The Birmingham age-herald., 1908-05-04

find them. and any dealer can chal- lenge the accuracy of such quota tions, whereupon almost immediate correc- tion is possible. Similarly. arbitrators are bound to follow commercial diff ferenees in valuing cotton delivered ca contract URder the commercial diff ference system. therefore, errors in differences. whether due to manipula ton, to intentional misquotation, or to carelessness, can be and usually are very speedily corrected. In New York, on the other hand, if an improper re- vision is made in November, whether Intentionally or unintentionally, the differences established must remain unchanged for 10 months.
 While charges of intentional or un- intentional error in the quotation or the spot market or in the arbitration of the value of cotton in New Orleans are beyond question exaggerated, on the other hand serious errors have at times occurred Committees have at times undounbtedly failed to exercise proper care in establish ing quotations. Owing to the radically opposite views of buyers and sellers, dissatisfaction is bound to occur even if quotations were always absolutely acculate; but there is undoubtedly need of improve ment in the application of the conner eial difference system in New Orleans. Ii cannot be impressed too forcibly upon those responsible for the conduct of the commercial difference system that complete and faithful performance of their duties is absolutely necessary. In proportion as they neglect this re- sponsibility they discredit the system.
 Aside from it's tendency to disorgan- ize the future market and to favor the seller to the disadvantage of the buyer the fixed Indifference system is to be condemned on the broader ground that it violates fundamental commer- cial principles. The underlying prin- ciple of a basis mddling contract un- doubtedly is that the seller. instead of delivering middling cotton only, may deliver other grades in lieu of mid ding. These other grades must, cf course. be delivered on some basis. The natural basis unquestionably is their relative values compared with mfddling, at the time of delivery, as established in the spot market under the free working of the law Of supply and de- mand. This basis is historically the only one originally contemplated; it has been the only one ever seriously con sidered In New Orleans and Liverpoo,, the greatest spot markets of the world, and it was the only one seriously con sidered in New York for many years after future trading was established there. The fixed difference system was adopted at New York only after that market had ceased to be one of the large spot markets of the country.
 The relative values of the various grades of cotton, and therefore the diff ferences between tn ose grades and mid ding, vary as the result of natural laws. This fuctuation in the differ fe f fIa cotton market ass are fluctuations in the price of middling cotton itself. This being the case, there is no sound req son why an exchange should arrogate to itself the power to fix these diff ferences any more than it should as- sume to regulate fix the price of middlng cotton itself. Any such fix ing" of differences clearly is a defiance of the natural laws of trade. It is doubly objectionable because such fix ing of differences is left to a com mittee of men who may be, and some of whom usually are, heavily interested in the future market, and who thus are subjected to the tempation to fix diff ferences improperly in order that they may reap inordinate gains.
 Furthermore, since the New York re- vision committee Is practically unfettered by any restrictions-tha Is. since there is no established rule or standard to gov ern it's action-the cotton trade is com peled to guess what theory the revision committee will adopt as to it's duty; and in case it is believed that the committee will base its action the probable av- craze commercial differences of the en- sunig period rather than on the current differences, the trade must guess what the committees guess of that average will be. That great business like the cotton business, affecting, as it does. mill lions of producers and tens of millions of consumers, should be conducted on the basis of guesswork is preposterous.
 Advocates of the fiXed-difference sys- tenn, while admitting that the differences fixed by tine New York committee have often been at the time, or have subse- quenuy become, out of line with com mercial differences, have advanced the a-- gument that in the long run the arbitrary differences of the New York Cotton ex- change have averaged about the same as the commercial differences in southern markets. This argument means that diff ferences which may be radically wrong today may prove to be right or to err in the opposite direction, several months later. This argument, even if correct, is absurd The loss which one buyer of a future contract suffers through having to accept grades of cotton at an overvalua- tion or through an increased discount in the price of his contract due to such over valuation of grades, is in no way offset by the gain of some other operator due to subsequent readjustment of differ ences or to a subsequent reduction in the discount in the contractp rice. Abnormal fluctuations in the relation of the con tract price to the spot price are not less disastrous even if an average of them happens to correspond with what should be the constant relation. Instead, an ab- normal increase in the discount and sub sequent decrease in the discount are alike objectionable. The argument is on a par with that of the humorist who contended that although his watch lost an hour one day and gained an hour the next, 1t was still good watch because it averaged correct in the long run.
 The fixed difference system is, indeed, weak and unbusness-like effort to evade the risk of fluctuations in grade differ ences That risk clearly exists. 1t is not met by fixing the contract differences, since this merely increases by that much the risk of fluctuations in the contract price itself. The adjustment of contract differences according to commercial values is not only just and equitable in theory but tends to safeguard the interests of ali operators in the future market and particularly of merchants using that mar ket for hedging. The arbitrary fixing of differences. with the consequent read justment of the contract price, on the other hand, is not only inequitable and uncommercial in theory, but extremely mischievous in its practical results.
 It is clearly incumbent upon the New York Cotton exchange to readopt the com- mercial-difference principle, at least in it's broad outlines. Whether the com erciaI-difference system, in antiret.