1 /-I =• y <.>f z ^^ %■% .0 ri Business Barometers used in the Accumulation of Money A Text Book on Fundamental Statistics for Merchants, Banl^ers and Investors By Roger Ward Babson Published at BABSON'S COMPILING OFFICES Wellesley Hills, Mass. U. S. A. First Edition Copyrighted 1909 Second Edition Copyrighted 1910 by Roger W. Babson €n!.A265518 2)cC»icateD to GEORGE FILMORE SWAIN Professor of Civil Engineering Harvard University " People will endeavor to forecast the future and make agreements according to their prophecy. Speculation of this kind by competent men is the self-adjustment of society to the probability." — Judge Holmes in a United States Supreme Court decision. "/ hold that a man who is long-headed, who foresees and judges accurately, has an advantage over his neighbor, and it is not accounted immoral for him to use that advantage, because he is individually better fitted for the business; and it inheres in him by a law of nature, that he has a right to the whole of himself legitimately applied. If one man, or twenty men, looking at the state of the nation here, at the crops, at the possible contingencies and risks of climate, at the conditions of Europe; in other words, taking all the elements that belong to the world, into consideration, are sagacious enough to prophecy the best of action, I don't see why it is not legitimate.'' Henry Ward Beecher. PREFACE A AMERICANS, when travelling abroad, are amazed to find that very few reputable bond houses In London, Paris, Amsterdam, Berlin and other large cities have salesmen on the road. Compared with nearly one hundred such houses in New York, there are only about twelve in London, and four in Paris, though the two latter cities, owing to their age and wealth, should have many more than the American city. In fact, those few w^hich do exist are not classed with bankers, nor brokers; but rather with mer- chants. If one will look in the London Telephone Directory for the name of the largest distributors of inactive American bonds in England, one will find such firms listed simply as "Merchants," with nothing to distinguish them from coal merchants or cotton merchants. The reason for this is simple. The old fashioned London bankers believe that it is wrong for a firm to urge continually the purchase of stocks and long term bonds, since there are periods when such se- curities should not be purchased. But since the maintenance of an expensive sales force would make it necessary to offer and recommend such bonds continually, and since there is practically no profit in high grade short term notes, they refrain from having any salesmen. In fact, some of the largest, oldest and most successful Continental firms con- fine all of their business to about six months out of every three years. For a few months they will buy very heavily for their clients and themselves and then, as prices strengthen, cease entirely from purchasing and ad- vise their clients simply to use their income to pay up their loans. In the course of from one to four years, they will then sell all of these securities and again have a busy six months loaning the money until they see by their study of fundamental statis- tics that it is again time to buy. Of course, this may seem a slow process to the get-rich-quick American, but the results are abso- lutely sure, the operating expenses of such a business are very low, and the reward of such a firm in the course of years is a large and loyal clientel. Believing that every American bond dealer and stock broker should be better acquainted with the details of these European methods, and especially of their system for forecasting conditions and de- ciding when to buy and when to sell, we have pre- pared this book. The writer of this book wishes to acknowledge the aid which he has received from many friends abroad. He wishes also to thank his efficient corps of assistants who have aided greatly in the com- pilation, and commends the various books, papers and periodicals which he has quoted from or used In other ways. Especially does he commend the work of Mr. Henry Hall, one of the first American writers to grasp the situation with which this work deals. He also wishes again to thank his many friends In the various Stock Exchange Firms, Bond Houses, and Banks who have been patient during the ex- perimental and formulative stages of this work. These friends have not only recognized the difficul- ties under which the work has been performed, but have always aided greatly by criticisms and sug- gestions. May the writer never abuse this friend- ship. R. W. B. Wellesley Hills, Mass., March, 1910. TABLE OF CONTENTS Page CHAPTER I. Two Classes of Statistics 13 CHAPTER n. Range of Stock ]Market Since 1860, Showing the PossibiHties of Profit to an Investor ... 30 CHAPTER HI. Range of Commodity Market Since 1860, Showing the PossibiHties of Profit to a Merchant . . 75 CHAPTER TV. The Theory of Fundamental Statistics ... 94 CHAPTER V. Conditions and Events Since 1860 .... 115 CHAPTER VI. Subjects Relating Especially to Mercantile Conditions 170 CHAPTER VII. Subjects Relating Especially to Monetary Conditions 207 CHAPTER VIII. Subjects Relating Especially to Investment Conditions 307 CHAPTER IX. A Talk on Coppers ....... 356 CHARTS. 1. Chart Showing the Range of the Stock Market Since 1874 30 2. Chart Showing the Range of the Commodity Market Since 1860 74 3. Composite Chart Based on Twelve Leading Subjects 94 4. Chart of Course of Money Following Four Great Panics . . 228 5. Course of Stock Market in Four Panics . . 250 FOREWORD "A study of past disturbances leads to the convictio7i that no severe depression has occurred which was not preceded by loud warnings. These warnings ought not to pass unheeded and in order to recognize them promptly, it is necessary that accurate statistics be furnished. Much improvement has been accomplished in the last few years, though it is to be regretted that so much of our statistical information is fragmen- tary or inaccurate. Official and private publications furnish much valuable information. They include voluminous figures of deposits and loans of banks, movement of specie, exports and imports, railway earnings, wholesale prices, and the condition and probable yield of crops. A vital defect in many of them is the omission to give, for purposes of compari- son, similar figures for previous months and years. Another defect is the absence of uniformity in the 7nethods and classification employed. These compara- tive statistics would afford a means of determining the trend of events, and give warning when prices are un- naturally high or any branch of business is overdone. It is also noteworthy that we do ?iot sufficiently con- sider statistics relating to the course of affairs in for- eign countries, the influence of which upon our own condition is of the utmost importance, by reason of the enlargement of our trade and the closer interna- tional relations of modern commerce. Other statistics, which are inadequate or lacking and which would be of great value, are those pertaining to the employment of labor, capital invested in new enterprises, amounts expended in new construction, volume of production in the various kinds of manufactures, and statistics of state banks and savings institutions similar to those pertaining to national hanks. After making due al- lowance for the insufficiency of statistics, it must he said that the failure to pay sufficient attention to those already availahle is equally to he regretted.'" The ahove was written in 1902 hy Hon. Theodore E. Burton, U. S. Senator from Ohio, and is very interesting as a matter of prophecy. The ^^ vital de- fects'' mentioned have now heen overcome and we are ahle to ohtain and furnish regularly the identical com- parative figures which he then so much desired. CHAPTER I TWO CLASSES OF STATISTICS STATISTICS are divided into two classes, viz.: Comparative Statistics and Fundamental Sta- tistics; and the following gives a short de- scription of these two classes : (1) COMPARATIVE STATISTICS So far as the merchant is concerned, comparative statistics relate to the w^eight, quality, age and method of manufacture of the merchandise in which he deals, together with such "trade figures" as are published in the trade journals. From the investor's point of view, comparative statistics include all particulars concerning the bonded debt, the earnings, and the general physical and financial condition of properties. Such statis- tics are very necessary to bankers and investors for comparing similar securities of different companies, or different securities of the same company. If such data is always up to date, such comparative statistics are very valuable for enabling one to se- lect safe securities, either for permanent investment or for buying and selling again. As the largest and most successful stock exchange brokers, bond houses and mercantile firms are already well supplied with comparative statistics and, so far as they are useful, are obtaining excellent results from them, 14 BUSINESS BAROMETERS we shall not here discuss details concerning this class. It should be clearly understood, however, that such statistics are worthless for determining the general course of the entire market. Comparative statistics determine only actual values, enabling one to select safe securities, or good merchandise, or to select the better of two or more companies' securities or grades of mer- chandise. With the general market conditions remaining fixed, comparative statistics might be used for forecasting a rise or a decline; but the general market is so seldom stable, that compara- tive statistics cannot be depended upon to serve this purpose. It is this fact, that the}- are inade- quate for analyzing general conditions, that has brought comparative statistics into ill-repute. The market value of securities or merchandise may con- tinually decHne, and the actual value of the same increase, or vice versa. Whoever bases either purchases or sales upon earnings, physical conditions or other comparative statistics with the idea of selling at a profit, will surely lose money. Note the phrase "with the idea of selling at a profit." Such statistics may be used for selecting a safe investment, or good mer- chandise, such as one may desire to hold perma- nently or possibly for a "long pull"; but they are absolutely worthless for "short terms." It is be- cause this fact is not being recognized by many firms, content with accumulating only comparative statistics, that even with their elaborate statistical departments, they are often on the losing side. In TWO CLASSES OF STATISTICS 15 short, comparative statistics treat only of surface conditions. (2) FUNDAMENTAL STATISTICS. Fundamental statistics relate to underlying conditions of the country and make it possible to forecast demand, supply, money conditions, etc. Fundamental statistics, although now used by only the most careful investors and merchants, are by far the most necessary and profitable. It is the purpose of this hook to show the impor- tance of considering underlying and fundamental conditions before buying or selling securities or mer- chandise. All financial history has consisted of distinct cycles, and although of different durations, each cycle has consisted of four distinct periods, namely: 1. A Period of Prosperity. 2. A Period of Decline. 3. A Period of Depression. 4. A Period of Improvement. Moreover, the laws of nature, commerce and in- dustry determine that these cycles shall always con- sist of four distinct periods. The idea that pros- perity can ever become permanent and will not be followed always by a business depression, or the idea that there can be an unlimited period of de- pression without succeeding general activity and high market prices, shows both ignorance of eco- nomics and utter inexperience in the business world. Theoretically, there should be a state where everybody is properous and nobody over-trades. 16 BUSINESS BAROMETERS where the cost of Hving is reasonable, and the wage- earner has a margin to save for old age or establish a higher standard of comfort. Yet it is true that we have never so far seen a condition so equable. The record of crises and booms can be carried back beyond the history of this country, and we can start from the opening years of the eighteenth cen- tury when William of Orange was on the English throne. We can trace therefrom a commercial cycle once in five to ten years, and we can carry it into the last century with conditions exactly re- flected on this side of the Atlantic. "A condition of equilibrium is apparently the most difhcult of all for the world's trade to maintain. We can theorize about crops, consumption, capital, labor, and a score of other factors, but human nature is, after all, at once the least stable and the most unchange- able factor of them all. "Business may be quietly good, but that ambi- tion to which we probably owe also the greater part of the world's progress insists upon forcing it beyond reasonable capacity. The result is always the same. The result of years of saving is over- confidence, inflation, waste, conversion of floating wealth into fixed wealth, and finally, collapse and panic. Here is the plain evidence of 200 years, and, it may be assumed at no risk that it is the evidence of all commercial systems. Joseph with his seven fat years and his seven lean years expressed nothing more. "What is not so readily realized is that a panic is followed by rapid recovery in stock prices, and TWO CLASSES OF STATISTICS 17 one slower but still relatively quick, in general business. This again is followed by an arrest in business where, contrary to assumptions just as hasty and ill-balanced as those which caused the bear attitude on the panic break, boom conditions are not immediately restored, nor does anything of the kind develop within a year or so after the crisis. The first recovery runs too far and has always run too far. What follows is not collapse, but dullness. It becomes imperative to make real savings in order to build up for the next boom in business." A list of twenty-five subjects about which merchants and investors systematically collect, analyze and index statistics is given in Chapter IV. These are the subjects studied by the oldest, richest, and most conservative financial and mercantile houses of the world for determining which of the above mentioned periods the country is experi- encing or is about to enter at any given time. The use of Fundamental Statistics eliminates all guess- ing and uncertainty concerning mercantile or stock market movements. The only requirement is to collect, tabulate and study the weekly and monthly figures as they are received. These plainly show whether the general tendency of the market is upward or downward and whether it is the time to buy or sell, or to do neither. As above stated, these fundamental statistics are even more important than comparative statistics. Not only are the latter of little value, unless sup- plemented by these fundamental statistics, but ex- perience has shown that such investors as have con- 18 BUSINESS BAROMETERS fined their operations to standard securities, and such merchants as have bought standard goods, have made fortunes for themselves and their cus- tomers by a study of these fundamental statistics exclusively. The ablest bankers, merchants, and investors collect data under twelve headings, or on about twenty-five subjects, as follows: I. Building and Real Estate: (1) Including all New Building and Fire Losses. II. Bank Clearings'. (8) Total Bank Clearings, (9) Bank Clearings excepting New York. III. Business Failures: (12) Failures, by num- ber, amount and percentage. IV. Labor Conditiojts: (13) Immigration Fig- ures. V. Money Conditions: (2) Money in Circu- lation, (3) Comptroller's Reports, (4) Loans of the Banks, (5) Cash held by the Banks, (6) Deposits of Banks, (7) Surplus Reserve of Banks. VI. Foreign Trade: (14) Imports, (15) Ex- ports, (16) Balance of Trade. VII. Gold Movements: (17) Gold Exports and Imports, (18) Domestic and Foreign Exchange, and Money Rates. VIII. Commodity Prices: (20) Production of Gold, (21) Commodity Prices. IX. Investment Market: (10) Stock Exchange Transactions, (11) New Securities. X. Condition of Crops: (22) Crop Conditions and other Commodity Production. XL Railroad Earnings: (23) Gross and Net TWO CLASSES OF STATISTICS 19 Earnings, (24) Idle Car Figures, (25) Miscellaneous. XII. Social Conditions: (19) Political Factors. These twelve subjects have by custom come to be known among merchants as the Twelve Barom- eters of Trade and may be briefly described as follows : I. The number of miles of new railroad con- structed, together with figures on building statistics, gives a clew to what new construction work is going on throughout the country. The exactness with which business conditions could have been foretold in the past by such figures Is truly marvellous. It may also be stated that Iron Is one of the first com- modities to fall in price and one of the first to rise; therefore all merchants watch the price of iron. II. Bank Clearings are an extremely good ba- rometer of present conditions and are watched with keen Interest by all successful merchants and manu- facturers. Many large corporations each week compare the changes in their total sales with the changes in the total bank clearings of the country. If they find that bank clearings continually show an Increase, while their sales remain fixed, they Im- mediately endeavor to ascertain the reason therefor. Moreover, some firms divide the country Into sections and compare by sections their sales with the bank clearings for said sections, thus having a check on the work of each Individual sales oflice. III. Failures, both in number and amount, are especially good barometers of the conditions of trade. By ascertaining each month the average number of concerns in active business and the 20 BUSINESS BAROMETERS number that have failed, the percentage of failures may be readily determined. Contrary to the or- dinary impression, it is too few failures which fore- tells disaster and panic. IV. Figures on immigration are carefully studied by manufacturers as indicative of the conditions of the labor market. The arrival of thousands of immigrants at Ellis Island indicates good surface conditions, with high prices for labor; but too large immigration figures foretell a change in conditions, followed by a period of depression. On the other hand, when large numbers of steerage passengers are leaving the country and the incoming steerage is reduced, business is in a state of depression; and only when the tide turns and immigrants again be- gin to arrive, is it a sign that conditions are again improving. V. Money is the basis of all trade and is there- fore probably the most sensitive of all barometers. Money is the representative in value of all things traded in and the scarcity of it seriously hampers the manufacturer and the merchant. Low money rates usually indicate poor present conditions but tending toward improved business ; while high rates usually signify very prosperous present conditions but often foretell a coming panic. The active mer- chant, moreover, not only studies the money rates of this country, but also the average of the bank rates of England, France, and Germany. Each Thursday the Bank of England publishes a state- ment and makes an announcement as to the rates of discount at which it will handle first-class paper TWO CLASSES OF STATISTICS 21 until further notice. This practically fixes the dis- count rate throughout Great Britain, and a con- tinued rise or fall of the rate in England is sure to be followed eventually by a similar movement in this country. VI. Figures on foreign trade are also of great value. The foreign trade of the country bears the same relation to the nation as a whole, as the in- come and expense of an individual bear to the finan- cial condition of the said individual. A man who for any length of time spends more money than he receives, is sure eventually to have trouble, and it is the same with the nation. Moreover, as the financial prosperity of the individual is almost in direct proportion to his net income, so the prosper- ity of a nation very largely depends upon the vol- ume of its foreign trade. VII. Monthly gold movements are also impor- tant for study in forecasting money rates, although like idle car figures, they are of little value after the actual annual figures are published. VIII. The subject of commodity prices is very^. important. The amount of money required to carry on a definite volume of business becomes very much greater as business increases. For this reason, bankers very carefully watch commodity prices, knowing that high money rates invariably follow a marked increase in commodity prices. IX. The transactions and prices of stocks on the New York Stock Exchange are also interesting to merchants, as well as to investors. The way money is made on the New York Stock Exchange is b\' 22 BUSINESS BAROMETERS anticipating price changes. The leading operators have statisticians continually studying fundamen- tal conditions in order to forecast future conditions, and base their purchases and sales on the inform- ation obtained. Theretoe, a slowly sagging rn^rket usually means that fne ablest speculators expect in the near future, a period of depression in general business; and a slowly rising market usually means that prosperous business conditions may be expect- ed, unless the decline or rise is artificial and caused by manipulation. In fact, if it were not for manip- ulation, merchants could almost rely on the stock market alone as a barometer, and let these large market operators stand the expense of collecting the data necessary for determining fundamental conditions. Unfortunately, however, it is impos- sible by studying the stock market alone, to dis- tinguish between artificial movements and natural movements; therefore although bankers and mer- chants may watch the stock market as one of the barometers, yet they should give to it only a fair and proportional amount of weight. X. Of all statistics published by the govern- ment, the most important to the merchant are Crop Reports. Most of the government figures refer to what has happened in the past, and many of these figures are published a year or more after the events have happened. In the case of the crops, however, the government actually forecasts. Therefore all crop statistics are especially valuable to manufacturers and merchants. The crops are the mainstay of America and ap- TWO CLASSES OF STATISTICS 23 proximately one-half of our population are depend- ent upon agriculture. Crop conditions form the basis of James J. Hill's predictions and business ventures, and Mr. Hill, by the way, is a great stu- dent of fundamental statistics. The principal crops, grain and cotton, have a tremendous influ- ence upon our Avealth. Many industries and mer- cantile firms are absolutely dependent on the crops, and commodity prices are always more or less de- pendent thereon. The grain reports and cotton reports issued by the government are watched with great interest, and manufacturers and merchants even watch the weather reports throughout the west, the progress of the "green-bug", the condi- tion of the crops in the Argentine Republic, Russia and other countries. Normal crops are usually followed by a year of uncertain conditions. XI. Railroad earnings are extremely instructive and are used by some merchants in preference to many of the above subjects. Practically all manu- factured goods, and even supplies in the local retail stores, are shipped by railroads; therefore, a weekly record of freight which the railroads are carrying serves as a barometer of the business of all the farmers, manufacturers and merchants of the coun- try. Moreover, the steel companies, the car and locomotive builders, the coal industry and one hundred other industries are directly dependent on the railroads for their prosperity. Therefore, all merchants watch railroad earnings and new mileage constructed, and reduce or increase their stock of goods in accordance with what these reports show. 24 BUSINESS BAROMETERS XII. Regarding politics; trade is always de- pendent upon the wise conduct of our national government. War clouds, even though at first not involving our nation, strongly affect all commodity and investment prices. Of course, all are not affected in the same way, as a war scare increases the prices of some commodities and reduces the prices of others ; but all are affected in some way and to some extent. Even the President's message and especially tariff discussion and the approach of a presidential election, greatly affect prices and trade. To conclude, each of these twelve subjects is inti- mately bound up with what are known as "swings," during which all prices change from "high" to "low" and the reverse. As heretofore stated, all financial and commercial trade during the past two hundred years has been divided into dis- tinct cycles and each cycle consists of four periods; a period of prosperity, a period of decline, a period of depression, and a period of improvement. Each period is accompanied with distinct changes in the prices of stocks, labor and commodities; and by comparison with similar periods in previous cycles, it is possible with a degree of certainty to determine at about what period in one of these "swings" we happen to be. If the swing is far out over the perpendicular, we are sure that it must swing back of the centre as far as it swung forward, because action and reaction are always equal. No country, however, can be prosperous unless it is progressive. No nation can stand still; it must go either forward or backward. The normal TWO CLASSES OF STATISTICS 25 demands of our country for new construction must show an increase each year to have conditions even remain constant. There must be a distinct in- crease in order to keep the vast number of our new citizens busy. Therefore, in comparing the present with the past, a similar figure does not necessarily mean better conditions ; but in many instances may mean an actual falling off. This is very important and must be remembered when estimating an area to use for comparison purposes in connection with the Composite Plot which will be described later.* CONCLUSION The amount of money which can be made by the study of such statistics is limited only by the origi- nal capital and the number of years the study is continued. Comparative Statistics treat of com- parative conditions and are used for selecting se- curities and commodities which are absolutely safe and which have the greatest prospect of increase in market value under fixed market conditions. Fun- damental Statistics treat of underlying conditions and are employed for determining these general mar- ket conditions and whether or not it is wise to pur- chase or to sell, or to do neither. Investors use this data in order to purchase securities only when they *Some firms when interpreting figures on each of the various subjects for surface conditions, prefer each month to determine what the proper normal figure should be for each of these subjects and note the relation between the actual figures for surface conditions and these normal figures. The normal figure on any one subject is obtained by plotting the yearly figures on that subject for a period of ten or twenty years and by drawing on that plot a line showing the average trend for the entire period. Firms using this system obtain the normal figure for any future time, assuming that the gen- eral direction of this normal line will continue the same. Moreover, in the case of some subjects, it is often clearer to plot the relation of present figures to a ten-year average rather than the actual figures. This is especially true with plotting commodity prices and other figures which show onh^ a slight variation with seasonable changes. 26 BUSINESS BAROMETERS are low, holding them for from two to four years un- til they are high, and then selling and depositing in a bank the proceeds received therefrom. After said sale they leave the money on deposit for from two to four years*, until the same securities again sell low, when they withdraw the money and again pur- chase them, or other high grade securities. Many of such investors triple their money about every five years, with very little risk, and with very little trouble. By a study of Fundamental Statis- tics some individuals, with equally little risk and without any marginal purchases, but by purchasing outright high grade, dividend paying securities, have turned an investment of $5,000 into $250, 000 in about twenty years. When one realizes the meaning of this, — that an investment of $20,000 grows to $1,000,000 within twenty years, — the value of Fundamental Statistics is apparent. If one is not strictly an investor, but willing under a broker's guidance to take advantage also of cer- tain intermediate movements, which come once or twice a year, possibly greater results are sometimes obtained. Again, many brokers urge customers to take ad- vantage of declines; recommending ''short selling" in periods of great activity and prosperity and also the purchase of securities on margin during periods of depression. Such advice is to be expected from a broker; but with short selling or margin pur- *If this withdrawal at the time of a panic meant the hoarding of money, taking the money from circulation, we should not recommend any such course. Instead, the money is only withdrawn from one bank and de- posited in another, probably being used to liquidate some loan. TWO CLASSES OF STATISTICS .-^ 27 chases, there is connected a certain element for risk, and the investor then becomes a speculator. If margin purchases are undertaken, the margins should be large, — from thirty to forty per cent. Moreover, instead of selling short, the investors may buy "puts" for six months, or, if possible, for longer time, in the London market. These "puts" allow the holder to make as much profit as if he had sold the stock short. Any loss he may sustain is limited to the price for the "put", or about $125 for one hundred shares of stock. Of course, there may be no real objection to buying on large margins; but the point which this book would emphasize is that: An investment of a thousand dollars can he multiplied to an investment of several hundred thousand dollars in about twenty years with but very little risk and without selling short or purchasing on margin. The only requisite is a constant study of Comparative and Funda- mental Statistics, and sufficient self-control to act only in accordance with what these statistics clearly indicate, refusing to listen to either the optimism or the pessimism supplied by the daily papers and by the many individuals who are always giving free advice. The above principles apply to bonds as truly as to stocks, and should be studied by the investors who purchase only bonds, as well as those who purchase stocks. Although bonds do not fluctuate as widely as stocks, and for this reason do not present, ap- parently, as great an opportunity for profit, yet their minimum interest yield is absolutely fixed. 28 BUSINESS BAROMETERS which is not true of even the most conservative stocks. Bonds are especially recommended to per- sons dependent upon the income derived from their investments; and the writer is inclined to advise that all persons should always have a portion of their principal either on deposit in a bank, or else in high grade bonds or short term notes. Merchants who never buy or sell securities use this data with equal profit. Fundamental sta- tistics clearly show the merchant when to buy and increase his stock of goods, and when to cut prices and reduce his stock. They also enable the mer- chant to forecast money conditions in order that he may intelligently decide whether to borrow the money necessary to allow customers further credit, or to reduce his loans and the indebtedness of his customers. Moreover, at all times these figures show the merchant the conditions of business throughout the country, so that he always knows whether the growth or contraction of his business is proportional to that of his competitors. Upon careful thought it must be admitted that thefortunes of American merchant princes must have been created by a knowledge of these facts, rather than by simple selling to the trade at a nominal profit. Therefore, not only does the proper use of fundamental statistics insure a merchant against losses, but their use should be almost as profitable to him as to the investor, enabling him to double and triple his capital every few years. Such ideas of the value of statistics should therefore be espe- cially interesting to the small merchant with capital TWO CLASSES OF STATISTICS 29 of, for instance, only $10,000. For there is no reason why, with fundamental statistics as an aid to the elimination of the bad accounts and unsold goods, his capital should not automatically increase to $250,000 within twenty years. But not only do students of Fundamental Sta- tistics make large fortunes for themselves and their followers, but such students are the very best pa- triots which a country can produce. The true patriot today is he who studies fundamental sta- tistics and acts in accordance with what they teach, liquidating during a period of reckless prosperity and purchasing very heavily during days of panic and great depression. The real traitor to-day is he who urges on or follows the crowd during a period of prosperity and locks up his money and refuses to extend aid during the dark days when banks are failing, railroads are becoming bankrupt, and the wheels of industry are stopped. Therefore, with every additional person who unites in this work, the next period of prosperity will be so much less riotous and the next panic so much less severe. CHAPTER II RANGE OF THE LEADING INVESTMENT STOCKS SINCE 1860, SHOWING HOW $2,500 INVESTED IN 1860 WOULD AMOUNT TO OVER $2,000,000 IN 1910. SPECIAL TABLES ON INVESTMENT BONDS. THE accompanying chart is designed to show the fluctuations in the leading investment stocks from 1874 to date as accurately as may be. Only the best stocks of the period are con- sidered, so the stocks described are as representative as possible of the different classes of traffic and of the different sections of the country. "Central of New Jersey" is a minority stock, "St. Paul" is a speculative stock, and "Delaware & Hudson" is a coal stock. The West is represented by "Great Northern," the Mississippi Valley by "Illinois Central," the South by "Louisville & Nashville"; the central and middle States by "New York Central" and "Pennsylvania." The New England States are represented by "New York, New Haven & Hartford." "Pullman" is chosen as the most conservative industrial. Of these ten, only three were in existence and prominent in 1860. New York Central, Illinois Central and Delaware, Lackawanna & Western were active then and are leaders still. In 1866 "Delaware & Hudson" and in 1872 "Louisville & Nashville" became active, and in 1874 "Central of New Jersey." In 1876 "Pullman became active and in 1889 "Pennsylvania." These > ! i ! S Tl rrcD_-j4J T^.cftitttti-ii rrr nj-i-trtb-^ RANGE OF STOCK MARKET 31 are the ten stocks used exclusively until 1900 when "Delaware, Lackawanna & Western" was, for various reasons, omitted. As "Great North- ern" sold for the same price, namely 91, at about that time, that was substituted in its stead. In other words, only good stocks have been in- cluded in the list, stocks truly representative during the period considered. Stocks which have shown any abnormal rise or decline have purposely been avoided. For this reason, stocks such as "Union Pacific," "Atchison" and "Reading" have been omitted. More industrials would have been in- cluded, if they had been in existence a longer period ; but, as most of the companies have been organized only ten or fifteen years, this was not possible. Therefore, the chart may be depended upon, abso- lutely, as showing the fluctuations which a con- servative investor may expect. It has also been very interesting to figure the income received upon the investment, which varied from 5% to 10%. If all "rights" were considered the average income would probably be about 10%, but in this also any possible exaggeration has been avoided. For greater exactness, since "Great Northern" gave its ore certificates, the price of these certificates has been included with the price of the stock. The complete list, as it stood at the low point in 1907 and on January 3rd 1910 is as follows : Div. Low 1907 Div. Jan. 1910 Central New Jersey $8 144 8 312 Chicago, Mil. & St. Paul 7 93 7 158 Delaware & Hudson 9 124 9 185 32 BUSINESS BAROMETERS Div. Low 1907 Div. Jan. 1910 Great. Northern plus 1 Ore. Cert. $7 144 8 225 Illinois Central 7 116 7 146 Louisville & Nashville 6 85 5i 158 New York Central 6 89 5 125 N. Y., N. H. & Hartford 8 127 8 158 Pennsylvania 7 103 6 136 Pullman 8 135 8 189 The list includes "Central of New Jersey," and "Chicago, Milwaukee & St. Paul," in order to tabulate a minority stock and a speculative stock. As an investment, however, others may be prefer- able. When substituting them, some brokers recommend selecting stocks selling for about the same prices as those omitted. It should always be remembered that an investor, when buying or selling, should not study the present prices of the stocks which he intends to purchase ; but rather the prices of the ten representative stocks in the list given above. This is because he should buy or sell in accordance with general conditions, and not be governed by the price of any stocks which he happens to hold. A diagram of any other ten stocks may be misleading and cause trouble. The actual low and high prices of the above ten stocks from 1860 to date are given in the accom- panying tables. The ^'averages'' given at the be- ginning of each year previous to 1905 are averages of all the high and all the low prices, and may there- fore be a theoretical rather than an actual figure. 1860 AVERAGE 59-93 Lackawanna ranged from 54 (Jan.) to 99 (June) ; 111. Cent. 55 (Jan.) to 89 (Aug.) ; N. Y. Cent. 92 (Sept.) to 69 (Dec). RANGE OF STOCK MARKET 33 1861 AVERAGE 62-84 Lackawanna ranged from 84 (Mch.) to 65 (Dec.) ; 111. Cent. 88 (Jan.) to 55 (April); N. Y. Cent. 82 (Jan.) to 68 (April). 1862 AVERAGE 71-107 Lackawanna ranged from 80 (April) to 130 (Dec.) ; 111. Cent. 55 (July) to 84 (Oct.); N. Y. Cent. 79 (Jan.) to 107 (Oct.) 1863 AVERAGE 106-153 Lackawanna ranged from 130 (Jan.) to 198 (Dec); 111. Cent. 83 (Jan.) to 126 (Aug.); N. Y. Cent. 107 (Mch.) to 140 (Sept.). 1864 AVERAGE 138-148 Lackawanna ranged from 195 (Jan.) to 265 (Sept.); 111. Cent. 110 (Mch.) to 135 (Oct.); N. Y. Cent. 145 (Mch.) to 109 (Oct.). 1865 AVERAGE 125-158 Lackawanna ranged from 225 (Jan.) to 199 (Mch.); 111. Cent. 92 (Mch.) to 130 (July); N. Y. Cent. 119 (Jan.) to 85 (April). 1866 AVERAGE 99-128 St. Paul ranged from 41 (Mch.) to 64 (Nov.); Del. & Hud. 132 (Mch.) to 160 (Nov.); Lacka- wanna 162 (Jan.) to 127 (Feb.) ; 111. Cent. 131 (Jan.) to 112 (Feb.); N. Y. Cent. 86 (Feb.) to 123 (Nov.). 1867 AVERAGE 98-122 Cent, of N. J. ranged from 125 (Jan.) to 113 (Dec); St. Paul 25 (April) to 54 (July); Del. & Hud. 139 (Jan.) to 156 (Jan.); Lackawanna 130 (July) to 109 (Oct.); 111. Cent. Ill (Jan.) to 135 (Dec); N. Y. Cent. 94 (Feb.) to 118 (Dec); New Haven 114 (Jan.) to 140 (Dec). 34 BUSINESS BAROMETERS 1868 AVERAGE 108-147 Cent, of N. J. ranged from 126 (June) to 110 (Dec); St. Paul 46 (Feb.) to 111 (Oct.); Del. & Hud. 165 (May) to 119 (Aug.); Lackawanna 110 (Jan.) to 132 (Oct.); 111. Cent. 130 (Jan.) to 159 (July) ; N. Y. Cent. 110 (April) to 159 (Dec.) ; New Haven 133 (Jan.) to 159 (May). 1869 AVERAGE 114-160 St. Paul ranged from 84 (Aug.) to 61 (Sept.); Del. & Hud. 134 (June) to 120 (Dec.) ; Lackawanna 120 (Jan.) to 104 (Nov.) ; 111 Cent. 148 (May) to 130 (Dec); N. Y. Cent. 217 (July) to 153 (Sept.); New Haven 160 (Jan.) to 120 (April). 1870 AVERAGE 102-120 St. Paul ranged from 75 (Jan.) to 52 (Dec.) ; Del. & Hud. 115 (Mar.) to 127 (July); Lack- awanna 112 (May) to 100 (Sept.); 111. Cent. 145 (Feb.) to 129 (July); N. Y. Cent. 86 (Jan.) to 102 (June) ; New Haven 134 (Jan.) to 159 (June.) 1871 AVERAGE 103-117 St. Paul ranged from 48 (Jan.) to 64 (Sept.); Del. & Hud. 115 (Feb.) to 125 (Dec.) ; Lackawanna 102 (Feb.) to 111 (Sept.); 111. Cent. 139 (Jan.) to 132 (Oct.); N.Y. Cent. 103 (April) to 84 (Oct.); New Haven 140 (April) to 160 (June). 1872 AVERAGE 97-110 St. Paul ranged from 64 (April) to 51 (Nov.); Del. & Hud. 124 (Jan.) to 115 (Oct.) ; Lackawanna 112 (Mar.) to 91 (Dec); 111. Cent. 140 (June) to 119 (Nov.) ; Louis. & Nash. 81 (Oct.) to 79 (Dec); N. Y. Cent. 101 (April) to 89 (Nov.) ; New Haven 148 (June) to 138 (Dec). RANGE OF STOCK MARKET 35 1873 AVERAGE 75-106 St. Paul ranged from 62 (April) to 21 (Nov.); Del. &Hud. 124 (Feb.) to 99 (Nov.); Lackawanna 106 (June) to 79 (Nov.); 111. Cent. 126 (Jan.) to 90 (Nov.) ; Louis. & Nash. 79 (Mich.) to 50 (Dec.) ; N. Y. Cent. 106 (Feb.) to 77 (Nov.); New Haven 142 (Feb.) to 112 (Nov.). 1874 AVERAGE 87-99 Cent, of N.J. ranged from 98 (Jan.) to 109 (Feb.) ; St. Paul 41 (Jan.) to 31 (May); Del. & Hud. 121 (Jan.) to 113 (Aug.); Lackawanna 99 (Jan.) to 112 (Feb.) ; 111. Cent. 108 (Feb.) to 90 (Oct.) ; Louis. & Nash. 53 (Jan.) to 59 (Feb.) ; N. Y. Cent. 105 (Mch.) to 95 (May); New Haven 122 (Jan.) to 139 (Nov.). 1875 AVERAGE 87-100 Cent, of N. J. ranged from 120 (April) to 99 (Oct.) ; St. Paul 40 (April) to 28 (June) ; Del. & Hud. 110 (Feb.) to 124 (Dec); Lackawanna 106 (Jan.) to 123 (April); 111. Cent. 106 (April) to 88 (Oct.); Louis. & Nash. 40 (Feb.) to 36 (April); N. Y. Cent. 100 (May) to 107 (May) ; New Haven 133 (Jan.) to 147 (Dec). 1876 AVERAGE 62-100 Cent, of N. J. ranged from 109 (Feb.) to 21 (Sept.); St. Paul 46 (Feb.); to 18 (Nov.); Del. & Hud. 125 (Jan.) to 61 (Oct.); Lackawanna 120 (Jan.) to 64 (Oct.) ; 111. Cent. 103 (Mch.) to 60 (Dec.) ; Louis. & Nash. 32 (April) to 24 (Dec.) ; N. Y. Cent. 117 (Feb.) to 96 (Sept.); New Haven 146 (Jan.) to 159 (Mch.); Pullman 70 (Jan.) to 85 (April). 36 BUSINESS BAROMETERS 1877 AVERAGE 48-76 Cent, of N. J. ranged from 37 (Jan.) to 6 (June) ; St. Paul 11 (April) to 42 (Oct.); Del. & Hud. 74 (Jan.) to 25 (June); Lackawanna 77 (Jan.) to 30 (June); 111. Cent. 40 (April) to 79 (Oct.); Louis. & Nash. 26 (Mch.) to 40 (Dec); N. Y. Cent. 85 (April) to 109 (Oct.) ; New Haven 146 (April) to 158 (Dec); Pullman 75 (Feb.) to 71 (Mch.). 1878 AVERAGE 61-76 Cent, of N. J. ranged from 13 (Jan.) to 45 (July) ; St. Paul 54 (June) to 27 (Sept.); Del. & Hud. 59 (July) to 34 (Dec.) ; Lackawanna 61 (July) to 41 (Dec); 111. Cent. 72 (Feb.) to 85 (June); Louis. & Nash. 35 (Oct.) to 39 (Dec); N. Y. Cent. 103 (Mch.) to 115 (Sept.); New Haven 153 (Jan.) to 162 (Nov.); Pullman 72 (Feb.) to 80 (July). 1879 AVERAGE 66-106 Cent, of N. J. ranged from 33 (Jan.) to 89 (Nov.) ; St. Paul 34 (Jan.) to 82 (Nov.) ; Del. & Hud. 38 (Feb.) to 89 (Nov.) ; Lackawanna 43 (Jan.) to 94 (Nov.); 111. Cent. 79 (Mch.) to 100 (Dec); Louis. & Nash. 35 (Feb.) to 89 (Dec); N. Y. Cent. 112 (Mch.) to 133 (Oct.); New Haven 171 (June) to 154 (Nov.) ; Pullman 73 (Jan.) to 109 (Nov.). 1880 AVERAGE 87-131 Cent, of N. J. ranged from 85 (April) to 45 (May) ; St. Paul 66 (May) to 114 (Dec); Del. & Hud. 60 (May) to 92 (Dec); Lackawanna 68 (May) to 110 (Dec); 111. Cent. 99 (Jan.) to 127 (Dec); Louis. & Nash. 173 (Nov.) to 77 (Dec); N. Y. Cent. 122 (May) to 155 (Dec); New Haven 155 (Jan.) to 180 (Oct.) ; Pullman 107 (Jan.) to 146 (Jan.). RANGE OF STOCK MARKET 37 1881 AVERAGE 110-137 Cent, of N. J. ranged from 82 (Jan.) to 112 (Feb.); St. Paul 101 (Feb.) to 129 (June); Del. & Hud. 89 (Jan.) to 115 (Mch.) ; Lackawanna 101 (Jan.) to 131 (Mch.); 111. Cent. 124 (Jan.) to 146 (May); Louis. & Nash. 79 (Feb.) to 110 (May); N. Y. Cent. 155 (Jan.); to 130 (Dec); New Haven 164 (Mch.) to 190 (June); Pullman 120 (Jan.) to 150 (Jan.). 1882 AVERAGE 94-134 Cent, of N. J. ranged from 93 (Feb.) to 63 (Nov.) ; St. Paul 128 (Sept.) to 96 (Nov.); Del. & Hud. 102 (Mch.) to 119 (Aug.); Lackawanna 116 (April) to 150 (Sept.); 111. Cent. 127 (Jan.) to 150 (Oct.); Louis. & Nash. 100 (Jan.) to 46 (Nov.); N. Y. Cent. 123 (May) to 138 (Aug.); New Haven 168 (Feb.) to 186 (Feb.); Pullman 145 (Jan.) to 117 (June). 1883 AVERAGE 103-121 Cent, of N. J. ranged from 68 (Jan.) to 90 (Oct.) ; St. Paul 108 (Jan.) to 91 (Dec); Del. & Hud. 112 (April) to 102 (Oct.); Lackawanna 131 (April) to 111 (Oct.); 111. Cent. 148 (June) to 124 (Aug.); Louis. & Nash. 58 (Jan.) to 40 (Aug.); N. Y. Cent. 129 (Mch.) to 111 (Dec.) ; New Haven 169 (Jan.) to 183 (June) ; Pullman 134 (June) to 112 (Dec). 1884 AVERAGE 80-115 Cent, of N. J. ranged from 90 (Jan.) to 37 (Dec.) ; St. Paul 94 (Jan.) to 58 (June); Del. & Hud. 114 (Feb.) to 67 (Dec); Lackawanna 133 (Mch.) to 86 (Dec); N. Y. Cent. 140 (Feb.) to 110 (June); Louis. & Nash. 51 (Mch.) to 22 (June); N. Y. 38 BUSINESS BAROMETERS Cent. 122 (Mch.) to S3 (Nov.); New Haven 184 (May) to 175 (July); Pullman 117 (Jan.) to 90 (May). 1885 AVERAGE 83-113 Cent, of N. J. ranged from 31 (Mch.) to 52 (Aug.) ; St. Paul 64 (June) to 99 (Nov.) ; Del. & Hud. 66 (Jan.) to 100 (Nov.); Lackawanna 82 (Jan.) to 129 (Dec); 111. Cent. 119 (Jan.) to 140 (Dec); Louis. & Nash. 22 (Jan.) to 51 (Nov.); N. Y. Cent. 81 (June) to 107 (Nov.) ; New Haven 175 (Jan.) to 204 (Dec); Pullman 107 (Jan.) to 137 (Nov.). 1886 AVERAGE 102-123 Cent, of N. J. ranged from 42 (Jan.) to 64 (Sept.) ; St. Paul 82 (May) to 99 (Sept.) ; Del. & Hud. 87 (Jan.) to 108 (Feb.); Lackawanna 115 (Jan.) to 144 (Dec.) ; 111. Cent. 143 (Feb.) to 130 (Jan.) to 144 (Dec.) ; Louis. &Nash. 33 (May) to 69 (Dec); N. Y. Cent. 98 (Mch.) to 117 (Oct.); New Haven 204 (Jan.) to 223 (Nov.); Pullman 128 (May) to 147 (Oct.). 1887 AVERAGE 104-124 Cent, of N. J. ranged from 64 (May) to 47 (July); St. Paul 95 (May) to 65 (Oct.); Del. & Hud. 96 (Sept.) to 106 (Nov.); Lackawanna 139 (June) to 123 (Oct.); 111. Cent. 138 (May) to 114 (Oct.) ; Louis. & Nash. 70 (April) to 54 (Oct.) ; N. Y. Cent. 114 CNIay) to 101 (Oct.); New Haven 208 (Feb.) to 233 (May) ; Pullman 159 (May) to 136 (Nov.). 1888 AVERAGE 102-129 Cent, of N. J. ranged from 73 (April) to 95 RANGE OF STOCK MARKET 39 (Dec); St. Paul 78 (Feb.) to 59 (Dec); Del. & Hud. 103 (Jan.) to 134 (Dec); Lackawanna 123 (April) to 145 (Oct.); 111. Cent. 123 (Aug.) to 113 (Dec); Louis. & Nash. 64 (Jan.) to 50 (April); N. Y. Cent. 102 (April) to 111 (Sept.) ; New Haven 215 (Jan.) to 244 (Dec); Pullman 135 (April) to 175 (Sept.). 1889 AVERAGE 123-144 Cent, of N. J. ranged from 92 (Mch.) to 131 (Oct.); St. Paul 60 (Mch.) to 75 (June); Del. & Hud. 130 (Mch.) to 156 (Sept.) ; Lackawanna 134 (April) to 151 (Sept.); 111. Cent. 106 (Feb.) to 118 (Dec); Louis. & Nash. 56 (Jan.) to 87 (Nov.); N. Y. Cent. 110 (Feb.) to 104 (July); New Haven 241 (Jan.) to 279 (Sept.); Pullman 189 (Jan.) to 193 (Jan.). 1890 AVERAGE 98-141 Cent, of N. J. ranged from 128 (May) to 92 (Nov.); St. Paul 78 (May) to 44 (Nov.); Del. & Hud. 140 (April) to 120 (Dec); Lackawanna 149 (July) to 123 (Nov.); 111. Cent. 120 (Jan.) to 85 (Nov.) ; Louis. & Nash. 92 (May) to 65 (Nov.) ; N. Y. Cent. Ill (June) to 95 (Dec); New Haven 224 (Jan.) to 270 (June); Pennsylvania 95 to 113; Pullman 222 (July) to 160 (Dec). 1891 AVERAGE 95-138 Cent, of N. J. ranged from 122 (April) to 105 (June); St. Paul 51 (Mch.) to 82 (Dec); Del. & Hud. 140 (Sept.) to 120 (Dec); Lackawanna 130 (July) to 145 (Sept.) ; 111. Cent. 90 (Mch.) to 109 (Dec); Louis. & Nash. 65 (Aug.) to 83 (Dec); N. Y. Cent. 98 (July) to 119 (Dec); New Haven 40 BUSINESS BAROMETERS 271 (Feb.) to 24 (Nov.); Pennsylvania 99 to 115; Pullman 196 (Jan.) to 172 (Nov.). 1892 AVERAGE 122-142 Cent, of N. J. ranged from 111 (Jan.) to 145 (Feb.) ; St. Paul 75 (April) to 84 (Aug.) ; Del. & Hud. 122 (Jan.) to 149 (April); Lackawanna 138 (Jan.) to 167 (Feb.); 111. Cent. 110 (Jan.) to 95 (Sept.); Louis. & Nash. 84 (Jan.) to 64 (Sept.); N. Y. Cent. 119 (Mch.) to 107 (Sept.) ; New Haven 224 (Jan.) to 252 (June); Pennsylvania 106 to 114; Pullman 184 (Jan.) to 200 (May). 1893 AVERAGE 98-130 Cent, of N. J. 132 (Jan.) to 84 (July); St. Paul 83 (Jan.) to 46 (July); Del. & Hud. 139 (Jan.) to 102 (July); Lackawanna 127 (July) to 175 (Nov.); 111. Cent. 104 (Jan.) to 86 (July) ; Louis. & Nash. 77 (Jan.) to 39 (Dec); N. Y. Cent. Ill (Jan.) to 92 (July); New Haven 262 (Jan.) to 188 (Sept.); Pennsylvania 93 (Dec.) to 111 (Jan.); Pullman 206 (April) to 132 (Aug.). 1894 AVERAGE 105-123 Cent, of N. J. ranged from 117 (Mch.) to 87 (Dec); St. Paul 54 (Jan.) to 67 (Sept.); Del. & Hud. 144 (April) to 119 (Oct.); Lackawanna 174 (Sept.) to 155 (Oct.); 111. Cent. 95 (Sept.) to 82 (Dec); Louis. & Nash. 40 (Jan.) to 57 (Sept.); N. Y. Cent. 95 (May) to 102 (Aug.); New Haven 178 (July) to 197 (Dec.) ; Pennsylvania 96 (Jan.) to 104 (Apr.) ; Pullman 174 (Apr.) to 152 (July). 1895 AVERAGE 103-128 Cent, of N. J. ranged from 81 (Feb.) to 116 (Sept.); St. Paul 53 (Mch.) to 78 (Sept.); Del. & RANGE OF STOCK MARKET 41 Hud. 134 (Sept.) to 118 (Dec); Lackawanna 174 (Oct.) to 154 (Dec); 111. Cent. 81 (Jan.) to 106 (Sept.); Louis. & Nash. 66 (Sept.) to 39 (Dec); N. Y. Cent. 104 (Aug.) to 90 (Dec.) ; New Haven 218 (June) to 174 (Dec); Pennsylvania 97 (Jan.) to 115 (Sept.); Pullman 178 (June) to 146 (Dec). 1896 AVERAGE 100-119 Cent, of N. J. ranged from 87 (Aug.) to 110 (Nov.); St. Paul 59 (Aug.) to 80 (Nov.); Del. & Hud. 129 (Feb.) to 114 (Aug.); Lackawanna 166 (June) to 138 (Aug.) 111. Cent. 98 (Jan.) to 84 (Aug.); Louis. & Nash. 55 (Feb.) to 37 (Aug.); N. Y. Cent. 99 (Feb.) to SS (Aug.) ; New Haven 184 (Jan.) to 160 (July); Pennsylvania 99 to 109; Pullman 164 (Feb.) to 138 (Aug.). 1897 AVERAGE 103-117 Cent, of N. J. ranged from 103 (Jan.) to 68 (May) ; St. Paul 69 (April) to 102 (Sept.) ; Louis & Nash. 99 (April) to 123 (Sept.); Lackawanna 164 (May) to 164 (Aug.); 111. Cent. 91 (April) to 110 (Aug.); Louis. & Nash. 40 (April) to 63 (Sept.); N. Y. Cent. 92 (Feb.) to 115 (Sept.); New Haven 160 (Feb.) to 185 (Sept.); Pennsylvania 103 (Jan.) to 119 (Sept.) ; Pullman 152 (Jan.) to 185 (Sept.). 1898 AVERAGE 106-133 Cent, of N. J. ranged from 84 (Nov.) to 99 (Dec); St. Paul 83 (April) to 120 (Dec); Del. & Hud. 114 (Feb.) to 93 (Nov.); Lackawanna 159 (Feb.) to 140 (Oct.); 111. Cent. 96 (April) to 115 (Dec); Louis. & Nash. 44 (April) to 65 (Dec); N. Y. Cent. 105 (Mch.) to 124 (Dec.) ; New Haven 42 BUSINESS BAROMETERS 178 (Jan.) to 201 (Dec); Pennsylvania 110 (Mch.) to 123 (Dec.) ; Pullman 216 (July) to 132 (Nov.). 1899 AVERAGE 123-151 Cent, of N. J. ranged from 97 (Jan.) to 126 (Nov.); St. Paul 136 (Sept.) to 112 (Dec.); Del. & Hud. 106 (Jan.) to 135 (Sept.); Lackawanna 157 (Jan.) to 194 (Oct.); 111. Cent. 122 (Jan.) to 105 (Dec); Louis. & Nash. 63 (Mch.) to 88 (Oct.); N. Y. Cent. 144 (Mch.) to 120 (Dec); New Haven 198 (Jan.) to 222 (April); Pennsylvania 122 (Jan.) to 142 (Jan.) ; Pullman 156 (Jan.) to 207 (Oct.). 1900 AVERAGE 134-165 Cent, of N. J. ranged from 115 (Jan.) to 150 (Dec.) ; St. Paul 108 (June) to 148 (Dec.) ; Del. & Hud. 106 (Sept.) to 134 (Dec); *Gt. Northern 211 (June) to 276 (Dec); 111. Cent. 110 (June) to 132 (Dec); Louis. & Nash. 68 (Sept.) to 89 (Dec); N. Y. Cent. 125 (June) to 145 (Dec); New Haven 215 (Jan.) to 207 (Sept.); Pennsylvania 124 (Sept.) to 149 (Dec.) ; Pullman 176 (June) to 204 (Dec). 1901 AVERAGE 148-190 Cent, of N. J. 145 (Jan.) to 196 (Dec.) ; St. Paul 134 (May) to 188 (May); Del. & Hud. 185 (April) to 105 (May); Gt. Northern 208 (Mch.) to 167 (May); 111. Cent. 124 (May) to 154 (June); Louis. & Nash. 76 (May) to 111 (June); N. Y. Cent. 129 (Jan.) to 174 (Nov.) ; New Haven 206 (Feb.) to 217 (June); Pennsylvania 161 (April) to 137 (May); Pullman 195 (Jan.) to 225 (Oct.). *Great Northern is substituted here for Lackawanna with tlie Ore Certifi- cates added from 1900 to 1907. RANGE OF STOCK MARKET 43 1902 AVERAGE 168-201 Cent, of N. J. ranged from 198 (Jan.) to 165 (Nov.); St. Paul 160 (Jan.) to 198 (Sept.); Del. & Hud. 184 (Jan.) to 153 (Nov.); Gt. Northern 181 (Mch.) to 203 (Dec.); 111. Cent. 137 (Jan.) to 173 (Aug.) ; Louis. & Nash. 102 (Jan.) to 159 (Aug.) ; N. Y. Cent. 168 (Jan.) to 147 (Nov.) ; New Haven 209 (Jan.) to 225 (April) ; Pennsylvania 147 (Jan.) to 170 (Sept.) ; Pullman 215 (Jan.) to 250 (April). 1903 AVERAGE 149-190 Cent, of N. J. ranged from 190 (Jan.) to 153 (Oct.); St. Paul 183 (Jan.) to 133 (Aug.); Del. & Hud. 183 (Feb.) to 149 (Aug.) ; Gt. Northern 209 (Jan.) to 160 (Oct.); 111. Cent. 151 (Jan.) to 125 (July) ; Louis. & Nash. 130 (Jan.) to 95 (Sept.) ; N. Y. Cent. 156 (Jan.) to 112 (July); New Haven 225 (Jan.) to 187 (May); Pennsylvania 157 (Jan.) to 187 (May); Pennsylvania 157 (Jan.) to 110 (Nov.); Pullman 235 (Jan.) to 196 (July). 1904 AVERAGE 152-192 Cent, of N. J. ranged from 154 (Feb.) to 194 (Nov.); St. Paul 137 (Feb.) to 177 (Dec); Del. & Hud. 149 (Mch.) to 190 (Dec); Gt. Northern 170 (Mch.) to 242 (Dec); 111. Cent. 125 (Feb.) to 159 (Dec); Louis. & Nash. 101 (Feb.) to 148 (Dec); N. Y. Cent. 112 (Mch.) to 145 (Dec); New Haven 185 (May) to 199 (Oct.); Pennsylvania 111 (Mch.) to 140 (Dec) ; Pullman 209 (Mch. )to 242 (Nov.). 1905 AVERAGE 180-206 Cent, of N. J. ranged from 190 (May) to 235 (Oct.); St. Paul 168 (May) to 187 (Aug.); Del. & Hud. 178 (May) to 237 (Nov.); Gt. Northern 236 44 BUSINESS BAROMETERS (Jan.) to 335 (April); 111. Cent. 152 (Jan.) to 183 (Sept.); Louis. & Nash. 134 (Jan.) to 157 (Sept.); N. Y. Cent. 167 (Mch.) to 136 (May); New Haven 216 (Sept.) to 191 (Dec); Pennsylvania 131 (May) to 148 (Aug.) ; Pullman 230 (May) to 258 (Aug.). 1906 AVERAGE 163-205 Cent, of N. J. ranged from 204 (May) to 239 (May); St. Paul 189 (Nov.) to 146 (Dec); Del. & Hud. 209 (Mch.) to 189 (May); Gt. Northern 348 (Feb.) to 178 (Dec); 111. Cent. 164 (May) to 184 (June); Louis. & Nash. 156 (Jan.) to 136 (May); N. Y. Cent. 156 (Jan.) to 126 (Nov.) ; New Haven 204 (Jan.) to 189 (Dec.) ; Pennsylvania 147 (Jan.) to 122 (July); Pullman 270 (Nov.) to 180 (Dec). 1907 AVERAGE 119-182 Cent, of N. J. ranged from 220 (Jan.) to 144 (Oct.); St. Paul 157 (Jan.) to 93 (Nov.); Del. & Hud. 227 (Jan.) to 124 (Nov.); Gt. Northern 274 (Jan.) to 144 (Nov.); 111. Cent. 172 (Jan.) to 116 (Nov.); Louis. & Nash. 145 (Jan.) to 85 (Nov.); N.Y. Cent. 134(Jan.) to 89 (Nov.) ; New Haven 189 (Jan.) to 127 (Nov.); Pennsylvania 141 (Jan.) to 113 (Nov.) ; Pullman 181 (Jan.) to 137 (Nov.). 1908 AVERAGE 126-164 Central of N. J. ranged from 229 (Dec.) to 160 (Feb.); St. Paul 152 (Dec) to 103 (Jan.); Del. & Hud. 181 (Dec) to 141 (Feb.); Gt. Northern 223 (Dec) to 162 (Feb.); Illinois Central 150 (Nov.) to 122 (Feb.) ; Louis. & Nash. 126 (Dec) to 87 (Feb.) ; N. Y. Cent. 126 (Dec) to 90 (Jan.) ; New Haven 161 (Nov.) to 128 (Jan.); Pennsylvania 132 (Dec.) to 109 (Jan.) ; Pullman 174 (Jan.) to 147 (Jan.). POSSIBILITIES OF PROFIT 45 1909 AVERAGE 154-189 Central of N. J. ranged from 323 (Sept.) to 215 (Feb.); St. Paul 165 (Sept.) to 141 (Feb.); Del. & Hud. 200 (May) to 167 (Feb.); Gt. Northern 157 (Aug.) to 136 (Feb.); Illinois Central 162 (Aug.) to 137 (Feb.); Louis. & Nash. 162 (Aug.) to 121 (Jan.); N. Y. Central 147 (Aug.) to 120 (Feb.); New Haven 174 (June) to 154 (Nov.) ; Pennsylvania 151 (Sept.) to 126 (Feb.); Pullman 200 (Aug.) to 169 (Jan.). POSSIBILITIES OF PROFIT IN CONSERVATIVE INVESTMENT STOCKS Suppose S2,500 had been invested in 1860, in the stocks given in the preceding pages, and they had been bought and sold again, every three or four years, what would have been the history of that $2,500? To what would it have amounted to- day? In detail the answer would be as follows: Starting in 1861 with an original principal of $2,500 the in- terest (we use only simple interest instead of com- pound interest) for three and one-half years at 5%, amounts to $438. Assume that we invest the $2,500 in the leading stocks of 1861 at their average low price (as given in the preceding chapter) of 60, and hold the stocks for said 3J years until the aver- age price reaches 160 in 1865, when we sell for $6,560, which together with the interest above mentioned makes a total of $6998. We leave this amount on deposit in a bank for two years at 4%, so that we have $7,569 to invest in 1867 when the 46 BUSINESS BARO^IETERS average again falls to 100. We think that with this introduction the table is self-explanatory. Original Principal invested @ 60% 1861 $ 2,500 Dividends 3 i yrs. @ 5 7o to 1865 $ 438 Prin. bought @ 60-1681 sold @ 160 1865 6,560 Total of Prin. & Dividends @ 5% 1865 6,998 Comp. Int. @ 4% 2 vrs. P. &I \ . . 1867 7,569 Invested at 100 in 1867 ... Dividends 2 yrs. @ 5% to 1869 756 Prin. bought @ 100-1867 sold 160 . ._ _. ._. 1869 12,000 Total of Prin. and Divi- dends @ 5% 1869 . 12,756 Comp. Int. @ 4% 4 yrs. P. &I 1873 14,920 Invested at 75 in 1877 .... Dividends 1 yr. @ 5% to 1874 746 Prin. bought @ 75-1873 sold @ 110 1874 21,780 Total of Prin. & Divs. (w 5% to 1874 22,526 Comp. Int. @ 4% 3h vrs. P. &I ^..\.. 1877 25,844 Invested at 50 in 1877 Dividends 4 yrs. @ 5% to 1881 5,168 Prin. bought @ 50-1877 sold @ 140 1881 72,240 Total of Prin. and Divs. @ 5% 1881 77,408 Comp. Int. @ 4% 4 yrs. P. & 1 90,442 Invested at 85 in 1885 .... Dividends 4 yrs. @ 5% to 1889 18,108 Prin. bought (7v 85-1885 sold @ 140 1889 149,100 Total of Prin. and Divs. @ 5% 1889 167,208 Compt. Int. @ 4% U vrs. P. &I ^'. . . 1891 177,275 Invested at 95 in 1891 .... Dividends 1 yr. @ 5% to 1892 8,868 POSSIBILITIES OF PROFIT 47 Prin. bought % 95-1891 sold® 140 _ 1892 $261,380 Total of Prin. and Divs. @ 5% 1892 $270,248 Comp. Int. @ 4% 5 vrs. P. & 1 1897 328,794 Invested at 100 in 1897 . . . Dividends 6 yrs. @ 5% to 1903 98,634 Prin. bought @ 100-1897 sold @ 200 1903 657,400 Total of Prin. & Divs. @ 5% 1903 756,034 Comp. Int. @ 4% 1 yr. P. &I 1904 786,275 Dividends 3 yrs. @ 5% through Dec 1906 117,939 Princ. bought @ 152-1904 sold @ 2 10 in Dec 1906 1,100,610 Total of Prin. & Divs. @ 5% through Dec 1906 1,2 18,549 Comp. Int. @ 4% 1 yr. to Dec. P. & 1 1907 1,267,291 Divs. 2 yrs. & 1 mo. @ 5% to Jan 1910 132,010 Principal 184 in Jan 1910 2,010,200 In the above table 5% is allowed as an average dividend on the stocks held and 4% an average in- terest on the bank deposits. The average prices at which the purchases and sales are executed are the "averages" at the beginning of each of the para- graphs above on general stock prices. The preceding example shows that $2,500 con- servatively invested in a few standard stocks about forty-eight years ago would today amount to over $2,000,000. These not only are strictly investment stocks, but also are stocks which have fluctuated comparatively little in price. This, moreover, was possible by giving orders to buy or sell only once in every three or four years. 48 BUSINESS BAROMETERS If other stocks, which were not dividend payers, and which have shown greater fluctuations, w^ere purchased, and advantage had been taken of the intermediate fluctuations, the $2,500 would have amounted to much larger figures. By intermediate movements is not meant the weekly movements which the ordinary professional operator notes, but the broader movements extending over many months and possibly a year or more. Nevertheless, these broader intermediate movements should not be noticed by a conservative investor, as it is possi- ble to correctly diagnose only the major movements extending over three or four years. Many brokers believe that it is possible to discern also these inter- mediate movements of six or eight months; and if so the following results would have been possible. $5,000 invested in "St. Paul" in 1870 would amount to over $10,000,000 today. $5,000 invested in "Union Pacific" in 1870 would amount to over $15,000,000 today. $5,000 invested in "Central of New Jersey" would amount to over $30,000,000 today. $5,000 invested in "Northern Pacific" would amount to over $50,000,000 today. These figures are not based on the supposition that the investor was selling at the top of every rise or buying at the bottom of every decline; but that the purchases were made at average "high" and average "low" prices. If the investor can therefore in this way increase an investment of $5,000 to $1,000,000 in about thirty years without risk, he should be satisfied POSSIBILITIES OF PROFIT 49 and should not, for the sake of obtaining greater profits, assume any additional risks. With this serving as a simple illustration of how money can be made by studying statistics, the following (from a letter written by the manager of a Stock Exchange House) is of interest as an illustration of the other side: "Hearing on every hand about the fortunes made in Wall Street, I decided upon being graduated from college to devote myself to finance. With this end in view I secured a position with a first- class Ne\v York Stock Exchange House, finally be- coming the 'handshaker' for the firm — that is, 'manager' of the customer's room. So I had an exceptional opportunity to size up the stock busi- ness. The chief duties of the manager are to meet customers when they visit the office; tell them how the market is acting, the latest news from the news- tickers and the gossip of the Street. But the real duties are to get business for the house. This ne- cessity ultimately drives a man into making friends in order to get customers. "One day a most peculiar man came to the office. He was about forty-five years of age, dressed in a faded cutaway coat, high-water trousers and an East Side, low-crown, derby hat. In a high, squeaky voice he said that he knew our Milwaukee house and would like to open an account. Of course we were all smiles, for here was a new 'sucker.' "One day while in Boston he called us up on the long distance telephone to make an inquiry about the grain market. One of the 'handshakers'. 50 BUSINESS BAROMETERS thinking to get a commission out of him, said, 'We hear that Southern Pacific is going up; you had better get aboard.' He answered, 'All right; buy me a hundred at the market.' The stock was bought, but he never saw daylight on his purchase, for the market declined steadily afterward, and by the time he got back from Boston it showed a heavy loss. The man who had advised its pur- chase had no special knowledge about the stock, but simply took a chance, knowing that the market had only two ways to go, and it 'might' go up, in which case, besides making twenty-five dollars in com- missions for the house, he w^ould be patted on the back for his good judgment. If the market went down, as it did, he would still make twenty-five dollars. "I venture to say that ninety-nine per cent, of the speculations on the New York Stock Exchange are based on such so-called 'Tips.' The 'hand- shaker' has got to get the business to keep his posi- tion and salary, and this can only be done by 'touting' people into the market. So he draws on the 'dope' sheets of the professional tipsters and his own feelings, and gives positive information to the bleating lamb that the Standard Oil is putting up St. Paul, or that Harriman is 'bulling' Union Pacific. The lamb buys the stock, the broker gets the commission and then the lamb worries his heart out as he sees his one-thousand dollar margin jump- ing around in value. Now it has increased to eleven hundred dollars, then declined to nine hun- dred and fiftv dollars, then nine hundred dollars, POSSIBILITIES OF PROFIT 51 eight hundred dollars, and then back to eight hundred and fifty dollars, and then it takes the 'toboggan' to three hundred dollars, upon which the broker calls for margins, and sells the cus- tomer out if they are not forthcoming, the whole speculation being based on the handshaker's 'feel- ing' that stocks ought to go up. "Men of afTairs who will not play poker at home, and are shocked at the mention of faro and roulette, which any old-timer will tell you are easier to beat than the stock market, think they are using business judgment when they try to make money on stock market 'tips.' "Any one with common-sense can see that a ten- point margin has no more chance in an active mar- ket than a brush dam in a Jamestown flood. One of the causes for this kind of speculating on a mar- gin is that a broker's commission is only 12 J cents per share, and it does not pay to do small-lot busi- ness. The one-thousand dollar margin would only buy ten shares outright and net the broker but $1.25 for buying and $1.25 for selling, whereas that same amount as margin on one hundred shares yields the broker $12.50 each way, besides interest on the balance, the net result being that for any given amount of money a speculator on ten-point margin multiplies his profits by ten and his losses by ten over those that would occur were he to buy the stock outright and take it home. The broker on his side multiplies his commission by ten over what he would receive were he to do an investment busi- ness." For further proofs as to the foolhardiness 52 BUSINESS BAROMETERS of the average so-called "Investor" in stocks see the series of articles in Everybody s Magazine that appeared during the spring of 1909. Such a method of buying and selling stock is absolutely unreliable; and unless men are willing to spend money for fundamental statistics, they should pur- chase no listed securities, but confine their pur- chases to inactive bonds recommended by high grade bond houses. On the other hand, it is possible to create a for- tune by the method which we are to outline later; and it is practically the only method which can be depended upon. The best stock exchange firms recommend it because all other methods come under the head of "Accumulation by arithmetical progres- sion" rather than "accumulation by geometrical progression." In order to increase an investment of $5,000 to $1,000,000 in thirty years by earning and saving, a man must accumulate about $25,000 a year, or $100,000 continually every four years, without a break. This is almost an impossibility so far as the average man is concerned and the feat is simply made greater or less in direct proportion to the amount. That is, to build up a fortune of $200,000 requires a laying aside of several thousand dollars every year in addition to allowing all interest to accumulate; while to create a fortune of several millions requires that one should make, exclusively in his business, more money each year than almost any one man in the entire world who holds no stocks or bonds is making in his business today. POSSIBILITIES OF PROFIT 53 This can best be illustrated as follows: — If one has $1,000 invested in only ten shares of stock, it does not seem very wonderful for it to double in value in three or four years, enabling its sale for $2,000, which is at a profit of $1,000. This is due to the fact that one is accustomed to the thought of handling $1,000; yet with $100,000 in the same stock, it would just as surely become $200,000, giving a profit of S100,000. In other words, at the beginning there is little difference between "Arithmetical" and "Geomet- rical" Progression, as $1,000 added to $1,000 amounts to $2,000, the same as if multiplied by two. After accumulating $100,000, however, it makes a tremendous difference whether one adds $1,000, making the amount $101,000 or multiplies said amount by two, making the amount $200,000. It is for this reason, that it is not only possible to create a great fortune through conservative investments, hut that this is probably the safest way it can be accomplished. A further illustration of the difference between "Arithmetical" and "Geometrical" Progression may be more striking, viz. : By Arithmetical Progression only about 150,000 days have elapsed since Columbus discovered America and only about 1,000,000 hours have elapsed since George Washington was president of the United States. By Geometrical Progression $5,000 invested in Union Pacific stock in 1870 would today amount to $50,000,000 provided the holder once or twice a 54 BUSINESS BAROMETERS year sold his holdings or reinvested his money according to market conditions. By "compound interest" $5,000 becomes over $100,000 in only twenty years, reckoning at 10% which is a very low average for one combining the use of funda- mental statistics with the purchase and sale of the highest grade stocks. THE POSSIBILITIES OF PROFITS IN BONDS. For the benefit of readers who confine their pur- chases strictly to bonds, the following tables w411 be found of great interest. Although bonds do not present nearly as great an opportunity for profit as stocks, yet it will be seen that there is often an opportunity of obtaining an average profit of from 10% to 20% in addition to the interest received. From every point of view a study of these tables clearly shows that the study of fundamental sta- tistics is of great value even to the banker or in- vestor who purchases only bonds. If he buys w4th the idea of selling again, a study of fundamental statistics is absolutely essential. If one buys for permanent investment only, the study is not es- sential; but by showing a purchaser when to buy, fundamental statistics will save him an average of about 12% on all purchases. In order that the reader may not think that these tables were pre- pared by us merely in the interests of the study of fundamental statistics we take pleasure in stat- ing that they were prepared by a leading New York investment house whose natural object would be to show that bonds fluctuate very little. HC^HOO rHjN (J '^ O .M G O O C^^ H^ ^ •r-l r— I Cn r^i C> (^ oi •<— I -^H r~.i ro O On r^ ■!>. QgLOfO(-siCNOO'^i^OoOrOJ>-COO^ro J,I^ONCOCNCO''-(c^(Ni-i'rHa\-'-Hrs]GNCN\OLri o :> ^ 0) P^cy O 03 O) +^' CD r- o; 2 — ^ . (U O en o . 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PC; '-fr' -^i^ '^i^ Hm 'hIoo H-* t^!» c-;)-* -.^ 5- a; o • O bjoo '^ 03 >;::^ci MO CCoOO. ■.-iO'-<>J->cOO <2 "^1* HM>=i<»-iS»rHh*rtlaOrt|(NcoH* ' ^ ^oc^^i-lLnc^-^c^^^•lcOlo ^^ -H|M Hf» rH|<^>u^ioo r-|ao Oc^ O--i'OCCsmvOO /=^ r^iOoor^CNOONOoOON M , OOoCO-^O'^OnOOO o u < a. "^ n F^ c^l - '- ::^ OJ 5 _L_, 1- c t'^ 2 c ^ f^ ^ CJ cii: nj en o-^-5 03 a a; 2 ^ ^ o S C cfi - 22 o 3 .•a o o -^-^ CX3 (U C C -M >^ O C O 03 o O cfi 5 <" S ^- S 2 -.Hoc CD b r- -M -t^-o (n en 0°^P..y 'S'^'^ t« "tn '^-^ £2 O) o ;z POSSIBILITIES OF PROFIT 61 As some readers will say, "These figures are all very well, but one might have bought some se- curities which defaulted", the following tables, prepared by Mr. J. D. Evans, and appearing in one of the many valuable financial articles published by the \^an Norden Magazine, are extremely in- structive. Of course one may invest in new schemes and lose all the money invested, but if one will con- fine his investments to securities of established railroads, he has nothing to fear from a reorganiza- tion. Without any noteworthy exceptions the reor- ganizations have been carried out with the inten- tion of placing the companies in a position of solid- ity and strength with respect to their fixed obli- gations, on the low basis of business as it existed at that time. To accomplish this the stockholders and owners of the junior securities of the bank- rupt companies were induced to forego a large part of their immediate income from their in- vestments and take their chances of larger returns with the growth of the companies. With the ob- ject of making these chances as bright as possible, the reorganization committees were almost in- variably quite liberal to the holders of such obli- gations in their allotment of new securities, espe- cially to such of the old holders as paid the assess- ments necessary to provide the new capital re- quired. To quote from Mr. Evan's article: *Tn the tables presented no attempt is made to include all possible obligations of all reorganized companies. No one would be justified in pre- 62 BUSINESS BAROMETERS tending that absolutely exact general conclusions can be arrived at from any statistical tables made up in a study of reorganizations, since no two bonds issued under different indentures are exactly alike. Therefore only a few typical representatives of the various kinds of obligations affected by reorgani- zations are grouped together in the main table and these are then segregated into smaller groups includ- ing securities as nearly in the same class as possible. Such general conclusions, arrived at as a result of such a plan, are, if anything, more valuable than they would be in the other case, inasmuch as typical securities of typical companies have been taken, representing all parts of the country. "The conservative investor who makes it a practice to buy only the best class of first mortgage bonds with the purpose of ensuring the safety of his principal and the continuity of his income, needs only the most casual acquaintance with the out- come of reorganizations to convince him that he has plenty of proof that his stand is a wise one. "By far the larger proportion of first lien bonds were not disturbed at all either in their lien or rate of interest. In reality their position was greatly strengthened by the financial readjustment and the accretion of fresh capital to assure the continuance and success of the company on whose property they had a prior lien. The fact that there are still out- standing a considerable number of old underlying bonds of reorganized companies selling at premiums ranging from 10 per cent, to 30 per cent, or 40 per cent, is the best evidence of this. oo^oooooooooooo o oo o c cscccccccc o oooooooooo jn ccscccsccc •_ ^ ^- lU 0 C 00 C"OCri<'*f<5rOfOrOTjTf (U iv iJ V M .5i M bfi J tuo o ^ o ^ cS "^ > •£' Q rt -O C^ 2!>> 03 rt g ^ 5 S o o S CSC cooo CN (N (N U-; VD lO •^ ""'""' LO ^00 C !- O fi 8" ' o iig O <-• m . "^ s5 0O -'•'-,, ot^"^Oc^ wj;, d ^•s O - > H X <^ . tiZ .- o »- ^ t^ ti - ?r! O'00000i0- OO'tr^iOOfOO'^O'H u) +j O ••-■ OJ S i; p cj o< SiSS.S o! P^ Oh O vO u^ ■* tJh U-) Tfi u") lO lO lA) o; r- Pill c/1 — -.5 uCA! 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Ss • ^>--i^ i"-s •- rtii >, -^fc ti 60i>'5.^ =^ i5 ^ 'nsl^O 'tlcri a ^.i%j^ s^g M d" - - O -tJ rt rt r°- m -IS 2 ^^da % l^-J < i^' o • • QiH * +- ■^ o t-"^ i^i$-J?:s§*^ U ^ '^ <^ OOOOfN f^ O^CJ- 00O'*OO a s: m\ ^ ^--SoorfocN ^ J C Tj< Tl< Tt Tj- VO CD Immec Retun Forn Princi 4.8( 4.0( 4.4( 4.0( 5.9: H ^ til S cu New incipal jceived , Stock 20% none none 100% 48% 3 a a £pi-= en W p:5 — i-n to New Principa Receive in Bond 100% 100% 110% none 100% CQ U Q fl ^ OO^Of^_OI>.fO o f^y^^ O§^OCClT(. ^ ^ S H z ■ < H-;^ Xi - s xm\ h m <1m i i i uhict began eari\ n, I " ih,, \^u after the puu ^ I 1 i il, I , lit i^n cultural oulk 1 I i li I \ v u iKwha affected bj uim udU I ii. h i and Franco-Germar high, but monetary 925.557.682 514 cess merchandis icomplete data .204,676.204 687,941.419 nptroUer for High interest rate for preceding two years, extremely low reser\'es, irregularity in security ces and panicky conditions on the Stock change. Enormous amount of railway secur- es placed on the market, embarrassing in- utions endeavoring to float them. Crisis United States ushered in by failure on Sep- _..nber 18 of Jay Cooke & Company, followed by panic conditions. bega ; world wide, Bank deposits withdrawn loans unobtain lie on collateral much money disappeared from xulation legal tender notes at 3\ premium eold at 106 bank failures, 9 failures in ever> 1000 commercial houses $15,000 000 of gold imponed Stock Exchange closed foi 10 dajs suspension of p-iMnents lasted 40 da^ s No ndustry remained unaffected Lnuersal dis ontinuanceof work commodities d.opped 20^ and min\ were unsalabk 1reasui> bought SliSOOOOO go\ernmcnt bonds \cw \ ork leanne House issued S26 S6S 000 ecrtifieates id mide common fund of issouated banks \oxLmher 13, 1873 hin in S7 and '93 77 marked nnpro\e I of "^peeie pa\ments with interruption^ in 1879— >earof rcsu Impro\ement eontn m 1884 and iSQO.unt afe but inelastic A period free from destn in her colonies and Africa and South \ . ■ ■ speculative enterpn-. increasing demand- in 1890. Inthel m- prior to 1893 saw i,: ■ and absorption and exucn^iun oi smaller imos by larger systems. Period one of varying prosperity in the United States, due largely to local causes. Specie payments resumed in 1879. Silver question settled in Congress, but continued disturbing element for 3 >e'ars. An era of unrest. Our country was ^oini; ahead in leaps and bounds, in agriculture and manu- facturing and in production ol iron and steel. A time of readjustments between labor and capital and of progress in business concentration through organization. Usual waves of extrava- gance.but held somewhat in check by fluctuations prosperity. Cumulative abuse Wide-spread busi vhich banks we .'ithout powe ] control. Bank Capital . S683.598,120 S4( Reserves 5 i i.90U 000 I 26 . SO Julv ( Dal Note circulation 182.959.725 Deposits 1.451.124,380 3.071 1890 warded off cris but alarmed Europea American securities. ificates beginning June, s initiated in England, I investors who returned ';:.;a to 50 per cent.: sudden i. - ( 1...,,, arly in summer of 1893; issue ul" flL-arinu louse certificates; Reading Railway and Nation- 1 Cordage Company failed. Actual beginning f crisis July 25th. when Erie failed and Mil- aukee Bank suspended. Originating in England in 1890, to other European nations, but di( the United States till 1893. The usual phe hoarding, difficult; house certificates is iuedtotheamountofS4l,4 refused to honor checks hers only paid cash for |; ik checks issued for (.iirrc premium. This stiinula ; pren , but ; August— Novenibi 936,111 of gold arrived, S35,0U7.645 received in August alone. 160 nationa suspended and 13 business houses in Stock Exchange was at its lowest As soon as gold imports w^ere assure^ general recover>' in prices. The aci the crisis, about forty days, ende September, 1893. By July 1st, IS Developed through similar causes coincidently ill over the worid. Had its first expression n the United MalL's. improvinj S^ import prior to and during crisis, the total outstanding on January 1, being nearly $700,000,000. Emergency currency based on assets and com- modities devised by clearing houses and groups of bankers; 21 national banks suspended. •Prepared by a prominent New York Exchange fin CHAPTER V COXDITIOXS AXD EVENTS SINCE 1860 1860 THOUGH this year ended in a panic, the com- paratively favorable conditions existing dur- ing the first six or eight months account for the fact that many of its figures are about normal. Xew railroad construction amounted to 1,837 miles; while 821,223 tons of pig iron were produced at an average price of $22.70 per ton. Bank clearings amounted to more than $7,231,000,000. The num- ber of failures was 3,676 with total liabilities of 879,807,000. Wages in general were high; and 150,237 immigrants entered the country. With money rates high throughout the year conditions became particularly strained in No- vember, when for the first time in the history of the country, clearing house certificates were issued. The total volume of foreign trade amounted to more than S687,000,000 with a considerable unfavorable balance. The index of English commodity prices for the year was 2,692. On the stock market, prices were generally low. Ten conservative stocks rose from 59 in the spring to 93 in October. The production of wheat amounted to about 173,000,000 bushels at $1.37 per bushel; that of corn amounted to about 838,700,000 bushels at 73 cents per bushel; and that of cotton amounted to 4,861,292 bales at 11 cents per lb. 116 BUSINESS BAROMETERS Panic conditions began in November with the elec- tion of Lincohi to the Presidency and the subse- quent action of the Southern States towards se- cession. 1861 The depression existing at the end of 1860 con- tinued through the first six months of this year. Only 660 miles of new railroad were constructed; and only 653,164 tons of pig iron were produced at an average price of $20.26 per ton. Bank clear- ings decreased to the very low figure of $5,915,- 742,000. Failures amounted to 6,993 in number with liabilities of $207,210,000. Wages continued high, but only 89,724 immigrants came into the country. Money conditions were marked by high rates which dropped somewhat with the improving con- ditions of the last six months of the year, by a fur- ther issue of clearing house certificates, and by a suspension of specie payments. The total volume of foreign trade decreased to about $500,000,000. The index of English prices for the year was 2,727. Prices on the stock market were low throughout the year. Ten stocks selling at 84 in January dropped to 62 in September. The production of wheat, corn and cotton decreased considerably. The number of bales of cotton amounted to only 3,849,000. Wheat sold at $1.30, corn at 60 cents, and cotton at 13 cents. In March the Morrill Tariff Act was passed, levying heavier duties and giving an impetus to mercantile and manufactur- ing conditions. And in spite of the beginning of EVENTS SINCE 1860 117 the Civil \\'ar, conditions improved steadily after the middle of the year. 1862 This year shows a marked improvement over 1861. While only 834 miles of new railroad were constructed, 703,270 tons of pig iron were produced at an increased price of $23.92. Bank clearings rose to 86,871,443,000. Failures amounted to only 1,652 in number, with $23,049,000 of liabili- ties, and 89,000 immigrants entered the country. In money matters, currency was considerably inflated by paper issues and money rates were low. The progress toward improved conditions was marked by a low, volume of foreign trade amount- ing to about $350,000,000. The index of English commodity prices was 2,878. Transactions on the stock market increased and prices rose steadily. The ten stocks sold for 71 in January and for 107 in November. Railroads prospered. Among the crops, cotton production amounted to 4,500,000 bales at 31 cents per lb.; while wheat sold at $1.28 a bushel and corn at 60 cents a bushel. The most significant political feature of the year was the development of the policy of a heavy war tariff for revenue purposes. 1863 This was a year of prosperity. There were 1,050 miles of new railroad constructed, and 846,000 tons of iron produced at about $35 per ton. The Bank clearings increased to about $14,800,000,000, and failures decreased to 495 with liabilities of only $7,900,000. Immigration amounted to 174,000. 118 BUSINESS BAROMETERS * Money conditions were temporarily aided by measures of Congress providing for a further cur- rency inflation, and gold exportation was increased considerable. Foreign trade increased to over $447,000,000. The English index of prices was 3,492 as against 2,878 for the preceding year. On the stock market a fever of speculation brought about a considerable increase in transactions and an advance in prices. Ten stocks rose from 106 in the spring to 153 in the fall. Wheat sold for $1.16 and corn for 84 cents; 1,600,000 bales of cotton were produced at an average price of 67 cents per lb. Railroad earnings increased and the first horse car line was constructed in New York. Con- gress passed the Internal Revenue Act to increase the w^ar revenue. In general the Northern troops were successful. 1864 Prosperity conditions, at full height in the be- ginning of the year, showed marked evidences of instability in the last months. Only 738 miles of new road were constructed, while pig iron produc- tion amounted to 1,014,282 tons, and the price rose to the phenomenal point of S59 per ton. Bank clearings nearly doubled those of the preceding year amounting to more that vS24,000,000,000. Failures increased slightly to 520 in number with liabilities of $8,579,000, while immigration amounted to about 200,000. Inflation of currency' and exportations of gold continued to an abnormal degree and money rates rose. Foreign trade increased to over $475,000,000. The index of English prices was 3,787. EVENTS SINCE 1860 119 Before the end of the year prospects as marked by these abnormal figures and conditions strained by the corner in connection with the stock of the Harlem River R. R. appeared so unsatisfactory that many began to sell their stocks. Average prices of securities for the year were higher than in 1863. Ten stocks, selling at about 150 in January, fell to 138 in June and rose again to 155 in December. Cotton production amounted to about 450,000,000 bales selling at the extraordinary price of $1.00 per lb. Wheat sold at S2.00 per bushel and corn at S1.44 per bushel. The general condition of inflation was marked further by high wages and increased dividend payments by railroads. In politics, Lin- coln was re-elected to the Presidency. 1865 Conditions were unstable and unsatisfactory during this year. While 1,177 miles of new road were constructed, the production of pig iron de- creased sharply to 831,776 tons, selling at $46 a ton. Bank clearings increased slightly to $26,000,000,- 000. Failures numbered 530 with liabilities of $17,625,000. The number of immigrants increased to 247,453. Money rates remained high, but did not increase. Paper money issues were somewhat contracted and reserves were increased. Foreign trade fell off to about 8400,000,000, and the index of English com- modity prices dropped to 3,575. On the stock market the price of the ten stocks fell from 158 in the spring to 125 in the fall. Railroad earnings were erratic in behavior. The 120 BUSINESS BAROMETERS production of cotton jumped up to 2,228,987 bales, selling at S3 cents per lb.; while wheat and corn were at $2.04 and $1.26 per bushel respectively. Conditions steadily declining during the first of the year, improved somewhat with the surrender of Lee, but became unsteady again with the death of Lincoln. The year was, on the whole, one of panic. 1866 Depression followed the panic of the previous year. 1,716 miles of new railroad were constructed while 1,205,663 tons of pig iron were produced at a price of $46.84 per ton. Bank clearings increased slightly to $28,717,000,000. Business failures in- creased 300%, amounting to 1,500 in number with liabilities of $53,783,000. Immigrants coming to the country amounted to 314,917. Banking conditions were rather more settled, and money became easier with the close of the war and the slight improvement in underlying conditions. Foreign trade increased to more than $780,000,000 and exports of gold somewhat decreased. Com.mod- ity prices in general were low. The English index figure was 3,564. In the stock market the decline in prices of the preceding year continued. The average for the ten stocks went as low as 99. The first official crop report of the national government gave a produc- tion of about 152,000,000 bushels of wheat sold at $2.20; 867,946,000 bushels of corn sold at 90 cents per bushel, and 2,059,000 bales of cotton sold at 43 cents per lb. Though, as shown by these figures, underlying conditions appeared to be somewhat EVENTS SINXE 1860 ,121 improving, still the surface conditions especially evident in the action of the stock market were de- cidedly depressed. 1867 During this year, though depression still existed, still improvement was plainly visible. There were 2,249 miles of new railroad constructed, and 1,305,- 023 tons of pig iron produced at $44.08 per ton. Bank clearings amounted to $28,675,159,000, and failures increased to 2,780 with liabilities of $97,- 000,000. Immigration amounted to 310,965. Monetary conditions showed a slight improve- ment over those of the previous year. Gold expor- tations decreased and rates were somewhat lower. Foreign trading amounted to $690,266,237 in vol- ume with a balance of $61,337,308 of imports. The English commodity price Avas 3,024. On the stock market the price of the ten stocks ranged from 98 to 128. Railroad earnings im- proved. 2,498,895 bales of cotton sold at $3.15 per lb.; 768,320,000 bushels of corn sold at $1.21 per bushel; and 212,441,400 bushels of wheat, a con- siderable increase over the previous year, sold at S3. 33 per bushel. Confidence was strengthened by the purchase of Alaska and by the opening of new territories in anticipation of the coming pros- perity. 1868 This was a year of marked prosperity. New railroad construction increased to 2,979 miles; and 1,305,023 tons of iron were produced at $39.25 per ton. Bank clearings amounted to $28,484,288,000. 122 BUSINESS BAROMETERS The number of failures decreased to 2,608 with total liabilities of S63,694,000; and the number of immi- grants decreased to 138,840. Money rates were slightly higher. The excess of gold exports amounted to $51,217,027 or five millions more than that of the previous year. The volume of foreign trade amounted to $639,389,339 with a balance in favor of imports amounting to 887,000,000. The London commoditv price was 2,682. The market became active. Ten stocks rose from 108 to 147. While the cotton crop was much the same as that of the previous year, the wheat crop increased to 224,036,000 bushels selling at S2.43 per bushel; and the corn crop increased to 906,527,000 bushels selling at SI. 23 per bushel. While general conditions were thus improving, the prices of stocks and the conditions of the stock market were ren- dered uncertain by the great contest being waged between Drew and Vanderbilt for control of the Erie, in which the former won virtually by loading an issue of convertible bonds upon the Erie, and then immediately converting the bonds into cash. This and certain other unfortunate incidents left the underlying conditions of the stock market at the end of the year quite unsatisfactory. 1869 This was the year of the "Black Friday" panic, a panic of the stock market which, in spite of pros- perity in other branches of business, served to render conditions unsound. Miles of new railroad amounted to 4,615, and 1,711,287 tons of pig iron EVENTS SINCE 1860 123 were produced at S-40.61 per ton. Bank clearings increased to 837,407,028,000. Failures numbered 2,799 with liabilities increased to $75,054,000. The number of immigrants increased to 352,768. The money market was affected somewhat by the manipulations of the stock market. Money rates, though firm, were high. The excess of gold ex- portations decreased to only $17,990,000, while the balance of trade in favor of imports increased to 8101,079,906. The London commodity average price was 2,666. On the market, ten stocks, at 160 in the early summer, fell to 114 in the fall. The Union Pacific was completed and railroad earnings in general were good. In crops there were 3,000,000 bales of cotton at $.29 per lb. ; 874,000,000 bushels of corn at $1.02, and 260,146,000 bushels of wheat at $1.50. With the general conditions of prosperity came a great westward movement. As w^as the case, how^ever, with the Harlem corner in 1864, the "Black Friday" panic of this year seemed to create a wound that would not heal, so that although business continued to increase and surface conditions appeared to be more favorable, underlying conditions grew more and more unsatisfactory every day. The leading bankers and merchants who were studying these underlying conditions and watching the relation between actual and normal figures, disposed of their securities and reduced their merchandise. 1870 Prosperity continued through this year in spite of the unsatisfactorv monetarv conditions at the 124 BUSINESS BAROMETERS close of 1869. There were 6,078 miles of new road constructed, and 1,665,000 of iron produced at $33.23 per ton. Bank clearings, to be sure, declined to $27,804,000,000; and failures increased in num- ber to 3,546; but wages were high and immigra- tion amounted to 387,000. In the money market, rates remained firm and money was easier than it had been in the preceding year. The excess of gold exports amounted to $42,673,184 while the excess of imports of merchan- dise decreased to $57,546,000, and the volume of foreign trade was $864,730,176. The English index commodity price was 2,689. The stock market, though steady, dropped during the year, so that ten stocks selling for 120 in the Spring, were selling at about 102 in December. Wheat was somewhat decreased in both price and production as compared with 1869; but a phenome- nal corn crop amounting to 1,094,255,000 bushels, sold at $1.02; and the cotton crop increased to 4,352,317 bales selling at S.239 per lb. The year as a whole was looked upon by the business men as prosperous. 1871 In this year the miles of new railroad amounted to 7,379, while 3,930,000 tons of iron were produced at $35.00 a ton. Bank clearings rose to $29,300, 000,000. The number of failures fell to only 2,915 with liabilities of $85,000,000., The number of immigrants during the year was 321,350. Monetary matters showed the effects of the weakening underhung conditions. Money was not EVENTS SINCE 1860 125 as easy as in the preceding year. The excess of gold exports amounted to $39,074,000; while the volume of foreign trade amounted to $963,043,862 with an excess of imports of $112,739,000. The London commodity average price for the year was 2,590. On the stock market the ten stocks rose during the year from 103 to 117. Railroad gross earn- ings per mile were $9,040 an unduly high figure. Crops were not as good as those of the preceding year. Cotton amounted to less than 3,000,000 bales selling at $.169, corn to 991,898,000 bushels selling at $.77, and wheat to 230,722,000 bushels selling at $1 .60. Added to the decline in crops were other factors which hastened panic conditions which were soon to follow. The Chicago fire, coming in this year, shook confidence and helped to in- crease money rates. In political circles much cor- ruption sprang up ; and the Tweed Ring exposures produced a still further disquietude and lack of confidence. 1872 The general decline which had begun in 1871 was in this year somewhat checked by a number of causes. New construction declined to the more nearly normal figure of 5,878 miles; and the produc- tion of iron increased to 2,548,000 tons selling at about $49. This great increase of iron production was probably due to the perfection of commercial methods of making Bessemer and open hearth steel, greatly increasing the demand for all grades of pig- iron, but especially the lower grades. Bank clear- 126 BUSINESS BAROMETERS ings increased to $33,844,000,000. Failures num- bered 4,000 with $121,000,000 of liabilities. More than 400,000 immigrants came to this country. Money conditions were not altogether satis- factory. The banks were carrying a very small surplus reserve. The excess of exports of gold in- creased to more than $57,000,000. The volume of foreign trade amounted to something over $1,000,- 000,000 with an excess of imports amounting to $187,000,000. The English index commodity price was 2,835. Speculation was active on the stock market. Ten stocks dropped from about 110 in January to about 97 in December. Gross railroad earnings per mile fell to $8,116. Crops were rather better than in the preceding year. But money rates were higher, money w^as not easy, wages were high and strikes were disturbing confidence. In politics a revision of the tariff and a presidential election made conditions still more uncertain. On the whole, though this was a year of prosperity, its prosperity was steadily waning. Insiders were selling. 1873 The Boston Fire of November 1872 precipitated the panic which overwhelmed the business world in this year. New construction declined to 4,097 miles, though iron production increased slightly to 2,560,000 tons and sold at $42.79 a ton. Bank clear- ings rose to $35,461,052,000. Business failures in- creased to 5,000 with liabilities almost S 100,000,000 EVENTS SINCE 1860 127 more than those of the year before. More than 450,000 immigrants came into the country. Monetary matters were so unsatisfactory, and bank failures were so serious that Clearirig House certificates had to be issued. The excess of gold exports decreased from $57,000,000 to less than $5,000,000; while in volume foreign trade increased to $1,164,000,000 and in excess of imports it de- creased to $27,000,000. The English commodity price rose to 2,947. On the stock exchange panic conditions were even more evident than elsewhere. The ten stocks fell as low as 75. Gross railroad earnings declined to $7,947 per mile. Crops were fair. The cotton production amounted to 4,000,000 bales and sold at $.20 a lb. Corn production amounted to 932,- 000,000 bushels, and wheat to 281,000,000 bushels; and sold at $.63 and $1.76 respectively. Money rates were very high, being 7% in New York for time loans. The Pacific Railroads, opened in the year 1869, were largely owned in New England and the promoters of both State Street and Wall Street had been borrowing money heavily of the insurance companies. These loans the insurance companies were now obliged to call. Moreover, the preceding year was the culmination of the Erie tragedy when James Fiske was shot and Erie stocks were struck from the New York Stock Exchange. Money had been very high in 1872 and men of affairs clearly saw at the beginning of 1873 that it would be im- possible to continue business under existing con- ditions and that a house cleaning would be nee- 128 BUSINESS BAROMETERS essary. Consequently, when crop reports contin- ued to point to small harvests, which later turned out to be about 100,000,000 bushels less than the preceding year, and when the number of failures showed a distinct increase, things were allowed to seek their own level. That is, the large bankers and merchants w^ithdrew their support and busi- ness began to decrease immediately. Conditions at this time are interesting to study as they show clearly the three steps in the progress of a decline and the precipitation of a crisis: first, the large bankers and merchants sell their securi- ties and reduce their merchandise^ while the public is very optimistic; second, after some special event has taken place, in this case the Boston fire, which convinces these bankers and great merchants that the time has come for a house cleaning, they with- draw their support, although the people are still bullish and the ordinary store-keeper is borrowing money to buy goods; and third comes the panic it- self, which in the case of the great panic of 1873 caused the failure of J. Cook & Co., and many other firms. This panic made imperative the closing of the New York Stock Exchange from September 18 to the 30th. This third step is the beginning of the decline in the eyes of the ordinary merchant, manufacturer and laborer. And in real- ity, until this third phase comes, there is no decline in surface conditions, although underlying con- ditions have been unsatisfactory for a year or more, during which time bankers and merchants who study underlying conditions, have been preparing for the depression. EVENTS SINCE 1860 129 1874 In this year panic passed into depression. New railroad construction declined to 2,117 miles; and the production of pig iron fell off somewhat, to 2,400,000 tons selling at only $30. Bank clearings declined to $22,800,000,000. Failures increased in number to 5,830; and immigration declined to 300,000 persons. Surplus reserves in the banks increased. Gold exports showed an excess of $35,700,000 over im- ports; and of a total volume of foreign trade amounting to $1,153,689,000, exports exceeded imports by $7,700,000. The English index figure for commodity prices was 2,891. The ten conservative stocks rose from the 75 of the preceding year to 100 in the summer of this year, only to fall back to 93 in December. Gross railroad earnings per mile fell off to $7,513. Many roads were in the hands of receivers, and railway affairs were shaken by adverse legislation. Crops declined to a total for corn and wheat of 1,213,500,- 000 bushels. Granger laws, political investigations and the prosecution of certain prominent promot- ers, tended to place a check on the growth of public confidence. 1875 Depression continued throughout this year, and in fact through the succeeding four years. Only 1,711 miles of railroad were constructed, the smallest number in ten years; and iron production dropped to 2,000,000 tons with the price at $25 a ton. Bank clearings showed a slight increase, amounting to 130 BUSINESS BAROMETERS s$25, 000,000,000. Failures, however, increased in number to 7,740 and in liabilities to $201,000,000. Immigration declined still further to 227,000. In monetary matters, with the excess of gold ex- ports at $39,000,000 the balance of trade was again "in our favor" to the amount of $7,794,000 though the volume of trade had decHned to $1,046,000,000. The index figure for English commodity prices was 2,778. On the stock market stocks were irregular and declining in price. Ten stocks averaged 100 high and 87 low. Gross railroad earnings amounted to $7,010 per mile, showing a considerable falling off, and both the Erie and the Wabash defaulted interest on their bonds. Money continued high and confidence was greatly upset. The crops, however, were much better than in the preceding year. Cotton production amounted to 4,669,000 bales at $.154 per lb. Corn amounted to 1,321,- 069,000 bushels at $.84; and wheat amounted to 292,136,000 bushels at $1.33. This fact of better crops together with the business depression, re- lieved somewhat the money market, and rates gradually decreased. 1876 In this year the depression reached its low ebb. Liquidation was very thorough. New construc- tion, to be sure, rose somewhat to 2,712 miles; but iron production decreased to 1,868,000 tons selling at $22.19 a ton. Bank clearings declined to only $21,597,000,000. Failures rose to 9,092 in number with liabilities of S191,117,786; and immigration declined to 169,986. EVENTS SINCE 1860 131 Owing to the thorough Hquidation, money was becoming easier. Only $7,555,000 of gold was ex- ported in excess of imports; and in foreign trade the decline in volume to 81,001,000,000 was due to a decline in imports which raised the excess of exports to 8163,319,000. The London commodity price was 2,711. The tendency of the stock market was down- wards. Ten stocks, selling at 100 in the spring, dropped to 62 in the winter. Railroad earnings continued their decline to a gross per mile of $6,764. Crops were again about the same as the year before in yield, with prices slightly lower. Money rates in NeAv York on time loans had declined to 5%; and abroad, to 3^%. In politics the Presidential elec- tion and the Hayes-Tilden dispute disturbed confi- dence. In fact the public had become very much discouraged. All who had been connected with stocks had lost their money, prominent bankers and merchants had failed, railroads were carrying traffic at a loss, mills and factories were idle. Money rates were less than at any time since 1860. These facts showed that the pendulum had swung too far. But knowing that business conditions are like the pendulum which, after wide swings in either direction, tends to resume a normal position in re- sponse to the law^s of gravity, investors and mer- chants who were studying the conditions and com- paring figures saw clearly that this was the year in which to buy stocks, make plans for further extensions, and prepare for the period of improved conditions which was bound to come. In fact, the 132 BUSINESS BAROMETERS stocks which these investors sold at an average of 160 a share in 1869, many now purchased at an average of 62 a share, while others Avho waited until the beginning of the following year purchased at an average price of 52. 1877 Though the depression continued, improvement in underlying conditions was well under way. New railroad construction amounted to 2,274 miles; and pig iron production increased to 2,066,000 tons selling at $18.92. Failures remained about the same in number as in the preceding year. Strikes were common owing to reductions in wages, and immigration continued its decline in numbers to 141,000. In monetary matters the excess of gold exports decreased to $7,352,000; while the volume of for- eign trade increased slightly, and the excess of ex- ports decreased to $140,000,000. Commodity prices, as indicated by the Economist's index figure, declined to 2,715. On the stock market, ten stocks dropped during the spring and summer to 48, but began to rise in the fall, selling at 76 in December. Gross rail- road earnings per mile declined to $6,380; and net per mile to $2,307. Crops were good: 4,811,000 bales of cotton sold at S.118 per lb.; 1,342,000,000 bushels of corn sold at $.59 per bushel; and 364,- 194,000 bushels of wheat sold at S. 163 per bushel. In politics, the silver agitation, as usual with all currency disputes, tended to retard improvement. But though the country was in extreme depression EVENTS SINCE 1860 133 at the beginning of the year, still, with the good crops, railroad earnings and confidence improved, and money rates gradually decreasing, Christmas 1877 was a time of thanksgiving for many who had escaped being crushed during the preceding five vears. 1878 In spite of the signs of improvement in the year preceding, this year, though continuing the im- provement, was still in depression. New construc- tion increased to 2,665 miles; and iron production rose to 2,301,000 tons w^th the price per ton at Si 7.67. Bank clearings declined slightly to $22,- 508,000,000. Failures increased in number to 10,478, and in liabilities to $234,000,000. Immi- gration declined still further to the low point of 138,000. Monetary affairs reflected the improvement which was under way. The volume of foreign trade re- mained the same as in the preceding year; but the excess of exports increased to $305,000,000, and the gold movements showed an excess of imports amounting to $1,821,000. The London Econo- mist's commodity figure of 2,554 indicated the general tendency of commodity prices to remain low. The stock market was still unsteady and inactive. Only 39,875,000 shares w^ere traded on the New York Exchange. Ten stocks fell from 76 in the spring to 61 in the winter. Net railroad earnings per mile, however, showed an increase to $2,375. The crops of corn and cotton were about the same as 134 BUSINESS BAROMETERS those of the preceding year; while the wheat crop increased to 420,000,000 bushels and dropped in price to $1.24 per bushel. In politics, the silver dispute was continued over the Bland-Allison bill; and certain changes were made in the Bankruptcy law. On the whole, the confidence of the public and of the business world was returning. 1879 During this year depression passed into pros- perity. New construction jumped to 4,809 miles; and iron production increased to 2,741,000 tons selling at $21.72. Bank clearings increased to $25,000,000,000. Failures decreased remarkably to 6,658 in number, and only $98,149,000 in liabili- ties. Immigration increased somewhat to 177,800 in number. In the field of money, the volume of foreign trade increased to $1,156,000,000, the excess of exports amounted to $251,557,000, and the excess of gold imports to $74,652,000. Commodity prices were still low. The English index figure for the year was 2,225. On the stock market, the ten stocks rallied from 66 to 106, and transactions nearly doubled. Net railroad earnings increased to $2,610 per mile. Crops were as follows: cotton, 5,057,000 bales selling at $.108 per lb.; corn, 1,547,000,000 bushels selling at $.47 per bushel; and wheat 448,000,000 bushels selling at $1.24 per bushel. In New York, time loan money rates were at 5%, and in Europe, at 3%. In accordance Avith the Specie Payments Act of 1875, specie payments were again resumed EVENTS SINCE 1860 135 in this year. In fact the entire year witnessed an improvement so marked that at the end of the twelve months, mills were in full operation, all labor was employed, and the entire country was in a very prosperous condition. 1880 This was the first of a series of four years of marked prosperity. New railroad construction increased to 6,711 miles, and pig iron production amounted to almost 4,000,000 tons selling at $28 a ton. Bank clearings jumped to $37,000,000,000. Failures decreased still further to only 4,735 in number or .63 of 1% of all the firms in business, with one exception the lowest point on record. The number of immigrant arrivals increased to 457,000. In money matters, the volume of foreign trade increased to $1,503,000,000, and the balance "in favor of" the United States amounted to $192,- 876,000. Excess of gold imports amounted to $70,582,000. Commodity prices improved as il- lustrated by the English index figure of 2,538. The average surplus reserve of the New York banks de- chned from $46,800,000 in 1879 to $6,100,000 in this year. On the New York stock market, transactions in- creased from 72,000,000 to almost 98,000,000. The ten stocks rose from 87 to 13-1. Net railroad earnings jumped up to $3,029 per mile. Crops were excellent; 6,589,000 bales of cotton selling at $.115 per lb.; 1,717,434,000 bushels of corn selling at $.55 per bushel and 498,000,000 bushels of wheat 136 BUSINESS BAROMETERS selling at $1.30 per bushel. Confidence reigned throughout the country; consolidations were in progress; new industries were started; new rail- roads were projected; and everyone was elated over the fact that the country was once more prosperous. Moreover, Garfield the candidate for the Republi- can party, always representative of business inter- ests, was elected President in November. Money was constantly in more demand, and the rates were gradually increasing. 1881 Although the general public considered this year one of great prosperity, there were certain events which caused the barometers for underlying con- ditions to begin to decline, and before the year closed, the underlying conditions were unsatis- factory. Thus, new construction rose to the ab- normal figure of 9,846 miles; while production of pig iron declined somewhat as well as the price. Clearings jumped to more than $48,000,000,000. Failures increased in number to 5,582. The num- ber of immigrant arrivals amounted to 669,431. Money conditions, too, were not altogether satisfactory. The volume of foreign trade in- creased slightly, and the balance "in favor of" the country decreased as did the excess of gold im- ports. In the New York banks the surplus re- serve fell to $4,500,000. Commodity prices were somewhat lower as indicated by the English index figure of 2,376. Transactions on the New York Stock Exchange amounted to more than 114,000,000 shares. The EVENTS SINCE 1860 137 ten stocks selling at an average price of 125 in January, fell to 110 in June and rose again to 137 in December. Railroad net earnings declined slightly to $2,928 per mile, being due in part to the Trunk Line Rate War. Money rates abroad in- creased to 4% and at home to 6% on time loans. The crops decreased considerably in yield, wheat and corn together amounting to less than 1,600,000,000 bushels. Tremendous stock issues were being floated, and large stock dividends were being de- clared. While to outsiders everything appeared to be very prosperous, yet to the careful student it was plain, that conditions were not what they should be, and needed only some sudden disturbing event to start diaster, such an event as the Harlem corner in 1864 and the JBoston fire in 1873. This sudden event turned out to be the shooting of President Garfield on July 2, 1881, after which event, the bankers and merchants who kept careful watch of conditions decided to sell. 1882 Fortunately for those who had not already liqui- dated, prosperity conditions continued in many of the underlying subjects during this year and the next. New railroad construction amounted to 11,569 miles, or next to the largest new mileage for any year in the history of the country; and iron production was correspondingly inflated to 4,- 623,323 tons, selling at $25.77 per ton. Bank clear- ings decreased slightly to $46,500,000,000. Failures numbered 6,738 with liabilities of $101,547,564. Immigration rose to the abnormal figure of 788,992. 138 BUSINESS BAROMETERS Monetary matters were also uncertain. Gold movements showed a return of excess of exports amounting to more than $25,000,000; while the volume of foreign trade declined to $1,475,000,000 and the excess of exports declined to $15,138,000. The surplus reserve of the New York banks declined still lower than in 1881, to $3,500,000. The London Economist's commodity price figure for the year was 2,435. On the New York Stock Exchange transactions increased to 116,300,000 shares. The ten stocks fell to a low point of 94 in the early summer and rose again to 134 in the winter. Railroad earnings decreased to a net per mile of $2,670. Crops, how- ever, the real redeeming feature of the year, were better than in 1881. The cotton crop of 6,992,- 000 bales sold at $.115 per lb. Corn amounting to 1,617,000,000 bushels, sold at $.77 and wheat, amounting to 504,000,000 bushels, sold at $1.32 per bushel. Owing chiefly to these crops, although a decline had set in, it was not perceived by the general public. As mentioned in the account of the year 1873, there are three steps in every de- cline; and the second, that in which the leaders withdraw their support, had not come, for this was the year in which Jay Gould made his famous exhibit of securities. As will be seen by referring to the newspapers of that day, it was clearly under- stood by students of conditions that a distinct de- cline had begun, and Gould probably knew this as well as any man. Therefore, although he was preaching that true conditions were perfectly sound EVENTS SINCE 1860 139 and that still greater prosperity was ahead, he himself was doubtless unloading and liquidating with all possible speed in preparation for the with- drawal of his support later on. Moreover, the banks were aiding their directors by keeping down money rates although the demand for money was very great. 1883 Though nominally considered a year of pros- perity, this was in truth a year of decline and in- stability of underlying conditions. New construc- tion fell off to 6,745 miles, and iron production to 4,595,000 tons. Bank clearings in this year, for the first time published for the whole country instead of for New York alone, amounted to $51,699,823,000. Failures increased in number to 9,184 and in li- abilities to $172,800,000. Immigration also showed a decline. Money conditions were supported by a large volume of foreign trade amounting, to $1,547,000,- 000. The balance in favor of this country in- creased to $108,000,000, and excess of gold imports due to gold purchases from abroad amounted to $16,000,000. The New York bank reserves were still low, being about $4,200,000. The English commodity price index fell to 2,281. The stock market held up remarkably well, although the high prices were maintained only through manipulation and in order to allow the in- siders the opportunity to liquidate. Ten stocks fell from 121 to 103. Railroad earnings increased slightly both in gross and net. Money rates in 140 BUSINESS BAROMETERS New York averaged 6^% and in Europe, 3J%. Crops, too, were poorer than in the preceding year, the yield of wheat and corn combined amounting to less than 2,000,000,000 bushels. On the whole, these facts, added to agitation over tariff and in- ternal revenue questions, rendered business condi- tions abnormal and unsound. 1884 The unsound conditions of the preceding year were reduced, in this year, to panic conditions by the great Ward and Grant failure on May 6, together with the failures of Henry Villard and James R. Keene. New construction declined to 3,923 miles, and iron production was reduced by about 500,000 tons. Bank clearings decreased to $44,000,000,000. Failures rose to 10,968 in number with 8226,000,000 of liabilities. Immigration also declined to 500,000 in number. In foreign trade both exports and imports de- creased. The balance "in favor of" this country was $120,000,000; but gold movements showed an excess of exports amounting to 812,990,000. The New York banks held a large surplus reserve of $20,800,000. Commodity prices fell as illustrated by the English index figure of 2,195. On the stock market, artificial support being re- moved from money conditions, stock prices fell rapidly. The ten stocks sold at 115 in the spring, and 80 in the summer and fall. Railroad earnings declined to $2,318 net per mile. Crops, however, were again good, corn and wheat amounting to over 2,300,000,000 bushels. If it had not been for EVENTS SINCE 1860 141 the good crop reports during this year, probably stocks would have declined very much further. As it was, even the election of Grover Cleveland by the Democrats in November did not seem to break the market very severely. 1885 Depression, as usual, followed the panic, in this year. Only 2,975 miles of new railroad were con- structed; and iron production declined to 4,044,000 tons, selling at $18. Bank clearings declined to the low figure of $41,400,000,000. Failures were slight- ly lower than in 1884 both in number and in liabili- ties. Immigration figures declined to 395,346. In monetary matters, the volume of foreign trade decreased to SI, 319, 700, 000 and the balance "in favor of" the country decreased to $100,000,000. Gold movements showed an excess of imports of 812,200,000. The average surplus reserves in the New York banks rose to the enormous sum of $48,000,000. The English commodity price was 2,023. The stock market was comparatively active. The ten stocks rose from 83 to 113. There was a considerable issue of new stocks and bonds amounting together to $567,500,000. Railroad earnings dropped to the low figure of $2,185 net per mile. Money rates in New York dropped from 6% to 5J% on time loans. The crops were rather better than in the preceding year, but prices were considerably lower. In politics, the silver agita- tion rather increased the general weight of depres- sion which existed throughout the year. 142 BUSINESS BAROMETERS- 1886 General depression continued in this year, though improvement was well under way before its close. New construction jumped up to 8,000 miles; while iron production increased to 5,683,000 tons selling at $18.70. Bank clearings, too, increased to $49,- 000,000,000 and failures decreased somewhat both in number and in liabilities. Immigration de- creased slightly to 334,203. In the monetary field money was easier. The volume of foreign trade remained about the same; but the balance between exports and imports of both gold and commodities was much reduced. The abnormal average surplus reserves of the New York banks in 1885 was in this year reduced to $14,200,- 000. Commodity prices in general were the same, as indicated by the English index figure of 2,023. The New York Stock Exchange was active during this year. Transactions amounted to more than 100,000,000 shares, and ten stocks rose from 102 to 123. Money rates in New York dropped to 4% and the banks began pretty commonly to buy bonds. Railroad earnings improved both in gross and net; and crops were about the same as in the preceding year in yield, but somewhat lower in prices. Cot- ton sold for $.092 per lb., corn for $.52 per bushel and wheat for $.89 per bushel. A period of im- provement had commenced, and although many small merchants were only beginning to feel the effects of the great depression, true conditions were distinctly more than normal and the pendulum was swinging too far the other way. In view of EVENTS SINCE 1860 143 this, stocks began to rally and plans for extensions and large undertakings were again discussed. More- over, the defeat of the various bills which were in- troduced into Congress for the reduction of the tariff caused a special increase of confidence among manufacturers, wholesalers and bankers. Money rates also, remaining normal, greatly encouraged new enterprises. 1887 This year ushered in a new period of prosperity. New railroad construction amounted to 12,876 miles, the largest figure in the history of the country; while pig iron production increased to 6,417,148 tons selling at $21 a ton. Bank clearings rose to $51,000,000,000, and failures amounted in number only 9,634 or .90 of 1% of all the firms in business. Impelled by the tide of prosperity, immigration in- creased to 490,000. The volume of foreign trade also showed a marked increase due chiefly to an increase in im- ports, as is generally the case in a period of prosper- ity. Consequently the balance of trade favoring ex- ports decreased to $6,000,000; but the excess of gold imports increased to $35,700,000. Surplus reserves were still further reduced, and prices began to rise. The London Economist's figure for the year was 2,087. The stock market was rather less active than in the preceding year, and the prices of the ten stocks fell from 124 to 104 in the summer and fall, owing doubtless in part to the approaching presidential election and the doubt and hesitation which i.s 144 BUSINESS BAROMETERS always reflected in business circles with the ap- proach of this process in politics. But railroad earnings improved, the net per mile being $2,444; and money rates were normal. Moreover, while the yields of corn and wheat together amounted to less than 2,000,000,000 bushels, the cotton yield increased from 6,500,000 bales of the year before to 7,000,000 in this year. In politics, government control of railroads was inaugurated in this year by the passing of the Interstate Commerce Act. 1888 Owing to satisfactory underlying conditions, prosperity made rapid progress in this year in spite of the fact that it was a "presidential year." New construction amounted to 6,900 miles, and iron production increased slightly to 6,489,000 tons. Bank clearings were about normal at 849,484,000,- 000; and failures, though increased in numbers, were decreased in total liabilities. The number of immigrant arrivals increased to 546,000. Monetary conditions were interesting. While exports decreased, imports increased enough to in- crease the total volume of foreign trade to 81,419- 000,000. Consequently there was at the end of the year a balance of trade "unfavorable" to the United States amounting to 833,600,000 and a resulting excess exportation of gold amounting to $23,500,- 000. Domestic money rates remained at 5%, but surplus reserves in New York banks increased to an average reserve of 817,000,000. The English index figure of commoditv prices shows a general rise to 2,458. EVENTS SINCE 1860 145 The inactivlt}^ of the stock market during this year can probably, as in the fall of 1887, be ascribed largely to the approaching presidential election. The ten stocks staid at 102 until the election was ended, and then bounded up to 129 in December. In fact with the election of the Republican candi- date, General Harrison, business in general showed a marked improvement. The net railroad earn- ings for the year amounted to $2,045 per mile, a low figure. Total crops, too, showed no great in- crease, though the total wheat and corn crops amounted to 2,400,000,000 bushels. 1889 This was another year of prosperity. New con- struction was normal at 5,000 miles; while iron pro- duction increased to 7,600,000 tons selling at $17.70 a ton. Bank clearings rose to $56,000,000,000, and failures increased somewhat. Immigration de- clined to 444,000. In monetary affairs, the volume of trade was only slightly larger than in the preceding year, but the balance turned again "in favor of" this country, amounting to an excess of exports equal to $56,- 580,000. Exportions of gold, however, continued to exceed imports, in this year, by $38,900,000. Sur- plus reserves of the banks were somewhat below normal. As indicated by the index figure of the London Economist which was 2,362 for this year, prices had somewhat dropped. On the stock market, transactions showed an in- crease. Ten stocks rose from 123 in the spring to 144 in the fall. Domestic time loan rates con- 146 BUSINESS BAROMETERS tinued at 5%, while those abroad were at 3%. The net earnings of railroads still remained low. Crops, however, were excellent, especially those of corn and cotton, which were the largest in the his- tory of the country thus far. The cotton crop of 7,313,720 bales sold at $.106 per lb.; the corn crop of 2,112,800,000 bushels sold at $.59 per bushel; and the wheat crop of 490,000,000 bushels sold at $.94. 1890 In this year, sound prosperity changed to an "uncertain prosperity," which was to continue for two years longer, during w^hich time, while surface conditions looked satisfactory, underlying condi- tions were far from sound. New construction amounted to 5,427, miles, and pig iron production increased to 9,000,000 tons selling at $18. Bank clearings also rose to $60,500,000,000, and failures increased only slightly. Immigration showed little change. In monetary matters, the volume of foreign trade increased to $1,647,000,000 and the excess of exports amounted to $34,000,000. Exports of gold exceeded imports by only $3,800,000. Surplus reserves in the New York banks fell to the low average figure of $3,700,000. The English com- modity price index figure, 2,247, shows a still further drop in prices. The stock market conditions were peculiar. Railroad earnings rose to a net per mile of S2,162. The cotton crop was unusually large, amounting to 8,600,000 bales; but the Avheat and corn crops fell EVENTS SINCE 1860 147 off considerably, amounting together to only 1,900,- 000,000 bushels. Money rates in this country rose to 6% and abroad to 4%. The ten stocks which had staid above 140 until the fall suddenly dropped then to 98. This drop marked what may be called a "surface panic," brought on by the great Baring Failure at which time Clearing House cer- tificates were issued to relieve the pressure on the banks. Public confidence and courage, greatly agitated by this panic, was still further disturbed during the year by the political discussions which ended in the passing of the McKinley Tariff Act and the Silver Purchase Act. 1891 In spite of the generally favorable underlying conditions of this year, confidence was not fully restored. New railroad construction decreased to 4,026 miles, and pig iron production fell off nearly a million tons. Bank clearings also declined to S69,000,000,000; and failures increased to 12,273 in number with liabilities of $189,868,000. Immi- gration increased to 560,319. Foreign trade continued to develop, amounting in volume to $1,729,000,000 with a balance of $142,- 000,000 in favor of the United States. Gold ex- ports increased correspondingly to an excess over imports of $34,000,000. Surplus reserves in the New York banks rose to $11,000,000. The English index figure of commodity prices declined to 2,207. On the stock market,. the issue of new securities, which had amounted to the large figure of $1,1 22,- 800,000 in 1980, declined in this year to $476,500,- 148 BUSINESS BAROMETERS 000. The Exchange was dull. Ten stocks sold around 95 until the late summer, when they rose rapidly to 138. Railroad earnings remained much the same as in the year preceding. Crops, however, were phenomenally large. The cotton crop of 9,000,000 bales sold at S.086 per lb. The corn crop of 2,000,000,000 bushels sold at S.67 per bushel. The wheat crop of 611,000,000 bushels sold at SI. 05 per bushel. These fine crops caused the newspapers to be especially bullish, and enabled bankers and merchants to keep money rates from advancing further and to bolster up the market in order to unload their securities and merchandise. In fact the people believed this a very satisfactory year. 1892 The prosperity of this year, so-called, was large- ly due to artificial causes. New construction amounted to only 4,441 miles, while the produc- tion of pig iron rose to 9,000,000 tons and its price fell off to $15.75 per ton. Bank clearings continued their increase to 861,919,000,000; failures declined in number to 10,344 and in liabilities to 8114,000,- 000, and immigration figures rose to 523,000. In monetary matters, though the commodity ex- ports exceeded imports by $97,000,000, still there was an exportation of gold in excess of imports amounting to $59,000,000. The New York banks' average surplus reserve amounted to 815,600,000. Commodity prices in this country, as indicated by Bradstreet's index figure of 7.77 which began in this year, were fairly high, while in England the index I EVENTS SINXE 1860 149 figure of 1,207 indicates that there they were low. On the New York stock market transactions increased to 85,875,000 shares. Ten stocks fluc- tuated between 122 and 142, beginning and ending the year at about 135. Net railroad earnings per mile declined to $2,068. Crops were much smaller than in the preceding year, corn and w^heat together amounting to less than 2,150,000,000 bushels. 1893 Questionable prosperity passed readily into panic with the great failure of the National Cordage Co. on the 4th of May. The collapse was complete. New construction dropped to 2,346 miles; and iron production amounted to only 7,000,000 tons. Bank clearings in like manner fell off to $54,000,- 000,000; failures increased to 15,000 in number with liabilities of more than $346,000,000; and immigra- tion, though not so quickly affected as these other subject, declined to 502,917. In monetary affairs, both exports and imports of commodities declined; and while the excess of exports increased slightly to $99,800,000, the excess of gold exports declined to $6,900,000. The aver- age surplus reserve of the New York banks in- creased to $21,600,000. Bradstreet's index figure of American prices dropped to 7.53 while the Eng- lish figure rose slightly to 2,113. The stock exchange was dull and, of course, de- clining. Ten stocks dropped from 130 to 98. Railroad earnings showed no particular change from the year before; and money rates dropped in 150 BUSINESS BAROMETERS New York to 5J%. Unfavorable crop reports which had increased the collapsing tendency during the year were fully substantiated by the final re- ports. To be sure cotton was a little better than in the preceding year, and corn showed only a slight decline, but wheat had dropped ofT from 500,000,000 bushels to 396,000,000 bushels selling at the decreased price of $.739 a bushel. In fact, support of all kinds had been withdrawn, and every commodity, including money, was allowed to seek its own level. 1894 In this year the inevitable period of depression following a severe panic began in earnest. New railroad construction declined to only 1,899 miles, and the production of iron amounted to only, 6,- 600,000 tons. In like fashion bank clearings de- clined to $45,000,000,000; failures were still high at 13,885 in number, though liabilities decreased to $172,900,000; and immigration declined to 314,467. Monetary matters showed the same depression. The volume of foreign trade declined to $1,547,000,- 000 while the excess of exports increased (through a decided decrease in imports) to $1,500,000,000. Excess of gold exports jumped up to $80,000,000 and bank reserves in the New York banks jumped up to $45,900,000. Commodity index prices dropped in America to 6.43 and in England to 2.002. On the New York Stock market only 49,000,000 shares were traded. The ten stocks rose to 123 EVENTS SINCE 1860 ISI in the summer and fell back again to about 105 in the winter. Railroad earnings fell to $1,803 per mile, net, the lowest figure on record. Crops, too. were exceptionally poor. Cotton, to be sure, amounted to 9,800,000 bales in yield, but it sold at the low price of $.069 per lb.; and corn and wheat together yielded less than 1,700,000,000 bushels. In reality this year witnessed the greatest crop failure in the history of the country. The crops had fallen below 1,600,000,000 bushels during the 70s, yet a very much smaller area was then under cultivation and conditions were entirely different. As figures clearly show, a small increase or decrease in crops does not affect business excepting senti- mentally, but a great failure such as was witnessed in 1894 gives the country a shock from which it may take several years to recover. In addition to the crop failures, the Pullman strike occurred in this year, and the Wilson bill affecting the tariff was also passed; in fact, 1894 was apparently the worst year since the Civil War. 1895 This year began in great gloom. The depression of the preceding two years, during which so many bankers and merchants had failed, and one-third of the total railroad mileage of the United States had fallen into the hands of receivers, began to have its effects upon all labor and even upon the most humble store-keeper. Mills were shut down great poverty existed in the cities, and distress was everywhere felt. New railroad construction de- clined to 1,700 miles. Iron production, however. 152 BUSINESS BAROMETERS had improved both in yield and in price, amounting to 9,000,000 tons and seUing at $13 a ton. Bank clearings, too, showed a gain to $53,000,000,000; and failures decreased slightly in number. Only 279,948 immigrants entered the countr}^ The total volume of foreign trade showed a slight increase over the preceding year, but the balance "in favor of" the United States declined to S23,- 000,000. Still, the gold exports continued in large amounts, exceeding the imports by $70,500,000; and the surplus reserves, though reduced from the figures of the year before, were still high. Com- modity prices remained about the same as in 1894 in this country, and dropped somewhat in England. The stock market was rather more active; but again the ten stocks rose to about 128 in the sum- mer only to fall back to about 105 in the winter. Railroad earnings were $1,804 per mile net, or practically the same as in 1894. But crops were somewhat improved. The cotton yield of 7,000,- 000 bales sold at $.074 per lb.; the corn crop of 2,- 000,000,000 bushels sold at $.477 per bushel; and the wheat crop of 467,000,000 bushels sold at $.669 per bushel. And added to the fair crops, there was the low domestic money rate of 3^% to lend aid to an improvement. In fact conditions would doubt- less have taken a turn for the better had it not been for the very unfortunate condition of finance, and the great exportation of gold. Although President Cleveland did everything within his power to up- hold the gold standard and the credit of the United States, the drain was too heavy, especially after his EVENTS SINCE 1860 153 famous \>nezuela message, and the threatened pos- sibility of war with our greatest foreign creditor, England. 1896 This year was still in depression from the panic of 1893 and the heavy gold exportations of 1894 and 1895. New railroad construction declined to 1,654 miles, the low figure for the depression; and iron production declined to 8,600,000 tons selling at $13 a ton. Bank clearings decreased to $51,- 000,000,000. Failures increased considerably to 15,000 in number with total liabilities of more than 8226,000,000. Immigration amounted to 343,267. In monetary matters, the volume of foreign trade increased to 81,687,000,000 and the excess of ex- ports jumped up to $324,000,000. In gold move- ments, imports exceeded exports $46,400,000. The American index of commodity prices dropped to the low point of 5.91. The New York Stock Exchange was dull in trans- actions, but listed more than $1,000,000,000 of new securities about equally divided between bonds and stocks. The ten stocks once more rose and fell between 119 and 100. Railroad earnings in- creased to $1,840 per mile net. Money rates on time loans in New York, owing to the currency troubles of the preceding year and the spring of this year, rose from 3% to 6%. Though the wheat crop itself declined somewhat, the total of corn and wheat amounted to more than 2,700,000,000 bushels and cotton yielded 8,000,000 bales. Therefore, although there were no signs of better times in sur- 154 BUSINESS BAROMETERS face conditions, underlying conditions were be- coming much sounder. Had it not been for the alarm felt at the Democratic nomination of Bryan in June, this would have been from its very begin- ning a year of distinct improvement; and when the election of McKinley in the fall of 1896 had re- moved this cause of distrust, bankers and mer- chants who were studying the situation became con- vinced that a change for the better was imminent. 1897 Distinct improvement characterized this year. New railroad construction increased to 1,822 miles, and the production of pig iron amounted to 9,400- 000 tons. Bank clearings increased to $57,000,- 000,000 and failures decreased in number from 1.31% of all the firms in business to 1.26%. Im- migration amounted to 230,832. Monetary matters w^ere more sound. The vol- ume of trade increased to $1,842,000,000; and the excess of exports to $357,000,000. Gold exports again exceeded imports but only to the small amount of $253,000. Surplus reserves in the New York, banks averaged the high figure of $38,600,000. Commodity prices in this country rose as shown by Bradstreet's index figure of 6.11. The stock market was more active, but the ten stocks continued much the same range of fluctua- tions they had passed through in the last three years. Domestic money rates returned to the 3J% of 1895, and railroad earnings continued to improve. Crops, too, remained strong. Though corn showed a decrease, wheat increased to 530,000,000 bushels, EVENTS SINCE 1860 155 and cotton increased to 11,000,000 bales. The three sold respectively at S.319 $.954 and $.07. When the Dingley Tariff Act had brought an end to anxiety in that field, it was discovered that the country was well on the road to prosperity. 1898 Everywhere prosperity reigned. New construc- tion amounted to 2,219 miles, while iron produc- tion increased to 11,700,000 tons selling at $19. Bank clearings jumped up to $68,000,000,000; failures decreased to 12,000 in number; and 230,000 immigrants entered the country. In monetary aft'airs, the volume of foreign trade still showed an increase due to the great increase in exports in spite of the fact that imports had somewhat declined. Exports which had amounted to only $824,000,000 in 1895 had increased steadily with the improving crops until in this year they amounted to 81,255,000,000 or rather more than two-thirds of the total volume. Imports of gold increased correspondingly to the immense figure of $142,000,000. Surplus reserves showed a decline from the abnormally high figures of the preceding year. American commodity prices continued to rise as indicated by Bradstreet's index figure of 6.57. The New York Stock Exchange reported trans- actions amounting to 112,000,000 shares, and new securities listed amounting to $1,228,000,000 of which 700,000,000 were bonds. The ten stocks rose from a low point of 106 in the spring to a high point of 130 in the fall. Net railroad earnings 156 BUSINESS BAROMETERS jumped up to S2,lll per mile. Once miore money rates were normal, time loans in New York averag- ing 4%. The crops, too, kept pace with the advanc- ing prosperity, for cotton amounted to 11,200,000 bales corn to 1,900,000,000 bushels, and wheat to 675,000,000 bushels. Although the Spanish War temporarily disarranged business, it was so short, that it acted in the end as a great stimulus to trade. 1899 Conditions, already prosperous, continued to improve throughout this year. New mileage amounted to 4,000 miles; iron production advanced to 13,600,000 tons. Bank clearings showed a phenomenal growth to 894,000,000,000, while failures decreased to 9,337 in number or only .81 of 1% of all the firms in business. The number of immigrants increased to 311,715. Monetary conditions showed a similar strength. The volume of foreign trade amounted to more than $2,000,000,000 and the balance sheets showed an excess of exports amounting to 8476,000,000. Money rates at home and abroad Avere 4%, and the excess of importation of gold amounted to only $6,000,000. Commodity prices in this country and in England showed an increase as indicated by Bradstreet's index figure of 7.21 and the Econo- mist's figure of 1,973. On the New York Stock Exchange transactions increased to 176,000,000 shares, while the issue of new securities amounted again to nearly $1,230,- 000,000. The ten stocks continued their rise from 123 to 150. Net railroad earnings increased to EVENTS SINCE 1860 157 S2,272 per mile. Though the cotton and wheat crops showed a decHne, corn increased so that the total bushels of corn and wheat together again amounted to more than 2,600,000,000 in number. Industry in all lines was again firmly on its feet. In reaction against the cut-throat competition which had existed all through the depression just ended, and had thoroughly exasperated business interests, a great movement towards consolida- tion in industries and towards "integrating trusts" began in earnest with this burst of prosperity. In fact this year saw the beginning of many of our largest trusts and monopolies in their present form of organization. 1900 With the turning of the century, prosperity was in full swing. To be sure some of the figures in the fundamental subjects showed a slight decline as compared w4th those of 1899, but this was rather a hopeful sign than otherwise for the prospects of the continuation of good times. Thus new railway construction declined to 3,444 miles, while pig iron production remained high at 13,789,000 tons selling at $20 a ton. Bank clearings, too, declined to $86,000,000,000, but this was still $20,000,000 greater than the clearings of two years before. F'ail- ures numbered at 10,700 with liabilities of $138, 495,- 000. Immigration increased to 448,570 in number. In monetary matters, while the total volume of trade advanced to $2,300,000,000, the balance ''in favor of" this country reached to $648,800,000, the largest balance of this kind in the history of the 158 BUSINESS BAROMETERS country. Imports of gold exceeded exports by $12, - 600,000. Bank reserves were normal. In com- modity prices, Bradstreet's figure rose to 7.88 and the Economist's to 2,178. The stock market continued active in transac- tions and new securities. Though suffering the usual spring slump of this period, the ten stocks rose from a low point of 134 to a high point of 165. Net railroad earnings advanced to $2,519 per mile. Domestic money rates strengthened to 5% on time loans. Crops were again firm both in yield and in price. Corn and wheat together amounted to 2,260,000,000 bushels and sold re- spectively at $.804 and $.453 per bushel. The re- election of McKinley and the enactment of the Gold Standard bill gave additional impetus to business. Everywhere consolidation was the rule, especially in the railroads, where "community of interests" was becoming common. 1901 Prosperity was running riot. New construc- tion increased to 4,481 miles, while iron produc- tion advanced to 15,800,000 tons selling at $16. Bank clearing bounded up to $109,267,000,000 and, failures remained about the same as in 1900. New immigrants increased somewhat in number to 487,900. A slight increase came in the total volume of foreign trade, but the excess of exports decreased somewhat. The latter fact was due to an increase in imports, and the excess of gold exports which came in this vear amounted to $3,000,000. Bank EVENTS SINCE 1860 159 reserves were still about normal, though tending to decline. Commodity prices both in this country and in England declined as indicated by the respec- tive index figures of 7.57 and 2,014. The activity of the stock market was extreme. On the New York Exchange more than 265,000,000 shares were traded, and more than $2,565,000,000 of new securities were issued, of which the majority were stocks. This was the year when a partial panic in the market was caused by the Northern Pacific stock corner, and most stocks suffered from artificial manipulation. The ten stocks, which we have used constantly heretofore, rose from 150 to 190 almost in a month, only to recede again in the fall with the shooting of McKinley. Mean- while net railroad earnings continued their increase to S2,688 per mile; and money rates and crops re- mained strong. To be sure the corn crop de- creased somewhat, but the wheat crop increased from 500,000,000 to 748,000,000 bushels. Still, underlying conditions were not entirely satisfactory and the most cautious investors were to changing their positions from the bull to the bear side of the market. 1902 This was a year when the average business man and manufacturer were very optimistic; when the daily papers were prophesying still higher prices and still greater activity, and when the surface conditions were apparently more satisfactory/ than ever before. Yet underlying conditions, especially those Illustrated by the figures on "new securities 160 BUSINESS BAROMETERS issued," were far from sound. In fact, had it not been for gigantic crops, a severe depression would probably have set in at once. In mercantile condi- tions, new railroad construction amounted to 4,195 miles while iron production increased to 17,800,000 tons, selling at the advanced price of $22 a ton. Bank clearings increased to Si 18, 000,- 000,000 while failures remained abnormally low at 11,615 in number or only .93 of 1% of all the firms in business. Immigration increased to 648,743. Monetary conditions showed a slight increase in the total volume of trade, but a decrease to S391,- 000,000 in the excess of exports due, again, entirely to an increase in imports. Gold imports exceeded exports by 88,000,000. Bank reserves were ab- normally low, those of the New York banks aver- aging only $10,700,000. American commodity prices showed a distinct gain indicated by Brad- street's index figure of 7.97, but English prices were falling. The New York Stock Market, though not so active as in 1901, still reported transactions amounting to 188,000,000 shares, and new securi- ties listed amounting to 81,317,000,000. Thus in two years new securities had amounted to almost $4,000,000,000. Men who recognized the meaning of this tremendous increase in new securities issued, knew that a day of reckoning must come soon. Meanwhile, the ten stocks rose from a low point of 168 to 200. Net railroad earnings continued to increase to $2,830 per mile. A slightly decreased wheat crop was reinforced by an increase in corn EVENTS SINCE 1860 161 amounting to 1,000,000,000 bushels, so that the total crop of wheat and corn amounted to more than 3,150,000,000 bushels. Cotton remained about the same as in 1901. But even these excellent figures could not save the unsound conditions of the money and stock markets. Furthermore, confidence was unsettled by severe anti-trust agi- tation and certain government prosecutions of trusts. 1903 Shaken confidence and unstable stock market conditions resulted in the so-called "Undigested Securities Panic" of this year, in which few figures of fundamental subjects were radically altered ex- cept those directly related to the stock market. Thus new railroad construction advanced to 4,397 miles, and the production of pig iron to 18,000,- 000 tons. Bank clearings declined slightly to S109,000,000,000. Failures increased in number to 12,069 or 1.12% of all the firms in business. Im- migration advanced to 857,000. In monetary matters, the volume of foreign trade advanced to $2,480,000,000 and the balance "in favor of" this country amounted to $489,000,000. Excess of gold imports increased to $20,900,000. Bank reserves increased somewhat. American prices remained strong at 7.92 and English prices strengthened. On the New York Stock Exchange transactions declined to 161,000,000 shares, but the issue of new securities continued to be large at $1,088,000,000. In the past six years more than $8,000,000,000 of 162 BUSINESS BAROMETERS new securities had been turned loose on the market. The ten stocks fell during the year from 190 to 149. Net railroad earnings continued their steady increase per mile to S2,887. Crops declined to no great extent from those of 1902. In justice to those statisticians who found no signs forecasting a depression in this year, it must be said that these figures were not extremely unsatisfactory. In fact, had it not been for the very great increase in securities, there probably would have been no de- pression of 1903. However, owing to the stock market troubles, labor troubles, and certain other conditions, this year was certainly one of depression. 1904 That the panic of 1903, like that of 1890, was not fundamental in its effects is pretty clearly shown by the fact that prosperity, not depression, followed immediately after it. New railroad construction continued to increase to 5,059 miles, though iron production declined to 16,497,000 tons selling at 815.50 a ton. Total bank clearings also increased to $112,600,000,000; and failures, though increased slightly in actual numbers, declined in percentage of firms in business to .92. of 1%. Immigration almost held its own at 812,870. Monetary matters showed firm banking condi- tions. The volume of foreign trade again increased and owing to a marked increase in imports and a slight decrease in exports, the balance "in favor of" the country decreased to $415,000,000. Once more gold exports exceeded imports, in this \ear, by $36,- 000,000. The average surplus reserve of the New EVENTS SINCE 1860 163 York banks rose from $12,000,000 to $28,000,000 Commodity prices remained much the same as in 1903. The stock market was again active, though the issue of new securities on the New York Exchange dechned to 8710,900,000 of which more than 500,- 000,000 was bonds. The ten stocks rose again from their fall to 150 in 1903 to their former high point of 190. Net railroad earnings increased to $2,980 per mile. Time loan rates dropped to 4% in this country and 3J% abroad. In crops, cotton amounted to the largest yield on record of 13,- 506,000 bales, selling at $.117 per lb. ; corn amount- ed to 2,467,000,000 bushels selling at $.594 per bushel; and wheat amounted to 552,000,000 bushels selling at SI. 07 per bushel. In this 3/ear, Roose- velt's administration was continued by his election to the office of presidency, and the attention of the whole world was attracted to the Russo-Japanese War. 1905 Prosperity continued in increasing and unparal- leled measure. New railroad construction amount- ed to 4,900 miles, and pig iron production jumped to 22,990,000 tons selling at $18 a ton. Bank clearings advanced to $143,900,000,000 while fail- ures declined in number to 11,520. Immigration increased rapidly to 1,026,000 persons. Both volume of foreign trade and excess of export, showed an advance, and $3,498,000 were imported in excess of gold exports. The average surplus re- serve of the New York banks declined to only $10,- 164 BUSINESS BAROMETERS 400,000. The American index figure of commodity prices advanced to 8.09. The stock market was very active. On the New York Exchange, transactions amounted to 263,- 000,000 shares, and new securities Hsted amounted to a biUion and a half dollars, of which nearly a billion were in bonds. The ten stocks, in this year, had an unprecedented rise from 180 to 206. Net railroad earnings advanced to S3, 129 per mile. Though the cotton crop declined 2,000,000 bales, the wheat and corn crops were both larger than in 1904, amounting together to more than 3,400,000,- 000 bushels. Though surface conditions appeared wonderfully prosperous, confidence was badly shaken by the Life Insurance and Traction Com- pany exposures of this year. 1906 Prosperity was abnormally inflated. New con- struction in this year amounted to 10,682 miles, and iron production advanced to 25,000,000 tons selling at $21. Bank clearings were the second largest on record, increasing to S159, 800,000,000, while failures declined in number to only 10,600 or .77 of 1% of all the firms in business. Immigra- tion amounted to 1,100,000. In monetary affairs the volume of foreign trade amounted to $3,118,000,000, a figure exceeded only once in the history of the country, that once being in 1907. The balance "in favor of" this country increased to vS47 7,000,000; while the excess of gold imports, aided by artificial importation, amounted to 8108,000,000. The average surplus reserve of EVENTS SINCE 1860 165 the New York banks dropped to only S7, 500, 000. Commodity prices advanced as shown by the American index figure of 8.42. On the stock exchange transactions increased, and prices continued abnormally high. The ten conservative stocks dropped from the high in 1905 to a low point of 163 in the fall. Railroad net earnings advanced to S3, 129 per mile. Crops were tremendous. Cotton yielded 13,000,000 bales at S.115; corn yielded 2,927,000,000 bushels at $.560; and wheat yielded 735,000,000 bushels at $.865 Such satisfactory crop conditions, however, only served to increase the mad pace which prosperity had assumed, and students of conditions were not satisfied. Liquidation, therefore, commenced, se- curities and merchandise were sold, and stocks of all classes declined in price. The money situation was especially strained, as the depression of 1903 was not severe enough to liquidate many accounts which should have been cleared up. In fact, con- ditions were far from satisfactory at the end of the year. This was the year of the San Francisco Earthquake. 1907 In this year prosperity, carried to an extreme point, collapsed in panic. But as is usual, the change in surface conditions w^as not apparent until the actual decline was well under w^ay. New construction increased to 5,499 miles, while iron production advanced to 25,000,000 tons selling at an average price of $24. Bank clearings, however, declined to $145,000,000,000, and failures increased 166 BUSINESS BAROAIETERS in number to 11,725. Immigration advanced to 1,285,000. In monetary affairs, the total volume of foreign trade continued its increase to the unparalleled figure of S3, 3 15, 000, 000; the balance from excess of exports decreased slightly to $446,000,000; and in gold movements the excess of imports declined to 888,000,000. The bank reserves were everywhere extremely low, those in New York averaging only $400,000. This together with abnormally high commodity prices, as illustrated by Bradstreet's index figure of 8.90, showed money conditions to be highly unsatisfactory. The stock market, always a sensitive barometer of all changes, declined decidedly from the begin- ning of the panic in March. On the New York Exchange, transactions amounted to only 196,- 000,000 shares, and new securities, to only $997,- 000,000. The ten stocks which had temporarily recovered from their severe decline in 1906, dropped again from a high point of 182 in March to a low point of 119. Railroad net earnings continued their increase to the high point of $3,700 per mile, held up by crops and the volume of trade. Crops declined somewhat from the bumper crop of 1906, but were still excellent. Wheat and corn together amounted to more than 3,200,000,000 bushels and sold at S.963 and S.640 respectively. Domestic rates on time loans advanced nearly to 6%, while rates abroad advanced to 4|%. Legislation ad- verse to trusts and railroads added to the general consternation in business circles, and before the end EVENTS SINCE 1860 167 of the year, the country had dropped from over- active prosperIt\' Into dull depression. 1908 Depression had, In this year, extended from the stock market to all lines of business. New building was at a very low ebb. Although 3,918 miles of new railroad were constructed, only 15,900,000 tons of pig iron were produced, and there w^as little new building construction. Pig iron sold at about $17.70 per ton. Bank clearings declined to $132,- 272,000,000 and failures increased in number to 15,690. The condition of the labor market is shown by the fact that only 782,870 immigrants entered the country. As has been universally true In the past, such a period of depression is accompanied by low money rates. The surplus reserves held by the banks were very large throughout the entire year and the per- centage of cash was high. Not only were rates low in the United States but also throughout Europe. The volume of foreign trade amounted to $2,869,- 282,000 and the balance of trade in favor of the United States amounted to $636,383,466, while gold movements showed an excess of exports amounting to $30,939,163. The demand for money was still further lessened by a distinct decrease in commodity prices, the Bradstreet's Index de- clining to 7.72 in June. The stock market remained almost as depressed as in 1907 both in transactions and new securities listed, but by November the prices began to show a distinct rise. Thus the ten stocks, which had re- 168 BUSINESS BAROMETERS mained under 125 all during the summer, rose in the late fall to 164. Railroad net earnings de- clined to $3,144 per mile. Fortunately crops re- mained good. Cotton, yielding 13,408,000 bales, sold at S.106 per lb.; corn yielding 2,668,000,000 bushels sold at S.786; and wheat yielding 664,000,- 000 bushels sold at S.786. In politics a temporary currency bill was passed to meet the depressed conditions; and Air. Taft's election to the Presi- dency secured the continuation of the Republi- can administration and policy. The depression had passed the low point, giving place to marked improvement. 1909 Though still suffering from the depressing busi- ness conditions following the panic of 1907, this was a year of steady improvement. New railroad construction increased to more than 4,500 miles, and the production of pig iron showed a decided advance to 25,800,000 tons selling at about S18. Bank clearings also advanced to 8165,600,000,000, and failures decreased in number to 12,924. Im- migration continued low at 751,786 new arrivals. In monetary affairs, money rates continued at a low level, as is usual in depressions following a panic. But the volume of foreign trade advanced to more than 83,000,000,000, due entirely to an increase in importations, while the excess of exports decreased to $251,800,000. Once more gold ex- portations exceeded imports, reaching in this year the high point of 888,793,000. Bank reserves declined from the high figures of 1908 to more EVENTS SINCE 1860 169 normal figures. Bradstreet's index figure of com- modity prices advanced to 8.51. The stock exchange was again thoroughly active. In New York, transactions amounted to more than 204,000,000 shares, while new securities listed in- creased to 82,42-1,000,000, almost equally divided between stocks and bonds. The ten stocks rose from 154 to 189. Railroad earnings, though lower in the gross, increased in the net to $3,188 per mile as a result of economies introduced during the de- pression. Though crop reports in the early part of the year were unsatisfactory, the final figures showed only a decline in cotton, while wheat and corn were good. Cotton yielded more than 10,000,- 000 bales selling at $1.16 per lb. ; corn yielded 2,772,- 000,000 bushels selling at $.743 a bushel ; and wheat reached the high point of 737,000,000 bushels selling at SI. 20 per bushel. These figures signify that the country has been enjoying a period of improvement and is entering a period of prosperity. As to how long this new prosperity will last, depends upon how rapidly it matures. If 1910 is a year of reckless growth, there will be another panic very shortly; but if 1910 is a year of healthy, moderate achieve- ment, the good times should last several years. CHAPTER VI SUBJECTS RELATING ESPECIALLY TO MERCAN- TILE CONDITIONS WHEN interpreting the meaning of the twen- ty-five subjects treated in these next three chapters one must remember that it is first necessary to decide in which of the four periods the country is; whether in a period of de- pression, a period of improvement, a period of pros- perity, or a period of decline. This problem is always readily solved by an examination of figures; therefore as a first step, this is absolutely necessary, as it is impossible to determine the duration of the present period, the coming of the next change, or the nature of such change (which of course is what the merchant, banker and investor desire to know) without know- ing what the present conditions indicate. This is due to the fact that the same change in the figures of a given subject signify different results under different periods; for example, during a period of depression, an increase of Bank Clearings is a favorable sign, but during a period of prosperity a great increase is a dangerous sign. After deciding in what period the country is, each set of subjects must be interpreted in accordance with certain rules. In other words, with a given subject a decrease signifies one thing, an increase signifies another, while no change signifies a third. Therefore, the figures on each subject should be ex- .MERCANTILE CONDITIONS 171 amined independently to ascertain whether the figures show a decrease, an increase, or no change. The new figure, what ever it is, will then be in- terpreted according as it shows "more satisfactory conditions," "less satisfactory conditions," or "un- certainty." After reaching this conclusion, relative to what the figures on the subject under consider- ation signify, a note should be made of the result. Each subject is treated in this manner and a conclusion reached. i\ll of these conclusions are then summarized and count is taken of how many subjects signify an improvement, how many signify a decline and how many signify something else. All of these are then averaged, though a greater "weight" may be given to one subject than to an- other; and a conclusion reached as to the duration of the present period and the nature of next change. In short, the study of Fundamental Statistics consists simply of obtaining the latest figures on each subject, noting their trend, comparing both the figures and the trend with normal figures and normal trends for said subject, and lastly deducing one final conclusion as to whether the figures and the general trend of the figures on all the subjects, taken together, are becoming more normal or less normal. // the summary figure for present conditions is much greater than that for normal prosperity condi- ditions, this signifies that there may be a change for the worse at any time ; hut if the summary figure for present conditions is less thaji that for normal pros- perity conditions, this signifies that there may be a 172 BUSINESS BAROMETERS change for the better at any time. Moreover, the greater the difference between the respective summary figures for present conditions a7td for normal condi- tions, the sooner a change 7nay be expected. When the summary figures are approximately the same, the conditions 7nay be expected to remain as they are or to be what is technically known as ''irregidar.'' Let us now turn directly to a study of those sub- jects which relate especially to mercantile condi- tions. WEALTH, BUILDIXG AND REAL ESTATE OPERATIONS "Wealth," according to Theodore E. Burton, comprises ''all things which are alike useful, limited in supply, and transferable. All wealth is produced from or created by, land, labor, or capital. Land includes every form of nature in earth, seas, or air, together with the natural forces which may be set at work. It is the source of our so-called 'raw ma- terials.' Labor includes physical strength and ex- ertion, and the mental qualities which furnish them with method and ingenuity. "Capital, technically defined, is wealth withheld from immediate consumption for the purpose of producing wealth in the future. It includes food, clothing and fuel for support of those engaged in production of wealth, necessary seed for planting, raw materials for the finished products of manu- facturers or, if we look at the subject from the standpoint of the employer or capitalist, money for ^lERCAN'TILE CONDITIONS 173 wages and the purchase of suppHes. These may be Inchided in the term circulating capital. There is also fixed capital, which includes tools, machines, factories, buildings occupied or used by those en- gaged in productive employment, improvements upon land, likewise ships and railways w^ith all their equipment. Nations are rich or poor not in pro- portion to the amount of land or natural resources which they have, but in accordance as they have an abundance or lack of capital." The above describes w^hat is technically known as "wealth." A concrete example of what constitutes wealth may be found in the following tables. The figures are made up by the Bureau of the Census, Washington, and as reported for the census years, are carefully compiled records of actual values as appraised under the general terms, real and personal property. The figures for all years between the census years are estimates, and show proportional changes, based somewhat upon partial returns in some of the items included. The tables show ex- actly the forms of wealth comprising the total $107,104,211,917, according to the estimate of 1904-5. By 1911 a 1909-10 estimate should be ready. ESTIMATED WEALTH OF THE UNITED STATES. Latest Estimate 1904-5 1900 $107,104,211,917 $88,517,306,775 Real property taxed $55,510,247,564 $46,324,839,234 Real property exempt .. 6,831,244,570 6,212,788,930 Live stock 4,073,791,736 3,306,473,278 174 BUSINESS BAROMETERS Farm implements and machinery 8844,989,863 $749,775,970 Gold and silver coin and bullion 1,998,603,303 1,677,379,825 Manufacturing machin- ery, tools, etc. . 3,297,754,180 2,541,046,639 Railroads and their equipments 11,244,752,000 9,035,732,000 (a) Street railways, etc. . 4,840,546,909 3,495,228,359 (b) All other property .. . 18,462,281,792 15,174,042,540 Grand total 107,104,211,917 88,517,306,775 a. Street railways, etc. (itemized) Street railways 82,219,966,000 81,576,197,160 Telegraph svstems 227,400,000 211,650.000 Telephone svstems 585,840.000 400,324.000 Pullman and private cars 123,000,000 98,836,600 Shipping and canals 846,489,804 537,849,478 Privately owned water works . 275,000,000 267,752,468 Privately owned electric light and' power stations 562,851,105 402,618,653 Total 4,840,546,909 3,495,228,356 b. All other property (itemized) Agricultural products 81,899,279,652 81,455,069,323 Manufacturing products 7,409,291,668 6,087,151,108 Imported merchandise 495,543,685 424,970,593 Mining products 408,066,787 326,851,517 Clothing and personal orna- ments 2,500,000,000 2,000,000,000 Furniture, carriages, etc 5,750,000,000 4,880,000,000 Total 18,462,281,792 15,174,042,540 NOTE: — C. A. Conant. who was authorized by the Census to estimate outstanding securities in the United States, gave in the Atlantic ^Monthly for January' 1909 a preliminary estimate of 834,514,351.382 or 8414.54 per capita, of which 810,120,418,699 is held bv holding companies. He figured the outstanding securities in Great Britain as 826,400.000.000 or 8616.97 per capita; in France 819,500.000,000 or 8500.94 per capita; Germany 810.000.000,000 or 8177.41 per capita; and in Holland 82,200.000,000 or 8405.08 per capita. For fourteen countries the aggregate is 8111,077,764,- 333 or 8196.17 per capita. Though the census figures are the only statistics which give the actual value of property in the country, since a complete statement is made only once in ten years, the needs of fundamental sta- tistics lead to the adoption of certain other reports which may be expected to serve as barometers of the conditions termed wealth by our first propo- sition. Building statistics, including railroad and mu- MERCANTILE CONDITIONS 175 nicipal construction, give us the most interesting figures on this subject. Because a new house costs 810,000, all land on the same street improves and the valuation of the whole city is some thousands of dollars greater at the next census. A factory erected on the same street might reduce the real estate value as residence property, but might so benefit the city as a whole as to increase greatly its entire wealth. The difficulty of obtaining accurate reports of building has been an obstacle heretofore in the way of systematic study of the subject. The laws of cities and states are so different, that the returns from building permits alone are not reliable as a basis. But from the field of the contractor another set of figures is to be had. The best of these have been developed by the F. W. Dodge Co., of Boston, and the ''Construction News'' of Chicago. The business of these firms is to make a thorough can- vass of the principal fields of constructive activity in order to furnish accurate information of business openings for contractors and supply firms of all kinds. Reports gathered by this very thorough system have been published from time to time for many years; but have only recently been segregated and tabulated. This has been done by our office, and the figures are now in shape for the service of fundamental statistics. These reports cover the new work, both in private and municipal building and railroad construction. The values given are conservative and the result of careful inquiry by trained observers. 176 BUSINESS BAROMETERS Fire losses as reported monthly, include all fires, and show the total destruction of timber, rolling stock of railroads, wharfage and shipping, as well as buildings of all kinds. As in the case of construc- tion or building statistics, the amounts given in these fire loss tables cannot be compared directly with the census figures on Avealth. Sometimes the insurance loss is given, sometimes the assessed val- uation, sometimes an estimate, as in buildings and contents under appraisal. The direct loss by for- est fires is hard to determine exactly, while the in- direct losses, so well known to the students of for- estry, cannot be calculated for use at frequent intervals. The monthly record, however, is a val- uable indicator of conditions likely to contribute to the improvement or decline of business and should, for that reason, be watched. Conditions of poverty following fires, or general improve- ment as a result of new construction, are both necesssary and valuable barometers of business and show where to increase or decrease invest- ment in land, labor and capital. Another factor of importance, and bearing a re- lation to the second group of subjects we are con- sidering, is the real estate business. To under- stand rightly the financial condition of this country, we should know the history of real estate booms and watch for increased rents either of land or buildings. During the hard times of the winter following the crisis of 1907, many of the leading manufacturers reduced their rents fifty per cent, some more and some less. By such means, they MERCANTILE CONDITIONS 177 hoped to keep their employees on hand for renewed production. Such action was an attempt to meet the wage-earner half way and is directly opposed to the spirit of that real estate boom, the chief phase of which is an arbitrary raising of rents for tenements of all kinds. Such raises are usually seen in times of improvement and especially towards the cul- mination of a period of prosperity when rising wage-scales attract the attention of the house owner who raises his rents, and reaps his harvest, at the same time that commodity prices and security markets are rising. A study of the statistics will show that real estate values are very good business barometers. New land developed, irrigation sys- tems introduced, and a variety of similar factors may seem to be the causes of booms here and there; but none of these enterprises can be carried on without the active investment of capital under sound fundamental conditions. So, for the purposes of fundamental statistics, beside the official figures on wealth, there should be included these three subjects: (1) building construction, (2) fire losses and (3) real estate val- ues. These subjects give us a gauge of conditions more frequently than once in ten years. As the business man is much more interested in the relation of wealth to prosperity than in any definitions, it is interesting to note history and as- certain how the wealth of the country has affected conditions in the past. Let us, for example, study the relation of "Miles of New Railroad" to general conditions, using these construction figures as il- 178 BUSINESS BAROMETERS lustrative of "New Building.'"^ The first great crisis which this country experienced was in 1837; it was preceded by six years of great activity. The railroad mileage of the country had grown from 23 miles in 1830 to 1500 miles in 1837. Simultane- ously with this growth in railroad mileage, new towns had been founded, new factories had been opened, desert lands had become taxable, farm property and the wealth of the country had rapidly increased. If the reader will turn to the records of this time, he will find that there was a greater in- crease of wealth between 1832 and 1837 than during any previous ten years of our histor\-. A great number and variety of new enterprises were started, the bank deposits were large and there was great interest in trading, shipping, manufacturing and real estate. In fact, this great increase in real es- tate speculation resulted in a similar increase in the assessed valuation of both city and country prop- erty. The second great crisis came in 1857, and was likewise preceded by a period of great increase in new construction. Immediately following the panic of 1837 there was a period of great depression and, although conditions improved in 1844 and 1845, there was no great advance until the discovery of gold in 1849, B}' 1852, California was actualh' sending millions of dollars worth of gold to New York. Shipping received a tremendous impetus both on account of the trade with California and *This is done because it has been impossible to obtain good records strictly lor "New Building" back of 1909. MERCANTILE CONDITIONS 179 on account of the Crimean War In 1854 and 1855. There was also a great increase in railroad mileage, which advanced from only 5600 miles in 1847 to 24,500 miles in 1857. In other words, in 1830 there were but 23 miles of railroad and in 1837, the year of the panic, this had been increased to 1500 miles. During the ten years between 1837 and 1847, less than 3400 miles of new track were constructed, yet in the ten years from 1847 to 1857 about 20,000 miles were constructed. When studying such figures it appears very easy to have prophesied a panic for 1857. With the building of these 20,000 miles, thousands of new towns w^ere settled, millions of acres of hitherto untaxed land became taxable as farm land, and a vast number of manufacturing and other enterprises were started. The result was another great increase in Avealth equalled only by the increase which preceded the panic of 1837. As a still further result, came the panic of 1857, causing bankruptcies, suicides, and widespread des- titution. The third great crisis came in 1873. Like its predecessors, it had many causes among which, beyond a doubt was the great increase in new building construction and new miles of railroad. The Civil War had been accompanied by great destruction of property and a consequent reduction in wealth. This was due partly to deterioration of values and the depreciation of the currency; but largely to the fact that the attention of the people had been turned away from productive industry. Ploughshares had been turned into swords with 180 BUSINESS BAROMETERS the accompanying decrease in production. When the Civil War was over, both the South and the North again gave their attention to agriculture, manufacturing and commerce with the result of an unprecedented rebound. During the early six- ties, taxable property decreased ; during the early seventies it rapidly increased. The gain in wealth between 1868 and 1873 was greater than it had ever been in the history of the country. If later panics (that is, the panics of 1884, 1893, 1903, and 1907) are studied, the same law will be found to hold true. Furthermore, by inverse reasoning from these same figures it will be found that years of prosperity may likewise be antici- pated. We can therefore confidently affirm that a period of abnormal increase in new building is sure to be followed by a "period of depression." These illustrations are sufficient to show how deeply the investor's and merchant's interests are concerned in this subject. W^hether a small store- keeper, a retailer, a manufacturer or a great mer- chant, his welfare is most intimately related to the total wealth of the country. Many lessons for all classes of people may be drawn from this fact. The following are certain conclusions relative to "Building Operations." 1. During a Period of Business Depression. (a) An increase forecasts better conditions. (b) A decrease forecasts continued depression. (c) No change signifies conditions to be sta- tionary. MERCANTILE CONDITIONS 181 2. During a Period of Improvement Following a Period of Business Depressio7i. (a) An increase forecasts a period of pros- perity-. (b) A decrease forecasts a set-back. (c) No change suggests caution. 3. During a Period of Prosperity. (a) A great increase usually calls for caution. (b) A decrease may tend to lengthen the pe- riod of prosperity. (c) No change signifies conditions to be sta- tionary. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase is indicativeof further trouble. (b) A decrease is natural under these condi- tions. (c) No change suggests caution. BANK CLEARINGS Bank clearings are divided into two main classes: (a) Total Bank Clearings of the United States. (b) Bank Clearings of the United States with the exception of New York City. In every large city, and many small ones having more than two banks, there is an institution known as a "clearing house." Each day at some given hour the representatives of all the banks in the cit}' or tow^n meet at one of the banks to exchange checks drawn on one another and such a bank thus serves 182 BUSINESS BAROMETERS as a temporary "clearing house." To illustrate: If customers of the Gloucester National Bank de- posited during the day $20,000 in checks drawn on the First National Bank of Gloucester and cus- tomers of the First National Bank deposit checks to the amount of $15,000 drawn on the Gloucester National Bank, instead of the Gloucester National sending a messenger to collect the $20,000 from the First National and the First National sending a messenger to collect the $15,000 from the Glouces- ter National, representatives of both banks meet and exchange checks and the First National gives the Gloucester National a check for $5,000 to bal- ance the account. This process of settlement is not of great importance in a city having only two or three banks, but the average importance increases rapidly as the number of banks increase. In large cities such as New York, Chicago, Philadelphia and Boston, the "clearing house" occupies a sepa- rate building and has regularly salaried employees. The largest clearing house in this country is in New York City; it was established in October, 1858, and passes annually an average of about $100,000,000,000 in the form of checks. In all there are about 140 clearing houses or associations in the United States. In other words, there are about 140 cities of sufhcient importance and with a suffi- ciently large number of banks to have clearing houses and to make public their "Clearings."* *For further particulars as to the details of clearings and the business of clearing houses refer to Jas. G. Gannon's most complete book on the subject, entitled "Clearing Houses," and also to "The Principles of Money and Banking" by Conant. For a very simple and condensed state- ment, refer to pages 80-86, inclusive, of "Monej^ and Investments'" by Montgomery Rollins. MERCANTILE CONDITIONS 183 Clearings serve as a very good barometer of present business conditions and the reason for this is as follows: Out of the 20,000 or more banks in the United States, about one-third are connected with one of the above-mentioned 140 clearing houses. This means that practically all of the checks handled by these thousands of banks, pass through some clearing house. Therefore by watch- ing the record of the checks "cleared," we can get an accurate idea of the total business transacted by about 7,000 banks, which are the largest of the 20,000 and in fact control about nine-tenths of the banking of the United States. As today practically all payments are made by check and all business is carried on through the banks, the volume of money handled by the banks by check increases or decreases in constant ratio with the general business of the country. There- fore, as the banks pass their business through the clearing houses, a report on bank clearings is a very good barometer of present business conditions. Some people make the mistake of assuming that by studying clearing house statistics one can easily forecast business conditions. A study of these sta- tistics is an aid in forecasting business conditions and therefore is one of the factors used in making such a forecast, but taken by themselves they are of little value, as they refer only to present day- conditions. On the other hand, some critics do not care "to know about present condit'ons, but desire only to forecast future conditions." This point of view 184 BUSINESS BAROMETERS is also illogical, as a knowledge of present condi- tions is a necessary step toward forecasting future conditions- Were it not for the systematic reports received on bank clearings, the barometer for present condi- tions would be much less valuable. But by a study of these clearings, as they are reported each week, one is in immediate touch wdth existing con- ditions throughout the country and is thus in a position to forecast intelligently future conditions. In making use of these statistics for such a forecast, two methods are used: 1. The bank clearings are plotted for each week for a number of past years with a horizontal scale for weeks and a vertical scale of billions. With one half inch to a week this makes a plot about thirty inches long. It is customary to have each year under the preceding year, a thing easily done, as each plot is of the same length, although the angle of fluctuations is not constant. This gives compar- ative plots for several complete years, directly under which appears a plot for the present year up to the receipt of the last report on bank clearings. This not only gives the merchant a bird's-eye view of the situation for the present year, but also an idea of what may be expected at different periods during the year. During some periods of the year poor figures on bank clearings are not, in reality, as un- satisfactory as if they had occurred at other seasons. The principal use of this plot however, is to study the fluctuations of the last portion of the plotted line for the current year. In other words, the AIERCAXTILE CONDITIONS 185 business man notes whether the variations of the last few months plotted for the current year is upward or downward, and also how said variations compare with similar months of previous years, or in other words, with normal figures. If the plots for these previous years can be combined into one plot for an assumed normal year for purposes of comparison, the work is greatly simplified. This may seem to be a simple method of procedure, but when fully comprehended and carefully studied, it will be found to furnish not only a bird's-eye view of present conditions, but, in conjunction with a study of other subjects, the best possible idea of whether general business is becoming better, worse, or simply holding its ow^n. 2. The other method is more mathematical and not so readily comprehended. Instead of plotting the figures for a series of years, merchants simply tabulate the totals as follows: Bank Clearings of U. S. Bank Clearing of U. S. Excepting N. Y. Year Total Year Total 1883 $51,699,823,752 1883 $14,265,522,880 1884 44,165,125,355 1884 13,179,255,183 1885 41,439,303,599 1885 13,287,102,263 1886 49,247,681,466 1886 15,570,851,854 1887 51,091,236,324 1887 17,616,680,056 1888 49,484,584,175 1888 18,384,046,654 1889 56,110,250,455 1889 20,215,145,550 1890 60,546,563,997 1890 23,087,956,388 1891 56,657,179,617 1891 22,907,857,405 1892 61,919,125,622 1892 25,256,657,420 186 BUSINESS BAROMETERS 1893 $54,143,527,180 1893 $22,822,489,378 1894 45,460,058,609 1894 21,072,251,587 1895 53,180,700,764 1895 23,338,903,840 1896 51,246,323,830 1896 22,375,548,783 1897 57,229,070,956 1897 23,802,043,485 1898 68,826,557,324 1898 26,854,774,887 1899 94,047,400,783 1899 33,258,608,882 1900 86,070,549,683 1900 33,436,347,818 1901 118,410,015,182 1901 38,982,329,340 1902 118,023,298,740 1902 41,695,109,575 1903 109,209,187,164 1903 43,238,849,809 1904 112,449,664,015 1904 43,800,245,342 1905 143,872,974,359 1905 50,087,388,239 1906 157,749,328,913 1906 55,132,812,330 1907 144,188,663,955 1907 57,706,495,574 1908 132,272,067,412 1908 52,996,187,156 1909 165,608,872,423 1909 62,020,141,002 Column 1 is for the bank clearings of the entire United States, and column 2 is for the United States with the exception of New York City. In practice these figures are subdivided into months and only the past eight or ten years are studied, but this is not necessary for the purpose of illustration. As a second step, the merchant notes from the monthly tables the actual figures received for the current year to date and estimates the probable clearings for the remainder of the year. This may be illus- trated somewhat as follows: The merchant notes what proportion the clearings for January, Feb- ruary and March have heretofore borne to the clearings of the entire country. (A novice might think it was simply necessary to multiply the clear- MERCANTILE CONDITIONS 187 ings of three months by four in order to have an es- timate for the entire year, but such a method is not correct, since it does not provide for the seasonable changes before alluded to.) By making a study of the relation that these three months bear to the entire year for several years back, it is possible to make a very good estimate for the entire current year even if only three months are reported. Having made this estimate, one compares it with the total figures for previous years and forms an opinion as to the probable business conditions for the current year. If the matter were dropped at this point these figures would be of no value, but the merchant re- vises this estimate each month, as new figures are received, and also notices whether the revised fig- ures are increasing or decreasing. In other words, by this second method, the one universally recom- mended, the merchant studies the statistics to note whether each succeeding estimate is an increase or a decrease over the previous estimate. If the new estimate is an increase, this shows that business con- ditions are improving as marked by an upward line on the plot. If the new estimate is a decrease, it show^s that business is decreasing, as marked by a downward line on the plot. If the new estimate is practically the same as the last one, this indicates that there may be no change either for the better or for the worse, as marked by a horizontal line on the plot. The remaining point to be considered on the sub- ject of bank clearings is the reason for separating the subject into the two main classes as given at the begin- 188 BUSINESS BAROMETERS ning of this chapter, and as in the preceding tables. The reason for this subdivision is as follows: The clearings of New York alone are about one-third those of the entire country. If these clearings were simply a result of commerical business transactions, that is, the transactions of merchants, manufactur- ers and business men, there would be no reason why the New York Clearings should not always be in- cluded with the clearings of other cities. The facts of the case, however, show that an exceed- ingly large percentage of New York clearings is effected by the transactions of bankers or is inti- mately related to the stock exchange transaction. This may be clearly shown by plotting two lines, one for the transactions of the New York Stock Ex- change and the other for the bank clearings of New York. These lines, although very '* zig-zag," are almost parallel to each other, and when one rises the other follows, and vice versa. For this reason during dull times on the stock exchange, bank clearings of the United States including New York may show a decrease, even though general business throughout the country is increasing, while during a very active period on the New York Stock Ex- change, the bank clearings of the entire United States including New York, may show an increase, even though general business throughout the coun- try is decreasing. For this reason, in order to judge correctly the general business of merchants and manufacturers throughout the country, it is best to consider the bank clearings of the United States with the excep- MERCANTILE CONDITIONS 189 tion of New York City. If the figures for the United States with the exception of New York City have been properly studied and a conclusion drawn, it is also well then to note the figures for the entire country, including New York City. If the figures for New York City confirm the conclusion arrived at when not including New York City, then the result may be considered absolutely correct. The most suc- cessful merchants tabulate, each month, both the fig- ures including and excluding New York, but usually only plot one set, generally that for the entire country, as the records for the latter are most complete. The following conclusions are suggested relative to "Bank Clearings." 1. During a Period of Business Depression. (a) An increase signifies that trade is im- proving. (b) A decrease signifies that conditions are growing worse. (c) No change signifies that trade conditions are remaining fixed. 2. During a Period of Improvement Following a Period of Depression. (a) An increase signifies that trade is con- tinuing to improve. (b) A decrease signifies that the improve- ment has temporarily been checked. (c) No change shows that progress is very slow. 3. During a Period of Prosperity. (a) An increase shows that trade conditions are very prosperous, although too great an increase under such conditions often forecasts trouble. 190 BUSINESS BAROMETERS (b) A decrease shows that a change is taking place and business is decreasing. (c) No change at this point often is a sign that a change is about to take place. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase signifies a temporary check in the decline. (b) A decrease is the natural movement and signifies no improvement. (c) No change shows uncertainty or possibly serves to delay the coming panic. BUSINESS FAILURES Every great crisis has been made known to the public by one or more large failures, sometimes accompanied by the exposure of dishonest methods, sometimes by political or national calamity; more often by the failure of some bank or number of banks in endeavoring to finance industries or new corporate undertakings. So failures, — that is, large, single failures, — stand as signals of sharp crises, and the beginning of depression. They may be followed by other large failures and many small ones, so quickly that the total both in the number of failures and in liabilities for the panic year is swelled, as in 1893, far above the limits of other years just preceding and following it; or the failure record may move slowly and may require more than a year for any great change. Failure statis- tics, therefore, are of use principally in determining the probable length of a period of depression as shown by the following figures. From these it MERCANTILE CONDITIONS 191 will be seen that after a crisis in no case has pros- perity returned until failure statistics have again become normal. FAILURE STATISTICS FOR THE UNITED STATES. Table I. Compiled from figures furnished by R. G. Dun & Co. Year No. of Liabilities Year No. of Liabilities Failures Expressed in Millions Failures Expressed in Millions 1857 4,932 291.8 1883 9,184 172.9 1858 4,225 95.7 1884 10,968 226.3 1859 3,913 64.4 1885 10,637 124.2 1860 3,676 79.8 1886 9,834 114.6 1861 6,993 207.2 1887 9,634 167.6 1862 1,652 23.0 1888 10,679 123.8 1863 495 7.9 1889 10,882 148.8 186-1 520 8.6 1890 10,907 189.9 1865 530 17.6 1891 12,273 189.9 1866 1,505 53.8 1892 10,344 114.0 1867 2,780 96.7 1893 15,242 346.8 1868 2,608 63.7 1894 13,885 172.9 1869 2,799 75.0 1895 13,197 173.2 1870 3,546 88.2 1896 15,088 226.1 1871 2,915 85.2 1897 13,351 154.3 1872 4,069 121.1 1898 12,186 130.7 1873 5,183 228.5 1899 9,337 90.9 1874 5,830 155.2 1900 10,774 138.5 1875 7,740 201.0 1901 11,002 113.1 1876 9,092 191.1 1902 11,615 117.5 1877 8,872 190.7 1903 12,069 155.4 1878 10,478 234.4 1904 12,199 144 . 2 1879 6,658 98.1 1905 11,520 102.7 1880 4,735 65.8 1906 10,680 119.2 1881 , 5,582 81.2 1907 11,725 197.4 1882 6,738 101.5 1908 15,690 222.3 1909 12,924 154.6 For example, note in the above table the year 1857, both in number and liabiHties. Note that the crisis is indicated in the amount of liabilities, for while in 1858 the number of failures is still larger, there is a reduction of liabilities amounting to more than 32.8 per cent. The next three years show depression by a relatively large number of 192 BUSINESS BAROMETERS failures; but they are of lessening average amount of liabilities. That statistics of failures may indi- cate not only the length but the general character of a depression is proved particularly well from the course they take from the crisis year of 1873 to the height of the depression in 1878, and for a shorter period from 1893 to the culminating year of 1896. From the preceding table it is also evident that, while the average of liabilities per failure is less, the num- ber of failures is often larger toward the end of a depression than during the crisis year. FAILURE STATISTICS FOR THE UNITED STATES. Table II. Compiled by figures furnished by R. G. Dun & Co. Per Liabilities Liabilities cent Number of Average per capita per firm in of Year Failures Liabilities Liabilities of population business fai'es 1875 7,740 $201,060,333 $25,960 $4.55 $339.78 1.21 1876 9,092 191,117,786 21,020 4.23 305.15 1.33 1877 8,872 190,669,936 21,491 4.11 302.60 1.36 1878 10,478 234,383,132 22,369 4.92 259.49 1.55 1881 5,582 81,155,932 14,530 1.58 108.65 .71 1882 6,738 101,547,564 15,070 1.93 129.94 .83 1883 9,184 172,874,172 18,823 3.22 .210.23 1.06 1884 10,968 226,343,427 20,632 4.12 .261.94 1.21 1885 10,637 124,220,321 11,678 2.21 137.28 1.16 1886 9,834 114,644,119 11,651 2.00 124.60 1.01 1893 15,042 346,779,889 22,751 5.22 290.65 1.28 1894 13,885 172,992,856 12,458 2.55 155.25 1.25 1900 10,774 138,495,673 12,854 1.81 119.63 .92 1901 11,002 113,092,376 10,279 1.45 94.63 .90 1902 11,615 117,476,769 10,114 1.49 94.85 .93 1903 12,009 155,444,185 12,879 1.94 ui.r^ 1.12 1904 12,199 144,202,311 11,820 1.76 111.33 .92 1905 11,520 102,676,172 8,193 1.24 78.75 .85 1906 10,682 119,201,515 11,159 1.41 86.52 .77 1907 11,725 197,385,225 16,834 2.31 139.75 .82 1 908 15,690 222,315,684 14,169 2.55 153.58 1.08 1909 12,924 154,603,465 11,964 1.74 104.01 .80 From this second table we have another view MERCANTILE CONDITIONS 193 of the usefulness of failure statistics. While, as in Table I, the panic years are also plainly marked in Table II, by the percentage of failures to the total number of firms in business. Table II, in addition, shows something new relative to business condi- tions. Thus we find that up to 1878 the possibility of loss, that is the ratio of "liabilities" to the "num- ber of firms actually in business," was large or in- creasing from year to year, as was also the case from 1893 to 1896; while, on the other hand, the effects of the crisis of 1903 gave place very quickly to prosperous conditions, surpassing any known in thirty years previous. Furthermore, from the "per cent of failures" to the firms in business, we find that such figures as 11,002 for the failures in 1901, and 10,428 for 1878 mark two degrees of depres- sion more widely different than they would seem at first glance, and that the high number 11,725 of 1907, or even 15,675 in 1908, indicate conditions much less severe than does the 7,740 of 1875. But as the study of the past, however interesting as pure history-,, is here to be regarded only as a means of understanding the significance of current changes, the points above mentioned are of value only in connection with the present day figures. The figures of the year 1907 are of special interest in this connection. This year is known as a "panic year," and the events of the months following October with its signal failures of certain New York banks have become a part of history closely joined to present problems. While it is true that not one. 194 BUSINESS Bx^ROMETERS but all factors, must be weighed together in estimat- ing the comparative position of 1907 among critical periods, merchants, bankers and investors find something of special value in statistics of failures. Statistics of the year are available in different forms. Divided into months, as is the customary way for merchants to compile them, there is mean- ing to be found in the year's record on lines similar to those used in the annual tables. The following figures for liabilities, expressed in millions, serve as illustrations: The "number" is omitted from these tables, as it is not customary for merchants to record said figures. If additional tables are de- sired, the "per cent to the firms in business" is recommended. Table III LIABILITIES EXPRESSED L\ MILLIONS / Month 1902 1903 1904 1905 Jan. S14.312 $12,978 $18,483 $10,417 Feb. 11.302 . 10.907 15.812 9.780 Mar. 8.117 10.458 13.770 9.964 Apr. 7.359 11.811 13.136 8.056 .May 9.109 12.314 9.817 8.907 June 10.173 8.326 8.469 8.777 July 6.932 17.751 8.812 6.148 Aug. 8.068 10.877 10.491 6.140 Sept. 10.031 7.229 12.864 8.039 Oct. 10.851 18.387 10.525 6.751 Nov. 9.276 16.422 8.535 8.866 Dec. 11.941 18.978 13.481 10.823 Month 1906 1907 1908 1909 Jan. $11,952 $13,628 s$27.099 $14,008 Feb. 10.859 10.283 27.064 16.734 Mar. 10.949 8.163 21.542 13.718 Apr. 8.059 11.082 20.316 16.825 May 12.992 9.965 13.643 14.383 June 7.850 16.444 14.708 12.607 July 6.919 12.334 14.222 9.527 Aug. 8.821 15.197 23.782 9.620 ^lERCANTILE CONDITIONS 195 Month 1906 1907 1908 1909 Sept. S6.255 $18,935 $17,298 $8,446 Oct. 10.553 27.444 15.898 12.529 Nov. 11.980 17.637 12.599 9.812 Dec. 12.006 36.296 14.139 14.625 This table gives examples of what may serve as types of years. Thus 1903 had what was called "the rich man's panic," beginning with the stock market in the summer of that year and continuing into the next as shown very clearly by the table. The presence of business trouble is first indicated in July of 1903, when the amount of liabilities is very much increased; and this increase and this ratio remain practically unbroken for ten months. Normal years, also, such as 1905 and 1906, show heaviest liabilities between October and March, any increase between these points coming just be- fore or just after the fiscal year. While Table III is not in itself sufficient, the points just raised show the practical value of such figures. Even without knowing anything of the exact causes, a man with these figures at his hand could not have failed to think a little when, in the report for June 1907, liabilities ran over 40% higher than in 1906 and nearly as much higher than 1905. As the new figures were received each month, and liabilities for the month of September reached an aggregate of nearly $19,000,000 compared with $8,039,947 for the same number of failures in Sep- tember 1905, surely the change in ratio could have told something very definite as to the approach of bad times. Considering the liabilities in connec- tion with the per cent, of failures, we find the crisis month to have been November (average liabilities 196 BUSINESS BAROMETERS being $32,026.80 as compared with December, 830,760.06), for we maintain that the smaller "per cent." with heaviest liabilities, marks the financial climax, or the public break, or the great signal failure that openly declares trouble. By the quick- est, roughest estimates, the course of affairs can be very plainly traced by having these failure sta- tistics at hand. While, to obtain accurate comparisons of the progress of the current 3'ear, as compared with others, more close calculating of the percentage in gain or loss per firm in business is always required, yet such work yields a good return. These are the current figures most constantly watched by bankers and merchants who prefer to have their own eyes on the clouds ahead rather than trust entirely to a less interested authority. The following table (Bradstreet's) is also of in- terest in connection with analyses of failures, al- though these figures are of no use in forecasting business conditions. TABLE IV PERCENTAGE OF FAILURES AND LIABILITIES CLASSIFIED AS TO CAUSES UNITED STATES PER CENT. Number Liabilities Failure due to ... 1907 1906 1905 1904 1907 1906 1905 190^ Incompetence 22.6 22.3 24.4 23.1 8.9 15.5 21.6 14.1 Inexperience 4.9 4.9 4.8 5.1 3.2 2.2 2.1 3.2 Lack of capital .. . 37.1 35.9 33.4 32*2 18.4 30.9 33.0 31.8 Unwise credits 2.3 2.6 3.5 3.4 3.1 2.1 4.2 4.8 Failures of others . 1.4 2.0 2.2 2.5 3.3 8.8 4.5 8.2 Extravagance 9 1.0 1.1 .8 .5 .9 .12 .7 Xeglect 2.5 2.2 2.9 3.1 .5 1.5 1.1 1.6 Competition 1.2 1.0 1.5 1.3 .4 .4 .9 1.0 Specific Con- ditions 16.3 17.3 16.3 19.1 51.7 17.9 15.5 22.7 Speculation 7 .8 .7 .8 4.9 3.6 7.7 5.3 Fraud 10.1 10.0 9.2 8.6 5.1 16.2 8.2 6.4 MERCANTILE CONDITIONS 197 For example, if 1907 showed, as is claimed, 37.1% of failures due to loss of capital, and if figures show that this cause is increasing year by year, it means clearly that the beginnings of new enterprises must be increasingly well supported, as it grows more difficult to add to inadequate capital when money rates are high or when competition makes it im- perative to expand. As inexperienced and com- paratively incompetent heads must continually join the business ranks, constant watching of the details of failure statistics is a practical necessity for them as well as for those whose money is in- vested in their interests. As Bradstreet's table excludes all losses except those strictly commercial, that is, those failures involving loss to creditors of individual firms or corporations engaged in legitimate mercantile oc- cupations, they cannot be compared, figure for figure, with the tables from other sources; but be- lieving that the figures due to failure in insurance, real estate, brokerage, etc., do have a distinct effect upon general business conditions, the analysis of these also should be a part of a study of the whole subject. Certain further facts should be mentioned here as bearing upon this question. One of these we have already suggested, namely: that as the country advances, statistics furnish evidence that the "commercial death rate" is growing less. The de- crease is as yet not one half of one per cent., but the rate is being reduced from 1J% maximum to some- thing under 1%. Of course we should like to be- 198 BUSINESS BARO^IETERS lieve that this is a permanent improvement in busi- ness inteUigence, but this point the future alone can prove. Another law recognized by merchants and al- ready suggested in this discussion, is that small firms do not feel the effect of a panic or depression until sometime after the effect is felt by the larger firms. For this and other reasons the study of this subject is especially valuable as a guide and protection to small merchants and storekeepers. In conclusion we will repeat that figures on business failures are of greatest value to all in de- termining what the length of the present "period" will be, and how soon one's own business and that of others, in which he has greater or less investments of capital, may be expected to show a change. When the flood begins to subside from its high w^ater mark, a study of the rate at which it is subsiding, and a knowledge of the condition of each tributary stream assists very much in estimating the time when seed may be planted in the rich bot- tom land, now under water, or inversely as the case may be. We need not carry this figure of speech further in order to show that it contains the idea upon w^hich merchants rate the study of Business Failures as of fundamental importance to their progress. For such study is but a part of a system by which they may know exactly the conditions upon which the next move should be based, and upon the result of which depends the subsequent course of the business life of each individual. MERCANTILE CONDITIONS 199 The foUoAving conclusions are suggested jielative to "Business Failures." 1. During a Period of Business Depression. (a) An increase signifies tkat the depression is not ended. (b) A decrease, after a large increase, signifies continued improvement. (c) No change signifies that caution is still necessary 2. During a Period of Improvement Following a Period of Business Depression. (a) An increase in failures signifies that the improvement has been temporarily checked. (b) A continued decrease signifies continued improvement. (c) No change signifies that caution is still necessary. 3. During a Period of Prosperity. (a) An increase in failures, especially of large concerns, signifies that no further improvement may be expected. (b) A great decrease signifies the need of caution. (c) No change signifies nothing of impor- tance. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase signifies no immediate im- provement. (b) A decrease signifies a temporary check in the decline or an improvement. 200 BUSINESS BAROMETERS (c) If there is no change the figure need not be considered. IiMMIGRATION FIGURES AND LABOR CONDITIONS The general subject of labor conditions is of im- portance in diagnosing present business conditions and in forecasting changes which may be expected. But labor interests involve so many factors and in- clude so wide a field of investigation that, with the statistics at present available, it is absolutely impossible to compile figures that are sufficiently complete to tabulate for comparative purposes. It is hoped that some day either the labor unions or the government will find some practical means of keeping exact records of the number of men out of work, the rate of wages in effect and other items necessary for this purpose. At present the only complete figures are the cen- sus reports compiled once in ten years, and partial figures of some of the states reported only once in five years, but neither set of figures is of much use to the business man. There are also certain states which, in connection with the public employment bureaus, publish a classified list every week or month entitled "applicants desiring work;" but these lists are very incomplete and their records are of little more practical use than are the similar records kept by the leading charitable institutions. If every city or charitable institution did the work thoroughly and kept the dead matter weeded out, their records would be worth while, although they might cover but a small portion of the country. MERCANTILE CONDITIONS 201 The same might be said of the labor union figures. These, if kept properly and accurately for a definite period and area, would be very valuable to manu- facturers and business men; but under present conditions they are at the most only suggestive, and not fit for precise analysis. Of all available statistics, those coming from the Commissioner of Labor may be most depended upon; and though monthly reports of the same sort would be of dis- tinct value for the purposes of fundamental statis- tics, nosuchsatisfactory figures can how be obtained. For either determining the present trend or fore- casting the approaching conditions, only figures w^hich can be used for comparative purposes are of value. It is not necessary to have monthly figures covering a large section of the country, but they must cover the same section of the country ^t each statement. It makes little difference whether the reports are issued weekly or monthly, but it is of vital importance to systematic work that each re- port should cover the same period of time, — that is, either one w^eek or one month regularly. Therefore while there are today many organizations prepar- ing figures which may, after a time, become of dis- tinct value for comparative purposes, none of them have yet reached this point, — with the possible exception of those from the Immigration Depart- ment of the United States. The immigration figures are issued monthly, each report covering the same ports, and these figures are carefully tabulated by all systematic manufacturers and merchants. 202 BUSINESS BAROMETERS One of the valuable features of the present day method of studying fundamental statistics, under twelve general headings, is that under each general heading or group, sub-topics can be added at any time, extending over an increasing amount of sub- ject-matter. For example, the subject of this group is "Labor Conditions" and at the present time the only figures tabulated are those on immi- gration; but as soon as suitable reports from the labor unions, charitable institutions, or other sources are obtainable, additional tables can be in- serted for these additional figures. All such sub- jects, accurately reported, will contribute to an ex- act understanding of the condition of labor in this country. In other words, in the final deductions, the same amount of weight Avill be given to "Labor Conditions" as formerly, but in arriving at deci- sions as to labor conditions more factors will be considered. As a barometer of labor conditions immigration figures are extremely good. The steamship lines maintain a balance in the supply of labor between the United States and Europe. Labor, like water, seeks its own level, when both living expenses and wages are considered. Of course, if it costs five times as much to live in New York as in Italy, the Italian laborer will not come to this country for simply five times the wages that he receives at home, provided the demand for labor is the same in each country. Therefore, living expenses, as well as wages, must be considered. On the other hand, if the Italian can obtain wages in New York equal MERCANTILE CONDITIONS 203 to ten times what he will receive in Italy, he will board a steamer for the United States, even with the expenses in New York five times as great as at home. Such high wages the Italian ma)' always obtain in America in times of prosperity, and es- pecially in times just preceding the culmination of a period of prosperity. Conversely, when this period culminates, the demand for labor decreases, wages decrease and the Italian boards a steamer and returns to Italy. Therefore, as the Government keeps a careful re- cord of when the immigrant enters the country and when he leaves, this report is an extremely good barometer of the labor conditions in the United States. Of course under almost any circumstances there are more people coming into a new country, like the United States, than there are going out, but the size of this excess number is very sensitive to changing conditions in the country as a whole. By studying and comparing the figures of the past twenty years, it will be seen that a crisis or de- pression in business conditions came soon after very high figures for immigration were reached. It is likewise true that there was an improvement in business conditions when, during a period of de- pression and very little immigration, there began to be an increase in immigration. In other words, very large numbers of alien arrivals during a period of prosperity may be counted as one of the factors signifying a culmination of such a period of pros- perity. Conversely, a very low number of alien arrivals during a period of depression is one of the 204 BUSINESS BAROMETERS factors significant of better business conditions. As is the case with most of the others of these subjects studied by bankers and merchants, an in- crease or a decrease does not at all times mean the same thing under all circumstances. Sometimes an increase is a dangerous sign and sometimes a decrease is a dangerous sign. These things cannot be reduced to a rule of thumb, but the merchant must use his judgment to a certain extent. The rule given above, however, is almost infallible. There is also another reason why these immigra- tion figures are of interest, namely : because the num- ber of aliens leaving the country is not only a bar- ometer of business conditions, but it is also influen- tial in the trend of such conditions. When a for- eigner enters this country, he usually brings a little money, for he knows that he will need a place in which to sleep while here and must have some food and clothes. On the other hand, when leaving the country he takes from circulation a certain amount of money which is almost invariably many times what he brings into the country. In addition he directly reduces the income of some landlord and the business of some small grocer and dealer in second-hand clothing. Therefore, very large immigration figures during periods of prosperity mean that there are many people who will be obliged to leave the country as soon as the period of prosperity culminates, and therefore the reaction will be greater and even more severe than if they had not entered the country. In the same way an increase during a period of de- MERCANTILE CONDITIONS 205 pression not only signifies better conditions, but these people entering the country are themselves the means of creating better conditions both by the amount of money Avhich they bring with them and the business which they create after arriving. Hence the Jiecessity of tabulating monthly figures on immigration. The following conclusions are suggested relative to immigration figures.* 1. During a Period of Business Depression. (a) An increase after a distinct decrease shows that conditions are improving. (b) A continued decrease signifies that as yet there is no improvement. (c) No change signifies that conditions are at a standstill. 2. During a Period of Improvement Following a Period of Business Depression. (a) An increase signifies continued improve- ment. (b) A decrease signifies no immediate im- provement. (c) No change signifies caution. 3. During a Period of Prosperity. (a) A great increase signifies no further im- provement or a decline. (b) A decrease signifies that the corner is being turned and a decline may be expected, and thus calls for caution. *These figures have special bearing on the demand for unskilled labor in the United States. 206 BUSINESS BAROMETERS (c) No change signifies continued improve- ment. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase signifies a temporary im- provement. (b) A decrease signifies no improvement. (c) No change signifies nothing definite. CHAPTER VII SUBJECTS RELATING ESPECIALLY TO MONE- TARY CONDITIONS. Money in Circulation. THIS subject may, at first thought, seem un- interesting and of little concern to the mer- chant or manufacturer; yet, as a matter of fact, the "Amount of Money in Circulation" is of vital interest not only to the merchant and manu- facturer, but also to the humblest store-keeper and day laborer. The trade of the corner grocery store is regulated by the amount of money in circulation in the neigh- borhood; and the amount of money in circulation in the neighborhood is dependent upon the amount circulating in the entire country. As the local banks in every small town have deposits in some large city such as New York, Chicago or St. Louis, money cannot be abundant in one city and scarce in another, except for a very short time. The banks of the various cities are so related through the great banking institutions of the large cities, that money — like water — immediately seeks its own leveL As a result, all parts of the country must prosper or suffer in accordance with the amount of money in circulation. The store-keeper must, therefore, study figures of the entire country, and not simply the conditions in his own town or in his own neighborhood. 208 BUSINESS BAROMETERS Many a mill has been closed and many a laborer been thrown out of employment because employers could not obtain enough actual money to pay wages. In times of prosperity such conditions are hard to conceive; nevertheless, they have happened and will recur. Sometimes mills continue to oper- ate by paying their employees by check, although this is a very unsatisfactory method unless the checks can be readily cashed. We know of one city in Massachusetts where for several weeks in 1907, all of the factory hands and clerks were paid by checks, and moreover by checks marked "Pay- able only through Clearing House." Checks so marked cannot be cashed. The holders can only deposit them in the bank and draw new checks against them; and, since these new checks were also marked "Payable only through Clearing House," it was still impossible for the employees to obtain their cash. As 95% of the employees had no bank account, the only practical method was for each to give his check to one of the local store-keepers, re- ceiving credit for the amount. As the man was obliged to leave the full amount of the check at one store, he found it advisable to select a large depart- ment store, carrying dry goods, groceries, medicines and other goods. The result was that the business of the small store-keepers, excepting that derived from their regular "charge" customers, was almost ruined during this period; the business of a store, the cash sales of which ordinarily amounted to $100 a day, decreased to only |10 a day. This is but one illustration; it shows, nevertheless, how vital an MONETARY CONDITIONS 209 interest even the humble classes have in the amount of money in circulation. It is of equal importance to the large merchants and to the manufacturers. The small retailer who buys only what goods he can sell, immediately, ceases purchasing as soon as his business diminishes. This immediately affects the business of the manu- facturer, who in turn ceases to purchase from the large producers. Since the small manufacturer buys new material only as needed for actual manu- facture, he ceases to purchase in direct proportion as he reduces his help. The great merchants and manufacturers do not feel the effect, possibly until later; but when the blow does come, they feel it to a greater extent than the small dealer. It may be plainly seen, therefore, that the amount of money in circulation directly affects everyone, whether laborer, clerk, small store-keeper, merchant, large manufacturer or the railroad company which trans- ports for all. The Terms Defined. In the discussion of this subject, two dift'erent "amounts" are referred to, viz: 1. The net amount of working money in circu- lation. 2. The gross amount of money per capita, whether hoarded or in use. These two amounts may be defined as follows: The ''net amount of working money in circu- lation" means the amount of actual cash held by the banks. When a farmer deposits in his bank money received from the sale of cotton in Liverpool, 210 BUSINESS BAROMETERS he increases the net amount of working money in circulation. This is hkewise true when a bank im- ports gold from abroad. When a depositor be- comes frightened, withdraws money from a bank, and hides it in his house or in a safe deposit box, he decreases the net amount of working money in cir- culation. The same is true for America when Americans spend money in Europe or when money is sent abroad in payment for securities held in Europe. But "the net amount of working money in circulation" is affected in another way, namely: by the amount of money that each man is carrying in his pocket. If a man carries eleven dollars in his pocket instead of one dollar, he seldom realizes that the act is affecting the financial condition of the country; but if all the 15,000,000 working men in the United States should do this same thing, it would make a difference of $150,000,000 in the net amount of working money in circulation, or a dif- ference of $500,000,000 in the banking resources of the country. Thus the net amount of working money in circulation represents the amount which is actually in the banks or actually at work in com- merce and industry; it does not include idle money stowed away in pocket-books or safe deposit boxes. "The gross amount of money per capita" includes all money in the United States whether it is in the bank or buried in the ground, at work or idle. All money in the safe deposit boxes and in the pockets of individuals is counted in this item. This at the present time amounts to about $35.00 per capita based on the estimated population of the United MONETARY CONDITIONS 211 States. The gross amount of money per capita simply represents the total of the gold and silver coins and bills and bank notes in existence, wher- ever located in the United States. It has been es- timated that in order to keep this figure in the vicinity of $34 or $35 per capita, it is necessary to create or import, about $50,000,000 net in coin and bills each year. The Effect upon the Merchant. Experience has shown that the ^^net amount of working money in circulation" cannot be forecasted by figures, but is dependent rather upon sentiment. In other words, instead of being dependent upon the financial condition, it is dependent rather upon the sentiment of the people. This net amount in circulation may remain practically constant for years until some large failure, scandal or rumor of war comes, when the people lose confidence and money stops circulating. In such cases everybody holds all he has in his possession and free circulation is stopped or retarded. Thus the net amount of working money is often independent of the gross amount of money in circulation. Should a rumor be published in the morning papers that some great financial institution is in a critical condition, the net amount of money in circulation would immedi- ately be affected to a greater extent than would be possible through years of legislation ; but the gross amount of money would remain constant. Fur- thermore, such rumors, failures or scandals are the best warnings of impending contraction of the net amount of money in circulation. The study of sta- 212 BUSINESS BAROMETERS. tistics in such instances is of little value. In other words, as soon as such a thing happens, the mer- chant may be reasonably certain that his trade will be diminished, and the effect of his curtailment will be felt by the manufacturers, the merchants and the railroads. On the other hand, the merchant should be equally on the watch for the time when confidence will be restored and when the people will decide to part with the money they have been hoarding. As it is human nature to hoard money in case of trouble, it is also human nature to forget this trouble quickly. Moreover, people seem unable to withhold money from circulation beyond a cer- tain length of time; they become uneasy under the loss of interest, and it finally occurs to them that their money is in more danger in their houses than when deposited in a bank. Thus periods of finan- cial stringency, which are caused by the temporary withdrawal of money from circulating, are invari- ably followed by a great increase in the net amount of working money. Nevertheless, the business of the local merchant does not increase directly in propor- tion to the increase of the net amount of working money. While business falls off as soon as the working money decreases, the reverse is not true. When mills are closed and people are out of employment, they acquire frugal habits, and after the mills again start, they do not at once begin to spend; but they deposit their savings in a bank. The fact remains, nevertheless, that after these periods of fright, money becomes very plentiful MONETARY CONDITIONS 213 with the banks and interest rates become corre- spondingly low, with a slow but gradual increase in business. As the efficiency of money depends upon its rapidity of circulation, a contraction in the net amount of working money always causes a de- crease in general business which requires some time to return to a normal state. In the case of the ''gross amount of money per capita," entirely different laws prevail. .To quote from Theodore E. Burton's admirable book entitled "Crises and Depressions" : — "Paradoxical as it may seem, the starting point for crises and depressions may be found in abundance rather than in scarcity, whether in money or in capital." Here he refers to the ''total gross amount of money per capita' or the figures which are studied under fundamental statis- tics. These statistics may be obtained from tables prepared each month by the United States govern- ment. In general, these figures usually show a continued increase up to a certain point, at which time a panic or a depression comes over the coun- try. This is due to the fact that panics and depres- sions are so often caused by over prosperity. Therefore this gross amount of money per capita is a good barom- eter of prosperity. If the gross amount of money in circulation, as reported by the government, shows a steady increase per capita for several years and the country is prosperous — mills running over time, labor in great demand, and everybody happy and contented — then the merchant and manufac- turer should be on the watch for a turn in the tide. In other words, too large an amount of money per 214 BUSINESS BAROMETERS. capita is sure to be followed by a period of disaster and trouble. As "pride cometh before destruction and a haughty spirit before a fall," so it is likewise true that "a large amount of money appeareth be- fore a panic and a period of luxury before a period of depression." The following conclusions may be of interest rela- tive to "Money in Circulation." 1. During a Period of Business Depression. (a) An increase signifies declining money rates, or more satisfactory conditions. (b) A decrease signifies higher money rates, or less satisfactory conditions. (c) No change signifies nothing important. 2. During a Period of Business Improvement. (a) An increase forecasts better conditions. (b) A decrease forecasts a check or setback. (c) No change suggests nothing of impor- tance. 3. During a Period of Prosperity. (a) A large increase calls for caution. (b) A sudden decrease signifies higher money rates and calls for caution. (c) No change signifies continued prosperity. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase forecasts continued unsatis- factory conditions. (b) A decrease forecasts higher money rates and continued unsatisfactory conditions. (c) No change suggests caution. MONETARY CONDITIONS 215 REPORTS OF THE COMPTROLLER OF THE CURRENCY Each national bank is required to make five re- ports a year to the Comptroller of the Currency. The reports are verified under oath by the president and cashier, and are attested by at least three di- rectors of each bank. They give in detail the re- sources and liabilities of all national banks at a date specified by the Comptroller, and always previous to the date of the call. Each report must be mailed to the Comptroller within five days after the request is made for it. Such reports are the basis of a most useful examination of the banking situation, as they include not only figures from all national banks but also annual supplementary figures relative to other banks. These figures should be studied both independ- ently and in their relation to one another. In other words, the "ratios" should be studied and compared. This is one of the principal features of these reports as used in connection with the study of "Fundamental Statistics." They will be found more fully explained under the headings of "Loans" and "Cash." LOANS OF THE BANKS In analyzing reports of the Comptroller of the Currency, four distinct lines of investigation are followed, namely: (a) The ratio of bank "Loans" to bank "Re- sources." 216 BUSINESS BAROMETERS (b) The ratio of bank "Loans and Invest- ments" to bank "Resources." (c) The ratio of "Cash" in the banks to the "Deposits." (d) The ratio of the "Cash" in the banks to the "Resources." These four distinct subjects should be studied in- dependently before making any deduction or fore- casting business conditions. It is also instructive to study the relation of loans to deposits. Then (a) should be compared with (b), and (c) with (d). In order to save time and space, the first two are here treated together, and the second two are treated together under another heading. Bank Loans: Bank loans include notes, discounts, overdrafts and all other forms of so-called liquid assets. Banks when first organized were expected to serve two purposes : they were to receive money on deposit and they were to loan it to depositors, with the understanding that all deposits could be withdrawn and all loans called for payment at any time. The most ideal conditions are to be found where banks still keep most closely to the standard above laid down. All of the assets of a bank other than cash on hand, etc., should consist of loans that can be liquidated within six months. Therefore the term "Loans and Discounts" would include all notes, etc., which are either payable on demand or are payable within six months or a 3-ear at the ut- most. hivestments \ In reality, a bank is loaning money to a corporation whether it purchases its fifty-year MONETARY CONDITIONS 217 Debenture Bonds or its six-months notes. In either case the security is the same and the interest may be the same. For an investor, the fifty-year bonds, if properly secured, are in most instances a more practical purchase than the notes, but for a bank the same statement cannot be made. Strict adherence to the original principle of banking often demands that a bank shall refuse to purchase the bonds of a corporation of which it may willingly accept the notes. Notes when purchased by banks may be listed under the head of "Loans and Discounts," but bonds so purchased must be listed under the head of "Investments." The national law forbids the purchase by national banks of real estate or real estate mortgages, except as a building site, because real estate cannot be readily sold, even though in many cases it is the safest form of investment. Logically there seems to be no reason why a national bank should be allow^ed to buy fifty-year bonds and forbidden to purchase improved real estate, but the fact that the prohibition is made shows that the spirit of the law^ is against all forms of permanent investments. Therefore, by such reasoning, all stocks, bonds and notes, which do not mature for six months or more, come technically under the head of "Investments." As there is no law which states exactly the difference betw^een "Loans" and "Investments," banks dift'er regarding the defini- tion, many banks placing under the head of loans, even such short term notes as do not mature for two or three years. 218 BUSINESS BAROMETERS Resources: The "Resources" of a bank are the same as the resources of any individual or nation. They include the notes, discounts, loans, stocks, bonds, real estate and other property which the bank holds. When a bank makes a total appraisal of its assets, figured on a conservative basis, the resulting figure represents the "Resources." The greater the proportion of "Loans" to "Resources," the less normal are banking conditions. We think that the above definitions in them- selves are sufficient to convince the reader of the truth of the following statement : (1) The hanking situation of the country becomes more critical as the proportion of loans to resources increases, and improves as the proportion of loans to resources decreases. If all national banks confined themselves to loans and discounts, and made no permanent invest- ments, excepting to the extent of their capital, it would be a very easy matter to judge the conditions in accordance with the above rule. As, however, practically all banks are placing more and more funds into permanent investments, that item must be independently analyzed and the above rule must be supplemented by the following: (2) With a given fixed ratio of loans to resources, conditions become more critical as the proportion of investments to resources increases, and conditions im- prove as the proportion of invest7nents to resources decreases. In other words, provided a constant relation ex- ists between the funds loaned and the total re- nU Loans and Resources of United States Banks Date Banks Reporting Loans 1865 1,960 $362,400,000 1866 2,267 550,400,000 1867 2,279 588,500,000 1868 2,293 655,700,000 1869 2,354 686,300,000 1870 2,457 719,300,000 1871 2,796 789,400,000 1872 3,066 871.500,000 187J 1,968b 1,439,900,000 1874 1,983b 1,564,500,000 1875 3,336 1,748,100,000 1876 3,448 1,727,100,000 1877 3,384 1.720,900,000 1878: 3,229 1,561,200,000 1879 3,335 1,507,400,000 1880' 3,355 1,662,100,000 1881 3,427 1,901,900,000 1882' 3,572 2,050,300,000 188S 3,835 2,233,600,000 1884 4,111 2,260,700,000 1885 4,350 2,272,300,000 1886 4,378 2,456,700,000 1887 6,179 2,944,900,000 1888 6,647 3,161,100,000 1889 7,203 3,475,200,000 1890 7,999 3,842,100,000 1891 8,641 3,965,900,000 1892 9,338 4,336,600,000 1895 9,492 4,368,600,000 1894 9,508 4.085,000,000 1895 9,818 4,268,800,000 1896 9,469 4,251,100,000 1897 9,457 4,216,000,000 1898 9,485 4,652,200,000 1899 9,732 5,177,600,000 1900 10,382 5,657,500,000 1901 11,406 6,425,200,000 1902 12.424 7,189,000,000 1903 13,684 7,738,900,000 1904 14,850 7,982,000,000 1905 16,410 9,027,200,000 1906 17,905 9,893,700,000 1907 19,746 10,763,900,000 1908 21,246 10,438,000,000 1909 22,491 11.373,200,000 Resources Ratio of loans to Resources Loans and Investments Ratio of loans and Inv. to Res. $1,126,500,000 32.17 $766,700,000 68.06 1,476,400,000 37.27 1,015,600,000 68.79 1,494,100,000 39.38 1,031,600,000 69.04 1,572,200,000 41.70 1,096,200,000 69.73 1,564,200,000 43.94 1,100,900,000 70.38 1,510,700,000 47.61 1,125,400,000 74.49 1,730,600,000 45.61 1,209,300,000 69.88 1,770,800,000 49.21 1,302,700,000 73.57 2,731,300,000 52.71 2,153,100,000 78.83 2,890,400,000 54.13 2,287,700,000 79.15 3,204,600,000 54.55 2,541,200,000 79.29 3,183,100,000 53.94 2,534,400,000 79.62 3,204,100,000 53.68 2,562,100,000 79.96 3,080,600,000 50.68 2,427,100,000 78.78 3,212,600,000 46.92 2,539,300,000 79.04 3,399,000,000 48.90 2,562,700,000 73.39 3,869,100,000 49.16 2,902,800,000 75.02 4,031,100,000 50.86 3.099,400,000 76.88 4,208,000,000 53.08 3:084,800,000 73.31 4,221,300,000 53.55 3,291,100,000 77.96 4,426,900,000 51.33 3,224.300,000 72.83 4,521,500,000 54.33 3,487,800,000 77.13 5,203,700,000 56.59 3,944,800,000 75.80 5,470.400,000 57.78 4,273,200,000 78.11 5,940,900,000 58.49 4,587,100,000 77.21 6,343,000,000 60.57 5,000,100,000 78.83 6,562,100,000 60.44 5,008,400,000 76.32 7,245,300,000 59.85 5,606,000,000 77.37 7,192,300,000 60.74 5.722,700,000 79.56 7,290,600,000 56.03 5,530,300,000 75.85 7,609,600,000 56.09 5,834,000,000 76.66 7,533,900,000 56.28 5,925,500,000 78.44 7,822,100,000 53.89 5,948,300,000 76.04 8,609,000,000 54.04 6,511,900,000 75.64 9,904,900,000 52.27 7,356,600.000 74.26 10,785,900,000 ^ 52.45 8,055,800,000 74.69 12,357,500,000 52.00 9,246,400,000 74.82 13,363,900,000 53.80 10,228,400,000 76.54 14,303,100,000 54.11 11,139,000,000 77.87 15,198,800,000 52.52 11,636,200,000 76.56 16,918,200,000 53.36 13,015,100,000 76.91 18,147,600.000 54.52 13,967,200.000 76.96 19,645,000,000 54.79 15,141,000,000 77.07 19,583,400,000 52.27 14,883,900,000 76.00 21,095,000,000 53.91 15,987,600,000 75.78 b Number of national banks only, number of state, etc., not reported. MONETARY CONDITIONS 219 sources, the general banking situation is strength- ened Avhenever a bank disposes of long term bonds and reinvests the money in high grade commercial paper; conversely the general banking situation is weakened whenever a bank purchases long term bonds with money received from deposits or from the payment of high grade commercial paper. Therefore, anyone studying these conditions should note two things: (1) Whether the proportion of "Loans" to "Re- sources" is increasing, decreasing, or remaining fixed. (2) Whether the proportion of "Investments" to "Resources" is increasing, decreasing, or remain- ing fixed. Although the most careful students consider these terms separately, we think it is generally safe to combine the two ideas in the one general rule, as follows : As the ratio of ''Loans and Investments'' to ''Ag- gregate Resources'' increases, the banking situation becomes more critical; and as the ratio of the two com- bined items to "Aggregate Resources" decreases, the banking situation improves. The accompanying table shows the record of the national, state and private banks and trust com- panies of the United States reporting to the Comp- troller between 1865 and 1909. A study of these figures in connection with the other subjects makes it possible to forecast nearly every period of depres- sion and every period of prosperity which this coun- try has experienced since the Civil War. These 220 BUSINESS BAROMETERS figures cannot be expected to foretell the exact time when crises or panics will occur, owing to sud- den catastrophes such as earthquakes, wars, as- sassinations, etc., but they invariably forecast the large swings. They clearly show when conditions are becoming abnormal and when the pendulum is swinging too far from the perpendicular. These figures date back only to the Civil War, as the system of national banks was not established until 1863. Consequently this is the only period which gives satisfactory data to form a basis for any theory regarding the relation of banking conditions to general business, and conversely, the effect of business conditions upon banking conditions. The latter clause is added, because although strained banking conditions cause a recession in general business, it has always been found true that great activity in business has caused strained banking conditions. Therefore, when business has been very active and the country very prosperous, bankers may surely anticipate strained and critical banking con- ditions. Conversely, when strained banking con- ditions have existed for a certain period, business men may be sure of a reaction. The figures show that after a period during which there was a more or less noticeably rapid increase in the ratio of "Loans and Investments" to "Resources," there followed invariably a period of depression until the ratio was reduced to a normal point. From 1887 to 1897 the "Loans and Discounts" increased only 43% and the "Investments" 73% against an in- ]\IONETARY CONDITIONS 221 crease in aggregate resources of 50%. This was a normal and healthy increase and all observers were sure that the country was preparing for a period of marked prosperity, but between 1897 and 1907 the "Loans and Discounts" increased 236% and the "Investments" 307% against the increase in "Re- sources" of 248%. It was due to these figures that the bankers and investors who carefully study all Fundamental Statistics were sure that the country was entering a period of decline. Such figures showed a period of depression to be absolutely ne- cessary in order to give the banks an opportunity to recuperate and again enjoy healthy and normal conditions. These figures are still more dangerous when it is considered that during the period be- tween 1887 and 1897 the aggregate "Resources" showed an increase of 50%, even though the market value of securities was not increasing. During the ten years between 1897 and 1907 the increase in aggregate "Resources" was largely due to the inflated prices and the growing market value of securities held, and possibly not at all to larger numbers of investments. These changes, it is true, have been irregular rather than constant and have caused varying conditions of strength and weakness in the banking situation, but the figures plainly in- dicate that in 1906 banks were in a very Aveak con- dition with their investments over-extended. The above figures would appear somewhat different if figures of all private banking houses, such as J. P. Morgan & Co., Kuhn, Loeb & Co., and others were included, but nevertheless they are sufficient. 222 BUSINESS BAROMETERS Referring to earlier years, we see that in 1873 the ratio of "Loans" to "Resources" first exceeded 50% and in fact reached a ratio of 52.72%. Conse- quently a panic occurred in that year. The ratio of "Loans" to "Resources" continued to increase to 54.13% and 54.55% in 1874 and 1875 respec- tively, and the prolonged depression was probably due to this continued increase. Moreover, this item remained practically unchanged until 1879 when the liquidation was completed. "Loans and Discounts," which in 1873 were $1,439,900,000, after reaching $1,748,100,000 in 1875, were reduced in 1879 to $1,507,400,000. This condition of the banks enabled them to loan money at low rates of interest and again accommodate legitimate enter- prises. Consequently, business increased marvel- lously from 1879 to 1883. During this period, however, loans had again rapidly advanced,^as is shown by the table, — and remained practically fixed between 1883 and 1885. During this period, that is in 1884, a sharp panic occurred which might readily have been antici- pated. Although distress was felt in every part of the United States, it lasted only a short time in comparison with that of 1873. The banks were able to reduce their ratio of "Loans and Invest- ments" to "Resources" so quickly that the ratio which stood at 77.96 in 1884 was reduced to 72.83 in 1885. Consequently, business became again more active, mills resumed operation and railroad earnings began to increase. In 1886 the new period of prosperity, with ad- MONETARY CONDITIONS 223 vancing prices, was in full swing. This movement continued without any marked change until the early 'nineties when "Loans" reached a very high proportion, 60.57%. Large crops in this country, with small crops abroad, helped to postpone trouble for a time, but a depression came in 1893 when the ratio of "Loans" to "Resources" was even higher than in 1890, namely 60.74%. All business men and investors who were then studying these figures were absolutely sure that a panic w^ould ensue. Another disturbance came in 1903 which, al- though short, was certainly severe. Railroad earn- ings decreased, mills shut down, many men were thrown out of employment and money rates were very high. Again the western farmer came to the rescue of the country, and owing to bountiful crops and other reasons, mills again started and business improved. This continued until 1907. During these years, however, there was no real improve- ment in the banking situation except for a short time. In 1904 money was very cheap, but only temporarily. The banking conditions became worse and worse so that students of the situation were sure that the im.provement from 1904 to 1906 would be followed by a depression in 1907 when the banks might again have an opportunity to recuper- ate. This recuperation was completed in 1908, and very soon banking conditions were again normal. The great value of this data to the investor is self-evident. When the ratio of "Loans and In- vestments" to "Resources" is abnormally high, the country is abounding in prosperity and securities 224 BUSINESS BAROMETERS are selling at high prices, the wise investor sells his securities and places his money on deposit in strong banks. On the other hand, when the ratio of "Loans and Investments" to "Resources" is low, and when, although business is dull and mills are not running, his general knowledge of the situation shows that fundamental conditions are sound, the investor Avill withdraw^ his money from the banks, purchase high grade stocks and bonds and hold them until business again becomes active. While in the table above we have given aggregate figures for all banks, in order to show general bank- ing conditions, such figures are also of service rela- tive to the condition of two or more banks. A depositor should select a bank whose ratio of "Loans" to "Resources" is comparatively small and should especially avoid banks with large "In- vestment" accounts, — so large as to show a policy not in agreement with sound management. In the weekly New York Bank Statement, the 7neaning of ''Loans'' is self-evident. A very small figure for ''Loans'' is not a good sign, neither is a very large figure. The former signifies stagnation, the latter over -extension. It is important that the figure be normal, and that it bear a proper relation to the figure for "Deposits," — thus giving a sound, safe amount for "Surplus Reserve." The following conclusions regarding the ratio of "Loans" to "Aggregate Resources" are suggested. The same principles appl}^ to the ratio of "Loans and Investments" to ''Aggregate Resources." 1 . During a Period of Business Depression. MONETARY CONDITIONS 225 (a) An increase in the ratio signifies renewed activity. (b) A decrease signifies a further recession in business. (c) No change signifies continued dullness. 2. During a Period of Improvement Following a Period of Business Depression. (a) Kxv increase in the ratio signifies increased activity. (b) A decrease signifies a temporary recession. (c) No change calls for special watchfulness. 3. During a Period of Prosperity. (a) An increase in the ratio signifies unsatis- factory fundamental conditions. (b) A decrease tends to prolong the period of prosperity. (c) No change signifies nothing of impor- tance. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase in the ratio signifies further trouble. (b) A decrease is the natural movement. (c) No change calls for special watchfulness. CASH IN THE BANKS This subject may be considered in two ways: (1) Ratio of the "Cash" in the banks to the "Deposits." (2) Ratio of the "Cash" in the banks to the "Resources." In reality these are two entirely different sub- 226 BUSINESS BAROMETERS jects, as the "Deposits" of a bank are liabilities while its "Resources" are assets. Therefore, in the one case we consider the ratio of "Cash" to liabiU- ties; in the other, the relation of "Cash" to the assets. It is therefore absolutely necessary for the student of "Fundamental Statistics" to examine thoroughly the condition of the banks in relation to both points. It has happened during the past forty years that the ratio of "Cash" to "Resources" has varied almost constantly with the ratio of "Cash" to "Deposits," but before considering the tw^o subjects together, one should first note if their progress is still along parallel lines. Having already explained the relation that "Loans and Investments" bear to the money sit- uation, let us study the effect that "Cash" has on the money situation. Of course it is usually true that the greater the amount of "Loans and Invest- ments," the smaller the amount of "Cash," and vice versa. For this reason the following rules are already self-evident. 1. The hanking situation grows more critical as the ratio of cash to deposits decreases, afid the situation improves as the ratio of cash to deposits increases. National banks are compelled by law to main- tain an actual reserve equal to from fifteen to twenty-five per cent of their deposits and any amount over this required reserve is called the "Sur- plus Reserve." As this surplus reserve declines, money rates increase, merchants and manufacturers are limited in borrowing, and speculators are com- pelled to dispose of stocks and bonds in order to pay MONETARY COxNDITIONS 227 their loans. On the contrary, as the surplus re- serve decreases, the banks become sounder and are ready to loan money to investors, manufacturers and merchants at lower rates of interest. All of this, however, is explained in detail in an article on the New York Bank Statement, a few pages hence. Periods of depression and periods of prosperity in the past often could have been anticipated by a study of the ratio of "Cash" to "Deposits." Whenever there has been a great decline in the ratio of cash to deposits or aggregate resources, there has always followed a period of contraction of credits; and conversely as this ratio increased, lower interest rates have always followed. The following table shows the ratio of cash to the deposits of the Na- tional, State, Savings and other banks and trust companies from 1865 to and including June 30, 1909. THE RATIO OF CASH TO NET DEPOSITS IN BANKS OF THE UNITED STATES. Ratio of Cash Individual Total Cash in to Individual Deposits Banks Deposits $ 641,000,000 $199,400,000 31.11 815,800,000 231,900,000 28.30 876,600,000 205,600,000 23.45 968,600,000 200,700,000 20.72 1,032,000,000 162,500,000 15.74 1,051,300,000 187,700,000 17.85 1,251,600,000 194,000,000 15.5 1,353,800,000 177,600,000 13.12 1,421,200,000 218,200,000 15.35 1,526,500,000 252,200,000 16.52 1,787,000,000 238,700,000 13.36 1,778,600,000 226,400,000 12.73 1,813,600,000 230,500,000 12.71 1,717,400,000 214,600,000 12.50 1,694,200,000 216,300,000 12.7 7 1,951,600,000 285,500,000 14.63 Xo. of Banks Year Reporting 1865 1,960 1866 2,267 1867 2,279 1868 2,293 1869 2,354 1870 2,457 1871 2,796 1872 3,066 1873 1,968 1874 1,983 1875 3,336 1876 3,448 1877 3,384 1878 3,229 1879 3,335 1880 3,355 228 BUSINESS BAROMETERS. Ratio of Cash No. of Banks Individual Total Cash in to Individual Year Reporting Deposits Banks Deposits 1881 3,427 $2,296,800,000 $295,000,000 12.84 1882 3,572 2,460,100,000 287,100,000 11.65 1883 3,835 2,568,400,000 321,000,000 12.50 1884 4,111 2,566,400,000 321,200,000 12.51 1885 4,350 2,734,300,000 414,300,000 15.15 1886 4,378 2,812,000,000 375,500,000 13.00 1887 6,179 3,308,200,000 432,800,000 13.09 1888 6,647 3,422,700,000 446,100,000 13.03 1889 7,203 3,778,100,000 499,100,000 13.21 1890 7,999 4,062,500,000 478,300,000 11.77 1891 8,641 4,796,800,000 479,100,000 11.41 1892 9,338 4,664,900,000 568,400,000 12.58 1893 9,492 4,627,300,000 515,900,000 11.15 1894 9,508 4,651,200,000 688,900,000 14.81 1895 9,818 4,921,300,000 631,100,000 12.82 1896 9,469 4,945,100,000 531,800,000 10.84 1897 9,457 5,094,700,000 628,200,000 12.33 1898 9,485 5,688,200,000 687,800,000 12.09 1899 9,732 6,768,700,000 723,300,000 10.69 1900 10,382 7,238,900,000 749,900,000 10.36 1901 11,406 8,460,600,000 807,500,000 9.54 1902 12,424 9,104,700,000 848,100,000 9.31 1903 13,684 9,553,600,000 857,200,000 8.97 1904 14,850 10,000,500,000 990,600,000 9.90 1905 16,410 11,350,700,000 994,100,000 8.76 1906 17,905 12,215,800,000 1,016,400,000 S.52 1907 19,746 13,099,600,000 1,113,700,000 8.51 1908 21,246 12,784,511,169 1,368,300,000 10.70 1909 22,491 14,035,500,000 1,452,000,000 9.74 It is very interesting to note that the ratio of "Cash" to "Deposits" decreased in 1891 to prac- tically the lowest figure known up to that time, and in 1893 to a still smaller figure, just before the panic of 1893. As in the case of all panics, this resulted in the calling of loans and the immediate strength- ening by the banks of their cash resources, so that in 1894 this ratio had increased more than 32%. In the following year the ratio again dropped 13%. From 1897 it continued to fall until the next very low point reported, namely, for the year ending «'- o tt . 1- © 10- •« o N - --«« 6 u a i If s > o z "^•^, \ f s 2 O \ ^ h i to ^ \ I lit 5 <. 6 3 J 3 -> ?\ J 3 Z > S t < l!i .r^ Z 3 -W^ ^ t i W 1 X o 5 ^1 / I e u b. f Q if Z ^ ^ ^ > i Z < 2 o ^ / J o us Q > O 2 4l k- ■ 'Il ■ K s s» ■^ ^\ ^ 'i 0. "^ ^ 8. 3 ^ c:^ Us«^ \ / c 3 J 3 / )A\ p»"'~ J 3 Z 3 ^J Y \ Z 3 > < asE. f »."„^ «% 1 5- < < V f\ S j^ / k o d ^ 2 1 » \ u. 1 11 z o © 9 -^X— ~ ffl <♦ n ™i - .-- ill H b3 nj «^« 00t"J3 ** o 2 « fl s .<« S! ra^ g etf O ttj ^ « 5 4> "• MONETARY CONDITIONS 229 June 30, 1903. At that time, experts in these mat- ters pubhcly prophesied a panic followed by a period of depression and, true enough, the following year it came, — the panic of 1903. "Resources" in 1904 were strengthened somewhat, but the im- provement was not enough to restore the banks to a healthy and normal condition. In fact, the ratio was very low from 1904 to 1907, so that, instead of the customary number of years of prosperity before another depression, the country saw a change for the worse in 1907. If the depression of 1903 had lasted long enough to enable the banks sufficiently to increase their cash resources, improvement would probably have gone on until 1912 or 1913; but as the banks did not have time to recuperate, another depression within a few years was inev- itable. This came in 1907-8, and should "Cash" again decrease too rapidly, another pause may be looked for. The figures in the table given above are for the entire country, and a study of them is very suggest- ive. As they in general are similar to those out- lined in the paragraphs on "Loans," they need not be described further here. When studying the ratio of "Cash" to "Deposits," one must not only note this ratio, but must also keep in mind the aggregate of cash and the aggregate of deposits. Very largely upon this relation does the "price of money" or the rate of interest depend. The accompanying chart shows this range of rates of interest during and after four great panics. Such a plot corresponds almost identically with one based 230 BUSINESS BAROMETERS on the relation of "Cash" to "Deposits," excepting that one plot is the reciprocal of the other. The following conclusions relative to the ratio of "Cash" to "Deposits" are suggested: (These general principles also apply to the ratio of "Cash" to "Aggregate Resources.") 1. During a Period of Business Depression. (a) After money has been cheap for some time, accompanied by large cash figures, a con- tinued increase in the ratio of "Cash" to "Deposits" signifies that business remains at a standstill. (b) A decrease — under the above conditions — may be a good sign, showing that business is re- viving. (c) No change signifies that conditions are stationary. 2. During a Period of Improvement Following a Period of Business Depression. (a) After money rates have been very low for some time, a further increase in the ratio of "Cash" to "Deposits" often means that there has been an- other recession in business. (b) A decrease under such conditions usually signifies renewed activity. (c) No change signifies a period of hesita- tion. 3. During a Period of Prosperity. (a) An increase in the ratio of "Cash" to "Deposits" tends to prolong the period of pros- perity. (b) A decrease tends to shorten the period of prosperity. MONETARY CONDITIONS 231 (c) No change signifies a period of hesitation. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase in the ratio of "Cash" tends to delay the depression. (b) A decrease is very unsatisfactory. (c) No change signifies nothing of impor- tance. DEPOSITS OF THE BANKS The rule governing the ratio of "Cash" to "De- posits" holds good, except when deposits are in- creasing too rapidly, owing to increased prices of securities, real estate and commodities. Beside studying the ratio which we have described, the deposits should be watched especially for increases. The weekly statement of the New York banks will serve this purpose, although the fact that the re- serve exceeds the deposits is not sufficient for safety. Deposits should not increase too rapidly. A very simple illustration shows how large de- posits may be reported at considerable risk, but without any intentional misstatements of facts. i\ few years ago a miser died in a certain town which may be called Graniteville. The executor of his estate found $5,000 in gold stored away in the house, and deposited it with the Graniteville Trust Company, thereby increasing the deposits of that company by $5,000. Shortly after, John Smith borrowed of the trust company $4,500 of the amount deposited in order to buy stone with which to build a block of buildings. The local granite company, 232 BUSINESS BAROMETERS having outside income sufficient to pay its operating expenses, deposited the entire S4,500 received from Smith with the Graniteville Trust Company; so the deposits of the trust company became S9,500 greater. Soon after Mr. Jones came into the bank and borrowed S-l:,200 with which to buy stone to build a block in another part of the town, and upon receipt from the granite company of Jones' S4,200 the granite company made another deposit with the trust company increasing the deposits to 813,700. The following day a Mr. Brown, by means of a loan from the trust company, bought stone, and the granite company further increased its deposits to 817,500. This same method of procedure was con- tinued until the 85.000 in gold which was originally deposited resulted in increasing the deposits of the trust company by 850,000 and the loans by 845.000. ^Moreover, this 85.000 enabled the granite company to suppose it had 845,000 in cash on deposit in the trust company, and provided for the building of several stone blocks in the city. In other words, the deposit of this 85,000 in gold resulted in creating an apparent wealth in Graniteville of over 8100,000. This story shows not only the risks of great in- creases in "deposits," but also the importance of gold importations in times of stringency, owing to the advantage of having on hand as much currency as possible. When the miser's estate was settled, this 85,000 was turned over to his only daughter, who had the same hoarding disposition as her father. She im- MONETARY CONDITIONS 233 mediately withdrew the $5,000 from the Granite- ville Trust Company and placed the same in a safe- deposit box with the following result. The Gran- iteville Trust Compan}-, in order to show its proper Surplus Reserve, was obliged to demand payment of all the loans made to Smith, Jones, Brown, and the other men. In order to pay these loans, all of these men were obliged to sell the buildings which they had erected and, in order to protect the price of granite, the granite company was obliged to pur- chase these buildings, which necessitated the with- drawal of their deposits from the trust company. Thus the withdrawal of this $5,000 in gold resulted in a 850,000 decrease in the deposits of the trust company, caused the $45,000 of cash assets of the granite company to vanish, and caused half a dozen or more citizens to lose their property, and possibly enter bankruptcy. The principle should be clearly kept in mind when studying the "Deposit" item of the New York Bank Statement. Large ** Deposits" are not neces- sarily a healthy sign. Neither are very large or very small "Deposits" normal. The best bank statement is the one where the figures for "De- posits" are normal and bear a proper relation to "Loans," thus showing a proper "Surplus Reserve." The exact meaning of these various terms as used in the above-mentioned Bank Statement (which is issued every Saturday at eleven in the morning, showing the condition at the close of business on Friday) is as follows, according to a valuable pam- phlet published by Sig. Rosenblatt & Co. 2 34 BUSINESS BAROMETERS ''Loans and Discounts: Comprising loans, discounts, stocks, bonds and mortgages owned by the bank. Specie : Comprising gold and silver coin. United States and Clearing House certificates, and United States silver certificates. Legal Tender Notes: Comprising United States legal tender notes of all issues. Circulation : The amount outstanding. Deposits : Gross deposits and unpaid dividends less ex- changes for the clearing house, amounts due from other banks for collection, notes of other banks and checks on non-clearing institutions in the city of New York. "The item of loans and discounts, it will be no- ticed, represents, aside from notes, drafts or any instrument upon which funds have been loaned out by the bank, also United States bonds held as se- curity for circulation and for deposits of public money, and the stocks, bonds, mortgages, and syndicate investments of both state and national banks. Therefore, changes in circulation may very often appear also as a change in loans, since pur- chases by the banks of bonds alwa3's increase the loans; and sales of bonds decrease the loan account, if the proceeds are not loaned out or other securities purchased. "It must be kept clearly in mind that all items MONETARY CONDITIONS 235 of the weekly statement are made up by averages. There are two ways to make up these averages, but neither one gives a clear picture of the condition of the bank: one way is to add the figures at the close of each day's business and divide the total by the number of business days in the week. Another way is to multiply each of the first day's items by the number of business days in the week, and each subsequent day's items by one less, and then add them and divide the total by 21 for a six-day week and by 15 for a five-day week. As both of these ways are more or less inaccurate, the changes shown by the bank statement seldom agree with the changes indicated by the reported movement of money. "The surplus against all deposits is computed by subtracting one-quarter of the net deposits from the cash held. This has to be done, as the main reserve banks are required by law to keep a reserve of 25% against their deposits. This is true so far as it concerns the total surplus. The surplus against deposits other than the United States de- posits is computed by deducting from a quarter of the total deposits 25% of the United States deposits and subtracting the remainder from the cash held. "As an example take the New York Clearing House Statement for the week ending Friday, February 15, 1909, 48 banks reporting: Total capital of all institutions. $ 124,350,000 Net profits of all institutions. . . 159,561,100 Loans average 1,135,248,200 236 BUSINESS BARO.METERS Specie average $253,424,200 Legal tender average 60,503,300 ^Deposits average 1,132,309,100 Circulation average 66,723,500 In order to find out the surplus reserve against all deposits, com- pute on the net deposits amount- ingto $1,132,309,100 25%. equal to 283,077,275 The actual reserve, consisting of legal tenders and specie as above, amounts to $313,927,500 Less the reserve required 283,077,275 Leaving a surplus of 30,850,225 To find the surplus against de- posits other than Ignited States deposits, take the total deposits of $1,132,309,100 Deduct U. S. deposits of 59,495,300 Leaving net deposits of 1,072,813,800 25% reserve required 268,203,450 Reserve held 313,927,500 Surplus 45,724,050 "Percentage of reserve held by banks was 27.72% (25% required), and the surplus above that amounted to $45,724,050. "The above shows how the bank statement ap- peared formerly. The question immediately arises whether the statement issued by the banks com- prising the clearing house, together with the non- members' statement, Avould give an actual picture of the banking power of New York City. The *United States deposits included, amounting to 859,495,300. ^lONETARY CONDITIONS 237 answer is no, inasmuch as the trust companies are not included in the statement. However, it is now possible to acquire a comprehensive knowledge of banking conditions in Greater New York be- cause of the publication of the actual as well as the average condition of the Clearing House banks, and the compilation under direction of the State Superintendent of Banks of the average institu- tions under his control, not reporting to the Clear- ing House. These statements are: "1st. Clearing House members average state- ment. 2nd. Clearing House members actual statement. 3rd. Average of other banks and trust compan- ies not in the Clearing House. 4th. Aggregate average. "In order to make the compilation still clearer, the Superintendent issues a separate summary of weekly statements of all state banks and trust companies. "It must be borne in mind that the percentage of reserve of Clearing House banks represents actual cash in bank, while only 5% of cash is required of trust companies, the remainder being either certain bonds or deposits in other institutions. "In spite of there still being some weak points in the compilation of the statement, as for instance that the averages are not figured in the same way by all institutions, and also that in the item "Loans and Discounts" there are included investments, such as stocks, bonds and mortgages, which, in fact, should not be included in the loan 238 BUSINESS BAROMETERS item, we may be very well satisfied with the state- ment as now issued. It is highly to be appreciated that our banks and trust companies have so readily acceded to the demands of the public." The following conclusions relative to Bank De- posits are suggested: 1. During a Period of Business Depression. (a) An increase is to be expected. (b) Decrease signifies that business may be improving. (c) No change signifies continued dullness. 2. During a Period of Improvement Following a Period of Business Depression. (a) An increase is to be expected. (b) A decrease may signify a temporary re- cession. (c) No change signifies nothing of importance. 3. During a Period of Prosperity. (a) A large increase may signify that under- lying conditions are becoming unsound. (b) A large decrease may also call for cau- tion. (c) No change signifies nothing of impor- tance. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase tends to shorten the period of depression. (b) A decrease tends to lengthen the period of depression. (c) No change calls for special watchful- ness. MONETARY CONDITIONS 239 SURPLUS RESERVES OF THE BANKS The figure for "Surplus Reserve" as given in the New York Bank Statement often indicates: (a) The Price of Money. (b) The Supply of Money. The price is determined by the relation of the sup- ply and the demand; that is, when more persons wish to borrow than to loan, interest rates advance; and when a larger number wish to loan than to bor- row, the supply is greater than the demand and in- terest rates decline. For this reason money rates are usually high during the periods of business ac- tivity and low during periods of depression. The price of money, however, is not as important a factor as the supply. In other words, provided the merchant can obtain the money when needed and in sufficient quantities, an abnormal interest-rate is less harmful in its effects than the inability to get money at all. A variation in the rates for borrowed money has a more direct effect upon the market for stocks and bonds than upon the market for merchandise. When the speculator can borrow^ money at three or four per cent, to purchase securities paying five or six per cent., the temptation is to borrow and make the purchases, thus increasing the demand and con- sequently the market price for the securities. Under such circumstances, there is a profit on the "interest account," even though there is no increase in the value of the investments. On the other hand, this increased incentive to purchase does not exist when money commands six or seven per cent and secu- 240 BUSINESS BAROMETERS rities are selling on a four or five per cent basis, for then the "interest account" shows a loss. Those who have securities upon which they are borrowing money are tempted to sell them in order to stop the loss in interest. Consequently, the supply of se- curities exceeds the demand and the price declines. As previously stated, this question of "interest rates" is entirely secondary to the question of "sup- ply." It is not interest rates that cause the mer- chant to fail or the speculator to sacrifice his stocks, but rather the inability of either to renew loans on any terms whatever. Many great periods of de- clining prices have been solely due to this cause, namely, a lack of supply of money, and the specu- lator is not the only one to feel the effect of such times. The New York Bank Statement, used in con- nection with the Comptroller's Reports and Foreign Money Rates, forms the best barometer of the supply of money. As to the current price of money, this may be definitely determined each day by referring to the money articles on the financial page of most daily papers. The figures under what is known as "call rates" or "call money" denote the rates which the stock exchange houses and bond dealers are re- quired to pay for money on loans which may be called any day and on which the rates may change from day to day. Sometimes this figure is more and sometimes less than the figure for "time-rates." "Time-rates" apply to loans maturing at a fixed date, such as six months or a year. When the MONETARY CONDITIONS 241 bankers having money to loan think that all rates are to strengthen in the near future, then the call- rate is less than the time-rate, and when the bankers having money to loan think that all rates are to decrease in the immediate future, then call-rates are higher than the time-rates. Some of the shrewdest borrowers take time money when the bankers are encouraging the people to take call money, and vice versa, on the principle that the bankers know more about the situation than their customers. However, this question of money rates is too complicated to present here in detail, espe- cially since as has been stated, the price of money can be easily ascertained at any time by referring to the daily papers. The supply of money is the most vital question as, unlike the price, it is not so subject to manipu- lation. This supply, as above stated, is best indi- cated by the New York weekly bank statement. This is simply a statement of the New York banks and does not include statements from any of the other twenty thousand banks in the United States, nor the great banking institutions of foreign coun- tries. The need of a complete weekly bank state- ment is already felt. The New York bank state- ment is already being made to include certain out- side banks, and without doubt the time is coming when all of the large banks in this country will re- port their condition by telegraph every Saturday morning, so as to give a combined statement. This will probably be followed later by the banks of ever^^ country reporting their conditions by cable to Lon- 242 BUSINESS BAROMETERS don. This will give a bank statement which will show the exact financial situation and enable one to note the amount of available money as quickly and as certainly as he may now note the rate of in- terest. Until such a time comes, however, the New York bank statement, issued every Saturday noon, is the best barometer we have for judging present conditions. In reading the bank statement one of the main points to note is the amount of "Surplus Reserve." Two items are always given here: "Reserve Re- quired" and "Reserve Held." It should always be observed whether the "Reserve Held" is greater or less than the "Reserve Required." If the "Reserve Held" is greater, then there is a "Surplus Reserve," but if not, then there is a "Deficit," which is a danger signal to all interested in financial or mercantile affairs. Since a "Deficit" occurs, as a rule, only just preceding times of panic, possibly for a few weeks out of two or three years, the mer- chant should notice each week, as he reads the bank statement, whether or not the "Surplus Reserve" is decreasing or increasing. So long as the "Surplus Reserve" decreases, a corresponding increase in money rates may be ex- pected; but if the "Surplus Reserve" increases each week, a decrease in money-rates may follow. Since the demand for stocks usually increases as the in- terest rate decreases, money and the stock market often strengthen with the publication of what is known as a "good bank statement," namely, a bank statement which shows an increase in the MONETARY CONDITIONS 2-i3 "Surplus Reserve." On the other hand, as an in- crease in money rates usually forces a sale of stocks, due to the calling of the loans, a "poor bank state- ment" is often followed by a drop in the market prices. When the bank statement is published on Saturday, the increase in interest rates cannot come until the following Monday, or possibly later, but the speculator anticipates this by selling on Saturday immediately upon the publication of a very poor statement. The first sellers after a poor bank statement are supposed to obtain the best prices, and the first buyers after a very good bank statement are supposed to obtain their securities at the lowest prices. The word "surplus" implies a difference between two items; thus an increase in surplus may be due either to a decrease in one of the items, or to an in- crease in the other. The last bank statement is the one where the increase in "Surplus Reserve" is due to a reduction in loans with increased de- posits. All merchants should keep a monthly record of the ''Surplus Reserve'' as per the first day of each month. The following conclusions are suggested relative to the "Surplus Reserve." 1. During a Period of Business Depression. (a) An increase signifies lower money rates but continued dullness. (b) A decrease signifies higher money rates but improved conditions. (c) No change signifies continued dullness. 244 BUSINESS BAROMETERS 2. During a Period of Improvement Following a Period of Business Depression. (a) An increase signifies that the recovery in business is not very marked, and that continued low money rates may be expected. (b) A decrease signifies continued improve- ment and is always the forerunner of higher money rates. (c) No change signifies uncertainty. 3. During a Period of Prosperity. (a) A great increase signifies that prosperous conditions may be expected to continue, with no change in money rates. (b) A great decrease is often a danger signal and is always the forerunner of higher money rates. (c) No change may signify either condition. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase tends to prolong present con- ditions and to lower money rates. (b) A decrease is a sign that conditions are growing worse and that higher money rate may be expected. (c) No change signifies uncertainty. In this connection the following from an article by George H. Johnson appearing in Van Norden's Magazine relative to "Clearing House Certificates and their Effect on the Stock Market" is of interest: "An issue of Clearing House Certificates was authorized by the Associated Banks of New York City for the ninth time in their history, and the fifth time since the Civil War, Saturday morning. MONETARY CONDITIONS 245 Oct. 26. 1907. These certificates are a kind of emergency currency; they have never been author- ized by law, and are used only between banks; they stand midway between promissory notes secured by collateral and asset currency. New currency legislation is sure to be a prominent subject in the next session of Congress, because the dangerous lack of elasticity in our present currency was never more evident than in the scramble for money which swept over the country this fall.* Some kind of heavily taxed asset currency which can be issued by banks as needed to meet legitimate demands will prob- ably be the solution found for this difficult prob- lem. A study of Clearing House certificates and their effect on business and the markets, as shown in the past, is therefore timely in view of pending legislation, and also as illuminating the present ex- traordinary but not unprecedented financial situ- ation. "The first time such certificates were authorized was in November 1860. Banks in different states had then just suspended payments. November 12th there was a panic on the Stock Exchange, with declines of from 8 to 12 points in the prices of stocks. With a view to stopping the panic the New York banks decided to be more liberal in making loans. To increase their resources they appointed, November 21st, a committee of the Clearing House to receive from banks in their membership, and hold for them. New York and United States government bonds, and to issue therefore certificates for 75 per cent, of their *Thefallof 1907. 246 BUSINESS BAROMETERS value which would be accepted at the Clearing House in pa^^ment of balances. To insure the redemption of this paper as soon as the emer- gency past, the holders were charged 7 per cent, interest. The plan was successful in stopping the panic. A period of liquidation ensued. From January 5 to August 17, 1861, the specie deposits doubled and the bank loans were reduced from $129,000,000 to $108,700,000. "Within a few months thereafter the Associated Banks of New York, at three different times, issued Clearing House certificates to enable them to sub- scribe for new issues of United States bonds which could be paid for only in specie. The certificates then issued from patriotic reasons, and all those subsequently issued in times of panic, have been of substantially the same form as those first issued in 1860; but since 1873 the rate of interest has been 6 per cent. "The statistics of these issues by the Associated Banks of New York City are given in the following table: CLEARING HOUSE CERTIFICATES ISSUED IN NEW YORK Yea/- 1860 1861 1863 1864 1873 1884 Date of First Issue Nov. 23 Sept. 16 Sept. 15 Feb. 29 Sept. 22 May 15 Nov. 12 June 21 June 21 Date of Final Cancellation Mar. 9, 1861 Apr. 28, 1862 Feb. 1, 1864 June 13, 1864 Jan. 14, 1874 Total $ 7,375,000 22,585,000 11,471,000 17,728,000 26,505,000 24,915,000 16,645,000 41,490,000 Maximum Out- standing at any Time $ 6,860,000 21,960,000 9,608,000 16,418,000 22,410,000 21,885,000 15,205,000 38,280,000 1890 1893 1907 Feb. "7, Nov. 1, 1891 1893 .AIOXETARY CONDITIONS 247 "In 1873 the Philadelphia Clearing House issued certificates to the amount of $6,785,000 and in 1890 to the amount of $8,870,000. "In 1893 Philadelphia issued Clearing House certificates June 16, and had outstanding $10,- 965,000 on August 15. Boston & Baltimore is- sued such certificates June 27, and a month later had outstanding a maximum of $11,445,000 and 81,475,000 respectively. The Pittsburg issues amounted to only $987,000. These are the only Clearing House certificates reported by the Comp- troller of the Currency that year; but then, as at the present time, some form of certificate of this character was issued in nearly every considerable city in the country. "The most prominent cause of nearly every crisis, both abroad and in this country, similar to the one through which we have just passed, has been the rapid absorption of capital in new enterprises — par- ticularly those not at once productive. "The great panic of 1873 followed the extensive building of the Northern Pacific and other rail- roads through an unpopulated country. The cost of railroad construction in this country during the five years preceding 1873 was estimated at $1,700,- 000,000. Then the granger laws, which had re cently been enacted, w^ere regarded by many as eftecting a virtual confiscation of railroad property. Under these conditions the underwriters of the bonds issued to pay for new construction found at last that the public would not buy them. The re- sult was the failure, September 18th, of the banking 248 BUSINESS BAROMETERS house of Jay Cooke & Company, followed within two days by the failure of several other large bank- ing and brokerage houses. Prices of stocks fell 20 or 30 points, and the Stock Exchange, for the first time in its existence, suspended business because of the panicky conditions and did not open again for a period of ten days. In other re- spects the conditions in September, 1873, were similar to those in October 1907. The coun- try banks then, as this year, drew on their deposits in New^ York, and when the New York banks could not satisfy this demand for currency the country banks in turn could not satisfy their correspondents and depositors; and so there was a partial or entire suspension of payments in legal currency which con- tinued for forty days. Legal tender notes command- ed a premium over certified checks ranging from one-fourth of one per cent, to three per cent., until the New York banks had extensively reduced their loans and resumed currency payments, November 1st. A long liquidation followed which lasted four or five years. From the lowest panic prices of 1873 it took twenty-three months for the average price of active stocks to gain seven points and that was the highest level reached within five years after the panic. "From 1878 to 1881 there was a rising market and extensive railroad construction. Then began the great decline which ended in the panic of 1884. Again investors were asking whether the value of their securities had not been permanently affected by the hostile legislation of Congress and the states. MONETARY CONDITIONS 249 and this anxiety was accompanied with great dis- trust of corporate management. The market was congested with railroad securities. A large number of mercantile failures in 1883 and the first quarter of 1884, and several railroad receiverships, caused a general feeling of apprehension which culminated May 6 in the failure of the Marine Bank and the firm of Grant & Ward. Many other failures oc- curred through May and June. May 14 it was prac- tically impossible for the banks to collect on their call loans, as the borrowers could obtain money only by the sale of their securities at ruinous prices. In the afternoon of that day the New York Clearing House again authorized the issue of certificates to enable them to make loans. This measure was not adopted by any other city at this crisis, although monetary disturbance and many failures occurred all over the country. This crisis seems to have been even more unexpected by the country than that of 1873, and it proved to be not of long duration. Prices of stocks declined still lower in June, but the banks in New York were showing rapid improve- ment, and by the end of June nearly all the certifi- cates except those held by the Metropolitan Bank had been retired, and the surplus reserves rose to $13,121,625. "The panic in the fall of 1890 was preceded by the Baring failure in London which was caused by immense undertakings in South America. For sev- eral weeks in November call money in New York often commanded the equivalent of 186 per cent, per annum. Clearing House certificates were is- 250 BUSINESS BAROMETERS sued November 12th but decided improvement in the stock market did not begin until the 20th; within the next nine days great strength developed, leading stocks advancing from 5 to 8 points. De- cember 4th the Bank of England reduced its dis- count rate from six to five per cent., thus virtually proclaiming that the panic was believed to be past. But although Clearing House certificates had been issued in Philadelphia and Boston, as well as New York, the banks again had a deficit in their reserves, call rates went to 186 per cent., and many new low records were made on the Stock Exchange. "The panic of 1893 was chiefly due to a fear of change in the standard of money and this caused a general hoarding of gold. It was preceded by a banking panic in Australia. "Currency became so scarce that Clearing House certificates were issued in New York City on June 21, and in other cities shortly after to the ag- gregate amount of tens of millions of dollars; but conditions did not improve until nine weeks later. Meantime banks were failing all over the country, currency was at a premium ranging from one to seven per cent., and cash payments were compara- tively rare. After the House of Representatives voted August 28 for the repeal of the silver purchase law the whole situation changed. The currency famine and high interest rates had stimulated the importation of gold and the increase in national bank circulation. The reaction was inevitable. In December the call rate for money declined to three- fourths of one per cent. 1873 imm fimm of the figures of al Add. Mem- Total bers by New Profession Members 7,468 5.522 ang to their complete reports ear to another would be true 1 denominations.) 6,196 7,765 9,032 11,030 11,249 19,127 16,432 15,167 13,501 13,271 13,945 13,216 15,279 14,821 12,151 12,629 14,378 15,809 18,442 19,994 30,210 28,246 27,373 25,137 25,394 24,620 27,300 Additions by Profession per 100.000 Population 2 Persons 1 1 2 3 3 4 5 Prosperity 4 _ " ' 4 DecHne 3 " 3 " 3 " 2 3 Decline Depression Prosperity Decline . . Depression Improvement Depression SOCIAL CONDITIONS 355 Year No. of Add. Mem - Total Additions by to Chur- bers by New Profession per July ches Profession Members 100,000 Population 1875 3,437 17,306 29,645 Depression . . . . 4 Persons 1876 3,509 20,844 33,294 " . . 5 1877 3,564 24,138 35,111 " . . 5 1878 3,620 20,498 31,735 Improvement . . 4 1879 3,674 16,689 27,506. ' ' . . 4 1880 3,745 12,230 22,749 Prosperity . . . . 2 1881 3,855 11,311 22,646 " . . 2 ' 1882 3,936 13,539 25,895 Decline ...'.'. '.'.2 1883 4,010 14,800 28,377 Depression . ..3 1884 4,092 17,923 32,055 " ..3 1885 4,170 21,729 37,135 " ..4 1886 4,477 27,166 43,185 Improvement ..5 1887 4,404 41,156 67,530 " . . 7 1888 4,569 25,994 45,036 Prosperity . . . . 4 1889 4,689 29,286 49,859 " . . 4 1890 4,817 27,592 47,782 ' ' . . 4 1891 4,985 30,614 52,086 Decline ..5 1892 5,140 31,582 54,576 " ..5 1893 5,236 34,444 57,561 Depression . ..5 1894 5,346 38,853 62,946 " . . 6 1895 5,486 35,327 57,932 " ..6 1896 5,546 32,147 54,640 Improvement ..5 \ 1897 5,614 31,090 52,211 " . . 4 1 1898 5,620 25,189 44,492 Prosperity . . . . 3 1899 5,604 24,514 44,185 " . . 3 1900 5,650 27,101 48,602 " . . 3 1901 5,753 28,398 49,879 " . . 3 1902 5,821 29,195 51,627 Decline ..4 1903 5,900 29,403 51,521 Depression . ..5 1904 5,919 30,193 53,198 Improvement ..4 1905 5,931 34,881 57,722 Prosperity . . ..4 1906 5,923 32,890 56,543 " . . 4 1907 5,989 34,642 59,346 Decline . . 4 1908 6,006 35,100 59,792 Depression . . . 4 CHAPTER IX A TALK OX COPPERS AS seen in preceding chapters, the laws of trade and finance necessitate a fluctuation in the price of all staple commodities. The tendency of the price of many commodities is up- ward. This is owing to several causes, among which may be mentioned the increased supply of gold, the increased price of labor and the in- creased consuming power of the people. There is a constant increase in demand which the increase in supply does not fully equal. When, however, this course of prices is represented graphically, it will be found that the lines are not straight, but ''zig-zag." Although each low point may not be as low as the preceding low points and the general tendency may be upward, yet there is a continual fluctuation. A careful study will further show that these abrupt changes occur at intervals of every few years and are as certain to come as the summer and the winter. Many reasons to prove this latter statement may be oft'ered, but we will confine ourselves to one. If any one commodity continued always to increase in price, without the fluctuation above mentioned, the tendency would be for every one to enter the business of manufacturing, selling or investing in that one commodity. Of course there is a great dift'erence in the fluc- tuations of difterent commodities as some com- A TALK ON COPPERS 357 modities fluctuate in price much more than others ; and it is more difficult to understand the laws affecting the fluctuation in the prices of some com- modities than of others. But it is possible to see the general trend of all prices taken as a group. As the country passes from periods of prosperity to periods of depression and vice versa, the general average price of commodities fluctuates as well as the price of stocks. Therefore it is very important to the investor to anticipate changes in business conditions by ob- taining and studying the necessary statistics. Like the farmer, the investor must be first willing to purchase and plant the seed before expecting to reap a harvest. The majority of investors have not enough patience to spend money in obtaining data and w^ait for results which are not immediate. There are also a great many people who, although believing that prices must be lower in a year or so, have not sufficient self-control to wait a year be- fore investing a given amount of money. Money ''burns in their pockets," and, as soon as they accumulate a certain amount, they seem deter- mined to invest it, even though they know that by depositing it in a bank and waiting they can pur- chase the same security for one-third of the price later on. The same class of people are also the ones who have not sufficient self-control and energy necessary to sell their securities in times of great prosperity. To those, however, who are willing to spend money in accumulating the necessary data and 358 BUSINESS BAROMETERS who have the self-control to act in accordance with their better judgment, the opportunities to make money are unlimited. Such persons can, more- over, confine themselves to absolute and outright cash purchases and invest in only the most con- servative stocks, based on standard commodities. We cannot here study the application of the above theory to all classes of commodities and all classes of stocks. Therefore, as an illustration, only one application will here be considered; namely, that of purchasing and selling high grade standard divi- dend paying copper stocks in accordance with the market price of copper. Instead if endeavoring to explain the details of the system as used in purchasing steel stocks, cotton mill stocks, and other securities, the point of this chapter is to show how it works with one single commodity such as copper. There are two main requirements :-^/zr5/, that one must keep in constant touch with business conditions; and secondly, that one must ahvays keep informed of the best mines, realizing that the low points and the high points change from one year to another. It is impossible for a broker to give a rule such as that copper stocks should be sold when the price of metal is above 24 cents and bought when the price of metal is below 14 cents; for one year 24 cents may be high and another year it may not be high. Moreover, the safest stocks today may not be those in which it was best to invest a few years ago. It therefore is necessary to obtain data on these points from some reliable agency operated A TALK ON COPPERS 359 for the purpose. The press cannot be rehed upon for this information, for reasons that can be readily understood. It is impossible for the press always to state the facts especially when the outlook is un- favorable. One can best obtain an idea as to whether the present price of copper is low or high from a study of fundamental statistics. Tables showing the high and low prices of the metal, over a long period of years, should, of course, also be studied; but these figures are not nearly so important as figures on "Clearings," "Failures," "Foreign Trade," etc., by which the movement in the price of metal may be forecasted. The price of the metal bears the same relation to the price of copper stocks as railroad earn- ings bear to the price of railroad stocks. After the price of the metal publicly changes, it is too late to trade in the stock. In order to successfully trade in the stock, one must, therefore, forecast changes in the price of the metal. This can be done only by a study of fundamental statistics relating to general business conditions. The next difficulty comes in selecting a list of mines in which to invest. The following table gives a list of fifteen copper companies and what we believe to be their maximum rate of dividend, based on copper at 24 cents a pound. The table shows also what the companies would theoretically earn with copper at 18 cents a pound and under. These figures are not exact, as they are based on the as- sumption that the cost per pound will be constant, whatever the output, when in reality the smaller 360 BUSINESS BAROMETERS the output, the greater the cost per pound.* These figures therefore may be taken as maximum figures throughout. Maximum Div. Rate 18c 17c 16c 15c 14c. Cal. &Hec. ...$80 $98.53 $88.42 $78.32 $68.21 $58.10 Cal.&Ari 20 23.42 21.05 19.67 17.70 15.92 Wolverine 20 18.56 16.94 15.33 13.71 12.10 Granby 12 14.23 12.77 11.31 9.85 8.39 Osceola 14 15.46 13.53 11.60 9.67 7.74 Amalgamated.. 8 12.37 10.92 9.46 8.01 6.55 Utah Con 6 8.03 7.41 6.79 6.17 5.56 No. Butte 8 8.63 7.81 6.98 6.16 5.34 Quincy 18 12.09 10.36 8.64 6.91 5.18 Cop. Range ... 8 7.60 6.75 5.91 5.07 4.23 Mohawk 10 6.99 6.05 5.12 4.18 3.25 Anaconda 7 6.33 5.54 4.75 3.95 3.17 Butte Coal 2 2.00 1.75 1.50 1.25 1.00 Shannon 2 2.00 1.59 1.20 .80 .40 Tamarack 8 9.33 7.00 4.66 2.33 .00 Such tables are compiled by taking the present output of the mine and its net cost per pound! of the ore mined. The investor then deducts this cost per pound from the selling price given in the table, ascertains the profit per pound, multiplies the profit per pound by the output, and divides by the number of shares outstanding. There is another factor which enters; namely, that as the price declines the production decreases. Therefore with a price of 14 cents probably only three-fifths as much copper is mined as at a price *This is not absolutely true as tlie price of labor generally decreases as the output decreases. fConsider the present cost, for instance, to Amalgamated as 10 cents; to Anaconda 12 cents; to Calumet and Arizona 7 cents; to North Butte 9 cents. A TALK ON COPPERS 361 of 24 cents, and therefore the figures on the above table should be correspondingly cut down. From the Babson System's cards the output of each mine can be obtained without difficulty, and one can at any time ascertain the relation of the actual output to the maximum output and reduce the figures in the preceding table accordingly. In a broad way, the high-cost producing mine suffers relatively the most by a decline in the metal market, although of course, in the matter of a loss in share earnings, the capitalization must also be taken into account. For instance, take two im- aginary cases. Company No. 1 and Company No. 2 both have the same share par value. The former has 250,000 shares and makes its copper for 8 cents per pound. The latter has only 50,000 shares and makes its copper for 12 cents per pound. We will assume that copper falls from 18 cents to 13 cents and that the production is the same for both com- panies, namely 10,000,000 lbs. With the price of the metal at 13 cents instead of 18 cents, the profits of the first company would be cut in half, or from $4.00 per share to $2.00 while the profits per share of the second company would be only one-sixth w^hat they would be at 18 cents and would drop from $12.00 to $2.00. If, however, the second company had the same capitalization as the first, namely 250,000 shares, then the drop would be from $2.40 per share with copper at 18 cents to 40 cents per share with copper at 13 cents. A fluc- tuation of 1 cent in the price of copper means a difi^erence of 40 cents per share in the profits of 362 BUSINESS BAROMETERS No. 1 and a difference of S2.00 per share to No. 2. Figuring in this manner, a one-cent drop in cop- per shrinks the profits of Anaconda about S3 cents per share, Copper Range about 85 cents, North Butte and Amalgamated about Si. 35. Of course after reaching this point it is possible to go a step further by ascertaining the per cent, earned on the selling price, as well as the per cent, earned on the par value which is ascertained by the above method. Such reasoning results in the following rules for practical investing : 1. Make a list of the standard dividend paying stocks of companies which issue complete reports. 2. Star on this list the names of such companies as are doing a sufficient amount of development work, and which have ore blocked out for a long period of years. 3. Select the stock from among those which are starred which, with copper at a low price, will show the greatest per cent, earned on the selling price of the stock. The result of such analysis clearly shows which is the best single stock to purchase. If there are four or five which figure approximately the same, it is best for an investor to divide his money among them all. It should be remembered that when ascertaining the cost of production, three factors must be con- sidered : — 1 . The pounds of copper per ton of rock crushed. A TALK ON COPPERS 363 2. The cost of supplies, labor, etc., including taxes and all fixed charges. 3. The money spent on development, machin- ery, etc. The first factor is the most important for com- parison purposes, and tables following give a list of the leading mines with the average tons of rock stamped daily, the pounds of copper per ton of rock and the percentage of copper. The second factor is more or less constant with each mine; but the third factor is very different with different mines. This third factor is im- portant, but it is difficult to obtain satisfactory information excepting for the more conservative properties. After obtaining this data, the secret of successful investing depends simply upon purchasing these stocks when fundamental statistics show general business to be in a period of depression and to keep these stocks for a few years, until such time as such statistics show the country to be in a period of great prosperity when the stocks should be sold, although at this time probably the majority of in- vestors are just beginning to purchase stocks. When the stocks have been sold, the money should be deposited in some safe bank or invested on high grade short term bonds, until the price of the metal falls and the country experiences another period of depression . These same or other standard stocks are then again purchased, and in a few years the investor again sells at a huge profit. There is little risk in such a method, if onlvthemost conser- 364 BUSINESS BAROMETERS vative stocks are bought, and there is no reason why any man cannot turn an original investment of about $5,000 into $200,000 within about twenty years, provided he is wiUing to spend ninety dollars a year on collecting and tabulating fundamental statistics. The theory advanced in this chapter is based on the two assumptions that the mines will not become ex- hausted, and that no unforeseen event will make the working of these mines unprofitable. We refer to the physical arrangement of the mines, to the dis- covery of much richer and greater mines in other countries and to the development of some other substance which will supersede copper in the in- dustrial world. Neither of these assumptions need be considered when investing in conservative railroad stocks, as railroads will always be of value both for their tangi- ble assets and for their earning capacity. There- fore, for an investment, the author personally believes that "railroads" are much preferable to *'coppers." Still the latter are often very profitable for speculative purposes; and many, unlike the author, prefer such copper stocks to railroad stocks, owing to their freedom from the effects of undesir- able legislation and certain other unfavorable factors. A TALK ON COPPERS 365 TABLES A\erage Pounds of Copper per Ton under average normal conditions. Tons rock stpd. daily Calumet & Hecla 7,300 Wolverine 1,200 Champion 2,400 Tamarack 1,560 Baltic 2,300 Osceola 2,700 Michigan 540 Trimountain 1,800 Ahmeek 1,400 Winona 320 Quincy 4,100 Isle Royale 500 Mohawk 1,800 Mass 560 Centennial " 700 AUouez 750 Victoria 300 Franklin 1,450 Adventure 340 ^bs. cop- per in rock '^ cop- per in rock 44.8 2.24 30. 1.5 26. 1.3 25. 1.25 22.4 1.12 18. .9 18. .9 17.6 .88 17.14 .857 17. .85 16. .8 16. .8 16. .8 14.8 .74 13.4 .667 13.3 .665 13.2 .66 12.4 .62 12. .6 366 BUSINESS BAROMETERS TABLE OF PROFITS FOR TEX STOCKS LEADING COPPER This table shows how the profits are figured when copper is 13 cents per pound. The same method may be used when it is selling at any other price. Estimate of Aver. Profit Profit Shares average Lbs. cost per lb. per outstanding normal per of pro- on 13c share output share duct copper on 13c Calumet & Hecla . . Calumet & Arizona W^olverine Granby . . . Osceola . . Amalgam- ated . . . Utah Con- solidated North Butte Quincy . . . Copper Range . . Mohawk. . . Shannon. in lbs. per lb. 100.000 90,000,000 900 9 copper 56.00 200,000 60,000 135,000 96,150 3 7,000,000 9,500,000 30,000,000 20,000,000 185 158 121 208 10 08 1,550,000 230,000,000 148 10 3 300,000 400,000 110,000 385,000 100,000 18,000,000 36,000,000 20,000,000 40,000,000 12,500,000 100,000(S10)18,000,000 60 90 182 104 125 60 10.00 4.15 4.45 3.60 3.60 3.64 4.15 4.37 .60 NOTE: — The above table may be carried further by dividing the "profits per share" by the "market price per share." A TALK ON COPPERS 367 TABLE SHOWING RANGE IN PRICE OF LAKE COPPER SINCE 1860 Highest Lowest Year Av. Price Month Price Month 1860 22 24.0 (Jan) to 19.7 (Dec) 1861 22 27.0 (Dec) to 17.5 (July) 1862 21 32.8 (Nov) to 20.7 (May) 1863 33 38.7 (Dec) to 29.0 (July) 1864 47 55.0 (July) to 39.0 (Jan) 1865 39 50.5 (Jan) to 28.0 (July) 1866 34 42.0 (Jan) to 26.5 (Nov) 1867 25 29.2 (Jan) to 21.5 (Dec) 1868 23 24.5 (Dec) to 21.5 (Jan) 1869 24 27.0 (Feb) to 21.5 (Dec) 1870 21 23.3 (Nov) to 19.0 (March) 1871 24 27.0 (Dec) to 21.2 (April) 1872 35 44.0 (Apr) to 27.1 (Jan) 1873 28 35.0 (Jan) to 21.0 (Nov) 1874 22 25.0 (Jan) to 19.0 (Aug) 1875 22 23.8 (Sept) to 21.5 (Jan) 1876 21 23.2 (Jan) to 18.7 (Aug) 1877 19 20.5 (Feb) to 17.5 (Dec) 1878 16 17.6 (Jan) to 15.5 (Oct) 1879 18 21.7 (Nov) to 15.5 (Jan) 1880 21 25.0 (Jan) to 17.8 (June) 1881 18 20.3 (Dec) to 16.0 (July) 1882 19 20.3 (Jan) to 17.8 (April) 1883 16 18.1 (Jan) to 14.8 (Nov) 1884 13 15.0 (Dec) to 11.0 (Dec) 1885 10 11.8 (Feb) to 9.8 (May) 1886 11 12.1 -(Dec) to 10.0 (May) 1887 13 17.7 (Dec) to 9.9 (May) 1888 16 17.6 (Nov) to 15.8 (Jan) 1889 13 17.5 (Jan) to 11.0 (Sept) 1890 15 17.2 (July) to 14.0 (March) 1891 12 15.0 (Jan) to 10.2 (Dec) 1892 11 12.3 (Dec) to 10.5 (Feb) 1893 10 12.5 (Jan) to 9.6 (Aug) 1894 9 10.2 (Jan) to 9.0 (June) 1895 10 12.2 (Aug) to 9.3 (April) 1896 10 12.0 (June) to 9.7 (Jan) 1897 11 12.0 (Jan) to 10.7 (Nov) 1898 12 13.2 (Dec) to 11.0 (Jan) 1899 17 19.3 (Apr) to 13.2 (Jan) 1900 16 17.. 2 (Apr) to 16.0 (Feb) 1901 16 17.0 (Jan) to 13.0 (Dec) 1902 12 13.5 (Feb) to 11.0 (Jan) 368 BUSINESS BAROMETERS Highest Lowest Year Av. Price Month Price Month 1903 13 15.3 (Mch) to 12.0 (Dec) 1904 13 15.3 (Nov) to 12.2 (Feb) 1905 15 18.8 (Dec) to 15.0 (May) 1906 22 25.0 (Dec) to 17.8 (Sept) 1907 20 26.2 (Mch) to 12.5 (Oct) 1908 13 14.4 (Dec) to 12.7 (May) 1909 13 14.3 (Jan) to 12.8 (March) TABLE SHOWING RANGE IX PRICES OF LEADING COPPER STOCKS SINCE 1889 The prices of the leading copper stocks since 1889 have ranged as follows: 1890 AVERAGE 56-87 Osceola ranged from 45 (Sept.) to 32 (Dec.) ; Quincy 130 (Sept.) to 80 (Nov.). 1891 AVERAGE 55-76 Osceola ranged from 40 (June) to 26 (Nov.) ; Quincy 85 (Feb.) to 112 (Aug.). 1892 AVERAGE 82-91 Osceola ranged from 24 (Jan.) to 38 (Nov.) ; Quincy 140 (Dec.) to 145 (Dec). 1893 AVERAGE 65-89 Osceola ranged from 36 (Jan.) to 25 (Aug.) ; Quincy 143 (Jan.) to 105 (Aug.). 1894 AVERAGE 50-76 Osceola ranged from 28 (Apr.) to 19 (July); Quincy 125 (Jan.) to 81 (July). 1895 AVERAGE 41-74 Osceola ranged from 42 (July) to 20 (Dec); Quincy 102 (Mch.) to 170 (July); Wolverine 10 (July) to 3 (Dec). 1896 AVERAGE 43-58 Osceola ranged from 21 (July) to 32 (Nov.); A TALK ON COPPERS 369 Quincy 134 (Feb.) to 104 (Aug.); Wolverine 6 (Jan.) to 10 (Nov.). 1897 AVERAGE 47-63 Osceola ranged from 28 (Apr.) to 42 (Sept.) ; Quincy 129 (Jan.) to 104 (Mch.) ; Wolverine 9 (Apr.) to 19 (Sept.). 1898 AVERAGE 53-91 Osceola ranged from 38 (Mch.) to 87 (Dec); Quincy 105 (Mch.) to 150 (Dec); Wolverine 18 (Mch.) to 38 (Dec). 1899 AVERAGE 51-87 Mohawk ranged from 38 (Apr.) to 14 (Dec.) ; Osceola 105 (Feb.) to 61 (Dec); Quincy 190 (Jan.) to 125 (Dec); Utah Cons. 53 (Apr.) to 21 (Dec); Wolverine 50 (Jan.) to 35 (Dec). 1900 AVERAGE 57-78 Amalgamated ranged from 83 (Jan.) to 100 (Nov.); Mohawk 12 (June) to 28 (Dec); Osceola 58 (June) to 80 (Nov.); Quincy 132 (July) to 178 (Sept.) ; Utah Cons. 38 (Apr.) to 22 (June) ; Wol- verine 36 (June) to 49 (Dec). 1901 AVERAGE 57-99 Amalgamated ranged from 130 (June) to 61 (Dec.) ; Mohawk 22 (Jan.) to 56 (Sept.) ; Osceola 120 (Sept.) to 72 (Dec); Quincy 180 (Apr.) to 125 (Dec) ; Utah Cons. 38 (Nov.) to 19 (Dec) ; Wolver- ine 74 (Sept.) to 44 (Dec). 1902 AVERAGE 47-74 Amalgamated ranged from 79 (Feb.) to 53 (Nov.) ; Copper Range 44 (Mch.) to 65 (Oct.); Mohawk 27 (Jan.) to 49 (Sept.) ; Osceola 90 (Feb.) to 48 (Nov.) ; Quincy 147 (Feb.) to 100 (Nov.) ; Utah Cons. 27 370 BUSINESS BAROMETERS (Feb.) to 19 (July) ; Wolverine 42 (Jan.) to 65 (Dec). 1903 AVERAGE 42-71 Amalgamated ranged from 76 (Mch.) to 34 (Oct.) ; Copper Range 75 (Feb.) to 37 (July) ; Granby 53 (Apr.) to 36 (July); Mohawk 58 (Feb.) to 31 (July); Osceola 79 (Feb.) to 44 (July); Quincy 127 (Feb.) to 80 (Oct.); Utah Cons. 22 (Jan.) to 34. (May) ; Wolverine 75 (Mch.) to 54 (July). 1904 AVERAGE 46-81 Amalgamated ranged from 43 (Feb.) to S3 (Dec); Copper Range 38 (Feb.) to 75 (Nov.); Granby 25 (Mch.) to 58 (Nov.); Mohawk 34 (Feb.) to 58 (Nov.) ; Osceola 53 (Feb.) to 98 (Nov.) ; Quincy 80 (Feb.) to 125 (Nov.); Utah Cons. 30 (Jan.) to 47 (Nov.); Wolverine 68 (Jan.) to 110 (Nov.). 1905 AVERAGE 64-98 Amalgamated ranged from 70 (Jan.) to 112 (Dec') ; Copper Range 64 (Jan.) to 85 (Dec) ; Granby 50 (Jan.) to 105 (Dec); North Butte 34 (Aug.) to 93 (Dec) ; Mohawk 48 (May) to 65 (Dec); Osceola 88 (Feb.) to 115 (Oct.); Quincy 95 (May) to 118 (Jan.); Utah Cons. 39 (Mch.) to 59 (Nov.) ; W^olverine 105 (Jan.) to 135 (Dec). 1906 AVERAGE 73-127 Amalgamated ranged from 118 (Feb.) to 92 (July) ; Copper Range 87 (Jan.) to 67 (July) ; Granby 80 (July) to 152 (Oct.); North Butte 75 (Mch.) to 118 (Oct.); Calumet & Arizona 107 to 185; Mohawk 55 (Mch.) to 85 (Dec); Osceola 93 A TALK OX COPPERS 371 (Mch.) to 151 (Dec); Quincy 114 (Jan.) to 80 (July) ; Utah Cons. 70 (Jan.) to 52 (June) ; Wol- verine 131 (Jan.) to 190 (Dec.). 1907 AVERAGE 56-140 Amalgamated ranged from 122 (Jan.) to 42 (Oct.) ; Copper Range 105 (Jan.) to 44 (Oct.) ; Granby 152 (Feb.) to 60 (Oct.); North Butte 120 (Jan.) to 30 (Oct.) ; Calumet & Arizona 198 (Feb.) to 89 (Oct.); Mohawk 96 (Jan.) to 37 (Oct.); Osceola 181 (Feb.) to 71 (Oct.); Quincy 148 (Feb.) to 70 (Oct.) ; Utah Cons. 79 (Jan.) to 25 (Oct.); Wolverine 198 (Jan.) to 93 (Oct.). 1908 AVERAGE 66-101 Amalgamated ranged from 88 (Nov.) to 45 (Feb.) ; Copper Range 84 (Nov.) to 55 (Feb.) ; Granby 110 (July) to 80 (Jan.); North Butte 90 (Nov.) to 41 (Feb.) ; Calumet & Arizona 130 (Aug.) to 93 (Feb.); Mohawk 73 (Nov.) to 45 (Feb.); Osceola 135 (Dec.) to 77 (Feb.); Quincy 100 (Aug.) to 77 (Feb) ; Utah Cons. 50 (Aug.) to 29 (Jan.); Wolverine 155 (Nov.) to 115 (Jan.). 1909 AVERAGE 80-104 Amalgamated ranged from 96 (Nov.) to 65 (Feb.); Copper Range 87 (Nov.) to 68 (Feb.); Granby 110 (Jan.) to 90 (Feb.); North Butte 85 (Jan.) to 47 (Dec); Calumet & Arizona 119 (Jan.) to 96 (May); Mohawk 70 (Jan.) to 57 (July); Osceola 170 (Dec.) to 122 (Feb.); Quincy 99 (Jan.) to 83 (Dec); Utah Cons. 50 (Nov.) to 37 (Feb.); Wolverine 158 (Aug.) to 139 (Mch.). FINAL WORD TO READERS It occurs to the author that this book may pos- sibly be the means of causing some persons to in- vest in stocks who will not give the proper study to statistics and general conditions. We therefore advise every reader that, if he is unwilling to invest one hundred dollars a year in collecting and tabu- lating the necessary statistical data, it is better to buy no stocks whatsoever; but to confine all invest- ments strictly to high grade bonds such as are rec- ommended by conservative bond dealers. One other thing, — whether he buys stocks or bonds, the investor should not be in a hurry to make money too fast. The principal invested should grow slowly and naturally. Be willing to creep before walking and be willing to walk before run- ning. Remember that there are many years in which to accomplish the desired object and that success depends very largely upon progressing slowly and carefully, especially during the first few years. " No sir, ye can bet it ain't tli people that have no money that causes panics. Panics are th' result iv too 7nanny people havin money. Th' top iv good times is hard times an' th^ bottom iv hard times is good times. Whin I see wa7i man with a shovel on his shouldher dodgin' eight thousand autymobills I begin to think 'tis time to put me money in me boot. " Don't git excited about it, Hinnessy, me boy. Cher tip. 'Twill be all right tomorrow, or th' next day, or sometime. 'Tiswan good thing about this here wurruld, that ?iawthan' 'lasts long enough to hurt. I have been through manny a panic. I cud handle wan as well as Morgan. Panics cause thimsilves an' take care of thimsilves." Dooley IMPORTANT ADDENDA Babson's Business Barometers Special Service for Merchants and Investors relative to Underlying and Fundamental Conditions (To avoid any misunderstanding we must first state that this work did not originate with us; but was inaugurated some years ago by some of the most prosperous banking and mercantile firms of America. The expense incurred by each firm, when performing the work independently, was so great, however, that the smaller banks, investors, and merchants hesitated to assume independently the responsibility. Therefore we were asked to have our central office do the work, dividing the expense among the different individuals who became our subscribers and shared the resulting benefits. As for many years we have been doing other work in the same way, we were willing to assume the responsibility.) GENERAL TABLES AXD CHARTS Our work consists in collecting with great care, system and impartiality all facts and figures which can in any way aid in forecasting future busines conditions. All figures are arranged, analyzed and tabulated, the more important figures relative to each subject being selected and forwarded to the subscribers. In addition to the tables, the more important subjects are graphically shown in chart form. In all there are about twenty-five of these subjects or "Tables" such as Failures. Railroad Earnings, Crops, Bank Clearings, Gold Move- ments, Balance of Trade, etc. In short, our work is the same as that of regular clerks who might be in the einploy of our subscribers and whose duty it might be to gather these statistics. Merchants and investors, having these tables at their offices, can at any time refer thereto, and note whether or not the figures indicate a change in business condi- tions; and, if so, to what extent. Moreover, with this report we send each month IMPORTANT ADDENDA 377 a completesetof new tables, revised up to date, giv- ing the figures on each subject by months for sev- eral years back, including the latest month. This avoids the necessity of posting the monthly figures in a loose-leaf ledger, although we are prepared to supply such a hook to any subscriber desiring to keep more detailed figures than we give in these printed tables. Our tables give the monthly figures for the past months of the current year and, in many cases, corresponding figures for a few years back. These monthly figures not only show subscribers whether the figures on a given subject are increasing or de- creasing, but the charts give an estimate for the complete current year. This estimate may then be compared with complete annual figures for pre- ceding years, which are also furnished by us. In many cases these annual figures are given for thirty or forty years, so that by intelligently com- paring this estimate for the current year, with the figures for preceding years, one may readily dis- cover what the figures on any one subject indi- cate. If a banker or a merchant at any time needs figures on any one of these subjects, such as for in- stance "Bank Clearings," he has only to turn to his tables and charts marked "Bank Clearings." There he will find the latest figures procurable for this year, monthly figures for the past few years, and also the annual figures for thirty or more pre- vious years, and a most interesting chart complete with suggested interpretations. 378 BUSINESS BAROMETERS WEEKLY BAROMETER LETTERS AND COMPOSITE PLOT For the special benefit of Merchants and In- vestors who have not the time to study personally our tables, we supplement these figures by Weekly Letters which contain the results of our own studies reduced to barometer figures. By comparing the barometer figures for Present Conditions with the barometer figures for Normal Conditions, one may readily see what period we are in, and forecast the nature of the next change in the mercantile, mone- tary and investment markets. Moreover, by referring to our Composite Plot, one may readily see how much of the present period has been consumed and intelligently forecast about when a change may be expected as well as whether it will be for the better or the worse. Our conclusions regarding Present Conditions should be absolutely complete and correct, as this work requires only honest and mathematical correctness, and, in fact, may be verified by any honest, intelligent and careful bookkeeper. As to our figures on the Normal Conditions, we simply guarantee them to be impartial and in accordance with our best judgment; realizing that many ex- perienced bankers and merchants have acquired, through many years of similar work, a judgment which may be far superior to ours. As, however, we supply all figures from which we deduct our conclusions on even Normal Conditions, our sub- scribers take no risks and can at any time verify such conclusions. IMPORTANT ADDENDA 379 The figure for Present Conditions is determined by studying the very latest bank clearings, railroad earnings, foreign trade, labor conditions, etc., and always shows the exact present conditions of the entire business world. By comparing the figures for a series of weeks, subscribers immediately notice the tendency of mercantile, monetary and stock market conditions. The figure for Normal Conditions is deter- mined by studying the change and trend in condi- tions during the past. If the figure for Present Conditions is considerably greater than that for Normal Conditions, this signifies that there may be a change for the worse, and the difference in the figures gives a suggestion when this change for the worse may be expected. If the figure for the Present Conditions is less than that for the Normal Conditions, this indicates that a change for the better may be expected at any time, and the amount of difference shows about how soon the change may be expected. Investors and merchants receiving these Weekly Letters are therefore kept in close touch with the actual conditions in the United States and are able at any time to forecast : 1. Mercantile Conditions of the United States as relating to manufacturing and commerce, en- abling manufacturers and merchants to use the flexible credit system. 2. Monetary Conditions of the United States as relating to the conditions of the money market, rates of interest and the supply of funds. 380 BUSINESS BAROMETERS 3. Investment Conditions of the United States; that is, the general course of the stock and bond markets, disregarding minor movements and ma- nipulative influence. MONTHLY REPORTS AND REVISED TABLES In addition to the tables and chart mentioned above, subscribers are forwarded each month a complete Monthly Report giving the new figures for the month on each subject and comparing them with figures for the same month of the preceding year. Although the figures on any one of the twenty- five subjects may clearly indicate a change for the better or the worse, yet a subscriber does not wholly rely on one subject. He studies the figures on all of the subjects, and compares the results in order to obtain a complete diagnosis of present conditions and make an intelligent forecast of future conditions. CONCLUSION AND TOTAL COST The cost of this entire service is only $7.50 per month, with the first year payable in advance. This price entitles the subscriber to the following: — 1. The General Tables and Charts containing original figures on each of the twenty-five subjects, both by years and months. These tables and charts are always up to date, being revised every few days. 2. The Weekly Letters containing the two Sum- IMPORTANT ADDENDA 381 mary Barometer Figures on the Surface Conditions and Normal Conditions respectively. 3. Monthly Reports giving the new figures each month on the twenty-five subjects together #fith figures for the corresponding month of the previous year with interpretations. 4. Special plate glass desk cover for Tables and leather covered ledger for the Charts, Weekly Let- ters and Monthly Reports. 5. In addition to the above, we send from time to time special Charts, Letters and Reports as occasions demand. Subscribers are given a choice of the following two options at an additional cost of $10.00. OPTION 1 FOR MANUFACTURERS AND MERCHANTS As this service is of immediate value to subscrib- ers in connection with the purchase of goods and as the foundation of any system to reduce "costs" is a permanent record of what these costs have been in the past, we are supplying the following: — (a) Special Loose-leaf Covers capable of any expansion and adaptable to the largest business. (b) Special ruled Sheets for recording the amount, merchandise prices and names of sellers of all important items purchased. OPTION 2 FOR BANKS AND INVESTORS A ledger in which the subscriber may also keep a record of his investments. This is the most ap- 382 BUSINESS BARO^IETERS proved form of ledger obtainable for the purpose and contains: — (a) Portfolios for holding circulars and de- scriptions of securities. (b) Special Outlined Forms for recording com- plete descriptions of all bond and stocks purchased and ruled pages for keeping the cost prices of said securities, and a record of all interest and dividends received therefrom. Applications to become subscribers to this work, and receive the benefits outlined in Chapters I and II of this book, should be mailed to BABSON'S COMPILING OFFICES Wellesley Hills Station, Boston, Mass. New York Offices, 33 Broadway. INDEX 383 Action equals reaction, 95. Annual events, of 1860, 115 of 1861, 116- of 1862, 117 of 1863, 117 of 1864, 118 of 1865, 119 of 1866, 120 of 1867, 121- of 1868, 121 of 1869, 122 of 1870, 123 of 1871, 124 of 1872, 125 of 1873, 126 of 1874, 129 of 1875, 129 of 1876, 130 of 1877, 132; of 1878, 133 of 1879, 134; of 1880, 175 of 1881, 136; of 1882, 137 of 1883, 139 of 1884, 140 of 1885, 141 of 1886, 142 of 1887, 143 of 1888, 144 of 1889, 145- of 1890, 146 of 1891, 147 of 1892, 148 of 1893, 149; of 1894, 150 of 1895, 151 of 1896, 153 of 1897, 154; of 1898, 155 of 1899, 156- of 1900, 157 of 1901, 158 of 1902, 159 of 1903, 161- of 1904, 162 of 1905, 163 of 1906, 164 of 1907, 165 of 1908, 167 of 1909, 168 Babson's Business Barom eters, 376. Balance of trade, 265; gen- eral rules concerning, 267. Banks; cash in, 225; Comp- troller's Reports, 215; de- posits of, 231; economic laws concerning, 218, 226; functions of, 91; invest- ments of, 216, 217; loans of, 216; notes of, 217; re- sources of, 218; statement of New York banks, 233, 241; table of loans and re- sources, opp. 218. Bank clearings, 181; as a barometer, 19, 103, 183; of New York, 188; general rules concerning, 189; table of, 185. Baring failure, 147. "Black Friday" panic, 122. Bonds; possibility of profits from, 54; tables of panic prices in 1884, 55; inl893, 56; in 1903, 57; in 1907, 59; tables showing effect of reorganizations on prices, of 1st class, 63, 64, of 2nd class, 66, of 3rd and 4th classes, 67, of miscel- laneous, 68. Building statistics, as a ba- rometer, 174, 178; general rules concerning, 180, 181. Business failures, 190; as a barometer of business con- ditions, 19, 103, 190, 193; tables of, 191, 192, 194; general rules concerning, 199. Capital, 172. Cash of banks, 225; historic survey of, 228; ratio to de- posits, 226; table of, 227; general rules concerning, 230. Certificates of Clearing Houses, 244; table of, 246. Clearing Houses, functions of, 181; certificates of, 244; in New York, 182; table of certificates issued, 246. Commodity prices, 296; as a barometer, 21, 104; in crises 296; chart of since 1860, opp. 74; affected by gold production, 288; indexes of, 302 ; interest of to bank- ers, 89; problem in, 76 rules concerning, 305 tables of since 1860, 79 tendencies affecting, 300. Comparative statistics, val- ue of, 13, 25. Composite chart, 94, 3 78; method of plotting, 106, 384 INDEX 107 (foot note) ; subjects involved in, 105. Comptroller's reports, 215. Copper, 356; table of maxi- mum dividends of fifteen companies, 360; table of daily average production of leading mines, 365; table of profits per share of leading stocks, 366; range in price of Lake Cop- per since 1860, 367; range in price of leading stocks since 1889, 368. Crops, 316; as a barometer, 22, 104; government board on, 324; government re- ports on, 316; nature of monthly reports on, 321; general rules concerning, 331. Cycles, controlling law of, 95 ; foretold by fundamental statistics, 17; rules con- cerning, 98, 170; length of, 94; periods of, 15, 24, 94. Deposits of banks, 231; gen- eral rules concerning, 238. Exports of merchandise, 261; benefit from increase in exports of manufactured goods, 262 ; general rules concerning, 264. Failures in business, 190; as a barometer, 19, 103, 190, 193; tables of, 191, 192, 194; general rules concerning, 199. Fire losses, as a barometer, 176. Foreign exchange, 281. Foreign money rates, 281; general rules concerning, 289. Foreign trade, 252; as a barometer, 21, 104; bal- ance of, 265; exports, 261; imports, 252; table of, 253; I volume of, 266. I Fundamental statistics, 15, I 17; list of twenty-five sub- jects under, 18, 103; three general heads under, 105 ; composite chart of, 94; me- j chanical work of collecting, ! 102; methods of handling, 106, 107 (foot note), 109; need of studying man}'^ subjects in connection with, 96; theor>^ of, 25; value to merchants, 75. General heads under fun- damental statistics, twelve, 18, 103; three, 105; ar- i rangement of the twelve under the three, 106. Gold, movements of, 268; ' as a barometer, 21, 104; production of, 288; relation ; of production to prices, i 288; general rules concern- I ing, 295. I Idle car figures, 338; general i rules concerning, 340. Immigration, 201; as a ba- rometer of labor condi- tions, 20, 103, 202; general rules concerning, 205. Imports of merchandise, 252; dangers accompanying in- crease in, 254-259; general rules concerning, 260; table of, 253. Industrial cycles, foretold by fundamental statistics, 17; the law maintaining in the past, 16; controlling law of, 95; length of, 94; periods in, 15, 24, 94; rules of periods in 98, 170. Investment conditions, sub- jects related to; crops, 316; foreign money rates, 281; idle car figures, 338; new securities, 313; political INDEX 385 factors, 341; railroad earn- ings, 332; social conditions, 347; stock exchange trans- actions, 310. Investments of the banks, 216. Labor conditions, indexed by immigration figures as a barometer, 20, 130; lack of satisfactory figures on, 200,202. Loans of banks, 216; historic survey of, 219; relation to resources, 218; general rules concerning, 224; table of, opp. 218. Mercantile conditions, sub- jects related to; bank clearings, 181; business failures, 190; immigration 200; new building, 172. Miscellaneous statistics, list of headings for, 352. Monetary conditions, sub- jects related to; balance of trade, 265; cash of banks, 225; Comptroller's report, 215; deposits of banks, 231; exports, 261; gold movements, 268; loans of banks, 215; money, 207; surplus reserves, 226, 239, 242; volume of trade, 266. Money, 207; as a barometer, 20, 100, 103, 112; chart of, during four great panics, opp. 228 ; gross and net sup- ply of, 209, 210; effect on merchants of the supply, 211; prices and the sup- ply of, 239; general rules concerning, 214; foreign rates of, 281. New railroad construction, as a barometer, 19, 103, 177; in the panic of 1837, 178; in the panic of 1857, 178; general rules concern- ing, 180. New securities listed, eco- nomic laws affecting, 313; general rules concerning, 315. Panics; of 1837, 178; of 1857, opp. 114, 178; of 1865, 119; of 1869, 122; of 1873, 126; opp. 114, 179, 247; of 1884, 149, 248; of 1890, 149, 249; of 1893, opp. 114, 149, 250; of 1903, 161, 195; of 1907, opp. 114, 165, 193, 285; of "Black Friday," 122; of "Undigest- ed Securities," 161; a cause, 247; chart of money course during four panics, opp. 228; chart of stock market during four panics, opp. 250; derived from un- bridled prosperity, 110, 352; foretold by "loans to resources," 219; move- ments of, 128; relation of "money in circulation" to, 211, 213; tables of bond prices, in 1884, 55; in 1893, 56;inl903,57; in 1907, 59; table of four major panics with accompanying events, opp. 114. Periods of a cycle, 15, 24, 94; rules of, 98, 170; fore- told by fundamental sta- tistics, 17. Political factors, 341; as a barometer 24, 104; list of, 342 ; general rules concern- ing, 346. Quotations on the stock ex- change, 307; affected by "transactions," 310; gen- eral rules concerning, 312. Railroad earnings, 332; as a barometer, 23, 104; as af- 386 INDEX fected in three depres- sions, 334; general rules concerning, 337. Real estate as a barometer, 172, 176. _ Reorganizations, 61; tables of bond and stock prices as affected by, 63-68. Resources of banks, 218; re- lation to loans, 218; table, of, opp. 218. Social conditions, 347; as a barometer, 104; general rules concerning, 353. Stock exchange, quotations, 307; list of ten conserva- tive stocks, 308; the "Wall St. Journal's" list of thirty two stocks, 308; list of ten bonds, 309; transactions, 310; new se- curities, 313. Stock prices, as a barometer, 21, 104; chart of prices since 1874, 30; possibili- ties of profits from stocks, 45 ; problems in profits, 46, 48, 52 ; quotations, 307 ; table with annual high and low prices of leading stocks since 1860, 32;, table of prices of ten stocks in 1907 and 1910, 31; table showing effect of reorgani- zation on prices, 65, 68. Subjects treated under funda- mental statistics, twentv five, 18, 103. Surplus reserves, 226, 239, 242 ; general rules con- cerning, 243. Transactions on the stock exchange, 310; general rules concerning, 312. "Undigested Securities" panic, 161. Volume of trade, 266. Wealth, as a barometer, 172; table of, 173. ADVERTISEMENTS IMPORTANT NOTICE WE OPERATE SPECIAL Instruction Courses ON Investments and Collateral FOR INVESTORS AND EMPLOYEES OF BOND HOUSES AND STOCK EXCHANGE FIRMS A booklet describing this work in detail will be mailed gratis upon request Address EDUCATIONAL DEPARTMENT of the OFFICE OF ROGER W. BABSON, Inc. WELLESLEY HILLS, MASS. ADVERTISEMENTS COMPARATIVE STATISTICS RELATIVE TO THE LISTED RAILROAD, INDUSTRIAL AND COPPER STOCKS are collected, analyzed, indexed and forwarded by us to subscribers in all parts of the world. We supply this information printed on standard-sized (5 in. X 8 in.) cards, thus allowing for the daily revision of any individual security without interfering with the alpha- betical arrangement. We are now collecting this data as to Dividends, Earnings, News, etc. for the largest Banking Institutions in the world and will gladly send sample cards and complete details to any one not now a subscriber. Origi- nal cost of this service is SiS.OO including cabinet and original installation, and the work is revised and supplemented daily at a cost of only $5.00 per month. By doing this work for a large number of houses we are able to furnish a firm more for this price than a firm can accumulate and sort independently at a cost of several hundred dollars per month. For $5.00 per month additional we are able to supply similar information and keep the same up to date regarding Bond issues. THE BABSON SYSTEM 33 Broadway New York City A DVERTISEMENTS BABSON'S REPORTS OR FUNDAMENTAL CONDITIONS RELATIVE TO THE UNDERLYING Monetary and Mercantile and Investment Conditions We are collecting, analyzing and distributing statistics on the 25 subjects mentioned in this book and are prepared to supply the results to Stock Exchange Firms, Bond Houses, Mercantile Houses, Manufacturers and Investors. We make no prophecies ourselves, but by a study of the data which we supply, one can read- ily ascertain for himself whether we are in a Period of Prosperity, a Period of Depression, or are pass- ing from one to the other; and what will be the next major change in trade, money rates and in- vestment prices. The cost of this service is very small in com- parison with what it is costing firms to collect this data independently, and we believe that our fig- ures are more accurate and more up to date. Further particulars relative to this work will be sent gratis on application. Address BABSON'S COMPILING OFFICES WELLESLEY HILLS MASSACHUSETTS A DVERTISEMENTS How Money is Made IN Security Investments hy Henry Hall formerly of the New York Tribune Said by competent authorities to be one of the best ever issued on Security Investments. Shows how the captains of finance have grown so rich, and how through the study of Business Barometers any man with a regular occupation to depend upon for a livelihood may invest surplus earnings, with a prospect of at least a moderate fortune at middle age. Price, in cloth, $1 .50 Carriage, 15 cts. additional. FOR SALE BY Educational Department of the OFFICE OF ROGER W. BABSON, Inc. Wellesley Hills, Mass. f 3699 "°o ^v '-i..^^ $^ % ■^^. .A^^' ■.*'■*■ >^. .£