farmer direct. That cotton, in other words, was going to be sold to somebody.

Mr. LEVER. Is it not to the interest of the man who sells futures on the New York Exchange to have futures go down? Can he profit at all except by futures going down if he sold upon the market?

Mr. LATHAM. Do you mean that he is trying to make his money by speculation pure and simple?

Mr. LEVER. I mean as a hedge.

Mr. LATHAM. Not at all, sir.

Mr. LEVER. It is not in his interest for the market to go down? Mr. LATHAM. No, sir.

Mr. LEVER. If he has sold cotton?

Mr. LATHAM. Not necessarily. I know manufacturers that are short of futures at the present time (if you will permit the expression), in New York and possibly in other markets, that are honestly and thoroughly desirous of the market going up at the present time.

Mr. LEVER. Then you do not agree with Mr. Parker, who testified before the committee the other day, that hedging makes the spinner a natural bear upon the market?

Mr. LATHAM. No, sir.

Mr. LEVER. You do not agree to that?

Mr. LATHAM. No, sir.

Mr. LEVER. Just one other question: Will you explain to the committee your idea of the meaning of "fixed differences," and their effect upon prices?

Mr. LATHAM. Yes, sir; I will. I will attempt to do that. The world has become accustomed to sell cotton in a commercial way on the basis of middling, in some places on a basis of strict middling, and in some other places on a basis of good middling.

Mr. LEVER. Just one moment there. What is the manufacturer's basis?

Mr. LATHAM. The manufacturers try to buy even-running grades, even-running staples. Of course we have some mills that are making a low grade of stuff, that can spin practically everything; and they will buy almost anything that is cheap.

Mr. LEVER. What is the ordinary grade-middling or strict middling?

Mr. LATHAM. I suppose the ordinary grade of cotton throughout the world is middling and a little better-middling to strict middling. That would be the crop average, if that is what you mean to ask. Mr. MARSH. May I ask the witness one question on that point? The CHAIRMAN. Yes.

Mr. MARSH. That would be the average normal crop-middling to strict middling?

Mr. LATHAM. Yes; that is what I mean to say.

Mr. MARSH. Now go ahead.

Mr. LATHAM. Now, as to the fixed difference.

The fixed difference

exists in New York and New Orleans at the present time. Mr. BURLESON. You are mistaken; you do not mean that. Mr. MENDELBAUM. Not in New Orleans.

SEVERAL GENTLEMEN. No.

Mr. LATHAM. It does not? I thought it did. Well, it does exist in New York.

Mr. MENDELBAUM. It does not exist in New York, either. It is changed twice a year. It is the difference that is changed twice a

year.

Mr. BURLESON. If Mr. Latham is going to explain that, I want Mr. Latham to explain it. If he can not do it, I should like to have somebody else do it.

Mr. LEVER. I want him to give his opinion as to the value and effect of it and the purpose of it.

The CHAIRMAN. I think Mr. Latham understands the question. Mr. LATHAM. I think so; and I am glad you called my attention to that point, because I might have assumed that the committee know more about it, probably, than they do. Therefore I am glad to have the gentlemen to interrupt me to explain that the fixed difference is changed twice a year, and that that is the system that prevails there. Is that what you wish me to talk upon, particularly? Mr. LEVER. Yes.

Mr. LATHAM. What was your question, exactly?

Mr. LEVER. I should like to know what is the value of your fixeddifference system to the cotton trade?

Mr. LATHAM. The value of the fixed-difference system to the cotton trade is as a matter of economy. Cotton is a very expensive thing to handle. Even to hold an arbitration on cotton is an expensive thing and adds to its cost. If you are buying and selling something where you know exactly what it is in January, and you know that it is going to be the same thing in February, when you are going to deliver it to somebody else, the element of speculation would not enter into your calculation the same as it would if there was what is called an arbitrary difference, which might be one thing to-day and might be very materially changed thirty days hence. You might suffer simply by the change in somebody's frame of mind in thinking that it would not grade a certain thing thirty days from now, or that it graded that much more. Therefore your operation would be much more speculative on an arbitrary difference than it would on a fixed difference.

Mr. LEVER. The chairman suggests that you answer the question whether or not you think the fixed-difference system in New York is preferable to the commercial-difference system in New Orleans? Mr. LATHAM. I do, sir.

Mr. LEVER. Why?

Mr. LATHAM. In the first place, a large part of the business in New York is the clearing-house business of the world, and it obliterates the speculative situation that I mentioned in my last remarks. It is known what you are dealing with. You know in January what you are going to get in February, and you know in February what the difference is going to be in March. They change the differences twice a year, when they think they know what the outcome is going to be, according to what the crop is going to be, its grade, etc. They can largely forecast it. Then they change the differences in New York to meet that.

Mr. LEVER. What have you to say as to the fairness of the New York contract?

Mr. LATHAM. I think it is a perfectly fair contract, sir. I have bought thousands of bales of cotton in New York, and received them, and shipped them to the South and to Europe; and I have

delivered thousands and thousands of bales of cotton upon the New York market when it was the highest market in the world.

Mr. LEVER. Mr. Latham, do you think any contract is a fair contract that puts it in the option of one man to deliver upon the contract anything he wants to deliver within 23 or 24 grades?

Mr. LATHAM. I do, sir, if the other man buys that sort of a contract. It takes two to make the contract.

Mr. LEVER. It puts him absolutely at the mercy, however, of the seller of the cotton.

Mr. LATHAM. If you had a hundred city lots, and somebody were to buy one of those lots, and you as the seller were to deliver him such a lot as you pleased, you would give him the lot that was least salable, unless he was a very good friend of yours. Then you might give him a better lot.

Mr. LEVER. In the commerce of the world, do you know of any other business that has such a contract as the New York cotton contract, which gives the option as to delivery entirely to the seller?

Mr. LATHAM. Yes, sir; grain contracts are made in the same way. Mr. LEVER. But if you went out into the market and bought a carload of 2-year-old steers for delivery in July, would you permit the seller of those steers to deliver to you 1-year-old steers in July?

Mr. LATHAM. No, sir; I would not. But if the seller of those steers had given me a contract in writing that he was going to deliver me 2-year-old steers at $10 apiece, with the option of giving me 1-yearold steers, at $5 apiece, that would be his contract."

Mr. LEVER. Is it not true, Mr. Latham, that the fact that you have a contract on the New York Cotton Exchange which gives to the seller the option of the kind of cotton that he shall deliver within a range of 23 or 24 grades has the effect of making the buyer of that cotton give a less price for it, because he knows that he runs a risk of having cotton put upon him that he can not use commercially?

Mr. LATHAM. I should like to have you repeat that, sir. It was such a lengthy question that I rather got lost.

Mr. LEVER. Let me see if we can not modify it somewhat. I will make this statement: You have 23 or 24 grades of cotton in New York which are deliverable upon contract?

Mr. LATHAM. I think there are about 20 grades; yes, sir.

Mr. LEVER. The ordinary spinnable grade of cotton throughout the world is middling to strict middling?

Mr. LATHAM. No, sir; I deny that there is any sort of cotton, even Texas bolly, but what can be spun.

Mr. LEVER. I say, the ordinary grade. The majority of the mills use that, do they not, Mr. Neville? I understood you to make that statement a moment ago.

Mr. NEVILLE. What is that?

Mr. LEVER. That the majority of the mills of the country use middling to strict middling?

Mr. NEVILLE. No, sir; you misunderstood me. I said the average grade of a normal crop is middling to strict middling; not that the spinners use it. If Mr. Latham will pardon me just to answer your question, the spinners the world over try to buy strict middling

cotton.

Mr. LEVER. That is it. So that as a matter of fact the ordinary basis for the spinner is strict middling cotton?

Mr. LATHAM. Yes, sir; that is true.

Mr. LEVER. Now, you have 23 or 24 grades here. Under your New York contracts you can deliver any of those 23 or 24 grades to the spinner who is buying your contract. He buys 100 bales of cotton according to your contract. You may deliver to him any one of 23 grades. He wants strict middling cotton. He can use that in his business. Is it not a fact that necessarily, in order to protect himself against these low grades, he must give a lower price for the strict middling cotton? Is not that the effect?

Mr. LATHAM. No, sir; I do not think so.

Mr. LEVER. You do not think so?

Mr. LATHAM. I do not think so.

Mr. LEVER. You are a member of the exchange, Mr. Latham?
Mr. LATHAM. Yes, sir.

Mr. LEVER. You have a regular contract which you enter into when you buy cotton?

Mr. LATHAM. Yes, sir.

Mr. LEVER. The regular form of contract which we had set out here?

Mr. LATHAM. Yes, sir.

Mr. LEVER. If you bought 500 bales of cotton on the New York Exchange to-day, you would enter that upon your books, would you not?

Mr. LATHAM. Yes, sir.

Mr. LEVER. Would the New York Cotton Exchange enter it upon their books anywhere?

Mr. LATHAM. I do not think the New York Exchange does any business as an institution. It is a meeting place for members.

Mr. LEVER. There would be no record at all kept of that transaction on the New York Exchange?

Mr. LATHAM. On the New York Exchange?

Mr. LEVER. Yes.

Mr. LATHAM. That I can not answer, sir. Since my dealings would be with an individual member of the New York Exchange, he would naturally keep a record; and he probably would also keep a record with the man he tied the other end to.

Mr. LEVER. You do not know whether or not they keep such a record?

Mr. NEVILLE. A record of the price is kept.

Mr. LEVER. But not of the amount?

Mr. NEVILLE. Not of the amount.

Mr. LEVER. So that only one party to the contract keeps a record of the contract?

Mr. LATHAM. Why, certainly; the man that takes the other end of it would keep a record of his end of it.

Mr. LEVER. And your association here, at which you meet, does not have any record at all of the amount of sales, that you know of? Mr. LATHAM. I do not know whether they do or not, sir.

Mr. BEALL. I understood Mr. Latham a moment ago to say that the practice of delivering cotton different from the grade that is actually bought has a parallel in the grain exchanges of the country? Mr. LATHAM. Yes, sir; and also in the coffee exchanges.

Mr. BEALL. Is the practice the same? I notice that this report of Mr. Smith's says this, speaking of grain:

In order to relieve the seller of danger of corners and squeezes, he is permitted to deliver several grades, but under conditions which amount to a penalty; though if he delivers a better grade of wheat than No. 2 he gets no "difference on, or premium, but is forecd to deliver it at the same price as No. 2.

Is that the same practice that prevails on the cotton exchange? Mr. LATHAM. No, sir; no, sir. The better you deliver the more you get for it on the New York Cotton Exchange.

Mr. BEALL. If the seller delivers a better grade of cotton than you have contracted for, he gets that difference?

Mr. LATHAM. Yes, sir; he does.

Mr. BEALL. In dealing on the grain exchange he does not, according to this statement.

Mr. LATHAM. I simply accept that. I do not know the custom on the grain exchange.

Mr. BEALL. "This clearly amounts to a penalty"-so states Mr. Smith.

Now, let me ask you this question: Under the present system, so far as I can see, there are about four classes that are especially interested in the price of cotton-the producer, the handler (the man that deals in it after it leaves the hands of the producer), the spinner, and the speculator. Do you know of anybody else that is especially interested besides those four classes?

Mr. LATHAM. I should think that pretty well covers it, sir.

Mr. BURLESON. No; the ultimate consumer has some interest in it. Mr. BEALL. Of course the ultimate consumer consumes it in a form different from cotton. If the exchanges were eliminated, I understand that the system of dealing in cotton could be changed so that the producer could still continue to produce it and dispose of it. If the system were changed, the man who handled cotton could still continue to handle it, could he not? He might have to revolutionize the system, but he could still continue to handle it.

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

Mr. BEALL. The spinner would still continue to spin it, would he not?

Mr. LATHAM. Yes, sir.

Mr. BEALL. Then the only class of people who would be eliminated from the cotton trade would be the speculators. If the exchanges were eliminated, and there were a revolution of the system, the only man that would be eliminated would be the man who now speculates in future contracts. So far as you can see, is not he the only one that would be completely eliminated?

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

Mr. BEALL. Now, it is my understanding that the prdoucer is willing to take the risk of having these exchanges eliminated.

Mr. LATHAM. Who is that, sir?

Mr. BEALL. The producer.

Mr. LATHAM. Yes, sir.

Mr. BEALL. I understand that the spinner is willing to take the risk of having the cotton trade revolutionized by the elimination of the exchanges. Is that your understanding?

Mr. LATHAM. I should like to ask you, sir, if you think you can eliminate the exchanges of cotton of the world, or if you are going to eliminate only the American exchanges?

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