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 Preface

“Please, sir, I’d like some more.”

— Oliver Twist

This book introduces students to statistical modeling beyond what they learn in an introductory
course. We assume that students have successfully completed a Stat 101 college course or an AP
Statistics course. Building on basic concepts and methods learned in that course, we empower
students to analyze richer datasets that include more variables and address a broader range of
research questions.

Guiding Principles
Principles that have guided the development of this book include:
• Modeling as a unifying theme. Students will analyze many types of data structures with a
wide variety of purposes throughout this course. These purposes include making predictions,
understanding relationships, and assessing differences. The data structures include various
numbers of variables and different kinds of variables in both explanatory and response roles.
The unifying theme that connects all of these data structures and analysis purposes is statisti-
cal modeling. The idea of constructing statistical models is introduced at the very beginning,
in a setting that students encountered in their Stat 101 course. This modeling focus continues
throughout the course as students encounter new and increasingly more complicated scenarios.

Basic principles of statistical modeling that apply in all settings, such as the importance
of checking model conditions by analyzing residuals with graphical and numerical, are em-
phasized throughout. Although it’s not feasible in this course to prepare students for all
possible contingencies that they might encounter when fitting models, we want students to
recognize when a model has substantial faults. Throughout the book, we offer two general
approaches for analyzing data when model conditions are not satisfied: data transformations
and computer-intensive methods such as bootstrapping and randomization tests.

Students will go beyond their Stat 101 experience by learning to develop and apply mod-
els with both quantitative and categorical response variables, with both quantitative and
categorical explanatory variables, and with multiple explanatory variables.

vii
viii PREFACE

• Modeling as an interactive process. Students will discover that the practice of statisti-
cal modeling involves applying an interactive process. We employ a four-step process in all
statistical modeling: Choose a form for the model, fit the model to the data, assess how well
the model describes the data, and use the model to address the question of interest.

As students gain more and more facility with the interplay between data and models, they
will find that this modeling process is not as linear as it might appear. They will learn how to
apply their developing judgment about statistical modeling. This development of judgment,
and the growing realization that statistical modeling is as much an art as a science, are more
ways in which this second course is likely to differ from students’ Stat 101 experiences.

• Modeling of real, rich datasets. Students will encounter real and rich datasets through-
out this course. Analyzing and drawing conclusions from real data are crucial for preparing
students to use statistical modeling in their professional lives. Using real data to address gen-
uine research questions also helps to motivate students to study statistics. The richness stems
not only from interesting contexts in a variety of disciplines, but also from the multivariable
nature of most datasets.

This multivariable dimension is an important aspect of how this course builds on what stu-
dents learned in Stat 101 and prepares them to analyze data that they will see in our modern
world that is so permeated with data.
Prerequisites
We assume that students using this book have successfully completed an introductory statistics
course (Stat 101), including statistical inference for comparing two proportions and for comparing
two means. No further mathematical prerequisites are needed to learn the material in this book.
Some material on data transformations and logistic regression assumes that students are able to
understand and work with exponential and logarithmic functions.

Overlap with Stat 101

We recognize that Stat 101 courses differ with regard to coverage of topics, so we expect that stu-
dents come to this course with different backgrounds and levels of experience. We also realize that
having studied material in Stat 101 does not ensure that students have mastered or can readily
use those ideas in a second course. To help all students make a smooth transition to this course,
we recommend introducing the idea of statistical modeling while presenting some material that
students are likely to have studied in their first course. Chapter 0 reminds students of basic statis-
tical terminology and also uses the familiar two-sample t-test as a way to illustrate the approach
of specifying, estimating, and testing a statistical model. Chapters 1 and 2 lead students through
specification, fit, assessment, and inference for simple linear models with a single quantitative pre-
dictor. Some topics in these chapters (for example, inference for the slope of a regression line)
may be familiar to students from their first course, but most likely not in the more formal setting
of a linear model that we present here. A thorough introduction of the formal linear model and
related ideas in the “simple” one-predictor setting makes it easier to move to datasets with multiple
PREFACE ix

predictors in Chapter 3. For a class of students with strong backgrounds, an instructor may choose
to move more quickly through the first chapters, treating that material mostly as review to help
students get “up to speed.”

Organization of Chapters
After completing this course, students should be able to work with statistical models where the
response variable is either quantitative or categorical and where explanatory/predictor variables
are quantitative or categorical (or with both kinds of predictors). Chapters are grouped to consider
models based on the type of response and type of predictors.

Chapter 0: Introduction. We remind students about basic statistical terminology and present
our four-step process for constructing statistical models in the context of a two-sample t-test.

Unit A (Chapters 1–4): Linear regression models. These four chapters develop and exam-
ine statistical models for a quantitative response variable, first with one quantitative predictor and
then with multiple predictors of both quantitative and categorical types.

Unit B (Chapters 5–8): Analysis of variance models. These four chapters also consider
models for a quantitative response variable, but specifically with categorical explanatory vari-
ables/factors. We start with a single factor (one-way ANOVA) and then move to models that
consider multiple factors. We follow this with an overview of experimental design issues.

Unit C (Chapters 9–11): Logistic regression models. These three chapters introduce models
for a binary response variable with either quantitative or categorical predictors.

These three units follow a similar structure:

• Each unit begins by considering the “simple” case with a single predictor/factor (Chapters
1–2 for Unit A, 5 for Unit B, 9 for Unit C). This helps students become familiar with the basic
ideas for that type of model (linear regression, analysis of variance, or logistic regression) in
a relatively straightforward setting where graphical visualizations are most feasible.

• The next chapter of the unit (Chapters 3, 6, 10) extends these ideas to models with multiple
predictors/factors.

• Each unit then presents a chapter of additional topics that extend ideas discussed earlier
(Chapters 4, 7, 11). For example, Section 1.5 gives a brief and informal introduction to
outliers and influential points in linear regression models. Topic 4.3 covers these ideas in
more depth, introducing more formal methods to measure leverage and influence and to
detect outliers. The topics in these chapters are relatively independent and so allow for
considerable flexibility in choosing among the additional topics.

• Unit B also has a chapter providing an overview of experimental design issues (Chapter 8).
x PREFACE

Flexibility within and between Units

The units and chapters are arranged to promote flexibility regarding order and depth in which
topics are covered. Within a unit, some instructors may choose to “splice” in an additional topic
when related ideas are first introduced. For example, Section 5.4 in the first ANOVA chapter
introduces techniques for conducting pairwise comparisons with one-way ANOVA using Fisher’s
LSD method. Instructors who prefer a more thorough discussion of pairwise comparison issues
at this point, including alternate techniques such as the Bonferroni adjustment or Tukey’s HSD
method, can proceed to present those ideas from Section 7.2. Other instructors might want to move
immediately to two-way ANOVA in Chapter 6 and then study pairwise procedures later.
Instructors can also adjust the order of topics between the units. For example, some might prefer
to consider logistic regression models (Unit C) before studying ANOVA models (Unit B). Others
might choose to study all three types of models in the “simple setting” (Chapters 1–2, 5, 9), and
then return to consider each type of model with multiple predictors. One could also move to the
ANOVA material in Unit B directly after starting with a “review” of the two-sample t-test for
means in Unit 0, then proceed to the material on regression.
Technology
Modern statistical software is essential for doing statistical modeling. We assume that students
will use statistical software for fitting and assessing the statistical models presented in this book.
We include output from both Minitab and R throughout the book, but we do not include specific
software commands or instructions. Our goal is to allow students to focus on understanding sta-
tistical concepts, developing facility with statistical modeling, and interpreting statistical output
while reading the text. Toward these ends, we want to avoid the distractions that often arise when
discussing or implementing specific software instructions. This choice allows instructors to use
other statistical software packages (e.g., SAS, SPSS, DataDesk, JMP, etc.).

Exercises
Developing skills of statistical modeling requires considerable practice working with real data.
Homework exercises are an important component of this book. Exercises appear at the end of each
chapter, except for the “Additional Topics” chapters that have exercises after each independent
topic. These exercises are grouped into four categories:
• Conceptual exercises. These questions are brief and require minimal (if any) calculations.
They give students practice with applying basic terminology and assess students’ understand-
ing of concepts introduced in the chapter.
• Guided exercises. These exercises ask students to perform various stages of a modeling
analysis process by providing specific prompts for the individual steps.
• Open-ended exercises. These exercises ask for more complete analyses and reporting of
conclusions, without much or any step-by-step direction.
• Supplemental exercises. Topics for these exercises go somewhat beyond the scope of the
material covered in the chapter.
PREFACE xi

To the Student
In your introductory statistics course you saw many facets of statistics but you probably did little
if any work with the formal concept of a statistical model. To us, modeling is a very important
part of statistics. In this book, we develop statistical models, building on ideas you encountered in
your introductory course. We start by reviewing some topics from Stat 101 but adding the lens of
modeling as a way to view ideas. Then we expand our view as we develop more complicated models.
You will find a thread running through the book:
• Choose a type of model.

• Fit the model to data.

• Assess the fit and make any needed changes.

• Use the fitted model to understand the data and the population from which they came.

We hope that the Choose, Fit, Assess, Use quartet helps you develop a systematic approach to
analyzing data.
Modern statistical modeling involves quite a bit of computing. Fortunately, good software exists
that enables flexible model fitting and easy comparisons of competing models. We hope that by
the end of your Stat2 course, you will be comfortable using software to fit models that allow for
deep understanding of complex problems.

Stat2 Book Companion Web site at www.whfreeman.com/stat2 provides a range of resources.

Available for instructors only:
- Instructor’s Manual
- Instructor’s Solutions Manual
- Sample Tests and Quizzes
- Lecture PowerPoint Slides
Available for students:
- Datasets (in Excel, Minitab, R, .csv, and .txt formats)
Each new copy of Stat2 is packaged with an access code students can use to access premium re-
sources via the Book Companion Web site. These resources include:
- Student Solutions Manual
- R Companion Manual
- Minitab Companion Manual

Acknowledgments
We are grateful for the assistance of a great number of people in writing Stat2.
First, we thank all the reviewers and classroom testers listed at the end of this section. This group
of people gave us valuable advice, without which we would have not progressed far from early drafts
of our book.
xii PREFACE

We thank the students in our Stat2 classes who took handouts of rough drafts of chapters and gave
back the insight, suggestions, and kind of encouragement that only students can truly provide.

We thank our publishing team at W. H. Freeman, especially Roland Cheyney, Katrina Wilhelm,
Kirsten Watrud, Lisa Kinne, Liam Ferguson, and Ruth Baruth. It has been a pleasure working
with such a competent organization.

We thank the students, faculty colleagues, and other researchers who have generously provided
their data for use in this project. Rich interesting data are the lifeblood of statistics and critical to
helping students learn and appreciate how to effectively model real-world situations.

We thank Emily Moore of Grinnell College, for giving us our push into the uses of LaTex typesetting.

We thank our families for their patience and support. The list would be very long if eight authors
listed all family members who deserve our thanks. But we owe them a lot and will continue to let
them know this.

Finally, we thank all our wonderful colleagues in the Statistics in the Liberal Arts Workshop
(SLAW). For 25 years, this group has met and supported one another through a variety of projects
and life experiences. Of the 11 current attendees of our annual meetings, 8 of us became the au-
thor team, but the others shared their ideas, criticism, and encouragement. These individuals are
Rosemary Roberts of Bowdoin College, Katherine Halvorsen of Smith College, and Joy Jordan of
Lawrence University.

We also thank four retired SLAW participants who were active with the group when the idea for a
Statistics 2 textbook went from a wish to a plan. These are the late Pete Hayslett of Colby College,
Gudmund Iversen of Swarthmore College, Don Bentley of Pomona College, and David Moore of
Purdue University. Pete taught us about balance in one’s life, and so a large author team allowed us
to make the project more fun and more social. Gudmund taught us early about the place of statis-
tics within the liberal arts, and we sincerely hope that our modeling approach will allow students to
see our discipline as a general problem-solving tool worthy of the liberal arts. Don taught us about
sticking to our guns and remaining proud of our roots in many disciplines, and we hope that our
commitment to a wide variety of applications, well represented by many datasets, will do justice to
his teaching. All of us in SLAW have been honored by David Moore’s enthusiastic participation in
our group until his retirement, and his leadership in the world of statistics education and writing
great textbooks will continue to inspire us for many years to come. His work and his teaching give
us a standard to aspire to.

Ann Cannon George Cobb Brad Hartlaub Julie Legler

Cornell College Mount Holyoke College Kenyon College St. Olaf College

Robin Lock Tom Moore Allan Rossman Jeff Witmer

St. Lawrence University Grinnell College Cal Poly San Luis Obispo Oberlin College
PREFACE xiii

Reviewers
Carmen O. Acuna Bucknell University
David C. Airey Vanderbilt School of Medicine
Jim Albert Bowling Green State University
Robert H. Carver Stonehill College
William F. Christensen Brigham Young University
Julie M. Clark Hollins University
Phyllis Curtiss Grand Valley State University
Lise DeShea University of Oklahoma Health Sciences Center
Christine Franklin University of Georgia
Susan K. Herring Sonoma State University
Martin Jones College of Charleston
David W. Letcher The College of New Jersey
Ananda Manage Sam Houston State University
John D. McKenzie, Jr. Babson College
Judith W. Mills Southern Connecticut State University
Alan Olinsky Bryant University
Richard Rockwell Pacific Union College
Laura Schultz Rowan University
Peter Shenkin John Jay College of Criminal Justice
Daren Starnes The Lawrenceville School
Debra K. Stiver University of Nevada, Reno
Linda Strauss Pennsylvania State University
Dr. Rocky Von Eye Dakota Wesleyan University
Jay K. Wood Memorial University
Jingjing Wu University of Calgary
Class Testers
Sarah Abramowitz Drew University
Ming An Vassar College
Christopher Barat Stevenson College
Nancy Boynton SUNY, Fredonia
Jessica Chapman St. Lawrence University
Michael Costello Bethesda-Chevy Chase High School
Michelle Everson University of Minnesota
Katherine Halvorsen Smith College
Joy Jordan Lawrence University
Jack Morse University of Georgia
Eric Nordmoe Kalamazoo College
Ivan Ramler St. Lawrence University
David Ruth U.S. Naval Academy
Michael Schuckers St. Lawrence University
Jen-Ting Wang SUNY, Oneonta
 To David S. Moore,
with enduring affection, admiration, and thanks:

Thank you, David, for all that your leadership has done for our profession,
and thank you also for all that your friendship, support, and guidance
have done for each of us personally.
 CHAPTER 0

What Is a Statistical Model?

The unifying theme of this book is the use of models in statistical data analysis. Statistical models
are useful for answering all kinds of questions. For example:
• Can we use the number of miles that a used car has been driven to predict the price that is
being asked for the car? How much less can we expect to pay for each additional 1000 miles
that the car has been driven? Would it be better to base our price predictions on the age of
the car in years, rather than its mileage? Is it helpful to consider both age and mileage, or do
we learn roughly as much about price by considering only one of these? Would the impact of
mileage on the predicted price be different for a Honda as opposed to a Porsche?
• Do babies begin to walk at an earlier age if they engage in a regimen of special exercises? Or
does any kind of exercise suffice? Or does exercise have no connection to when a baby begins
to walk?
• If we find a footprint and a handprint at the scene of a crime, are they helpful for predicting
the height of the person who left them? How about for predicting whether the person is male
or female?
• Can we distinguish among different species of hawks based solely on the lengths of their tails?
• Do students with a higher grade point average really have a better chance of being accepted
to medical school? How much better? How well can we predict whether or not an applicant
is accepted based on his or her GPA? Is there a difference between male and female students’
chances for admission? If so, does one sex retain its advantage even after GPA is accounted
for?
• Can a handheld device that sends a magnetic pulse into the head reduce pain for migraine
sufferers?
• When people serve ice cream to themselves, do they take more if they are using a bigger
bowl? What if they are using a bigger spoon?
• Which is more strongly related to the average score for professional golfers: driving distance,
driving accuracy, putting performance, or iron play? Are all of these useful for predicting a

1
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2 CHAPTER 0. WHAT IS A STATISTICAL MODEL?

golfer’s average score? Which are most useful? How much of the variability in golfers’ scores
can be explained by knowing all of these other values?

These questions reveal several purposes of statistical modeling:

a. Making predictions. Examples include predicting the price of a car based on its age,
mileage, and model; predicting the length of a hawk’s tail based on its species; predicting the
probability of acceptance to medical school based on grade point average.

b. Understanding relationships. For example, after taking mileage into account, how is the
age of a car related to its price? How does the relationship between foot length and height
differ between men and women? How are the various measures of a golfer’s performance
related to each other and to the golfer’s scoring average?

c. Assessing differences. For example, is the difference in ages of first walking different enough
between an exercise group and a control group to conclude that exercise really does affect age
of first walking? Is the rate of headache relief for migraine sufferers who experience a magnetic
pulse sufficiently higher than those in the control group to advocate for the magnetic pulse
as an effective treatment?

As with all models, statistical models are simplifications of reality. George Box, a renowned statis-
tician, famously said that “all statistical models are wrong, but some are useful.” Statistical models
are not deterministic, meaning that their predictions are not expected to be perfectly accurate. For
example, we do not expect to predict the exact price of a used car based on its mileage. Even if
we were to record every imaginable characteristic of the car and include them all in the model, we
would still not be able to predict its price exactly. And we certainly do not expect to predict the
exact moment that a baby first walks based on the kind of exercise he or she engaged in. Statistical
models merely aim to explain as much of the variability as possible in whatever phenomenon is
being modeled. In fact, because human beings are notoriously variable and unpredictable, social
scientists who develop statistical models are often delighted if the model explains even a small part
of the variability.

A distinguishing feature of statistical models is that we pay close attention to possible simplifica-
tions and imperfections, seeking to quantify how much the model explains and how much it does
not. So, while we do not expect our model’s predictions to be exactly correct, we are able to state
how confident we are that our predictions fall within a certain range of the truth. And while we
do not expect to determine the exact relationship between two variables, we can quantify how far
off our model is likely to be. And while we do not expect to assess exactly how much two groups
may differ, we can draw conclusions about how likely they are to differ and by what magnitude.
0.1. FUNDAMENTAL TERMINOLOGY 3

More formally, a statistical model can be written as

DAT A = M ODEL + ERROR

or as

Y = f (X) + ϵ
The Y here represents the variable being modeled, X is the variable used to do the modeling,
and f is a function.1 We start in Chapter 1 with just one quantitative, explanatory variable X
and with a linear function f . Then we will consider more complicated functions for f , often by
transforming Y or X or both. Later, we will consider multiple explanatory variables, which can be
either quantitative or categorical. In these initial models we assume that the response variable Y
is quantitative. Eventually, we will allow the response variable Y to be categorical.

The ϵ term in the model above is called the “error,” meaning the part of the response variable Y
that remains unexplained after considering the predictor X. Our models will sometimes stipulate
a probability distribution for this ϵ term, often a normal distribution. An important aspect of our
modeling process will be checking whether the stipulated probability distribution for the error term
seems reasonable, based on the data, and making appropriate adjustments to the model if it does
not.

0.1 Fundamental Terminology

Before you begin to study statistical modeling, you will find it very helpful to review and practice
applying some fundamental terminology.

The observational units in a study are the people, objects, or cases on which data are recorded.
The variables are the characteristics that are measured or recorded about each observational unit.

Example 0.1: Car prices

In the study about predicting the price of a used car, the observational units are the cars. The
variables are the car’s price, mileage, age (in years), and manufacturer (Porsche or Honda).
⋄

Example 0.2: Walking babies

In the study about babies walking, the observational units are the babies. The variables are whether
or not the baby was put on an exercise regimen and the age at which the baby first walked.
⋄
1
The term “model” is used to refer to the entire equation or just the structural part that we have denoted by
f (X).
4 CHAPTER 0. WHAT IS A STATISTICAL MODEL?

Figure 0.1: Health facilities in U.S. metropolitan areas

Example 0.3: Metropolitan health care

You may find it helpful to envision the data in a spreadsheet format. The row labels are cities, which
are observational units, and the columns correspond to the variables. For example, Figure 0.1 shows
part of a Minitab worksheet with data compiled by the U.S. Census Bureau on health-care facilities
in metropolitan areas. The observational units are the metropolitan areas and the variables count
the number of doctors, hospitals, and beds in each city as well as rates (number of doctors or beds
per 100,000 residents). The full dataset for 83 metropolitan areas is in the file MetroHealth83.
⋄
Variables can be classified into two types: quantitative and categorical. A quantitative variable
records numbers about the observational units. It must be sensible to perform ordinary arithmetic
operations on these numbers, so zip codes and jersey numbers are not quantitative variables. A
categorical variable records a category designation about the observational units. If there are
only two possible categories, the variable is also said to be binary.

Example 0.1 (continued): The price, mileage, and age of a car are all quantitative variables.
The model of the car is a categorical variable.
⋄
Example 0.2 (continued): Whether or not a baby was assigned to a special exercise regimen is
a categorical variable. The age at which the baby first walked is a quantitative variable.
⋄

Example 0.4: Medical school admission

Whether or not an applicant is accepted for medical school is a binary variable, as is the gender of
the applicant. The applicant’s undergraduate grade point average is a quantitative variable.
⋄
0.1. FUNDAMENTAL TERMINOLOGY 5

Another important consideration is the role played by each variable in the study. The variable that
measures the outcome of interest is called the response variable. The variables whose relationship
to the response is being studied are called explanatory variables. (When the primary goal of the
model is to make predictions, the explanatory variables are also called predictor variables.)

Example 0.1 (continued): The price of the car is the response variable. The mileage, age, and
model of the car are all explanatory variables. ⋄
Example 0.2 (continued): The age at which the baby first walked is the response variable.
Whether or not a baby was assigned to a special exercise regimen is an explanatory variable. ⋄
Example 0.4 (continued): Whether or not an applicant is accepted for medical school is the
response variable. The applicant’s undergraduate grade point average and sex are explanatory
variables. ⋄
One reason that these classifications are important is that the choice of the appropriate analy-
sis procedure depends on the type of variables in the study and their roles. Regression analysis
(covered in Chapters 1–4) is appropriate when the response variable is quantitative and the ex-
planatory variables are also quantitative. In Chapter 3, you will also learn how to incorporate
binary explanatory variables into a regression analysis. Analysis of variance (ANOVA, considered
in Chapters 5–8) is appropriate when the response variable is quantitative, but the explanatory
variables are categorical. When the response variable is categorical, logistic regression (considered
in Chapters 9–11) can be used with either quantitative or categorical explanatory variables. These
various scenarios are displayed in Table 0.1.

Keep in mind that variables are not always clear-cut to measure or even classify. For example,
measuring headache relief is not a straightforward proposition and could be done with a quantita-
tive measurement (intensity of pain on a 0–10 scale), a categorical scale (much relief, some relief,
no relief), or as a binary categorical variable (relief or not).

We collect data and fit models in order to understand populations, such as all students who are

Response Predictor/explanatory Procedure Chapter

Quantitative Single quantitative Simple linear regression 1, 2
Quantitative Single categorical One-way analysis of variance 5
Categorical Single quantitative Simple logistic regression 9
Categorical Single binary 2 × 2 table 11
Quantitative Multiple quantitative Multiple linear regression 3, 4
Quantitative Multiple categorical Multiway analysis of variance 6, 7
Categorical Multiple quantitative Multiple logistic regression 10, 11
Categorical Multiple categories 2 × k table 11

Table 0.1: Classifying general types of models

6 CHAPTER 0. WHAT IS A STATISTICAL MODEL?

applying to medical school, and parameters, such as the acceptance rate of all students with a
grade point average of 3.5. The collected data are a sample and a characteristic of a sample, such
as the percentage of students with grade point averages of 3.5 who were admitted to medical school,
out of those who applied, is a statistic. Thus, sample statistics are used to estimate population
parameters.

Another crucial distinction is whether a research study is a controlled experiment or an observa-

tional study. In a controlled experiment, the researcher manipulates the explanatory variable
by assigning the explanatory group or value to the observational units. (These observational units
may be called experimental units or subjects in an experiment.) In an observational study,
the researchers do not assign the explanatory variable but rather passively observe and record its
information. This distinction is important because the type of study determines the scope of con-
clusion that can be drawn. Controlled experiments allow for drawing cause-and-effect conclusions.
Observational studies, on the other hand, only allow for concluding that variables are associated.
Ideally, an observational study will anticipate alternative explanations for an association and in-
clude the additional relevant variables in the model. These additional explanatory variables are
then called covariates.

Example 0.5: Handwriting and SAT essay scores

An article about handwriting appeared in the October 11, 2006, issue of The Washington Post. The
article mentioned that among students who took the essay portion of the SAT exam in 2005–2006,
those who wrote in cursive style scored significantly higher on the essay, on average, than students
who used printed block letters. This is an example of an observational study since there was no
controlled assignment of the type of writing for each essay. While it shows an association between
handwriting and essay scores, we can’t tell whether better writers tend to choose to write in cursive
or if graders tend to score cursive essays more generously and printed ones more harshly. We might
also suspect that students with higher GPAs are more likely to use cursive writing. To examine
this carefully, we could fit a model with GPA as a covariate.

The article also mentioned a different study in which the identical essay was shown to many graders,
but some graders were shown a cursive version of the essay and the other graders were shown a
version with printed block letters. Again, the average score assigned to the essay with the cursive
style was significantly higher than the average score assigned to the essay with the printed block
letters. This second study involved an experiment since the binary explanatory factor of interest
(cursive versus block letters) was controlled by the researchers. In that case, we can infer that
using cursive writing produces better essay scores, on average, than printing block letters.
⋄
0.2. FOUR-STEP PROCESS 7

0.2 Four-Step Process

We will employ a four-step process for statistical modeling throughout this book. These steps are:
• Choose a form for the model. This involves identifying the response and explanatory vari-
able(s) and their types. We usually examine graphical displays to help suggest a model that
might summarize relationships between these variables.
• Fit that model to the data. This usually entails estimating model parameters based on the
sample data. We will almost always use statistical software to do the necessary number-
crunching to fit models to data.
• Assess how well the model describes the data. One component of this involves comparing
the model to other models. Are there elements of the model that are not very helpful in
explaining the relationships or do we need to consider a more complicated model? Another
component of the assessment step concerns analyzing residuals, which are deviations between
the actual data and the model’s predictions, to assess how well the model fits the data. This
process of assessing model adequacy is as much art as science.
• Use the model to address the question that motivated collecting the data in the first place.
This might be to make predictions, or explain relationships, or assess differences, bearing in
mind possible limitations on the scope of inferences that can be made. For example, if the
data were collected as a random sample from a population, then inference can be extended to
that population; if treatments were assigned at random to subjects, then a cause-and-effect
relationship can be inferred; but if the data arose in other ways, then we have little statistical
basis for drawing such conclusions.
The specific details for how to carry out these steps will differ depending on the type of analysis
being performed and, to some extent, on the context of the data being analyzed. But these four
steps are carried out in some form in all statistical modeling endeavors. To illustrate the process,
we consider an example in the familiar setting of a two-sample t-procedure.

Example 0.6: Financial incentives for weight loss

Losing weight is an important goal for many individuals. An article2 in the Journal of the American
Medical Association describes a study in which researchers investigated whether financial incentives
would help people lose weight more successfully. Some participants in the study were randomly
assigned to a treatment group that offered financial incentives for achieving weight loss goals, while
others were assigned to a control group that did not use financial incentives. All participants were
monitored over a four-month period and the net weight change (Bef ore − Af ter in pounds) was
recorded for each individual. Note that a positive value corresponds to a weight loss and a nega-
tive change is a weight gain. The data are given in Table 0.2 and stored in WeightLossIncentive4.

2
K. Volpp, L. John, A.B. Troxel, L. Norton, J. Fassbender, and G. Lowenstein (2008), “Financial Incentive-based
Approaches for Weight Loss: A Randomized Trial”, JAMA, 300(22): 2631–2637.
8 CHAPTER 0. WHAT IS A STATISTICAL MODEL?

Control 12.5 12.0 1.0 −5.0 3.0 −5.0 7.5 −2.5 20.0 −1.0
2.0 4.5 −2.0 −17.0 19.0 −2.0 12.0 10.5 5.0
Incentive 25.5 24.0 8.0 15.5 21.0 4.5 30.0 7.5 10.0 18.0
5.0 −0.5 27.0 6.0 25.5 21.0 18.5

Table 0.2: Weight loss after four months (pounds)

The response variable in this situation (weight change) is quantitative and the explanatory factor
of interest (control versus incentive) is categorical and binary. The subjects were assigned to the
groups at random so this is a statistical experiment. Thus, we may investigate whether there is a
statistically significant difference in the distribution of weight changes due to the use of a financial
incentive.

CHOOSE

When choosing a model, we generally consider the question of interest and types of variables
involved, then look at graphical displays, and compute summary statistics for the data. Since the
weight loss incentive study has a binary explanatory factor and quantitative response, we examine
dotplots of the weight losses for each of the two groups (Figure 0.2) and find the sample mean and
standard deviation for each group.

Figure 0.2: Weight loss for Control versus Incentive groups

Variable Group N Mean StDev

WeightLoss Control 19 3.92 9.11
Incentive 17 15.68 9.41

The dotplots show a pair of reasonably symmetric distributions with roughly the same variability,
although the mean weight loss for the incentive group is larger than the mean for the control
group. One model for these data would be for the weight losses to come from a pair of normal
distributions, with different means (and perhaps different standard deviations) for the two groups.
Let the parameter µ1 denote the mean weight loss after four months without a financial incentive,
and let µ2 be the mean with the incentive. If σ1 and σ2 are the respective standard deviations
and we let the variable Y denote the weight losses, we can summarize the model as Y ∼ N (µi , σi ),
0.2. FOUR-STEP PROCESS 9

where the subscript indicates the group membership3 and the symbol ∼ signifies that the variable
has a particular distribution. To see this in the DAT A = M ODEL + ERROR format, this model
could also be written as

Y = µi + ϵ
where µi is the population mean for the ith group and ϵ ∼ N (0, σi ) is the random error term. Since
we only have two groups, this model says that

Y = µ1 + ϵ ∼ N (µ1 , σ1 ) for individuals in the control group

Y = µ2 + ϵ ∼ N (µ2 , σ2 ) for individuals in the incentive group

FIT
To fit this model, we need to estimate four parameters (the means and standard deviations for
each of the two groups) using the data from the experiment. The observed means and standard
deviations from the two samples provide obvious estimates. We let y 1 = 3.92 estimate the mean
weight loss for the control group and y 2 = 15.68 estimate the mean for a population getting the
incentive. Similarly, s1 = 9.11 and s2 = 9.41 estimate the respective standard deviations. The
fitted model (a prediction for the typical weight loss in either group) can then be expressed as 4

ŷ = y i

that is, that ŷ = 3.92 pounds for individuals without the incentive and ŷ = 15.68 pounds for those
with the incentive.

Note that the error term does not appear in the fitted model since, when predicting a particular
weight loss, we don’t know whether the random error will be positive or negative. That does not
mean that we expect there to be no error, just that the best guess for the average weight loss under
either condition is the sample group mean, y i .

ASSESS
Our model indicates that departures from the mean in each group (the random errors) should
follow a normal distribution with mean zero. To check this, we examine the sample residuals or
deviations between what is predicted by the model and the actual data weight losses:

residual = observed − predicted = y − ŷ

For subjects in the control group, we subtract ŷ = 3.92 from each weight loss and we subtract
ŷ = 15.68 for the incentive group. Dotplots of the residuals for each group are shown in Figure 0.3.
3
For this example, an assumption that the variances are equal, σ12 = σ22 , might be reasonable, but that would lead
to the less familiar pooled variance version of the t-test. We explore this situation in more detail in a later chapter.
4
We use the caratˆsymbol above a variable name to indicate predicted value, and refer to this as y-hat.
10 CHAPTER 0. WHAT IS A STATISTICAL MODEL?

Figure 0.3: Residuals from group weight loss means

Note that the distributions of the residuals are the same as the original data, except that both
are shifted to have a mean of zero. We don’t see any significant departures from normality in the
dotplots, but it’s difficult to judge normality from dotplots with so few points. Normal probability
plots (as shown in Figure 0.4) are a more informative technique for assessing normality. Departures
from a linear trend in such plots indicate a lack of normality in the data. Normal probability plots
will be examined in more detail in the next chapter.

(a) Control (b) Incentive

Figure 0.4: Normality probability plots for residuals of weight loss

As a second component of assessment, we consider whether an alternate (simpler) model might fit

the data essentially as well as our model with different means for each group. This is analogous to
testing the standard hypotheses for a two sample t-test:

H0 : µ1 = µ2
Ha : µ1 ̸= µ2

The null hypothesis (H0 ) corresponds to the simpler model Y = µ+ϵ, which uses the same mean for
both the control and incentive groups. The alternative (Ha ) reflects the model we have considered
here that allows each group to have a different mean. Would the simpler (common mean) model
suffice for the weight loss data or do the two separate groups means provide a significantly better
explanation for the data? One way to judge this is with the usual two-sample t-test (as shown in
the computer output below).
Other documents randomly have
different content
what they wanted. Yours will come in the same manner. Remember
that a vast majority of the population whom you will meet are either
Indians or of Indian origin. Their tastes are sure to be primitive, to
incline to gaudy colorings and lack practicability. Remember, too,
that they are paying the bills. If they want the things that offend your
educated, æsthetic eye, forget it and explain to the house why they
should make them as desired. It is always easier to follow styles in
vogue for centuries than to create new ones and foist them on the
public.
Latin America has always been a hotbed for disease. Be
abstemious in eating and drinking. Alcoholic beverages should be
taboo, inasmuch as they unnecessarily heat the system. Water
supplies are inefficient and often polluted. Your drinking water
should be boiled; if good water is not obtainable otherwise drink
some reliable mineral water. Remember that plague comes from the
bite of the flea, and yellow fever and malaria from the bite of the
mosquito, so avoid as much as possible the places where these pests
are to be found. Daily baths are apt to remove danger from flea bites
and sleeping under a net minimizes the possibilities of contracting
yellow and malarial fevers. Personal hygiene should always be
observed. In twenty years of the roughest and toughest travelling up
creeks and down tropical rivers, through forests heavy with dew,
across barren, wind-swept plains, over mountains, in high and low
altitudes, by exercising these suggested precautions I have had only
one serious illness, yellow fever. Conditions have vastly improved
since I first began my trips and are getting better every year. With
judgment one could now take a journey all over Latin America
without any physical dangers or serious illness intervening, and with
less risk than he would be liable to encounter on a trip between New
York and Chicago.
From a perusal of the requirements necessary for a salesman in
this territory, and I may add that I have not overcolored, or
underestimated them, it is apparent that the right man will be
difficult to find. If a house cannot see its way clear to enter this field
with the right kind of a representative, it had better remain out of it
altogether or combine with several concerns in allied lines and send
one high grade man to represent them jointly. It is extremely
doubtful if any one could do justice to more than five firms in such a
venture. The plan adopted by European houses is to send a capable
young man to one of the countries and let him live there until he has
acquired the language, the customs of the people and their ways of
doing business. Then they put him on the road. This serves to
demonstrate the thoroughness which marked every step of the
European conquest of these markets. Our American public schools
are now instructing pupils in Spanish and Latin Americans are
coming to this country to acquire English in increasing numbers
right along, so that the possibilities are that within a few years these
conditions will change for the better. To-day, however, the efficient,
competent and reliable salesman for Latin America is so rare and so
much in demand that he can practically name his own salary.
Nearly every country in Latin America requires that a license to
sell goods must be taken out by the salesman before he can do
business within its territory, and as a result there has arisen much
cause for complaint. As a rule these taxes or fees are entirely too high
and out of proportion to those charged anywhere else in the world,
thereby creating a natural tendency to evade the law by every
possible means. In some localities runners about the hotels stand in
with the authorities and for a small sum provide guests with the
necessary paper entitling them to sell goods, while in other places the
law is practically ignored.
The right to collect this tax in many countries is sold yearly by the
municipal authorities for a lump sum to some individual, who always
endeavors to collect as much as he can from the concession. Beware
of the person who holds this right. He has at his beck and call a score
of petty employes about the city and around the hotels who report
your movements to him, and the result is generally disastrous to you,
especially if you try to do business without his permission.
In the Argentine republic for example each province has a fixed fee
for this purpose and the total sum, if paid, would eliminate the
profits from the average amount of your sales. Failure to pay
generally means a term in jail.
The merchant’s yearly taxes in many countries includes the right
to sell goods by travelling salesmen and if he is approached properly
by a non-resident representative will allow him to take advantage of
his business foresight and use this permit, thereby giving a legitimate
and legal opportunity to omit paying these obnoxious charges. By
observing these suggestions and the exercise of diplomacy and good
judgment, little need be feared from the authorities in this
connection.
Before entering a foreign country for the first time, it is well to
obtain letters of introduction to leading merchants and especially to
government officials. They prove wonderfully beneficial and are
highly successful in smoothing out the rough places which are sure to
be met with in the paths of business. It generally pays to act
implicitly on the advice given by responsible people living in the land
wherein you are a pilgrim, for they are well acquainted with local
idiosyncrasies, and can suggest the exact spot where a small tip will
facilitate matters materially.
Be sure to cultivate the acquaintance of the high grade old time
traveller whom you will be certain to meet sooner or later on your
trip. You will find him pregnant with pertinent and useful
suggestions, which will do much toward making your initial trip a
success. Years of experience in the Latin American school of business
have given him a marvellous amount of wisdom, which you will
always find him willing to dispense if you are the right kind and not
trying to impress the world with your superior knowledge.
Both as a matter of courtesy and as a good business proposition be
sure to call on the American consular officer whom you will always
find at the port. He is in touch with the local merchants, is generally
well informed as to market conditions and can give you many
practical suggestions. He also has a line on the financial standing of
most dealers throughout his territory.
Be sure that your order blanks are printed in triplicate and in
Spanish for all countries except Brazil where the language is
Portuguese. Ample space should be provided under the captions
“Terms”; “How Packed”; “How Invoiced”; “How Shipped.” When
possible, I have always insisted on the buyer signing the order and
filling in with his own handwriting the spaces referred to. There can
be no cause for refusal to accept the goods, if you have complied with
the written conditions of the merchant. Very naturally when the
order has been signed the merchant should have a copy, another sent
to the house, while you retain the third one for your personal files
and for future reference.
 If possible always carry your samples in one or more cases. Clothes
should never be packed with them, but in separate trunks. Now and
then you will find officious and over energetic customs officials.
Treat them with courtesy, even if they irritate you. Remember that
they can make you endless trouble and that they may understand any
caustic remarks you may venture to make in English. As a rule,
however, these officials are very considerate. If you are selling shoes,
it is wise to bring only one sample of each pair. If you carry a line of
silverware, have each sample sawed in half. This will at once remove
suspicion from you as far as the customs are concerned.
If you are to travel the West Indies, Central America and the
northern countries of South America, including Brazil, Colombia,
Venezuela and Ecuador, light clothes should be relied upon.
Remember too that in the highlands and mountainous districts of
these countries it is often cool, especially at night, and a light
overcoat is therefore advisable. In the highlands of Peru, Bolivia and
Chile, heavy clothes are always worn. The climate of Southern Chile,
Argentine, Uruguay and Paraguay is much like our middle States,
excepting that the seasons are reversed, their winter corresponding
to our summer and vice versa. A trunk packed for a complete trip for
all of Latin America should therefore include both summer and
winter clothing.
It is wise to pay much attention to the style and nature of your
correspondence. American business men for years have been
concentrating and condensing their thoughts—saying in a few words
the same thing that formerly were expressed in pages. The Latin
American has not yet practiced this conservative method of
expressing himself and as a result his correspondence is voluminous
and he indulges in word paintings that are picturesque and unique
but not practical. If you are not as excessive in this respect as he is,
the chances are, unless he knows you exceedingly well, that he will
construe your letters as brusque and far from courteous. His letters
will be filled with the sentimental phrases of past ages. This is his
idea of politeness and should be your guide in addressing him. You
cannot be too verbose in your communications. He comes from a
race noted for its grandiloquent declamations and this typical
characteristic, this desire to figuratively gild refined gold, add a
perfume to the violet and a whiteness to the lily, means much to him.
It is one of his ways of estimating your educational worth and of
calibrating your standing as a gentleman. I know of no better
exemplification of this than a comparison between the flowery way
Latin American letters are terminated and our own. It is more
personal, more deferential and more impressive to sign yourself,
“Your attentive and secure servant who kisses your hand,” than
briefly and harshly, “Yours very truly,” yet the former method is the
one in which practically all letters close coming from these sunny
lands.

Avenida Central, Rio de Janeiro

Bills, catalogues, price-lists, in a word all “literature” should be in

the language of the country for obvious reasons and in having these
translated be sure to employ only experienced and able translators.
Nothing paves the way for so much ridicule as poorly expressed and
badly produced business documents, for the keen eye of the Latin
notes errors with great precision. Efficiently produced and
artistically printed materials of this nature impress one in these
lands and help materially in giving you and your firm a high standing
in the minds of the native merchants, while poorly got up pamphlets
and the like open his flood gates of criticism and prejudice both
against you and your goods. All weights and measurements should
be in the metric system.
 Be sure always to bear in mind that first-class mail to Latin
America, excepting Panama, Mexico, Cuba and Porto Rico, cost five
cents an ounce or fraction thereof and three cents for each additional
ounce or fraction thereof; all printed matter, one cent for each two
ounces or fraction thereof. Be careful therefore to put full postage on
all correspondence, otherwise your mail will be delayed and its
recipient subjected to a series of fines for your sin in short postage
which will have the effect of hurting your cause. Mistakes of this kind
are unwarranted and you should caution the house and the one in
charge of the mail to put proper postage on letters. Latin American
merchants always look upon letters short-posted as a shrewd Yankee
plan to make them pay part of the expenses of your establishment.
From their point of view this is not far from right either, for they are
never guilty of this fault so very prevalent among Americans.
If you have no fixed address instruct your correspondents to send
all mail in care of the consul of the United States of America, at each
port where you intend stopping. Remember that consuls are to be
found only at seaports. To address a letter Care of the Consul for the
United States of America, Bogota, Colombia, would practically mean
that you would never get the letter, for the reasons that these officials
are found for example in Colombia, at Barranquilla, Savanilla, Santa
Marta, and along the seaboard. It is unwise to send mail in care of
the General Delivery. Later on after you have been over the territory
and established friendly relations with some dealer or merchant,
mail may be sent in his care.
Passports are unnecessary in Latin America.
Funds should be carried in the form of Letters of Credit. It is wise
to take one of these in Dollars and Cents and the other in Pounds
Sterling, as there will be many opportunities to use one of these
advantageously in selling exchange when the other cannot be so
employed. This all depends of course on the local demands for
foreign exchange, and before buying money, it is wise to ascertain
which letter of credit can be used more profitably. The saving which
can be made in the course of a long trip in closely watching the price
of money and buying when conditions favor you, is worthy of your
best attention.
 XXIII
CUSTOM-HOUSES AND TARIFFS

No one can fully appreciate what difficulties custom-houses and

tariffs can cause until he has had experience with those in Latin
America. The custom-house officials deem it their duty to harass,
embarrass, annoy and add to the troubles, worries and expenses of
the merchant in these lands. They are veritable boulders in the path
of business progress. The charges, fees, tariffs, taxes, and the
hundred and one incidental and unwarranted expenses which exist
in no other custom-houses in the world save in those of Latin
America, change from day to day and are susceptible to as many
interpretations as there are government employees having any work
to do with the goods under consideration. It would be the height of
folly to attempt to give tariffs and other custom-house charges in any
Latin American country to-day, for by to-morrow fully half of them
would be changed, and let me add that the alteration is always in the
form of an additional charge and never a reduction. Tariffs are
extreme and exorbitant, subject to the whims and financial needs of
those in power and liable to complete variation without warning.
Customs officials are recruited always from the class of “politicos”
hereinbefore discussed. The positions which they fill are the political
plums of the land. These men have not the interest of their country,
their countrymen or the merchants within their borders at heart.
Their desire is to acquire wealth by exploiting those with whom their
official duties bring them in contact, and they have reduced this to a
perfect science. The doings of Tammany are in the kindergarten class
as compared with these exponents of the theory that to the victor
belongs the spoils. The schemes designed and resorted to by these
modern inquisitors are almost beyond belief, and could only emanate
from the brains of those whose ancestors received their schooling in
the days when the “auto da fe” was common and Torquemada
reigned supreme. Let me illustrate by a few custom-house rulings
taken at random from different Latin American ports.
In a certain Central American country, clinical thermometers are
admitted duty free, according to the government tariff schedule.
Laboring under this belief a local druggist ordered one hundred.
Imagine his surprise when the customs collector charged him the
duty assessed on cut glass decanters, classing the thermometers as
“etched glass containers.” Their contents—mercury—was classed as
an explosive at a prohibitive rate and for “trying to evade the
customs” a fine of $500.00 was added, or instead of getting the
goods in, without charges, the importer was obliged to pay $642.50
or go to jail.
In a shipment of pickles, because the invoice failed to state
whether they were put up in vinegar or mustard, a fine of $100.00
was collected.
On a box of candy weighing five pounds, sent as a present, the
nature of the ingredients of each separate piece of candy was not
indicated, and a fine of $80.00 imposed and obtained.
The bar of a famous ex-prize-fighter has been for years in a Latin
American custom house because the importer never could raise the
money to pay the arbitrary fine exacted. Brass pays a high duty
according to the schedule of the country to which this bar was
shipped, because cartridges can be made from it, although there is
not an ammunition factory in the entire land. In the decorations of
the wooden pillars at the end of the bar, there were one or two strips
of brass about two inches wide. The whole bar was assessed as of this
metal and a duty and fine amounting to several thousand dollars
imposed, which caused the American who bought it and who had
intended to open a café in one of its cities, to get out of the place on
the first ship, leaving the bar as a souvenir.
An iron bed, with four hollow brass balls as ornaments on the end
posts met with the same treatment in the same custom-house, paying
a duty of $200.00.
Theatrical appliances are free everywhere, especially if the
property of a traveling troupe. Despite this fact and a positive
statement to this effect in the tariff regulations, I knew one large
Latin American country, wherein a carousel, or “flying-horse” outfit,
was refused admission unless the owner paid the duty charged on
live stock, each wooden horse being assessed at the rate of $25.00,
which is the tariff on breeding stallions.
Thefts by minor employees of the custom-house are only too
common. As a rule these men are poorly paid and add to their scanty
income by appropriating whatever comes within their reach. I have
known of cases of soap, provisions, perfumes, shoes and the like to
be entirely confiscated in this manner. There is absolutely no redress.
Very often the higher employees are implicated in these nefarious
practices. In one of the largest and most progressive of Latin
American cities, all the foreign and native merchants had been
receiving cases short of their invoiced contents. Complaints to the
authorities did not remedy matters. Finally the thieves became
bolder and the thefts more extensive, many merchants being offered
their own goods for sale at prices less than they originally cost
abroad. Concerted diplomatic pressure was brought to bear, and an
investigation promised. The day before the official hearing, the entire
block of custom houses involved was burnt, a strange coincidence
being that the four car tracks in front thereof, were occupied with
loaded freight cars so that the fire engines could not get near enough
to stop the conflagration. All records were thus destroyed and
nothing could be done, the loss, involving millions of dollars, falling
as usual on the foreign merchant.
Pages could be filled with similar data. All of our consular offices
are cognizant of these outrages, yet nothing definite has been
attempted to stop them. No matter what precautions the exporter
takes, or how closely he follows the shipping instructions, his
customer can always be victimized by these scheming officials.
European nations suffer equally with us and it would seem that the
time is ripe for some united action on the part of the great exporting
countries to remedy this growing evil, for that it hurts trade cannot
be denied.
Not only are there unwarranted and excessive duties charged on
imports but on exports as well, and on these exports we as the largest
user of the things produced in Latin America pay the bill. These
conditions should be attended to at once, and it should be the
business of our State Department to adjust them properly.
 On hides, coffee, rubber and sugar, which are the leading exports
from these countries, the United States charges no duty, or a merely
nominal one. The remarkable feature of this trade is that every Latin
American country imposes on all of these articles heavy export
charges, which according to their own laws are unconstitutional, and
we pay the bills, at the same time allowing them to impose exorbitant
duties, outrageous port charges, and illegitimate fines on our exports
to them. It may be argued that in the end the cost is finally borne by
them, but the fact nevertheless remains that there is much work here
to be done by our government to overcome these conditions for the
benefit of all parties involved. It is decidedly unfair for a country to
collect revenues both ways, namely, on its exports to us and on our
exports to it.
The importer is the one who bears the brunt of these burdens. He
is continually paying bribes or fines which are of course added to the
cost of the goods. Failure on his part to “come across” means delays,
loss of goods, higher port charges and incalculable annoyances. One
of the great objections to this system of robbery aside from its basic
principle of error is that one shipment does not serve as a means for
calculating a price on the next one. A new custom-house official (and
custom-house officials are changed in these lands as often as a
chameleon changes color) may have come into office between
shipments requiring a higher standard of fines and bribes to placate.
This obviously hurts the sale of any article and makes the merchant
hesitate to renew orders. Both importers and exporters have
preferred to be harassed, fearing that their failure to comply with
these unwarranted and illegal demands would result in the exclusion
of their goods from the country, a condition which has often been
imposed. Concerted action on the part of all nations to stop this
blackmail would meet with the support of the merchants and
importers of these lands, and the sooner some step in this direction
is taken the better.
Under the condition of affairs now existing, and the long-
continued attitude of our government toward all of Latin America, it
seems as if there is no hope for our people or merchants and that we
must submit uncomplainingly to these iniquities. There can be no
doubt but that the existence of such a state of affairs has done much
to retard the healthy growth of trade relations between all of these
countries and the rest of the world. Latin-American merchants are
absolutely powerless to remedy the situation by themselves.
Attempts to improve must come from the outside and be presented
through diplomatic channels and most emphatically insisted upon. A
determined effort on the part of this government would do much to
bring about a change and would be a most potent factor in extending
our trade relations in these lands.
It may be argued that despite the system of fines, bribes and graft
which are so intimately associated with the Latin American custom-
houses the lands are prosperous and their merchants thriving, but
the fact cannot be disputed that the practice is decidedly wrong and
reflects materially on the integrity and dignity of the nation
permitting it and positively hampers the legitimate growth of trade.
 XXIV
TRADE MARKS

The registration of your trade mark should be attended to as soon

as possible if it is your intention to enter the Latin American field
with the article which you manufacture. In many of these countries
the laxity of the laws governing this important commercial
protection work great hardship on legitimately established
enterprises. I regret to state that in nearly every one of these lands, it
is legally permissible for anyone to register any trade mark on
fulfilling certain simple conditions and the payment of a small fee.
The result is that a class of men without scruples are continually on
the lookout for articles which are being well advertised in this
country, knowing the probabilities are that sooner or later there will
be a demand for them throughout the world and especially in the
place wherein they reside. Magazines and periodicals of all classes
are watched with care and as soon as extensive publicity campaigns
are launched in the United States or Europe, the chances are that the
trade name of the article being exploited will be simultaneously
registered by a native in many Latin American Patent Offices. The
next step in the technique of these rogues is to wait until some
shipment of the goods in question arrives, a fact easily ascertained by
noting the shipping news from the States and reading the invoices
and the names of consignees, data which is eagerly sought after and
published with great detail by all the papers of the port. An
injunction is then immediately obtained and the entire shipment is
either prohibited from landing or held in the custom house pending
wearying and tiresome legal complications, with the result that the
quasi owner of the trade-mark in question is always victorious and
the shipment either excluded from the country in toto or awarded to
the unlawful owner of the brand, in lieu of court costs and legal fees.
In the latter event they are then sold, and the money derived
therefrom goes of course to the pirates who had the foresight to
register the name. These men often wait for years before
accomplishing their purpose and with the idea of ultimately making
money from their venture have been known to renew repeatedly the
trade-mark, when it expired owing to legal limitations.
Of course on attaching a shipment of goods bearing one of these
stolen and registered trade-marks, the native owner always offers to
sell out his interest in the same, invariably asking a price absurdly
excessive, particularly so when one stops to consider that he is asked
to pay a sum for the right to use his own name. Knowing that he
holds the whip hand in the controversy, and that you must meet his
terms and conditions, if you wish to do business in the country, and
further that he has you at a decided disadvantage in many ways, the
situation which develops is trying in the extreme. Then follows a
period of conferences, time-wasting interviews during which much
patience must be exhibited until ultimately practically the original
sum of money asked must be paid. This has been the general
experience of almost every one who has been so unfortunate as to be
confronted by such a situation.
Good business judgment therefore dictates that when you register
your trade-mark in the United States, you should also protect
yourself by registering it in the principal countries of Latin America.
The easiest way to do this is through your patent attorney or legal
adviser. If however you have failed to take this precaution, the first
duty of your representative on arriving in each of the countries in
question should be the registration of your trade name in the proper
department of the government.
In order to give this his personal attention he should have a power
of attorney authorizing him to act in this capacity. This paper may be
prepared by your attorney, and should be in Spanish for all countries
excepting Brazil, where the language is Portuguese. This document
should be signed with the firm name by the individual having the
right to do so and in the case of corporations by the proper officer,
and the corporate seal attached. The signature should then be sworn
to before a notary public, whose name and seal should be certified to
by the Secretary of State for the State wherein the firm or
corporation does business or is chartered. The notarial oath and the
certificate of the Secretary of State may be in English. These papers
should then be sent to the Secretary of State of the United States at
Washington, D. C., who will in turn certify to the fact that the
signature of the Secretary of State for the State in question is correct
and they should then be forwarded to the Ambassador or Minister or
proper representative of the Latin American country, wherein it is
desired to register the power of attorney, who will in turn certify to
the signature of the Secretary of State of the United States. Armed
with this much verified and sealed document, your representative is
then in a position to sign your name to the application for the trade
mark on his arrival, and to conduct any further business before the
local government arising therefrom. A separate legal document of
this nature is required for each country in which you propose to
protect your trade name.
In case your mark is not registered prior to the departure of your
representative for Latin America, it is wise to pursue the course
above outlined and have him take the matter up personally. It often
happens that by the exercise of judgment and through acquaintances
which will be made, or the prestige of the local attorney whom your
agent will retain, many objections which might seem
unsurmountable can be easily overcome by the man on the ground.
Oftentimes too, the mark can be altered in word or design, so as to
evade one already registered without in any manner affecting your
rights.
When one stops to consider that much over 80 per cent. of the
population of these countries are unable to either read or write, and
that they are therefore forced to recognize an article by some
distinguishing sign or character, the great value of an easily
discernible, prominent and effective trade-mark becomes obvious.
As a matter of fact the Indians who make up the greater portion of
the purchasing public of these countries know goods only by brands
and ask the storekeeper for them by their distinguishing names.
Another feature to be most seriously considered in selecting a
name for your article in Latin America is that the Spanish alphabet
contains no “W.” This letter is formed, when it is necessary to use a
word employing it, by combining two V’s,—thus VV. Even to the
educated native this letter is unpronounceable. It is therefore quite
obvious that no word containing it should ever be used for
distinguishing any brand. Such a trade mark, for instance, as “White
Wings” instead of attracting custom, would act otherwise, owing to
the extreme sensitiveness of the native in fearing criticism in
pronouncing the words.
Once your trade mark is established, no matter how crude it may
be, never change it. I know of a firm in Baltimore who formerly did
an enormous business in lard with Brazil. The cans which they used
for export purposes were a gaudy blue color and decorated with a pig
of elephantine proportions. For economic reasons they decided to
use plain tin cans, stamping the porker in relief thereon, but
preserving his pachyderm proportions. The result was a package
equally as good, as far as shipping purposes were concerned, with a
saving of about two cents on each one. As a consequence of the
alteration the merchant was absolutely unable to sell the goods
shipped in the new container, and when later on the manufacturers
tried to regain the field which they lost, by sending their former tins,
the natives were sure that they were being deceived and refused to
buy these goods also. Competitors who had eagerly sought this
market took advantage of the situation and the Maryland house was
completely shut out of the territory and absolutely lost their
business.
Another illustration may serve to impress the importance of
maintaining your trade mark in its entire originality. The Chinese are
great consumers of canned salmon, and our Western fisheries supply
much of the article. One firm in San Francisco had a brand well liked
and very famous among the Celestials. The label on the tin showed a
highly colored salmon having the wrong number of fins, with tail
elevated in the act of leaping over a waterfall down stream, while the
background was filled with tropical palms and cocoanut trees. The
trade mark was simplicity itself, and was recognized with favor all
over the Flowery Kingdom. Higher education however completely
removed the brand from the map. The head of the house had a son
just from college, who had been recently admitted to the firm. He
started to clean up things—to be 100 per cent. efficient. His æsthetic
and educated eye at once saw that the label on the brand which had
made the firm’s fortune was a living lie. Salmon were not colored like
the rainbow; leaped up stream only; had less fins and depressed their
tails when doing acrobatic feats. And horror of horrors—no tropical
palms or cocoanut trees grew in the vicinity of the salmon’s habitat.
So the label was reconstructed and made a work of art, scientifically
and piscatorially correct, and not a mere illegitimate combination of
wrong details. Then goods with the new and authentic label were
shipped. When they got to China no Chinaman could be induced to
buy them. They became dubious at once of the changed label. Living
in a land of suspicion they knew intuitively that some designing
schemer was falsifying their favorite trade mark. “No samee chop”
was the laconic reply when told that these were the old and well
known goods in a new dress. Argument was useless. The brand was
completely lost to the market. I know one merchant in Hong-Kong
who was forced to throw two car-loads of this salmon into the sea,
because space in his “go-down” or warehouse was worth more than
that occupied by unsaleable stock.
Should you for some reason contemplate altering your trade mark
or the color or shape or size of your container, always take the wise
precaution of consulting the merchant handling your goods abroad
and if possible adopt or be guided by his suggestions. He is on the
firing line and has his finger on the pulse of the buyers, therefore his
opinion is worthy of the most serious attention.
As typical of the high-handed hold ups of the local Dick Turpins,
who have registered trade marks under their own names in Latin
America let me state that I know of two American patent medicine
men whose products have been extensively advertised and are almost
household words in the United States, paying $28,000 and $25,000
respectively for the privilege of using their own names in one country
of South America. Both of these concerns had been doing business in
the United States for forty years and they afterwards ascertained that
the gentlemen (?) who had registered their names had been waiting
patiently for their coming all the time. A well known mineral water,
within the past two years, paid according to my positive knowledge
$2500 for their trade-mark and considered that they got off
remarkably cheap. The price originally asked was $20,000 and their
representative spent three months on the ground using every
possible means to reduce the figures of the original demand. In the
meantime nearly 500 cases of the water in question were held up by
the authorities, who refused to allow them to be landed until they
had the written consent of the native holding the registration papers.
A prominent typewriter company flatly refused to pay the excessively
high sum demanded by the party holding the right to use their trade
mark, reversed its name, and now sells its machine by this
unpronounceable designation. Pages could be filled with similar
illustrations, showing the great importance of properly protecting
your trade mark at the start.
 XXV
FINANCE AND CREDITS

The science of foreign banking is the most difficult to understand

of all the departments of modern finance. It requires the experience
of experts whose knowledge must be the most profound and
complete and includes such details as the conditions of the world’s
markets, the existing crops, factory productions, local and
extraneous political affairs, as well as external and internal
commerce.
European financiers and merchants soon recognized the
importance of reciprocal banking arrangements between the home
countries and foreign fields and as early as 1862, anticipating the
growth of Latin America and sensing the financial necessities of its
future merchants, opened the London and River Plate Bank, which
with its ramifications of branches and agencies in Argentine, Brazil,
Chile, New York, and various European countries has been a potent
factor in developing and controlling business along British channels.
Following the pioneer move of this corporation, other institutions
were organized in England, until to-day the amount of British capital
invested in banks in all of Latin America is close to $500,000,000.
 Calle Rivàdavia, Buenos
Aires

Realizing the benefits to be derived from such monetary

connections in these countries and knowing that a bank’s co-
operation meant much to both the buyer and seller and formed
perhaps the strongest link in the chain of foreign commerce with
which they hoped to girdle the world, Germany followed in the
footsteps of England and opened a similar series of institutions in the
same territories, even going so far as to have branches in England,
knowing the decided preference for “bills on London.” Through their
offices in the English capital, they succeeded in keeping as much as
possible of the business they acquired abroad in their own hands,
reaping all possible profit from every transaction. In their turn, and
as their foreign trade demanded it, France, Italy, Spain and
Switzerland entered the field but on a much smaller financial basis,
at the same time restricting their activities so as to confine them
more to the home countries and to persons of their own nationalities
engaged in this field of commerce.
Only recently have statutory and business conditions warranted
the advance of the American banker into this sphere of finance. To-
day in Latin America our banking institutions may be found in the
Argentine, Brazil, Panama, Cuba, Santo Domingo, Porto Rico,
Mexico and to a small extent in Haiti. As it becomes apparent that
our merchants and those of other countries require financial
organizations to further and facilitate trade with the United States,
additional establishments will be opened in these lands until
ultimately the dollar will be so enthroned in the estimation of the
business world that it need pay no homage to the Pound Sterling,
which up to the present has been Emperor Supreme in the Realm of
Finance.
That this movement is judicious no one familiar with this trade
will for a moment dispute. The ability of the British banks, through
their strong financial arteries, gave them exceptional opportunities
to force business into the hands of English merchants, by obliging
the seller of exchange, for example, in Buenos Aires on New York to
pay from 1 per cent. to 1.5 per cent. more than if he sold on London,
or if he desired to buy, to pay a correspondingly higher price for a
draft on New York than on London. In addition to exerting thus their
powers through a high rate of exchange to drive merchants into
British markets, the profits in the transfer of money incident to the
transaction were enormous. The truth of this statement is vividly
apparent when we are told that in 1912, “bills on London” valued at
$9,025,000,000 were sold, on every penny of which a fraction of a
per cent. of profit was made by English bankers.
It is not deemed necessary for the purpose of this work to go into
the intricacies of the banking problem in Latin America. Such
incidents as local loans, credits and financing, need not concern us,
and are best left for solution to those in this line of business. It is to
be hoped however that the presence of American banking
institutions throughout Latin America will result in the financing
with American money of municipal and national improvements such
as water-works, sanitation, electric and gas companies, subways,
harbor improvements, fortifications, building of warships,
telephones, electric and steam railways. It was the custom of the
European financier in making such loans to stipulate that the work
should be done under the supervision of citizens of, and with articles
and machinery purchased in, the country placing the loan. This was
as it should be. It gave their engineers and contractors an
opportunity to force upon these countries their products and
methods, provided permanent employment for many of their
countrymen, who in return created a demand for articles of home
production.
 We may therefore consider the banking situation only in so far as
it applies to the traveller, the house he represents and the customer
he sells in the accommodation it can afford them and the service it
may render all parties. One of its chief uses will be to give reliable
information as to the credit rating of customers.
From a financial point of view all of Latin America may be divided
into seven groups: (1) the east coast countries of Brazil, Argentine,
Uruguay and Paraguay; (2) the west coast countries of Chile, Peru,
Bolivia and Ecuador; (3) the northern countries of Venezuela and
Colombia; (4) the Central American Republics of Guatemala, San
Salvador, Nicaragua, Costa Rica, Honduras, with which Haiti may be
considered; (5) Mexico; (6) the countries wherein American banking
systems exist, such as Panama, Cuba, Santo Domingo and Puerto
Rico, and (7) the extensive group of foreign possessions and islands
such as British, French and Dutch Guiana, British Honduras,
Trinidad, Barbados, Jamaica, Martinique, Guadeloupe, Curaçao and
St. Thomas.
The first and second groups of these South American countries are
almost entirely under the domination and control of the European
financier, the English being paramount, followed by Germans,
French, Italians and Spanish, in the order named. Throughout Brazil,
Argentine, Uruguay, Paraguay, Chile, Bolivia, Peru and Ecuador, in
all the larger cities and ports, as well as in the interior and isolated
towns, where business is to be had, may be found branches, agencies,
or representatives of banking houses of these nationalities. They
keep their fingers on the pulse of trade, know mine outputs, crop
prospects, cattle productions, stability of governments, possibilities
of revolutions or political unrest, the condition of business—in a
word everything that has any bearing on banking or that could by
any possibility reflect on the money market. Taking all these
elements into consideration together with the important factor of the
question of supply and demand, they decide the price of exchange
each day or how much a merchant having a foreign obligation to
meet, must pay for the necessary sum to liquidate his indebtedness.
Very naturally a better price is quoted for the money required if
payment is to be made in coin of the bank’s nationality for the reason
that it necessitates less actual movement in the medium of exchange,
the entire transaction as a rule being done on paper. This
preliminary saving of a fraction of a per cent. in a big business means
much in the course of a year and it has a strong tendency to make the
buyer seek markets so situated that he might profit thereby. On the
other hand the Latin American trader desiring to remit to the United
States for goods bought in this country is forced because of lack of
direct financial connection in South America to buy his exchange on
London, Hamburg, Paris or some other European money center,
thereby giving the European banker a profit of a fraction of a per
cent. on every dollar of our foreign business. Furthermore, invoices
and bills of lading are frequently attached to banking documents for
custom house clearance and other purposes, thereby giving the
European banker and through him, his clients and friends, an
opportunity of learning our prices and terms. And so, not content
with giving the foreign financier a chance to make money on our
export trade, we also aid our greatest competitors by supplying
prices and information to defeat our commercial purpose.
Some mercantile houses in the larger of these countries maintain
for their own use accounts in New York against which they draw
when liquidating bills in the States and do a general banking
business as well, including the cashing of drafts and selling of
exchange. Obviously only a large business concern could afford to do
this and their natural tendency is to sell direct exchange on New
York as high as the European banks. The dealer with small capital or
the foreign merchant is invariably for one reason or another forced
as a general rule to do business through the European banker when
in need of American exchange.
In both Venezuela and Colombia, their nearness to the United
States, a direct steamship service to our leading ports and the fact
that we as a nation take the bulk of their products, combine to
overcome all attempts on the part of Europeans to establish banks in
these countries. As the local exporters ship their goods to our shores
where they are disposed of they instruct their agents to deposit the
moneys so received in local American banks, against which they
issue checks in liquidation of indebtedness, thereby eliminating the
necessity for the services of the international banker. Local banks in
these countries, never very strong, and always subject to forced loans
from financially embarrassed governments, do not enter materially
into the business life of the community although they also maintain
credits in New York and sell drafts against them. The consequence is
that every leading merchant throughout these lands develops into a
foreign banker, on a small scale, and buys and sells exchange. As
long as this condition prevails, and it works most satisfactorily, the
foreign bank will not be required to open its doors.
Practically the same state of affairs occurs in Central America, the
general tendency to political unrest and the existence of an
inconvertible paper currency in some of these countries, (similar
conditions being current in Colombia) serve to emphasize distrust in
local banks and concentrate banking operations in the hands of the
larger mercantile houses.
Prior to the revolutionary troubles which are now convulsing
Mexico, American, English, German, French and Spanish banks were
to be found throughout that country. The presence of the American
banker in this territory and the great bulk of trade movements
between Mexico and the United States, kept the price of exchange
within reasonable bounds.
In Panama, Cuba, Santo Domingo and Porto Rico, American banks
exist and American currency is in use almost exclusively. All financial
calculations are made in dollars and cents and a complete and
perfect system of exchange on leading cities of this country is current
so that the subject need not be further discussed.
As is to be supposed, the European countries having possessions in
the West Indies and South or Central America, very naturally have
banking facilities between these colonies and each mother country.
In addition, prominent Canadian banks have successfully established
branches in the largest of the British colonies for the purpose of
building up direct trade with the Dominion of Canada, thereby
eliminating the tribute London usually demands on exchange.
Although we take much of the exports and sell these possessions
most of their necessities, still the individual business done in each
island or colony is relatively small and the field of operation too
restricted to warrant other banking connections. Besides exchange
on New York is cheaper here than elsewhere, owing to the fact that
both Canadian and English banks maintain branches in that city. In
the other colonies merchants, as a rule, have personal accounts in
American banks in the States and are thereby enabled to handle their
own transactions advantageously.
 There are four monetary systems in use in Latin America: (1) the
gold standard, wherein gold is the only legal tender, other forms of
money being maintained at a parity with or without a government
guarantee; (2) the gold exchange standard, wherein gold and other
forms of money are legal tender, the conversion of the legal tender
into gold being guaranteed by the government; (3) the silver
standard, wherein silver is the legal tender, and (4) inconvertible
paper, the value of which continually fluctuates and is dependent
entirely upon the stability of the government’s credit.
The gold standard is used by Bolivia, Cuba, Costa Rica, Ecuador,
Peru, Porto Rico, Santo Domingo, Uruguay, the British, French,
Danish and Dutch West Indies and possessions.
The gold exchange standard is in use in Argentine, Brazil, Mexico,
Nicaragua and Panama.
The silver standard is current in Salvador and Honduras.
Inconvertible paper is found in Chile, Colombia, Guatemala, Haiti
and Paraguay.
The basis of exchange between countries depends primarily on the
relation existing between the gold value of their respective moneys,
the price paid being materially influenced by the condition of the
balance of trade and the social or political state of the country. For
example, with the balance of trade in favor of England, the price of
exchange on that country would go up a fraction of a point or so,
while if a country is in a state of political or economic unrest, or at
war, the price of exchange on it goes much higher than if conditions
were normal. For these reasons exchange in all countries varies daily,
the price for the day being decided upon the receipt of European
cables from the home institution. It will therefore be apparent that it
is impossible to determine a fixed rate of exchange for any definite
period. By buying when exchange is low and selling when it is high,
much money can be made, especially if the sum involved is large. The
United States did a gross business with Latin America in 1912 of
$526,468,815, practically all of which was paid for by European
exchange. Assuming that the commission charged was one-half of
one per cent., the cost to the American merchant would be
$2,632,344, which in itself is a strong argument for American banks
in these lands.
 Furthermore the home offices of all of these European banks
having branches throughout Latin America, have had in mind the
rendering of financial assistance to the home merchant or
manufacturer. This was especially true of the German organizations,
which were designed to foster and facilitate commercial relations of
all kinds abroad. In the headquarters of these institutions, complete
records and data are kept regarding all overseas merchants, their
credits and the financial turnover of their business each year being
known. As a consequence when the exporter presented his shipping
documents at say Hamburg, the bank, should he so desire, knowing
the rating of the importer, discounted the bill, and for the service
rendered charged a commission, while the Latin American customer
had the benefit of the time agreed upon for payment, according to
the terms of the sale. Compare this perfect system of the banks
extending courtesy to the exporters and the importers with the
American policy of “cash against documents” and we see another
vital reason why the Europeans succeeded in their conquest of these
markets. The American manufacturer with small capital was
handicapped. His business demanded a quick turnover; he had no
way of ascertaining Latin American credits and no American banking
connections to accept his export shipping documents at a discount.
As a consequence, the door of this trade was closed to him and his
productions.
Owing to the fact that gold coin is bulky and heavy to transport
and paper money of a foreign nation always worth as a rule much
less than its face value, a traveler is accustomed to carry what is
known as a Letter of Credit. This is a document issued by a bank to a
person or concern authorizing him or it to draw on the bank or its
correspondents drafts for the whole or any desired part of the sum
named in the Letter of Credit, by means of sight or time drafts.
Customary means to prevent forgery of the holder’s signature are
provided. On presenting this document to the bank’s foreign
correspondent, the sum desired is advanced in the money of the
country or in the monetary terms expressed in the Letter of Credit.
These Letters of Credit are always time limited and are made against
cash or some suitable guarantee to the bank issuing them.
In traveling in South America it is advisable to have two different
Letters of Credit, one in Pounds Sterling and the other in Dollars. In
Central America, Venezuela, Colombia, the British, Dutch and
Danish West Indies it is often more advantageous to use dollars
when buying exchange or getting cash on the Letter of Credit, while
in Chile, Argentine, Brazil and Uruguay, pounds sterling are better.
Before selling exchange on your Letter of Credit or realizing money
on it, always visit the banks and see which one offers the best rate
and whether English or American gold is in demand. By taking
advantage of these conditions much money can be saved in the
course of a long trip. The opening of American banks in Latin
America will do much toward making the dollar popular and
travelers are advised to take out letters of credit through United
States banks with local branches in these lands.
It has been the understood custom for the correspondent banking
house on whom a letter of credit was drawn to give the holder all
information desired as to the rating and financial standing of local
merchants and to aid him in every way possible. This was done in
theory more than in practice. Assuming that your letter of credit was
on an English bank in Buenos Aires, and that you were selling cotton
goods, it would be most natural for the bank manager in Argentine to
evade all direct information as to a possible customer’s standing,
especially if his home institution had been discounting bills for a
good client in England drawn against the local merchant. This is
generally the attitude of bank managers in competitive lines and
particularly when there is a tendency to cut into the trade of their
customers. In this regard they can hardly be blamed for they are
really protecting their patrons. If however, one is selling flour, or
something which England cannot produce, the desired information
is given fully and freely and every assistance rendered. Native or
private bankers are not so reliable or as trustworthy sources of
information.
In only two or three South American countries are there
responsible commercial agencies; therefore, after getting what data
you can from the bank it is always well to verify it by any other
means at hand. Customers will often give references either in Europe
or America as to their standing, which should be corroborated.
Inasmuch as you desire information as to your clients’ credit and
standing, you should be equally willing to establish the reputation of
your house and to that end should assist as much as possible in
supplying whatever facts in this connection may be wanted.
To illustrate the insufficiency of our knowledge regarding Latin
American credits, let me cite a personal experience. At the beginning
of the war in Europe, one of the largest daily papers in Buenos Aires
was refused credit for less than $100.00 a week of cable news,
because there was no really reliable means in New York of satisfying
the manager of the foreign press agency that the paper was of the
highest financial standing. A moratorium had been declared in the
Argentine and Europe and at that time no direct banking
connections existed with the United States. This condition of affairs
only served to make the New York manager insist that the service be
paid for weekly. He was absolutely unwilling to extend credit for
even ninety days, provided the paper paid the cable tolls in Buenos
Aires, which it had offered to do. The publication, its plant,
equipment and the building it owns and occupies are easily worth
$5,000,000. Furthermore it is eminently responsible and reputable.
With all the manifold resources of a great, wealthy newspaper, it was
absolutely impossible for it to remit money to the United States to
get the war news so essential for its readers. Cables to Europe were
cut, as the world knows, thereby preventing it from getting reports
from this source. Its position was desperate. After finding that efforts
to obtain the desired service from the press agency were useless and
that no credit would be extended, the South American editor, in
despair, cabled me, and I financed the paper for five months, paying
weekly the bills incurred. With the opening of the National City Bank
in Buenos Aires, remittance in full with interest was made for the
money I had advanced, the draft sent me being one of the very first
issued by that institution. This American news association had a
great opportunity to establish a profitable connection in a country
where a service of this kind is badly needed, for the favorable attitude
of the press is of the greatest benefit in developing both business and
friendly relations between nations. Instead of taking advantage of the
situation, the position it assumed has positively hurt us as a nation.
One of the things to be met and overcome is the question of long
credits. European merchants originally extended much time to
reliable customers. Instances are on record of from twenty-four to
thirty-six months being given. Goods were often shipped on
consignment. The tendency of late, however, as business became
established in these lands has been to curtail credits. This condition
is one which demands delicate and diplomatic handling and very
naturally will be materially controlled by circumstances. European
banks were organized, as hereinbefore explained, to discount long
time paper, provided the drawer and the drawee were considered
good risks. The Federal Reserve Act, however, falls short of helping
us in this regard for the life of a foreign negotiable draft is limited by
it to ninety days.
Long credits are not to be encouraged. They were excusable in the
age of the sailing ships and poor banking facilities, but with the quick
transportation service of to-day are unwise and unnecessary. Under
no conditions should more than six months time be allowed and that
only for some special line dependent upon some future contingency,
such for instance as crops—agricultural machinery being a good
illustration. Staples and necessities require less time to dispose of
and ninety days should be ample. If possible it might be wise to get
the customer to agree to pay one-third of the invoice on receipt of
shipping documents and the balance in sixty or ninety days. On
overdue accounts, the Latin American merchant has always been
accustomed to pay a good rate of interest.
 XXVI
PACKING AND SHIPPING

The method of packing goods intended for the export markets of

Latin America is worthy of the greatest study and the most serious
consideration. Poor and improper packing, so characteristic of
American made goods, has caused us the loss of much business, and
wherever I have been in these countries it has formed the subject of
much unfavorable comment and highly warranted criticism. Of late
there has been a slight tendency toward improvement in this really
important branch of the foreign trade, but there is still much
opportunity for bettering conditions in this regard.
In the United States with every forwarding facility, the largest, best
and most complete transportation systems on earth, we are prone to
think of the rest of the world as being similarly provided with
modern methods for handling goods. The fact is that the burro, the
llama, the camel, the elephant, the coolie and the Indian are yet the
greatest common carriers, and it will be many, many years before the
shrill whistle of the locomotive will supplant the jingling bells of the
pack train, or the slow moving caravan, in the outer edges of terra
firma. In Latin America to-day, in proportion to its size, there are
comparatively few railways, and fully another century will elapse
before it possesses half the amount of mileage that we have at
present in the United States. This is primarily due to the scarcity of
population and secondarily to the inaccessibility of many of its
interior towns, built in early days in remote and secluded spots so as
to be free from the frequent invasions of buccaneers, as were the
coast cities, or for the purpose of being near some rich mine or fertile
agricultural district. The narrow mountain trails that wend their
circuitous and tiresome way along the gigantic buttresses which
Nature has so profusely placed throughout this part of the world are
the only routes to these inland cities. As a rule they are hardly wide
enough for two mules or pack animals to pass, except at certain
localities. On one side they are bounded by the walls of snow-tipped
mountains, which raise their majestic heads into the clouds, while on
the other yawning abysses, hundreds, sometimes thousands of feet
deep, open their gaping mouths, along the bottom of which winding
watercourses wend their way to the sea.

Photograph by Underwood &

Underwood

A Pack-train on the Andes Trail in Colombia

“In the United States with every forwarding

facility, the largest, best and most complete
transportation systems on earth, we are prone to
think of the rest of the world as being similarly
provided with modern methods for handling
goods. The fact is that the burro, the llama, the
camel, the elephant, the coolie and the Indian are
yet the greatest common carriers”

Many of the ports of Latin America are open roadsteads, such for
instance as Mollendo, Peru, one of the gateways to the interior of
that country and Bolivia as well. At certain seasons of the year it is
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