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THE STATE WAREHOUSE I COMMISSIONER'S REPORT j ' KECOMMEXDS ELECTION OF (O.tt 3fISSIO>ER BY THE PEOPLE. M'hat the System Has Accomplished?. Matters ot Vital importance to the Farmers. Special to iThe Herald and News. Columbia, Jan. 13.?Following is a synopsis of the annual report of the state warehouse commissioner, Senator Jno. L. McLauren, to the general assembly. Gentlemen of the General Assembly: This is the first time that an annual j report has been made on this adven-' ture in democracy, the state warehouse system. Last year when the legislature met there had not 'been time to organize, and the report only covered a few weeks. J. xi-t? oujeui Ul IUC SrJ'iX.cm 113. , 1st. To establish the character of; the warehouse receipt as a collateral j for loans. 2nd. To cheapen the cost of storage! and to localize it as far as possible, keeping the cotton where it was grown, so as not to deprive the community of j an asset in the shape of the money borrowed on the receipts. 3rd. To institute a proper system of grading cotton. 4th. To organize and maintain machinery which will render it possible *n Rftll.' rot.ton direct from the farm to the manufacturer. Last iMarch found the people of the! South in a position where it was al- j most impossible to borrow money on I cotton. I went North, accompanied by I Senator J. <A. Banks, to take up the j matter with the federal reserve board, j and with the large financial institu-l iions in New York. Mr. W. P. G. Harding of the federal reserve board gave me letters to six of the largest banks in New York, a copy of which I here with submit for .your information: (Here Senator McLaurin cites the j letter of jMt. Harding characterizing th.e state system as a model system, and also the statement whicn he issued upon his return from New York as to what he accomplished.) Threatened Danger to 1915 Crop. Upon the approach of the 1915 crop, with the blockade of ocean transportation, and Aith a surplus from the 1914 crop added to the new crop, it was evident that unless something were done we would be in a worse condition than during the previous fall. I tookj the matter up with President Wilson and other authorities in Washington. The following letter from the president explains itself: President Expresses Pennine Interest'' The White House, Washington. Cornish, N. H., August 7, 1915. My Dear Mr. McLaurin. Your letter of August fifth has been forwarded to me here and I have read 3* cr.a?tn'na finding it verv I suggestive indeed. I shall hope to discuss with those who understand these matters better than I do the feasibility of carrying out your suggestions. Sincerely yours, Wood row Wilson. Hon. John L. McLaurin, State Warehouse Commissioner, Columbia, S. C. President Wilson gave Mr. Harding / . of the federal reserve board a letter, which was read in Birmingham, Ala., and which was widely published in connection with the speech made by Mr. Harding, (This was followed, in a few days, by a statement from the sec- j ertary of tSie treasury, in which it was i announced that sufficient funds would j he deposited in the federal reserve ! banks to insure -the holders of cotton being able to borrow money on warehouse receipts at a rate of 6 per cent. As to- tlre' respect which the state warehouse receipt enjoys, and the part which it has played in securing this 6 per cent money for the fanners of South Carolina and of the South, I quote the following among the number of fetters wmcn i nave receiver; (Here Senator McL&urin quotes letters of endorsement from ?ne secretary of the treasury and the National City bank of New York.) The South Carolina Bankers. There are many patriotic bankers in South Carolina who have given hearty encouragement and sup-port to the :state warehouse system, and in this connection. I desire to quote the. fol- j lowing sentence from a letter written to me by Mr. Ira B. Dunlap, vice president and casfnier of the National Unionbank of Rock Hill, which is one among ~ 1 ' J a number that I hare received along ' this line: , . 7 "From the first, we have always I thought well of state warehouse receipts, and the more I learn in regard to the plan, the better I like tkem. I think so "well of the state warehouse receipts that I would like to see all of our warehouses in this system. I would preffer^&tndflbg statfcv:^re3fii&?# ^receipts, witb the advantages they offer, fe our regular warehouse receipts." .v0.,. .In the very beginning, Mr. Joseph Norwood of the Union National bank, this city, came to my relief in the matter of loans on state receipts, and 1 can not speak in too high terms of the generous support which he has accorded. Mr. C. G. Rowland of Sumter, Mr. B. C. Miatchews of Newberry and ot'ners have also shown every disposition to give proper support.. (Character of Receipt Established. I feel that the first step towards j making the system a success has been j 1 - 1 ^ Avvv-wt Ko ci c ! L3.K6n DV esiauiismug vu a. mui utiojs) i the -character of its receipt; and that! we have succeeded, with cotton at 12 j cents, in establishing 175 warehouses } in the state is a sufficient assurance of the rvalue which the farmers place on a means to store their cotton at home, saving the expense of freight and high storage rates, and with a receipt w'nich enables them to secure money at 6 per cent?and some of them, when borrowing large amount^, at 5 per cent. At the time of writing this report, between the 25th of December and the first of January, there are approxi^A AAA Kolno /-vf ATI Rtnr- ! IliitLClJ uu,uuu ua.iv,o vi age in the state system, and approxi-j mately 75,000 bales have been handled. In other words, the state system, during tne first seasoA of its existence, has handled and is handling about $4,000,000 worth of cotton, with cottbn fluctuating between 11 and 13 cents. It is safe to say that nine-tenths of ( the state receipts issued upon this cot- j j ton have been used as a collateral for; borrowing of money, or as security in ; / some form against liability or investment. Up until the establishment of the state warehouse system 6 per cent I money was practically unknown in South Carolina; certainly it had never been secured by those whose labor con- j stitutes the real wealth of the state, j Nominal 8 per cent discount, but in i reality 9 and 10 per cent interest, was! the rule. A conservative estimate ofthe saving in interest which has re- j suited from the use of the state warehouse receipt is 3 per cent. The state receipts now outstanding represent securities of some $3,000,000. The interest on this amount of money borrowed, on a yearly basis, before the use of the 6tate receipt,-would have totaled at least $270,000. With the state receipt as a collateral, this interest is reduced to not over $180,000, a clear saving in interest alone, in a year when the price of cotton from the very first was not conducive to a holding movement, of $90,000; and this does not include the moral effect of 6 per cent money on other forms of collateral, and of stabilizing the price above the cost of yi v/u uv,uvu. I Redaction In Cost of Storage. As to the expense of storage in state warehouses, as compared with corporate or privately owned warehouses, I submit a letter from Senator J. A. Banks, showing the exact figures, and giving an indication of the enormous amount saved to the farmers of South Carolina by low storage rates, made possible through the reduced insurance selected by the state warehouse system, and the plan adopted of keeping the cotton in the community where it is grown. Grading. The state warehouse law under which I am operating is not the measure that I advocated before the general - L" 1 T ! <LSS" MQ01 y III1? ue&i piau. * v. to call your attention to the act prepared by Mr. E. W. Dabbs and myself, at the request of the State Farmers' union. I am more convinced -now than | ever that this is a more scientific | plan. Take the grading of cotton, for I example. There can be j^jioubt that j I the farmers of South Carolina lose I thousands of dollars,each year by the ! undergrading of cotton. We have sworn weighers; why ndt sworn graders? The idea in this Farmers' Union bill was a fee of 25 cents on every bale of cotton [grown or offered for sale in Sou/i Carolina, which would pay for weigh| ing and grading, this fund to be used in the development of the state warehouse system, being entirely at the expense of the farmers themselves. Under this plan we could organize a system of state insurance, in co-operation with | the sinking fund commission, -which | within five years would not only re- j duce greatly the cost of insurance, but' would show a profit of thousands of dollars to the state itseif?not money taken away from the people of the ' state by the state, but money kept at home which no wgoes to enrich the states of the North, East and West. iTihe saving to the farmers, in one particular, may be estimated as follows: |> Every bale of cotton graded in South Carolina, under the local system of grading, is classified at least one grade , under the standards fixed by the United : States government, a loss ranging; - ?. i I from 24 to 50 points, depending upou > the grade of cotton. Twenty-five points loss would be a very -low average. This los? amounts to at least $1.25 a bale. I i Peduct from this the fee of 25 cents i levied by the Farmers' union bill, and J $<?r iSave a net saving* 6t one dol-1 ilar on every bale of cotton sold in South Carolina, or an annual net in-! ' ' * .-V .. 'V 1 crease in the selling price of the crop of between a million and a million and a half dollars. The legislature, of course, would have to adopt the Stan-; dards fixed by the federal government, j and enforce these standards in the 1 state. As it is now, if the state ware- i house cotton were graded according to ; the federal standards, as the act re-1 quires, its classification would be ai grade above the general local classifi-! cation, ,and without a law enforcing! these standards in this state, it would ! have to be sold at one grade less than j the state guarantees. ?This very fact, however, until the; state enforces these standards and \ nrnviHos. fr>r a nrnnAr svRtpm nf ersd-i ~ " o i ing, is an ample protection to the state in its guarantee of grades. The act1 provides "that the state warehouse commissioner shall accept as authoritative the standards and classifications of cotton established by the federal government," and of course the guarantee of the state as to the grade must be construed in the light of this section of the act. Therefore, in its guarantee the state always has a margin, under the present system of from 24 j to 50 points, the cotton being graded and guaranteed under the standards we are forced to sell at'now, whlcb, as pointed out, are a grade lower t'nan j the real legal grades, giving the state j the advantage of this big margin of i at least $1.25 a bale. ' 1 earnestly recommend that you pass an act adopting the federal standards for the state a.t large, along the line of the Farmers' union bill, which would give an adequate fund for the employment of expert graders, which is totally lacking now, and which would amply protect the state, and net the cotton growers over a million dollars a year, which is now simply taken from them under the same method as that employed by fhe ordinary highway robber. I submit for your consideration a measure to provide for the grading of cotton in Soutk Carolina. Direct Sales. In view of the war raging in Europe and upon the seas, I. have made only, one attempt to sell cotton direct, and I find that this is only possible on a I large scale. It is not an easy thing j to invade the -established business methods of a century; but I am satisfied that, had it not been for the war, I would have been able to perfect ar- j rangements along this line. I have; established some connections througn which, in the future, I am confident that it can be done. The commissions on the sales of the cotton now on stor- [ age would reimburse the state several times over for the whole amount which it nas expended upon the establishment and maintenance of the state ??3.ICliVUCTT Insurance. The insurance feature has entailed a | very difficult task. Starting as we did in the midst of the cotton season, most of the cotton on storage in the houses which we took over had already been insured locally. We found solidly uniform rates. The rate for country cotton was $3.50 per hundred dol-lars, and . in some instances as high as $4. This, in our judgment, was exorbitant and oppressive. We began a fight for lower rates, an^the comparative statement of rates submitted in this report show9 what has beeni accomplished along this line. /The country rate of $3.50, with short term cancellation, has been reto $1.53-with pro rata cancella tion, the pro rata cancellation in itself being an additional saving of about 33 per cent. Other rates have been substantially reduced, and we expect to secure a still further reduction of 25 per cent. At first we attempted to work thrtfugh the regular channels, whicb gave a reduction of 10 per cent in favor of state controlled warehouses. We soon found, however, that the rates \ enforced by the great insurance trust known as the Southeastern Underwriters association were practically " '? a At- - - J <r proniDitive 01 tne auivjAu ^wi iu& of cotton. Their enmity was incurred by our efforts to lower the rates, and) one of the large agencies located in the city of Columbia, with which we were doing business; refused 'longer to carry the country risks or to cover cotton in the vicinity of Sumter, which had been parcelled out, as territory is parcelled out under this combination, to the Sumter part of the organization. I desire to quote you the following letter, a copy of which was sent me on Saturday night, during March, 1915, after the close of business hours. Cotton Insurance in and Around Sumter, S. C. 3-26-15. Mr. A. fW. Bollin, J. H. Bollin & Sons, Columbia, S. C. Dear Sir: We are advised that Mr. H. D. Barnett of Sumter S. C;, was notified by the state warehouse commission, under date of March 20th, to off art t'naf his cotton had been insured in the Colonial Fire Underwriters. We further understand that other parties at Sumter, or points near there, namely, Messrs. Thomas WilcpA; F. K. Holman> C. G. Rowland, G, X Lemmon and L. D, Jennings, have either been quoted rates for insurance on .their cotton, or have been notified that th.ir insurance has been placed in the Colonial Fire Underwriters. Th^re is fo:hp misunderstanding about the insurance which it is stated has been placed, as this office has not issued any binders of policies io any c f th;* parties named, nor have we bt-en requested to do so. Under the circumstances, therefore, we would suggest and request that you immediately correct tiu- impression which ivlir. Barnett and others may have gained, ~ tho offw-r that thf-v are nrotected bv L W liAU v J- - this company, as such is not the case1.V3 indicated to you last week in conversation in our office, and again over the phone today, we are not willing to in Sumter, or the territory around or further say that we will not be in position t:> assume any liability on cotton in Sumter, or th<- territory around or adjacent thereto. Yours truly, j Edwin G. Seibels, Manager. ! As a matter of fact, I did have binders on the cotton, signed by the Seibels agency, which was ample protection, but in order to be on guard in the mat- j t^r nf th^ cancellation clause, it was j necessary for me to make other ar-! rangements, which I did. I desire particularly to call your at-! tention to the last paragraph in the, letter above quoted, which speaks for! | its-elf in regard to the parcelling out of, j territory by the insurance combine.! j They do not allow one agent to go into ; another agent's territory, but give eaclij ! a complete monopoly. j ; Now that we have secured the cheap-1 j er insurance, on a pro rata cancella-; j tion basis, they are offering to write it at the same rate, and have done so, in some instances; so that it may readily be' seen how great has been ^x fa o.reifim in ! tne morai eueci oi reducing insurance rates generally in the state. I had prepared a report, from my records, giving the details of this war which has been waged against us by the insurance trust, but I have refrained from embodying it here because I do not care to do anything to injure the various individuals employed by these companies, and who have to obey their mandates. A great many of these gentlemen I know personally, and others I know by reputation; and for many of them I entertain the highest respect, and I know that they are not individually responsible for the condition which is prevalent. If this legislature desires to look into this trust, composed of 82 compa i nies, in clear violation of the federal law and of article IX, section 18 of our own state constitution, and of our statutes in conformity therewith, I am prepared to furnish them all the information in my possession. I would not drive these 82 companies out of the state, but they should be made to obey the law, and the iniquitous combine which they have entered into should be dissolved. I have succeeded in securing probably" the most advantageous insurance arrangements in the history otj cotton insurance. . In view of the persistent fight against ue in this regard, backed by unlimited millions of dollars, I have felt that a more complete report an>u6 this line than I am making would only result in placing in the hands of our enemies information which they would employ in the attempt to crush the companies with, which we have made our arrangements, and in this connection I. beg to submit a statement from the insurance commissioner, which was published in the daily press on the morning of December 22, and a personal letter which I received from him. If the general assembly, in its wis"N dom, should see fit to appoint a committee to look into, this feature, I should be glad to confer with the com---? *?~ fWaiics with them. miuee anu iu gu iuw UVVM4W * , but, in my judgment, for the reasons stated by the insurance commissioner, I have confined myself to a general outline of our insurance methods, with, the assurance that the cotton in state warehouses is amply protected each day, at the( market value of -the cotton. A Process of Evolution. It must he remembered that any change in the system of handling the cotton crop which interferes with the profits of middlemen invites a bitter fight by those affected. It is a truism that under existing conditions the spinner pays the maximum price for cotton, while the grower receives the minimum price, the profits of the industry being largely distributed among the middleman, who stand upon the highway between the grower and the spinner. The spinner is not interested in the middleman, but his existence is fatal to the grower. I ? I have no wish, in the compass of a report to the legislature, to detail the trying experiences whicii this office has met, and have confined myself entirely to giving you such data as is necessary to a full consideration of the subject, and suggesting such amendments to the law as I think advisable, after an '" i-- -- expreience or loun^ea uuuimc, I realized at the outset that it was an experiment in government, and that I could only proceed safely by no at r f tempting too much at once. It lias | been a process of evolution, not only | ! tor the system, but for all those con-; nected with its management. It has j not passed beyond the experimental stage, and demonstrated the practica| bility of successful operation. I regarded the small fund appropriated by j rha I aonsifltiirp as anart lareeiv for i the purpose of conducting a vitally im- j I portant governmental experiment. At; the end of the year 1915, its nrst year^ | of operation, i think, if you will con| sider the figures, you will agree with 'me, that at the end of the year 1916,' i when the cotton on storage is deliv- J ; ered, it will pay back to the state the 1 i amount expended upon it, making it j | self-sustaining, and that it will then j | begin to pay back a sufficient amount i to reimburse the state for every doi-; I lar expended upon it from its incep- j j tion. We have been put to consider-! | able extra expense in reducing insur- j ' aice rates, and we have not charged ; | those getting the benefit of our blanket | policies and pro rata cancellation anyj thing at all for the services rendered ' A small commission from this source, - which should be charged when the inj suranee plans have been entirely pefected, would go far towards supportr ing the system. Permanent Borne Needed. In order to protect th-e liability of the] state, all of the negotiable receipts are signed manually with ink by fnej state warehouse commissioner. The j receipts, made out by the local man-j agers, are sent to the office along with j a daily report, showing the number of , tag, weight, marks and grade of each ; I bale. A representative of my office | is on the. road constantly inspecting these warehouses to see that the num ber of bales reported corresponds with j the number on lhand. We are careful j as to the character of the men w'no are ! appointed managers, and take a bond j from them to guarantee the delivery : of the cotton and the weights and j grades. After fourteen months' of ex| perience, I am glad to report that we ha>e not had the slightest trouble m j this respect. .. If the state is going to continue the ! system, it should have a permanent I "home, where the records can be kept 9 j and permanently filed. iWe are located | in the old state dispensary building, where we hare two large vault?. It is essential, to protect the state, and to protect the holders of cotton in the J | matter of insurance, that the reports I should be kept on file where there is J no danger of fire, and it requires a j great deal of space to do this. Fur.1 :f -n-n ofa nvor tf\ P-S j LLlt?I JLLlUi V, il nc ?iv 0 0 ?. I tablish a system of direct sales, we j must have a concentration point for I export cotton. It must be remembered .hat cotton is distinctly an ex-, j port crop, and that the price of the | cotton exported fixes the price of that which enters into domestic consumption. Compressed cotton, as well as warehouse room for sorting it, is necessary. In my last report I called attention to the old state dispensary property. This property was sold by the sinking fund commission, and- only o emo 11 rw-vrtmn nf the- Durchase money Ia OUXUiA ?. ? 4. _ has ever been paid. I have discussed | the subject with the parties owning jthis property, and I know that the state could get it back with only a small actual expenditure of money. I sug' gest the advisability of an act directing the sinking fund commission to acquire this property, provided the terms are not extortionate. t I Compression of iCotton. I am not urging, as I did last year, the purchase of a recompress, because I find that -there are several plants which, could be leased or utilized at so j much per bale. H5le scientific solution I is compression at the gin, and I have j been investigating a gin compress i which can be put on the market at j i $1,500, giving a greater density per cubic foot than thfe recompress plants now in use. This would settle the question of export cotton, and I think would add about $6 a bale to the value of the cotton. , Election of Commissioner by People. I suggest that the state warehouse commissioner should be elected by the people, as all other state officials are elected. Second. I suggest an appropriation for current expenses in accordance with the estimate furnished; the comptroller general. A large portion of this would come back to the state upon collection of storage for cotton now on hand, and, as pointed out above, I am convinced that during the following year the state can be reimbursed for trae total amount expended on the system from the date of its inauguration. The Boll Weevil. ~ J ' * f A T*ne tnreateneu inv<tsivu vi luis- i by the boll weevil is closely related to the state warehouse system and to the production of cotton generally. I desire to make a suggestion which is certainly worth investigation. In my ffifo&ntheonly reaJlyyej^7e..iu^T.. sitio^ was that made by Senator E.1>. Smith to establish a zone across the 'belt in which no cotton should he planted. It seems that the weevil is I absolutely dependent upon cotton for j ? / a food. It is too late now for any- ^ thing like national ; ction. The weevil is in Florida and southwest Georgia. j and at the prestm rate of progress | should strike South Carolina, unless something is done about 19IS. lis g approach will be from the south. There V is a line across the cotton belt north I of which, on account of the severity of the linters. the weevil can not J spread. The movement north is slow. ^ 1 Georgia is fighting to keep it souih, and we can take advantage of this. From W Augusta to Savannah there is a natural barrier, a poor sandy ridge on i the Georgia side until you strike the flats, where the swamp is from 12 to 20 miles wide. It is not a cotton coun- ^ try on our side, except about Ellenton, 1 where cotton runs in close to the river. North of Augusta we have the mountains of Oconee, which the weevil can never cross. A non-cotton zone west of the railroad from Hardeeville to i Allendale, from there to Warrenville, Aiken county, thence straiht through Abbeville and across Anderson, via Pendleton, to Walhalla, with strict quarantine on hay, cotton seed aiKi other products liable to carry the weevil, would probably stay its march. for j e-ome years, and in the meantime a remedy may be found. This is not a natural cotton section, and it would pay to compensate those affected rather than to imperil the pros.perity of the entire state. At the present rate of progress, our time limit is not over two years. The weevil is now in Sumter county, Georgia, following rapidly the coast line, and moving slowly north. ' Fighting thev System, I have referred several times in this report to the persistent fight which has been waged against the state system^ Its business success is now grudgingly admitted, but the fight will never stop until the people take a hand. Hated by politicians, scouted by selfish interests, without adequate finances? that it has succeeded at all demon- j strates the soundness of its principle ^ and the need of its existence. It was | to be expected that in protecting the cotton grower the system would be fought by those against whom he is protected, and for that reason* I ha;?e not been surprised or taken unawares j by the relentless warfare which has bee.i made, sometimes taking the foim | of personal attacks upon me. T^e world ever seeks to prevent reform, by destroying the reformer. Thei rac*., 3 ctalra and thp CrOSS through all tbe ages, stand as mute signals of human progress. On the other hand, the true- I reformer never fights individuals; he attacks systems. It is foolish to blame individuals. I have no fight-on them, except as cogs in tie wheelj They are merely symptoms of a disease in the body politic which only the surgeon's knife can eradicate. The spread of the idea into other states has been "viewed with alarm," , and the corporate interests which have fattened at the expense of those who grow the cotton have waged a battle throughout the South such' as could have been waged only by combined millions. There is a tremendous combine in Georgia, Oklahomas, 'Mississ- ? ippi and Alabama, seeking not only to concentrate the cotton in ^Atlanta, but to parcel out the territory and fix the nrice. They are now invading the State of South Carolina to take the . Standard warehouse into the combine. J Wlhen I appeared ^fore the Georgia legislature the statement was freely made to me that this was an effort to head off the recognition of the storage of cotton through state warehouses. The success of this -corporation movement will parcel out the cotton territory and concentrate the money power, *j with the federal reserve system at its fl back, just where it Has been since 1865. V while tne success 01 tae piau uyuu n which South Carolina is proceeding means the liberation of the people. I quote the following from a recent call issued by Philip M. Shaw of 15 William street, New York, under date of October 1, 1915, to the shareholders of the Standard Warehouse company of Columbia, S. C.," for a meeting with the avowed purpose of taking the * Standard into the gigantic merger Which is forming. Mr. Shaw, accord- * ing to his statement in the call, "organized the Atlantic States Warehouse company in 1905- and the same year ?- ? u Mia "was a ractor m me ronoauou ux uk j Standard Warehouse company." 'With * / i each copy of the call he sexit out a ' proxy in the usual form, filled in "with the name ot a ijrcminect financier of I the city of Columbia, -whom Mr. Shaw says he regards "as cire of the ablest and best informed men connected witfr ; jour company"' (the Standard Ware- 4 I house compacyj. arj 7?ho "ha^ ex- j [ pressed himself to me (to Mr. Shaw) 1 as being convinced of the advantages dtk ! oi an alliiace "With the Atlantic fl ! State,'* etc. Among the reasons for I [desiring to consummate the merger, K ' as set forth in this document promuigated by Mr. Shaw, and approved, as he says, by; a. Standard stockholder 1r. ?H -whose bank the headquarters of tfc* ^ Standard Warehouse company la ^