running expenses of the exchange and keeps down dues. Why distribute it among a few southern shippers?

Yours, faithfully,

JOHN TANNOR.

PROTEST OF CLASSIFICATION COMMITTEE AGAINST THIS RULING.-The members of the classification committee of the New York Cotton Exchange, it should be said, while obeying this ruling of the board of appeals, did so under virtual protest. On the grade slips for such lots of cotton they entered the fact that it was passed under orders of the board of appeals, their notations in most cases distinctly stating that the cotton should have been rejected. These notations or protests were in one of the following forms:

One (1) under grade, should have been rejected. Valued at lowest grade called for on contract in accordance with decision rendered by board of appeals.

Certificate issued under instructions from warehouse and delivery committee at meeting held March 14, 1907.

с

One (1) bale low midg. stained.

This protest was termed by some members of the classification committee their "declaration of independence." One member of the committee said, in explanation of this protest:

The reason I signed those slips with that notation was to defend myself thereafter for calling cotton grades that I knew it was not.

Another member of the committee said:

I know we classed in some cotton, according to instructions, at the lowest grade in the contract, by orders of the board of appeals. That was written on the slip. I never signed a slip for cotton below grade unless that was written on it.

CERTIFICATION OF A SMALL QUANTITY OF INFERIOR COTTON A SERIOUS MATTER. In spite of this protest, however, the important fact remains that rejectable cotton went into the certificated stock. Furthermore, the table on page 42 shows that there were several thousand bales of cotton which, although perhaps properly graded by the standards of the exchange, were nevertheless extremely low in grade and distinctly unsuitable for ordinary spinning purposes, while a considerable amount undoubtedly was overgraded. There can be no possible doubt that the presence of this extremely low grade and overgraded cotton in the New York stock tended to discredit the entire stock. Members of the New York Cotton Exchange have been disposed to belittle these facts, on the ground that the percentage

a When the inspection fund exceeds $75,000 the excess can under certain conditions be applied to the general purposes of the exchange, amounts so used to be restored to the fund if needed.

Italics by Bureau.

c Such instructions being in accordance with the board of appeals decision.

of such inferior cotton to the entire stock was extremely small. Some even contended that the buyer of a contract would be indifferent to the possibility of receiving some of this cotton on a contract. Such a contention is absurd. There can be no possible doubt that the presence of this quantity of inferior, overgraded cotton, even though small as compared with the entire stock, had a tendency, so to speak, to poison the contract. It became more or less a lottery as to how many bales of such cotton any receiver might be unfortunate enough to have tendered him on any single contract. His position was, of course, the more dangerous because of the absolute option of the seller to select grades for the delivery. The influence of this cotton would necessarily be out of proportion to the actual quantity of it in the certificated stock. The New York Cotton Exchange, and particularly the members of the board of appeals who advocated this decision, have little reason to complain that the integrity of their certificated stock has been widely challenged. It should be stated that this action of the board of appeals was apparently in conflict with the wishes of a majority of the exchange, and that the practice of accepting cotton in this way was discontinued almost immediately after a new management was elected.

While the rules of the New York Cotton Exchange have thus provided that no cotton shall be considered as finally classed until passed upon by the classification committee, regardless of the decision of the assistant inspectors at the dock, they formerly provided that cotton which had been rejected by the assistant inspectors and subsequently accepted by the classification committee should always be considered to be at least equal to the lowest grade called for by the contract. This provision was contained in section 96 of the by-laws of the New York Cotton Exchange, which formerly read as follows:

All bales tendered and submitted for inspection, unless accepted by the sampler and assistant inspector, shall be regarded as rejected, but the owner of the cotton shall be permitted, if he so desires, to submit the samples of such rejected bales to the decision of the classification committee. If all or any of the samples shall be declared by a majority of this committee to be proper for delivery, said samples shall be taken in charge by the inspector or assistant inspector; each sample shall be bound with twine and a tag attached, stating that it has been passed by the committee, and it shall be placed (tied up) with the balance of the same lot (if any); and when a lot containing such samples shall come before either the classification committee or appeal committee on classification for classification, such samples shall be considered to be at least equal to the lowest grade called for by the contract.a

There shall be no appeal on rejected cotton from the decision of the classification committee, either by the owner of the cotton or by any other party.

a Italics by Bureau.

The last two clauses of the first paragraph of this section-that is, the words from "each sample" to "contract," inclusive-were stricken out by vote of the members of the exchange, the change taking effect on September 7, 1907.

Section 7. More rigid classification of cotton under the subsequent management of the exchange.

From what has already been said, it is clear that the classification of the inspection bureau has been more rigid since its reorganization in 1907 than it formerly was. Although members of the classification committee asserted that they had not consciously raised their ideas of classification, the abnormally heavy rejections of cotton previously certificated, discussed in section 5, are conclusive evidence of a more rigid classification. Moreover, it was asserted by various shippers of cotton to the New York market that the classification was more rigid in the latter part of the crop year 1906-7 than in the earlier part. A cotton exporter of Savannah, in June, 1907, said on this point, in substance:

Previous to the last four or five months their contracts [that is, New York contracts] were not what I would consider good. If a man taking up cotton on contract bought futures and demanded the cotton, he would not get what he paid for. Last November I delivered quite a little cotton on contract in New York, and I made the remark to my shipper that there would be quite a number of rejections. After the cotton was delivered (about 800 bales) we had only 7 bales rejected-a lot of punky stuff; and not a bale of this cotton would have passed the New Orleans classification, and very little of it would have passed in Liverpool, in my opinion. It was low-grade, unsalable stuff-stuff that we do not run in our regular shipping marks at all. Since then they have gone to the other extreme, right the other way. They were too liberal in the seller's favor; now they are just that much too hard, and anything that has been delivered on contract during the past three or four months is worth the money, and more, too. One reason which may account for the change is that Mr. Price has been getting after them, and another reason is that the South was full of low grades and they stiffened up to keep this low-grade cotton from coming there on contract.

* * *

A member of the New York Cotton Exchange also expressed the opinion that the committee was distinctly more rigid than it formerly had been. He said, in substance:

I am inclined to think that it was more rigid. Naturally, they had seen nothing but low-grade cotton for months and months, and it is only human nature that they should have become a little more rigid, especially with the injunction proceedings going on here. They were scared, and I think they were more rigid in their classing than they have ever been.

In this connection, it may be noted that in the summer of 1907 some 30,000 bales of cotton were shipped from Liverpool to New York to be delivered on contract, owing to a squeeze then existing in the New York market. A member of the New York Cotton Exchange who received some of this cotton said that in his opinion there were in this total of 30,000 bales several thousand bales which had previously been in the New York certificated stock. Of this cotton. a considerable portion, he stated, was rejected by the classification committee. He himself had received over 2,000 bales of the cotton, of which something like 1,000 bales had, he said, previously been certificated in New York. Of that thousand bales, at least half, he stated, were rejected when resubmitted for classification in New York in 1907. This member of the exchange expressed the further opinion that the committee, instead of being too lax in its classification in the early part of 1907 and previously, was in the latter part of 1907 too rigid.

CHAPTER II.

ALLEGED SEVERITY OF NEW ORLEANS CLASSIFICATION.

Section 1. General charge of undue severity.

In contrast with the complaints above recited, that the classification by the inspection bureau of the New York Cotton Exchange is too lax, the charge has been made that in New Orleans classifications by arbitrators as conducted in connection with the application of grade differences are unduly severe. Numerous complaints of this character were made by members of the New York Cotton Exchange, some of whom had shipped cotton from the New York certificated stock to New Orleans for delivery on contract in that market. Many of these complaints were really based on nothing more than hearsay, comparatively few merchants in New York having shipped cotton to New Orleans for delivery on contract in recent years. Complaints of the same nature were, however, made to agents of the Bureau by merchants in the cotton belt, several of whom severely condemned the New Orleans basis of classification. Furthermore, the same opinion was expressed by some members of the New Orleans Cotton Exchange itself. The following statements on this point are representative:

A merchant of Memphis, Tenn., said, in substance:

Theoretically, New Orleans adopts the same general classification as New York, but in practice the grading in New Orleans is much closer than in New York and is much less fair to the seller than is the New York grading. It is undoubtedly true that the seller has some advantage in the New York classification, but it is not equal to the unfair advantage given to the buyer in the New Orleans classification. New York is a seller's market: New Orleans is a buyer's market. Putting this in another way: The New York exchange is the farmer's friend and the New Orleans exchange is the spinner's friend."

An exporter in New Orleans said, in substance:

The classification of cotton in this market, if anything, is too severe. This tends to discourage deliveries of cotton on contract. The other side of the matter is that a market in which it is easy to deliver cotton is a bear market.

Another merchant in New Orleans said, in substance:

The holder of cotton who proposes to deliver it upon contract in a year like this [1906-7] will find the New York market the most desirable in the world. On the other hand, the purchaser

a See page 170.