^■.^:#: .* ^'5^' '*''% v^^^' ^ x^^. .0 °^ ' Business Barometers used in the Accumulation of Money Ji Text Book on Jlpplied Economics for Merchants, Bankers and Investors By Roger W. Babson Vice-President of the Gloucester (Mass.) Safe Deposit and Trust Company (FOURTH EDITION) Published at BABSON'S COMPILING OFFICES Wellesley Hills, Mass. U. S. A. ^^ > First Edition Copyrighted 1909 Second Edition Copyrighted 1910 Third Edition Copyrighted 1910 Fourth Edition Copyrighted 1911 by Roger W. Babson ©CLA283602 DeDfcateD to GEORGE FILMORE SWAIN Professor of Civil Engineering Harvard University "People v^ill 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 ele^nents that belong to the world, into consider- ation, are sagacious enough to prophecy the best of action, I don't see why it is not legitimated Henry Ward Beecher. 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 ni. Range of Commodity Market Since 1860, Showing the Possibilities of Profit to a Merchant . . 75 CHAPTER IV. The Theor>^ of Fundamental Statistics ... 94 CHAPTER V. Conditions and Events Since 1860 . . . . 116 CHAPTER VI. Subjects Relating Especially to Mercantile Conditions 172 CHAPTER VII. Subjects Relating Especially to Monetary Conditions 210 CHAPTER VIII. Subjects Relating Especially to Investment Conditions 310 CHAPTER IX. A Talk on Coppers 359 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 conviction that no severe depression has occurred which was not preceded hy loud warnings. These warnings ought not to pass unheeded and in order to recognize them promptly, it is necessary that accurate statistics he 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 methods 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 overdo?ie. It is also noteworthy that we do not 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 7iew construction, volume of production in the various kinds of manufactures, and statistics of state hanks 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 above was written in 1902 by Hon. Theodore E. Burton, U. S. Senator from Ohio, and is very interesting as a matter of prophecy. The ''vital de- fects'* mentioned have, however, now been overcome, and the office of the author of this book has obtained and is now able to furnish regularly the identical figures which Senator Burton then so much desired. PREFACE (Fundamental Principles which readers of this book should always keep in mind.) NEITHER this book nor any other can aid a banker, merchant or investor to become rich within a short time. Nobody knows nor can know what conditions or prices are to exist within a few weeks or even months, and 95% of the men who endeavor to take advantage of these monthly movements — or even who worry about them — never make much headway. Great fortunes, which have been created by bankers, merchants and investors, are the result of ignoring these monthly fluctuations in com- modity and security prices, and of striving to antici- pate and profit by the major movements coming every few years. These major movements can he foretold if one will spend the necessary time and money in studying fundamental conditions. There- fore, a fortune is within the grasp of every reader of this hook who has and uses the necessary figures. There are, however, two requisites: 1. One must develop self-control, both to re- frain from attempting to profit by the monthly fluctuations, which 95% of the people endeavor to follow, and to act quickly and take advantage of the major movements, which 95% of the people fail to profit by, either because they are infatuated with prosperity or scared by panic or depression. 2. One must develop patience, and remember that it takes years to build up a fortune in this way, that it is an especially slow process at first, so that what we spend for obtaining the data the first few years may seem large during these early years. The expense, however, is infinitesimal compared with the value. In truth, it is due to the fact that most people ignore these figures that 90% of our business men are said to "fail." Some ask, are not students of fundamental con- ditions working to their own disadvantage in urging others to unite in this work? My answer is ''theo- retically — yes." On the other hand, every honest preacher, physician, lawyer, teacher, judge and soldier who is truly serving his function in the community, must strive to eliminate the trouble, upon the existence of which he is dependent for a livelihood. But, until the world no longer needs preachers, physicians, lawyers, judges and soldiers, there will be periods of prosperity and depression when commodities and securities will rise and decline in price, and we who study fundamental conditions and act in accordance with what they teach, both perform a distinct service to our country and slowly, but surely, create for our institutions and ourselves huge fortunes. The writer of this book wishes to acknowledge the aid which he has received from many friends in this country and abroad. He wishes also to thank his efficient corps of assistants who have aided greatly in the compilation, and commends the various books, papers and periodicals which he has quoted from or used in other ways. 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. In order to keep this hook reasonably up to date, no new figures need hereafter he added to the tahles in the hody of the hook, hut may he supplied through the Addenda {or the large sheet forming a part thereof) which can he revised any week. These Addenda may he found in the latter part of this hook. R. W. B. Wellesley Hills, Mass., January, 1911. 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 weight, 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 v/orthless 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 they 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 decline, 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 reckless prosperity can ever become permanent and will not be followed 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. On the other hand, there are major cycles of 16 BUSINESS BAROMETERS about twenty years' duration, and also minor cycles of about five years' duration. Theoretically, there should be a state where everybody is prosperous and nobody over-trades, where the cost of living 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 twenty 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 difficult of all for the world's trade to maintain. "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 on the fol- lowing page, and for convenience they are combined under twelve headings, which headings are herewith described in detail. Later in Chapters VI, VII and VIII these twenty-five subjects are described in de- tail. These are the subjects studied by the oldest, richest, and most conservative financial and mercan- tile 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 much guessing 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 any market is upward or downward and whether it is the time to buy or sell, or to do neither. 18 BUSINESS BAROMETERS 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- 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 twelve headings and twenty-five subjects, above mentioned, are as follows: I. Building and Real Estate: Including all New Building and Fire Losses. (1) II. Bank Clearings: Total Bank Clearings. (8) Bank Clearings excepting New York. (9) III. Business Failures: Failures, by number, amount and percentage. (12) IV. Labor Conditions: Immigration Figures. (13) V. Money Conditions : Money in Circulation. (2) Comptroller's Reports. (3) Loans of the Banks. (4) Cash held by the Banks. (5) De- posits of Banks. (6) Surplus Reserve of Banks. (7) VI. Foreign Trade: Imports. (14) Exports. (15) Balance of Trade. (16) VII. Gold Movements: Gold Exports and Im- ports. (17) Domestic and Foreign Exchange, and Money Rates. (18) VIII. Commodity Prices: Production of Gold. (20) Commodity Prices. (21) TWO CLASSES OF STATISTICS 19 IX. Investment Market: Stock Exchange Trans- actions. (10) New Securities. (11) X. Condition of Crops: Crop Conditions and other Commodity Production. (22) XL Railroad Earnings: Gross and Net Earn- ings. (23) Idle Car Figures. (24) Miscellaneous. (25) XII. Social Conditions: Political Factors. (19) 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, and especially figures on Building Statis- tics, give 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 mar- vellous. It may also be stated that iron is one of the first commodities 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. 20 BUSINESS BAROMETERS 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 offtce. 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 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- tell disaster and panic. R". 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. \'. 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 scarcit}^ of it seriousl}^ hampers the manufacturer and the merchant. Low money rates usually indicate poor present conditions but tending toward improved business ; while high rates TWO CLASSES OF STATISTICS 21 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 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 w4th 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 22 BUSINESS BAROMETERS 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 by 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. Therefore, a slowly sagging market usually means that the 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 hy 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 TWO CLASSES OF STATISTICS 23 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- 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 wealth. 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. Abnormal 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 24 BUSINESS BAROMETERS 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. 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 ail 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 w^ay 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 w^th 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 TWO CLASSES OF STATISTICS 25 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 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- *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 only a slight variation with seasonable changes. The writer, however, believes In this latter method only as a check upon, and not as a substitute for, the Com- posite Plot 26 BUSINESS BAROMETERS 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 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 the same, or other high grade securities. Many of such investors triple their money every few years, with practically no risk and with very little trouble. By a study of these fundamental statistics some individuals, with 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, and willing under a broker's guidance to take advantage also of cer- tain intermediate movements, which come once or *If this withdrawal at the time of a panic meant the hoarding of money or 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 twice a year, possibly greater results are sometimes obtained; but of course this involves risk. 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- chases, there is connected another element of 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 nearly 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 hut 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 28 BUSINESS BAROMETERS 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, 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 wTiter is inclined to advise that all persons should always have a portion of their principal on deposit in a bank, or in high grade bonds, short term notes or commercial paper. 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 w^hen 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 the fortunes of American merchant princes must TWO CLASSES OF STATISTICS 29 have been created by a knowledge of these facts, rather than by simple selling to the trade at a nom- inal 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 there- fore be especially interesting to the small merchant with capital 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 automatic- ally 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 to-day 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 1911. 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, and the stocks described are as representa- tive 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, lUinois 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 PRICE RANGE OF STOCKS AND BONDS ,Jl^TJ.frj i°Tr„"'! T'l'''^" :--*— t atcAs. A much greater fluctuation would be shown if . speculative stocks such as Union Pacific, Reading, etc., were used. This table, however, is prepared to imoress uoon Itlcr^y °''^°"""'^'' ''"'''''' ^'^^^ ''-^ ^- "^"^'-S -oney by the purchase of the most' conser'vattve di^^e'nrpay'ng pfice of the Ore CertTficIt^ mentioned on page 32 remembering to add to the price of Great Northern the More bonds would have been iLerbuarpresrntUiimf "T' °' K^'-'*'' v "'.^-^'^''"-"^ -" City of New York, present it is impoteibie to obtam a list in existence that goes back so far. 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 and truly rep- resentative stocks have been included in the list. Stocks which have shown any abnormal rise have purposely been avoided. For this reason, stocks such as "Union Pacific," "Atchison" and "Read- ing" have been omitted. More industrials would have been included, 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, absolutely, as showing the fluctuations which a conservative 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 3, 1910 and 1911 is as follows: Low Jan. Jan. Div. 1907 Div. 1910 Div. 1911 Central New Jersey $8 144 $8 312 $8 270 Chicago, Mil. & St. Paul 7 93 7 158 7 124 Delaware & Hudson 9 124 9 185 9 164 32 BUSINESS BAROMETERS Low Jan. Jan. Great. Northern plus 1 D 'iv. 1907 Div. 1910 Div. 1911 Ore. Cert. $7 144 $8 225 S8 180 Illinois Central 7 116 7 146 7 132 Louisville & Nashville 6 85 5i 158 7 145 New York Central 6 89 5 125 6 112 N. Y., N. H. & Hartford 8 127 8 158 8 150 Pennsylvania 7 103 6 136 6 129 Pullman 8 135 8 189 8 160 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 accordaftce with general conditions, and not be governed by the price of any stocks which he happens to hold. A diagram of some 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) ; III. 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 AVER.\GE 108-147 Cent, of X. 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); X. Y. Cent. 110 (April) to 159 (Dec.) ; Xew Haven 133 (Jan.) to 159 (May). 1869 AVER.\GE 114-160 St. Paul ranged from 84 (Aug.) to 61 (Sept.); Del. & Hud. 134 (June) to 120 (Dec.) ; Lackawanna 120 (Jan.) to 104 (Xov.) ; 111 Cent. 148 (May) to 130 (Dec); X. Y. Cent. 217 (July) to 153 (Sept.); Xew Haven 160 (Jan.) to 120 (April). 1870 AVER.-\GE 102-120 St. Paul ranged from 75 (Jan.) to hi (Dec) ; Del. & Hud. 115 (Mch.) to 127 (July); Lack- awanna 112 (May) to 100 (Sept.); 111. Cent. 145 (Feb.) to 129 (July); X. Y. Cent. 86 (Jan.) to 102 (June) ; Xew 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.); X.Y. Cent. 103 (April) to 84 (Oct.); Xew Haven 140 (April) to 160 (June). 1872 AVER.\GE 97-110 St. Paul ranged from 64 (April) to 51 (X'ov.) ; Del. & Hud. 124 (Jan.) to 115 (Oct.) ; Lackawanna 112 (Mch.) to 91 (Dec); 111. Cent. 140 (June) to 119 (Xov.) ; Louis. & Xash. 81 (Oct.) to 79 (Dec); X. Y. Cent. 101 (April) to 89 (Xov.); Xew 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. 12-4 (Feb.) to 99 (Nov.); Lackawanna 106 (June) to 79 (Nov.); 111. Cent. 126 (Jan.) to 90 (Nov.) ; Louis. & Nash. 79 (Mch.) 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 X. 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 A\^ERAGE 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 (Alch.) 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 (]\Iay) ; 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 3 7 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 6S (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 83 (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 (May) 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 S3 (Jan.) to 46 (July) ; Del. & Hud. 139 (Jan.) to 102 (July); Lackawanna 127 (July) to 175 (Nov.); III. 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 88 (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 the Ore Certifi- cates added beginning with 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.); III. 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 176-205 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 249 (Dec); III. 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.); IlHnois 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.). * These prices include the price of one Ore Certificate. POSSIBILITIES OF PROFIT 45 1909 AVERAGE 155-193 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 *246 (Aug.) to 201 (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.). 1910 AVERAGE 133-165 Central of N. J. ranged from 312 (Jan.) to 248 (July); St. Paul 158 (Jan.) to 114 (June); Del. & Hudson 185 (Jan.) to 149 (July); Gt. Northern 224 (Jan.) to 163 (July) ; Illinois Central 147 (Jan.) to 124 (July); Louis. & Nash. 160 (Jan.) to 132 (July); N. Y. Central 128 (Mar.) to 105 (July); New Haven 162 (Mar.) to 149 (Apr.) ; Pennsylvania 138 (Mar.) to 122 (July); Pullman 200 (Jan.) to 155 (June). (For quotations and prices subsequent to 1910, see Addenda at end of the book.) Possibilities of Profit in Conservative Investment Stocks Suppose $2,500 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? * These prices include the price of one ore certificate. 46 BUSINESS BAROMETERS 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 3 J years until the aver- age price reaches 160 in 1865, w^hen we sell for $6,560, which together with the interest above mentioned makes a total of $6,998. 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 average again falls to 100. We think that with this introduction the table is self-explanatory. Original Principal invested (oj 60% 1861 $ 2,500 Dividends 3 i yrs. @ 5% to 1865 $ 438 Prin. bought @ 60-1681 sold @ 160 _. ._ 1865 6,560 Total of Prin. & Dividends @ 5% 1865 6,998 Comp. Int. @ 4% 2 yrs. 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 vrs. 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. (a) 5% to 1874 22,526 Comp. Int. @ 4% 3^ yrs. P. &I 1877 25,844 POSSIBILITIES OF PROFIT 47 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. @ S% 1881 $77,408 *Comp. Int. @ 4% 4 yrs. P. «&I 90,442 Invested at 85 in 1885 Dividends 4 yrs. @ 5% to 1889 18,108 Prin. bought (b 85-1885 sold @ 140 1889 149,100 Total of Prin. and Divs. @ S% 1889 167,208 Compt. Int. @ 4% 1^ yrs. P. &I 1891 177,275 Invested at 95 in 1891 Dividends 1 yr. @ 5% to 1892 8,868 Prin. bought (a. 95-1891 sold @ 140 1892 261,380 Total of Prin. and Divs. @ 5% 1892 270,248 Comp. Int. @ 4% 5 yrs. P. &I 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 Prin. bought @ 152-1904 sold @ 210 in Dec 1906 1,100,610 Total of Prin. & Divs. @ 5% through Dec 1906 1,218,549 Comp. Int. @ 4% 1 yr. to Dec. P. & 1 1907 1,267,291 Divs. 1 yr. &8 mos. @ 5% to Aug 1909 105,600 Prin. bought @ 119-1907 sold @ 193 Aug 1909 2,055,330 Total of Prin & Divs. @ 5% through Aug 1909 2,160,930 Comp. Int. @ 4% 16 mos. (P. & I.) to Jan 1911 2,277,330 48 BUSINESS BAROMETERS In the above table 5% is allowed as an average dividend on the stocks held and 4% an average in- terest on bank deposits or the highest grade com- mercial paper. The average prices at which the purchases and sales are executed are the "averages" at the beginning of each of the paragraphs 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 to-day 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. If other stocks, which were not dividend payers, and which have shown greater fluctuations, were 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 movements extend- ing over longer periods. Many brokers believe that it is possible to discern also these intermediate movements of six or eight months; and if so the follow^ing results would have been possible. POSSIBILITIES OF PROFIT $5,000 invested in "St. Paul" in 1870 would amount to over $10,000,000 to-day. $5,000 invested in "Union Pacific" in 1870 would amount to over $15,000,000 to-day. $5,000 invested in "Central of New Jersey" would amount to over $30,000,000 to-day. $5,000 invested in "Northern Pacific" would amount to over $50,000,000 to-day. 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, based upon the study of tech- nical conditions. If, however, the investor can in this way increase an investment of $5,000 to $1,000,000 in about thirty years without risk, he should be satisfied 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 New 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- 50 BUSINESS BAROMETERS 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. "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 ' customer.' "One day while in Boston he called us up on the long distance telephone to make an inquiry about the grain market. One of my assistants, desiring 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. 'T venture to say that ninety-nine per cent, of POSSIBILITIES OF PROFIT 51 the speculations on the New York Stock Exchange are based on such so-called 'Tips.' The manager 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 fifty dollars, then nine hundred dollars, 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 manager's 'feeling' that stocks ought to go up. "Men of affairs 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.' "Anyone 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- 52 BUSINESS BAROMETERS gin is that a broker's commission is only 12J 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 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 that is herein outlined, although it is practically the only method which can be de- pended upon. It is also the most profitable, as all other methods come under the head of "accumula- tion by arithmetical progression" rather than "ac- cumulation by geometrical progression." In order to increase an investment of $5,000 to POSSIBILITIES OF PROFIT 53 $1,000,000 in thirty years by any other method, 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 to-day. 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 handUng $1,000; yet with $100,000 in the same stock, it would just as surely become $200,000, giving a profit of $100,000. 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 w^hether 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 54 BUSINESS BAROAIETERS to create a great fortune through conservative investments, hut this is the safest way it can he acco77iplished. The Possibilities of Profits in Bonds For the benefit of readers who confine their pur- chases strictly to bonds, the following tables will 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% ii^ 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 with 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 ahout 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 the}' were prepared by a leading Xew York investment house whose natural object would be to show that bonds fluctuate very little. 2«;;(n;-h ^^^^ (N ^ i-( ^ ^ (N PC ;<^QQQO^Qr,a\ooasoo-rHa\rsi-H-.-ioN'<-irsio\ON>oio '^t^ > Q LO < cn J-' in u ^ \o c^ o to r-l en c2^ "^ (]) i^ -^-' r^ 5 h t^ /! o' rt S S cj a^ ^ Oh 0^ ^ W oy O O tn tn en MD i>« O > -M en bJO vo tn i^ o Oj O tn o en C 2 ?,C/5 c 5 =a c^ t -d ^' • . 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OJ ^^ o fS y ^ _ > ro tX ''^ o3 " O ^ ^ _ C-; fc^Tj 2^ On ^ a; ^ S g-^ Ji^^-S o -^ o = §o ^ cjO o _r: c CN u o en O .2 cr :5 ^ "b CD ^ w li; x: ro ti; ■ ^ ^ ^ ^ (N 1-1 i-H ^ (N ,-H ^ ^ rC «N 1-1 fS 1-H 1-H ,-( ^ 1-1 vH 1-1 So ■J ^^,•^l.'7^*J i-l|M iHh* "^ iHl-^iHh*CCh*HH' K— o\ oocN--Hcsi-^ooocNOONCoooa\aNooooooc>ONOO ■«—(■»— It— l'<—li-H,— I •,—1 •<— < T-4-.— It— I t-Ii— I '"^ •.-l-.-l-r-l-l-r-l-r-ICOC-oooba\voooaNcooooooooNoo -^ M3 o O h^iA oocs'-iro'-iooooNOONCooN-^oooooooooNOOo ►^O''— '■"— ' 1— It-It— Ix—l t-I t— ItH-.— I t— It-It— It— I T— It-I 5 < ^•g ID to ^ 1=^ T-i >— ^ r-' __• HlNLJ ^ ^2 ^ iM rs ^ C)«) M'T' OOOOOs-rHO-^ONOOO O CJ S.2 V- C tn tfl Ol< u — V- u- I— I 5 m ■SI rt-r- O rt 1- u .2 o-B, « II li." 2 a ir c :^ -C c "^ ^^ 2-2 S n3 -^ M ^ C '^ rt-s-^i > o to o - cn.ii: ^ •"X! 2 M M 3 -Is Si rt mi^ £ c i C O -M >. O M 3 >^ .B > ~ O^ '*" W W ^ " ~ a ^ o p "5 -a c — R c rt >.^ C fe REORGANIZATIONS 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 Van 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 ow^ners 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. In 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 bond issues 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, however, 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. ^55&5^^^^^^^Ji5 O lO O 3 -^LC 3 3 O O gcj" " — ;; '^ "^-^ o < < O P^ o u DQ a u w < CO u O H - 0} £! £ ^ So ^ o rH (LI ;: aj •Or C ^ 1^ o OP^UOPlhUO&hU fcc.2 '5 o D2 '-' a! r > — I Q u a tj r- a ^ OOO00lOTt^TtlOOOC^ fo 3 £ y OOOOOiOr( _ ' te W O O hJ hJ eu fL, g (/3 1£ rt' '(/) o s , ^ 3 > S* 4; fT c g-aJpL, c o "M o t^. o '^. °^ -^. *j o 1- 5:5 POO^OOO OS -g (N O I 10 i/^ 10 rj< CS 10 .2 c- en SSo.S "^OOiOfO <- s o o ^ ^^ g ^^S5S5^ ^ pj \0 'O .^j, ir; >0 10 g :^ -^ ^ w ^ . O tJT3 rt > U Q CJ M u •0 en aj -a c, a~^o^ o.s tti i" Tf< Tj< lo lo lo lo lo Tt a^SSo OOOOO tN 2 ^ ^ £ fO re ■* ro Tf*' fO < £ U o SI o ^ o "^ en <^ •- 0000000 (U 3 u y OOfS<^CS(N00 (5^ '"Oh ^-.So 0000000 ;o S^o. ■>* -^t fO "0 o o o aj T) — R •*« o -*i H« 03 >^y'S5 000-H 1— (1— |._iY-;Of^^ .^ "^ vO O u^lvO \0 VO 10 C rf OT m'^ fi c 8 ■r1 ^a^-c. wi^S' ^•^^ .^^: J= >^£a;- Ztx 5' ^5 '-' tfi TO c d ^ 3 Ms^ O < O > s W Q < Oil O C^ U o B'u 00000 3 O ►J <5 rt Zc/3cr) -eg 0:3 1^ OJ 1" — • Is •^ J:; 2 a S » 8>> ?1o o . o C'^ en ^-0 6 ^^ > oJ'S 1- TfOOv ,111 n o _ sO cj e; vpvp ooo So ^O ^ O lO lO ^2| j2 £> y So |- ZCQSZ o ^ '3 OT o^' "^ ^' i^ ^' 00 "^ ^ 1-1 3 s 2 ,0 = ?, (N O O — Tt< ■^ ^ - fU 3 C X ^ aQ l/^ pr; ■>* «S CO - c 3 s ~ S '^ '^ O ON Ov O O O O O "^_ O r^- f*5 o ' ' • -t • : : : : • glisliililis ..2 ^^ .dSJ a , o 2 h o fi o ^ Pi S O^ CCCfiCCCCCCCC ooy oooooooooooo a d o o c c cc e dccccfl oo o oooooo Sj^'O (uajdj a,yu ccd Oaj ooo s^« ^«^ C lOO ■* O •* o C =0 C"0 CiMOoO MmcS OOOOOCOO4J0J oj ajojaiajajaj oooooooooooo o-'t-'t o o o oo o oooooo ccccdcccddcd pj< O vC vO t^ 00 vo >0 MD iTi MD \0 \0 •* •^ rj* ■^ >0 tJ* Tt< ■^ "l \0 \0 ^ lO lO t>. >S! O ^s fe^ •- OJ r- -tJ 5 > tj- lo^pi 2 _- ajojojrocva-'rt oj c c: d c^ g=: c oj (U oj o • rt O t ^ s s rt c:. c:. O c^ .111 J3 a; C OJ d (U Cue .aj M hfi l-l M d^ " > -ij N o ,^ ^^' n dU2^>^ §^o2:d:5' t3 a ii ^j O 01 ■n-^ o >sOkP bS> C C C C CO^o^ o^ 00000"^»0 ^ oo oo c c o o c c ;oOccc^f:^'^r- ID 00>0 >>^ c o o o t^ 5 c— c 2QUOfir^ffo^ ^ to have scales for each of these subjects, thus reducing all classes of miscellaneous figures, whether Ivloney Rates which appear as percentages. Bank Clearings which appear in dollars, or Crops which appear in bushels, to one common scale. Of course for certain subjects, such as Bank Clearings and Railroad Earnings which vary with different seasons of the 3'ear, it is necessary to have twelve different scales, one for each month; but this is simply a matter of detail. After working out all of the mass of figures, those subjects that especially relate to mercantile conditions are reduced to one independent barometer figure for mercantile conditions; which is simply done by adding up the individual scale figures for each of said subjects and dividing by the number of subjects. In the same way an independent barometer figure is worked out for monetary conditions, based on the scale figures for subjects especially related to monetary conditions. In the same way a third independent barometer figure is worked out for the remaining subjects, including those especially relating to investment conditions. After these three independent barometer figures had been obtained on mercantile, monetarj^ and mis- cellaneous conditions respectively, these three independent barometer figures are added and divided by three, thus giving a final summarj^ barom- eter figure, which is the figure plotted to ascertain at any time the area consumed on a summarv' plot. The writer started his scale with zero as representing the conditions existing in 1902^ directly before and after the panic of 1903, and with such a scale, the high during the year 1910 was considered as about 70. There is, however, no reason why his scale should be the only proper scale, as other students of fundamental statistics have started with scales where zero represented conditions ten or more years ago. In such cases, their THE COMPOSITE PLOT 109 ment and averaging the final results. These figures, therefore, are not a matter of opinion and any two persons using the same scale would arrive at the same conclusion. In the case of the barometer figures for pros- perity conditions, the method is different. Al- though the basic figures are derived from the use of a fixed scale, the result must often be modified in accordance with other data and the opinions of merchants, investors or bankers making the de- ductions. Personally the writer does not believe in using any figure for "normal" conditions. Although the main use of the barometer figures is to plot the "area" mentioned earlier in this chapter, these figures are also interesting for other purposes. If, for instance, during a period of de- pression the final barometer figures for a long period of weeks show a continuous but slow increase, the country is usually facing improved conditions, high for 1910 would probably be in the vicinity of 150. In reality it makes little difference what the definite scale figure is, provided the base is submitted therewith to use for comparison purposes; for it is a fact that if a number of different statisticians, with different scales which started at different times, should plot their summary figures, all the plots would look alike and the relation of the different areas above and below the average lines would be the same. In other words, different men with different scales would obtain different summary barometer figures for a definiie date; but the rdaiion between their figures would be the same always, and this is the only vital and important feature involved. For this reason bankers, merchants and investors are justified in using the barometer figures worked out by a central agency and thus avoiding the difficulty and expense involved in working out such figures for themselves. Moreover, as such a central agency continually plots these summary barometer figures, to-day it is only necessary for the up-to-date business man to refer to the plot furnished by the central agency and keep in abso- lute touch with the area being consumed on the present cycle. He then can independently forecast for himself: (1) In what period we are to-day; (2) The duration of the present period; (3) Whether the next period will be a period of prosperity, a period of depression, or an intermediate period. Is not this information about all the able banker, merchant or investor needs? no BUSINESS BAROMETERS however poor business may appear to the average merchant. On the other hand, during a period of prosperity, if the barometer figure for surface condi- tions continues to abnormally increase, there is liable to be a change for the worse at any time. The fundamental principle to be remem- bered, however, concerning the Area Theory is as follows: If X-Y truly represents the nor- mal growth of the nation, and if the black areas truly represent the actual growth, then these areas should balance. Monthly Interpretations But in addition to collecting figures to deduce barometer figures therefrom, some merchants and bankers have the monthly figures on each of the twenty-five or more subjects mentioned above, interpreted* each month for what they signify. *When interpreting the original figures in accordance with the rules above suggested (the second step outlined in the early part of this chapter) , the following method is used. A record of the monthly figures on the twenty-five subjects, properly arranged so that they may be quickly com- pared, is kept before one, in tabulated form, together with the figures by years, back to the Civil War. Such sheets may now be obtained from a central agency, which agency keeps the sheets and tables constantly revised so that when a new sheet is obtained it is only necessary to throw the old sheet away and substitute the new sheet in its place. On the new sheets appear all the figures that appear on former sheets and in addition the new figures which have been published during the preceding week. In addition however to having the figures in such sheet form (thus always enabling the banker, merchant or investor to have before him a bird's-eye view of the situation), it is also desirable to have the definite figures for each month with a comparison with figures for the same month of the previous year also printed or written on a separate sheet. This shows one at a glance whether the new figures for the current month on each subject show an increase or a decrease. As soon as this is ascertained one may refer to the rules and know what this increase or decrease signifies. As each subject is interpreted in this way, the different interpretations should be recorded and a final summary made. This summary should show how many of the twenty-five subjects signify continued improvement; how many signify no improvement; how many signify caution, and how many signify no change. As this work is purely mechanical, there is no reason why bankers, mer- chants and investors cannot also depend upon a central agency for prepar- FUNDAMENTAL STATISTICS 111 Such interpretations are made in accordance with the rules given in Chapters VI, VII and VIII, and show how many subjects signify a "Continued Im- provement," how many signify **No Improvement" and how many signify "No Change." Figures on the majority of these twenty-five subjects can be obtained not oftener than monthly, and therefore final totals need be studied in detail but once each month. If there has been a normal growth or change, — sometimes a favorable showing requires an increase or sometimes a decrease, — the figures on a given subject are considered as signifying satis- factory conditions; but if a growth or a change is not normal, the figures are considered as showing unsatisfactory conditions. In other words, satis- factory conditions require a normal change and figures of much less than normal or much more than normal are considered unsatisfactory. The industrial organization of the country is similar to the physical organization of the human body. The individual normally should have a certain appetite and should require a normal amount of food. The normal appetite increases from childhood to youth, and from youth to matur- ing these comparisons in the form of a monthly report. When this is done the work is tremendously simplified for any student of fundamental sta- tistics. Therefore not only may arrangements be made for collecting the original figures, as they appear from day to day, and as they have appeared in the past, and for having them reduced to barometer figures and plotted — - the first feature of the work; arrangements can also be made to have them tabulated in sheet form and once a month compared as to their increases and decreases — the second feature of the work, namely, the interpretation according to the rules mentioned. This, therefore, eliminates all mechani- cal work on the part of any bank, firm or individual, and it is only necessary for one to note the summary plot once a week, the interpretations once a month, and take a general view of the tables whenever convenient. Upon so doing one automatically, of himself, makes a forecast of future mercantile, monetary or investment conditions. 112 BUSINESS BAROMETERS Ity; but its relation to health is the same. So long as a man regularly eats a normal amount, he con- tinues to increase in strength and vitality; but if he overeats, or is underfed, he ceases to gain strength, his efftciency is reduced, and he becomes subject to attack of disease. As therefore the maintenance of good health requires a certain normal balance, so do the prosperous conditions of industrial life. This evidently does not mean fixed conditions, as in a rapidly growing country like America, the figures to be normal must increase in proportion to the increase in the wealth, population and activity of the country. Great increases or great decreases are distinctly not normal and are always significant of a marked change; a change for the better in time of depression, when present con- ditions are very unsatisfactory; or a change for the worse during a period of prosperity, when present conditions are apparently very satisfactory. As an illustration, however, of how the leading financial papers fail to recognize this principle, the following from an editorial of October 9, 1909, in what the writer considers America's most valuable financial weekly, is of interest: "It seems inconceivable folly to argue in favor of further meddling. If a man should protest, with sorrowful anxiety, that his bodily vigor is so great that he is really in fear about his future, and should forthwith set to ransacking the market for proprietary nostrums to keep himself regulated and down, he would be rated wanting in good sense. But what is a nation except a mass of persons, and is prosperity a matter to be anxious about or to he afraid of? The very question sounds absurd. Nevertheless, in a speech, on entering California this week, our worthy President, after sounding the paean of coming prosperity as loudly as language could do it, added that the difficulty is that whenever everybody is prosperous, when everybody is comfortable, then is the time when our old friend Satan steps in and helps along the evil cause; then is the time when we are apt to be inert and enjoy the things we have, without looking forward in the future and seeing that the evils will grow and ultimately swamp us." FUNDA^IENTAL STATISTICS 113 Of course, our President was right, and our es- teemed contemporary wrong. Great prosperity is a matter to be feared. When a man or a nation is in a normal condition, there may be nothing to be anxious about; but when a man or a nation overworks or "lives too high," or in any way be- comes strained or careless, trouble is sure to follow. This same principle is illustrated in the case of Interest Rates.* For instance, when interest rates gradually increase and surplus reserves gradually decrease after a period of depression, the combi- nation is significant of improved present conditions; when commercial paper is discounted at 3^%, one may always be sure that the country is not pros- perous, that many factories are idle and many men out of work. As the mills resume operation and as business becomes more active, money rates increase and surplus reserves decrease, all of which increase is shown by higher barometer figures for surface monetary conditions. Then, as money rates in- crease too much, and the surplus reserves decrease to very low figures, the change is significant of un- satisfactory future conditions. In other words, when money rates are below normal it shows busi- ness is dull, but may be better; and when money rates are above normal, it shows that business is good, but will soon be worse. Of course if this data were obtained by each in- vestor, merchant or banking house independently, it would require a force of clerks to collect, analyze and sort the mass of figures; but as the data may now be obtained from a central agency, all of the *See the very valuable book on this subject by Professor Irving Fisher of Yale University. 114 BUSINESS BAROMETERS drudgery is eliminated. The investor or merchant may simply note the barometer figures as they are made up each week, thus keeping in constant touch with surface conditions; and by reference to the monthly figures once a month, these surface con- ditions may then be interpreted in accordance with the rules mentioned. Moreover, the average banker, merchant and investor is satisfied to depend upon the barometer figures and reports furnished by this central agency, and not to make a personal examination more than once or twice a year, de- pending rather upon a w^eekly perusal of the Com- posite Plot. But whatever the time or money expended, all merchants and investors always obtain great pleasure from such studies. The Composite Plot and the data from which it is compiled not only gives a clear idea of the present conditions, but also of what may be expected in the future. If during a period of depression, uncertainty and discourage- ment, the Composite Plot and individual charts show distinctly that the country is about to enter a period of prosperity, investors buy stocks, mer- chants buy goods, and bankers extend loans. The result is that, when prosperity returns, such in- vestors and merchants find that they have pur- chased very much below the prevailing prices and obtain many times the profit that they otherwise would. During a period of great prosperity and extrava- gance, when everybody is buying goods or securi- ties and there is a general increase of indebtedness, COMPARISON OF THE MAIN FEATURES OF FIVE JPANlCS WITH SPECIAL REFERENCE TO THEIR EFFFCT IN THE UNITED STATES \iiteredertt Conditions 1857 1873 Mexican War at home — Crimean War abroad. Gold discoveries of 1848-49— production $400,- nnO.OOO up to 1856, aiding in preventing panic ..liich might have been caused by suspension of United States Bank and other banks. It also ibuted to recover^' from depression incident isis of 1857. United States — a rapidly de- veloping nation, at the same time financially weak as compared with European countries. Large absorption of capital through activity in canal and railroad construction, especially in 1SS6, and through great national development along many Unes. Enormous expansion in busi- ness, great prosperity and much extravagance. Proportion of specie to loans and to circulation always small. Large bank deposits prior to crisis but steadily increasing and finally excessive loans. Defective currency and unstable banking. No machinery by which banks could restrain or check capital expenditures for unwarranted ex- Banks in 1846.707; in 1857, 1,416. Rf.nkrapitalin 1846. $196,000,000; in 1857 $370,000,000 Metallic Reserves in 1,S47 35.000,000 " 59,000.000 Note Circulation in 254.000,000 American Civil War and Franco-German V The Chicago fire. — r,old output of United St for prior 16 years $735,750,000. Railway, in( trial and other construction work all over the world on scale previously unknown. Great pro- ress in development of our natural resources. Enormous increase in manufacturing, and agri- Itural activity and output, involving colossal absorption of capital. Limited business organ- " in, much destructive competition and no little looseness in business morality. National credit high, but monetary system imperfect and currency somewhat inflated. National banks created chiefly to insure a market for government bonds, through bond-secured national bank notes. Government became more closely identi- fied with the nation's banking affairs, but no means provided enabling banks to check over- straining of credit. Steady expansions of loans, great prosperity, a scale of living and personal expenditures never before seen in United States. National Banlis *Other Banks Number in 1873 .... Initial Steps ir Crisis Slock Exchange securities declined, and mar- ket became demoralized. High interest ruled tr.in'action of business became difficult, con traclion set in, and being accompanied by bank l;iilm('s, loss of confidence ensued and sudden col j l;ipse followed. Failure of Ohio Life Insurance & Tuist Co. on August 24, 1857, marked begin ning of crisis, although panic was postponed till October 13. the 3rld. Runs on banks — hoarding by banks and indiv- iduals. Banks refused to redeem notes in specie. Bank notes were discounted. Interest rates rose to 25 per cent, and later to 100 per cent; securities were unsaleable. Failures of banks, commercial and industrial institutions numer- ous, and wide spread and general busi- ness stagnation ensued. Railroads tem- porarily suspended payments. Commodity prices fell from 10 to 35 per cent. — even wheat was unsalable through unusual harvests abroad. Gold imports for the year ended June 30, 1857, $6,654,636. Exports of gold and silver, $69,- 136,922. Crisis period between three and four months. Recovery on Stock Exchange began when banks resumed specie payments in December, 1857. Real recovery from depression, which began early in 1859— more than two years after the panic — was based on the bright agricultural out- look, which however, was somewhat affected by unusually late frosts. Legislation Congress took and banking con I improve currency $490,109,801 252,178,503 338,964, 174,714 121,775 913,117,643 925,557,682 514,081.496 Per capita circulation ii Excess merchandise imi Excess gold e-xports for ♦Incomplete data take 1,204,676,204 6 prior years 687,941,419 , from Report of Comptroller for High interest rate for preceding two years, extremely low reserves, irregularity in security prices and panicky conditions on the Stock Ex- change. Enormous amount of railway secur- ities placed on the market, embarrassing insti- tutions endeavoring to float them. Crisis in United States ushered in by failure on Septem- ber 18 of Jay Cooke & Company, followed by panic conditions. Largely due to overdevelopment in America it began in Germany and became world wide. Bank deposits withdrawn; loans unobtainable on collateral; much money disappeared from cir- culation; legal tender notes at 3% premium; gold at 106; bank failures; 9 failures in every 1,000 commercial houses. $15,000,000 of gold im- ported. Stock Exchange closed for 10 days; suspension of payments lasted 40 days. No in- dustry remained unaffected. Universal discon- tinuance of work, commodities dropped 20%, and many were unsalable. Treasury bought $13,- 500,000 government bonds. New York Clearing House issued $26,565,000 certificates and made fund of associated banks' legal tender Crisis period about 3 months. Recovery on Stock Exchange began November 13, 1873, Depression period longer than in '57 and '93! Slight business revival in 1877, marked improve- ment in some trades in 1878, real recovery early in 1879— year of resumption of specie payments. Improvement continued, with interruptions in 1884 and 1890, until 1893. Legislation provided a safe but inelastic bond- ecured currency. Great and rapid expansion of the West and, enormous railroad construction. Earnings of rail- roads large, on account of hauling their own sup- plies for construction, the earnings declining as the roads approached completion. Parallel lines constructed in the endeavor to compete in traffic. Large iron production. Tremendous inflation of securities by new issues and by payment of large stock dividends. Silver question more or less in evidence as a disturbing factor. Bank clearings increasing enormously. The Trunk Line Rat War raged among the railroads, disas ings. Considerable tariff agitation 1893 tional Banks Note Circulation 330,689,893 Deposits 979,020,350 Loans 1 ,269.862,936 Per Capita Circulation 22 65 Excess Merchandise exports for II prior Excess Gold imports for 1 1 prior years . . Other Bank The inflated condition of things in 1881 needed only some severe shock to throw the country intc a decline, which event occurred in the assassina- tion of President Garfield. The countrv rallied, however, from this disaster. Jay Gould making his famous exhibit of securities in 1882 in the vain effort to stay the panic. An over-weighted stock market was still further shaken by partial crop failures and a new tariff. In the beginning of 1884, Henry Villard failed. This was soon followed by failure of Jas. R. Keene, the Marine Bank, the Metropolitan Bank, and the house of Grant and Ward. This last failure was disheartening, as General Grant was the idol of the nation. Startling frauds were brought to the surface. A severe panic convulsed France in 1882, but matters did not come to a head in the United State; until 1884. .i^ll Europe felt the effects of depression Railroad Construction declined. Bank Clearings decreased tremendously, and the customary failures """"? very large, f ommodity prices suffered a severe decline, and ihe New York Clearing House, as in the panic of 1S73 came to the rescue with an issue of Clearing House certificates. Stocks fell from high values to the lowest point of any date since 1879. Manufacturing and commercial in- dustries withstood the shock fairly well, being on firm ba.sis. Crisis was of short duration. The stock market was at its lowest point in the fall of 1884, and in- creased the next year considerably, the crops in that year helping out the situation. Final recovery was made during 1886, and plans for large under- fo , ^^^ forth. By 1887 prosperity was again m full swing. . Various bills for reduction of the tariff defeated in Congress, bringing increased confidence to the trading public. The passing of the Interstate Commerce Act in 1887 inaugurated the policy ol railroad control by the government. A period free from destructive wars. Great railway and industrial development by England in her colonies and in such regioiis as South Africa and South America. Many highly specu- lative enterprises launched. Heavy and increas- ing demands on capital precipitated a crisis abroad, signalized by the Baring failure in 1890. In the United States, while the decade prior to 1893 saw many railroad receiverships, there was much competitive railroad building and absorp- tion and extension of smaller lines by larger systems. Period one of varying prosperity in the United States, due largely to local causes. Specie payments resumed in 1879. Silver ques- tion settled in Congress, but continued disturb- ing element for 3 years. An era of unrest. Our country was going ahead in leaps and bounds, in agriculture and manufacturing and in produc- tion of iron and steel. A time of readjustments between labor and capital and of progress in business concentration through organization. Usual waves of extravagance, but held somewhat in check by fluctuations in prosperity. Cum- ulative abuse of credit which banks were without power to control. 1907 (Nc major panic) National Banks n 1893 3,796 $683,598,120 Other Banks Issue of silver certificates beginning June, 1890 warded off crisis initiated in England, but alarmed European investors who returned Amer- ican securities. Great excess of imports; diffi- cult to maintain national redemption fund; gold driven out through "endless chain;" enormous expansion of bank loans in West and South. Stock Exchange securities declined 30 to 50 per cent.; sudden contraction of loans early in summer of 1893; issue of Clearing House certi- ficates; Reading Railway and National Cordage Company failed. Actual beginning of crisis July 25th, when Erie failed and Milwaukee Bank suspended. Originating in England in 1890, it extended to other European nations, but did not reach the United States till 1893. ,o^J'^^n^''^^'^ business stagnation followed 1893. Great distress of workmen. Second Boer war, Chinese- Japanese war, Spanish- Amer- ican war and Russian-Japanese war. Destruc- \'°"°' ^an Francisco by earthquake and fire in 1906. hear of free coinage of silver settled at polls. Congress protected Treasury's gold from depletion by "endless chain." Railroads emerged from receiverships; great railroad systems further perfected by purchases and mergers; greatest development period country has ever known, especially in business organization to secure stability, economy in administration, efficiency m production and protection from des- tructive competition. Relations between capi- tal and labor adjusted with less friction; distinct adyanceinstandards of business moralitythrough agitation and public demand for full publicity in corporate management. Whole period marked by astounding growth in the nation's pros- perity, wealth and importance as a worid power, but with corresponding development of e.xtrav- agance, while the demand on capital reached fabulous figures. Iks *Other Banks 1,033,578,142 (20.8%) Data' incom- Note circulation 687.340,835 29 519 Deposits (individual) 4.176,873.717 8,776.900'oOO Loiins 4,585,337,095 6,082,662,903 Per capita circulation 32.22 Excess mdse exports for 14 prior years $5,763,661,646 Excessof gold imports for 14 prior years 198 229,557 'Investigations by Director of the Mint, reduce the esti- mate of gold coin July 1, 1907, $135,000,000, : Credit conditrrns among several nations favor- able to crisis. A business momentum which the credit resources of the country were unable to meet. Enormous money requirements of rail- roads and industrial enterprises. Steady ad- vance in interest rate, Stock Exchange liquida- tions covering a year. Increased cost of com- modities and labor finally offset business profits. Recession in business with liquidations in com- modities; loss of confidence from several causes. Crisis inaugurated by runs on prominent bank- ing institutions, suspension of Knickerbocker Trust Co. and panic conditions lasting several days. The usual phenomena ot runs on banks, hoard- ng, difficulty in securing loans. Clearing house certificates issued to the amount of S41,490,000. Many banks refused to honor checks for cash payments, others only paid cash for payroll pur- poses. Bank checks issued for currency at 4 per cent, premium. This stimulated hoarding to secure premium, but also aided gold importation. During August— November $51,936,111 of gold arrived. $35,007,645 being received in August -' ;. 160 national banks suspended and 13 less houses in every thousand failed. Con- gress repealed the vicious Silver Purchase Law of 1890. Stock Exchange was at its lowest July 26th. As soon as gold imports were assured there was general recovery in prices. The acute stage of the crisis, about forty days, ended in early Sep- tember, 1893. By July 1st, 1897, general busi- ness revival had set in strongly. Developed through similar causes coincidently all over the worid. Had its first expression in the United States. No broad measures for improving the currency system. Repeal of Silver' Purchase Law on October 30, 1893. Almost identical with effects of 1893; runs on banks; hoarding of money; banks refused to make loans; many loans called and no money offered on New York Stock Exchange for 24 hours. Banks refused cash to depositors; and currency premium 31%. $74,461,027 Clear- ing House certificates were issued. Freedom from European indebtedness, premium on money and need of American cereals and cotton abroad made gold imports impossible; over $100,000,000 imported to January 1, 1908. The Secretary of the Treasury co-operated with an informal Bankers' Committee, headed by Mr. Morgan, to relieve situation; offerings of money on the Exchange immediately resumed ; Treasury increased deposits in bank at once $41,360,000. $25,000,000 Panama bonds and $15,000,000 one-year 3% Certificates sold by the Government and used for circulation. National bank circulation greatly increased prior to and during crisis, the total outstanding on Jan- uary 1, being nearly $700,000,000. Emergency currency based on assets and commodities de- vised by clearing houses and g 21 national banks suspended. FUNDAMENTAL STATISTICS 115 if this Composite Plot and the other charts foretell a change for the worse, such investors sell their securities for cash, such merchants reduce their merchandise and outstanding credits, and such bankers reduce loans or place a large part of them "on call." These statistics, therefore, both serve as an insurance against loss and also enable men to be prepared to take advantage of the very low prices which are sure to prevail during the forma- tion of an area of depression below the line of normal growth. CHAPTER V CONDITIONS AND 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. New 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 $79,807,000. 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 $687,000,000 with a considerable unfavorable balance. The index of English commodity prices for the year was 2,692. On the stock exchange, 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. EVEiNTS SINCE 1860 117 Panic conditions began in November with the elec- tion of Lincoln 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, while 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. Thus, in spite of the beginning of 118 BUSINESS BAROMETERS the Civil War, 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 $6,871,443,000. 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 in 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. EVENTS SINCE 1860 119 Money conditions were temporarily aided by measures of Congress providing for a further cur- rency inflation, and gold exportation was increased considerably. 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 exchange a fever of speculation brought about a considerable increase in transac- tions 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. Congress passed the Internal Revenue Act to in- crease the war 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 $59 per ton. Bank clearings nearly doubled those of the preceding year amounting to more than $24,000,000,000. 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. 120 BUSINESS BAROMETERS 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 $2.00 per bushel and corn at $1.44 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 Presidenc3\ 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 $400,000,000, and the index of English com- modity prices dropped to 3,575. On the stock exchange the price of the ten stocks fell from 158 in the spring to 125 in the fall. Railroad earnings were erratic in behavior. The EVENTS SINCE 1860 121 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 fundamental conditions. Foreign trade increased to more than $780,000,000 and exports of gold somewhat decreased. Commod- 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, fundamental conditions appeared to be somewhat 122 BUSINESS BAROMETERS 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 S44.08 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 trade amounted to $690,266,237 in vol- ume with a balance of $61,337,308 of imports. The English commodity price index was 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 $3.33 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. EVENTS SINCE 1860 123 The number of failures decreased to 2,608 with total liabilities of $63,694,000; and the number of immi- grants decreased to 138,840. jNIoney 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 $87,000,000. The English commodity price index 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 $2.43 per bushel; and the corn crop increased to 906,527,000 bushels selling at $1.23 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. This and certain other unfortunate incidents left the fundamental 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 124 BUSINESS BAROMETERS were produced at $40.61 per ton. Bank clearings increased to $37,407,028,000. 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, w^ere high. The excess of gold ex- portations decreased to only $17,990,000, while the balance of trade in favor of imports increased to $101,079,906. The English commodity price index 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 was the case, however, 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, fundamental 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 unsatisfactory monetary conditions at the EVENTS SINCE 1860 125 close of 1869. There were 6,078 miles of new road constructed, and 1,665,000 tons of iron produced at S33.23 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 rernained firm, al- though 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 im- ports of merchandise decreased to $57,546,000, and the volume of foreign trade was $864,730,176. The English commodity price index 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 selHng at $.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 underlying conditions. Money was not 126 BUSINESS BARO.METERS 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 English commodity price index for the year was 2,590. On the stock exchange 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 selHng 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 w^ere 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- EVEiNTS SINCE 1860 127 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 EngHsh commodity price index was 2,835. Speculation was active on the stock exchange. 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 was 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. Although this was a year of apparent prosperity, students of fundamental statistics, who had not already done so, now saw that the area of prosperity was practi- cally consumed, and immediately liquidated. 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 2,560,000tons 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 $100,000,000 128 BUSINESS BAROMETERS 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 clearing 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 index 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- EVENTS SINCE 1860 129 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 withdrew 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 tirqe 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 fundamental con- ditions have been unsatisfactory for a year or more, during which time bankers and merchants who study fundamental conditions, have been preparing for the depression. 130 BUSINESS BAROMETERS 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 selHng 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 EVENTS SINCE 1860 131 $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 declined to $1,046,000,000. The index figure for English commodity prices was 2,778. On the stock exchange stocks were irregular and declining in price. Ten stocks averaged 100 high and 87 low. Gross railroad earnings amounted to $7,010 per mile, shoAving 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 $191,117,786; and immigration declined to 169,986. 132 BUSINESS BAROMETERS Owing to the thorough liquidation, 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 $1,001,000,000 was due to a decline in imports which raised the excess of exports to $163,319,000. The English commodity price index 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, w4th prices slightly lower. Money rates in New York on time loans had declined to 5%; and abroad, to 3J%. 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 laws 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 EVENTS SINCE 1860 133 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 who 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 exchange, 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 $.118 per lb.; 1,342,000,000 bushels of corn sold at $.59 per bushel; and 364,- 194,000 bushels of wheat sold at $.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 134 BUSINESS BARO.AIETERS 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 years. 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 with the price per ton at S17.67. Bank clearings declined slightly to S22,- 508,000,000. Failures increased in number to 10,478, and in liabilities to 8234,000,000. Immi- gration declined still further to the low point of 138,000. Monetary alTairs 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 8305,000,000, and the gold movements showed an excess of imports amounting to 81,821,000. 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 were 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 82,375. The crops of corn and cotton were about the same as EVENTS SINCE 1860 135 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 seUing 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 with the Specie Payments Act of 1875. specie payments were again resumed 136 BUSINESS BAROMETERS 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 S28 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- clined from $46,800,000 in 1879 to $6,100,000 in this year. On the New York Stock Exchange, transactions increased from 72,000,000 to almost 98,000,000 shares. The ten stocks rose from 87 to 131. Net rail- road earnings increased 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 EVENTS SINCE 1860 137 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 every one 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 of fundamental con- ditions to begin to decline, and before the year closed, said fundamental 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 138 BUSINESS BAROMETERS 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 Boston fire in 1872. 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 important lines 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. EVENTS SINCE 1860 139 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 the conditions were perfectly sound 140 BUSINESS BAROMETERS and that still greater prosperity was ahead, he himself was doubtless unloading and liquidating with all possible speed in preparation for the public withdrawal of his support later. Moreover, the banks were aiding their directors by keeping down money rates although the demand for money was very great. Students of fundamental statistics, however, could not be misled, and knowing that the area of prosperity was rapidly being consumed, prepared for trouble. 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 liabilities 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 EVENTS SINCE 1860 141 siders the opportunity to liquidate. Ten stocks fell from 121 to 103. Railroad earnings increased slightly both in gross and net. Money rates in New York averaged 6J% 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, and clearly foretold the panic about to follow. 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 $226,000,000 of liabilities. Immigration also declined to 500,000 in number. In foreign trade, both exports and imports decreased. The balance "in favor of" this country was $120,000,000; but gold movements showed an excess of exports amounting to $12,990,000. 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. 142 BUSINESS BAROMETERS and 80 in the summer and fall. Net railroad earn- ings declined to $2,318 net per mile. Crops, how- ever, were again good, corn and wheat amounting to over 2,300,000,000 bushels. If it had not been for 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, foUow^ed 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 $1,319,700,000 and the balance "in favor of" the country decreased to $100,000,000. Gold movements showed an excess of imports of $12,200,000. The average surplus reserves in the New York banks rose to the enormous sum of $48,000,000. The English commodity price index was 2,023. The stock market was comparatively active. The ten stocks rose from 83 to 113. There was a considerable issue of new vStocks 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 EVENTS SINCE 1860 143 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. 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 144 BUSINESS BAROMETERS 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 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 increased 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 commodity index for the year was 2,087. The stock market was rather less active than in EVENTS SINCE 1860 145 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 is 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 fundamental 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 $49,484,000,- 000; and failures, though increased in numbers were decreased in total liabilities. The number of immigrant arrivals increased to 546,000. Monetary conditions v/ere interesting. While exports decreased, imports increased enough to in- crease the total volume of foreign trade to $1,419- 000,000. Consequently there was at the end of the year a balance of trade "unfavorable" to the United States amounting to $33,600,000 and a resulting excess exportation of gold amounting to $23,500,- 000. Domestic money rates remained at 5%, but 146 BUSINESS BARO^IETERS surplus reserves in New York banks increased to an average reserve of $17,000,000. The English index figure for commodity prices rose to 2,458. The inactivity 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 a year of prosperity. New railroad 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. Exportationsof 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 EVENTS SINCE 1860 147 London Economist which was 2,362 for this year, commodity prices had somewhat dropped. On the stock exchange, transactions showed an increase. Ten stocks rose from 123 in the spring to 144 in the fall. Domestic time loan rates con- 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 which time, while surface conditions looked satisfactory, fundamental 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. 148 BUSINESS BAROMETERS The stock market conditions were peculiar. Railroad earnings rose to a net per mile of $2,162. The cotton crop was unusually large, amounting to 8,600,000 bales; but the wheat and corn crops fell 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 remained 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 surface 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 $69,000,000,000; 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 exports 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 EVENTS SINCE 1860 149 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 $1,122,- 800,000 in 1890, decHned in this year to $476,500,- 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 $.086 per lb. The corn crop of 2,000,000,000 bushels sold at $.67 per bushel. The wheat crop of 611,000,000 bushels sold at $1.05 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, most people believed this a very satisfactory year. Students of fundamental statistics, how- ever, clearly saw that the area of prosperity was about consumed and prepared for trouble. 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 $61,919,000,000; failures declined in number to 10,344 and in liabilities to $114,000,- 000, and immigration figures rose to 523,000. In monetary matters, though the commodity ex- ports exceeded imports by $97,000,000, still there 150 BUSINESS BAROMETERS was an exportation of gold in excess of imports amounting to $59,000,000. The New York banks' average surplus reserve amounted to $15,600,000. 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 figure of 1,207 indicates that there they were low. On the New York Stock Exchange 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 wheat together amounting to less than 2,150,000,000 bushels. In short, it was clearly evident to students of fun- damental statistics that the area of prosperity was more than consumed, and those, who had not already liquidated, sold securities, merchandise and everything else possible in preparation for a period of depression to last until 1897. 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 subjects, declined to 502,917. EVENTS SINCE 1860 151 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 New York to 5^%. 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 off 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. 152 BUSINESS BAROMETERS 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 in- creased to $45,900,000. Commodity index prices dropped in America to 6.43 and in England to 2,002. On the New York Stock Exchange only 49,000,000 shares were traded. The ten stocks rose to 123 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 w^as 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. EVENTS SINCE 1860 153 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, had improved both in yield and in price, amounting to 9,000,000 tons and selling 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 country. 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 $23,- 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 154 BUSINESS BAROMETERS 2,000,000,000 bushels sold at $.477 per bushel; and the wheat crop of 467,000,000 bushels sold at S.669 per bushel. And added to the fair crops, there was the low domestic money rate of 3J% 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 famous Venezuela message, and the threatened pos- sibility of war with our greatest foreign creditor, England. 1896 This year business was still depressed from the panic of 1893 and the heavy gold exportations of 1894-5. 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 liabihties of more than $226,000,000. Immigration amounted to 343,267. In monetary matters, the volume of foreign trade increased to $1,687,000,000 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 EVENTS SINCE 1860 155 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- face conditions, fundamental 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. In fact, it was evident from a study of fundamental statistics that the area of depression was about consumed, and a period of prosperity was due. They therefore purchased securities and mer- chandise in large quantities, and later made great profits thereby, as the major bear movement com- mencing in 1892 was at an end. 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,- 156 BUSINESS BARO.METERS 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 were more sound. The for- eign 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 3^% of 1895, and railroad earnings continued to improve. Crops, too, remained strong. Though corn showed a decrease, wheat increased to 530,000,000 bushels 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 affairs, the volume of foreign trade still showed an increase due to the great increase EVENTS SINCE 1860 157 in exports in spite of the fact that imports had somewhat decHned. 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 $1,255,000,000 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 jumped up to $2,111 per mile. Once more 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 w^heat 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 $94,000,000,000, while 158 BUSINESS BAROMETERS 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 $476,000,000. Money rates at home and abroad were 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 $2,272 per mile. Though the cotton and wheat crops showed a decline, 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. EVENTS SINCE 1860 159 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 with 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. Fail- 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 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- 160 BUSINESS BAROMETERS 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 clearings 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 year amounted to $3,000,000. Bank 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 EVENTS SINCE 1860 161 the fall with the shooting of McKinley. Mean- while net railroad earnings continued their increase to $2,688 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, fundamental conditions were not satisfactory, the "prosperity" area, as shown by the Composite Plot, was nearly consumed, and the cautious investors were changing their positions 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 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 $118,000,- 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 $391,- 000,000 in the excess of exports, due, again, entirely to an increase in imports. Gold imports exceeded 162 BUSINESS BAROMETERS exports by $8,000,000. 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 $1,317,000,000. 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 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. These facts, together with a study of the composite plot of fundamental conditions, clearly showed students of the situation that the area of prosperity was again consumed, and another de- pression was again imminent, although it was generally believed that this "area" represented EVENTS SINCE 1860 163 only a minor movement, and that the major move- ment, beginning in 1897, was still upward. 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 $109,000,000,000. 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 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 $2,887. 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 164 BUSINESS BAROMETERS 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 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 in 1904. Ncav railroad construction continued to increase to 5,059 miles, though iron production declined to 16,497,000 tons selling at $15.50 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 year, by $36,- 000,000. The average surplus reserve of the New 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 declined to $710,900,000 of which more than 500,- 000,000 was bonds. The ten stocks rose again EVENTS SINCE 1860 165 from their fall to 150 in 1903 to their former high point of 190. Net railroad earnings increased to S2,980 per mile. Time loan 'rates dropped to 4% in this country and 3^% 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 $1.07 per bushel. In this year, 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- vserve of the New York banks declined to only $10,- 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 listed amounted to a billion and a half dollars, of which nearly a billion were in bonds. The ten stocks, in this 166 BUSINESS BAROMETERS year, had an unprecedented rise from 180 to 206. Net railroad earnings advanced to $3,129 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 3'ear 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 $159,800,000,000, 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 $477,000,000; while the excess of gold imports, aided by artificial importation, amounted to $108,000,000. The average surplus reserve of the New York banks dropped to only $7,500,000. 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 EVENTS SINCE 1860 167 earnings advanced to $3,129 per mile. Crops were tremendous. Cotton yielded 13,000,000 bales at $.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 and the culmination of the major bull movement beginning in 1897. 1907 In this year prosperity, carried to an extreme point, collapsed in panic. But, as is usual, the change in conditions was not apparent except to those students of fundamental statistics who clearly saw by the Composite Plot that the area of prosperity was about consumed, and that we had entered another period of liquidation which might not end for several years. New construction in- creased to 5,499 miles, while iron production ad- vanced to 25,000,000 tons selling at an average price of $24. Bank clearings, however, declined to $145,000,000,000, and failures increased in number to 11,725. Immigration advanced to 1,285,000. In monetary affairs, the total volume of foreign 168 BUSINESS BAROMETERS trade continued its increase to the unparalleled figure of $3,315,000,000; the balance from excess of exports decreased slightly to $446,000,000; and in gold movements the excess of imports declined to $88,000,000. 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 $.963 and $.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 of the year, the country had dropped from over- active prosperity into dull depression. EVENTS SINCE 1860 169 1908 Depression had, in this year, extended from the stock market to other Hnes 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 was 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, although wages still held up. 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- mained under 125 all during the summer, rose in 170 BUSINESS BAROMETERS 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 $.106 per lb.; corn yielding 2,668,000,000 bushels sold at $.786; and wheat yielding 664,000,- 000 bushels sold at $.786. In politics a temporary currency bill was passed to meet the depressed conditions; while Mr. 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. In fact, by the spring of the next year, the area of semi-depression was completed. 1909 Though still suffering from the depressing busi- ness conditions following the panic of 1907, this was a year of apparent improvement. New rail- road construction increased to more than 6,000 miles, and the production of pig-iron showed a decided advance to 25,800,000 tons selling at about $18. Bank clearings also advanced to $165,600,- 000,000, and failures decreased in number to 12,924. Immigration continued low at 751,786 new ar- rivals. 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 $3,000,000,000, 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 $88,793,000. Bank reserves EVENTS SINCE 1860 171 declined from the high figures of 1908 to more 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 $2,424,000,000, almost equally divided between stocks and bonds. The ten stocks rose from 154 to 189. It should, however, be kept in mind that, notwithstanding the great uplift in prices since 1907 , this is probably only a rally in a bear market, and we may not see our lowest prices until the major movement culminates, which may not be until 1912 or later. 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 a decline in only cotton, while wheat and corn were good. Cotton yielded more than 10,000,- 000 bales selling at $.116 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 $1.20 per bushel. These figures signify that the country enjoyed a temporary improvement, as would be expected after the conditions of 1907 and 1908. 1910 During the first few months of this year mer- cantile conditions forged ahead in a fashion that bade fair to precipitate a premature period of forced liquidation, and undoubtedly was the direct cause, through fundamental channels, of the stagnant period which followed during the summer in most 171a BUSINESS BAROMETERS lines; although, in this dullness, the Interstate Com- merce Commission interference with the railroads in their attempt to raise rates played an important part. In fact, it was only the slowing up of busi- ness, as general conditions became increasingly unsound which saved the situation. Thus, new railroad construction which had amounted to more than 6,000 miles in 1909, declined somewhat; and iron production, which averaged 2,500,000 tons for the first four months of the year, averaged only 2,100,000 tons for the remaining months, while the price fell from $19.00 to less than $16.00 before the end of the year. Bank clearings declined to about $163,722,000,000, and liabilities in failures in- creased by an average of 2,000,000 a month over those of 1909. The number of imm.igrants in- creased to over 1,000,000 in number. The fundamental figures in monetary conditions showed most clearly the unsound condition of the country, which could not have withstood the strain of a continued advance in mercantile affairs. Thus, money rates were forced up from their low level of 1909, marking a strained money market fully a month earlier than the usual rise due to crop movements. Foreign trade during the first eight months of the year showed an unfavorable balance, and showed a marked improvement only in the last months. At the same time, the excess of gold exports during the first of the year was considerable, but for the whole year declined to a moderate sum. The loans of the New York Clearing House banks averaged more per month for the twelve months of the year than the deposits. EVENTS SINCE 1860 17l5 These facts, together with a yearly figure for Brad- street's index of commodity prices amounting to about 9.00, showed clearly that the country's money market was strained and unsound. Investment conditions reflected this unsatis- factory state of affairs most faithfully. Transac- tions on the New York Exchange declined to less than 165,000,000 shares, the lowest figure since 1903; but new securities listed, amounted to $2,047,664,045, a considerable amount of which was due to the abolishment of the unlisted section of the Exchange. The ten stocks dropped from 179 to 147. Although gross earnings of the rail- roads showed an increase over last year, the un- favorable increase in the ratio of operating expenses caused net earnings to show a marked and most unsatisfactory decline. Optimism based on the crop reports was well justified by the actual re- turns. Wheat production declined somewhat, but cotton was better, and corn yielded a bumper crop of more than 3,000,000,000 bushels. The prices of all three, however, declined respectively to $.95 a bushel, $.137 a pound and $.57 a bushel. Un- certainty was the keynote of the year. "Insur- gency," Democratic success at the polls, and governmental delay in trust and railroad rate questions, had their share in causing hesitation. CHAPTER VI SUBJECTS RELATING ESPECIALLY TO MERCAN- TILE CONDITIONS (For figures for years later than those given, see the large sheet in the Addenda at the end of this book.) WHEN interpreting the twenty-five subjects treated in this and the following two 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 decHne. 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. This problem, however, is readily solved by reference to the Composite Plot. After deciding in what period the country is, each set of subjects must be interpreted in accordance with certain rules. In other w^ords, with a given subject a decrease signifies one thing, an increase signifies another, w^hile no change signifies a third. Therefore, the figures on each subject should be ex- amined independently to ascertain whether the figures show a decrease, an increase, or no change. The new figure, whatever it is, will then be in- terpreted according as it shows "more satisfactory MERCANTILE CONDITIONS 173 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. All 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, considering the areas of the Composite Plot. Remembering that although theoretically the proper method is to consider each subject inde- pendently, yet the only safe method is to consider what they, as a whole, indicate. This can be best seen by a study of the Composite Plot. Therefore, although the directions given in these three chap- ters are very valuable for use as a check upon what the Composite Plot indicates, yet no independent subject should be allowed to overshadow what the 174 BUSINESS BAROMETERS Composite Plot indicates, viz.: (1), the Composite Plot always shows at a glance in w^hat minor period we are and what period may next be expected; and, (2), how long it will probably be before this next period of depression or prosperity will be upon us. Therefore, in all cases, the "area consumed," as shown by the Composite Plot, must also be care- fully considered. Let us now turn directly to a study of such sub- jects as relate especially to mercantile conditions. WEALTH, BUILDING 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 wages and the purchase of supplies. These may NEW BUILDING 175 be included 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 with 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 what 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. During 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 Farm implements and machinery 844,989,863 749,775,970 176 BUSINESS BAROMETERS 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 $2,219,966,000 $1,576,197,160 Telegraph systems 227,400,000 211,650,000 Telephone systems 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 $1,899,279,652 $1,455,069,323 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 $414.54 per capita, of which $10,120,418,699 is held by holding companies. He figured the outstanding securities in Great Britain as $26,400,000,000 or S616.97 per capita; in France $19,500,000,000 or $500.94 per capita; Germany $10,000,000,000 or $177.41 per capita; and in Holland $2,200,000,000 or $405.08 per capita. For fourteen countries the aggregate is $111,077,764,- 333 or $196.17 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- nicipal construction, give us the most interesting I NEW BUILDING 177 figures on this subject. Because a new house costs $10,000, 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 my office, and the figures are now ready for the use of students 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. 178 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 wealth. 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, w^hile 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 NEW BUILDING 179 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 when 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- 180 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 history. 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. By 1852, California was actually 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 for "New Building" previous to 1909, NEW BUILDING 181 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 were 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 wealth 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 182 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 almost 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. Whether 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. BANK CLEARINGS 183 2. During a Period of Improvement Following a Period of Business Depression. (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 indicative of 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 city or town meet at one of the banks to exchange checks drawn on one another and such a bank thus serves 184 BUSINESS BAROMETERS as a temporary "clearing house." To illustrate: If customers of the Gloucester National Bank de- posit during the day $20,000 in checks drawn on the Gloucester Safe Deposit and Trust Company and customers of the Trust Company 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 Trust Company and the Trust Company sending a messenger to collect the $15,000 from the Glouces- ter National, representatives of both banks meet and exchange checks and the Trust Company 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 increases. 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 sufficient 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 Principlesof Money and Banking" by Conant. For a very simple and condensed state- ment, refer to pages 80-86, inclusive, of "Money and Investments" by Montgomery Rollins. BANK CLEARINGS 185 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 obtain an 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 to-day 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 volume of business of the country, provided that the prices of the commodities and securi- ties traded in, remain constant. Therefore, 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 solely one can easily forecast business conditions. A study of these statistics is an aid in forecasting conditions, both along lines above mentioned and in connection w ith Prof. Irving Fisher's "Equation of Exchange"; but taken by themselves they are of little value. On the other hand, some critics do not care "to know about present conditions, but desire only to 186 BUSINESS BAROMETERS forecast future conditions." This point of view is also illogical, as a knowledge of present con- ditions is a necessary step toward forecasting future conditions. Were it not for the systematic reports received on bank clearings, our Composite Plot would be much less valuable. By a study of these clearings, as they are reported each week, one is in immediate touch with existing conditions throughout the coun- try and is also able to study the "velocity of circulation," which, as it increases, is a form of credit inflation. In making use of these statistics 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 BANK CLEARINGS 187 line for the current year. In other words, the 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 own. 2. The other method is more mathematical and more readily operated. Instead of plotting the figures for a series of years, merchants simply tabulate the totals as follows: Bank Clearings of U. S. Bank Clearings 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 22,907,857,405 188 BUSINESS BAROMETERS 1892 $61,919,125,622 1892 $25,256,657,420 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 1910 163,721,744,284 1910 66,447,744,191 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.) As a sec- ond 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 BANK CLEARINGS 189 think it was simply necessary to multiply the clear- 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. Hav- ing 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 cur- rent year. If the study is dropped at this point these figures Avould be of no value, but the merchant revises this estimate each month, as new figures are received, and also notices whether the revised figures are increasing or decreasing. In other words, by this second method, the one universally recommended, 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 conditions are improving as marked by an upward line on the plot. If the new estimate is a decrease, it shows 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 190 BUSINESS BAROMETERS subject into the two main classes as per the preced- ing tables. The reason for this subdivision is as fol- lows: The clearings of New York alone are about one-third those of the entire country. If these clear- ings were simply a result of commercial business transactions, that is, the transactions of merchants, manufacturers and business men, there would be no reason why the New York Clearings should not al- ways be included with the clearings of other cities. The facts of the case, however, show that an exceed- ingly large percentage of New York clearings is affected by the transactions of bankers or is inti- mately related to the stock exchange transaction. This may be clearly shown by plotting tw^o lines, one for the transactions of the New York Stock Ex- change and the other for the bank clearings of New York. These Hues, 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- BANK CLEARINGS 191 Hon of New York City. If the figures for the United States vjith 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, the sum of the figures for New York and those excluding New York, after first multiplying the latter by 4 or 5, as suggested by Prof Irving Fisher of Yale University. The following conclusions are suggested relative to "Bank Clearings." (Also see note on page 208.) 1. During a Period of Business Depression. (a) An increase signifies that trade is im- proving. (b) A decrease signifies that trade 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. 192 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 «i FAILURES 193 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 ^lillions Failures Expressed in Millions 1857 4,932 291.8 1884 10,968 226.3 1858 4,225 95.7 1885 10,637 124.2 1859 3,913 64.4 1886 9,834 114.6 1860 3,676 79.8 1887 9,634 167.6 1861 6,993 207.2 1888 10,679 123.8 1862 1,652 23.0 1889 10,882 148.8 1863 495 7.9 .1890 10,907 189.9 1864 520 8.6 1891 12,273 189.9 1865 530 17.6 1892 10,344 114.0 1866 1,505 53.8 1893 15,242 346.8 1867 2,780 96.7 1894 13,885 172.9 1868 2,608 63.7 1895 13,197 173.2 1869 2,799 75.0 1896 15,088 226.1 1870 3,546 88.2 1897 13,351 154.3 1871 2,915 85.2 1898 12,186 130.7 1872 4,069 121.1 1899 9,337 90.9 1873 5,183 228.5 1900 10,774 138.5 1874 5,830 155.2 1901 11,002 113.1 1875 7,740 201.0 '1902 11,615 117.5 1876 9,092 191.1 1903 12,069 155.4 1877 8,872 190.7 1904 12,199 144.2 1878 10,478 234.4 1905 11,520 102.7 1879 6,658 98.1 1906 10,680 119.2 1880 4,735 65.8 1907 11,725 197.4 1881 5,582 81.2 1908 15,690 222.3 1882 6,738 101.5 1909 12,924 154.6 1883 9,184 172.9 1910 12,652 201.7 For example, note in the above table the year 1857, both in number and liabilities. 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 194 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 1.94 122.33 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 1908 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 1910 12,652 201,757,097 15,947 2.16 133.16 .80 FAILURES 195 From this second table we have another view of the usefuhiess 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 eft'ects of the crisis of 1903 gave place very quickly to prosperous conditions, surpassing any known in thirty years previous. Furthermore, from the "p^i* 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 196 BUSINESS BAROMETERS to present problems. While it is true that not one, 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 desired, the "per cent to the firms in business" is recommended. Table III LIABILITIES EXPRESSED IN MILLIONS Month 1902 1903 1904 1905 1906 Jan. $14,312 $12,978 $18,483 $10,417 $11,952 Feb. 11.302 10.907 15.812 9.780 10.859 Mar. 8.117 10.458 13.770 9.964 10.949 Apr. 7.359 11.811 13.136 8.056 8.059 May 9.109 12.314 9.817 8.907 12.992 June 10.173 8.326 8.469 8.777 7.850 July 6.932 17.751 8.812 6.148 6.919 Aug. 8.068 10.877 10.491 6.140 8.821 Sept. 10.031 7.229 12.864 8.039 6.255 Oct. 10.851 18.387 10.525 6.751 10.553 Nov. 9.276 16.422 8.535 8.866 11.980 Dec. 11.941 18.978 13.481 10.823 12.006 Month 1907 1908 1909 1910 Jan. $13,628 $27, .099 $14,008 $32,015 Feb. 10.283 27 .064 16.734 27.435 Mar. 8.163 21 .542 13.718 13.628 Apr. 11.082 20 .316 16.825 17.752 May 9.965 13, .643 14.383 9.590 June 16.444 14 .708 12.607 11.817 Julv 12.334 14 .222 9.527 13.790 Aug. 15.197 23, .782 9.620 12.442 FAILURES 197 1908 1909 1910 $17,298 $8,446 $15,933 15.898 12.529 18.977 12.599 9.812 11.324 14.139 14.625 18.038 Month 1907 Sept. $18,935 Oct. 27.444 Nov. 17.637 Dec. 36.296 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 198 BUSINESS BAROMETERS being $32,026.80 as compared with December, $30,760.06), for we maintain that the smaller "per cent." with heaviest liabiUties, 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 plainl}- traced by having these failure sta- tistics at hand. While to obtain accurate comparisons of the progress of the current year, 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, as well as tables subdivided according to the different trades involved. TABLE IV PERCENTAGE OF FAILURES AND LIABILITIES CLASSIFIED AS TO CAUSES UNITED STATES PER CENT. Liabilities 1906 1905 Failure due to Incompetence . Inexperience . , Lack of capital Unwise credits. Failures of other Extra vagance Neglect Competition Specific Con- ditions .... Speculation . . Fraud , Number 1907 22.6 4.9 37.1 2.3 1.4 1906 22.3 4.9 35.9 2.6 2.0 1.0 2.2 1.0 1905 24.4 4.8 33.4 3.5 2.2 1.1 2.9 1.5 1904 23.1 5.1 32.2 3.4 2.5 .8 3.1 1.3 16.3 17.3 16.3 19.1 10.1 10.0 1907 8.9 3.2 18.4 3.1 .5 51.7 4.9 5.1 15.5 2.2 30.9 2.1 8.8 .9 1.5 .4 17.9 3.6 16.2 21.6 2.1 33.0 4.2 4.5 .12 1.1 .9 15.5 7.7 8.2 1904 14.1 3.2 31.8 4.8 8.2 .7 1.6 1.0 22.7 5.3 6.4 FAILURES 199 For example, if 1907 showed, as is claimed, 37.1% of failures due to lack 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- 200 BUSINESS BAROAIETERS 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 b}- 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 I 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 water mark, a study of the rate at which it is subsiding, and a knowledge of the condition of each tributar\- stream assists ver}- much in estimating the time when seed ma}- 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 which 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. FAILURES 201 The following conclusions are suggested relative to "Business Failures." 1. During a Period of Business Depression. (a) An increase signifies that 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. 202 BUSINESS BAROMETERS (c) If there is no change the figure need not be considered. IMMIGRATION 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 w^ill 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 m.uch 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. nnilGRATION 203 The same could 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, no such satisfactory figures can now be obtained. For either determining the present trend or fore- casting the approaching conditions, onl}^ figures which 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 at 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 week or one month regularly. Therefore while there are to-day 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. 204 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 preparation of the Composite Plot, the same amount of weight will continue to be given to "Labor Conditions" as formerly, but in arriving at decisions 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 IMMIGRATION 205 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 record of w^hen the immigrant enters the country and when he leaves, this report is an extremely good ba- rometer of unskilled 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 206 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. Sometim.es 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. As years go on, it is more and more necessary also to tabulate emigration figures in order to ascertain the net change. There is also another reason why these various figures are of interest, namely: because the number of aliens entering or leaving the country is not only a barometer of business conditions, but it is also influential in the trend of such conditions. When a foreigner 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 invari- ably 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 IMMIGRATION 207 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- 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 which they bring with them and the business which they create after arriving. • Hence the necessity 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. *These figures have special bearing on the demand for unskilled labor in the United States. 208 BUSINESS BAROMETERS (b) A decrease signifies that the corner is being turned and a decline may be expected, and thus calls for caution. (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. Note: — There are two exceptions which may be taken to using bank clearings as an index. One is the fact that, as banks consolidate, the ratio is improperly changed; the other is that bank clear- ings are increased by the increased cost of com- modities and securities, as well as by the increased volume of trade. The first objection need not be taken very seriously as consolidations have always been in process and, considering the number of banks, the number of consolidations are no greater to-day than ever. If this is so, the bank clearing figures are perfectly satisfactory for comparative purposes. The other objection, that an increase in clearings does not necessarily mean an increase in the volume of business, is a valid criticism. It there- fore is well to always note the change in the Commodity Price Index, which index shows how VOLUME OF BUSINESS 209 much allowance should be made when studying bank clearings. Moreover, as a check on one's conclusion, it is well to note railroad tonnage and especially idle car figures, as the latter are wholly dependent upon the volume of business, and are independent of rates or prices. In fact, the only exception that can be taken to idle car figures is that the cars are increasing so in size and the published figures do not include the cars in repair shops. CHAPTER VII SUBJECTS RELATING ESPECIALLY TO MONE- TARY CONDITIONS. (For figures for years later than those herein given, see the large sheet in the Addenda of this book.) MONEY IN CIRCULATION THIS subject may, at first thought, seem un- interesting and of Httle 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. MONETARY CONDITIONS 211 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 212 BUSINESS BAROMETERS 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 every one, 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 different "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" means the amount of money held by the banks sub- ject to check. When a farmer deposits in his bank money received from the sale of cotton in Liver- MONETARY CONDITIONS 213 pool, he increases both the net amount of work- ing money in circulation, and the gross amount. This is likewise true when a bank imports gold from abroad; while the reverse is true when Americans spend money in Europe or when money is sent abroad in payment for securities held in Europe. When, however, a depositor becomes 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 circulation; but does not decrease the gross amount. But "the net amount of working money in cir- culation" 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 seldorn 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 214 BUSINESS BAROMETERS. present time amounts to about $35.00* per capita based on the estimated population of the United 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. 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 *The government figures, however, are not correct, being only a guess. MONETARY CONDITIONS 215 best warnings of impending contraction of the net amount of money in circulation. The study of sta- tistics in such instances is of Httle 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 w^hen 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 w^orking money. Nevertheless, the business of the 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. 216 BUSINESS BAROMETERS. The fact remains, nevertheless, that after these periods of fright, money becomes very plentiful 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 ^Hotal gross amount of money per capita'' or the figures which are studied under fundamental statis- tics. The best statistics available may be obtained from tables prepared each month by the U. S. Gov- ernment. 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- tr}^ 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- MONETARY CONDITIONS 217 tiirer should be on the watch for a turn in the tide. In other words, too large an amount of money per 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;" but the reader should also study Prof. Irving Fisher's new book. 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. 218 BUSINESS BAROMETERS (b) A decrease forecasts higher money rates and continued unsatisfactory conditions. (c) No change suggests caution. 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 Loans and Resources of th e United States Banks tiks Reporting Loans Resourci .= ■'^"o '^' '°ans Loans and of loan's" and to Resources Investments Inv. to lies 1,960 $362,400,000 $1,126,500,000 32 17 S7fifi 7nn nnn ^q n^ 2,267 550,400,000 1,476,400 000 3727 1 0?S 600 mn ^s ?o 2,279 588,500,000 1,494,100 000 3938 1 03f 'fiOO 'Z «on? 2,293 655,700,000 1,572,200 000 41 70 096'200M0 mA 2.354 686,300,000 1,564,200, 000 |394 100900000 mil 2,457 719,300,000 1,510,700,000 4761 1 25 400 MO IaIo 2,796 789,400,000 1,730,600,000 I56 2093000(10 Ittl 3,066 871,500,000 1,770,800 000 I9 2 302700000 7? 1f 1,968b 1,439,900,000 2,731,300 000 52 7 2 153'lOOMO 7ss5 1,983b 1,564,500,000 2,890,400 000 54 13 2 287 700 000 II A 3,336 1,748,100,000 3,204,600,000 54 55 2 541200 000 lllo 3,448 1,727,100,000 3,183,100, 000 53 94 2 534400000 70fi? 3,384 1,720,900,000 3,204,100,000 53 68 2562 100000 700^ 3,229 1,561,200,000 3,080,600,000 50 68 2 427 100 OoS 7«?s 3,335 1,507,400,000 3,212,600, 000 46 92 2539300 000 loll 3.355 1,662,100,000 3,399,000,. 000 48 90 2S62 70o'oM I At 3,427 1,901,900,000 3,869,100,' 000 49 16 2902800000 Hm 3,572 2,050,300,000 4,031,100,^000 50 86 3099400000 lAl 3,835 2,233,600,000 4,208,000,-000 53 08 3084800 000 7^?? 4,111 2,260,700,000 4,221,300,-000 53 55 3291 iSoom 77 ol 4,350 2,272,300,000 4,426,900,-000 51 33 3 224' 00000 70 9? 4,378 2,456,700,000 4,521,500-300 5433 f'lshnn'nnn ???^ 6,179 2,944,900,000 5,203 700 300 56 59 3944 Z 000 11 In 6,647 3,161,100,000 5,470,400,000 5778 4273'20000O ?«?? 7,203 3,475,200,000 5,940,900,-300 5849 r«7'?nn'nnn ^?" 7,999 3,842,100,000 6 343 000 000 6057 t'ooo' oo'mn lll^ 8,641 3,965,900,000 6 562 100 000 6044 s'Mx'lonnnn l^.¥n 9,338 4,336,600,000 7,245 300 000 5985 ^'fin^'nm'nnn l^'^l 9,492 4,368,600,000 7192300000 6074 5'722'Znnn llll 9,08 4,085,000,000 7,290,600,(300 5603 SS^o'^OOmn 7?'^^ 9,818 4,268,800,000 7,609,600,000 56 09 f'xuomnm 7^!^ 9,469 4,251,100,000 7,533,900,000 56 28 5'97t'?no'nnn 7^5^ 9,457 4,216,000,000 7,822,100,000 5389 ^'glslonnm 11^ 9,485 4,652,200,000 8,609,000(100 54 04 fi'?f?'onn'nnn ^ "* 9,32 5,177,600,000 9 904 900 ()00 5227 y'f Hnn'nnn l^'^* 0,382 5,657,500,000 10 785 900 ()G0 5245 I'nff'snn'nnn '^'^^ .406 6,425,200,000 12 357 500()00 52OO o'^I^'fm'nnn ^^'^^ 2.246 7,189,000,000 13 363 900()00 S3 80 in'97«'lnn'mn '"^'^^ u'«t 7,738,900,000 14,303 100,000 541? ?'??o'nnn'nnn ^^'^^ 4.80 7,982,000,000 15198800,000 5252 'fi^^'Knn "" MIO 9,027,200,000 16918200(100 silfi 'm^'^M^ ''^■^^ ".90S 9,893,700,000 18,147,600,000 5452 io«7'7m'mn ''^^^ 9,746 10,763,900,000 19,645 000(100 5479 s•?d^nnn■nnn ^^''^ 2.246 10,438,000,000 19,583 400 000 5297 H'JtHS"'™^ ".07 2no 11.373,200,000 21095 000 000 539I to«7'^nn'nn^ ^<^"0 V„?A' ^ . 12.365,000,000 22 450,000 000 5S0S 5'o?n'5^^'SS° "-^S Imbtr of nahoml banks only, number of sale. etc.. not reported ".219,400,000 76. 70 BANK LOANS 219 Currency, four distinct lines of investigation are followed, namely: (a) The ratio of bank "Loans" to bank "Re- sources." (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 220 BUSINESS BAROMETERS are payable within six months or a year at the ut- most. Investments : In reahty, a bank is loaning money to a corporation whether it purchases its fifty-year 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 often a more prac- tical 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 w^hich 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, except as a building site, or real estate mortgages 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 allowed 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 between "Loans" and BANK LOANS 221 "Investments," banks differ 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. 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 an appraisal of its total 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 sufifiicient 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- 222 BUSINESS BAROMETERS prove as the proportion of investments to resources decreases. In other words, provided a constant relation ex- ists between the funds loaned and the total re- sources, the general banking situation is strength- ened whenever 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, any one 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 hanking 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 1911. A studv of these BANK LOANS 223 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 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 224 BUSINESS BAROMETERS 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- 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 w^hen 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 weak con- dition with their investments over-extended. The BANK LOANS 225 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 suf^cient. R ferring 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- ously 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 72.83 226 BUSINESS BAROMETERS 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- vancing prices, was in full swing. This movem.ent 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 would 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. Banking conditions became worse and worse so that students of the situation were sure that the improvement 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. I BANK LOANS 227 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 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 will 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 meaning 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 he normal, and that it hear a proper relation to the figure for "Deposits," — thus giving a sound, safe amount for "Surplus Reserve." *Some prefer to substitute "Deposits" in place of "Resources," and in that way check their conclusions, as the "Loans" should not much exceed the "Deposits." 228 BUSINESS BAROMETERS The following conclusions regarding the ratio of ^^ Loans'' to ^^ Aggregate Resources'' are suggested. The same principles apply to the ratio of ^' Loans and Investments" to ''Aggregate Resources." 1. During a Period of Business Depression. (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) An 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. 03 o O :^ • • ». » r-;- -♦ o « ^ °*^ u It t d u u o o o > "" ^^. > o 1 o z S z. H \ ►• t V o o & % \ a. • N » o > o 9 <. < J J 3 ^ 1 » ' Z -> l!'l i' Z > \\\\ W > C3 s OK^O f t s E < \\ a. u I X fl ll o & u i a u h. t .s > ^ i 7 i 1 £ u •> y J o c! % ^ ^^ ' — t: § TS z r>> r c K N. ■•^ i \^ « u o '♦h *A /f t -oe o: \ vL fl u \ u in h n 5*»^ \ o "0 5 i / 5 M r' J 3 f J t ' ■ D ^ ^ Z C--7 - -»■, 'va < T *'^^ < s r*= k ^ •h 1 2 ac V T VJ| K < it < z £v X o v<# O ^x V f a »' i ^\ 8> s 1 \ e z > loiW e r-s; ► "^ Z 5 e X^^ < •-. O » • -iL • u-Ji -» « M -^■ ^,H- CASH IN THE BANKS 229 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 reahty these are two entirely different sub- jects, as the "Deposits" of a bank are UabiHties while its "Resources" are assets. Thus, in the one case we consider the ratio of "Cash" to liabili- 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 two 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 rule is already self-evident. The hanking situation grows more critical as the ratio of cash to deposits decreases, and the situation improves as the ratio of cash to deposits increases. National banks are compelled by law to main- 230 BUSINESS BAROMETERS tain an actual reserve equal to from fifteen to twenty-five per cent of their deposits (according to the city in which the bank is located) 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 their loans. On the contrary, as the surplus re- serve increases, 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, 1910. THE RATIO OF CASH TO NET DEPOSITS IN BANKS OF THE UNITED STATES. Ratio of Cash No. of Banks Individual Total Cash in to 1 Individual Year Reporting Deposits Banks Deposits 1865 1,960 $641,000,000 $199,400,000 31.11 1866 2,267 815,800,000 231,900,000 28.30 1867 2,279 876,600,000 205,600,000 23.45 1868 2,293 968,600,000 200,700,000 20.72 CASH IN THE BANKS 231 Ratio of Cash No. of Banks Individual Total Cash in to Individual Year Reporting Deposits Banks Deposits 1869 2,354 $1,032,000,000 $162,500,000 15.74 1870 2,457 1,051,300,000 187,700,000 17.85 1871 2,796 1,251,600,000 194,000,000 15.5 1872 3,066 1,353,800,000 177,600,000 13.12 1873 1,968 1,421,200,000 218,200,000 15.35 1874 1,983 1,526,500,000 252,200,000 16.52 1875 3,336 1,787,000,000 238,700,000 13.36 1876 3,448 1,778,600,000 226,400,000 12.73 1877 3,384 1,813,600,000 230,500,000 12.71 1878 3,229 1,717,400,000 214,600,000 12.50 1879 3,335 1,694,200,000 216,300,000 12.77 1880 3,355 1,951,600,000 285,500,000 14.63 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 8.32 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 10.34 1910 23,093 15,283,400.000 1,420,800,000 9.30 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 232 BUSINESS BAROMETERS 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 June 30, 1903. At that time, experts in these mat- ters publicly 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 CASH IN THE BANKS 233 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 on the relation of "Cash" to "Deposits," excepting that one plot is the reciprocal of the other. The follow^ing 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. 234 BUSINESS BAROMETERS (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. (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 independently for changes, as deposits should not increase too rapidly. The weekly statement of the New York banks will serve this purpose. A very simple illustration shows how large deposits may be reported at considerable risk, but without any intentional misstatements of facts. A few years ago a miser died in a certain town, BANK DEPOSITS 235 which may be called GranitevIUe. 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, having outside income sufficient to pay its operating expenses, deposited the entire $4,500 received from Smith with the Graniteville Trust Company; so the deposits of the trust company became $9,500 greater. Soon after Mr. Jones came into the bank and borrowed $4,200 with which to buy stone to build a block in another part of the town, and upon receipt from the granite company of Jones' $4,200 the granite company made another deposit with the trust company increasing the deposits to $13,700. 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 $17,500. This same method of procedure was con- tinued until the $5,000 in gold which was originally deposited resulted in increasing the deposits of the trust company by $50,000 and the loans by $45,000. Moreover, this $5,000 enabled the granite company to suppose it had $45,000 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 $5,000 in gold resulted in creating an apparent wealth in Graniteville of about $100,000. 236 BUSINESS BAROMETERS 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 $5,000 was turned over to his only daughter, who had the same hoarding disposition as her father. She im- mediately withdrew in gold the $5,000 from the Graniteville Trust Company and placed the same in a safe deposit box with the following result. The Graniteville Trust Company, in order to show its proper "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 $50,000 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 nec- essarily a healthy sign. Neither very large nor very small "Deposits" are normal. The best bank statement is the one where the figures for "De- BANK DEPOSITS 237 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 twelve o'clock noon, showing the condition at the close of business on Friday) is as follows, according to a valuable pamphlet published by Sig. Rosenblatt & Co. 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 238 BUSINESS BAROMETERS 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 always 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 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 do not always 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 BANK DEPOSITS 239 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 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- ing to $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 United 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 *United States deposits included, amounting to $59,495,300. 240 BUSINESS BAROMETERS "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, would give an actual picture of the banking power of New York City. The 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 and the average condition of the Clearing House banks, and because of the compilation, under direction of the State Superintendent of Banks, of the other institutions under his control, not reporting to the Clearing House. These statements are: 1st. Clearing House members average statement. 2nd. Clearing House members actual statement. 3rd. Average of other banks and trust compa- nies 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 BANK DEPOSITS 241 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 item, we may be very w^ell satisfied with the state- ment as now issued. These combined reports, however, can never be as valuable as the Comp- troller's Reports (mentioned earlier in this chapter) which should be most carefully studied by all. 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 recession. (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 call for caution. *When studying "Deposits," only those "Subject to Check" should be considered. 242 BUSINESS BAROMETERS (c) No change signifies nothing of impor- tance. 4. During a Period of Decline Following a Period ^ of Prosperity. (a) An increase in deposits is not normal. (b) A decrease in deposits is normal. (c) No change calls for special watchfulness. 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 suf^cient 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. BANK RESERVES 243 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- 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 his inability to renew his 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 connection 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 244 BUSINESS BAROMETERS 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 whicii 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 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 weekly New York 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- BANK RESERVES 245 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 every country reporting their conditions by cable to Lon- 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. 246 BUSINESS BAROMETERS 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 often 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 "Surplus Reserve." On the other hand, as an in- crease in money rates often 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 change in interest rates may not come until the following Monday, or possible later, but the speculator anticipates this by buying or selling on Saturday. 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 tw^o 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 best 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 ^nonthly record of the ''Surplus Reserve'' as per the first day of each month. BANK RESERVES 247 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. 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. 248 BUSINESS BAROMETERS In this connection some facts 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" are 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, 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 ; the}^ stand midway between promissory notes secured by collateral and asset currency. 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 value which would be accepted at the Clearing House in payment 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 CLEARING HOUSE CERTIFICATES 249 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. Although these certificates were issued for patriotic reasons, 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 Maximum Out- ^ ^_ Date of Date of X/-.foi standing at any ^^^^ First Issue Final Cancellation ^^^^^ Time 1860 Nov. 23 Mar. 9,1861 $7,375,000 $6,860,000 1861 Sept. 16 Apr. 28, 1862 22,585,000 21,960,000 1863 Sept. 15 Feb. 1, 1864 11,471,000 9,608,000 1864 Feb. 29 June 13, 1864 17,728,000 16,418,000 1873 Sept. 22 Jan. 14,1874 26,505,000 22,410,000 1884 May 15 24,915,000 21,885,000 1890 Nov. 12 Feb. 7, 1891 16,645,000 15,205,000 1893 June 21 Nov. 1, 1893 41,490,000 38,280,000 1907 Oct. 26 Mch.28, 1908 101,060,000 88,420,000 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 250 BUSINESS BAROMETERS Issued Clearing House certificates June 16, and had outstanding 810,965,000 on August 15. Boston and Baltimore issued such certificates June 27, and a month later had outstanding a maximum of 811,445,000 and 81,475,000 respectively. The Pittsburg issues amounted to only 8987,000. These are the only Clearing House certificates re- ported by the Comptroller of the Currency that year; but then, as during 1907, some form of cer- tificate of this character was issued in nearly every large 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 passed in 1907, 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 railroads through an unpopulated country. The cost of railroad con- struction in this country during the five years preceding 1873 was estimated at 81,700,000,000. Then the granger laws, which had recently been enacted, were regarded by many as effecting 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 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 CLEARING HOUSE CERTIFICATES 251 'an Norden's Magazine. THE COURSE OF THE MARKET IN KiliR PANICS These charts show the course of the Stock Market during the panics of 1873, 1884, 1890, and 1893, and attention is especially called to the abrupt movements in the shaded parts, which include the periods during which Clearing House certificates were outstanding. The charts are plotted upon the basis of well-known and generally accepted averages of from thirty-two to one hundred active stocks. CLEARING HOUSE CERTIFICATES 251 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 in 1907, 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, 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 252 BUSINESS BAROMETERS 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- 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- CLEARING HOUSE CERTIFICATES 253 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 aggregate 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 comparatively 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." The course of the stock market in four of these panic years, as indicated by the average price of active railroad stocks, and the duration and amount of Clearing House certificates issued is shown on the 254 BUSINESS BAROMETERS accompanying diagrams. There is nothing in these plots to indicate that prices were inflated by the issuance of Clearing House certificates, but rather that they served their purpose, which is to supply in part the deficiency of currency caused by hoarding, and so check a ruinous decline in prices. Desperate emergencies call for extraordinary reme- dies, and for nearly half a century Clearing House certificates have never failed to relieve the worst panics and enable business to continue, where with- out them it would have been impossible. If an asset currency could be provided by Con- gress which could be used as required by banks in all parts of the country, which would be as quick of issue, as safe and as efficacious as Clearing House certificates in an emergency and with similar limitations as to volume and duration, it w^ould be one of the most beneficent laws ever enacted. But booms and panics are the result of fundamental laws, some of which are financial and economical and others social and psychical. The provision of an elastic currency which would automatically adjust itself, through taxation, to the needs of business would do much to relieve panicky conditions; but some of these conditions which come in cycles, and others which come occasionally from dishonesty and mismanagement in high places can never be wholly prevented by legislation. Moreover, the diagrams clearly show that the forced liquida- tion which naturally continues for several weeks after any panic in the stock market generally car- IMPORTS OF MERCHANDISE 255 ries prices to a still lower level notwithstanding aid which has been given by Clearing House certifi- cates. IMPORTS OF MERCHANDISE INTO THE UNITED STATES Connected with fundamental statistics and very closely related to one another are the three following subjects: Imports of Merchandise into the United States. Exports of Merchandise from the United States. Balance of trade between foreign countries and the United States. Each of the three subjects is absolutely depend- ent upon the others and were it not for the separate tables connected with each subject, it would doubt- less be simpler to treat all three in one compre- hensive section entitled "Imports, Exports, Trade Balances and Volume." Owing, however, to the fact that it is absolutely necessary for the banker or merchant to divide the figures into three separate tables and not allow them to be combined in any way, each is here treated independently. No detailed definition need be given of the im- ports of the United States except that the word import refers to the valuation of the raw material, manufactured goods and all other products pur- chased from abroad and entering any port or cross- ing any boundary of the United States. It may be mentioned also that although the figures pub- 256 BUSINESS BAROMETERS lished by the Government are correct for compara- tive purposes, they are, as a matter of fact, low. For this there are two reasons: first, there is a large quantity of goods brought into this country of which no record is ever made; and secondl}^ the "values" are placed by the importers at the lowest possible figures in order that the charge for duty will be as little as possible. (Figures prior to 1867 are given for the fiscal year ending June 30. After that year they are for the calendar year.) TABLE OF UNITED STATES IMPORTS Year 1860 1861 1862 1863 1864 1865 1866 1867 1868 1869 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 Imports Per Capita P53,616,119 $11.25 289,310,542 9.02 189,356,677 5.79 243,335,815 7.29 316,447,283 9.30 238,745,580 6.87 434,812,066 12.26 371,476,175 10.23 368,006,572 9.94 438,455,894 11.60 461,132,458 11.97 573,111,099 14.47 655,964,699 16.15 595,248,048 14.27 562,115,907 13.13 503,153,936 11.43 427,347,165 9.47 480,246,300 10.37 431,812,483 9.07 513,602,796 10.52 696,807,176 13.88 670,209,448 13.06 752,843,507 14.36 687,066,216 12.81 629,261,860 11.48 585,868,673 10.49 IIMPORTS OF MERCHANDISE 257 Year Imports Per Capita 1886 $ 663,429,189 $11.57 1887 708,818,478 12.09 1888 725,411,371 12.11 1889 770,521,965 12.58 1890 823,397,726 13.15 1891 828,320,934 12.96 1892 840,930,955 12.91 1893 776,248,924 11.68 1894 676,312,941 9.97 1895 801,669,347 11.60 1896 681,579,556 9.66 1897 742,595,229 10.32 1898 634,964,448 8.66 1899 798,967,410 10.68 1900 829,149,714 10.86 1901 880,419,910 11.34 1902 969,316,870 12.30 1903 995,494,327 12.42 1904 1,035,909,199 12.71 1905 1,179,144,550 14.24 1906 1,320,501,572 15.69 1907 1,434,421,425 16.55 1908 1,116,449,681 12.85 1909 1,475,520,205 16.66 1910 1,562,807,622 16.98 In studying the above tables it is convenient to refer to only the "per capita" column which shows very clearly the great value of these figures in fore- casting a panic. At the close of the Civil War the people were importing on a basis of about $10 per capita and this steadily increased to over $16 in 1872. This increase was far above what it should have been, and was therefore naturally followed by the panic, which came the following year, tfamely, 1873. As is the case with all panic years, the im- ports immediately dropped off from $16 to about $14 and steadily decreased for about five years. Beginning with 1879 the imports again increased and property likewise increased until 1882, when they again reached $14.36 per capita. Although 258 BUSINESS BAROMETERS this figure was not equal to the previous high figure for 1872, yet the rise was more rapid and it is not surprising that in the latter part of the fol- lowing year there occurred another panic, namely, the panic of 1883-4. In 1885, or directly after this panic, imports again dropped to a minimum of $10.49, but gradually increased along the nor- mal line until they reached over $13.00 per capita, at which point they remained constant during 1890, 1891 and 1892. As could readily have been predicted, these high figures were followed by an- other panic in 1893. During the next year, as is invariably the case, the imports again declined to $9.97. Since that time they have increased at a more or less irregular rate, up to 1907, when they again reached $16, at which figure they stood pre- ceding the great panic of 1873. Then followed a sharp reduction to $12.87, coincident with the panic of 1907—08 and its curtailing of imported luxuries. With the year 1909 imports have again in- creased to the above figures, therefore showing that the same law has been observed in connection with all panics excepting that of 1903, which, as explain- ed under "New Securities," was chiefly due to one specific cause as stated by Mr. Morgan, namely, "the congestion of undigested securities." Where the figures on 80% of our subjects clearly forecasted all panics excepting said panic of 1903, in only a few tables was the approach of this panic indicated. On the other hand, in these few tables, especially the table for "New Securities Listed" and "New Corporations," the increase was so tremendous, IMPORTS OF MERCHANDISE 259 several hundred per cent., that they of themselves were a sufficient danger signal, even though the figures on the other subjects appeared normal. Thus in studying the figures on imports, we see that too great an increase in imports is a dangerous sign. This is due to two reasons: first, it necessi- tates the exportation of too much gold; and second- ly, it signifies too great an extravagance on the part of the American people. As continued exports of gold are usually followed by advanced money rates, so too great an expenditure of money for luxuries and unproductive material, especially when im- ported, is follow^ed first, by higher commodity prices, and then by a period of economy. Not only are large figures for imports suggestive of a panic, but small figures, especially when they are increasing at a slow and conservative rate, are sug- gestive of better times. This latter phase is espe- cially w^ell illustrated in an article which appeared some time ago in the New York Evening Post. This began by referring to a Wall Street man who rather facetiously remarked that good times were surely coming for he noticed that people were "w^earing their old clothes." This remark, made carelessly, was nevertheless a statement of the tre- mendously important factor which personal thrift becomes during a period of depression. In times of abounding prosperity it is easy for people to assume a contemptuous attitude toward petty economies. The talk is of making money, not of saving it. But a panic brings out the eco- nomic truth about the relation of savings to new 260 BUSINESS BAROMETERS business operations. **It must always be remem- bered," writes Lord Welby, commenting on an American panic in the Contemporary Review, "that the capital required to extend business and to open new fields of trade can only be supplied by the savings of the world But there is a limit to these accumulations, large as they are. If the passions of the world, the extravagance of the world, and above all the growing needs of the world trench too closely on the accumulations of the world, financial stringency will inevitably be the result." And it is a fact that even the most trivial form of saving becomes a large financial operation when generally practised. How much can the American nation save should each man wear his clothes two years instead of one? The census report of manufactures shows that the factory product of men's clothing during a good year is valued at about $375,000,000. One-third of this, or considerably less than one-third on the basis of retail prices, would more than equal the entire balance of trade in this country's favor in a normally favorable month. There are over $40,- 000,000 worth of felt hats sold during a good year. By wearing their felt hats 50% longer than they have been accustomed to doing, plain Americans can effect a saving in a year greater than the great gold imports necessary to adjust conditions during a critical period. Yet is it not always with clothes that people adopt a policy of retrenchment. If, for example, they cut down by only one-third the amount they IMPORTS OF MERCHANDISE 261 spend on fresh beef, leaving all other items on the butcher's bill unaltered, the sum would be greater than twice the amount paid over the counters of the bank, which in October 1907, endured the longest "run" in the history of banking institutions. Con- tract by the same proportion the consumption of all kinds of meat, — and many authorities think this would be well worth while from a hygienic point of view alone, — and a sum equal to the entire Govern- ment surplus at the time of the panic on Nov. 1, 1907, would be saved in less than ten months. As to the commodities which are classed as real luxuries, the facts are equally striking. Enough cigars were "withdrawn for consumption" in 1907 to provide about eight and one-half cigars a week for every smoker, on the assumption that one-fifth of the total population, including babes in arms, may fairly be put down in that class. Even for mere purposes of illustration, no one would be cruel enough to suggest treating the cigars as the colonists once treated the tea. But in a great emergency the average smoker might consider cut- ting down his allowance to one cigar a day. That trifling act would make a difference in the country's cigar bill of three and one-half millions a year. Imports of luxuries into the United States during the fiscal year ended June 30, 1909, were valued at $210,872,120, as compared with $173,- 217,690 in 1908 and $227,661,584 in 1907. This class of imports represented 16% of total imports in 1909, 14% of the total in 1908 and 15% in 1907. The increase of $37,654,430 from 1908 was one in- 262 BUSINESS BAROMETERS dication of the return of prosperous business con- ditions. The 1909 value, however, is $16,789,464 below the figures for 1907. Outside of imports of silk, both manufactured and unmanufactured, having a value of $110,622,- 169, imports of wines and spirits played no small part in the total imports of this country. Cham- pagne imports, amounting to 436,628 dozen quarts, with a value of $6,863,785, were the largest during the past fiscal year (1909) in the history/ of the coun- try and showed a very perceptible increase over 1907. The increase over 1908 totalled 68,959 dozen quarts, or 18%. Uncut diamond imports were valued at $19,- 313,585; and, while the value was $10,001,490 or over 100% greater than during 1908, it was still $4,651,853 below the total value for 1907. Total precious stone imports, having a value of $29,373,- 070 the past fiscal year, were over 70% greater than during 1908, but considerably below the total for 1907. The above suggestions are sufficient to illustrate the reason for tabulating not only annual but also monthly figures on imports, namely, as a barometer of waste or of economy. It is, however, unnecessary that the monthly figures should be tabulated on a per capita basis, as the change in population is so slight. Many merchants when stuyding foreign trade, instead of considering exports and imports sep- arately, add them together and call their sum the volume of foreign trade. This figure is valuable as a barometer of general business activity. It should IMPORTS OF MERCHANDISE 263 not be confused with the balance of trade which is the difference between exports and imports and is watched by bankers for its effect upon the money rates and gold supply. The following conclusions are suggested relative to "Imports."* 1. During a Period of Business Depression. (a) A normal increase signifies that condi- tions are improving, — provided said increase does not adversely affect the balance of trade. (b) A decrease signifies no improvement. (c) No change signifies nothing of importance provided the exports are likewise constant. 2. During a Period of Improvement Following a Busi?tess Depression. (a) An increase, if not too great, signifies continued improvement. (b) A decrease signifies no immediate im- provement. (c) No change signifies nothing of impor- tance, provided the exports are likewise constant. 3. During a Period of Prosperity. (a) An increase, especially if abnormally large, is a sign that no further improvement may be expected. (b) A decrease tends to lengthen the period of prosperity, and is therefore a sign of continued im- provement. (c) No change signifies nothing definite. *These figures are valuable both as a barometer of the American demand for luxuries and for forecasting money conditions. 264 BUSINESS BAROMETERS 4. During a Period of Decline Following a Period of Prosperity. (a) An increase calls for caution. (b) A decrease signifies no improvement. (c) No change calls for caution. EXPORTS OF MERCHANDISE FROM THE UNITED STATES By "exports" is meant the goods shipped from the United States to any foreign port or country. This includes all raw materials, manufactured arti- cles, and in fact anything for which a resident of the United States receives money. The monetary condition of the country depends on three things: 1st. The amount of money in the country. 2nd. The demand for money. 3rd. The velocity of circulation. The first item, namely, the amount of money in the country, is very dependent upon the exports of the country. Technically, this is dependent upon the balance of trade, a term explained in the next section of this chapter, but practically it is depend- ent upon the exports. Formerly the amount of exports was depend- ent almost entirely upon the amount of raw ma- terial produced; that is, wheat, corn, cotton, live stock, products, etc. The condition of the main crops of wheat, corn, and cotton, as well as that of the smaller crops, such as hay, apples, potatoes, etc., determined the exports. With small crops the ex- EXPORTS OF MERCHANDISE 265 ports were very small, while with large crops the exports were large. This condition, however, has changed during the past twenty years, in which period there has been a very great increase in exports. The total exports of the United States have increased from $800, 000,- 000 to $1,700,000,000 or $1,800,000,000 and this increase has been much larger in manufactures than in other products. In 1890 the United States was exporting about $700,000,000 in food products and raw materials, which amount increased only to about $1,100,000,000 in 1908,— an increase of less than 60 per cent. On the other hand, the exports of manufactured products increased from about $180,000,000 in 1890 to nearly $750,000,000 in 1908, — an increase of more than 300 per cent. It is important to note the change in the pro- portions between the agricultural and manufac- tured exports for, if exports are to depend upon manufactured articles rather than on raw materials, bread-stuffs, etc., must tend to eliminate the decline in exports which heretofore have occurred during years of crop failures. Andrew Carnegie has said that the time is coming when the greater part of the raw materials, now forming the bulk of the export figures of this country, will be used here, and their place in export trade will be taken by manu- factured articles. If so, the American manufac- turers must reach the markets of the world and compete therein with all the other industrial and commercial nations. If this is so, and the figures for the past eighteen years seem to prove it, our exports probably will 266 BUSINESS BAROMETERS not only continue to increase, but the fluctuations will, as above suggested, be much less marked. This is another reason why we should carefully study the figures on the "balance of trade," rather than the figures on the "exports" or "imports" exclusively. There is one point in connection with exports, however, that the merchant and investor should especially remember, namely, that in the ordinary course of events, exports continue to increase for some time after a period of depression begins, although the proportion of exports to imports de- creases. This is due to the fact that the momentum of the energy which increased production and ex- ports during the period of prosperity itself, does not immediately lose its force. Moreover, the increase in exports usually continues until increased activity at home increases demand and prices, after which exports begin to diminish. Therefore, during a period of prosperity, a decrease in exports is a dan- gerous sign, as it tends to adversely affect the bal- ance of trade. This is also true at the beginning of a period of depression; but after a period of depres- sion has been existing for some time, then a de- crease in exports is often a favorable sign, as it shows that home consumption is increasing. These facts suggest the necessity of systematically tabulating the monthly figures on exports. Neither these figures, however, nor the figures on imports need to be plotted. Many merchants when studying foreign trade, instead of considering exports and imports sep- arately, add them together and call their sum the volume of trade. This figure is valuable as a ba- EXPORTS OF MERCHANDISE 267 rometerof general business activity. It should not be confused with the balance of trade which is the difference between exports and imports and is watched by bankers for its effect upon the money rates and gold supply. The following conclusions are suggested relative to "Exports" and also relative to * 'Volume of Foreign Trade:"* 1. During a Period of Business Depression. (a) An increase signifies an improvement. (b) A decrease signifies no improvement. (c) No change calls for caution. 2. During a Period of Improvement Following a Business Depression. (a) An increase signifies continued improve- ment. (b) A decrease signifies no improvement. (c) No change signifies nothing definite. 3. 'During a Period of Prosperity. (a) An increase signifies continued improve- ment. (b) A decrease signifies no further improve- ment or that a decline may be expected. (c) No change calls for caution. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase signifies an improvement. (b) A decrease signifies no improvement. (c) No change calls for caution. *These figures are valuable both as a barometer of foreign trade con- ditions and for forecasting money rates. 268 BUSINESS BAROMETERS BALANCE AND VOLUME OF TRADE One of the most important of the subjects that investors and merchants study when analyzing present conditions and forecasting future conditions is the balance of trade. When we have sold to for- eign merchants raw materials or merchandise great- er in value than that which they have sold to us, the balance of trade is said to be "in favor of" the United States as against foreign countries. This naturally results in the shipment to America of gold, to adjust the balance, or the selling in the United States of "exchange" at a discount, if the condition is but temporary. The balance of trade does not always determine the debtor country, as there are other factors to be considered, but as a rule this is the case. The "other factors" above referred to, are such factors as the sale of American securities abroad or the payment of interest by the United States and corporations therein to foreign security holders. Although from the bond dealer's point of view it is very advantageous to have a large and wide foreign market for American securities, thus leaving so much more "home" money free for investments, yet it must always be remembered that each year it may be necessary to ship gold from the United States to pay the interest on these securities and that eventually gold must be shipped to pay the securities themselves. Moreover, the amount of gold exported during the year that these secur- ities are paid or when at any time before they are due the foreign dealers decide to sell them, will BALANCE OF TRADE 269 often nullify the good of a certain portion of the trade balance in our favor for that year. If trade balattces were dependent wholly on the ex- ports and hnports of raw material, merchandise, etc., it would he unnecessary for merchants and investors independently to tabulate monthly figures on gold movefnents in addition to tabulating monthly figures on exports and imports. Owing, however, to these additional factors, caused by the sale of securities, payment of interest, etc., it is necessary to tabulate figures also on gold movements and these other factors. Certain merchants when tabulating figures on the balance of trade, which is the difference between the exports and imports, also tabulate figures show- ing the sum of the exports and imports or what is known as the "volume." This is wholly unnec- essary when the imports and exports have been tabulated separately, but rather is of use simply as a short-cut to avoid the necessity of tabulating both imports and exports separately. Figures, then, on imports, exports and the balance of trade, when tabulated each month serve as a wonderful ba- rometer for discerning present conditions and for fore- casting future conditions. Although the foreign trade statistics of other countries, when properly compiled for comparative purposes, are of interest to those studying the con- ditions of the United States, such figures are not conclusive in comparing the trade of two different countries. As there is no uniformity in the classi- fication in the exports and imports of two different countries and as the methods of valuation are also 270 BUSINESS BAROMETERS entirely different, it is very dangerous to make com- parisons between the various countries.* The following conclusions are suggested relative to the ''Balance of Trade in favor of the United States.'' 1. During a Period of Business Depression. (a) An increase signifies an improvement. (b) A decrease signifies no improvement. (c) No change signifies that money rates may depend wholly on domestic conditions. 2. During a Period of I?nprovement Following a Period of Depression. (a) An increase signifies continued improve- ment. (b) A decrease signifies no improvement. (c) No change signifies that money rates will depend wholly on domestic conditions. 3. During a Period of Prosperity. (a) An increase signifies continued improve- ment. (b) A decrease signifies no improvement, or perhaps the end of 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 signifies that lower money rates may be expected, and a possible improvement. (b) A decrease signifies no improvement. (c) No change signifies nothing of importance. *This matter is discussed very clearly in an article on the "Comparata- bility of Trade Statistics of Various Countries" by Sir A. E. Bateman, C. M. G., published by the American Statistical Association, New Series "1893" Vol. 3, page. 533. GOLD MOVEMENTS 271 GOLD MOVEMENTS The following by a well known writer is a good explanation of this subject: "The natural movement of gold divides itself readily into four classes. There is in the first place the primary movement from the mines to the dis- tribution centers, London for the European markets and New York and Seattle for the United States. After that comes what might be called the first distributive movement, where the gold arriving, for instance, at London, is sold to the highest bidder, often representing far off countries. A readjust- ment movement follows where gold, for instance, purchased by Paris in London is sent on to Switzer- land, Italy, or Belgium or any other points. Lastly there is a constant flow of gold from one part of the world to another, the movement of which is due to the ancient causes of supply and demand, of trade and other balances to be paid, and of bank reserves to be built up or released. "Whatever schemes of international gold certi- ficates or of an international clearing house may be proposed by financial economists for the purpose of reducing the gold movement, there can never be any question as to the necessity of the primary movement from the mines to the distributive cen- ters. Roughly speaking, the world's gold produc- tion originates in three great sections, South Africa, Australia and the United States. From the former comes almost half of the gold mined in the world each year, and therefore bankers and merchants tabulate the monthly production of the Rand Mines. 272 BUSINESS BAROMETERS "The great distance of these localities from any important financial market and the fact that most of the stock of the South African and Australian gold mines is held in England, makes London the point to which the product of those mines is natu- rally sent, so that nearly one-half of the world's annual production of gold comes into the London market for distribution. "Arrivals of gold consigned to the London agents of the South African and Australian mines are fully advertised, and what amounts to a regular auction is held every time a consignment arrives. The Bank of England is always ready (must be, by law) to purchase all gold of standard fineness offered to it, at 77 shillings 9 pence per troy ounce. But very rarely does the bank, or any one else, secure bul- lion at this price. Usually the bidding of the rep- resentatives of the various banks puts the price well above that figure. "London is the one free gold bullion market of the world. As the metal arrives from the mines it is sold to the highest bidder without fear or favor. But this process must not be confused with the gold market maintained by the Bank of England. Usually the Bank will sell gold bars at a price, but sometimes it will not, and then the cry goes up that London is no longer a free gold market. As a mat- ter of fact, the Bank of England is far from being a free gold market, but the open market is free and as long as there is any gold coming in, the highest bidder gets it. "In the United States on account of our entirely GOLD MOVEMENTS 273 different currency law, there is no bullion market at all, free or otherwise, and the primary movement is direct from the mines to the assay offices, where a fixed and unvarying price is paid for it. In other words, all the gold produced in this country im- mediately passes into its circulation. There is no long trip to an open market, and then an apportion- ment, to all parts of the world. The owner of the gold takes it to the nearest government assay office, where it is assayed and bought from him at so much per ounce. Afterwards if any one needs gold bullion, for export or other purposes, he can ob- tain it at the treasury at a fixed price, as long as the supply holds out. "The very fact that there is a primary movement of gold from the Australian and South African mines to London makes necessary the distributive move to the various markets, whose representatives at the British capital have been successful in their bidding for this new supply. But even after that comes another movement, for the smaller markets are not directly represented in London, but must obtain the supplies of gold they need through their important correspondents. "These three movements carry the gold from the place where it is mined to the lesser banking cen- ters, where its distribution is complete. But the movement of the metal by no means comes to an end with its distribution. There follows a fourth movement, dependent entirely upon financial con- ditions, the movement which will often result in the practical transfer of all or part of some 274 BUSINESS BAROMETERS firmly established gold supply to some distant market." There are three distinct influences which bring about such movements. The first is the neces- sity of making international payments for mer- chandise or securities at times when exchange is scarce ; the second has to do with the maintenance or restoration of bank reserves, which can at times be accomplished only by the outright purchase of gold in other countries; the third is due to inter- national operations where bankers are anxious to transfer large balances from one point to another, and not finding exchange available in quantity send gold instead. From the very nature of these causes, it w411 readily appear that it is a mistake to imagine that the development of our international financial re- lations will eventually make it unnecessary to ship gold at all. Only one of them, the first, could possibly be affected by the arrangement of a sys- tem of international credits. These large pay- ments by one country to another, such, for instance, as the payment for the Panama Canal or the pay- ment to us of the San Francisco fire indemnity, continually have to be made, and often under cir- cumstances and at times when it is impossible that there should be a suf^cient amount of exchange available. It is hard to see hoAV, even if an inter- national S3^stem of crediting and debiting should be arranged, payments of this kind could eventually be settled by remittances of gold or exchange, and as for gold shipments arranged for the building up GOLD MOVEMENTS 275 or maintenance of bank reserves, it will appear that, as the bankers of different countries become more closely allied, the interchange of gold is greatly facilitated. Through various causes the gold reserve of the banks, particularly the great national banks of Europe, becomes depleted at times, and then these institutions are apt to call upon their foreign connections to send them the gold they need. The other reason which makes gold, often ap- parently a settled reserve, move from one country to another is that in the highly developed state of the foreign exchange business, balances are con- tinually being transferred to the points where they can be most advantageously used. As long as ex- change on the point to which the transfer is to be made can be bought, that will be the form of remittance. When, however, exchange cannot be had, gold will be sent, and so it appears that the more balances transferred, the greater is apt to be the circulation of gold. The importing of gold does not necessarily mean ''good times'' nor even ''lower money rates,'' nor the exporting, the approach of a crisis; nevertheless im- portant deductions may be made if monthly figures are systematically collected and tabulated thereon. These deductions have been summarized by Burton as follows: "Every country will, under normal conditions, have a certain share of the gold or primary supply of the world. The different countries have been compared to reservoirs of water, of various sizes, 276 BUSINESS BAROMETERS connected by pipes. All the reservoirs will main- tain the same level. The share of each country is determined primarily by its wealth. There is a tendency for metallic money, which is a form of wealth, to maintain in every country a fixed pro- portion to other forms of wealth. But the share of each is affected by the volume of its trade and other incidental circumstances, among which are established methods of transacting business, the habits of its people, and, notably, its currency sys- tem. The currency system affects the gold supply. Paper money displaces gold, and causes it to be sent elsewhere in a less or greater proportion, ac- cording as it is absolutely based upon a deposit of gold, is redeemable in gold on presentation, or is not redeemable at all. "Methods of transacting business influence the supply. Where balances are largely settled at clearing houses, and checks generally employed, less currency and less gold are required. In this par- ticular, the contrast between England and France is very marked. The latter country makes less use of clearing houses and checks and accordingly re- quires a larger supply of gold and silver, the latter metal being extensively used. "The habits of the people exercise an Important influence. After the Franco-Prussian War it was found that the French peasant proprietors had hoarded large sums of gold. In the great emer- gency created, these amounts were brought out and assisted in the payment of the indemnity. Fre- quently when native grandees in India die, it ap- GOLD MOVEMENTS 277 pears that they have been accumulating a great stock of gold, much of It In the form of ornaments which for years has been kept out of circulation. All this hoarding tends to Increase the demand on the gold which Is In circulation as money. The peasant, or grandee who hoards, causes so much of the world's capital to lie Idle. The benefit accruing in time of crisis or emergency to countries In which quantities of gold are withheld from general circulation Is obtained at the cost of diminished activity and volume of business under ordinary conditions. "M. Paul Le Roy Beaulleu quotes figures to show that France In 1885 had a circulation of me- tallic money amounting to 215 francs per capita; England and the United States had, respectively, 86 and 68 francs per capita. Of course If the quantity of coin in circulation had been based upon per capita wealth at the time, England would have shown the largest quantity per capita, France next and the United States last. "There Is then a normal share of gold which be- longs to each country. If any country has more than its share. It will export. It Is easy to recognize that from a gold producing country, such as Australia, South Africa or Alaska, the greater part of the gold mined will be exported. Likewise, if gold is held In any one country In such quantity that it can be Invested elsewhere more advantageously, either In loans or in pur- chases, or can be sent abroad in payment of debts, it will be exported. If it Is Invested In 278 BUSINESS BAROMETERS loans abroad, it is an indication of surplus capital and makes a favorable showing. If invested in purchases at low prices, it shows ability to draw upon other countries for an increasing share of ob- jects of utility. If the purchases show^ that home prices are higher than foreign, and a supply of things usually obtained at home must be obtained abroad, the export of gold is a sign of danger. Thus an important question in determining the shipments of gold, is the nature of the purchases or invest- ments to be made with it. "The specie exports and imports of this country have furnished distinct indications prior to each period of disturbance, but their signifiance cannot be understood without an examination not only of our general situation, but also of the particular situation at different times. Of the various cir- cumstances under which excess of exports of gold indicate the approach of a crisis, may be mentioned the following: ''First, when gold is required for purchases abroad which are made at high and rising prices. This indicates overaction and concurs with unusual in- crease in the prices of domestic supplies. Espe- cially is this true if, in a time of rising prices, gold is exported for commodities usually supplied by do- mestic production. Such a condition cannot long continue without a reaction and an ensuing de- pression. The indications which are significant in connection with the imports of merchandise apply to the exports of gold. On the other hand, the ex- port of gold for purchases, when prices are low, is GOLD MOVEMENTS 279 not an unfavorable condition. It indicates pur- chases upon advantageous terms. ''Secondly, when the export of gold is attended by a scarcity of money and a marked increase in the rate of discount, it is a decidedly unfavorable indi- cation. This is of the same kind as those indica- tions noticed in the conditions of banks. A steady increase in the rate of discount, or a decrease in the supply of gold, is a sure precursor of a crisis. The only question is how long this condition can con- tinue without a crash. ''Thirdly, an unusual balance of exports of gold, not explained by surplus production, continued for a considerable time, or a sudden withdrawal of large amounts is one of the most unfavorable conditions. It is to be noted that there is an exceptional sensi- tiveness in financial centres on the subject of gold exports, and sometimes an entirely normal export is interpreted as meaning instability, and destroys confidence when there is no need for distrust." It should be added that, when for a succession of years gold is withdrawn from circulation by rea- son of the substitution of inconvertible paper as money, the conditions which exist are sure to vary from normal lines. Credit will rest upon a false basis and the inevitable tendency will be towards an increase in the quantity of paper money outstand- ing and a dangerous expansion of credit. In many respects the phenomena of a balance of gold exports are similar to those arising from a bal- ance of merchandise imports. The two are ex- pected to appear contemporaneously, but in essen- 280 BUSINESS BAROMETERS tial particulars the}^ are different. Some differ- ences depend upon the question of gold production. In countries like South Africa and a portion of Australia, where gold mining is the leading indus- try, gold exports are naturally classed with mtcr- chandise exports, and an export is a favorable indi- cation. In non-producing countries like England and France, where gold is in demand principally as money, imports are a favorable indication. There is another difference in a noticeable tendency to- wards contemporaneous decline in gold reserves in all the great financial centres. That which is lost in one country is not gained in another. This de- cline is explained by the withdrawal of considerable amounts to be hoarded or retained in circulation outside of the banks; and, to some extent, to the transfer of gold to the countries outside of the most advanced industrial and commercial circle. The inffuences which cause gold to be hoarded or re- tained in circulation outside of the banks are not unlike those which affect the circulation of paper money. International credits or payments fre- quently cause an excess of gold imports in a coun- try to coincide with an excess of imports of mer- chandise. Again, a large demand for money, mani- festing itself in high rates of interest, may cause gold to be retained in a country contemporaneously with an unusual balance of imports. For these reasons bankers and merchants sys- tematically collect and tabulate monthly figures on "Gold Movements." This, moreover, has recently been done more than ever before and panics are GOLD MOVEMENTS 281 now actually "stayed off" for a year or more by the artificial importing of gold by the banks of the af- fected country. "For banks to import gold it is necessary to create a credit on the books of a bank, upon which the gold importer may draw, through the Clearing House, in payment of the cable trans- fers and bills of exchange necessary to cover the amount of gold to be brought over. Clearing House Loan Certificates enable the banks to make these credits, and that is the reason we were able to import such a large volume of gold during 1906—7. The banks extended their facilities to the importers, who brought over the gold on 'Trust Receipts,' which were deposited with the banks as collateral security pending the arrival of the gold." These issues of Clearing House Loan Certifi- cates also provided credit with which the banks were enabled to buy and pay for large amounts of the Panama bonds and United States Certificates of indebtedness, which were issued by the Govern- ment as a measure of relief. The bonds and cer- tificates so purchased were then placed on deposit in Washington as security for the new national bank note circulation. Under the present laws, and according to the provisions of the Aldrich Bill, so called, it is imperative that the banks should first buy bonds, send them on to Washington, and wait for its preparation before they can receive the new circulation. The credit to purchase these bonds in times of panic must be obtained in some way, as there would be no sense in paying our reserve money to buy bonds for circulation, and 282 BUSINESS BAROMETERS receive no return on the same for a week or ten days, and then only in national bank notes, Avhich cannot be counted as reserve. The following conclusions are suggested relative to "Gold Movements": As large or long continued gold exports'^ are al- ways unfavorable signs and gold imports are always favorable signs, the following suggestions refer es- pecially to exports. 1. During a Period of Business Depression. (a) An increase in gold exports forecasts an increase in money rates; but sometimes signifies an improvement. (b) A decrease forecasts lower money rates but usually signifies no improvement. ^"America's supply available for export is derived almost entirely from Australia and Africa, and is usually absorbed by the following countries: Aver. Yearly Net Imports France *S75, 800,300 Germany *47,251,800 United States 26,622,700 Great Britain 18,597,300 Argentina 16,698,400 Egypt * 14,011,100 Switzerland *13,574,700 Italy *12.383,000 Holland *4,417,400 *Estimates of British statistical abstracts. fThe latest five-j'ear period for which returns are available. Perhaps the most striking feature is that while the United States is the only one of these nations which produces considerable gold, yet we draw more heavily on the international supply than any other country except France and Germany; and our imports of gold usually result automatically from our large export balance of merchandise. The French absorption represents, in part, a measure for national defense, and in part interest payments on enormous French investments. German demands results chiefly from its industrial expansion, with proportionate increase in demand for loans and currency. British imports during the five years were greater than usual, but there has been no material gain in either the gold reserves of British banks or the stocks of gold in use as money. The Argentine demand arises from the exceptionally rapid growth of Argentina's commerce and agriculture. Demands from all these countries arise from pretty constant and well defined causes, and there is little prospect of any material change in the world's current of gold." iFor 5 yrs. Ending with 1905 1905 1908 1907 1905 1905 Aver. Annual Production S502,400 66,600 90,435,700 29,200 103,000 1905 1905 1905 39,600 GOLD MOVEMENTS 283 (c) No change Is unfavorable or favorable according to whether gold Is being exported or Im- ported. 2. During a Period of Improvement Following a Period of Depression. (a) An Increase forecasts an Increase in money rates but usually signifies an Improvement. (b) A decrease signifies continued Improve- ment and forecasts lower money rates. (c) No change unfavorable or favorable, ac- cording to whether gold Is being exported or Im- ported. 3. During a Period of Prosperity. (a) An Increase signifies no improvement and, if continued over a long period, often foretells the end of the period of prosperity. (b) A decrease signifies continued Improve- ment, but any exportation of gold should be con- sidered as unfavorable. (c) No change calls for caution. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase signifies no Improvement and often calls for caution. (b) A decrease Is the normal result of a de- crease in activity. (c) No change Is unfavorable or favorable according to whether gold is being exported or im- ported. 284 BUSINESS BAROMETERS FOREIGN MONEY RATES AND FOREIGN EXCHANGE. These two subjects are usually discussed to- gether, first because they are co-related and second- ly, because the subject of foreign money rates of Itself Is not sufficiently important to be treated in- dependently. All that need be said as regards foreign money rates is that money, like water, seeks Its own level, unless artificially held or forced. Therefore, if money rates are low In the United States, but for some time have been high in Eng- land, Germany or France, money rates in the United States are sure to Increase soon, the increase to be followed possibly by a period of stringency. There are two reasons for this: first, the loans to American bankers by foreign bankers will be called for payment, or else the foreign rate will so be raised that It will be more profitable for the Ameri- cans to borrow at home; and secondly, foreign bank- ers will begin to borrow from America and thus take advantage of the lower American rates. As both of these causes are in operation at the same time, the rates very soon equalize, the foreign rates declining and the American rates increasing. The converse of this principle is also true. When the money rates in America are high, but the foreign rates have been low for some months, the tendency is for the American rates to decline and the foreign rates to advance. When tabulating foreign rates, investors and mer- chants consider only the ''rate of discount'' of the three leading foreign banks; namely, the Bank of England FOREIGN MONEY RATES 285 the Bank of France and the Bank of Germany. The tabulation and the interpretation of these rates is very simple, especially as the three rates are usually added and averaged, thus necessitating the use of only one table. The American merchant always keeps in mind, however, that low foreign money rates have their disadvantages as well as their advantages, as very often they signify a low condition of foreign trade which, during certain periods, may be spread to America. The changes in the Bank of England rate in re- cent years have been as follows: Dec 1, 1910 41 Oct. 7, 1909 3 Aug. 15, 1907 41 Mar. 9, 1905 2\ Oct. 20, 1910 5 April 1, 1909 2 1 Apr. 25, 1907 4 Apr. 21, 1904 3 Sept. 29, 1910 4 Jan. 14, 1909 3 Apr. 11,1907 44 Apr. 14, 1904 3. J June 9, 1910 3 May 28, 1908 2^ Jan. 17, 1907 5 Sept. 3, 1903 4 June 2, 1910 3^ Mar. 19, 1908 3 Oct. 19, 1906 6 June 18, 1903 3 Mar. 17, 1910 4 Mar. 5, 1908 3 J Oct. 11,1906 5 May 24, 1903 3\ Feb. 10, 1910 3 Jan. 23, 1908 4 Sept. 13, 1906 4 Oct. 31, 1902 4 Jan. 20, 1910 3^ Jan. 16, 1908 5 June 21,1906 3^ Oct. 2, 1902 4 "an. 6,1910 4 Jan. 2, 1908 6 May 3, 1906 4 Feb. 3, 1902 3 Dec. 9, 1909 U Nov. 7, 1907 7 Apr. 5, 1905 3^ Jan. 23,1902 3^ Oct. 21, 1909 5 Nov. 4, 1907 6 Sept. 28. 1905 4 June 13, 1901 3 Oct. 14, 1909 4 Oct. 31,1907 5J Sept. 7,1905 3 June 6, 1901 3i Foreign money rates, as affecting American money rates through the transferring of gold, are affected only by the purchase and sale of foreign exchange. Therefore, although merchants usually study only foreign money rates with their common knowledge of foreign exchange, yet theoretically, a study of foreign exchange will in itself suffice. Foreign is quoted both as to "actual rates" and as to "quoted rates." For a general description of these headings we quote Howard Irving Smith as follows : "The quotation 'actual rate' means the rate at which exchange is sold in large amounts by the deal- er; the quotation 'posted rate' means the prelimi- 286 BUSINESS BAROMETERS nary asking rate of the day before an actual rate is made, and this is the rate usually exacted for a small amount of exchange by a dealer. The actual and posted rates are the rates at which dealers sell bills of exchange issued by themselves. They do not, as a rule, announce the rates at which they will buy commercial bills of exchange; that is a matter of negotiation and depends on the nature of the bills. The newspapers, however, publish approximate prices for commercial bills. "Foreign exchange is payable in the money of the country upon which the exchange is drawn, that is, where the exchange is payable. The equivalent of $1.00 in English money is 49.3 pence or four shil- lings 1 . 3 pence. When foreign exchange is quoted in the money of the country where it is bought, the unit of the money of the country where payable is figured at so much money of the country where the bill is issued. Thus, when sterling exchange is quoted at $4.8665, £1 in exchange is worth $4.8665. "When foreign exchange is quoted in money of the country where it is payable (not w^here it is bought), the unit of money of the country/ where it is bought is figured at so much in the money of the country w^here the bill is payable. Thus, when ex- change on France is quoted at 18 (5 francs, 18 cen- times), $1.00 in exchange is worth 5.18 francs. "When a bill of exchange is quoted in the money of the country in which it is issued, but is payable (is to be paid) in the money of the country upon which it is drawn (where it is payable), the higher the quotation, or rate, the higher is the cost of such FOREIGN MONEY RATES 287 exchange, for the reason that a high rate requires more of the money of the country where the bill is purchased to buy a given amount of the money of the country where the bill is payable than a low rate requires. "On the other hand, when a bill of exchange is quoted in the money of the country upon which it is drawn (which is also the money in which it is to be paid), as francs, the higher the quotation the less the cost of such exchange, for the reason that more (in the foreign country's money) can be purchased for SI. 00 at a high rate than can be purchased at a low rate. "Illustration: If exchange for £1 is purchased for $4.89 it costs more than if purchased at $4.84. On the other hand, if exchange for 25 francs (5 francs, 25 centimes) is purchased for $1.00 it costs less than if $1.00 is paid for 511 francs; or, putting it the other way, $1.00 buys more in francs at the high rate than it does at the low rate. "The amount paid for a time bill depends on the length of time it is to run and the rate of interest prevailing in the country where the bill is payable. A commercial bill payable in London three months after date is bought by a dealer in exchange in New York at a price which is equal to a bill payable on demand, less than three months' interest at the ex- isting rate of interest in London. The London rate of interest serves as the basis in calculating the price of the bill, for the reason that the bill is payable in London and to make it equal to a draft payable on demand it must be discounted in London. 288 BUSINESS BAROMETERS "High cost for exchange ordinarily means that the international balance is against the country where the high cost prevails; conversely, low cost for exchange ordinarily means that the international balance is in favor of the country where the low cost prevails." However, as all of this may be ascertamed by a study of foreign money rates and other tables already mentioned, it is unnecessary for the merchant to collect or tabulate figures on foreign exchange. The fact is that, so far from financial panics being confined to the United States in 1907, a really formidable credit crisis occurred that year in at least four foreign cities situated in four separate continents, two of these markets being wholly un- connected in a financial way with the United States and the financial collapse occurring in two of them before the panic broke out in our country in Oc- tober, 1907. As early as May, 1907, bank failures, hoarding of money and very general suspension of credit facilities were witnessed in Egypt, and Lon- don was hurrying along emergency shipments of gold to Alexandria, exactly as it hurried along the gold shipments to New York about six months later. At nearly the same time bank failures and panicky conditions on the markets w^ere happening in Japan. In almost every week of our own Octo- ber crisis, and on yet another continent, the pow- erful Banco Mobiliario of Valparaiso suspended pay- ments, credit came to a halt in Chile, the currency sank to a low level of depreciation, and the Chilian Government was forced to take measures of relief. Again almost simultaneously with our own crisis. FOREIGN MONEY RATES 289 panic broke out in Hamburg, Germany, carrying down two great commercial houses, and leading German financial experts pronounced the crisis the worst Hamburg had witnessed since 1857. One hardly needs add to this list such other minor crises as the temporary breakdown in credit in Genoa in the middle of 1907, and the panic at Co- penhagen, a few months after our own, which com- pelled the Danish Government to come to the res- cue by guaranteeing the assets of banks then sub- ject to a run by depositors. What this part of the history of 1907 conclusively proves is that financiers and historians must look elsewhere than to Ameri- can legislation and American banking for causes of that year's panic. European economic experts have not found it difficult to assign the cause; it was in- deed pointed out by the eminent Paris economist, M. Leroy Beaulieu, even before the panic came. "That cause was the exhaustion, in a violent world-wide industrial expansion and an even more world-wide speculation, of the world's accruing capital resources, and a consequent strain on credit which, throughout the financial world, approached the breaking point. With such a tension in the international chain of credit, the break was bound to come, either where the link was weakest or where the strain was greatest. The link was weakest in Chile and Egypt while the strain was incalculably the greatest in the United States, where speculation of an unheard of rashness and magnitude had been raging for two years. The severity of the shock in all these localities, and the 290 BUSINESS BAROMETERS world-wide liquidation and reaction, in both finance and commerce which have followed and which still prevail, in Europe, Asia, Africa and South America, as well as in this country, were the logical and inev- itable outcome." Therefore the necessity of study- ing foreign conditions and not simply conditions in only one country, is apparent. The following conclusions are suggested relative to "Foreign Money Rates,"* as expressive in figures of foreign conditions. 1. During a Period of Business Depression. (a) An increase in foreign money rates usually signifies higher'domestic rates. (b) A decrease signifies no improvement. (c) No change signifies "no change." 2. During a Period of Improvement Following a Period of Depression. (a) An increase in foreign money rates or in foreign exchange usually forecasts higher domestic money rates, and may signify further improvement. (b) A decrease often signifies no improvement. (c) No change signifies normal conditions. 3 . During a Period of Prosperity. (a) An increase in foreign money rates or in foreign exchange usually forecasts higher domestic rates, and signifies no improvement. (b) A decrease signifies continued improve- ment. (c) No change means normal conditions. *These figures are also of special value in judging the course of domestic rates. PRODUCTION OF GOLD . 291 4. During a Period of Decline Following a Period of Prosperity. (a) An increase in foreign money rates or in foreign exchange usually forecasts higher domestic money rates, and no improvement. (b) A decrease signifies the reverse, providing all other factors remain constant. (c) No change signifies normal conditions. PRODUCTION OF GOLD As to the effect of the production of gold, there is a diversity of opinion. That it is a subject of great importance when a long period of years is con- sidered is admitted by all ; but many deny that it is of such importance when considering a period of only a few years. The theory that as the supply of gold (which is used as a standard of value and a me- dium of exchange) increases, interest rates and commodity prices must immediately increase, is actively combated by many authorities. If there were no other possible causes at work affecting interest rates and commodity prices, this theory would be taken more seriously, especially as it would involve a general decline in bonds and all fixed interest obligations ; but even then it would be obliged to stand the test of experience. The editor of the Engineering and Mining Journal Mr. Walter R. Ingalls, claims to have shown by statistics and graphic diagrams, that there has been no correspondence between the fluctuations in the gold supply and those in prices. Going back to the 292 BUSINESS BAROMETERS time of the first notable modern increase in gold production, he showed that for some years, beginning with 1851, there was an apparent parallelism, but there was a drop in prices after the crisis of 1857, and then a recovery and increase until 1864, though the production of gold was then falling off. After that prices declined until 1870, while the gold sup- ply fluctuated within narrow limits; but in 1871 prices started up again, with gold production de- clining. During the fall in prices after 1873, there was an upward turn in the production of gold and by a peculiar perversity, in veiw of any theory of cause and effect, it fell off again after 1879 as prices began to rise. The decline in gold production con- tinued until 1883 when there was another upward turn followed by a continued increase until 1896. The output was then more than double that of 1884 and the highest ever reached before that time; but during that period there was an almost continual decline in commodity prices, to contrast with the rise which took place, while the annual supply of new gold again doubled. This may not prove that the increased production of gold has had no effect upon its commercial value compared with the general mass of commodities, and consequently upon prices determined by its value as the standard of measurement and computation, but it does very conclusively refute the theory that the two things stand in the closest relation of cause and effect. There is certainly no close correspondence between them from year to year and the inevitable inference is that much more potent causes, than the PRODUCTION OF GOLD 293 volume of gold in monetary use, are at work in determining the course of prices. It is a question whether the demand for the use of gold as a basis of credit and exchange has not kept pace with the supply and prevented any absolute depreciation. Mr. Ingalls forcibly opposes the argument that the cost to capital and labor of pro- ducing gold has diminished and that available de- posits are on the increase, with cheapening methods of extraction. In connection with the question of increased demand, he took the increasing produc- tion of pig-iron as fairly representing the advance made in industries and trade generally and showed both by figures and graphic diagrams that its in- crease has been relatively greater than that of gold. The general subject of gold has best been pre- sented in a book entitled "The Story of Gold" by Professor E. S. Meade; while the theory that the rise in commodity prices is due to the increased production of the metal is well described in the book entitled "Gold Supply and Prosperity," edited by Byron W. Holt of New York City, who is generally recognized as one of the best informed men on this subject. Based upon the assumption that the out- put of gold is to increase for the next ten years at an average rate of not less than 5%, Mr. Holt arrives at the following fourteen conclusions: — **(1). That the value of gold will depreciate as the quantity increases, though not, perhaps, at the same ratio. (2). That this depreciation will be measured by the rise in the average price level. 294 BUSINESS BAROAIETERS (3). That rising prices will soon lead again to rising and higher interest rates. (4). That, because of high interest rates, the prices of bonds and most other long-time obliga- tions drawing fixed rates of interest, dividends or income will again decline to low levels. (5). That, because of rising prices and high in- terest rates, the cost of materials and supplies will tend to decrease the net profits of all concerns the price of whose products or services either cannot be advanced at all or are not free to advance rapidly. (6). That, because of rising prices, the net profits of all concerns that own their own sources of materials and supplies will tend to increase. (7). That, because of rising prices of commodi- ties, the market prices of all tangible property will tend to rise. This includes lands, forests, mines, buildings and improvements. (8). That, because of rising prices of com- modities and property, the prices of the stocks of corporations holding commodities or property will tend to advance. (9) That, because of rising prices and there- fore of cost of living, wages must and will, tend to advance. (10). That, because wages and salaries will not rise as much or as fast as will prices and the cost of living, there will be dissatisfaction and unrest among wage and salary earners. (11). That, because of rising prices and property, there will be much speculation in commodites, stocks and real estate. PRODUCTION OF GOLD 295 (12). That, because of the great profits that will result from speculation, honest industry will be discouraged and recklessness and extravagance will be encouraged. (13). That, because rising prices will decrease the purchasing power of debts, and thus aid debtors at the expense of creditors, they will discourage •saving and thrift. (14). That, then, an increasing output of gold means rising prices, rising wages, high interest rates, the scaling of debts,* speculation, unjust distribution of earnings and wealth and general dissatisfaction and discontent." These conclusions seem to follow each other logically,' though their close connection is not wholly evident. The first two conclusions, being the more fundamental and important, Mr. Holt discusses as follows: *Tt is almost inconceivable that an increasing supply and output of gold, the standard and meas- ure of values, will not tend to raise prices. It is not asserted that a slight increase in the supply will cause prices to advance. The natural course of prices, especially of manufactured goods, is down- wards. To ofTset this cheapening tendency, due to invention and improvement, an increase of perhaps 2% a year in the supply of gold may be necessary. To offset the growing demand for gold, due to industrial expansion, an increase of perhaps 1% more a year may be necessary. "An increase of perhaps 3% a year in the world's volume of gold, then, may be necessary to maintain 296 BUSINESS BAROMETERS stable prices. This being true, a smaller increase than 3% will result in declining prices, and a greater increase will result in advancing prices of commodi- ties. An increase of 5% a year in the supply of gold then would cause prices to rise an average of 2% a year, and an increase of 8% in the supply of gold would cause prices to rise an average of 5% a year." As to whether Mr. Holt or Mr. Ingalls is correct, the reader must decide for himself. It is very generally admitted that a sudden increase in the supply of gold at certain times gives impetus to business activity, results in the conception of new ventures and indirectly is accompanied by an ad- vance in prices. This rising movement in prices of itself encourages speculation and the extension of credit to a dangerous degree. Large profits lead to waste and extravagance, which conditions are fol- lowed by a crisis and a period of depression. There- fore it seems reasonable to admit that the over- production of gold is one factor causing increased prices, thus indirectly affecting business conditions; but it is very illogical to point to the production of gold as the only factor or even as the most important factor affecting prices and interest rates. The in- crease in population, the destruction of natural re- sources, industrial combinations, labor unions, in- creased cost of agricultural lands and many other factors tend to increase the prices of commodities, rates of interest and investment values. Nevertheless, ''Gold Production'' is an important subject, and it is the practice of most careful hankers, PRODUCTION OF GOLD 297 manufacturers and merchants regularly to tabulate the monthly production of the Rand mines, as an index of the world's production. Of this production it is said: "Treatment of ore in Johannesburg con- tinues seven days a week, and February, with 28 days, is always a small month ; while, other things being equal, a month with 31 days will have a big- ger output than a month with 30 days. December is subject to special conditions, because there is a general clean-up at the end of the year, which always makes that month larger than others. Month after month since the Boer War, the Rand output increased uniformly, with no check other than variation in length of month. A check to such an advance which has extended over five years or more would be very important. There are, of course, other centers of gold production, like Alaska, whose wealth is said to be incalculable; but a real reduction in the Transvaal would be a prac- tical fact as against a theory. Reduction in the world's gold production at this time might not be felt for months, but it might mean ultimately a reduction in price of all commod- ities not artificially supported ; an advance in price of bonds ; a reduction in rate of interest on mortgages ; lower wages in view of the consequent greater pur- chasing power of gold ; and a decline in price of stocks caused by the transference of investments from stocks to bonds. This last development might occur because of the great purchasing power of interest on bonds, the collapse of any inflation movement in stocks, and the investor's preference 298 BUSINESS BAROMETERS for a safe investment. The following conclusions are suggested relative to "Gold Production:"* 1. During a Period of Business Depression. (a) A great increase tends at first to lower money rates, and may cause an improvement. (b) A great decrease tends to increase money rates, and may signify no immediate improvement. (c) No change signifies that money rates will be determined wholly by outside conditions. 2. During a Period of Improvement Following a Period of Depression. (a) A great increase tends at first to lower money rates (although the later effect may be the reverse) and signifies continued improvement. (b) A great decrease tends to increase money rates, and signifies no improvement. (c) No change signifies that money rates will be determined wholly by outside conditions. 3. During a Period of Prosperity. (a) A great increase is very dangerous and calls for caution. (b) A great decrease tends to upset condi- tions and also calls for caution. (c) No change signifies that money rates will be determined wholly by outside conditions. 4. During a Period of Decline Following a Period of Prosperity. *These figures have an immediate bearing on all money rates and a distant bearing upon the price of all commodities including money. COMMODITY PRICES 299 (a) A great increase tends to retard the re- adjustment. (b) A great decrease tends to hasten the re- adjustment. (c) No change signifies that money rates will be determined wholly by outside conditions. COMMODITY PRICES. One cannot do better, when studying this subject, than to refer to Hon. Theodore E. Burton's book entitled "Crises and Depressions," in which, among other things, he states : — "In the season of activity, which precedes a crisis, prices rise. This rise begins after the worst of the previous depression has been reached. Attention has already been called to the fact that the rise in prices is unequal in different commodities. Iron and steel in their various forms, as well as other commodities required for construction, and those which supply new demands for consumption, show the most striking increases. During a depression, prices of these commodities fall first and most notably. The prices of other commodities do not fall so much or so early. In the preceding season of expansion they do not rise so much, and, in their rise as well as in their fall, they show, for the most part, only a remote effect of the activity or in- activity of the time. "As is well known, it is the tendency of prices of iron and steel to reach and pass their maximum some time before the crisis occurs, though if the crisis be precipitated by an unexpected failure, the interval 300 BUSINESS BAROMETERS will be short or the high prices may continue until the very outbreak of the crisis.* "In* the United States, prior to the crisis of September 18, 1873, a low price level appeared in almost all grades of iron and steel in January 1871. This was followed by a rapid and almost unbroken rise, culminating in the months of October and November 1872. A maximum price of rolled bar iron, $118.72 at Philadelphia, was reached in Octo- ber 1872. The price fell, with slight fluctuations, to $80.64 in September 1873, the month of the crisis. "In the depression which followed the crisis of 1873, prices of a majority of the varieties of iron and steel were lowest in the latter part of the year 1878, though steel rails and standard sections of iron rails dropped to a minimum in the closing months of 1877. The month of November 1878 may, how- ever, be selected as the turning point. At that date No. 1 anthracite foundry pig-iron was only $16.50 per gross ton, less than one-third the price of September 1872. *Tn the expansion which followed 1878, prices reached their maximum in the months of January, February and March, 1880; but the highest figures were maintained only for a very short time. An- thracite foundry pig-iron, which had fallen to S16.50 in November 1878, rose to $41.00 in Feb- ruary, 1880; rolled bar iron to $85.12 in the same month; steel rails to $85 ; cut nails to $5.25 in the *This is why the price of iron is tabulated each month — as a oarometer for forecasting changes in general business; although — as will be seen from a chart in the earlier part of this book — commodity prices do not reach a minimum until one or two vears after the stock market reaches its low point. COMMODITY PRICES 301 months of February and March. After the month of March, 1880, there was a sharp decHne. Al- though interrupted by numerous fluctuations, a steady decHne began after the closing months of the year 1882, and continued until another minimum was reached in the summer of 1885. The crisis of May 1884 occurred in the midst of this downward movement and seems to have exerted but little in- fluence upon the iron market. Anthracite foundry pig-iron fell to $17.75 in the months of June, July and August of 1885 and then began to rise. Rolled bar iron fell to $40.30 in May of the same year, and then was quoted at $40.32 for the re- maining months of the year. Steel rails fell to $26 in the month of April. "After the minimum point in 1885 there was an upward movement continuing until the early months of 1887, the months of February and March of that year showing maximum prices in most varieties of iron and steel; this maximum was succeeded by a fall in the prices, which for most varieties reached a minimum in May and June 1889. This minimum was followed for a short time by rising prices, which reached a maximum in 1890. In the two dec- ades after the maximum prices of 1880 the trend of prices differed from that in the preceding decade. Fluctuations were much more frequent and for nearly eighteen years the general tendency was downward, though interrupted by brief revivals in prices in the years 1882, 1886, 1887, 1890 and 1895, The rise in price which occurred in 1887 and other years proved to be greater than the increase de- 302 BUSINESS BAROMETERS mand would sustain. The general statement may be made that during this long period between 1880 and 1897, in fact until 1898 for there was only a slight rise in that year and the average price of several forms were less tha'n in 1897, the demand did not keep pace with the increasing supply, and improvements in production were constantly exert- ing their influence. The increase in price in the United States in 1887 was greater than in other countries. The reason for the difference may be found in the exceptional demands in the year 1887, for in that year occurred the most extensive railway building and the greatest consumption of steel rails. There was an exceptional deficiency in the home supply. There was also a revival of general activity in this country, the effect of which was con- spicuous. It should be further noted that the crisis of this decade was much less severe than that of 1873, and the downward movement succeeding it, though long continued, manifested less decline in prices. After the high prices of 1890, there was a fall which continued until the month of July 1897. This fall was more uniform than those after 1880 and 1887. It was interrupted only by a temporary revival beginning after April 1895, and continuing until the latter part of the year. Beginning in July 1897 prices show an upward tendency, but increases were slight until the beginning of 1899; then there was a very rapid rise until the latter part of the year, which continued, with the exception of a very slight setback in 1903, to the depression of 1907-8. COMMODITY PRICES 303 Again the improved conditions of 1909—10 were preceded by a remarkcible increase in the price and production of iron, followed later by an increase in the production of copper and other commodi- ties. In the examination of these price movements several marked tendencies appear: "(1). The interval between the date of the maxi- mum prices and the succeeding crisis is longer in the later years. This interval continued for a few months prior to the crisis of 1825 and 1837, nearly a year prior to that of 1873, and several years prior to the crisis of 1884 and 1893. This longer interval may be explained by the greater ability to carry accumulated stocks in expectation of a rise, the larger influence of speculation, and the absorption whenever prices decline, of larger quantities by the market now^ existing. These influences explain another tendency, viz. : "(2). In later years fluctuations are more fre- quent. In the period after the downward price movement has commenced the market price breaks and then is restored again. It is evident that abundant capital for construction is waiting for investment and even in case of a slight decline, pur- chases are large and tend to bring prices to the former level. "(3). Since 1873 the maximum price reached in each cycle tends to be less than that in the preced- ing cycle. This is due to invention, to the lower cost of manufacturing on a large scale, and improve- ments of transportation. This tendency to lower 304 BUSINESS BAROMETERS prices is a part of the progress of the time and an essential feature in each depression. "(4). The upward movement of prices continues for a much shorter time than the downward move- ment. The upward movem.ent preceding the maxi- mum of October and November, 1872, continued for one year and nine months. The succeeding down- ward movement lasted until November 1878, or six years and one month. Then an upward move- ment continued until February, 1880, or one year and three months ; the succeeding downward move- ment lasted approximately five and one half years, to the summer of 1885, to be followed by a rising movement interrupted in the United States in 1888 and 1889, of four and one-half years, or until January 1890. It is to be noticed, however, that the rise in most grades of iron and steel for a year after the summer of 1885 was very slight. After January, 1890, the downward movement continued for seven and one half years, to July 1897, w^hen prices for a year were almost stationary, to be fol- lowed by rising prices, which continued until the end of 1899 or less than a year and a half. "(5). The rapid rise which precedes a maximum price rarely continues for more than a year. If we take anthracite and Bessemer pig-iron as the best standard, it will be noticed that prior to the maxi- mum price of anthracite, September 1872, prices rose from $37 in January of that year; prior to the maximum of $41 in February 1880, prices had risen rapidly from $20.75 in August 1897, or for six months; prior to the maximum of $19.90 in January COMMODITY PRICES 305 1890, there was a rise from $17 in May 1889, or for eight months; prior to the maximum of $25 for Bessemer pig-iron in December 1899, there was a rapid rise from $11 in January of the same year, or for eleven months. In many respects the rise in 1899 was the most remarkable of all, because it had been considered by manufacturers in the preceding years that the equipment for production was suffi- cient to properly meet any increase of demand, and yet the rapid rise in that year was unprecedented. The great increase in the price of iron and steel in that year, with the steady increase in production after 1894, proves the more general use of these prod- ucts for a greater variety of purposes and over an enlarged area." For a general study of prices, bankers and mer- chants use Bradstreet's Index of American prices and the London Economist's Index of English prices, and tabulate or plot these at regular inter- vals. It will be noticed in studying commodity prices, that the fall after a year of panic, curtail- ment and depression is usually considerably less than the preceding rise. For this fact there are two explanations. One of these attributes the persistence of prices on high levels to the continuous output of gold which is now being supplied at a rate of more than a million dollars a day. The other explanation finds the causes for the effect in question due to several different influences which have character- ized the industrial and commercial world for fully a decade. It is well worth while setting over 306 BUSINESS BAROMETERS against the single item of gold supply these other factors as part of the dynamics which have helped to lift the great plane of values to the level where it has with proper exceptions and limitations, per- sistently stood for the past several years. There are three at least, if not four substantial reasons why prices have risen so rapidly since the opening of this century and have been maintained so stubbornly. ^' First. The first factor is the enormous increase in the world's purchasing power arising from the annual increment of values in the output of mines, agriculture, forests and other extractive industries. It is figured conservatively that in the past ten years there has been taken out of the earth and the waters of the United States alone a sum of natural values amounting to $90,000,000,000, as follows: Mineral output (ten years) $14,000,000,000 Agricultural products (ten years) 60,000,000,000 Lumber products (ten years) 12,000,000,000 Grazing, fishing, etc., (ten years) 4,000,000,000 Total for decade in United States 90,000,000,000 ''Second. Another factor in maintaining high prices is the expansion in the geographical area of productive enterprise over new territories which during the last decade have for the first time been fairly incorporated into the world's market. With- in this period nearly the whole of Siberia has been added to the world's trading area, through the enormous outlay required to build the Trans-Si- beria Railroad. Every foot of this trans-continen- tal thoroughfare was accompanied b}' the creation of new demand for commodities, new capital for de- COMMODITY PRICES 307 velopment and by the manifestation of new power to purchase. What was done in Siberia in an ex- tensive way has also been done in Japan, China, India, Egypt, AustraHa, Africa, South America, Mexico and Canada, since prices began their up- ward movement in 1897. The work of money, as well as the work of man and of his implements of production, has all been earning an increasing in- come, which almost immediately manifests itself in an expanding demand upon the industrial nations for their output. " Thirdly, the maintenance of high prices is prob- ably due to the rise of the standard of living which a decade of increasing wealth has first produced, and then established with a resisting power that even in times of depression resists with a new force any recession in its newly gained advantages. ^^ Fourthly, there is a final factor behind existing price levels in the forms of the wastes of wars and in the millions of misdirected capital which have helped to enhance the costs of profitable production. The power behind high prices is not the uplift of gold but rather the aspiration of man, whether seen in the individual's impulse to gain income or in large- scale production to control markets. Gold as a dynamic element has its part, but as a measure of value it is a gauge rather than a cause." Therefore the price of commodities is one of the best of business barometers and all merchants and bankers systematically tabulate each month the ^^ Index Num- ber''' compiled by Bradstreet or others, supplemented with figures on the price of iron, copper, cotton, etc. 308 BUSINESS BAROMETERS Such figures especially interest hankers since "much more money is needed to finance a given volume of business with high prices than with low prices. Therefore, an increase in interest rates usually follows a decided advance in commodity prices. The following conclusions are suggested relative to "Commodity Prices." 1 . During a Period of Business Depression. (a) An increase in commodity prices during a period of depression, after a period of low commodity prices, signifies that the depression has come to an end and improvement has begun, provided such an increase has been preceded by a distinct decrease. (b) A decrease in commodity prices is normal and signifies no improvement. (c) No change calls for caution. 2. During a Period of Improvement Following a Period of Depression. (a) An increase following a decrease signifies continued improvement. (b) A decrease may signify that the period of improvement is progressing satisfactorily, or it may signify a temporary check. (c) No change calls for caution. 3 . During a Period of Prosperity. (a) A great increase in commodity prices signifies no further improvement, and often is one of the signs of the end of this period. (b) A decrease is very unusual and should be carefully investigated. (c) No change calls for caution. COMMODITY PRICES 309 4. During a Period of Decline Following a Period of Prosperity. (a) An increase is not unusual as commodity prices sometimes continue to increase about one y^r after the decline in stocks takes place. Such an^increase, however, clearly signifies that no im- mediate improvement may be expected. (b) A decr^'se signifies that the period of decline is ^progressing satisfactorily and may fore- cast an improvement. (c) No change is normal at the beginning of this period. Students desiring a popular discussion of this subject are advised to read the report published by the State of Massachusetts on the "Increased Cost of Living" in May, 1910, — Robert Luce, Esq., 60 State St., Boston, Chairman. The most scientific discussion of prices may, however, be found in Prof. Irving Fisher's new book, entitled "The Purchasing Powder of Money" and published by Macmillan & Co., New York. Professor Fisher deserves the very highest commen- dation for his original researches along these lines, and all of his works deserve the most careful attention. CHAPTER Vni SUBJECTS RELATING ESPECIALLY TO IX VEST- MENT CONDITIONS (For figures for years later than those herein given, see the large sheet contained in the Addenda.) STOCK EXCHANGE TRANSACTIONS THERE are three features in connection with the New York Stock Exchange which are of value in forecasting business conditions. They are as follows : 1. The Quotations. 2. The Transactions. 3. The New Securities Listed. (See section entitled "New Securities," page 316.) QUOTATIONS When studying the quotations, only a long pe- riod of time showing the general tendency should be considered. The fluctuations from day to day are of no value whatever, nor are the swings covering only a period of a few weeks. A study of the general tendency of the market, how^ever, is of con- siderable value in forecasting business conditions. If the highest point of each successive swing is higher than the high point of the preceding swing, and if the low point of each successive swing is not so low as that of the preceding swing, then the tendency of the market is upward. If the last high point and the last low point are lower than the high points and low points of earlier periods, then the tendencv of the market is downward. STOCK EXCHANGE TRANSACTIONS 311 In order to study this matter intelligently, a plot should be made of the average prices of the leading railroad and industrial stocks. The list which many merchants and investors use in connection with this work is as follows: "Central of New Jersey," ''Chicago, Milwaukee & St. Paul," "Delaware & Hudson," "Great Northern," "Illinois Central," "Louisville & Nash- ville," "New York Central," "N. Y., N. H. & Hartford," "Pennsylvania" and "Pullman." The average prices for these ten since 1860 are given in another chapter of this book. The Wall St. Journal also has a list which is, however, more for the speculator than the investor. This is known as the "list of 32 stocks" and contains 12 industrial stocks: Smelters com.. Amalgamated Copper, Rubber pfd., National Lead Co., U. S. Steel pfd.. People's Gas, U. S. Rubber, U. S. Steel com., Sugar com., General Electric, Colorado Fuel & Iron, and American Car & Foundry; and 20 active railway stocks: Atchison, Brooklyn Rapid Transit, Canadian Pacific, Delaware & Hudson, Northwest, St. Paul, Twin City Rapid Transit, Erie, Louis. & Nash., Northern Pacific, Missouri Pacific, N. Y. Central, Pennsylvania, Reading, Southern Pacific, Southern Railway com.. Union Pacific, Norfolk & Western, Baltimore & Ohio and Illinois Central. As an aid in determining the tendency of the market, merchants make a dot at the center of each movement, or midway between the high point and the low point of each main swing. These dots 312 BUSINESS BAROMETERS are then connected with a Hne and this Hne shows at a glance the tendency of the market. When two or three plots are made, it is interesting to compare a railroad plot with one for industrials, as there is a constant, though complicated relation between the two. Space does not permit a de- scription of this matter in detail, so it must suffice to state that a change in conditions may sometimes be discerned more quickly by having the two plots, one for railroads and the other for industrials, than if both are averaged together on the one plot. However, as the industrial quotations almost always follow the railroad quotations, both in a rising market and in a falling market, one plot simply for the ten stocks above mentioned is perfectly satisfactory and avoids confusion. Another interesting plot is that for bond prices, and many merchants use the following ten as an index of this market: Atchison, Top. &Sa. Fe. Gen. 4's; Baltimore & Ohio 1st 4's; Central of Georgia Cons. 5's; Central New. Jersey Gen. 5's; Chicago & Alton Ref. 3's; Col. & Southern 1st 4's; New York Central 3J's;St. Louis & Sa. Fran. Ref. 4's; Southern Ry. Consol. 1st 5's; Wabash 1st 5*s. Usually a change in the bond market precedes a change in the stock market. If considered in a conservative manner, the tendency of the stock market is very interesting to merchants when endeavoring to forecast business conditions. This is due to the fact that a change in the stock market is the first visible sign of a change in general business conditions. Railroad earnings STOCK EXCHANGE TRANSACTIONS 313 are absolutely dependent upon business conditions, and stock market quotations are ultimately de- pendent upon earnings. Therefore, a rising market over a certain period of time, means that the major- ity of operators believe that fundamental condi- tions are more sound, v/hile a falling market means that these operators believe that fundamental conditions are unsound and unsatisfactory. In other Avords, a study of the stock market gives one a composite idea of the opinions of the ablest bank- ers and brokers. This is the reason why the stock market often turns to go down while railroad earn- ings are increasing, and often turns to go up while railroad earnings are still decreasing. In order that an operator may make money, some other operator must lose money. Therefore, the one who makes the most is not only the one who guesses right, but the one who makes the right guess first. For this reason stock market movements are the first public sign of a marked change in fundamental business conditions. All plots of prices should, however, be supplemented by a plot of what the given stocks yield in order to allow for the changes in dividend rates. TRANSACTIONS A study of "Quotations," without due consid- eration of "Transactions," is of little value, be- cause a rising market, during which only a few shares change hands, means very little, as such a market may be the result of manipulation. In the same way a falling market, when only a few 314 BUSINESS BAROMETERS shares change hands, may mean very little. In order to reach a correct conclusion, the "quota- tions" should be considered in connection with the "volume." The principle which we have in mind is the same as "foot-pounds" in mechanics. "Pounds" by themselves are meaningless, and "feet" by themselves have no significance to the engineer. It does not mean very much to say the power is sufficient to lift a body weighing a hundred pounds or the power is sufficient to move a body one hundred feet. But when one states that there is power enough to lift one hundred pounds through one hundred feet of space, it is possible to judge correctly the power involved. A similar relation exists between the "Quotations" and the "Trans- actions." Therefore the leading bankers not only tabulate the quotations of the leading stocks and bonds, but also the "transactions." When the volume of busi- ness for any one or more months is constant, one may judge business conditions by the quotations alone, but unless this volume is constant, its vari- ations should always be taken into account. An average rise in the market of only 1% with a daily volume of 2,000,000 shares signifies a differ- ent state of aft'airs from that of a rise in the market of 1% with a daily volume of only 200,000 shares. Plots and charts are used by some stock ex- change houses in endeavoring to prophesy changes and turns in the market. Statisticians of stock exchange houses are interested in studying these theories, but merchants should purposely avoid STOCK EXCHANGE TRANSACTIONS 315 the subject. If followed too closely, these stock market plots are apt to be misleading, and by turning one's attention from the main object of this work, are a hindrance. The business of the merchant is not to anticipate stock exchange move- ments, but business movements. Although there is a relation between the two, they are, for the most part, quite distinct. The following conclusions are suggested rela- tive to "Stock Exchange Conditions.'"^ 1. During a Period of Business Depression. (a) An increase is a distinctly favorable sign that better trade conditions may be expected. (b) A decrease is a sign that continued dull- ness may be expected. (c) No change signifies uncertainty. 2. During a Period of Improvement Following a Period of Business Depression. (a) An increase signifies continued improve- ment. (b) A decrease signifies no improvement. (c) No change signifies temporary uncertainty. 3. During a Period of Prosperity. (a) A great increase usually is a very unfa- vorable sign. (b) A great decline calls for caution. (c) No change singifies temporary uncer- tainty. 4. During a Period of Decline Following a Pe- riod of Prosperity. (a) An increase signifies that liquidation is in progress. *In all studies of "transactions" it must always be noted whether the transactions increase when the prices are increasing or decreasing. 316 BUSINESS BAROMETERS. (b) A decrease signifies less satisfactory con- ditions. (c) No change signifies temporary uncer- tainty. NEW SECURITIES The reason for studying the subject of "New Listings" may be understood by a review of the three following laws of economics : 1. During a Period of Prosperity, as the number of new companies, new promotions and new securities listed increases, the danger of a panic increases and the time between said Period of Prosperity and a future Period of Depression decreases. 2. When the number of new promotions, new com- panies and new listings is at a minimum, financial depression is sure to be reaching a7i end. 3. As the number of new companies, new promo- tions and new listings increases from a minimum, the gradual increase is a sign of improved conditions until the normal number of new compafiies, new promo- tions and new listings is reached, after which an in- crease again becomes a source of danger. Out of the list of twenty-five subjects of which this book treats, this one, namely, *'The Number of New Companies, New Promotions and New Se- curities Listed," is the one by which it was most clearly possible to forecast the panic of 1903. For this reason this panic was said to be due to "un- digested securities" and was known as "The Rich Man's Panic." Of course one cannot rely upon the study of this NEW SECURITIES 317 one subject, as many panics have taken place when the figure for "New Securities" has been normal and the change in conditions could only have been forecasted by a study of the other subjects. In fact, the difficulty in studying this subject is that the figures remain very constant for a long period of time, and it is only the great movements up or down which are of any use. Under normal conditions a study of this subject is of little value, but it is most useful under ab- normal circumstances. If we are in a period of depression and we reach a period where no new companies are incorporated and there are absolutely no new promotions or listings, we may be sure of better conditions in the near future. Conversely, if we are in a period of prosperity and there are an abnormally large number of promotions, an abnor- mally large number of new corporations being formed and new securities being listed, we may be absolutely sure of trouble. This usually comes first in the form of tight mone\% followed immedi- ately by a decline in the bond and stock market, and later by a period of depression in business conditions. The following figures clearly show this, particu- larly in connection with the panic of 1903: Stocks: Total value Bonds: Total value Year including new capital, Year including new capital, old and refunding issues old and refunding issues 1885 $56,913,116 1885 $197,259,000 1886 329,469,350 1886 238,097,690 1887 270,053,550 1887 343,477,321 1888 248,228,275 1888 511,002,218 1889 259,649,774 1889 389,720,000 1890 437,992,330 1890 684,867,879 318 BUSINESS BAROMETERS 1891 $188,914,954 1892 237,036,105 1893 198,245,261 1894 251,193,003 1895 143,373,970 1896 590,732,215 1897 502,974,891 1898 528,153,996 1899 704,172,605 1900 620,935,000 1901 1,642,013,715 1902 784,032,595 1903 426,890,295 1904 175,866,800 1905 533,434,900 1906 662,769,450 1907 576,032,050 1908 513,927,450 1909 1,325,526,485 1910 1,239,501,545 (a) Does not include Imp 1891 $287,645,700 1892 317,861 500 1893 288,803,400 1894 309,804,600 1895 257,275,400 1896 582,286,700 1897 357,415,902 1898 700,064,680 1899 525,384,240 1900 443,713,000 1901 923,010,100 1902 a533, 519,300 1903 581,288,800 1904 535,079,600 1905 980,026,650 1906 b571,898,500 1907 420,813,000 1908 872,958,000 1909 1,098,956,500 1910 808,162,500 000,000. (b) Does not include $425,000,000 Japanese Government bonds. Therefore all the merchants systematically tabu- late each month the amount of new securities listed, although the ^'stocks' and ''bonds'' are added; thus avoiding the necessity of two tables. The following conclusions are suggested relative to "New Securities Issued." 1. During a Period of Business Depression. (a) An increase signifies improvement. (b) A decrease signifies no improvement. (c) No change generally calls for caution. 2. During a Period of Improvement Following a Period of Business Depression. (a) An increase signifies continued improve- ment. (b) A decrease signifies no improvement. (c) No change calls for caution. 3. During a Period of Prosperity. CROP CONDITIONS 319 (a) An increase, especially if great, is a sign of no further improvement, and the culmination of the period of prosperity. (b) A decrease tends to lengthen this period of prosperity and thus signifies continued im- provement. (c) No change usually calls for caution. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase signifies no improvement. (b) A decrease indicates that conditions are naturally adjusting themselves. (c) No change signifies no improvement, if large issues are still being offered, but otherwise it shows nothing of importance. CROP CONDITIONS This subject does not now hold the same rela- tive importance in the study of Fundamental Statistics that it held when statistics on other topics were less carefully compiled. But since the full annual harvest of the grains and cotton is one factor at the bottom of American business prosperity, the condition of the standing crops will always be interesting and valuable as a barometer. Of all subjects studied by the merchant and investor it is the only one which the Government attempts to forecast. Figures on banking conditions, labor conditions, imports and exports are accumulated by the Government and are valuable as a matter of history; but for none of these subjects is there any 320 BUSINESS BAROMETERS official attempt to use the figures for forecasting conditions. But in the subject of crops, not only does the Government publish a report on their amount and condition in various stages from planting to the be- ginning of harvest, but it makes a prediction for the benefit of business interests of what the total crop is likely to be. It has been well proved that this forecast made by the Government is better than any forecast which at the present time can be made by any association of merchants or bankers inde- pendently. For this reason the method of compiling and distributing these forecasts should be clearly under- stood and the following is a detailed explanation by Chas. C. Clarke, of the U. S. Bureau of Statistics: "There are three divisions in the Bureau of Statistics of the Department of Agriculture: the Division of Domestic Crop Reports, the Division of Foreign Markets, and the Editorial Division and Library, each of which has a chief of division reporting directly to the Statistician. "Statistical information concerning crop pro- duction and live stock that is collected by the slow and exact methods of a census is generally not given to the public until after the crops enumerated are harvested and marketed and the immediate inter- est in it has passed away. Prices of agricultural products are primarily governed by the law of supply and demand; therefore early information concerning the supply is of value to all. Those who produce and those who consume are vitally tl CROP CONDITIONS 321 interested as well as the dealer who stands between them. The relations and mutual interests of agri- culture, manufacture, and commerce demand that there should be published at brief intervals during the crop season reliable information on the condi- tion, acreage, production, and value of the princi- pal crops, by States and agricultural areas. "As commerce consists largely in an exchange of the products of agriculture and manufacture among their respective producers, commerce thrives as the farmer and the factory operative prosper. Some individuals, however, do not always regard the common welfare, and injurious commercial speculations occur when ignorance prevails concern- ing the condition of our crops and the true rela- tions of supply and demand. At such times the farmer often does not obtain just prices, while the consumer derives no benefit and business is inju- riously affected. The consequences of false re- ports concerning the condition and prospective yield of the cotton crop alone may be very injurious. If there were no adequate Government crop-re- porting service, and by misleading reports specu- lators should depress the price a single cent per pound, the growers would lose $60,000,000 or more; if the prices were improperly increased, the manu- facturers and allied interests would be affected to a proportionate degree. All interests therefore de- mand that the true condition of crops should be made known promptly, and harmful speculation discouraged. "The Bureau of Statistics issues each month de- 322 BUSINESS BAROMETERS tailed reports relating to agricultural conditions throughout the United States, the data upon which these facts are based being obtained through a special field service, a corps of State statistical agents, and through a large body of voluntary correspondents composed of the following classes: county correspondents, township correspondents, individual farmers, and special cotton corre- spondents. "The special field service is composed of seven- teen traveling agents, each assigned to report for a given group of States. They are especially quali- fied by statistical training and practical knowl- edge of crops. They systematically travel over the districts assigned to them, carefully note the development of each crop, keep in touch with best informed opinion, and render written and tele- graphic reports monthly and at such other times as required. "There are forty-five State statistical agents, each located in a different State. Each of these reports for his State as a whole, and maintains a corps of correspondents entirely independent of those reporting directly to the Department at Washington. These State statistical correspond- ents report each month directly to the State agent on schedules furnished them. These reports are then tabulated and weighted according to the relative product or area of the given crop in each county represented, and are summarized by the State agent, who co-ordinates and analyzes them in the light of his knowledge of conditions derived CROP CONDITIONS 323 from personal observation and other sources, and prepares his monthly and other written and tele- graphic reports to the department. "There are approximately 2,800 counties of ag- ricultural importance in the United States. In each of these counties the Department has a prin- cipal county correspondent who maintains an organization of several assistants. These county correspondents are selected with special reference to their qualifications and constitute an efficient branch of the crop-reporting service. They make the county the geographical unit of their reports and after obtaining data each month from their assistants and supplementing these with informa- tion obtained from their own observation and knowledge, report directly to the Department at Washington. " In the townships and voting precincts of the United States in which farming operations are extensively carried on. the Department has town- ship correspondents who make the township or precinct the geographical basis of reports, which they also send directly to the Bureau of Statistics each month. Finally, at the end of the growing season, a large number of individual farmers and planters report on the results of their own in- dividual farming operations during the year; and valuable data are also secured from 30,000 mills and elevators. " With regard to cotton, all the information secured from the foregoing sources is supple- mented by that furnished by special cotton cor- 324 BUSINESS BAROMETERS respondents, embracing a large number of per- sons intimately concerned in the cotton industry, and, in addition, inquiries in relation to acreage and yield per acre of cotton are addressed to the list of cotton ginners through the courtesy of the Bureau of the Census. " Eleven monthly reports on the principal crops are received ^^early from each of the special field agents, county correspondents, State statistical agents, and township correspondents, and one re- port relating to the acreage and production of general crops is received during the year from individual farmers. " Six special cotton reports are received during the growing season from the special field agents, from the county correspondents, from the State statis- tical agents, and from township correspondents, and the first and last of these report relating to the acreage and pro-individual farmers, special cor- respondents, and cotton ginners. "The general reports for January and February are combined on one schedule and relate to the number and value of farm animals. "The general report for March relates to the stock of grain in farmers' hands, the distribution and consumption of corn, wheat, and oats, and the average weight per bushel of wheat and oats. " Reports on the condition of the crops of the year begin with the April report, when the con- dition of winter wheat and rye is dealt with, pre- vailing diseases of farm animals, and losses from disease and exposure. CROP CONDITIONS 325 "The report for May comes at a time when few of the crops are sufficiently advanced for their condition to be reported upon; consequently the inquiries relative to condition apply only to winter wheat, rye, meadow mowing lands, and spring pasture. This schedule also deals with the portion of the original acreage sown to winter wheat if, for any reason, any has been or will be abandoned, and contains inquiries with regard to farm labor and tenants. "The schedule for June deals with the acreage of six crops, the most important of which is spring wheat. It also covers the condition of wheat, oats, barley, rye, clover, spring pastures, apples, peaches, and rice. "The July schedule deals with the acreage of corn, potatoes, tobacco, and sugar cane; the stocks of wheat in farmers' hands; the average condition of all the principal crops, fruits, and spring past- ures, and the average weight of wool per fleece. "The August schedule deals with the average yield of winter wheat per acre, acreage of buckwheat and hay, the condition of the principal crops, the quality of clover hay, and the stocks of oats in farmers' hands. "The September schedule deals with the condi- tion, when harvested, of wheat, oats, barley and rye; the acreage of clover seed; the production of peaches, and the number and condition of stock hogs on hand for fattening. "The October schedule deals with the average yield per acre and the quality of spring wheat 326 BUSINESS BAROMETERS barley, oats, rye and hops, and the condition of corn, potatoes, sugar cane, tobacco, rice and apples. "The November schedule deals with the average yield per acre of corn, buckwheat, potatoes, hay, tobacco and rice. " The December schedule deals with the produc- tion and farm prices of all the principal crops, and the acreage of winter wheat and rye sown for the crop of the following year, and also with the condition of winter wheat and rye. "In addition to the foregoing, the reports during the past two years have been extended to include condition figures of many small fruits, vegetables and minor products. Information in regard to such products has been urgently requested, and as a basis for comparison has now been satisfactorily established, the reports are received with interests and favorable comment. "Previous to the preparation and issuance of the Bureau's reports each- month, the correspondents of the several classes send their reports separately and independently to the Department at Washing- ton. "In order to prevent any possible access to re- ports which relate to speculative crops, and to render it absolutely impossible for premature in- formation to be derived from them, all of the reports from the State statistical agents, as well as those of the special field agents, are sent to the Secretary of Agriculture in specially prepared envelopes ad- dressed in red ink with the letter "A" plainly marked on the ends. By an arrangement with the CROP CONDITIONS 327 postal authorities these envelopes are delivered to the Secretary of Agriculture in sealed mail pouches. These pouches are opened only by the Secretary or Assistant Secretary, and the reports, with seals un- broken, are immediately placed in the safe in the Secretary's office, where they remain sealed until the morning of the day on which the reports are issued, when they are delivered to the Statistician by the Secretary or the Assistant Secretary. The combination for opening the safe in which such documents are kept is known only to the Secretary and the Assistant Secretary of Agriculture. Re- ports from special field agents and State statistical agents residing at points more than 500 miles from Washington are sent by telegraph, in cipher. Those in regard to speculative crops are addressed to the Secretary of Agriculture. "Reports from the State statistical agents and special field service in relation to non-speculative crops are sent in similar envelopes marked "B," which go to the Bureau of Statistics, and are kept securely in a safe until the data contained in them are required by the Statistician in computing esti- mates regarding the crops to which they relate. The reports from the county correspondents, township correspondents and other voluntary agents are sent to the Chief of the Bureau of Sta- tistics by mail in sealed envelopes. "The plan of intrusting the final preparation of reports to a crop-reporting board has been con- tinued during the past year, and after three full years of trial it has been demonstrated that such is 328 BUSINESS BAROMETERS an excellent and satisfactory method. It relieves one man of the strain and responsibility, and secures the benefits of consultation and a consensus of judgment of men who have been on the ground. "The Crop Reporting Board is composed of the Chief of Bureau as chairman, and four other mem- bers, whose services are brought into requisition each crop-reporting day from among the statis- ticians and officials of the Bureau, and the special field and State statistical agents who are called to Washington for the purpose. "The personnel of the board is changed each month. The meetings are held in the office of the Statistician, which is kept locked during sessions, no one being allowed to enter or leave the room or the Bureau, and all telephones being disconnected. "When the board has assembled, reports and telegrams regarding speculative crops from State and field agents which have been placed unopened in a safe in the office of the Secretary of Agriculture, are delivered by the Secretary, opened and tabulated. The reports, by States, from the several classes of correspondents and agents relating to all crops dealt with are brought together in convenient parallel columns on final tabulation, slips. The board is thus provided with several separate estimates cover- ing each State and each separate crop, made independently by the respective classes of correspondents and agents of the Bureau, each re- porting for a territory or geographical unit with which he is thoroughly familiar. CROP CONDITIONS 329 ''Abstracts of the weather condition reports in relation to the different crops, by States, are also prepared from the weekly bulletins of the Weather Bureau. With all these data before the board, each individual member computes independently, on a separate sheet or final computation slip, his own estimate of the acreage, condition, or yield of each crop, or of the number, condition, etc., of farm animals for each State separately. These results are then compared and discussed by the board under the supervision of the chairman, and the final figures for each State are decided upon. It has been interesting to note how often the re- ports of the different classes of correspondents and agents are very nearly indentical and how closely the figures arrived at independently by the indi- vidual members of the board agree. The estimates by States as finally determined by the board are weighted by the acreage figures for the respective States, the result for the United States being a true weighted average for each subject. ''Reports in relation to cotton, after being pre- pared by the Crop Reporting Board, and personally approved by the Secretary of Agriculture, are issued on the second or third day of each month during the growing season, and the reports relating to the principal farm crops and live stock are prepared and made public on the ninth or tenth day of each month. In order that the information contained in these reports may be made available simul- taneously throughout the entire United States, they are handed, at an announced hour on report 330 BUSINESS BAROMETERS days, to all applicants and to the Western Union Telegraph Company and the Postal Telegraph Cable Company, who have branch offices in the Department of Agriculture, for transmission to the exchange and to the press. These companies have reserved their lines at the designated time, and forward immediately the figures of most interest. A mimeograph or multigraph statement also, con- taining such estimates of condition or actual pro- duction together with the corresponding estimates of former years for comparative purposes, is pre- pared and sent immediately to exchanges, news- paper publications and individuals. The same afternoon printed cards containing the essential facts concerning the most important crops of the report are mailed to the 77,000 post-offices through- out the United States for public display, thus placing most valuable information within the farmer's immediate reach. "Promptly after the issuing of the report, it, together with other statistical information of value to the farmer and the country at large, is published in the Crop Reporter, an eight-page publication of the Bureau of Statistics, under the authority of the Secretary of Agriculture. An edition of over 120,- 000 copies is distributed to the correspondents and other interested parties throughout the United States each month. Thus the information is spread broadcast." As the government crop statistics are necessary and valuable as business barometers, so figures showing the production of leading commodities are of intense interest. CROP CONDITIONS 331 The production of iron, for example, reported by the two leading weeklies on the subject, is a very important factor in determining present condi- tions and forecasting future conditions. This was especially true before the United States Steel Cor- poration was formed and to a large extent is also true to-day. Figures regarding pork, copper, wool, coffee, rubber, sugar and other commodities are also of interest. A decrease in the production of commodities is always accompanied by a decrease in activity, which means that men and capital are idle. This reduced activity, if pressed beyond a certain point, will result in a crisis followed by a period of depression. This subject, as especially appHcable to the in- vestor, is w^ell presented by Henry Hall somewhat as follows: "A large part of the income of all railroad lines is derived from the shipment of grain, produce and cotton. From 6,000,000,000 to 15,000,000,000 tons of these articles are shipped by rail to sea- board cities every year, for exportation to other lands. A far larger tonnage is moved by rail from farm and plantation to cities and other settlements of the country for home consumption. The con- tribution to railroad traffic from this source always exceeds more than 30,000,000,000 tons of grain, 10,000,000,000 tons of flour, about 3,000,000,000 tons of cotton, and a vast additional quantity of potatoes, tobacco, fruit and other products of the harvest. More than once in our history, in dull times, has a loss in other earnings been made good 332 BUSINESS BAROMETERS by the transportation of agricultural produce; and in good times, bumper crops are of enormous and direct value to every railroad in the land. "The productions of the soil affect powerfully the prosperity of the United States in another way. Their money value in a good year is almost be- wildering. The staple crops which are reported officially with monthly statements of acreage and conditions approximate a money value of S3, 500,- 000,000; and a fluctuation of $500,000,000 in this immense total, which is not uncommon, is felt at once in the business world. A boom in stocks has, more than once, originated in good crops. De- pression has at times begun with a partial crop failure. " Bountiful harvests have another and interesting effect, in that the exportable surplus enables the United States to pay off' its borrowed money abroad and to create a credit, which, if large enough, in- sures early importations of gold. There is no topic more deserving of interested attention than the state of the crops." Another writer states: "The country requires an increase in yield of at least 59c in ^^1 its principal crops, cotton perhaps excepted; and in some cases an increase of at least 10% would be advisable, either through larger acreage or better cultivation. This would insure more reasonable prices for food products, thus re- ducing the cost of living about which so much just complaint is heard. It would also stimulate larger exports, the declinie of which during some years has been one of the most unfortunate accompani- CROP CONDITIONS 333 ments of our business depressions. Larger exports of agricultural products would do more than any- thing else toward restoring the equilibrium of our foreign trade and would stimulate business at home." The profits, and therefore the stocks of railroad companies which operate through the grain and cotton sections, are affected in the most direct and powerful manner by the promise of generous or stunted crops. Investors need to keep in touch with the crop outlook. Wall Street always dis- counts the future and never waits for earnings to be affected actually before adjusting prices to what it sees coming. A slackening in the investment business comes during a great boom, and precedes every financial crisis; and every investor should be as alert to detect the signs of a coming change of importance as are the bankers, brokers and stock operators, who are continually watching the crops as well as the Composite Plot. It is axiomatic that all railroads are affected directly and seriously by crop conditions, and industrial stocks peculiarly so. Therefore the subject of ''Crops" is one which requires constant attention, and never more so than when a boom or reaction has run on for a number of months, or years. Conservative merchants and investors there- fore tabulate each month as published, the Government Estimate of the wheat, corn and cotton crops, then in the ground, together with the annual figures when the crops have been harvested. 334 BUSINESS BAROMETERS The following conclusions are suggested rela- tive to "Crops and other Commodities":* 1. During a Period of Business Depression. (a) Improved crop conditions are often the beginning of a period of improvement. (b) Poorer crop conditions delay an im- provement in general business, or signify no im- provement. (c) No change is favorable or unfavorable according as to whether this means good crops or otherwise. 2. During a Period of Improvement Following a Period of Depression. (a) Improved crop conditions always give an impetus to the general improvement in conditions, and thus signify continued improvement. (b) Poorer crop conditions usually signify no improvement. (c) No change is favorable or unfavorable ac- cording to what it represents. 3. During a Period of Prosperity. (a) Improved crop conditions tend to length- en the period of prosperity; but bumper crops often precede a decline. (b) Poor crop conditions tend to shorten said period, and signify no improvement. (c) No change is favorable or unfavorable according to what it represents. 4. During a Period of Decline Following a Period of Prosperity. *The condition of the crops has direct bearing upon the condition of the farmer, and an indirect interest for every investor and merchant. RAILROAD EARNINGS 335 (a) Improved crop conditions sometimes tend to forestall a panic and promote an improvement. (b) Poor crop conditions tend to hasten said time and perhaps cause a panic. (c) No change is or is not of importance according to what it represents. RAILROAD EARNINGS Railroad earnings are of interest for two reasons : first, in forecasting the conditions of the railroads, upon which the prices of securities are directly de- pendent; secondly, in determining and forecasting the condition of general business. Although stocks of roads barely earning their operating expenses and interest charges are of some nominal value simply on account of their voting power (and this value is generally considered in the vicinity of about $10 per share, par value $100) yet railroad stocks as a rule are worth very little unless the roads are earning money. But whether or not a stock pays a dividend, it is self- evident that the prices must vary as the earning power. Increased earnings forecast increased values for the securities, and reduced earnings forecast lower values. Manipulation may tem- porarily force stocks far above or far below their true investment value, but neither high prices nor low prices can artificially be maintained for long. In the end the prices must adjust themselves according to earnings. As most investments are either directly or indirectly dependent upon rail- roads, railroad earnings are of great importance to the investor. 336 BUSINESS BAROMETERS For the purpose of forecasting general business conditions, railroad earnings are also of interest. As statistics they are so important for this purpose that many merchants consider railroad earnings second only to bank clearings in making up a barometer of actual business conditions. There are several reasons for this choice, of which the two following are especially well founded : (1). Because nearly all bills are paid in checks, bank clearings serve as a barometer of the total amount of sales; but railroad earnings likewise serve as a similar barometer, because practically all goods purchased or sold are shipped on the rail- roads. If the freight earnings of the United States show an increase, it is very evident that manufactur- ing and commerce is increasing; and the same is true conversely, if the freight earnings are de- creasing. Therefore the earnings of the railroads may be considered in the same manner as the clear- ings of the banks, especially when "tonnage," rather than cash receipts is considered. (2). Another important reason is that not only are railroad conditions a barometer of trade condi- tions, but to a large extent they are the basis of general trade conditions. This is due to the fact that the railroads employ so large a proportion of the working class population of the United States, and that so many industries are absolutely de- pendent on the railroads for their business. The railroads are the best purchasers of contractors' supplies and contract labor; of iron and steel for rails and bridges; of lumber for ties and stations; RAILROAD EARNINGS Z^l of coal for motive power and heating; of oil for lighting and lubricating; of printers' supplies for time-tables, tickets, etc., etc. In fact this list might be indefinitely extended to show that the prosper- ity of the country is inseparably connected with the prosperity of the railroads. Therefore, for the above two reasons, the wise investor and merchant very carefully watches railroad earnings, both for determining the present conditions and for forecasting future conditions. In this connection the history of railroad earnings during the past three depressions may be of inter- est. During the reaction of 1873 the high level of gross earnings was reached in the same calendar year as the panic itself, but the recession from this high point was fairly evenly spread over the next four years. The recovery, on the contrary, was strikingly rapid. In 1879, only two years after gross earnings had been at their worst, they made a new high record. By reducing "maintenance charges," the net earnings increased for a year after the reaction began, the gain between 1873 and 1874 having been almost four per cent. Thereafter net earnings declined along with the gross, to their low level in 1877. In the following two years they recovered even more rapidly than gross earnings, making up most of their lost ground in one year. The re- action between the top and bottom levels in net earnings was practically 10%, but between the two years in which the gross receipts sank from top to bottom levels, the difference in net was considerably 338 BUSINESS BAROMETERS less. Moreover this decrease was accompanied by an increase in mileage of nearly 12%. While the panic of 1873 severely checked rail- road construction, it by no means checked such development altogether. This crisis followed one of the most pronounced waves of railroad construc- tion ever witnessed. In two years preceding the panic, operated mileage increased by 21,600 miles, or 48%, which of course is always a distinct danger signal. The next depression of 1884—5 shows a difference from other depressions in the relation of operating expenses to volume of business. Thus in 1894, the percentage decline in net earnings was a trifle less than that of gross; but in the '80's the lessening volume of traffic was not accompanied by a pro- portionate reduction in earnings. The comparison of top and bottom levels in this depression follows : Gross Net S807,112,780 $291,587,588 772,567,883 269,493,931 34,543,897 22,093,657 4.2 7.5 ^Increase "In so serious a crisis as that of the '90's, the maxi- mum reaction in railroad earnings was not more than 12%. However, aggregate figures covering so many railroads of such wide diversity of location and condition, tend to obscure the facts as they apph^ to individual undertaking. Constant addi- tion of new mileage tends to reduce the record of damage sustained by the old roads. The reducv tion of the figure to a mileage basis would still be an inaccurate test, because the earning power of new Mileage 1883 106,938 1885 123,320 Decrease *16,382 Percent. *15.3 RAILROAD EARNINGS 339 and additional mileage is naturally low. Further- more, construction of new roads frequently takes away business from those roads already in exist- ence, and thus tends to lower the average earnings per mile without any actual decrease in the amount of business. A comparison between fat and lean years could best be made by using figures for iden- tical mileage." Aggregate railroad earnings reached a new high level in 1893 and again acted as a distinct danger signal, for the crisis itself took place in the second half of that calendar year. The reaction in general business came the next year, when both gross and net immediately reached the low level of that movement. The recovery, though slow, was fairly continuous throughout five or six succeeding years. The extent of the reaction from the top level of 1893 to the bottom level of 1894 is shown in the following figures : Mileage Gross Net 1893 175,441 $1,207,106,626 $358,648,918 1894 178,054 1,066,943,358 317,757,399 Decrease *2,613 140,163,268 40,891,519 Percent. *1.5 11.6 11.4 1907 228,128 2,602,757,503 833,339,600 1908 232,046 2,407,019,810 717,802,167 ^Increase - The next high point was reached in 1907, when the aggregate mileage increased to 228,128, the aggregate gross to $2,602,757,503 and the aggre- gate net to $833,339,600. This gross and net fell off simultaneously with the decrease in business, an aggregate total of about 9%, the low point having been reached in the latter part of the summer 340 BUSINESS BAROMETERS of 1908. Since that time there has been a gradual improvement. It therefore is advisable for merchants and investors to select about ten large roads, operating in different parts of the country and systematically tabulate their gross earnings as published each month. As the final figures for all roads are published, they also are in- teresting to 7iote; but for practical purposes it is much better to tabulate the earnings of only ten. The following conclusions are suggested relative to "Railroad Earnings."* 1 . During a Period of Depression. (a) An increase signifies that conditions are improving. (b) A decrease signifies no improvement. (c) No change usually signifies uncertainty. 2. During a Period of Improvement Following a Period of Depression. (a) An increase signifies that the improve- ment in conditions is progressing satisfactorily. (b) A decrease signifies no improvement, or that the improvement is temporarily checked. (c) No change signifies nothing definite. 3. During a Period of Prosperity. (a) A great increase usually signifies no fur- ther improvement. (b) A decrease during a period of prosperity is practically impossible. (c) No change calls for caution. ♦The tabulation of Railroad Earnings is of great value to the merchant; but the investor must remember that the stock market declines before earnings decline, and that prices begin to increase several months before earnings show any increase. IDLE CAR FIGURES 341 4. During a Period of Decline Following a Period of Prosperity. (a) An increase signifies no immediate im- provement can be expected. (b) A decrease signifies that conditions are rapidly becoming worse. (c) No change signifies nothing definite. Special Note: — In using the above rules — as also is true in regard to the rules given under other subjects — one m.ust compare the present both with the corresponding month of the preceding year and with the preceding month of the same year. In other words, the merchant and investor when studying fundamental statistics or business barom- eters must not be misled by seasonable changes which are wholly normal. IDLE CAR FIGURES Idle car figures have been available only for a short time and investors and merchants have as yet given but little attention to this subject. They are, however, of even more direct interest in fore- casting business conditions, than are figures on "Railroad Earnings." In fact, idle car figures bear the same relation to railroad earnings as Government crop estimates bear to the final figures compiled after the crop has been gathered. These idle car figures are collected by the Ameri- can Railway Association which receives every two weeks from each railroad the number of their sur- plus cars or the number of the cars they are short, as the case may be. Of course no one railroad will 342 BUSINESS BAROMETERS report at any given time both a surplus and a shortage ; but it is very natural for certain roads in certain localities to have a surplus; while other roads in an entirely different locality may report a shortage. All of these "surpluses" and "short- ages" are combined and reported in a total by the Association once in two wrecks. As in the case of exports and imports, it is the balance, namely, the "net surplus" or "net short- age" that the investor or merchant watches with interest. It takes about six weeks for a car to be taken from a siding, looked over, loaded, deliv- ered and unloaded, and furnish its revenue. Then as the railroads do not publish the earnings of a car for about a month or more after received, it may be three months after a car is taken from the siding before the earnings of that car appear in the monthly statement. Conversely, it is also true that when a car is returned to the siding, the effect of taking it out of service will not show in the pub- lished earnings for several months thereafter. Therefore, by tabulating idle car figures the in- vestor and the merchant are able to forecast the publi- cation of an increase or a decrease in railroad earn- ings almost three months before its appearance. As railroad earnings are such an excellent barometer of trade conditions, so idle car figures serve as even a more valuable barometer, the only unsatisfactory feat- ure being that they do not include the cars in the repair shops. Note: — The American Railway Association di- vides its report into eleven divisions with a mini- mum of 155 roads located as follows: IDLE CAR FIGURES 343 No. of Roads New England 8 N. Y., N. J., Md., & E. Pa 22 Ohio, Ind., Mich., & W. Pa. . 20 Va., W. Va., No. Car., & So. Car 10 Ky., Tenn., Miss., Ala., Ga., & Fla 19 Iowa, 111., Wis., Minn. No. Dak 27 Mont., Wyo., Neb., & So. Dak 3 Kans., Colo., Okla., & I. T 15 Ore., Idaho, Cal., Nev.. & Ariz 18 Canadian Lines 3 Total 155 The follow^ing conclusions are suggested rel- ative to "Idle Car Figures."* 1. During a Period of Business Depression. (a) An increase of idle cars signifies no im- provement. (b) A decrease signifies that a change foi the better may be expected. (c) No change signifies that caution is still necessary. 2. During a Period of Improvement Following a Period of Depression. (a) An increase in idle cars signifies no im- provement. (b) A decrease signifies improvement. (c) No change signifies that caution is still necessary. *Idle car figures are of great value to both merchant and investor as they forecast earnings. When the actual earnings are published it is often too late for the investor to profit thereby as their effect has already been dis- counted. This, however, does not apply to idle car figures. 344 BUSINESS BAROMETERS 3 . During a Period of Prosperity. (a) An increase in idle cars calls for caution. (b) A decrease signifies continued improve- ment. (c) No change signifies nothing unsatisfac- tory. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase calls for caution. (b) A decrease signifies improvement. (c) No change signifies no improvement. POLITICAL FACTORS Some of the most successful merchants of the old school maintained that the three greatest factors which influence business conditions are crops, money and politics, and that of these the most important is the last named, politics. Cer- tainly this statement seems justified by a study of business conditions of the United States. That portion of American history with which these pages are most concerned, from 1860 up to the present time, is most admirably described by Alex. Dana Noyes in his ''Forty Years of American Finance." There has always been a most delicate relation between politics and the state of trade. Almost every period of depression and period of prosperity, although not wholly due to political conditions, has been greatly augmented by them. Among those various political factors may be mentioned the following : — ■ POLITICAL FACTORS 345 The "Embargo Act" in the early part of the century and the war of 1812. The estabhshment of the United States Bank. The discontinuance of the United States Bank. The beginning of "state rights" discussions. The slavery discussion and the Civil War. The "Reconstruction Acts." The inflation of the currency. The "Resumption Act." The silver coinage law. The resumption of specie movements. The circulation of silver certificates. The radical measures under President Arthur, followed by the panic of 1884. The campaign and the election of the Repub- lican Party in 1888, coincident with the period of prosperity. The silver purchase act and the great gold ex- portations followed by the panic of 1893. The tariff legislation of the '90s followed by the prosperous conditions of 1900. The various Bryan scares. President Roosevelt's campaigns against the rusts. The election of President Taft. Of all these various acts, the by far most influential were those affecting the currency and the tariff. Both of these are extremely sensitive questions. 346 BUSINESS BAROMETERS Any change in the money standard or banking system, especially if it disturbs either foreign or domestic confidence, is very destructive to the com- mercial prosperity of the country. Even when banking questions or the money standard are dis- cussed in Congress, there seems to be an immediate division of interests between the producer or the manufacturer and the banker or the investor. The legislation desired by the producer seems to be op- posed by the investor and vice versa. The reason for this is very evident, for anything which tends to make money easier to the producer, depreciates the value of money in the hands of the bankers and investors who possess it. On the other hand, legislation which strengthens the importance of the banker and investor, tends to handicap the producer and manufacturer. Any legislation designed to reorganize the bank- ing system of the United States on anything but a gold basis, like that upon which the banking sys- tems of England and other countries are founded, always retards trade. Any legislation which gives any additional importance to gold is always greeted with approval by all classes of manu- facturers, merchants and investors. All other legislation, especially that recognizing as a standard silver or anything other than gold, is always a dangerous sign, often causing bankers and investors to call loans and raise rates. Such conditions usu- ally precede a general crisis. As to the propriety of high or low duties on foreign goods, this is an open question. Although POLITICAL FACTORS 347 nearly all bankers are in favor of protection, yet most economists (on whose advice the bankers de- pend regarding many matters) are almost with- out exception against protection ; but whether high tariff for protection or low tariff for revenue only is best for the country, the fact remains that when- ever the subject is discussed and whenever there is to be a change in classifications or duties, this dis- cussion and legislation has always affected business conditions. Moreover, although the adoption of certain tariff legislation has given a great impetus to prosperity, yet the previous discussion of the subject has always tended to disturb confidence, promote a feeling of uncertainty and seriously check business. This is very well described by Henry Hall as follows : — "In the United States the business world has become accustomed to the protective principle; and even the prospect of reduced duties has always chilled the spirit of enterprise, while the reality has always given a setback to business, sooner or later. On the other hand, enactment of protective tariff, in lieu of one for revenue only, has always proved exciting and has quickened into intense activity the looms, forges and machinery of the entire country. "The backward state of American industry prior to the Civil War is held to have been due in large measure to the relaxation of protection under the tariff laws of 1842 and 1857. There can be no question that the twenty or more tariff" enact- 348 BUSINESS BAROMETERS ments from 1861, when the Morrill protective tariff went into operation to 1872 when the system had been fairly adjusted to the requirements of home industry, aided materially in developing the mines, sustaining the factories against foreign competi- tion, supplying the railroads with an immense and profitable traffic, and promoting the farming inter- est of every section of the States." The lower duties of 1883 on many manufactures, added to the force of other evil influences, ended in the crisis of 1884. The crisis of 1893 rose in a distinct measure from the agitation in the then Democratic Congress for a tariff for revenue only, which eventuated in the Wilson bill. The pros- perity which the States now enjoy must be at- tributed in a marked degree to the protective tariff enacted under President McKinley. All writers on crises agree in giving great weight to tariff changes. An investor should therefore at all times be fully informed with regard to such actual or possible revolutions in political control at Washington as are likely to have a bearing on the tariff laws. As a further illustration of thi^ subject, the setback given business during the tariff dis- cussion of May to July 1909, and the renewed business energy which followed upon the passing of the bill is of suggestive interest. Therefore successful hankers, merchants and in- vestors always carefully watch political conditions and if possible reduce them to a decimal or barometer index POLITICAL FACTORS 349 The following conclusions are suggested relative to "Political Uncertainties:"* 1 . During a Period of Business Depression. (a) An increase in political agitation usually signifies no improvement. (b) A decrease usually signifies an improve- ment. (c) No change is unfavorable or favorable according to whether or not any important meas- ure is under consideration. 2. During a Period of Improvement Following a Period of Depression. (a) An increase in political agitation usually signifies no improvement. (b) A decrease usually signifies an improve- ment. (c) No change is unfavorable or favorable according to whether or not any important meas- ure is under consideration. 3. During a Period of Prosperity. (a) An increase in political agitation fore- casts a decline. (b) A decrease often signifies continued improvement. (c) No change is unfavorable or favor- able according to whether or not any important measure is under consideration. *This assumes all political factors to be unfavorable and the best con- ditions to be when only routine business is being considered. However, there are times when certain political acts are distinctly favorable and then the reverse of these conclusions should apply. 350 BUSINESS BAROMETERS 4. During a Period of Declijte Following a Period of Depression. (a) Same as above. (b) Same as above. (c) Same as above. Of course, if some legislation is under discussion the enactment of which would greatly relieve the situation, then an "increase" would be distinctly favorable, and a decrease distinctly unfavorable. SOCIAL CONDITIONS AND MISCELLANEOUS STATISTICS The condition of public opinion in the country as a whole, and the stand taken by any large num- ber of people, or a representative body of people, with regard to social or religious questions, exerts a constant influence upon business conditions. Not only in politics and the larger field of govern- ment as shown in election or municipal reforms, but in all religious or social movements, the feeling of the people should be watched closely. Most in- vestors and merchants look upon crops, money and politics as the three most important topics to study in order to form a clear idea of the present state of business and a sound judgment of what is to be ex- pected. They would also do well to look into the field of social and religious tendencies, because they will find there material of great use in determining the trend of business. From time immemorial, periods of prosperity have been accompanied by a decline in religious interests and bv a laxness in moral and social cus- SOCIAL CONDITIONS 351 toms. Conditions, religiously, socially and moral- ly, are always at their worst immediately preceding a severe crisis or panic. The perils to a nation during a period of prosperity are much greater than the perils accompanying a period of depres- sion. For this reason the social and commercial corruption which has followed the declaration of peace after great wars has always been more disastrous to the conquering country than the actual war. This has been true during all history. It was commercial and political corruption, rather than the Northern barbarians, that destroyed ancient Rome and that ruined beautiful Venice. It w^as commercial and social corruption that trans- formed Spain from the foremost empire of the world to a third rate power, and overturned the Bourbon empire in France. England itself would have come to a similar fate had it not been for the revival of righteousness which drove the corrupt men from power at the time of the East Indian troubles and at other periods of her history. The American Civil War was followed by great financial and social corruption, and even General Grant, al- though himself incorruptible, could not save his country from the effect of greed and wrong- doing. The famous election which followed was noted for the frauds which characterized both parties, and these frauds were so gigantic that to this day it is uncertain whether Tilden or Hayes was actually elected President of the United States. As it is the case during all such periods of personal, commercial 352 BUSINESS BAROMETERS and civic corruption, this period was followed by the great business depression beginning about 1873. Immediately following this depression a period of religious and civic revivals sAvept over the nation. The additions to churches, the great temperance movement, and other similar movements for right- eousness received an unprecedented impetus during these years following the panic of 1873. This re- turn to righteousness was again followed by a re- turn of prosperity in the early '80's. The nation, however, soon forgot whence these blessings came and religious interest again declined. This lack of interest in religious matters culminated in the panic of 1884. Once more the reign of un- godliness was checked and the country recuperated from the depression of 1884, and again enjoyed several years of wonderful prosperity. It, however, took the nation only a fcAV years to forget again, and once more civic corruption, social immorality and intemperance began to increase. From 1890 to 1893 religious and similar organizations showed very little growth. Consequently the era of pros- perity began to wane, and culminated in the panic of 1893. The panic of 1893 again brought people to think upon serious matters, and during the following few years there was a great revival of righteousness throughout America. In fact, the additions to churches and the growth of other religious move- ments even exceeded that, during the period follow- ing the panic of 1873. The people again cast aside luxuries, municipal and state governments were SOCIAL CONDITIONS 353 purified, evil doers were replaced by men of high integrity, and great interest in all religious and moral undertakings developed in all parts of the country. People again lived in a decent and God-fearing manner in accordance with what their station per- mitted. Commercial houses forsook the careless and questionable methods used during former times and the old-fashioned "drummer" was re- placed by the modern high grade salesman. It was on this foundation that the new period of improve- ment started and it was due to this revival of right- eousness, that the country was able to enjoy many years of great prosperity which began simultane- ously with the close of the Spanish War in 1898 and 1899. Unfortunately, however, the nation again forgot and was still unable to stand the temptations of a period of prosperity. Therefore again religious interest declined, political corruption re-opened and social immorality increased. Referring to these con- ditions Dr. Lyman Abbott once stated as follows: "Popular rumor attributed to Mr. McKinley's managers, although not to him, wholesale cor- ruption in securing his first nomination and his first election. This corruption has not been confined to any one locality or to any one party. It has been equally appalling in its dimensions in New York, Boston, Philadelphia, Cincinnati, Chicago, St. Louis, Minneapolis, Denver, and San Francisco. It has included not only Boards of Aldermen but Legislatures, and it has crept into both the admin- istrative and legislative departments of the Federal 354 BUSINESS BAROMETERS Government. Two United States Senators and three United States Representatives have subjected themselves to criminal prosecution for participa- tion in frauds. Nor has this corruption been con- fined to political circles. Insurance companies, banks, trust companies, m.anufacturers, trade unions have all been implicated. More than one financial magnate is now serving a sentence for fraud. Others are under sentence and are awaiting the decision on appeal. Even judges have not been wholly free from suspicion of obligation for their election to the plutocracy." This is a description of the conditions from 1902 to 1906, when the exposures commenced. Like all preceding periods of unrighteousness, this w^as followed by the panic of 1907, and the succeeding years of depression. Of course some writers, although admitting that a business depression revives interest in religious matters and that, during great prosperity, men do not have the time or inclination to give religious matters any thought, claim that the religious state of the nation does not affect the business condi- tions as here represented. Whether or not this is true, is debatable; but certainly a study of the his- tory of the United States and every other nation, seems to point to a definite relation between the two interests. Moreover, all economists agree that the religious condition of the country is distinctly worthy of study, — although they may disagree as to its relative importance compared with other sub- jects. SOCIAL CONDITIONS 355 Thus President Taft said : "The hum of prosperity and the ecstasy of great profits are hkely to dull our interest in these reforms and to lead us back again to the old abuses, unless we insist upon legislation which shall clinch and enforce those standards by positive law." And again: "The difficulty is that whenever everybody is prosperous, when everybody is com- fortable, then is the time when our old friend Satan steps in and helps along the evil cause; then is the time when we are apt to be inert and enjoy the things we have, without looking forward in the future and seeing that evils will grow and ulti- mately swamp us." Or to quote another authority: "Beware lest . . . thou say in thine heart, 'My power and the might of mine hand hath gotten me this wealth. But thou shalt remember the Lord thy God, for it is He that giveth thee power to get wealth.'" Deut. 8: 11, 17, 18. The following conclusions are suggested relative to "Social Conditions:" 1. During a Period of Business Depression. (a) An increase in social righteousness sig- nifies an improvement. (b) A decrease in social righteousness signi- fies no improvement and that conditions may become worse. (c) No change signifies uncertainty. 2. During a Period of Improvement Following a Period of Depression. 356 BUSINESS BAROMETERS (a) An increase in social righteousness sig- nifies continued improvement. (b) A decrease signifies no improvement or that the improvement may temporarily be checked. (c) No change signifies that caution should be used. 3. During a Period of Prosperity. (a) An increase in social righteousness signi- fies continued improvement. (b) A decrease signifies no further improve- ment, but that a change for the worse may be ex- pected. (c) No change calls for caution. 4. During a Period of Decline Following a Period of Prosperity. (a) An increase tends to shorten the period of decline and signifies an improvement. (b) A decrease signifies no improvement and tends to make the coming period of depression all the more severe. (c) No change signifies the same. STATISTICS SHOWING INCREASE IN THE MEM- BERSHIP OF CONGREGATIONAL CHURCHES LN THE UNITED STATES BY PROFESSION (This denomination is chosen as an illustration owing to their complete reports;, but it is believed that the same changes from one year to another would be true of an average of the figures of all denominations.) Year No. of Add. Mem- Total Additions by to Chur- bers by New Profession per July ches Profession Members 100,000 Population 1860 2,585 7,468 14,821 Decline 2 Persons 1861 2,555 5,522 12,151 Depression 1 1862 2,580 6,196 12,629 " 1 1863 2,652 7,765 14,378 Prosperity 2 1864 2,667 9,032 15,809 Decline 3 SOCIAL CONDITIONS 357 Year No. of Add. Meir I- Total Additions by to Chur- bers by New Profession per July ches Profession Members 100,000 Population 1865 2,723 11,030 18,442 Depression . . . 3 Persons 1866 2,780 11,249 19,994 Improvement 4 1867 2,810 19,127 30,210 " 5 1868 2,951 16,432 28,246 Prosperity . . ..4 1869 3,043 15,167 27,373 " ..4 1870 3,121 13,501 25,137 Decline ..3 1871 3,202 13,271 23,343 '' ..3 1872 3,263 13,945 25,394 " ..3 1873 3,325 13,216 24,620 " ..2 1874 3,403 15,279 27,300 Depression . ..3 1875 3,43 7 17,306 29,645 " . . 4 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 . '.'. S 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 1898 5,620 25,189 44,492 Prosperity . . ..3 1899 5,604 24,514 44,185 " ..3 1900 5,650 27,101 48,602 11 ..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 1909 5,991 34,245 62,461 " . . 4 ' 358 BUSINESS BAROMETERS MISCELLANEOUS STATISTICS Among those miscellaneous statistics which are tabulated by some bankers and merchants may be mentioned the following : — Statistics on Losses and Wastes. Statistics on Changed Conditions. Absorption of Capital, Results of Invention. Economics due to Improved Methods. Statistics on Frauds and Lack of Credit. The Abuse of Credit. The Contraction of Circulating Mediums. Overproduction. Psychological Tendencies. Military Armament. Income Taxes. Excise and Internal Revenues. Associated Charity Reports. \^elocity of Circulation. All of the above have some distant bearing either for diagnosing present conditions or for forecasting future conditions; but none are sufficient in them- selves, and when studying any one, due weight must be given to all of the others. The figures on an}^ one of these subjects are of value only in their re- lation to the other figures which we have previously considered. As however none of these miscellaneous subjects are of sufficient importance to the merchant or investor for him to collect and tabulate figures, no immediate thought need be given to them. CHAPTER IX A TALK ON COPPERS (For later figures than given in this chapter, see the Addenda.) 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, although with no set regularity. Many reasons to prove this latter statement may be offered, 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 different commodities as some com- 360 BUSINESS BAROMETERS 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 average 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 wait 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 stocks 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 A TALK ON COPPERS 361 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 of 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 i-^r^/, that one must keep in constant touch with business conditions; and secondly, that one must always keep informed of the best mines, realizing that the relative condi- tions of mines 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 to-day 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 362 BUSINESS BAROMETERS 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 ivlien 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 hears the same relation to the price of copper stocks as railroad earn- ings hear to the price of railroad stocks. After the price of the metal puhlicly 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 he done only hy 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 maxijnum 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 realit}' the smaller A TALK ON COPPERS 363 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 $78.00 $69.75 $61.50 $53.25 $45.00 Osceola 14 22.60 19.95 17.30 14.65 12.00 Wolverine 20 17.20 15.57 13.94 12.32 10.70 Quincy 18 18.40 16.35 14.30 12.25 10.20 Utah Con 6 15.80 14.10 12.40 10.70 9.00 Amalgamated.. 8 13.41 11.92 10.43 8.94 7.45 Anaconda 7 14.40 12.60 10.80 9.00 7.20 Cal.&Ari 20 11.70 10.33 8.96 7.58 6.20 Granby 12 11.80 10.27 8.73 7.19 5.65 Cop. Range ... 8 9.05 7.98 6.92 5.86 4.80 No. Butte 8 6.60 5.80 5.00 4.20 3.40 Mohawk 10 7.80 6.65 5.49 4.33 3.17 Shannon 2 4.57 3.99 3.40 2.81 2.22 Utah Copper .. 3 4.38 3.92 3.46 3.00 2.54 Tamarack 8 9.68 6.05 3.63 1.21 0.00 Such tables are compiled by taking the present output of the mine and its net cost per pound f 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 the price of labor generally decreases as the output decreases. fConsider the present cost, for instance, to Amalgamated as 9 cents; to Anaconda 10 cents; to Copper Range 9^ cents; to Osceola 9A cents. 364 BUSINESS BAROMETERS 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 what they would be at 18 cents and would drop from SI 2. 00 to S2.00. If, however, the second company had the same capitalization as the first, namely 250,000 shares, then the drop would be from S2.40 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 difl^erence of 40 cents per share in the profits of A TALK ON COPPERS 365 No. 1 and a difference of $2.00 per share to No. 2. Figuring in this manner, a one-cent drop in copper shrinks the profits of Granby about $1.54 per share, Copper Range about $1.06, and Amal- gamated approximately $1.50. 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. 366 BUSINESS BAROMETERS 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 toji 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 keeping these stocks for a few years, until such time as such statistics show the country to be in a period of great prosperity w^hen 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 only the most conser- A TALK ON COPPERS 367 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 a reasonable amount of time or money each 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 w^orld. 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. 368 BUSINESS BAROiMETERS TABLES AVERAGE POUNDS OF COPPER PER TON UNDER AVERAGE NORMAL CONDITIONS. Tons rock Lbs. cop- 'Tr cop- stpd. per in per in daily rock rock Calumet & Hecla 7,900 27.44 1.37 Wolverine 1,070 25.00 1.25 x^hmeek 1,100 22.7 1.14 Copper Range 5,200 21.73 1.09 Superior 300 20 . 52 1 . 03 Tamarack 1,900 20.00 1.00 Osceola 4,100 17.00 .85 Allouez 700 16 . 00 .80 Isle Royale J, 100 14.20 .71 Mohawk 2,200 13.70 .69 Michigan 400 13.36 .67 Centennial 550 13 . 10 .66 Mass 380 12 . 40 .62 Franklin 470 9.50 .47 Victoria 300 9.00 .45 A TALK ON COPPERS 369 TABLE OF PROFITS FOR TWELVE COPPER STOCKS 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 in lbs. per lb. copper Calumet & Hecla . . . Osceola . . . Wolverine . Quincy . . . Utah Con- solidated Amalga- mated . . Calumet & Arizona . Granby .... Copper Range . . North Butte Mohawk. . . Shannon. . . , 100,000 80,000,000 800 96,150 25,000,000 260 60,000 9,500,000 158 110,000 22,500,000 204 300,000 52,000,000 173 8.8 4.2 7.27 8i 4i 36.00 n H 9.10 n 5i 9.00 9 4 8.16 1,538,880 230,000,000 149 9 200,000 28,000,000 140 148,500 22,700,000 153 9i 10 3i 3 5.96 5.00 4.60 384,335 41,000,000 106 9 4 4.24 410,000 33,000,000 80 9.8 3.2 2.56 100,000 11,250,000 113 11.2 1.8 2.03 300,000 18,000,000 60 10.2 2.8 1.68 NOTE: — The above table may be carried further by dividing the "profits per share" by the "market price per share." 3 70 BUSINESS BAROMETERS 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) A TALK ON COPPERS 371 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) 1910 13 13.8 (Jan) to 12.5 (July) TABLE SHOWING RANGE LN 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.); 372 BUSINESS BAROMETERS 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 A TALK ON COPPERS Zn (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 83 (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.) ; Wolverine 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 93 374 BUSINESS BAROMETERS (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.). A TALK ON COPPERS 375 1910 AVERAGE 53-97 xAmalgamated ranged from 90 (Jan.) to 55 (July) ; Copper Range 85 (Jan.) to 58 (Eeb.) ; Granby 111 (Jan.) to 20 (July); North Butte 50 (Jan.) to 18 (June) ; Calumet & Arizona 103 (Jan.) to 45 (July) ; Alohawk 75 (Jan.) to 43 (July); Osceola 166 (Jan.) to 114 (July); Quincy 92 (Mar.) to 66 (July) ; Utah Cons. 46 (Jan.) to 12 (Dec); Wolverme 150 (Jan.) to 102 (July). FINAL WORD TO READERS It occurs to the author that this book may pos- sibly be the means of causing some persons who will not give the proper study to statistics and general conditions, to invest in stocks. I there- fore advise every reader that, if he is unwilling to invest about one hundred dollars a year in collecting and tabulating the necessary statistical data, it is better to buy no stocks whatsoever; but to confine all investments strictly to high grade bonds such as are recommended by conservative bond dealers. One other thing, — whether buying stocks or bonds, the investor should not be in a hurry to make money too fast. The principal invested should grow slowly and naturally. One should be willing to creep before walking and be willing to walk before running, remembering that there are many years in which to accomplish the desired object and that success depends very largely upon pro- gressing slowly and carefully, especially during the first few years. " No sir, ye can bet it ain't th'lpeople that have no money that causes panics. Panics are th' result iv too manny people havin' money. Th' top iv good times is hard times an' th' bottom iv hard times is good times. Whin I see wan 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 up. ' Twill be all right tomorrow, or th' next day, or sometime. 'Tis wan good thing about this here wurruld, that nawthan' 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 GENERAL INDEX Action equals reaction, 95. Annual events, of 1860, 116 of 1861, 117; of 1862, 118 of 1863, 118; of 1864, 119 of 1865, 120; of 1866, 121 of 1867, 122; of 1868, 122 of 1869, 123; of 1870, 124 of 1871, 125; of 1872, 126 of 1873, 127; of 1874, 130 of 1875, 130; of 1876, 131 of 1877, 133; of 1878, 134 of 1879, 135; of 1880, 136 of 1881, 137; of 1882, 138 of 1883, 140; of 1884, 141 of 1885, 142; of 1886, 143 of 1887, 144; of 1888, 145 of 1889, 146; of 1890, 147 of 1891, 148; of 1892, 149 of 1893, 150; of 1894, 151 of 1895, 153; of 1896, 154 of 1897, 155; of 1898, 156 of 1899, 157; of 1900, 159 of 1901, 160; of 1902, 161 of 1903, 163; of 1904, 164 of 1905, 165; of 1906, 166 of 1907, 167: of 1908, 169 of 1909, 170. Babson's Business Barom- eters, 384. Balance of trade, 268; gen- eral rules concerning, 270. Banks; cash in, 229; Comp- troller's Reports, 218; de- posits of, 234; economic laws concerning, 221, 229; functions of, 91; invest- ments of, 220, 221; loans of, 218; notes of, 220; re- sources of, 221; statement of New York banks, 234, 242 ; table of loans and re- sources, opp. 218. Bank clearings, 183 ; as a barometer, 19, 103, 185; of New York, 191; general rules concerning, 191 ; table of. 187. Baring failure, 148. "Black Friday" panic, 123. 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 ist class, 63, of 2nd class, 64, of 3rd class, 65, of 4th class, 65, of miscel- laneous, 66. Building statistics, as a ba- rometer, 176, 180; general rules concerning, 182, 183. Business failures, 192; as a barometer of business con- ditions, 19, 103, 192, 195; tables of, 193, 194, 196; general rules concerning, 201. Capital, 174. Cash of banks, 229; historic survey of, 23 1 ; ratio to de- posits, 230; table of, 230; general rules concerning, 233. Certificates of Clearing Houses, 248; table of, 249. Clearing Houses, functions of, 183; certificates of, 248; in New York, 184; table of certificates issued, 249. Commodity prices, 299; as a barometer, 21, 104; in crises 299; chart of since 1860, opp. 74; affected by gold production, 291; indexes of, 305 ; interest of to bank- ers, 89; problem in, 76 rules concerning, 308 tables of since 1860, 79 tendencies affecting, 303. Comparative statistics, val- ue of, 13, 25. Composite chart, 94, 378; method of plotting, 106, 380 INDEX 107 (foot note); subjects involved in, 105. Comptroller's reports, 218. Copper, 359; table of maxi- mum dividends of fifteen companies, 363 ; table of daily average production of leading mines, 368; table of profits per share of leading stocks, 369; range in price of Lake Cop- per since 1860, 370; range in price of leading stocks since 1889,371. Crops, 319; as a barometer, 22, 104; government board on, 327; government re- ports on, 319; nature of monthly reports on, 324; general rules concerning, 334. Cycles, controlling law of, 95 ; foretold by fundamental statistics, 17; rules con- cerning, 98, 172; length of, 94; periods of, 15, 24, 94. Deposits of banks, 234; gen- eral rules concerning, 241. Exports of merchandise, 264; benefit from increase in exports of manufactured goods, 265; general rules concerning, 267. Failures in business, 192 ; as a barometer, 19, 103, 192, 195; tables of, 193, 194, 196; general rules concerning, 201. Fire losses, as a barometer, 178. Foreign exchange, 284. Foreign money rates, 284; general rules concerning, 290. Foreign trade, 255; as a barometer, 21, 104; bal- ance of, 268; exports, 264; imports, 255; table of, 256; volume of, 269. Fundamental statistics, 15, 17; list of twenty-five sub- jects under, 18, 103; three general heads under, 105; composite chart of, 94; me- chanical work of collecting, 102; methods of handling, 106, 107 (foot note), 109; need of studying many j subjects in connection with, 96; theory of, 25; value to I merchants, 75. I General heads under fun- damental statistics, twelve, 18, 103; three, 105; ar- rangement of the twelve under the three, 106. Gold, movements of, 271; as a barometer, 21, 104, production of, 291 ; relation of production to prices, 291; general rules concern- ing, 298. Idle car figures, 341; general rules concerning, 343. Immigration, 203; as a ba- rometer of labor condi- tions, 20, 103, 204; general rules concerning, 207. Imports of merchandise, 255; dangers accompanying in- crease in, 256-261; general rules concerning, 263 ; table of, 256. 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, 172. Investment conditions, sub- jects related to; crops, 319; foreign money rates, 284; idle car figures, 341; new securities, 316; political INDEX 381 factors, 344; railroad earn- ings, 335; social conditions, 350; stock exchange trans- actions, 313. Investments of the banks, 220. Labor conditions, indexed by immigration figures as a barometer, 20, 130; lack of satisfactory figures on, 202,204. Loans of banks, 218; historic survey of, 222; relation to resources, 221; general rules concerning, 22 7; table of, opp. 218. Mercantile conditions, sub- jects related to; bank clearings, 183; business failures, 192; immigration 202; new building, 174. Miscellaneous statistics, list of headings for, 358. Monetary conditions, sub- jects related to; balance of trade, 268; cash of banks, 229; Comptroller's report, 218; deposits of banks, 234; exports, 264; gold movements, 271; loans of banks, 218; money, 210; surplus reserves, 229, 242, 245; volume of trade, 268. Money, 210; as a barometer, 20, 100, 103, 112; chart of, during four great panics, opp. 228; gross and net sup- ply of, 212, 213; effect on merchants of the supply, 214; prices and the sup- ply of, 242 ; general rules concerning, 217; foreign rates of, 284. New railroad construction, as a barometer, 19, 103, 179; in the panic of 1837, 180; in the panic of 1857, 180; general rules concern- ing 182. New, securities listed, eco- nomic laws affecting, 316; general rules concerning, 318. Panics; of 1837, 180; of 1857, .opp. 114, 180; of 1865, 120; of 1869, 123; of 1873, 127; opp. 114, 180, 249; of 1884, 141, 251; of 1890, 147, 252; of 1893, opp. 114, 150, 253; of 1903, 163, 197; of 1907, opp. 114, 167, 196, 288; of "Black Friday," 123; of "Undigest- ed Securities," 163 ; a cause, 249; chart of money course during four panics, opp. 228; chart of stock market during four panics, opp. 250; derived from un- bridled prosperity, HI, 353; foretold by "loans to resources," 222; move- ments of, 129; relation of "money in circulation" to, 214, 216; 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, 172; fore- told by fundamental sta- tistics, 17. Political factors, 344; as a barometer 24, 104; list of, 345; general rules concern- ing, 349. Quotations on the stock ex- change, 310; affected by "transactions," 313; gen- eral rules concerning, 315. Railroad earnings, 335; as a barometer, 23, 104; as af- 382 INDEX fected in three depres- sions, 337; general rules concerning, 340. Real estate as a barometer, 174, 178. _ Reorganizations, 61; tables of bond and stock prices as affected b}^ 63-68. Resources of banks, 221; re- lation to loans, 221; table, of, opp. 218 Social conditions, 350; as a barometer, 104; general rules concerning, 355. Stock exchange, quotations, 310; list of ten conserva- tive stocks, 311; the "Wall St. Jourfial's" list of thirty two stocks, 31-1; list of ten bonds, 312; transactions, 313; new se- curities, 316. 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, 310; 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, twenty five, 18, 103. Surplus reserves, 230, 242, 246; general rules con- cerning, 247. Transactions on the stock exchange, 3 13 ; general rules concerning, 315. "Undigested Securities" panic, 163. Volume of trade, 268. Wealth, as a barometer, 174; table of, 175. IMPORTANT ADDENDA NOTICE In order to avoid the necessity of continually revising this entire book and yet give its readers the latest important figures obtainable, one of the desk sheets of Tables (such as we send weekly to subscribers) is always inserted here when the book is mailed. Readers, however, should remember that this sheet is only a small part of the work which we supply to our subscribers, and, moreover, this sheet is completely revised for them each week. The "later quotations, prices and other figures," referred to in chapters II, III and IX, will not appear in these Addenda until next year. BABSON'S REPORTS 'Tundamental Conditions*' A Special Service to furnish Merchants and Investors up-to- date figures on the subjects mentioned in this book (To avoid any misunderstanding we must first state that this work did not originate with us, but was inaugurated years ago bj' some of the most prosperous banking and mercantile firms of America. The expense in- curred 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 took up the work in the mutual interests of all concerned, dividing the expense among the different individuals who became subscribers and shared the resulting benefits.) Regular Service General Tables and 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 mercantile, monetary and investment conditions. All figures are arranged, analyzed and tabulated, the more important figures relative to each subject being selected and forwarded weekly to the subscribers on desk sheets (like the annexed) which are kept under a plate glass which we furnish without charge. In addition to the Tables, the more impor- tant subjects are also graphically shown in chart form. In all, these Tables cover about twenty- five subjects, such as Failures, Railroad Earnings, Crops, Bank Clearings, Gold Movements, Balance of Trade, etc. In short, our work is the same as that of regular clerks who might be in the employ of our subscribers and whose duty it might be to gather these statistics. IMPORTANT ADDENDA 385 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 conditions; and if so, to what extent. In other words, each week we send a complete sheet of new Tables, revised up to date, giving the figures on each subject by months for several years hack, as well as the latest figures. The large sheet in these Addenda is a partial sample of what this week- ly sheet contains. Sending all the hack figures each week as well as the new, makes it unnecessary for suhscrihers to do any posting, filing or other office work connected therewith. These large sheets show subscribers whether the figures on a certain subject are increasing or de- creasing, and by study one is able to form an estimate for the complete current year. This esti- mate may then be compared with final annual figures for preceding years, which are also furnished on the sheets. In many cases these annual figures are given for as many as fifty years, so that by intelligently comparing this estimate for the current year, with the figures for preceding years, one may readily discover what the figures on any one subject indicate. For instance, if a banker or a merchant at any time refers to figures on any one of these subjects, such as "Bank Clearings," he has only to turn to his Tables marked "Bank Clearings." There he will find the latest figures procurable this week, monthly figures for the past ten years, and also the annual figures for thirty or more years previous, 386 BUSINESS BARO^IETERS with a most interesting Chart complete with sug- gested interpretations. Weekly Barometer Letter and Composite Plot For the special benefit of merchants and in- vestors who have not the time personally to study figures, we supplement these Tables b}' Weekly Letters which contain the results of our own study reduced to Barometer Figures. By comparing the Barometer Figure for present conditions with previous Barometer Figures, one may readily see in what period we are, and forecast the nature of the next change in mercantile, monetary and in- vestment markets. Moreover, by referring to our Composite Plot, which is made up from the Summary Barometer Figures (see sample inserted in Chapter I\'), one may readily see how much of the present period has been consumed and intelligently forecast about when a change may be expected and Avhether it will be for the better or the worse. These Barom- eter Figures and the Composite Plot are based on the very latest bank clearings, railroad earnings, foreign trade, labor conditions, etc., and always show the exact present business conditions of the United States as well as the course of stock and bond prices. By comparing the figures for a series of weeks, subscribers immediately notice the tendency of mercantile, monetary and stock market conditions. IMPORTANT ADDENDA 387 Investors and merchants receiving this Weekly Letter and Composite Plot are there- fore kept in close touch with the actual con- ditions 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. 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. Conclusion and Total Cost The cost of this entire service (either the "Regu- lar Service" or one of the three options later described is only $7.50 per month, with the first year payable in advance. This price entitles the subscriber to the following: — (A special plate glass desk cover for the sheet of Tables and a leather covered binder for the Charts, etc., are furnished to the subscriber as an original installation.) (a) The General Tables on the Desk Sheet con- taining original figures on each of the twenty-five 388 BUSINESS BAROMETERS subjects, both by years and months. These tables are always up to date, a new sheet of tables being sent every week. ib) The Weekly Letters containing the Barometer Figures, the Composite Plot and our conclusions and suggestions together with Special Letters and other matter which may be of current interest. (c) Charts and Diagrams illustrating the work, which subscribers keep in the above-mentioned binder. SPECIAL NOTICE In addition to the Regular Service above de- scribed, the following three options have been prepared : (1) Option for Manufacturers and Merchants In addition to giving the important data as to general business and credit conditions throughout the country as a whole, the mercantile trade is kept constantly informed as to conditions in each section of the United States. Thus every two weeks we prepare and send to each subscriber, w^ho requests this Mercantile Option, a map of the United States about 16 x 10 inches showing the following interesting features: (a) By shaded areas such sections of the country where loans abnormally exceed deposits and where merchants are liable to have trouble to borrow from their local banks as much money as heretofore. (b) By red circles such cities whose "clearings" IMPORTANT ADDENDA 389 are now recording a decrease compared with the same period last year, thus showing the sales de- partment exactly where general trade has fallen off and where it has not. (c) By red crosses the localities where failures are reported to be abnormally large or increasing, thus showing the credit department where to watch for trouble. id) By special markings such sections of the country where — owing to drouth, blights, frosts, or other special causes — our correspondents re- port that less business may be expected during the coming season; and conversely such sections where — owing to special causes — a much larger business may be expected in the immediate future. Subscribers to this option receive each week the Barometer Letter and Composite Plot of Business Conditions, and each month the Desk Sheet of Tables together with such other Charts and material, be- longing to the Regular Service described above, that manufacturers and merchants deem desirable. (2) Option for Bankers In addition to treating the fundamental con- ditions affecting credits and money rates in general, we also are prepared to aid banks in selecting ''out- of-town" commercial paper. Instead, however, of giving detailed reports such as may be obtained from leading mercantile agencies, we treat almost exclusively of the character of the different firms and how they are considered by leading commercial banks, although of course we pass none whose 390 BUSINESS BAROMETERS statements are not satisfactory. We, however, confine our reports exclusively to names whose notes are being offered by commercial paper firms. In addition to giving opinions as to any paper on the market, we also, when requested, send each week a list of commercial paper that we believe to be absolutely good and which is being offered at the time being. This feature, of itself, is well worth the price of the entire work, as it keeps a bank constantly informed as to the composite opinion of the leading city banks as to the best of the commercial paper being offered at any given time. For a given week, however, we recommend only one or two notes from each commercial paper firm's list of offerings, because we wish to do something for every commercial paper firm in order to avoid the least semblance of favoritism to any one firm; and to recommend each week more than one or two notes from each, would make these weekly lists altogether too large to be useful to subscribers. Subscribers to this option also receive each week the Barometer Letter and Composite Plot of Business Conditions, and each month the Desk Sheet of Tables together with such other Charts and material of the Regular Service as each bank from experience finds it requires. (3) Option for Investors Because of the tremendous demand of invest- ors for concrete information as to special securities, we are now sending, when requested, special letters IMPORTANT ADDENDA 391 bearing directly on the purchase of securities and of use in the selecting of safe, conservative, divi- dend-paying stocks and bonds. There is no extra charge for this "Investment" feature and it will be supplied if one will simply ask for the "Investment Option." This consists of the Barometer Letter each week, the large Desk Sheet once a month, and the Special Letters, Charts and other matter which we issue from time to time, and in addition, twice a month, a special list of short term notes, bonds, and other securities, which our organization has studied and believes to be safe and conservative investments. In other words, this Investment Option has every- thing that the Regular Service has, and much besides, except that the large Desk Sheet is sent once a month instead of once a week. Applications to become subscribers to this work, and receive the benefits outlined in this book, should be mailed to BABSON'S COMPILING OFFICES Wellesley Hills Station, Boston, Mass. SUCCESS COMES not by forecasting, but rather by doing the right thing at the right time and always being wiUing to change one's course. For this reason much more money is made by directing one's business and in- vestments with a purpose of preventing panics than by trying to forecast panics and then pursuing a poHcy based upon the beUef that said forecast must prove true. With this object in view% I offer the services of my large organization that merchants, bankers and investors may always be best pre- pared for whatever the future is most likely to bring forth. Roger W. Babson. ADVERTISEMENTS ESPECIAL ATTENTION IS CALLED TO OUR 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 BABSON'S COMPILING OFFICES WELLESLEY HILLS. MASS. ADVERTISEMENTS COMPARATIVE STATISTICS KNOWN AS BABSON'S CARD SYSTEM RELATIVE TO THE LISTED Railroad, Industrial and jr Stocks Coppei '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 these 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 $15.00 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 24 Stone Street New York City A DVERTISEMENTS FUNDAMENTAL STATISTICS KNOWN AS BABSON'S REPORTS 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. By a study of the data which we supply, one can readily ascertain for himself whether we are in a Period of Prosperity, a Period of Depression, or are passing from one to the other; and what will be the next major change in trade, money rates and investment prices. The cost of this service is very small in com- parison with what it is costing firms to collect such data independently, and w^e believe that our fig- ures are more accurate and more up to date than if collected by subscribers independently. Further particulars relative to this work will be sent gratis on application. Address BABSON'S COMPILING OFFICES WELLESLEY HILLS MASSACHUSETTS ^v 369 9 ,^^ "^yi^K'"- ^ *H ' ♦ , ^^n-.^ ^^ ^^'^' X^' .^ ,->^"' c.^>^^:^ .N^ ^ 1^ ^- : ^/ :M£:^, %/ ■4 «. .V^. ^..s^ A ^^^ > "-., /; '^^- % \^m/ J o 0^ S:^:1--^.^ ^.^- ^,j^:«^ •s>^ ■i-.S \. ,-N ■/:. .Oo.