Mr. MENDELBAUM. If there were no exchanges here, there would be no hedging between the two exchanges?

Mr. PARKER. Of course.

Mr. MENDELBAUM. And that is the condition I have in view in asking you that question. I want to repeat my question: What effect would it have upon the value of cotton, in your judgment, if the Liverpool Exchange, over which you have absolutely no jurisdiction, were the only one to dictate the price of cotton?

Mr. PARKER. I think that if the Liverpool Exchange were the only one, unquestionably a certain amount of speculation which is now done on the New York and New Orleans exchanges would be transferred to Liverpool. And if the effect of that speculation on New York and New Orleans is-as I think it is-to depress the market, I think it would have the same effect on the Liverpool Exchange; it would have a depressing effect. But, at the same time, I think no condition could arise under which the crop would be sold over, as now, twenty or thirty or forty times a year on the New York and Liverpool exchanges. I think the amount of speculation would be infinitesimal compared with what it is now.

Mr. MENDELBAUM. But, Mr. Parker, that is not exactly the question I ask you. I did not ask you about selling the crop over twenty or thirty or forty times, or its effect. I ask you simply the broad question-and I believe the committee will bear me out in the statement that it is a very fair question

Mr. PARKER. Well, sir, I am certainly anxious to answer it.

Mr. MENDELBAUM. The question is this: What the effect would be upon the southern producer if Liverpool were the only exchange to do the kind of business that you complain of? What effect would it have upon the value of cotton if Liverpool were the only exchange to trade in futures, and thereby dictate the price of cotton?

Mr. PARKER. Do you mean, if Liverpool were the only exchange, what would be the effect as contrasted with present conditions? Mr. MENDELBAUM. Yes.

Mr. PARKER. I say, I do not think that

Mr. LIVINGSTON. If we have the right to regulate or disband the New York Cotton Exchange for improper conduct, could we not do the same thing with Liverpool?

Mr. PARKER. Well, I am not a constitutional lawyer, Mr. Livingston.

The CHAIRMAN. The answer to that question would hardly be an answer to Mr. Mendelbaum's question.

Mr. PARKER. I will answer Mr. Mendelbaum in this way: Recognizing, as I do, the depressing effect of speculation on the New York and New Orleans exchanges, I feel that if those two exchanges were abolished there would continue to be some depressing effect through the existence of the Liverpool exchange alone. But I feel that the speculation on the Liverpool Exchange would not be anything approaching what it now is on the New York and New Orleans exchanges. Therefore, I think the general effect of the sole existence of the Liverpool Exchange, while it would be depressing to an extent, would not be depressing to the same extent as it is now with the three exchanges.

Does that answer the question?

Mr. BURLESON. Right on that point, before we leave it, I want to ask Mr. Mendelbaum if it is not true that New York futures frequently sell lower than Liverpool futures?

Mr. MENDELBAUM. The contrary is the case generally, for a whole

year.

Mr. BURLESON. But I ask the question. Is it not true (and you can answer the question yes or no) that New York futures frequently sell lower than Liverpool futures?

Mr. MENDELBAUM. It is not true.

Mr. BURLESON. Do they ever sell lower?

Mr. MENDELBAUM. I think they have occasionally done so; but you say "generally," and I say it is not true.

Mr. BURLESON. In 1906, when the revision committee fixed the differences, did they not fix them so out of line that during that entire season Liverpool sold away in advance of New York cotton future contracts?

Mr. MENDELBAUM. That is probably the only time.

Mr. BURLESON. I do not ask you whether it was probably the only time or not. Was it true or not?

Mr. MENDELBAUM. It was true in that instance; but that is not a fair question. Excuse me, Mr. Burleson, you asked whether that is not generally the case, and you picked out a very exceptional year and a very exceptional circumstance. In 90 per cent of the cases, in eleven and a half months of the year, it is not true absolutely not true; and the contrary condition prevails-that the New York market is the higher one. This is a matter very easy of proof.

Mr. BURLESON. Certainly it is.

The CHAIRMAN. Mr. Parker, I want to ask you a question. Mr. Mendelbaum, in asking his question, gave the impression that if all our future markets were eliminated, Liverpool, as the only future market for cotton, would fix the world's price of cotton. Where do you say the world's price of cotton is fixed now?

Mr. PARKER. My judgment to-day is that as a general proposition, the world's price of cotton is fixed by New York. That would be my opinion about it.

The CHAIRMAN. If that is true, how does it happen that spots are frequently higher than futures?

Mr. PARKER. It is because at all times it can not be done; but New York is having an effect on fixing the price just the same. She may not fix it accurately, but she is having an effect on fixing it. That is the very thing we complain of. We are willing for New York to fix it. We are willing for the law of supply and demand to fix it through New York. We are even willing for speculation to fix it through New York, if the rules are so arranged that there shall be such a parity between spots and futures that there can not be any illegitimate fixing of the price through New York. I am not afraid of New York's fixing it.

The CHAIRMAN. You have stated that spots are sometimes higher and sometimes lower than futures.

Mr. PARKER. That is right, sir.

The CHAIRMAN. And your complaint has been that there is not a consistent parity between them. That rather gave the impression to me that the actual price of real cotton was fixed by conditions or by parties entirely outside

Mr. PARKER. It is, Mr. Chairman, in a way. If at any time conditions are such that the producer can revolt against the New York price and simply say: "I won't recognize the New York price; I won't sell my cotton at that price," the producer can do it. But you must recognize that certainly, up to a comparatively recent time, the South has not been in a condition to take that position. I hope she is going to be absolutely in position to do it, and I hope, even if we can not regulate the exchanges so that they will be fair, that we can put our people in such a position that they can say: "Here, I can warehouse my cotton; I am going to hold it there until I get a certain price which I agree is fair and remunerative." To do that requires us to get additional financial assistance in the South. During the last two years I have been to Boston time and time again, and in New York in a way, but particularly in the New England States, urging that inasmuch as the West, with its development and its increase of wealth, does not now demand those things from the East in the way of financial assistance which it formerly did, our eastern friends should transfer to the South their assistance, to enable the South to carry this commodity until it can market it fairly under the law of supply and demand.

Mr. BURLESON. Right on that point, is it not a fact that the farmers' organizations throughout the South are now adopting means to warehouse their own cotton? Are they not building up a system of warehouses all through the cotton section?

Mr. PARKER. I consider that the farmers' organizations in the South have been of the greatest assistance in the maintenance of prices;