American cotton everywhere in the world was falling off, that foreign growths of all kinds were being substituted for American, and that we were pursuing in general a suicidal policy.

Now, that propaganda, the head and front of which was the firm of Anderson, Clayton & Co., had tremendously affected the minds of the entire cotton trade. In particular it had affected the minds of everybody who might conceivably trade in cotton. It had affected the minds of spinners in this country and abroad, and there was a practically universal disposition on the part of everybody connected with the trade to buy only from hand-to-mouth, to buy American cotton from hand-to-mouth, to proceed on the policy that the American Government was licked in its campaign, that it was all going to be abandoned, and that cotton would necessarily go very much lower.

In assistance of this campaign statistics were brought to bear. Now, there is an old saying that there are three kinds of lies-lies, damned lies, and statistics. I have never known a better illustration of the accuracy of that saying than in this propaganda. The fact of the case was that the statistics, properly interpreted, did not bear out the contention that we were in any danger of losing our place in cotton production or in the use of American cotton by the world's spinners. It is true that the statistics seemed to indicate, and to a certain extent did indicate, an increase in the foreign production of cotton, and they did at the time indicate a turning of the spinners of the world from American cotton to this, that, and the other foreign growth. But the statisicians, those of the Department of Agriculture and those of the New York Cotton Exchange, became obsessed with this notion, that the policy of the American Government in regard to cotton was promoting the production of cotton in foreign countries to an extraordinary extent and was largely responsible for the substitution of foreign growth for American.

If you will follow the statistical outgivings of the Bureau of Economics in the Department of Agriculture, and of the New York Cotton Exchange service, through 1934 and early 1935, you will find that those statistical authorities, so-called, are continuously playing up the necessity, the economic necessity, of this so-called expansion of foreign growths at the expense of American.

Now, the extent to which that was carried and the extent to which it affected the minds of the trade it is very difficult to estimate. For example, the statisticians laid great stress on the extraordinary increase in the production of foreign cotton. They did not tell us how they were arriving at their figures. They pointed out that between 1920-21 and 1934-35 there had been an increase of 5 million or 6 million bales in the production of foreign growths. They did not tell us that 2 million bales of that was due to Russia alone, that in 1920-21, according to their figures-which I do not believe-Russia produced only 58,000 bales of cotton, and that in 1934-35 she produced 1,990,000 bales of cotton.

Now, that was all fallacious, the use of it was fallacious, and it was improperly interpreted by the trade and by people engaged in the distribution of cotton and cotton goods all over the world.

In the same way, we have them showing an extraordinary development of the production of cotton in China. In China, according to

them, the production of cotton in 1920-21 was only 400,000 or 500,000 bales. In 1934-35 it was 2,200,000 bales. Well, nobody who has sought for information about cotton production in China believes for a moment that there was really any such increase in the production of cotton in China. The truth of the matter is that the production asserted to have taken place in 1920-21 did not represent the production. It represented only such cotton as drifted into the Chinese ports, and probably that figure was not correct.

If this kind of statistical propaganda goes on, we are going to have some clever statistician in the near future discovering that because the Chinese people use only cotton-padded garments to protect themselves against the cold, and that the quantity of cotton required to produce those garments for a population of over 400,000,000 people is 4 million or 5 million bales of cotton a year, therefore the production of cotton has suddenly jumped 4 million or 5 million bales all at the expense of American cotton. That is the kind of reasoning that we have in connection with this statistical propaganda.

There was a similar situation in Brazil. At that time the most extravagant prophecies were being made about the enormous increase in the production of cotton in Brazil, how Brazilians welcomed the umbrella which the American Government was holding over the price of cotton and were taking advantage of it and that there was no limit in sight to the production of cotton in Brazil.

Well, that bubble was pricked later when it was discovered that the early predictions of the Brazilian Government had been at least 600,000 and probably 700.000 bales too high, that the cotton merchants in Brazil had sold the Brazilian crop on the basis of the estimates and were unable to get the cotton to fill their commitments, and, therefore, had to go to the President of Brazil and explain that they had made these sales on the basis of the Government prediction, that the prediction had been inaccurate, and what were they going to do about these contracts that they could not fulfill. It was suggested even to the President of Brazil that they could not contend against nature and there ought to be some way of calling off the contracts.

All this was happening in the last months of 1934 and the first months of 1935, just before this break of March 11.

Then, to add something to the confusion the manager of the producers' pool started in December selling cotton from the producers' pool. In December, January, and February, that is, 1934 and 1935, the operations of the producers' pool were as follows:

In December the pool sold 74,458 bales of spots and 152,300 bales of futures.

In January they sold 168,373 bales of spots and bought 82,100 bales of futures.

In February they sold 155,759 bales of spots and bought 147,300 bales of futures.

The totality of that business was net sales of 321,490 bales during that period.

The effect of those sales by the producers' pool upon the market situation was very great. It was very great because it was instantly rumored and reported through the market that the officials of the Government were convinced that they had been wrong in their whole program and were getting out. This was the beginning of the liquidation of all the Government cotton.

It is true that after January the pool bought in futures practically as much as it sold in the way of spots, but the damage had been done. The selling of that cotton by the pool in December in particular shook the market, shook confidence in the market, and the trade very generally had visions of that whole flood of Government cotton coming on the market.

At the same time there were intimations, where they came from I don't know, but there were intimations that the whole program of the Government was to be either abandoned or completely modified.

It was at that time that we first began to hear that the 12-cent loan program was not to be carried out into the year; that the A. A. A. was either going to abandon the loan policy altogether or that it was going to cut down very substantially the amount of the loan for the coming crop. Now, where those intimations came from, as I say, I do not know, but their effect running through the market was very great.

The trade, therefore, was in a state of mind to become panicky on any failure of the market to hold. More than that, there is no doubt that the spinners, who had up to that time been inclined to buy cotton at the 12-cent level or thereabouts, or a little above the 12-cent level, came to the conclusion that, under all these conditions and with these possibilities overhanging the market, they had better pull out their buying orders, they had better not price any more cotton for the time being, and the market was accordingly left toward the end of February and early March in a very vulnerable condition.

This is, as I see it, the immediate story of what happened to bring about the sharp break on March 11, but the true causes of it are much deeper. The true causes of the break on March 11 are to be found in the shattering of the fabric of the cotton market by the huge manipulative operations of one kind and another which had been going on for a good many years. It is a matter of record before this committee that the volume of business done on the New York Cotton Exchange, and on the New Orleans Cotton Exchange too, for that matter, has tremendously decreased in the past 7 or 8 years. The figures have been to some extent read into the record of this investigation, but for the sake of having them all together in the record I should like to submit the statements which Mr. Gilbert has received from the Treasury Department, covering the volume of transactions on the New York and the New Orleans Cotton Exchanges from 1916-17 down to the present time.

The CHAIRMAN. You may put those in the record. Do you desire to read from them?

Mr. MARSH. Not at the moment, Mr. Chairman, although I do want to use them in the course of my testimony later.

The CHAIRMAN. All right.

(The papers referred to follow :)

Mr. JACOB H. GILBERT,

Hotel Mayflower, Washington, D. C.

TREASURY DEPARTMENT, Washington, March 16, 1936.

DEAR MR. GILBERT: In reply to your verbal inquiry this afternoon, there are submitted herewith figures showing, for the New York and New Orleans Exchanges, the volume of trading in contracts for future delivery of cotton by crop years, beginning August 1, for the period 1916-17 through 1934-35, and by

months for the 1928-29 and 1929-30 crop years and since August 1, 1935. These statistics are compiled from information received by the Bureau of Internal Revenue in connection with the payment of tax to the Federal Government on sales of produce for future delivery.

Source: Reports by exchange to Commissioner of Internal Revenue.

TREASURY DEPARTMENT,

Washington.

Mr. JACOB H. GILBERT,

Hotel Mayflower, Washington, D. C.

DEAR MR. GILBERT: In accordance with your telephone inquiry to the Division of Research and Statistics on March 18, there is attached hereto a table showing, for the New York Cotton Exchange, the volume of contracts for the future delivery of cotton, by months, for the crop years 1920-21 through 1925-26. These figures supplement the information given you in my letter of March 16. Very truly yours,

HERBERT E. GASTON, Assistant to the Secretary.

Volume of contracts for the future delivery of cotton, New York Cotton Exchange, by months and crop years, Aug. 1, 1920, to July 31, 1926

DEAR MR. DAY: This will acknowledge receipt of your communication of March 17, requesting certain information regarding limitation of interest, which I have given my personal attention. I am enclosing a complete summary of the limitation fixed by the board of managers from the time section 114 of the bylaws went into effect to date. From this statement, you will note that I have given you the dates when the limitation was fixed, the amount of limitation, and the months covered.

I hope that this will give you exactly what you want.
Sincerely yours,

FRED F. KUHLMANN,
Assistant Secretary.

P. S.-Section 114 of the bylaws (limitation of interest) was adopted by a ballot of the members held November 16, 1928, to become effective on new contracts traded in on January 2, 1929.

DATES UPON WHICH LIMITATION OF INTEREST WAS FIXED BY THE BOARD OF MANAGERS

January 3, 1929: 250,000 in any one month for any member, firm, or corporation and his or its affiliations.

July 11, 1929: 250,000 in any one month for any member, firm, or corporation and his or its affiliations.