Mr. THOMPSON. In my testimony before the committee I made the statement that we have had one revision this year. Now, in the record that statement will appear without any qualification. I want simply to state that the reason there has been but one revision of grade differences is that this crop has been an early crop and a highgrade crop, and there have not those changes occurred. In other words, the changes in our market take place and the revisions take place when the changes require them.

Mr. GLENNY. I want to add to that, that it is a law in the exchange that any member of the exchange can call into question, through the secretary of the exchange, the differences or the price of the spotcotton market. It is mandatory upon the secretary of the exchange to call that committee together, and for the committee to go out and examine and see whether the complaint of the member is correct or not. That is done so as to absolutely put it within the power of anybody, large or small, to get justice on the exchange.

The CHAIRMAN. At various times during these hearings the report of Mr. Herbert Knox Smith has been under discussion, and at some time the question has been raised as to his qualification for conducting that inquiry, and as to the sources of the information which he embodied in his report. I thought it only fair to ask Mr. Smith to send to the committee a brief statement in answer to those questions, and he has done this, and I will take the liberty, without objection, of filing this statement as a part of the record.

Inclosing these hearings I should like to say to Mr. Brooks, and to Mr. Neville and his committee, and to Mr. Thompson and his committee, that the Committee on Agriculture feels under great obligations to each and all of you for the information you have given us and for the patience and good humor with which you have submitted to the interrogatories. We realize that we have for consideration an extremely important question, one that touches practically a great many wide interests, and there is no thought or disposition on the part of any member of this committee to do anything else than to give the most careful consideration to the opinions which have been expressed here, and to weigh most deliberately the information which has been brought before the committee. Have any members of the committee anything further to say?

Mr. MARSH. Mr. Chairman, may I ask whether the statement of Mr. Herbert Knox Smith is to be embodied in the record?

The CHAIRMAN. It is to be embodied in the hearings. It is not controversial at all. He simply states the sources from which he drew his information, the places which he visited, and other facts. connected with the report, and summarizes very briefly the conclusions reached in the report. There is nothing controversial in it, whatsoever.

STATEMENT OF MR. HERBERT KNOX SMITH, COMMISSIONER OF THE BUREAU OF CORPORATIONS.

Mr. SMITH. Whatever special knowledge I have of the facts of speculation is based mainly on the investigation made by the Bureau of Corporations into the cotton exchanges. A resolution of the House of Representatives of February 4, 1907, requested us to make

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a particular study of the influence upon the prices of cotton exerted by the character of future contracts on cotton exchanges and deliveries made thereon.

Pursuant to this resolution, the bureau has made a complete report in five parts; parts 1, 2, and 3 having been issued in May, 1908, and parts 4 and 5 in December, 1909, covering a total of about 900 printed pages.

In these reports we set forth most of the evidence before us, all of the essential facts and the conclusions from those facts, having done this in the most thorough, serious, and careful manner possible. I do not have anything to add to the discussion therein contained, nor do I now desire to discuss, offhand, and without referring to the great mass of evidence which we have used, the facts and conclusions which we have already completely and carefully elaborated and printed. Any such offhand discussion would necessarily be extremely incomplete, because no man can carry such a mass of data in his head, and would be merely a most unsatisfactory rehash of the complete printed discussion. In other words, were I to enter into any such detailed discussion I would simply be obliged to read what we have already printed.

My sole purpose in availing myself of the invitation of the committee is to give the committee an idea of the sources of information upon which the report was based, the methods by which it was treated, the amount of work involved, and certain other details that bear upon the validity of the facts therein stated.

A brief statement of the nature of the said report is desirable at this point to show the nature of the evidence used. Part 1, with nine chapters, deals principally with the vital question of so-called "fixed differences," a system which is used on the New York Cotton Exchange. Subsidiary to this is a discussion of the alleged abuse of power by the New York revision committee, complaints against the commercial difference system, which is used in New Orleans, and a consideration of certain suggestions made by various parties for improvements in the New York system.

This part almost wholly consists of statements furnished by the exchanges themselves and conclusions directly deduced by the bureau therefrom, the evidence being submitted along with the conclusions. Both in the case of the discussion of fixed differences and on less important points views on both sides, from various interests, are quoted. Price quotations, the principal data in part 1, are forcibly presented by charts.

Part 2, with four chapters, deals with questions of classification of cotton. The evidence consists mainly of figures furnished by the exchanges, quoted views of various parties, and the only conclusions put forward by the bureau are based directly on evidence obtained from the exchanges, with the exception that the bureau points out certain probably desirable results from a greater uniformity of cotton standards.

Part 3, with two chapters, discusses the range of grades of cotton deliverable, gives data from the exchanges as to variety of grades actually delivered, considers and comments on various changes suggested, and quotes views of various parties. This part dealing, as it does, largely with suggested improvements, required consultation with many different interests in the cotton industry.

Part 4 deals with the effect of future contracts on the prices which the producer receives for cotton, after a résumé of previous parts and a brief description of the system of buying cotton in the South. The first two chapters, a very important part of the entire report, consist almost entirely of figures on prices obtained (a) from the various exchanges, and (b) from the records of numerous cotton merchants. These prices are set forth in about 23 tables. These prices are then reproduced graphically in the shape of 14 charts, which speak for themselves. Conclusions in these first two chapters are practically mathematical demonstrations from incontrovertible facts. The last chapter, chapter 3, discusses a number of arguments and objections which have been made to prior parts of the bureau's report, certain legal questions of minor importance, and certain elementary economic propositions which apparently needed to be stated in view of some arguments advanced by the defenders of the New York fixed-difference system.

It thus may be said that while a small part of the report deals with questions open to argument, probably nine-tenths of it is in the nature of mathematical deduction from figures and market conditions, furnished mainly by the exchanges themselves and members of exchanges, thrown into available form by the bureau, and the salient points therein commented upon.

As the bureau has been carrying on at the same time with the cotton work inquiries into some seven or eight other subjects, it is obvious that most of the field and detail work on the cotton report must, in the first instance, be done by my assistants. During the course of the work I visited both New York and New Orleans, talked with members of those two exchanges, interviewed various dealers in cotton, and directed the field and office work of my assistants. Most of the text of the report was written by my assistants, especially by Mr. Conant, now the deputy commissioner of the bureau, but all of it was read in manuscript and in proof by me at least three times, was carefully revised by me, in cooperation with my assistants, and I digested it into the shape of final summaries, so that I was at all times strictly cognizant of the nature of the material, the progress of the work, and the merits of our conclusions.

I. EXTENT OF FIELD WORK DONE.

Most of the bureau's work was concerned with the only two cotton exchanges in the country where a future business is conducted, to wit, those of New York and New Orleans. The agents of the bureau, however, visited many other exchanges.

Territory covered.-During the course of the investigation the following points were visited:

Alabama: Mobile, Montgomery, Selma, Tuscaloosa.

Arkansas: Little Rock, Beebe.

Georgia: Atlanta, Augusta, Lagrange, Macon, Savannah, Union City.

Louisiana: New Orleans, Shreveport.

Massachusetts: Boston, Fall River, Fitchburg, New Bedford.

Mississippi: Natchez, Vicksburg, Yazoo City.

New York: New York.

North Carolina: Charlotte, Goldsboro, Greensboro, Raleigh, Salisbury, Wilmington.

Oklahoma: Oklahoma City.

Pennsylvania: Philadelphia.

Rhode Island: Pawtucket, Providence.

South Carolina: Bennettsville, Charleston, Columbia, Greenville, Sumter, Spartanburg.

Tennessee: Memphis.

Texas: Dallas, Galveston, Houston, Waco.

Virginia: Norfolk.

In visiting these various places the representatives of the bureau met cotton interests from numerous other points. For instance, at Boston the treasurers of a number of mills in northern New England who maintain offices in that city were interviewed; in New York a number of foreign interests, including several members of the Liverpool Cotton Association, were seen. Again, at the international conference, at Atlanta, in October, 1907, there were interviewed a number of prominent British and continental spinners and manufacturers. Interests interviewed.-Agents of the bureau interviewed about 350 individuals, the majority of them being cotton merchants, but the list also contains a representative number of cotton factors, brokers dealing in futures, planters, farmers, representatives of producers' organizations, and many spinners. In all cases the bureau endeavored to select representative and well-informed men in all of the respective branches for the purpose of obtaining interviews. Particular care was taken to secure opinions from all the different standpoints on the important features. Officials of practically all of the leading cotton exchanges, as well as miscellaneous interests-bankers and editors of trade journals—were interviewed. Altogether, approximately 475 separate reports were made by the field agents on the subject.

II. CHARACTER OF INFORMATION OBTAINED.

Information directly from exchanges. This includes copies of their charters, by-laws and rules, membership lists, and forms of contract.

By far the most important were very complete records of prices, both of spot cotton and future contracts, and also records of the volume of future transactions up to 1898, at which time both the New York and New Orleans exchanges ceased to keep such a record.

There were also secured from the exchanges figures as to the stock of cotton on hand, rejections, transactions in connection with the inspection fund of the New York exchange, minutes of certain of the exchange committees, copies of various correspondence and data before some of such committees on important matters, and a large mass of testimony taken before a special committee of the New York Cotton Exchange.

By direct observation, also, the officers of the bureau noted the technique of the business methods, of the classification of cotton, warehousing, terms of delivery, the instruments employed in making settlements on deliveries, and familiarized themselves with the details of the business and the terms employed therein. These studies were made on the spot.

Information from cotton exchange members and cotton merchants.— Information was obtained from cotton-exchange members as individuals, mainly in the form of interviews, and chiefly concerned with criticisms, adverse and friendly, on methods of conducting business on the exchanges, particularly in New York and New Orleans, and of suggestions for improvements and criticisms of such suggestions. In nearly every case these interviews were reported by a stenographer.

One very important source of information was from cotton merchants, some of whom were also members of exchanges, in the shape of extensive records of prices paid for cotton in the interior.

Copies of transactions of some of the most important associations of interests were also secured, such as resolutions of the American Cotton Manufacturers' Association.

Where necessary, certain legal points were considered and judicial decisions cited.

From spinners. This information was mainly in the form of interviews, consisting chiefly of criticisms on exchange methods.

From producers and producers' organizations. Here were obtained the usual published documents, charters, by-laws, etc. The principal officers were interviewed as to their opinions on cotton exchanges and on their own associations.

III. FORCE AND TIME DEVOTED TO THE INVESTIGATION.

All the field work, and much work of drafting the report, was conducted under my direction by two of my chief assistants, one of whom gave about one hundred and ten days to the work and the other about one hundred and forty days. Accompanying these officers at various times in the field were also four stenographers, who spent in such field work an aggregate of about one hundred and eighty days.

The work in the office was even more lengthy. One of the principal assistants spent in the office in digesting the material and preparing the report about four hundred and twenty days, another about two hundred and seventy days, and a third about seventy-five days.

The actual computations and tabulation of figures, percentages, etc., together with the clerical and stenographic work, comprised a total of about sixteen hundred days. In other words, the investigation occupied the time of two of our ablest men, if figured continuously, for practically eighteen months, two other agents for about three and one-half months, and the equivalent of the time of four stenographers and clerks for eighteen months. All this was also under the constant supervision of myself.

IV. TREATMENT OF MATERIAL OBTAINED.

The result of the method of investigation was a great mass of interviews, statistics, pamphlets, and other data. All of this material was carefully examined, classified, and digested. From the statistics in hand were compiled the statistical tables presented in the report; as already indicated, the figures used were obtained from the official records of exchanges and from the records of cotton merchants. There can be no question as to their reliability; it is believed that they are the most accurate figures of this character that have ever been published. In compiling the statistical data, particular effort was made to insure not only accuracy but fairness in presentation. Full explanation of the methods used is made in the report.

A special feature of the report and one of great usefulness is that the statistical data presented are supplemented by an elaborate series of charts, thus often giving at a glance the salient features of the comparisons.