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is. They know the general run of it. They are not experts, but they have a general Knowledge; and they know that a strict good ordinary grade should be the lowest grade tenderable on a contract either at New York or New Orleans.

The Chairman. Mr. Violett, when we asked for your remedy we hoped that it might be something within the province of Congress, but since we see that it is not the committee does not care to follow the matter any further. We will be glad, however, to have any opinion you care to express as to the advisability or inadvisability of the bill which I just described to you; but we would not care to follow any other line of discussion.

Mr. Violett. Would you like me to leave this with you?

The Chairman. Yes; we would be glad to have it.

Mr. Violett. Now, I would like to ask Mr. Marsh a question. I

did not intend to ask any questions, but as long as Mr. Marsh makes

the inquiry I shall reciprocate. I have here a circular I addressed

to members of the New York Cotton Exchange in the summer of 1908:

You have been advised as members of the New York Cotton Exchange that at a meeting of the board of managers, on July 20, there was adopted substantially the following:

Whereas complaint has been made that the present contract for the future delivery of cotton, under the by-laws and rules of said exchange, is open to criticism in some particulars; and

Whereas the Bureau of Corporations of the United States Government, in its recent report of the results of its investigations of the cotton exchanges of this country, while emphatically upholding the necessity of such exchanges, and particularly the necessity of the contracts for the future delivery of cotton as made on the New York and New Orleans cotton exchanges, has suggested certain changes in the by-laws and rules governing the future contracts of the New York Cotton Exchange; and

Whereas it is the opinion of the board of managers, for reasons therein stated, referring in this connection to section 3 of the charter of the New York Cotton Exchange, that it is incumbent upon the board of managers to give the most careful attention and consideration to the opinions and suggestions of its members, with the view of ascertaining what changes, if any, in the by-laws and rules governing the future contract of the New York Cotton Exchange are required;

It was resolved that a committee of 7 members of said exchange should be appointed to act on the resolutions hereinafter referred to. This committee has been appointed, and of which you also have been advised. Among the resolutions under which they are to act are the following:

(1) Ascertain in every way possible the opinion of the members in regard to the existing methods of revision of grade differences and submit to the board of managers at a meeting to be held not later than September 1, 1908, suggestions for alterations of the by-laws and rules, having in view an improvement in the present system of revision.

The members of that committee were A. R. Marsh, Richard Siedenburg, L. Mandelbaum, Charles W. Lee, S. T. Hubbard, George W. Neville, and George Brennecke.

One of the resolutions was this:

(5) Present to the board of managers the results of the inquiry in the form of a plan or alterative plans for the amendment of the by-laws and rules governing future contracts on the New York Cotton Exchange, such plan or plans to be based on the opinions as expressed in the testimony before the committee, but with due consideration of the interest of the members of the exchange as a body and of the duties of the exchange as expressed in section 3 of its charter.

The second resolution is as follows:

(2) Make an investigation as complete as possible of these opinions and suggestions of persons interested in the contract for the future delivery of cotton on the New York Exchange, including cotton producers, spinners, merchants, and commission houses.

Now, Mr. Chairman, Mr. Marsh has interrupted me to ask me a question, and I want to sak him a question, and the only way I can get at it is to read this to you, as irrelevant as it may be, considering the purposes of this investigation. Therefore, I hope you will let me finish.

The Chairman. Proceed.

Mr. Violett (reading):

Ascertain in every way possible the opinion of the members in regard to the existing method of revision of grade differences and submit to the board of managers at a meeting to be held not later than September 1, 1908, suggestions for alterations of the by-laws and rules having in view an improvement in the present system of such revision.

They have never made a report, and there are three members of that committee present here to-day.

The Chairman. The point of order is made that this statement which you have been making, and which I presume is preliminary to a question, refers to a matter which is not pending before the committee.

Mr. Violett. But, Mr. Chairman, Mr. Marsh asked me a question and I am simply asking him a question.

The Chairman. Will you please ask the question, and then we can determine as to its relevancy.

Mr. Violett. I want to ask Mr. Marsh why this committee on revision has made no report to the members of the New York Cotton Exchange on any of the matters which were brought up, except a preliminary report?

Mr. Marsh. The committee has been investigating this matter and is still investigating the matter. The committee found itself face to face with much more serious questions than you or any of the gentlemen who have been freely talking about the subject had any idea of. The committee has realized its responsibilities, as many of the members of the exchange have not. The committee has not been willing to make a report until it had sifted the matter to the bottom. The committee felt that, inasmuch as the New York Cotton Exchange was under fire; inasmuch as the tendency of the testimony before the committee was contrary to the recommendations of the Commissioner of Corporations; inasmuch as the committee was sure to be attacked by you, sir, when it made its report

Mr. Violett (interrupting). That is incorrect, and I deny it. You bave no right to make any such statement to me.

Mr. Marsh. I withdraw that statement, then. It was important that the committee should sift the matter thoroughly to the very bottom and have indisputable evidence for anything they might recommend.

Mr. Violett. My reply is this: The New Orleans Cotton Exchange had a special committee appointed for the same purpose in October, 1908. They made their report in February, 1909, and I would like to ask Mr. Thompson, or any of the members of bis committee, to-day, to state what they did in that same particular.

Now, why has it taker! the New York Cotton Exchange committee of 7 eighteen months to do what the New Orleans Cotton Exchange did in five months? That is what I would like to know.

Mr. Plumley. Do you approve or disapprove of the legislation proposed in the Scott bill relative to the prohibiting of the use of the mails or telegraph in transactions on the cotton exchanges where delivery or receipt is not intended by the parties to the transaction?

Mr. Violett. Absolutely not.

Mr. Plumley. You do not approve?

Mr. Violett. Absolutely not. Now, Mr. Marsh has made a statement before your committee

The Chairman. The matter which you brought up between yourself and Mr. Marsh is one that relates wholly to the internal management of the New York Cotton Exchange, and the committee does not care to go into it at all.

Mr. Violett. As long as he makes a statement before your committee and gives the reasons here why they have not made a report, I show you that the New Orleans Cotton Exchange appointed a special committee for the same purpose in October, 1908, which made its report in five months. What I would like to know is, if this committee appointed by the New Orleans Cotton Exchange can make a report on this subject in five months, why it is that in eighteen months the committee appointed by the New York exchange has made no report.

The Chairman. You have made that statement, and I have permitted it. We understand it. The gentlemen from the New Orleans exchange are here to-day and will be able to answer for themselves. Unless you have any further statement to make, we will excuse you. We are very much obliged to you.

Mr. Mandelbaum. Mr. Violett made one statement which I would like to put on record, and that is when he started out he made the claim, or a positive statement under oath, that he represented a majority of the members of the New York Cotton Exchange. I dispute that fact, and I want him to state his authority for that assertion.

The Chairman. He qualified the statement in response to a question of mine. I do not think the record is badly wrong.

I believe that Mr. Thompson, of the New Orleans Cotton Exchange, is present this morning, and if so we will be very glad to have him make such statement as he may desire.

Mr. Beall. Before he begins, I would like to know, as a matter of fact, whether under the rules of the New York Cotton Exchange a mere majority can make such a change as has been under discussion.

Mr. Mandelbaum. No, sir.

Mr. Beall. It takes two-thirds?

Mr. Mandelbaum. Yes, sir.

Mr. Beall. Then, Mr. Violett's statement might be correct, that a majority was with him and still a change could not be made?

Mr. Mandelbaum. Yes, sir; but there is one thing in connection with that, and that is that a majority of the members of the exchange elects the president, vice-president, and board of managers, and if that board of managers, or rather the management of the exchange, is considered antagonistic to the majority of the exchange, as stated by Mr. Violett, that could not be the case. If the case were as he states, that board appoints the revision committee on which he lays so much stress, and it the case was as he states, that he represents a majority of the exchange, there would have been absolutely nothing that could have prevented them from going into the office and turning those men out, of whom he complains as having been on the board for two or three years.

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It is an important point in the matter that the by-laws of the exchange can only be enacted or changed by a two-thirds vote.

The Chairman. I had not noticed that the hour of 12 had been reached and passed, and therefore I will ask Mr. Thompson to defer his statement until the afternoon session.

(Mr. Violett submitted three letters which will be found in the appendix.)

(Thereupon, at 12.10 o'clock p. m., the committee took a recess until 2 o'clock p. m.)

AFTER RECESS.

The committee met at 2 o'clock p. m., pursuant to the taking of recess.

TESTIMONY OF MR. W. B. THOMPSON, PRESIDENT OF THE NEW ORLEANS COTTON EXCHANGE.

(The witness was sworn by the chairman.)

Mr. Thompson. Mr. Chairman and gentlemen of the committee, the New Orleans Cotton Exchange thanks you for the privilege you have given it to appear before you and express the views of the exchange upon the general question of future trading, particularly upon tho attitude and the manner in which future trading is conducted in the New Orleans Cotton Exchange. I have reduced to writing the discussion on this subject, as a basis, in order that I may not waste any time in discursive matter.

The New Orleans Cotton Exchange thanks you for the opportunity given it to protest against the passage of bills designed to destroy the system of trading in contracts for fuiure delivery.

I hop . I may be excused if, by way of introduction, I spend a few moments in explanation of my interest in this question. I am in the cotton factorage business. I make advances on the crop and sell consignments on commission. It is a spot business pure and simple. I have no pecuniary interest in any future brokerage concern, and if future trading is abolished it makes no direct pecuniary difference to me. On the contrary, if I took a selfish and shortsighted view of the matter I would say that I would be benefited by the prohibition of future trading. The development of the interior markets has been at the expense of the New Orleans market. The interior markets and the facilities that the producer enjoys of selling his crop at home are all dependent upon the existence of the future contract market. If the interior buyer could not hedge, he would not buy in any great volume. This for two reasons. He could not afford to take the chance of a decline pending the time he could get the cotton to market. He would not be able to secure the money with which to pay for the cotton if he carried that cotton open and without any protection against a decline. Thus if the future contract market was abolished and buyers were unable to buy in the interior, the result would be that much more cotton than now comes would then come to New Orleans for sale. This would necessarily increase the number of bales handled by the factors. If, therefore, I took a selfish and a superficial view, I would be in favor of abolishing future trading. But in the larger consideration of the question, I reach the other conclusion. All I have is invested in the farmer and the crops and in cotton lands. If future trading was abolished, what I would gain in commissions from handling more cotton would be more than offset by what I would lose in the value of my accounts and what lands I own. I am convinced that if you destroy the future market you will decrease the amount realized by the farmer from his crops. From motives of self-interest, therefore, and from sentiments of patriotism, I am against any measure that will bring about this unhappy result.

MOTIVE AND OBJECT.

We have in mind the pernicious effects and the disastrous results of the mania for speculation that during the past few years has swept this country. We are well aware that the motive behind the antifuture legislation of the several Southern States and ' the motive behind similar legislation here proposed proceeds from a just condemnation of the evils of excessive speculation. At the outset it is our earnest desire to make it clear, definite, and emphatic that we oppose no legislation that is directed against the evils of speculation. On the contrary, we not only appreciate the essential wrong of the abuses of speculation, but we realize that these same abuses are gravely detrimental to the legitimate cotton trade for which we stand and which it is our mission to conserve. We are not in opposition to any effort to purify and improve any system of trade, but are in earnest sympathy and cooperation with all such efforts. Our object in appearing before you is not to obstruct reform, but to point out to you the truth, very plain to us, that such legislation as is here proposed would not accomplish the good results intended. We are intent upon showing you that this proposed legislation is sweeping und not discriminating, and if enacted into law would, while destroying the evil, also destroy the good which is by the evil already assailed, and would result in concrete disaster to the most important interest of the South and one of the greatest and most comprehensive industries of the world. We desire to show you that the benefits of legitimate future trading are inherent and vital, while the evils that have become associated therewith are incidental and parasitic; that the evil and the good may be clearly differentiated, and that it is entirely feasible to cast out the evil and retain the good, not only without injury to the latter, but with great benefit thereto.

We shall first ask you to considerthe natureof the legitimate contract for the future delivery of cotton. We shall then call your attention to the place that this contract occupies in the economy of the entire cotton trade and point out its specific beneficial functions which entitle it to its place therein, and finally we shall specify the abuses that have been practiced under the name of future contract trading and suggest the remedies therefor.

THE FUTURE CONTRACT.

A contract for the purchase and sale of cotton for future delivery is not a vicious invention by means of which the parties thereto can sell or buy the farmer's cotton at a price fixed by themselves, without the consent and in opposition to tiie wishes oi the farmer, as is by many persons believed. Nor is it a mere gambling memorandum without any substantial basis of promise and penalty, as many seem to suppose it to be. It is simply an obligation entered into by the two parties thereto that the one will deliver and the other will receive

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