It will be seen, therefore, that those members of the New York Cotton Exchange who attempt to defend permanent differences on the ground that such a system is the ordinary rule of trade are seriously in error. From the very nature of things it is apparent that the buyer of a commodity will not consent to accept basis deliveries at arbitrary differences unless he is forced to do so. The proof of this is the enormous amount of criticism of the New York contract by merchants using that market. It has been argued by members of the New York Cotton Exchange that the cotton merchant need not trade on that exchange if he does not like the contract. This argument was fully met in Part I of the Bureau's report. If the New York Cotton Exchange proposes to take this arbitrary attitude, it may or may not find that it is strictly within its legal rights; but if this is its attitude, it should at least so state clearly and frankly, so that all in the cotton trade shall understand this position of the great central exchange that now seeks their business.

a See pages 336-338 of that part.

CHAPTER VI.

ANALYSIS OF COMPLAINTS AGAINST COMMERCIAL-DIFFERENCE SYSTEM.

Section 1. Assertion that commercial-difference system has not worked better in practice than the fixed-difference system.

ALLEGED INFREQUENCY OF DISPARITIES BETWEEN SPOT AND CONTRACT PRICES UNDER FIXED DIFFERENCES.-Notwithstanding the unfairness of the present New York system of arbitrarily fixing differences twice a year, and also of proposed permanent differences based on so-called "spinning outturn," many members of the New York Cotton Exchange are disposed to defend one or the other of these systems. One of the principal defenses offered is that the evils resulting from the fixed-difference system have been exaggerated, and that, despite the fundamental objections to that system, it has on the whole worked substantially as well as the commercial-difference system. This contention is put forth with special reference to the maintenance of a parity between the spot and contract prices.

In this connection the following excerpt from a statement by a member of the New York committee to a witness may be cited:

It is clear from what you say that from your point of view it is highly desirable to have the price of the basis middling contract pretty close to the price of middling cotton. I suppose there is no one in the New York Cotton Exchange who would not agree with that proposition. As a matter of fact, taking the past thirty years, or twenty-seven years, * there have, I think, been only three years when there has been any wide variation between the price of middling and the price of our contracts, and one of those years was back in the nineties and the other two were the past two years.

*

Another member of the committee said:

If you eliminate 1906, that famous storm year, when the calculations of any human being were put topsy-turvy, our prices for contracts for the current, or the next current, month were pretty nearly the same as the prices for spot cotton. It is only since 1906 that the calculations were upset and that these unfortunate differences have existed and are still there to-day, more or less; but before that time that question was never raised.

a See page 216.

This is an understatement of the frequency of disparities between spot and contract prices at New York. Such comparisons should not go back twenty years, since during the period from 1888 to 1897 the New York exchange provided for monthly revisions during the active crop-moving season, so that it was not operating under what is termed the fixed-difference system. The practice of holding but two revisions a year dates from October, 1897, and therefore covers a period of only about twelve years. Instead, therefore, of a disparity in only two years out of twenty or thirty, there have been pronounced disparities in two years out of twelve, and more or less serious disparities in several other years of this shorter period. This is clearly brought out by chart 1, opposite page 39.

Another very important matter overlooked in these statements is that the mere possibility that such disturbances may occur tends to disorganize the future market. While pronounced disturbances of the margin may occur only at very infrequent intervals, there can be no assurance, so long as differences are arbitrarily fixed, that they will not occur at any time and thus impair the value of contracts. This contention that serious disturbances have occurred only at infrequent intervals, therefore, even if it were correct, is by no means a satisfactory answer to the complaints under consideration. It would be about as logical to argue that if the Government were to move Nantucket light-ship every few years, giving no notice as to when such removal would take place or where the light-ship would be placed, shipowners and the traveling public would, simply because such removal was infrequent, have no reason to complain, even though such arbitrary shifting of the light-ship's position should result in enormous disaster.

BETTER MAINTENANCE OF PARITY AT NEW ORLEANS THAN AT NEW YORK. It was conclusively demonstrated in Chapter IV of Part I that the New Orleans system has preserved a much more nearly constant parity between the spot and the contract price than has been maintained at New York. Several members of the New York special committee, however, frequently referred to the occasional disturbance of the margin in New Orleans in such a way as to give the impression that these disturbances were substantially as violent and frequent as those which have occurred at New York. Thus, at one session of the committee a member said:

The New Orleans contract has a commercial difference, revised daily; so has Liverpool; yet even-running spot cotton is selling as much above their current contract as it is in New York. Again, at a later session, another member of the committee said:

Now, as this committee has investigated this subject, it has been confronted first by a fact-the fact, namely, that in neither New Orleans nor in Liverpool does this method of constant