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Mr. Neville. Yes, sir.

Mr. Neill. That may be so, however.

Mr. Neville. No steamship company will take a bale of cotton which is in an uncompressed state, will it, for foreign export?

Mr. Neill. No, sir.

Mr. Neville. You say that the warehouses charge $1 a bale the first month? Does that include the selling of the cotton for you when it is sold?

Mr. Neill. Yes, sir.

Mr. Neville. Now, the parties to whom Mr. Moody, Mr. Cannon, Mr. Rogers and the others sell that cotton, you do not know? Do they sell direct to the spinner?

Mr. Neill. Well, that I couldn't tell you; I suppose when it suits them they will sell to an exporter.

Mr. Neville. The reason there are no mills in Texas

Mr. Neill. Yes; we have 16 mills.

Mr. Neville. I was just coming to that. Those mills are located in the interior, but there are none in Galveston?

Mr. Neill. No, sir.

Mr. Neville. There was one, but it failed because they could not get the labor to run it. Now, a farmer could really have made more money off of his cotton by putting it in his own warehouse than by shipping it to Galveston, couldn't he?

Mr. Neill. You see at the time we made the first deal with Galveston the banks of our State refused to loan the farmers money on cotton stored in the warehouses, and we began the shipment of cotton to Galveston and put the interior banks in competition with the banks at Galveston.

Mr. Neville. I understand that thoroughly, but I wanted to straighten out that one point. I wish you would, if you can, refresh your memory and see if that dollar a bale does include the factor's selling charges?

Mr. Neill. Yes, sir.

Mr. Neville. My impression was that it did.

Mr. Neill. That included all the charges for the first month, and, in addition, that included the sampling, the weighing, the insurance, and the selling of the cotton.

Mr. Neville. Yes, sir.

Mr. Neill. Afterwards we were charged 15 cents a month, and no charge was ever made outside of that dollar for the selling of the cotton.

Mr. Neville. So that the farmer paid $2.65 a bale per annum for carrying that cotton in Galveston, for the storage and insurance, in addition to the interest on the money that the factor advanced?

Mr. Neill. Well, I haven't figured out the proposition.

Mr. Neville. I only mention that, gentlemen, because there is no one more thoroughly in sympathy with the system of southern warehouses than I am; I am in thorough sympathy with that, and I think it is one of the best things I know of for the farmers. In my experience I have known of farmers to carry cotton for three years after production, and when they made up their minds to sell they had to

Eick off nearly half of that cotton by reason of the damage which had een done to it during that time.

Mr. Lever. I understood you to say, Mr. Neill, that at one time there existed a future market exchange at Galveston. Did I understand you to say that there was a future market exchange at Galveston, Tex., at one time?

Mr. Neill. I think so; there was an exchange there.

Mr. Lever. Is there one there now?

Mr. Neill. There is an exchange there now, but it doesn't sell contracts.

Mr. Lever. Do you know why it doesn't sell contracts?

Mr. Neill. It is prohibited by law.

Mr. Lever. Let me call your attention to this statement, in order to get it into the record. It is from the report of Mr. Smith, the Commissioner of the Bureau of Corporations of the Department of Commerce and Labor; he says an attempt was made in 1904 to establish a future market on the Galveston Cotton Exchange, and that an officer of the exchange explained the failure as follows:

The trades were absolutely restricted to the legitimate business. I do not believe there was a speculative trade made during the whole time. For some reason the speculator and gambler did not operate in this market. This made it a very narrow market. The brokers feared that in such a narrow market they would become entangled in obligations upon contracts that would embarrass them. Holders of cotton did not utilize this market to any considerable extent for hedging purposes and it resolved itself practically into a purely spot business. You have got to nave speculation. I think speculation is absolutely necessary. It was in our case, and I think it is everywhere.

I want to call your attention particularly to this proposition and ask you if you agree to it:

You have got to have speculation. I think speculation is absolutely necessary. It was in our case, and I think it is everywhere.

The question I would like to ask you is whether or not, in your opinion, you believe that any exchange in this country can exist without illegitimate speculation upon the exchange?

Mr. Neill. I don't know about that. The exchange at Galveston does exist, and there is no such speculation on its boards.

Mr. Lever. It is a spot exchange, is it?

Mr. Neill. Yes, sir.

Mr. Hardwick. If we could have an exchange where there was no gambling and where only contracts were made where actual delivery was contemplated, it would help the farmer and the buyer and everybody else, would it not?

Mr. Neill. In answer to that proposition, you take our exchange at Galveston, as I understand its procedure there. I have been told by members of that exchange that they make the market by an average of the sales that are made by the cotton factor, and that price is registered on their boards and is sent out to the people of Texas as the spot price for cotton. I understand that.

Mr. Lever. So you do have a legitimate exchange at Galveston which is doing a legitimate business?

Mr. Neill. Certainly' it is operating under the law; it is what

^ht be termed a "hgitimate exchange." tr. Neville. In other words, it is a lauilding or a room where the receipts and shipments and all information pertaining to the cotton trade are posted? Mr. Neill. Yes; I think so.

Mr. Smith. Is it not a fact that at Houston and Galveston the prices fluctuate in their spot sales exactly commensurate with the market in Liverpool, New York, and New Orleans?

Mr. Neill. Yes; there have been fluctuations there. I understand, Mr. Smith, that a few weeks ago, when New York lost about 300 points, to the best of my recollection the cotton did not fall any considerable amount.

Mr. Smith. It did not all over the South. The point I want to bring out to the committee is the influence of Liverpool as a world center, and New York as well; they are the points from which the price is practically set for the market of spot cotton throughout America.

Mr. Neill. Certainly.

Mr. Smith. Therefore it could not be possible for Galveston and Houston to reflect what might be the price and conditions as to speculation unless it could be reached by the world-wide influence from Liverpool and New York. Then you would know?

Mr. Heflin. Do you not believe that if we can eliminate the speculation in cotton, the selling of fictitious stuff called cotton in the New York Exchange, that then we would have spot-cotton exchanges where these contracts would be made and filled?

Mr. Neill. I think so; yes, sir.

Mr. Cone. Is not the contract in New York a spot-cotton contract?

Mr. Neill. I do not know that I ever saw one of those contracts.

Mr. Cone. I can assure you that I have sold those contracts and delivered cotton on them, and I have bought those contracts and taken up cotton on them.

The Chairman. If there are no further questions we will excuse Mr. Neill. I am informed that, so far as the proponents of the measure are concerned, they do not care to offer any further witnesses at this time, and when the committee meets again we will ask the representatives of the exchanges to be prepared for a hearing. It is a little early yet, but to begin the examination of a new witness now and interrupt him in fifteen or twenty minutes would make a break in his testimony that is probably not advisable, and I believe the committee will therefore adjourn now, with the understanding that we will meet promptly at 2 o'clock.

(Thereupon, at 12.10 o'clock p. m., a recess was taken until 2 o'clock p. m.)

Afternoon Session.

The committee reconvened at 2.15 o'clock p. m., Hon. Charles F. Scott (chairman) presiding.

The Chairman. I believe Mr. Neill desires to file a petition before the hearing begins this afternoon.

Mr. Neill. Mr. Chairman, I have a petition here from Scurry County, Tex., which contains the names of C. R. Buchanan and 273 others. We would like to have it printed in the record.

The Chairman. Without objection, the petition, which is a very brief one, will be received. •

(The petition referred to reads as follows:)

To Eon. R. W. Smith, Representative of the Sixteenth Congressional District of the State of Texas in the National Congress:

We, the undereigned voters of Scurry County, in the State of Texas, most respectfully request that you use your best effort and influence to secure the adoption and E lacing on the statutes of the United States of House bill 7521, known as the "Scott ill," and designed to prohibit gambling in agricultural products.

Mr. Neville. May I ask how much cotton Scurry County raises?

Mr. Neill. I do not know, sir; about 30,000 bales, I think.

The Chairman. As I stated before the hearing closed this morning, the proponents of the measure have no further witnesses to offer at this time, and we will therefore be glad to hear from representatives of the other side. Before proceeding, however, I would like to make this announcement, that inasmuch as this hearing up to date has been confined to the cotton question, and inasmuch, further, as the committee has been asked to defer until next week the hearing in relation to wheat and other commodities, it will be understood that that order is made; so that the remainder of the time this week will be taken up with discussion of the bill so far as it relates to cotton futures. I understand that Mr. Neville, of New York, is the chairman of the committee representing the cotton exchange from that city, and I would be glad if he would indicate the order in which he would like to have his witnesses heard.

Mr. Neville. We have two gentlemen who come from the South and want to be heard, who are very anxious to get back home, and with the chairman's permission the cotton exchange will give way. Before we proceed, you stated that next week had been assigned to hear the Chicago Board of Trade and other kindred western institutions?

The Chairman. The president of the American Association of Grain Exchanges telegraphed me yesterday that a delegation from that association would like to appear here on the 18th, if it was satisfactory to the committee, and it seemed as if that would be the best arrangement we could make.

Mr. Neville. Are you going to hold a session Saturday, in case we do not get through to-morrow?

The Chairman. Yes. Mr. Cone, did you wish to be heard now?

Mr. Cone. Yes, sir.

TESTIMONY OF MR. SOLOMON NAPOLEON CONE, OF GREENSBORO, N. C.

(The witness was sworn by the chairman.)

The Chairman. Whom do you represent?

Mr. Cone. I represent myself as a dealer in spot cotton. Incidentally, I am a stockholder in quite a number of cotton mills. I am also a member of all the different cotton exchanges of the world.

The Chairman. Mr. Cone, would you like to be allowed to finish your statement before submitting to interruption?

Mr. Cone. I would, very much, Mr. Scott, for the reason that I have never before in my life stood up before an audience of big people, and I am kind of gun shy, and I am afraid, if I am interrupted in the thread of my thought, I might not be able to do justice to the subject in hand, as I am unaccustomed to this sort of procedure.

The Chairman. I am sure that would be entirely satisfactory to the committee to let you finish your statement first, and then, if any members have any questions to ask they may do so.

Mr. Cone. I thank you. Mr. Chairman and gentlemen, you would have been afflicted with very much less of the speech that I am going to give you had I proceeded yesterday. As I came up on the train night before last I made memoranda of all I had to say on the back of an envelope. I heard so much here yesterday that last night I sat up until 5 in the morning writing these few pages.

The Chairman. We are glad the subject seems to have broadened.

Mr. Cone. I thank you, sir. While I am a stockholder in a number of mills and have in the course of my experience had the management of one big mill, my present active interest is in spot cotton, oi which I handle more than $4,000,000 worth annually. The cotton business is, I believe, without exception the strangest business in the world. My friends are oftentimes skeptical when I tell them I sell cotton most heavily when I think it is going up, and I buy heaviest when'I think it is going down. The reason for this is the basis on which I trade, which I try to figure a safe one. When I sell cotton, I try to figure the basis at about what will pay me a reasonable profit on that cotton, and I sell it, and if my judgment is right, that cotton is going up; the light article, or the hedges, goes up faster than the heavier article, or spot cotton, and vice versa. When cotton goes down, the light article, or the future or hedge, goes down faster than the heavy article, or spot cotton. When I first started in the business, I took in with me a very old gentleman, who had had years of experience in the business before I undertook it; and when I called to his attention that we made more money when cotton went up after we had sold it, and made more money when cotton went down after we had bought it, he could hardly believe it, and, although my friend, Mr. Latham, whom I turned to, who had been in the business also for many years, verified that, I never could fully convince my partner, although I showed him the evidence on our books; the evidence of my books substantiated that fact, yet he always thought it was a matter of luck or chance, whereas it was not; it was a matter of calculation; it was a matter of simple economics.

To illustrate what I mean, take the crop before this year; we made the biggest crop that ever has been made since the earth was born. We made a crop that the United States Government and all those men who have charge of the statistics in the exchanges will tell you was the biggest crop ever made. It ran about thirteen million eight hundred and some odd thousand bales, and the statistics of nearly all agree. That was the year after the panic, or, rather, it was the year of the panic, and we came into that fall under very adverse conditions, and with an enormous crop of cotton. My friends from New York, and particularly Mr. Hubbard, who was formerly the president of the cotton exchange, kept hammering at me that the Yankees, extending from New York to New England, were constantly buying futures; that the West, the whole West, was constantly buying futures and protecting the market. I just thought, "There is something in this thing; I believe that these folks are going to win out." So I called up various mill friends of mine and said to them, "Here is cotton. They have futures down here to about 8.35 and I can sell you cotton on this basis. If you wish I will sell you up to August oi this year at 9$ cents a pound, and the consumption of cotton is certainly going on at an enormous rate." I said, Let me sell you your cotton up to August."

I remember one mill particularly, the Revolution Cotton Mill, of Greensboro, the president of which is one of my best customers. I

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