Under the present method I am relieving myself of speculation and Mr. Lever is speculating on his.

Mr. LEVER. In that connection, that is an interesting statement. On the one hand when Mr. Neville is buying from me my 250 bales, Mr. Neville in the first instance is a buyer of cotton and I am a seller. Certainly it is not contrary to the economic laws that Mr. Neville in the first instance as a buyer will endeavor to get my cotton at as low a figure as possible.

Mr. NEVILLE. Yes, that is correct.

Mr. LEVER. The moment the contract is entered into and the cotton is delivered, he then becomes a possessor of cotton, and if any further contracts are to be made he becomes a seller of his cotton. Now, then, is it not also true that as a seller of cotton it is to your interest to get as good a price for that cotton as possible?

Mr. NEVILLE. Yes.

Mr. LEVER. So that in the first instance, as an intermediate man between the producer and the ultimate consumer of cotton, it is to your interest to get your cotton at as cheap a figure as possible, on the one hand, and to sell it on the other hand at as high a figure as possible. Is not that true?

Mr. NEVILLE. Mr. Lever, that argument would apply if the cotton business was like other merchandise business; but the cotton business is so bulky, as you know, and the amount of money invested to carry cotton is so large, the handling charges, the insurance, and the interest charges accumulate so fast, that the custom of the cotton merchant is to turn his cotton over as quickly as possible. I have turned it over and made 10 cents a bale on it just to keep it going.

Mr. LEVER. I don't think your position is different from that of any other merchant. For instance, a man that buys a bale of hay buys it as cheap as he can and sells it at as good a figure as possible. Mr. NEVILLE. The trouble is, the commodity you have taken as a comparison is one, unfortunately, which has not so much competition in it as there is in the cotton business.

Mr. LEVER. Would that be the reason for the difference?

Mr. NEVILLE. There is nothing that fluctuates quite as much as hay.

The CHAIRMAN. Your answer, then, as to the effect of the elimination of the future market on the spinner would practically cover the same ground?

Mr. NEVILLE. Practically the same ground. I can see a great disorganization of business that can not help but be very hurtful to the producer on every side. The merchant can take some steps to protect himself, because if he does not like the price he is not compelled to buy it.

The CHAIRMAN. You think, then, the planters who are demanding the abolition of this future market, and the spinners who are joining with them, are simply mistaken in their judgment as to what the effect of such an abolition would result in?

Mr. NEVILLE. So far I have not heard of any spinners joining with the planters in wanting to abolish the future markets. Mr. Parsons' testimony was

Mr. SIMS. But you ignored Mr. Parsons' testimony.

Mr. NEVILLE. I ignore it absolutely, as I said before, and perhaps under the conditions that I was laboring under I could not express

myself as forcibly as I would like to. I don't think any spinner who starts off and says he never uses a cotton exchange, with the gentlemen's pardon, knowns a damn thing what he is talking about.

The CHAIRMAN. Well, he must know whether he uses the exchange. Mr. NEVILLE. Yes; and consequently the other matter he does not know about.

The CHAIRMAN. If he does not use the exchange it does not follow that, so far as his business is concerned, it is not necessary?

Mr. NEVILLE. It is not necessary directly to him, but it is necessary to the merchant from whom he buys his cotton. None of these spinners have their own buyers down South buying direct from the farmers. None of them have their own buyers, but they buy through merchants; and more than that, they come to you in the spring of the year and want to buy their cotton not only at a price, but they want to fix the difference on their specific quality as compared to middling.

The CHAIRMAN. That is very natural, I presume.

Mr. NEVILLE. Perfectly natural; yes, sir.

Mr. LEVER. A great many of these merchants from whom the spinners buy are not members of the New York Cotton Exchange, are they?

Mr. NEVILLE. Oh, lots of them are not members. But those men who are not members use the contract markets to protect themselves. Mr. LEVER. They are governed altogether in their purchases by the New York Cotton Exchange quotations?

Mr. NEVILLE. I would say that has perhaps some influence, as I explained this morning, when you asked me if futures controlled spots or spots controlled futures, and I gave you that illustration regarding an imaginary transaction with our mutual friend Frost.

The CHAIRMAN. To sum it up in a single sentence, then, your justification of the future market is that it enables the whole cotton trade to be conducted upon a narrow margin of profit, first on the part of the merchant, and then on the part of the spinner, which would otherwise not be possible?

Mr. NEVILLE. Yes, sir.

Mr. LEVER. And upon a less capital?

Mr. NEVILLE. I will say this, Mr. Chairman. I don't want to take up too much time, but I would hate to be the public man, the man in public life, who was willing to father the enactment of a law of this kind.

The CHAIRMAN. We understand your position on that question.

Mr. NEVILLE. There is an old saying that a man is never a statesman until he is dead. I believe that whoever brought about the enactment of such a law as is proposed would be a dead one long before he was dead.

Mr. HOWELL. Do you not maintain that another benefit resulting from the cotton exchange is that thereby you are able to extend the market during the season of heavy delivery?

Mr. NEVILLE. Yes.

Mr. HAUGEN. As to the cost of handling cotton, and what would be the likely cost if the exchange were abolished, I wish you would point out what would be the initial expense of handling cotton, in the aggregate, say one or more bales of cotton, if the exchange were abolished.

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I understood you to say there were advantages under the present methods.

Mr. NEVILLE. It is hard to estimate. I presume the question of storage would be not in excess of what it is to-day.

Mr. HAUGEN. Twenty cents a bale?

Mr. NEVILLE. Twenty cents a bale. The question of interest would naturally be dependent upon the price of cotton and the amount of money that you could borrow.

Mr. HAUGEN. Could you borrow it at 6 per cent?

Mr. NEVILLE. I think 6 per cent would be a fair basis.

Mr. HAUGEN. Eighty dollars a bale?

Mr. NEVILLE. Well, you could not carry so much, because your bank might exact 50 per cent margin.

Mr. HAUGEN. It does not matter whether the bank advanced it or the merchant advanced it.

Mr. NEVILLE. You could not carry as much cotton; consequently you could not distribute the——

Mr. HAUGEN. With the money invested in cotton

Mr. NEVILLE. Oh, with the money invested in cotton?

Mr. HAUGEN. At 15 cents a pound, $80 a bale, that would be how much?

Mr. NEVILLE. At $80 a bale, it would be $4.80 per annum.

Mr. HAUGEN. $2.40 storage?

Mr. NEVILLE. And insurance. It would be hard to say what the insurance would be.

Mr. HAUGEN. From 35 cents to a dollar?

Mr. NEVILLE. Yes; $1.20 is the maximum, I believe.

Mr. HAUGEN. It would average how much?

Mr. NEVILLE. Well, that is a question.

Mr. HAUGEN. Probably 50 cents a bale on an average?
Mr. NEVILLE. Fifty cents for insurance?

Mr. HAUGEN. Yes.

Mr. NEVILLE. Sixty-seven cents per $100, I should say.

Mr. HAUGEN. The cost of handling a bale of cotton, then, would be $2.40 storage, interest $4.80, and insurance 50 cents; all told, $7.70. What is the cost under the present methods?

Mr. NEVILLE. The cost under the present methods? There would not be very much difference in that, except under the present method you as a rule move cotton very promptly; and I think under a change of conditions such as has been outlined it would very often make the necessity of holding a great deal of cotton.

The CHAIRMAN. Pardon me. When you say moving cotton promptly, do you refer to the actual cotton?

Mr. NEVILLE. Yes, sir.

The CHAIRMAN. Well, under present conditions the cotton can not be moved any more promptly than it is now?

Mr. NEVILLE. But under other conditions it can be moved more slowly than it is now.

The CHAIRMAN. I do not quite see how the elimination of a future market can interrupt in any way the flow of cotton from the plantation to the mill. The mills would keep running just the same, and the mills would have to have cotton just the same.

Mr. NEVILLE. Let me use the same illustration of the friend of mine in South Carolina that sold those goods to China. With the abolition

of the exchanges he could not have found a buyer for that cotton and consequently could not have made the sale.

The CHAIRMAN. Do you not suppose there were enough merchants in the country who would have been willing to have made that sort of a sale to him?

Mr. NEVILLE. I don't think so, because the price they would have had to ask that spinner to be on the safe side of things would have been so high he could not have afforded to manufacture the goods at that price could not have made the sale at the prices he would have had to pay for the cotton. You must realize, gentlemen, that you are engaging in considering a subject that has been the result-well, it is an evolution. The question was asked the other day of some witness, and I stated I would answer it.

Mr. BROOKS. Would it have kept those people in China from wanting those goods? What would they have done?

Mr. NEVILLE. I guess they would have gone around in their birthday clothes.

Mr. BROOKS. You think people would quit consuming?

Mr. NEVILLE. I don't say I think people would quit consuming, and I don't think my remark is capable of that construction.

Mr. BROOKS. Do you think it would curtail consumption? Mr. NEVILLE. I think it would curtail consumption, yes, until such time as they could get their goods. But remember, we are not the only people manufacturing cotton. Remember there is England and

France and Germany.

Mr. BROOKS. And you think the people in China could get their cotton from England, for instance?

Mr. NEVILLE. Yes; they would get it at a time and place that would suit them, and when we wanted to sell we could not.

Mr. HAUGEN. If it had not been possible for this spinner who contracts for this cloth in China to hedge, he would have had to have either the cash or credit to purchase the cotton and carry it.

Mr. NEVILLE. Right there, sir

Mr. HAUGEN. Or get somebody to carry it for him?
Mr. NEVILLE. Yes.

Mr. HAUGEN. And by hedging it was not necessary?
Mr. NEVILLE. No.

Mr. MARSH. I do not like to ask the committee to listen to me again, but as I have given a good deal of thought to the economic side of this matter, I think I can elucidate the problem which the chairman is seeking light upon, perhaps, a little more clearly than Mr. Neville, who, I think, has not considered the ultimate implications in this matter to the extent that I have. Will the chairman permit me? The CHAIRMAN. Certainly.

Mr. MARSH. As I understand it, the chairman is anxious to find out why the margin between the price paid to the producer and the price which the manufacturer pays would have to be widened out. Is that it?

The CHAIRMAN. That is not quite what I was seeking light upon, Mr. Marsh. Up to this time what has been said on this point has rather led my mind to the conclusion that the principal advantage to the whole future market is as a protection to the people engaged in the cotton business, and I have sought to get information as to the extent to which they would be damaged if that protection were with

drawn, and possibly also a word of enlightenment as to why the cotton trade should be protected.

Mr. MARSH. May I answer that question?

The CHAIRMAN. Yes.

Mr. MARSH. On the 1st of January, this year, cotton merchants of the world were carrying approximately 4,000,000 bales of American cotton, besides a large quantity of Indian cotton and Egyptian cotton. The value of that cotton was approximately $300,000,000. That cotton was, of course, all hedged. There came a decline of approximately 20 per cent in the value of that cotton. Now, if those merchants had been carrying that cotton without any hedge the shrinkage in their capital would have been 20 per cent of $300,000,000, or approximately $60,000,000. That $60,000,000 would not have been lost out of the world, but so far as those cotton merchants were concerned that group of men carrying that $300,000,000 of cotton, that $60,000,000 would have been dissipated, it would have gone off, distributed all over the world.

The possibility of having capital constantly cut in a way which to them is a total loss, even though the cotton has not been destroyed— to that group of men it is a total loss, the money is gone, the capital is gone and the possibility of having that impairment of their capital would make it necessary for cotton merchants carrying this supply of cotton in the world to attempt in the years when their forecasts were successful to get enough out of their business to keep their capital unimpaired through the years when they misjudged and when there came terrific losses.

That is the real economic reason why the margin between the producer's price and the consumer's price would necessarily widen out if you did not have this method of hedge protection.

There would come every two or three years a season when the merchants carrying the load they had bought and were in the process of distributing would catch one of these terrific impairments of their capital. That is constantly happening in the wool business to-day. In order that they may go on they would take what the wool men in Boston say they have to take, a five-year look at it, knowing that in two out of five years they were going to lose tremendously, but those losses, which as far as they are concerned is capital gone, dissipated, they must make up out of a larger margin of profit in the successful

years.

The CHAIRMAN. I understood you to say the other day it was just as important economically to the wool trade to be protected as it is to the cotton trade; that the only reason in your judgment why the wool trade is not properly protected is because the product is one which does not lend itself to that sort of manipulation?

Mr. MENDELBAUM. Mr. Chairman, I do not believe that even Mr. Marsh has brought out the point that you were inquiring about quite as plainly as it may be brought out, and if you will permit me I think I can bring it out by putting a question to Neville."

The CHAIRMAN. Very well, we will listen to your question.

Mr. MENDELBAUM. You have stated the case that a spinner came to you to buy ten or fifteen or twenty thousand bales of cottonthe amount is immaterial-because he could make a trade with China to send the goods there, and Mr. Brooks has asked you if you