Legal Affairs magazine tells the secret history of the yellow legal pad. From the article, by Suzanne Snider:
In 1888, Thomas W. Holley, a 24-year-old paper mill worker in Holyoke, had an idea for how to use the paper scraps, known as sortings, discarded by the mill. Sortings were anything trimmed away as scrap or considered of lesser quality than the writing paper eventually packaged and sold. Holley's notion was to bind the scraps into pads that could be sold at a cut rate. Convinced he had a winning idea, he founded his own company to collect the sortings from local mills (Holyoke was then the papermaking capital of the world) and began churning out bargain-price pads.
The legal pad's margins, also called down lines, are drawn 1.25 inches from the left edge of the page. (This is the only requirement for a pad to qualify as a legal pad, though the iconic version has yellow paper, blue lines, and a red gummed top.) Holley added the ruling that defined the legal pad in the early 1900s at the request of a local judge who was looking for space to comment on his own notes...
Some believe that writing on a yellow pad is easier to read than writing on a white pad. But Israel Abramov, a professor of psychology at Brooklyn College and a specialist in color vision, dismisses the theory. Readability, he says, is more a matter of contrast–how the color of the ink interacts with the color of the paper–than of the paper color alone...
Abramov prefers a psychological to a physiological explanation for yellow's predominance. "White paper that sits around starts to look yellow and old," he said. "I heard of one professor who used yellow paper for his lecture notes because he didn't want his students to know how old the notes were."
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