COTTON PRICES MONDAY, MARCH 19, 1928 UNITED STATES SENATE, SUBCOMMITTEE OF THE COMMITTEE ON AGRICULTURE AND FORESTRY, Washington, D. C. The subcommittee met, pursuant to adjournment, at 10 o'clock a. m., in the in the room of the Committee on Agriculture and Forestry, room 324, Senate Office Building, Senator Ellison D. Smith (chairman of the subcommittee) presiding. Present: Senators Smith (chairman of the subcommittee), Capper, Frazier, Ransdell, and Heflin. Present also: Representatives Brand of Georgia, Rankin, of Mississippi, and Vinson of Georgia. Senator SITH. The committee will come to order. Mr. Marsh, you may resume your statement, and I hope you are prepared to make it as concise as possible, because we have to expedite this matter and conserve all the time we can. STATEMENT OF ARTHUR R. MARSH, FORMER PRESIDENT AND NOW MEMBER OF THE NEW YORK COTTON EXCHANGE, NEW YORK CITY-Resumed Mr. MARSH. Mr. Chairman, may I venture to suggest, in the interest of as speedy a conclusion of my testimony as possible, that the committee permit me to proceed without taking up the matters of detail that naturally will occur to the committee to ask questions about, postponing those questions until I have completed my testimony? Senator SMITH. I had hoped that that might be done in the first instance. The only difficulty I see, and perhaps that may be obviated, is that a statement might be made that some one might desire to challenge. I shall ask that whoever challenges any statement that you may make may just note the challenge, and then he may refer to it after you have finished your statement. Senator RANSDELL. I think it would expedite the business if we adopt the plan that you have suggested, Mr. Chairman. Senator SMITH. I will ask you to proceed, and I will ask the committee to refrain from asking questions until you conclude, with the privilege to anyone to challenge statements. Mr. MARSH. Thank you, Mr. Chairman; I think that will expedite the hearing. At the conclusion of the meeting of the committee on Friday I was still speaking of the operations of Anderson, Clayton & Co., in the latter part of 1926, in 1927, and in the beginning of 1928. The committee will remember that after July, 1926, the operations of Anderson, Clayton & Co. were directed to keeping the New York market as low as possible; that they sold in the New York market an immense quantity of future contracts, and that they brought to New York a very large quantity of cotton, at prices representing, necessarily, a loss of $3 to $4 a bale to themselves in order that they might have that cotton in New York as a depressing influence. They themselves, I understand, explained the bringing of that cotton to New York as necessary to protect their hedges. I need hardly say to this committee that protecting hedges means compelling those who buy the future contracts you sell, to sell them back to you at your price-the price you fix. That is what protecting hedges really means. Now, in pursuance of that plan we find Anderson, Clayton & Co., according to Mr. Clayton's own statement, having bought in January, 1927, 968,000 bales of actual cotton, against most of which future contracts had been sold in New York. Mr. Clayton did not tell you, what was obvious to every person observing the various future market at that time, that besides sales of future contracts in New York against actual cotton his firm was also selling enormous quantities of contracts in New York against purchases of future contracts in New Orleans, in Chicago, and in Liverpool. Mr. MILLER. Which place? Mr. GILBERT. New Orleans, Chicago, and Liverpool. Mr. MARSH. No one who observed the market in New York at this time could doubt that the actual quantity of future contracts which Anderson, Clayton & Co. had sold in New York was far greater than 968,000 bales. A much more conservative estimate, if the whole story be told, would be 1,500,000 bales, an absolutely unheard-of quantity of contracts for a single firm to sell in a single market. The purpose, of course, was to waterlog the New York market, to fill up every possible buyer in the New York market, and to leave the market structure so overwhelmed with the number of contracts outstanding in it that there would be no possibility of a buying movement putting the market up relatively to other future markets and relatively to the spot markets in the South. During this whole period, moreover, Anderson, Clayton & Co. adopted a device calculated to cause all of the persons to whom they had sold contracts to sell them back to Anderson, Clayton & Co. at a price or prices satisfactory to Anderson, Clayton & Co. and suited to their market position and interests. Mr. MILLER. May I ask what period? "This whole period" is the statement of the witness. Mr. MARSH. From the fall of 1926 until March, 1928. One of those devices was the device which Mr. Clayton has attempted to defend in his statement to this committee, the device of having as each important delivery day approached a certain number of firms long of those contracts to the extent of the New York stock which Anderson, Clayton & Co. proposed to deliver. If the New York stock, as it was during the last part of this period, was 200,000 bales, Anderson, Clayton & Co. would have certain firms long of 200,000 bales on future contracts. They themselves and other firms for their account would be short an indefinite number of contracts; but when the notice day, as we call it, came, Anderson, Clayton & Co. would cause notices to be issued through firms which were short for their account-notices for 200,000 bales of cotton, being at the same time long through other houses 200,000 bales of cotton. Mr. MILLER. Of course, it is not admitted that that is a correct statement at all. Senator SMITH. You can just note it. Representative RANKIN. We may as well have an understanding about this. Counsel for Mr. Clayton has interrupted the witness a time or two. Mr. MILLER. I deny that. Representative RANKIN. I understand Senator HEFLIN (interposing). I think he should be allowed to go ahead with his statement. Representative RANKIN. The other day he denied what the witness said. Senator SMITH. The Chair has said that he might note exceptions. He will keep within that, that he will note exceptions, and the same privilege will be allowed the members of the committee, or anyone that is interested in this controversy. Senator HEFLIN. I suggest, if the chairman will permit, that if he does object to a statement Mr. Marsh is making, he can just say, "Mr. Chairman, we except to that," and make a note of his exception. Senator SMITH. That is what I understand he is doing now. He simply said that he noted an exception on the ground that that was not in the statement, and made no further remarks. I hope each one will consider that until the witness is through. I hope that may be observed, because remarks will break the continuity of the testimony of the witness. Representative RANKIN. It is understood that this testimony is all denied; that is, all that is controversial is denied by Anderson, Clayton & Co. I do not think we ought to break the continuity of the witness's testimony by these frequent and unnecessary interruptions. Senator SMITH. The Chair will hold, as indicated here, that exceptions may be noted as we go along. You may proceed, Mr. Marsh. Mr. MARSH. In the statement which Mr. Clayton read to this committee, and which he has since issued in printed form in this yellow paper-this is page 20 of the yellow paper, paragraph 4. He says [reading]: We did tender cotton on various New York futures months through certain brokers, notwithstanding that we were long contracts for the same delivery with other brokers, but such tenders in no way lacked "bona fides." Thereupon Mr. Clayton enters into a considerable defense of that practice, undertaking to show that it was legitimate and that nobody was hurt by it. He does not, however, in his explanation point out the fact that is obvious to every person familiar with the futures markets, that when he issued these notices they were sluiced through the market and that they compelled all holders of contracts who had them for hedging purposes, or for any other purpose, and who were not prepared to take delivery of the actual cotton, to sell them out instanter in a mass; and that the obvious purpose of this kind of |