with regard to cotton exchanges is, in so far as it deals with the New York Cotton Exchange, unjust and unsound.

We feel very keenly the fact that a statement made by us not in the presence of Mr. Herbert Knox Smith must have the appearance of an ex parte statement, a mere protest on our part, and can not carry the weight either with this committee or with Congress or with the people of the United States, many of whom will doubtless read the record of these hearings, which would be carried by a statement made face to face with Mr. Herbert Knox Smith himself, where he had an opportunity to controvert any criticisms which might pass 1 upon his work.

We feel, of course, that the report of Mr. Herbert Knox Smith, or of the Bureau of Corporations, signed by Mr. Herbert Knox Smith, is very injurious to the New York Cotton Exchange, and very unjustly injurious to that exchange. We believe that the report is essentially unsound in its methods and unwarranted in its conclusions.

I do not suppose that this committee desires me to go into the particular grounds for our belief that the report of the Commissioner of Corporations is of this character. I am ready to do that if the committee desire it to be done. I will simply say, briefly, that the report of the Bureau of Corporations on exchanges, though it contains a very large quantity of very valuable material, laborously collected and clearly set forth, is characterized from beginning to end by inaccuracy of definition of the terms which are the critical terms in the whole discussion, is characterized by constant failure to bring out the real factors and essential matters, and is consequently vicious in its conclusions, because without a systematic and specific laying out of the facts it is of course impossible to arrive at just conclusions.

The CHAIRMAN. Mr. Marsh, if you would like to elaborate that statement and go into the question a little more fully, I am quite sure the committee would be glad to have you do so.

Mr. MARSH. I will do it very briefly, Mr. Chairman, though I do it under a sense of a kind of mental oppression, from the fact that Mr. Smith is not here.

In the first place, there are three terms which are in use in the discussion of the cotton exchanges constantly employed by Mr. Smith and about the correct use of which the whole discussion hangs. Those three terms are, first, "cotton exchange;" second, "spot cotton;" third, "hedge."

Now, any person who undertakes to discuss cotton exchanges without having adequately and scientifically determined the meaning of those three terms is simply beating the air, and Mr. Smith has not determined, scientifically or adequately, the meaning of any one of those three terms. He uses them in the vaguest, most general, and most popular sense. He has in no part of his report scientifically studied what a cotton exchange is. There is no part of his report in which, historically and analytically, a cotton exchange, as a genus, as a thing in nature, is discussed. He has not discussed what classes of men or what class of men constitute cotton exchanges, what class of men the cotton exchange is intended for. He has jumbled into one pot, so to speak, cotton merchants, cotton spinners, cotton producers, cotton speculators. One minute he is adducing a criticism from a speculator, the next minute, from a spinner, and the next minute, from a producer.

The result is that his discussion is constantly vitiated by these intrusions of matters that ought to have been excluded and which he himself would have excluded if he had scientifically and analytically examined the fundamental of what a cotton exchange is.

In the second place, Mr. Chairman, one of the most extraordinary features of the whole report is the way in which Mr. Herbert Knox Smith juggles with the words "spot cotton." Spot cotton throughout the report is, to the eye of one familiar with the trade, middling cotton. That appears to be what Mr. Smith has in his mind when he talks about spot cotton. Low middling cotton, according to Mr. Smith, is not spot cotton. Good middling cotton is not spot cotton. Good ordinary cotton is not spot cotton. Middling fair cotton is not spot cotton. Spot cotton is middling cotton, and in his whole discussion of the relative values of contracts for future delivery of spot cotton, he is playing upon this misconception, misstatement of what spot cotton is.

In the third place, Mr. Smith knows nothing, from first hands, of hedging. He has not used the facilities for obtaining the information which would gladly have been furnished him. The report is bestrewn with misstatements about hedging which could have been avoided by the asking of a single question of a competent person.

Mr. BURLESON. Mr. Marsh, do you not think you ought to point out those misstatements instead of indulging in these denunciations? Mr. MARSH. I have said, Mr. Chairman, that we desire now simply to make a general statement, that I do not desire, and am unwilling, to go into a detailed discussion of these matters except in the presence of Mr. Smith. That position I must adhere to.

Mr. BURLESON. It strikes me it would be less objectionable to Mr. Smith if you would point out specifically wherein he was mistaken instead of indulging in a general denunciation of the report he has made.

Mr. MARSH. Mr. Chairman, I am not speaking from the point of view of Mr. Smith, or what is pleasant or unpleasant to Mr. Smith. I am speaking from the point of view of a free American citizen, a cotton merchant who has a right to speak to the representatives of the American people, and to state his mind to them.

To go on, Mr. Chairman, one word more with regard to the matter of hedging.

Throughout the report of Mr. Smith the word "hedge" is used especially to mean a buying hedge. Occasionally, like a bone to a dog, a word is dropped about the hedge which the cotton merchant has to sell; but the whole discussion in the report depends upon hedge in the sense of a buying hedge.

There, then, Mr. Chairman, are three essential, critical terms, terms which have to be used on every page of every volume of every part of this report, which Mr. Smith did not take the trouble critically to examine, critically to define, and, worst of all, critically to get full information about.

I have mentioned those three terms because they indicate the character of our objection to Mr. Smith's report, to the work which Mr. Smith has published to the world, as describing the New York Cotton Exchange in particular. A large number of subsidiary matters he has treated in the same way. His remarks about hedging not being insurance are too absurd for characterization. His ignorance of what

takes place actually, in fact, with regard to speculation as a supposed necessity for carrying all the hedges against all the cotton in the world is ancient history, and no one familiar with the facts would for a moment accept what Mr. Smith says on that subject.

Mr. BURLESON. Mr. Chairman, I hold no brief for the defense of Mr. Smith, but I protest against these general denunciations and characterizations of Mr. Smith without giving a single detail upon which they are based. I think it is only fair, if they are going to embody in these hearings wholesale denunciations of Mr. Smith and Mr. Smith's report, that they should at least put their finger upon one statement contained in the report as a basis for these denunciations. As a matter of fact, the conclusions reached by Mr. Smith are largely based upon statements made to him by members of the exchange, and I challenge an investigation of this report to support me in that statement.

Now, I am perfectly willing for the representatives and defenders of the New York exchange, if they can point out an error in this report of Mr. Smith, to point it out. I went to the Chairman a moment ago and said I was perfectly willing, if there was a false statement in there or a misstatement in there, to have it pointed out by Mr. Marsh, and I hope he will be invited to point it out, because if there is error there I want to know it; but I do say and I do protest that this general denunciation of Mr. Smith and the general characterization of his report indulged in by Mr. Marsh ought not to be permitted.

Mr. MANDELBAUM. Mr. Chairman, Mr. Marsh started out in making his argument by saying he was embarrassed by the fact that Mr. Herbert Knox Smith did not feel it incumbent upon him to be present at this hearing or at any other hearing at which he desired to make that statement in the presence of the very man who made the report. Mr. Marsh consented to make his remarks as briefly as possible, and he has brought them out in a more elaborate manner by the request put to him by the chairman of the committee that he should make a fuller statement of the matter at issue. I do not believe, Mr. Chairman, it is the duty of Mr. Burleson or that it becomes Mr. Burleson to raise an objection to a statement which Mr. Herbert Knox Smith was notified would be made in connection with this matter to-day, or would be made when he could be here if he could not be here to-day. Mr. Smith is not a czar. He is only a servant of the American people, and we have a right to controvert his statement and we intend to exercise it.

Mr. BEALL. I submit that is a matter for the committee to determine, not for Mr. Mandelbaum.

The CHAIRMAN. The report of Mr. Smith is a public document which is in the hands of the committee. Mr. Marsh, representing the New York Exchange, is stating his opinion and the opinion, I presume, of his colleagues, as to the consideration which ought to be given this report by the committee. His statement might be stronger if certain things were included; it might be weakened if certain things were left out; but he is making the statement, and I take it that the committee would prefer that he follow his own course in the matter and reserve to himself the right to form such conclusions after the statement is made as the manner of the statement and the matter of it seem to warrant.

Mr. LEVER. After all, we pass upon these.

The CHAIRMAN. We pass upon them finally.

Mr. MARSH. Mr. Chairman, I hope I have made it perfectly clear that I am not only willing but should be extremely glad of an opportunity to take up these points in detail, with specific illustrations from the report of Mr. Herbert Knox Smith, and bring out in the fullest way to the committee the grounds of our strong dissent from them, but that a discussion of that kind not in the presence of Mr. Smith seems to me to put the New York Cotton Exchange in a wrong position.

The CHAIRMAN. Proceed in your own way, Mr. Marsh.

Mr. MARSH. I have only one more point to bring out, Mr. Chairman. Mr. Smith has himself said, if I remember correctly the words, that the question of the method of fixing the differences, that is to say, the valuation of the different grades of cotton deliverable upon a contract, is the crux of the whole matter. About this Mr. Smith has laid down a certain principle or rule. He has said, not once but many times, in his report that the New York Cotton Exchange does not conform to that rule. He has said that that rule is the only just and equitable rule or principle to be followed in fixing differences between grades. He has further said that if the New York Cotton Exchange can not conform to that rule it has no right to exist.

Now, Mr. Chairman, Mr. Smith has announced a very terrible rule, a rule so binding, so imperative, that those who do not conform to it have no right to exist; and yet, Mr. Chairman, Mr. Smith himself in his own report says that this rule does not work, and he winds up by saying that although it does not work yet it is the only just and equitable rule, the only just and equitable principle, and, irrespective of whether it works or does not work, it must be adopted or those who refuse to adopt it should go out of existence.

Mr. Chairman, I have been wanting for a long time to ask Mr. Smith where he got this rule, this imperative principle. So far as I can find out the curious thing is that the rule does not exist. There is no such rule. There is no such principle. Mr. Smith has evolved it out of his own inner consciousness, or he has taken it from vague common talk, or he has got it I know not where. There is nowhere, so far as I know, any scientific investigation of these phenomena of nature which has resulted in the discovery of any such rule or any such principle.

Mr. Chairman, the members of the New York Cotton Exchange feel that it is a little hard on them to be told that because they can not see the imperativeness of a principle which has never been scientifically demonstrated by anybody, and because they can not see their way immediately to adopt it, they should be told they have no right to exist.

The severe terms in which Mr. Smith has laid down this principle, his iteration of it through the pages of his report, have been very hard for us cotton merchants of New York to endure. We realize, Mr. Chairman, that the Bureau of Corporations is being every day more and more put forward as the final arbiter of that which is right and reasonable and equitable in business in the United States; and here, Mr. Chairman, is the first great work of the Bureau of Corporations, the first attempt of the Bureau of Corporations to describe a great business and the men who are engaged in that business, who know that if the principles which they follow in that business are not

sound and just principles they are going to lose their business. I say these men in this business, when they come to analyze this first judgment of the Bureau of Corporations upon a great business, find as they believe that that judgment is based upon loose, vague terms, and that it is a plea for a principle asserted to be the only just and equitable principle in that business, when no one, not even the Commissioner of Corporations himself, has scientifically investigated the phenomena to find out whether there is any such principle or not. As representatives of the New York Cotton Exchange, we have desired from the start to thrash this matter out face to face with the Commissioner of Corporations. We desire to do what is just and what is right. If the Commissioner of Corporations is right, we wish to bow to his intellectual authority, though, Mr. Chairman, we do not feel that we are called upon to bow to his political authority. But we are deprived of the opportunity of thrashing this matter out face to face with Mr. Smith, and all we can say is that we have given this committee a statement, on the face of it ex parte, which must carry such weight as an ex parte, uncontroverted statement can carry. We still say, however, that if the committee desires it at any time, to-day or to-morrow or next week or next month or next year, we shall welcome the opportunity to appear here face to face with the Commissioner of Corporations and thrash this matter out.

I have nothing more to say.

The CHAIRMAN. Are there any other gentlemen here who care to be heard briefly? I believe this is the last public hearing that the committee expects to give.

Mr. NEVILLE. Mr. Chairman, I would like to ask if the paper you handed me just now will be embodied as a part of this hearing? The CHAIRMAN. Yes; it will be included.

Mr. NEVILLE. May I request, then, that Mr. Marsh's remarks be allowed to be a part of the record?

The CHAIRMAN. The remarks he has just concluded?

Mr. NEVILLE. Yes, sir.

The CHAIRMAN. Certainly; they are to be a part of the record of the hearing.

It is perhaps only fair for me to state that Mr. Violett, who was before the committee yesterday, asked me privately if he might file some two or three letters that he had from other members of the exchange, signifying a concurrence with the views he expressed. (See Appendix, page 691.)

Mr. NEVILLE. They will be embodied in the report. We have no objection at all, Mr. Chairman.

The CHAIRMAN. If there is nothing further, the committee will adjourn.

(The subcommittee thereupon adjourned.)