A 597197
DUPL
BUSINESS
BAROMETERS
FOR
ANTICIPATING CONDITIONS
ROGER W. BABSON
RAZORAN ME

:
ARTES
1837
SCIENTIA
LIBRARY
VERITAS
OF THE
UNIVERSITY OF MICHIGAN
TUEBOR
QUÆRIS PENINSULAM-AMLI NAMA
CIRCUMSPICE
i
HG
4910
·B1156
1917

Business Barometers
used in the
Accumulation of Money
A Text Book on Applied Economics
for Merchants, Bankers
and Investors
By
Roger W. Babson
(TENTH EDITION)
Issued April, 1917
Published by
BABSON'S STATISTICAL ORGANIZATION
(Incorporated)
Wellesley Hills, Mass., U. S. A.
First Edition Copyrighted 1909
Second Edition Copyrighted 1910
Third Edition Copyrighted 1910
Fourth Edition Copyrighted 1911
Fifth Edition Copyrighted 1912
Sixth Edition Copyrighted 1913
Seventh Edition Copyrighted 1914
Eighth Edition Copyrighted 1915
Ninth Edition Copyrighted 1916
Tenth Edition Copyrighted 1917
by
Roger W. Babson
Dedicated
to
GEORGE FILMORE SWAIN
Professor of Civil Engineering
Harvard University
People will endeavor to forecast the future and make agreements
according to their prophecy. Speculation of this kind by competent men
is the self-adjustment of society to the probability.”—Judge Holmes in a
United States Supreme Court decision.
315169
"I hold that a man who is long headed, who foresees
and judges accurately, has an advantage over his
neighbor, and it is not accounted immoral for him to
use that advantage, because he is individually better
fitted for the business; and it inheres in him by a law
of nature, that he has a right to the whole of himself
legitimately applied. If one man, or twenty men,
looking at the state of the nation here, at the crops,
at the possible contingencies and risks of climate, at
the conditions of Europe; in other words, taking all
the elements that belong to the world, into consider-
ation, are sagacious enough to prophesy the best of
action, I don't see why it is not legitimate."
HENRY WARD BEECHER.
TABLE OF CONTENTS
CHAPTER I.
Two Classes of Statistics
CHAPTER II.
Range of Stock Market Since 1860, Showing the Possi-
bilities of Profit to an Investor
·
CHAPTER III.
Range of Commodity Market Since 1860, Showing the
Possibilities of Profit to a Merchant
CHAPTER IV.
Law of Equal and Opposite Reaction, Theory of the
Compositplot
CHAPTER V.
Conditions and Events Since 1860
CHAPTER VI.
Page
13
30
80
102
141
Subjects Relating Especially to Mercantile Conditions 222
CHAPTER VII.
Subjects Relating Especially to Monetary Conditions 261
CHAPTER VIII.
Subjects Relating Especially to Investment Conditions 365
A Talk on Coppers
CHAPTER IX.
CHARTS.
416
1. Chart Showing the Range of the Stock Market
Since 1874 .
30
2.
Chart Showing the Range of the Commodity Market
Since 1860
80
4.
3. Chart of Prices of Stocks and Commodities Since
the Civil War
Compositplot Based on Twelve Leading Subjects
5. Comparison of Main Features of Five Panics
96
102
138
6. Chart of Course of Money Following Four Great
Panics.
284
7.
Chart of Federal Reserve Banking System
306
8. Course of Stock Market in Four Panics
308
FOREWORD
"A study of past disturbances leads to the conviction
that no severe depression has occurred which was not
preceded by loud warnings. These warnings ought
not to pass unheeded, and in order to recognize them
promptly it is necessary that accurate statistics be
furnished. Much improvement has been accomplished
in the last few years, though it is to be regretted that
so much of our statistical information is fragmen-
tary or inaccurate. Official and private publications
furnish much valuable information. They include
voluminous figures of deposits and loans of banks,
movement of specie, exports and imports, railway
earnings, wholesale prices, and the condition and
probable yield of crops. A vital defect in many of
them is the omission to give, for purposes of compari-
son, similar figures for previous months and years.
Another defect is the absence of uniformity in the
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 overdone.
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 new construction, volume of production
in the various kinds of manufactures, and statistics
of state banks and savings institutions similar to those
pertaining to national banks. After making due al-
lowance for the insufficiency of statistics, it must be ·
said that the failure to pay sufficient attention to those
already available is equally to be 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
defects" mentioned have, however, now been over-
come, 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.)
N
EITHER 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 be
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 book 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. We who study fundamental con-
ditions and act in accordance with what they teach,
will 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 difficulties
under which the work has been performed, but have
always aided greatly by criticisms and suggestions.
May the writer never abuse this friendship!
R. W. B.
WELLESLEY HILLS, MASS., April, 1917.
S
CHAPTER I
TWO CLASSES OF STATISTICS
TATISTICS are divided into two classes, viz.:
Comparative Statistics and Fundamental
Statistics; and the following gives a short
description 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 are always up to date, such comparative
statistics are very valuable for enabling one to se-
lect safe securities, either for permanent investment
or for buying and selling again. As the largest and
most successful stock exchange brokers, bond houses,
and mercantile firms are already well supplied.
with comparative statistics, and, so far as they are
useful, are obtaining excellent results from them,
14
BUSINESS BAROMETERS
we shall not here discuss details concerning this
class. It should be clearly understood, however,
that such statistics are worthless for determining
the general course of the entire market.
Comparative statistics determine only actual
values, enabling one to select safe securities or
good merchandise, or to select the better of two
or more companies' securities or grades of mer-
chandise. With the general market conditions.
remaining fixed, comparative statistics might be
used for forecasting a rise or a decline; but the
general market is so seldom stable, that compara-
tive statistics cannot be depended upon to serve
this purpose. It is this fact, that 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 intrinsic value of the same
increase, or vice versa.
Whoever bases either purchases or sales upon
earnings, physical conditions, or other comparative
statistics alone with the idea of selling at a profit,
usually loses 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 for a very long while; but they are
absolutely worthless for the "turns." It is because
this fact is not being recognized by many firms,
content with accumulating only comparative sta-
tistics, 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 book 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 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 different periods. The idea that reckless
prosperity can ever become permanent and will
not be followed by a business depression is false.
The idea that there can be an unlimited period.
of depression without succeeding general activity
and high market prices, is likewise a mistaken
notion. There must be a reaction to both abnormal
conditions.
It, however, should be remembered that there
16
BUSINESS BAROMETERS
1
are major cycles of 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 overtrades,
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. 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 two hundred
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 about 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 many of these twenty-five subjects are de-
scribed in detail. These are the subjects studied by
the oldest, richest, and most conservative financial
and mercantile houses of the world for determining
which of the above-mentioned periods the country is
experiencing 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 the subjects included as
above mentioned are as follows:
I. Building and Real Estate: Including all New
Building and Fire Losses.
II. Bank Clearings: Total Bank Clearings;
Bank Clearings excluding New York.
III. Business Failures: Failures, by number,
amount, and percentage.
IV. Labor Conditions: Immigration and Emigra-
tion Figures.
V. Money Conditions: Money in Circulation; ·
Comptroller's Reports; Loans of the Banks; Cash
held by the Banks; Deposits of Banks; Surplus
Reserve of Banks.
VI. Foreign Trade: Imports; Exports; Balance
of Trade.
VII. Gold Movements: Gold Exports and Im-
ports; Domestic and Foreign Exchange, and Money
Rates.
VIII. Commodity Prices: Foreign and Domestic
Commodity Prices; Production of Gold.
IX. Investment Market: Stock Exchange Trans-
TWO CLASSES OF STATISTICS
19
actions and Security Prices; New Securities; New
Corporations formed.
X. Condition of Crops: Crop Conditions and
other Commodity Production.
XI. Railroad Earnings: Gross and Net Earn-
ings; Idle Car Figures.
XII. Social Conditions: Labor Troubles and
Political Factors.
These twelve divisions 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-
velous. 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 there-
for. Moreover, some firms divide the country
20
BUSINESS BAROMETERS
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
office.
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.
IV. Figures on Immigration are carefully studied
by manufacturers as indicative of the conditions of
the labor market. The arrival of thousands of
immigrants at Ellis Island indicates good surface
conditions, with high prices for labor; but too large
immigration figures foretell a change in conditions,
followed by a period of depression. On the other
hand, when large numbers of steerage passengers
are leaving the country and the incoming steerage
is reduced, business is in a state of depression; and
only when the tide turns and immigrants again
begin to arrive, is it a sign that conditions are again
improving.
V. Money is the basis of all trade and is there-
fore probably the most sensitive of all barometers.
Money is the representative in value of all things
traded in, and the scarcity of it seriously hampers
the manufacturer and the merchant. Low money
rates usually indicate poor present conditions tend-
ing 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, however, 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 with a 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 informa-
tion 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 expected,
unless the decline or rise is artificial and caused by
manipulation. In fact, if it were not for manipu-
lation, 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, 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 is depend-
ent upon agriculture. Crop conditions formed the
basis of James J. Hill's predictions and business
.ventures. Mr. Hill, by the way, was a great
student 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
dependent thereon. The grain reports and cot-
ton reports issued by the government are watched
with great interest. 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 re-
tail stores are shipped by railroads. Therefore, a
monthly record of freight which the railroads are
carrying serves as a barometer of the business of
24
BUSINESS BAROMETERS
all the farmers, manufacturers, and merchants of the
country. Moreover, the steel companies, the car and
locomotive builders, the coal industry, and a hundred
other industries are directly dependent on the rail-
roads for their prosperity. Therefore, all merchants
watch railroad earnings and new mileage con-
structed, 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, may affect many commodity
and investment prices. Of course, all are not
affected in the same way, as a war scare increases
the prices of some commodities and reduces the
prices of others, but all are affected in some way and
to some extent. Even the President's message and
especially tariff discussion and the approach of a
presidential election somewhat affect trade.
To conclude, each of these twelve subjects is in-
timately bound up with what are known as
"swings," during which all prices change between
"high" and "low" in accordance with the Law of
Equal Reaction. As stated, all financial and com-
mercial trade during the past two hundred years
has been divided into distinct cycles. 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 accom-
panied by distinct changes in the prices of stocks,
labor, and commodities. By comparison with
similar periods in previous cycles, it is possible
TWO CLASSES OF STATISTICS
25
with a degree of certainty to determine at about
what period in one of these "swings" we happen
to be. If the pendulum swings out over the per-
pendicular, we are sure that it must swing back of
the center 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 the same conditions, but in many instances
may mean an actual falling off. This is very impor-
tant and must be remembered when estimating an
area to use for comparison purposes in connection
with the Compositplot 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-
* Some firms when interpreting figures on each of the various subjects for
surface conditions, prefer to determine each month what the proper average
figure should be for each of these subjects and note the relation between the
actual figures for surface conditions and these average figures. The average
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 average figure for any future time, assuming that the gen-
eral direction of this average 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 seasonal changes. The writer, however, believes in this
latter method only as a check upon, and not as a substitute for, the Com-
positplot.
26
BUSINESS BAROMETERS
nal capital and the number of years the study is
continued. Comparative statistics treat of com-
parative conditions and are used for selecting se-
curities and commodities which are absolutely safe
and which have the greatest prospect of increase in
market value under fixed market conditions. Fun-
damental statistics treat of underlying conditions
and are employed for determining these general mar-
ket conditions and whether or not it is wise to pur-
chase, or to sell, or to do neither. Investors use this
data in order to purchase securities only when they
are low, holding them for from two to four years
until 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 double 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 $200,000
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
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
under a broker's guidance to take advantage also
of certain intermediate movements, which come
once or twice a year, possibly greater results are
sometimes obtained; but of course this latter
method involves risk. Such operations are not
based on statistics.
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 are other elements of risk. The
investor taking such risks 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," say
from $100 upward for one hundred shares of stock.
The point, however, which this book would em-
phasize is that: An investment of a thousand dollars
can be multiplied to an investment of several hundred
thousand dollars in about twenty years with but very
little risk and without selling short or purchasing on
margin. The only requisite is a constant study of
comparative and fundamental statistics and suffi-
cient self-control to act only in accordance with
what these statistics clearly indicate, refusing to
listen to either the optimism or the pessimism sup-
28
BUSINESS BAROMETERS
plied by the daily papers and by the many individ-
uals 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 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 persons dependent
upon the income derived from their investments.
Furthermore the writer 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 even buy or sell securities
use this data with equal profit. Fundamental sta-
tistics clearly show the merchant when to buy and
increase his stock of goods, and when to cut prices
and reduce his stock. They also enable the mer-
chant to forecast money conditions in order that he
may intelligently decide whether to borrow the
money necessary to allow customers further credit,
or to reduce his loans and the indebtedness of his
customers. Moreover, at all times, these figures
show the merchant the conditions of business
throughout the country, so that he always knows
whether the growth or contraction of his business
is proportional to that of his competitors.
Upon careful thought, it must be admitted that
the fortunes of American merchant princes must
TWO CLASSES OF STATISTICS
29
have been created by a knowledge of these facts,
rather than simply by 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, his capital should not automatically
increase to $250,000 within twenty years.
Not only do students of fundamental statistics
make large fortunes for themselves and their fol-
lowers, but such students are the very best patriots
which a country can produce. The true patriot to-
day is he who studies fundamental statistics 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 depres-
sion. The real traitor today is he who urges on or fol-
lows the crowd during a period of prosperity, and then
locks up his money and refuses to extend aid dur-
ing 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. There must be a re-
action for everything we do, say or think. If it
is not a harmful reaction, it is a beneficial one.
CHAPTER II
RANGE OF THE LEADING INVESTMENT STOCKS
SINCE 1860, SHOWING HOW $2,500 INVESTED
IN 1861 WOULD AMOUNT TO OVER $1,800,000
IN 1917. SPECIAL TABLES ON INVESTMENT
BONDS.
T
THE accompanying chart is designed to show
the fluctuations in the leading investment
stocks from 1875 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" was chosen
as the most conservative industrial.
Of these ten, only three were in existence and
prominent in 1860. New York Central, Illinois
Central and Delaware, Lackawanna & Western
were active then and are leaders still.
In 1866 "Delaware & Hudson" became active, in
1872 "Louisville & Nashville," and in 1874 "Cen-
tral of New Jersey." In 1876, "Pullman" became
active and in 1890 "Pennsylvania." These are
RANGE OF STOCK MARKET
31
the ten stocks used exclusively until 1900 when
"Delaware, Lackawanna & Western" was, for vari-
ous reasons, omitted. As "Great Northern" sold
or the same price, namely 191, at about that time,
that was substituted in its stead.
In other words, only well known stocks have
been included in the list. Stocks which have shown
y abnormal rise have purposely been avoided.
For this reason, stocks such as "Union Pacific,"
"Atchison," and "Reading" have been omitted.
More industrials would have been included, if they
had been in existence a longer period. As most of
the companies have been organized only a com-
paratively short number of 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 in January of later years.
is as follows:-
Low
Jan.
Div. 1907 Div. 1909
Jan.
Div. 1910
Jan.
Div. 1911
Central New Jersey $8
Chicago, Mil. & St. Paul 7
Delaware & Hudson
$144
$8 $228
$8 $312
$8 $270
93
7 151
7
158
7 124
9
124
9
181
9
185
9 164
32
BUSINESS BAROMETERS
$144
$7 $221
116
149
85
89
126
126
Low
Jan.
Jan.
Jan.
Jan.
Div. 1907 Div. 1909 Div. 1910 Div. 1911 Div. 1912
Central N. J...
Chicago, Mil.
& St. Paul..
Del. & Hud...
G.North.plus
1 Ore. Cert.$7
Illinois Cent. 7
Louis.&Nash. 6
N. Y.Central 6
N. Y., N. H.
-1-1910
HIN
8778
$8
$310
7
110
9
168
$8
$225
$8 $180
7
170
146
132
7
140
5
158
145
7
155
5
125
6 112
5
107
& Hartford 8
127
Pennsylvania 7
103
Pullman
8
135
00 10:00
8
161
6
132
8
171
8
00 00 00
४
158
6
136
189
00 00 00
8
150
129
8
160
000000
137
6
123
160
Jan.
Jan.
Jan.
Jan.
Jan.
Div.
1913
Div. 1914
Div. 1915
Div. 1916
Div. 1917
Central N. J.$8
$360
$8 $308
$12 $295
$10 $290
$300
Chicago, Mil.
& St. Paul 5
113
5
99
87
Del. & Hud. 9
162
9
150
9
142
133
5
95
87
9
150
150
G.North.plus
1 Ore. Cert. 7
172
Illinois Cent. 6 127
Louis.&Nash. 7 142
N. Y. Central 5
109
UNON
7
159
5
107
9
134
5
88
GOON
ī
138
107
6
5
112
5
85
1001
162
150
105
105
6 124
128
104
100
N. Y., N. H.
& Hartford 5
128
Pennsylvania 6 122
Pullman
8 165 8
∞ ao
73
6
109
152
000
49
0
65
40
6
104
6
114
113
8 152
8 164
163
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 a large number of representative stocks.
The list must be sufficient to show the effect of
the Law of Equal Reaction. This is because he
should buy or sell in accordance with general con-
ditions, and not be governed by the price of any
stocks which he happens to hold.
RANGE OF STOCK MARKET
33
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 1877 are averages
of all the high and all the low prices, regardless of
what day in the year they occurred, and therefore
may be a theoretical rather than an actual figure,
while quotations from the beginning of 1877 are
the averages of the stocks named, all figures being
taken on the same date.
1860 AVERAGE 59-93
Lackawanna ranged from 54 (Jan.) to 99 (June);
Ill. Cent. 55 (Jan.) to 89 (Aug.); N. Y. Cent. 92
(Sept.) to 69 (Dec.).
1861 AVERAGE 62-84
Lackawanna ranged from 84 (Mch.) to 65 (Dec.);
Ill. 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.);
Ill. 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.); Ill. Cent. 83 (Jan.) to 126 (Aug.); N. Y.
Cent. 107 (Mch.) to 140 (Sept.).
1864 AVERAGE 141-177
Lackawanna ranged from 195 (Jan.) to 265
(Sept.); Ill. Cent. 117 (Jan.) to 135 (Oct.); N. Y
Cent. 145 (Mch.) to 109 (Oct.).
3.1
BUSINESS BAROMETERS
1865 AVERAGE 125-158
Lackawanna ranged from 225 (Jan.) to 199
(Mch.); Ill. 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 (Aug.) to 124 (Mch.); Ill. 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.); Ill. Cent. 111 (Jan.) to 135
(Dec.); N. Y. Cent. 94 (Feb.) to 118 (Dec.); New
Haven 114 (Jan.) to 140 (Dec.).
1868 AVERAGE 108-144
Cent. of N. J. ranged from 126 (June) to 110
(Dec.); St. Paul 46 (Feb.) to 111 (Oct.); Del. &
Hud. 165 (May) to 119 (Aug.); Lackawanna 110
(Jan.) to 132 (Oct.); Ill. Cent. 130 (Jan.) to 159
(July); N. Y. Cent. 110 (April) to 159 (Dec.); New
Haven 133 (Jan.) to 159 (May).
1869 AVERAGE 114-144
St. Paul ranged from 84 (Aug.) to 61 (Sept.);
Del. & Hud. 134 (June) to 120 (Dec.); Lackawanna
120 (Jan.) to 104 (Nov.); Ill. Cent. 148 (May) to 130
(Dec.); N. Y. Cent. 217 (July) to 153 (Sept.);
New Haven 160 (Jan.) to 120 (April).
RANGE OF STOCK MARKET
35
1870 AVERAGE 102-120
St. Paul ranged from 75 (Jan.) to 52 (Dec.);
Del. & Hud. 115 (Mch.) to 127 (July); Lacka-
wanna 112 (May) to 100 (Sept.); Ill. Cent. 145
(Feb.) to 129 (July); N. Y. Cent. 86 (Jan.) to 102
(June); New Haven 134 (Jan.) to 159 (June).
1871 AVERAGE 103–117
St. Paul ranged from 48 (Jan.) to 64 (Sept.);
Del. & Hud. 115 (Feb.) to 125 (Dec.); Lackawanna
102 (Feb.) to 111 (Sept.); Ill. Cent. 139 (Jan.) to
132 (Oct.); N. Y. Cent. 103 (April) to 84 (Oct.);
New Haven 140 (April) to 160 (June).
1872 AVERAGE 97-110
St. Paul ranged from 64 (April) to 51 (Nov.);
Del. & Hud. 124 (Jan.) to 115 (Oct.); Lackawanna
112 (Mch.) to 91 (Dec.); Ill. Cent. 140 (June) to
119 (Nov.); Louis. & Nash. 81 (Oct.) to 79 (Dec.);
N. Y. Cent. 101 (April) to 89 (Nov.); New Haven
168 (June) to 138 (Dec.).
1873 AVERAGE 75-106
St. Paul ranged from 62 (April) to 21 (Nov.);
Del. & Hud. 124 (Feb.) to 99 (Nov.); Lackawanna
106 (June) to 79 (Nov.); Ill. 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 87-100
Cent. of N. J. ranged from 98 (Jan.) to 109 (Feb.);
St. Paul 49 (Jan.) to 31 (May); Del. & Hud. 121
(Jan.) to 113 (Aug.); Lackawanna 99 (Jan.) to 112
36
BUSINESS BAROMETERS
(Feb.); Ill. 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); Ill. 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.); Ill. 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).
1877 AVERAGE 54-75
Cent. of N. J. ranged from 37 (Jan.) to 6 (June);
St. Paul 11 (April) to 42 (Oct.); Del. & Hud.74
(Jan.) to 25 (June); Lackawanna 77 (Jan.) to 30
(June); Ill. Cent. 40 (April) to 79 (Oct.); Louis.
& Nash. 26 (Mch.) to 41 (Dec.); N. Y. Cent. 85
(April) to 109 (Oct.); New Haven 146 (April) to
158 (Dec.); Pullman 75 (Feb.) to 71 (Mch.).
1878 AVERAGE 69-82
Cent. of N. J. ranged from 13 (Jan.) to 45 (July);
St. Paul 54 (June) to 27 (Sept.); Del. & Hud. 59
RANGE OF STOCK MARKET
37
(July) to 34 (Dec.); Lackawanna 61 (July) to 41
(Dec.); Ill. Cent. 72 (Feb.) to 87 (July); 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 69-104
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.); Ill. Cent. 79 (Mch.) to 100 (Dec.); Louis.
& Nash. 35 (Feb.) to 89 (Dec.); N. Y. Cent. 112
(Mch.) to 139 (Nov.); New Haven 171 (June) to
154 (Nov.); Pullman 73 (Jan.) to 109 (Nov.).
1880 AVERAGE 99–123
Cent. of N. J. ranged from 90 (Mch.) to 45 (May);
St. Paul 66 (May) to 114 (Dec.); Del. & Hud. 60
(May) to 92 (Dec.); Lackawanna 68 (May) to 110
(Dec.); Ill. Cent. 99 (Jan.) to 127 (Dec.); Louis. &
Nash. 174 (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.).
1881 AVERAGE 121–134
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 107
(Jan.) to 131 (Mch.); Ill. 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 151 (Jan.) to
120 (Dec.).
38
BUSINESS BAROMETERS
1882 AVERAGE 113–126
Cent. of N. J. ranged from 97 (Feb.) to 63 (Nov.);
St. Paul 128 (Sept.) to 96 (Nov.); Del. & Hud. 102
(Mch.) to 119 (Aug.); Lackawanna 116 (April) to
150 (Sept.); Ill. 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 (Nov.); Pullman 145 (Jan.) to 117
(June).
1883 AVERAGE 109-119
Cent. of N. J. ranged from 68 (Jan.) to 90 (Oct.);
St. Paul 108 (Jan.) to 91 (Dec.); Del. & Hud. 112
(April) to 102 (Oct.); Lackawanna 131 (April)
to 111 (Oct.); Ill. 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 85-113
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.); Ill. Cent. 140 (Feb.) to 110 (June); Louis.
& Nash. 51 (Mch.) to 22 (June); N. Y. Cent. 122
(Mch.) to 83 (Nov.); New Haven 184 (May) to
175 (July); Pullman 117 (Jan.) to 90 (May).
1885 AVERAGE 86-111
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.); Ill. Cent. 119 (Jan.) to 140
RANGE OF STOCK MARKET
39
(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 106-118
Cent. of N. J. ranged from 42 (Jan.) to 64
(Sept.); St. Paul 82 (May) to 96 (Dec.); Del. &
Hud. 87 (Dec.) to 108 (Feb.); Lackawanna 115
(Jan.) to 144 (Dec.); Ill. Cent. 143 (Feb.) to 130
(Dec.); Louis. & Nash. 33 (May) to 69 (Dec.); N. Y.
Cent. 98 (May) to 117 (Oct.); New Haven 204
(Jan.) to 223 (Nov.); Pullman 128 (May) to 147
(Oct.).
1887 AVERAGE 112-125
Cent. of N. J. ranged from 55 (Jan.) to 86
(April); St. Paul 95 (May) to 69 (Oct.); Del. &
Hud. 96 (Sept.) to 106 (Nov.); Lackawanna 139
(June) to 123 (Oct.); Ill. 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 113-126
Cent. of N. J. ranged from 73 (April) to 95
Dec.); St. Paul 78 (Feb.) to 59 (Dec.); Del. &
Hud. 103 (Jan.) to 134 (Dec.); Lackawanna 123
(April) to 145 (Oct.); Ill. 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) tc
175 (Sept.).
40
BUSINESS BAROMETERS
1889 AVERAGE 123-136
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.); Ill. 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 205 (Feb.) to
171 (Mch.).
1890 AVERAGE 118-142
Cent. of N. J. ranged from 128 (May) to 92
(Nov.); St. Paul 78 (May) to 44 (Nov.); Del. &
Hud. 175 (May) to 120 (Dec.); Lackawanna 149
(July) to 123 (Nov.); Ill. Cent. 120 (Jan.) to 85
(Nov.); Louis. & Nash. 92 (May) to 65 (Nov.);
N. Y. Cent. 111 (June) to 95 (Dec.); New Haven
244 (Jan.) to 270 (June); Pennsylvania 113 (May) to
95 (Nov.); Pullman 222 (July) to 160 (Dec.).
1891 AVERAGE 115–128
Cent. o 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.); Ill. Cent. 90 (Mch.) to 109
(Dec.); Louis. & Nash. 65 (Aug.) to 83 (Dec.);
N. Y. Cent. 98 (July) to 119 (Dec.); New Haven
271 (Feb.) to 224 Nov.); Pennsylvania 99 (May) to
115 (Dec.); Pullman 196 (Jan.) to 172 (Nov.).
1892 AVERAGE 126–135
Cent. of N. J. ranged from 111 (Jan.) to 145
(Feb.); St. Paul 75 (April) to 84 (Aug.); Del. &
RANGE OF STOCK MARKET
41
Hud. 122 (Jan.) to 149 (April); Lackawanna 138
(Jan.) to 167 (Feb.); Ill. 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 255 (Dec.); Pennsylvania 114 (Jan.)
to 106 (Nov.); Pullman 184 (Jan.) to 200 (May).
1893 AVERAGE 102-135
Cent. of N. J. 132 (Jan.) to 84 (July); St. Paul
83 (Jan.) to 46 (July); Del. & Hud. 139 (Jan.) to
102 (July); Lackawanna 127 (July) to 175 (Nov.);
Ill. Cent. 104 (Jan.) to 86 (July); Louis. & Nash. 77
(Jan.) to 39 (Dec.); N. Y. Cent. 111 (Jan.) to 92
(July); New Haven 262 (Jan.) to 188 (Sept.);
Pennsylvania 111 (Jan.) to 93 (Dec.); Pullman 206
(April) to 132 (Aug.).
1894 AVERAGE 106–115
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.); Ill. 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 (April); Pullman 174 (April) to 152 (July).
1895 AVERAGE 105–121
Cent. of N. J. ranged from 81 (Feb.) to 116
(Sept.); St. Paul 53 (Mch.) to 78 (Sept.); Del. &
Hud. 134 (Sept.) to 118 (Dec.); Lackawanna 174
(Oct.) to 154 (Dec.); Ill. Cent. 81 (Jan.) to 106
(Sept.); Louis. & Nash. 66 (Sept.) to 39 (Dec.);
1
42
BUSINESS BAROMETERS
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 99-113
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.); Ill. 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 109 (April)
to 99 (Aug.); Pullman 164 (Feb.) to 138 (Aug.).
1897 AVERAGE 104–124
Cent. of N. J. ranged from 103 (Jan.) to 68 (May);
St. Paul 69 (April) to 102 (Sept.); Del. & Hud. 99
(April) to 123 (Sept.); Lackawanna 146 (May) to
164 (Aug.); Ill. 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 115–127
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.); Ill. Cent. 96 (April) to 115
(Dec.); Louis. & Nash. 44 (April) to 65 (Dec.);
N. Y. Cent. 105 (Mch.) to 124 (Dec.); New Haven
178 (Jan.) to 201 (Dec.); Pennsylvania 110 (Mch.)
to 123 (Dec.); Pullman 216 (July) to 132 (Nov.).
RANGE OF STOCK MARKET
43
1899 AVERAGE 126-144
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.); Ill. 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 132-155
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 144
(June) to 191 (Dec.); Ill. 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 154–174
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); Ill. 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.).
1902 AVERAGE 170-190
Cent. of N. J. ranged from 198 (Jan.) to 165
(Nov.); St. Paul 160 (Jan.) to 198 (Sept.); Del. &
* Great Northern is substituted here for Lackawanna with the Ore
Certificates added beginning with 1907.
44
BUSINESS BAROMETERS
Hud. 184 (Jan.) to 153 (Nov.); Gt. Northern 181
(Mch.) to 203 (Dec.); Ill. 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 255 (April); Pennsylvania 147 (Jan.)
to 170 (Sept.); Pullman 215 (Jan.) to 250 (April).
1903 AVERAGE 146-180
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.); Ill. 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 110 (Nov.); Pullman 235 (Jan.) to 196 (July).
1904 AVERAGE 148-181
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.); Ill. 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 180-204
Cent. of N. J. ranged from 190 (May) to 235
(Oct.); St. Paul 168 (May) to 187 (Aug.); Del. &
Hud. 178 (May) to 240 (Oct.); Gt. Northern 236
(Jan.) to 335 (April); Ill. Cent. 152 (Jan.) to 183
(Sept.); Louis. & Nash. 134 (Jan.) to 157 (Sept.);
RANGE OF STOCK MARKET
45
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 180–205
Cent. of N. J. ranged from 204 (May) to 239
(May); St. Paul 189 (Nov.) to 146 (Dec.); Del. &
Hud. 189 (May) to 232 (Dec.); Gt. Northern 348
(Feb.) to 249 (Dec.); Ill. 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 119-183
Cent. of N. J. ranged from 220 (Jan.) to 144
(Nov.); St. Paul 157 (Jan.) to 93 (Nov.); Del. &
Hud. 227 (Jan.) to 124 (Nov.); Gt. Northern *274
(Jan.) to 144 (Oct.); Ill. Cent. 172 (Jan.) to 116
(Nov.); Louis. & Nash. 145 (Jan.) to 85 (Nov.);
N. Y. Cent. 134 (Jan.) to 89 (Dec.); New Haven
189 (Jan.) to 127 (Nov.); Pennsylvania 141 (Jan.)
to 103 (Nov.); Pullman 181 (Jan.) to 135 (Nov.).
1908 AVERAGE 126-164
Cent. of N. J. ranged from 160 (Feb.) to 229
(Dec.); St. Paul 103 (Jan.) to 152 (Dec.); Del. &
Hud. 141 (Feb.) to 181 (Dec.); Gt. Northern 163
(Feb.) to *223 (Dec.); Ill. Cent. 122 (Feb.) to
150 (Nov.); Louis. & Nash. 87 (Feb.) to 126 (Dec.);
N. Y. Cent. 90 (Jan.) to 126 (Dec.); New Haven
128 (Jan.) to 161 (Nov.); Pennsylvania 109 (Jan.)
to 132 (Dec.); Pullman 147 (Jan.) to 174 (Nov.).
* These prices include the price of one Ore Certificate.
46
BUSINESS BAROMETERS
1909 AVERAGE 156–190
Cent. of N. J. ranged from 215 (Feb.) to 323
(Sept.); St. Paul 141 (Feb.) to 165 (Sept.); Del. &
Hud. 168 (Feb.) to 200 (May); Gt. Northern 201
(Feb.) to *246 (Aug.); Ill. Cent. 137 (Feb.) to
162 (Aug.); Louis. & Nash. 121 (Jan.) to 162
(Aug.); N. Y. Cent. 120 (Feb.) to 147 (Aug.);
New Haven 174 (June) to 154 (Nov.); Pennsylvania
126 (Feb.) to 151 (Sept.); Pullman 169 (Jan.) to
200 (Aug.)
1910 AVERAGE 150–179
Cent. of N. J. ranged from 312 (Jan.) to 248
(July); St. Paul 158 (Jan.) to 114 (June); Del. &
Hud. 185 (Jan.) to 149 (July); Gt. Northern *224
(Jan.) to 163 (July); Ill. Cent. 147 (Jan.) to 124
(July); Louis. & Nash. 160 (Jan.) to 132 (July);
N. Y. Cent. 128 (Mch.) to 105 (July); New Haven
162 (Mch.) to 149 (April); Pennsylvania 138
(Mch.) to 122 (July); Pullman 200 (Jan.) to 155
(June).
1911 AVERAGE 147-163
Cent. of N. J. ranged from 260 (Aug.) to 320
(Dec.); St. Paul 134 (Feb.) to 106 (Oct.); Del. &
Hud. 175 (June) to 160 (Sept.); Gt. Northern
*203 (June) to 163 (Sept.); Ill. Cent. 132 (Jan.) to
147 (July); Louis. & Nash. 136 (Sept.) to 161
(Nov.); N. Y. Cent. 115 (Feb.) to 100 (Sept.);
New Haven 151 (Feb.) to 127 (Sept.); Pennsylvania
130 (Feb.) to 119 (Sept.); Pullman 163 (Jan.) to
154 (Sept.).
* These prices include the price of one Ore Certificate.
RANGE OF STOCK MARKET
47
1912 AVERAGE 157-170
Cent. of N. J. ranged from 305 (Jan.) to 395
(Apr.); St. Paul 99 (July) to 117 (Nov.); Del.
& Hud. 175 (Feb.) to 162 (Dec.); Gt. Northern
*165 (Jan.) to 187 (Aug.); Ill. Cent. 141 (Jan.) to
120 (May); Louis. & Nash. 170 (Aug.) to 138 (Dec.);
N. Y. Cent. 121 (Apr.) to 106 (Dec.); New Haven
142 (Apr.) to 126 (Dec.); Pennsylvania 126 (Oct.)
to 119 (Dec.); Pullman 158 (Feb.) to 175 (Aug.).
1913 AVERAGE 132–161
Cent. of N. J. ranged from 362 (Jan.) to 275
(June); St. Paul 116 (Jan.) to 97 (Nov. and Dec.);
Del. & Hud. 167 (Jan.) to 148 (June); Gt. Northern
plus 1 ore ctf. 174 (Jan.) to 141 (June); Ill. Cent.
129 (Feb.) to 103 (Dec.); Louis. & Nash. 142
(Jan.) to 126 (June); N. Y. Cent. 110 (Jan.) to 90
(Dec.); New Haven 130 (Jan.) to 66 (Dec.); Penn-
sylvania 124 (Jan.) to 106 (Dec.); Pullman 165
(Jan.) to 149 (Sept.).
†1914 AVERAGE 128-145
Cent. of N. J. ranged from 315 (Mar.) to 300
(July); St. Paul 107 (Feb.) to 85 (Dec.); Del. &
Hud. 160 (Feb.) to 139 (Dec.); Gt. Northern *173
(Feb.) to 135 (Dec.); Ill. Cent. 115 (Jan. and Feb.)
to 104 (Dec.); Louis. & Nash. 142 (Jan.) to 125
(Dec.); N. Y. Cent. 97 (Jan.) to 77 (July); New
Haven 78 (Jan.) to 50 (July); Pennsylvania 116
(Jan.) to 103 (Dec.); Pullman 159 (Jan.) to 150
(Dec.).
* These prices include the price of one Ore Certificate.
†The Exchange was closed from July to December, during which time
the unofficial prices were quoted even lower than those named above.
48
BUSINESS BAROMETERS
1915 AVERAGE 129–146
Cent. of N. J. ranged from 325 (Jan.) to 250
(Sept.); St. Paul 78 (July) to 101 (Dec.); Del. &
Hud. 138 (Aug.) to 154 (Nov.); Gt. Northern plus
1 ore ctf. 138 (Jan.) to 181 (Nov.); Ill. Cent. 113
(April) to 99 (July); Louis & Nash. 104 (July) to
130 (Nov.); N. Y. Cent. 81 (Mch.), to 110 (Dec.);
New Haven 43 (Feb.) to 89 (Oct.); Pennsylvania
104 (Feb. and Mch.) to 122 (Nov.); Pullman 150
(Mch.) to 170 (Oct.).
1916 AVERAGE 126–143
Cent. of N. J. ranged from 289 (Jan.) to 310
(May and Dec.); St. Paul 102 (Jan.) to 89 (Dec.);
Del. & Hud. 159 (Oct. and Nov.) to 150 (Dec.);
Gt. Northern plus 1 ore ctf. 178 (Jan.) to 147
(Dec.); Ill. Cent. 100 (Apr.) to 110 (Oct.); Louis.
& Nash. 121 (Mar.) to 140 (Oct.); N. Y. Cent.
100 (Apr.) to 116 (Oct.); New Haven 78 (Jan.)
to 50 (Dec.); Pennsylvania 55 (Aug.) to 60 (Oct.);
Pullman 160 (May) to 177 (Sept.).
50
BUSINESS BAROMETERS
Possibilities of Profit in Conservative
Investment Stocks
Suppose $2,500 had been invested in 1861, 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 today?
In detail the answer would be as follows: Starting
in 1861 with an original principal of $2,500, the
dividends for three and one-half years at 5%
amount to $705. 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 62, and
hold the stocks for said three and one-half years
until the average price reaches 160 in 1865, when we
sell for $6,448, which, together with the interest
above mentioned, makes a total of $7,153. We
leave this amount on deposit in a bank for two
years at 4%, so that we have $7,737 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
@ 62.
1861
$2,500
Dividends 3 yrs. @ 5% to 1865
$705
Princ. bought @ 62-1861,
sold @ 160..
1865
6,448
Total Princ. & Dividends.
1865
7,153
Comp. Int. @ 4% 2 yrs.
Princ. & Int. to.
1867
7,737
Invested @ 100 in 1867.
•
Dividends 2 yrs. @ 5% to 1869
Princ. brought @ 100-1867
773
sold @ 144..
11,131
Total Princ. & Div. @ 5% 1869
11,904
POSSIBILITIES OF PROFIT
51
Comp. Int. @ 4% 4 yrs.
Princ. & Int....
1873
$13,926
Invested @ 75 in 1873..
Dividends 1 yr. @ 5% to..
1874
$928
Princ. bought @ 75 in 1873
sold @ 100.
1874
18,560
Total of Princ. & Dividends
@ 5% to 1874..
•
19,488
Comp. Int. @ 4% 3 yrs.
Princ. & Int..
1877
22,360
Invested @ 55 in 1877.
•
Dividends 4 yrs. @ 5% to
1881
8,130
Princ. bought @ 55 in 1877
sold @ 134..
1881
54,471
Total Princ. & Dividends
@ 5% 1881.
Comp. Int. @ 4% 3 yrs.
62,601
(June) 1881.
Princ. & Int. to Jan..
1885
71,825
Invested @ 86 in 1885.
•
Dividends 4 yrs. 9 mos. @
5% to Sept..
1889
19,836
Princ. bought @ 86-1885
sold @ 136..
1889
113,587
Total of Princ. & Div. @
5%..
1889
133,423
Comp. Int. @ 4% 1 yr. 10
mos. to July 31, 1891...
Princ. & Int..
1891
143,385
Invested @ 115 in 1891.
•
Dividends 1 yr. @ 5% to..
1892
6,235
Princ. bought @ 115 in
1891 sold @ 135 in..
1892
168,345
Total of Princ. & Div. @
5%.
1892
174,580
Comp. Int. @ 4% 4 yrs..
Princ. & Int. to..
1896
204,234
Invested @ 100 in 1896.
•
Dividends 6 yrs. @ 5% to 1902
61,269
Princ. bought @ 100 in
1896 sold @ 190.
1902
388,037
Total Princ. & Dividends
@ 5%..
1902
449,306
Comp. Int. @ 4% 1 yr..
*
•
Princ. & Int. to Oct..
1903
467,278
Invested @ 146 in 1903.
Dividends 2 yrs. 3 mos. @
5% to...
1906
36,005
52
BUSINESS BAROMETERS
Princ. bought @ 146 in
1903 sold @ 205 during
Jan..
Total of Princ.& Div.@ 5%
Comp. Int. @ 4% 1 yr. 9
mos. to Nov. 1907..
Princ. & Int..
1906
$656,102
1906
$692,107
1907
741,384
Invested @ 119 in 1907.
•
Divs. 1 yr. 8 mos. @ 5% to
Aug.
1909
51,916
Princ. bought @ 119 in
1907 sold @ 190 in Aug..
1909
1,183,719
Total Princ. & Divs. @ 5%
through Aug.
1909
•
1,235,635
Comp. Int. @ 4% 5 yrs. 3
mos. to Dec...
1914
Princ. & Int.
1,518,372
Invested @ 128.3 in Dec.
1914
Divs. 1 yr. @ 5% to Jan..
Princ. bought @ 128.3 in
1914 sold @ 146.6 in Jan.
Total Princ. & Div. @ 5%
through Jan.
•
Comp. Int. @ 4% 1 yr. 3
mos. to April.
1916
59,172
1916
1916 1,734,937
1916
1,794,110
1917
Princ. & Int.
1,884,532
POSSIBILITIES OF PROFIT
53
In the foregoing 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
fifty years ago would today amount to over $1,000,-
000. These are not only strictly investment stocks,
but are also stocks which have fluctuated compara-
tively 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
possible to correctly diagnose only the movements
extending over longer periods. Many brokers be-
lieve that it is possible to discern also these in-
termediate movements of six or eight months;
and if so, the following results would have been
possible.
54
BUSINESS BAROMETERS
$5,000 invested in "St. Paul" in 1870 would
amount to over $10,000,000 today.
$5,000 invested in "Union Pacific" in 1870 would
amount to over $15,000,000 today.
$5,000 invested in "Central of New Jersey"
would amount to over $30,000,000 today.
$5,000 invested in "Northern Pacific" would
amount to over $50,000,000 today.
These figures are not based on the supposition
that the investor was selling at the top of every rise
or buying at the bottom of every decline, but that
the transactions were made at average "high" and
average "low" prices based upon the study of tech-
nical conditions.
If, however, the investor can increase an invest-
ment of $2,500 to $1,500,000 in about fifty years
without taking any 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-
POSSIBILITIES OF PROFIT
55
ness. The chief duties of the manager are to meet
customers when they visit the office, teli 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. Once
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 would be patted on the
back for his good judgment. If the market went
down, as it did, he would still make twenty-five
dollars.
"I venture to say that 99% of the specu-
56
BUSINESS BAROMETERS
lations on the New York Stock Exchange are
based on such so-called 'tips.' The manager has
got to get the business to keep his position 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 certain influential bankers are
'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 jumping around in value. Now it
has increased to eleven hundred dollars, then
declined to nine hundred 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 customer 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 10% margin has no more chance in an active
market than a brush dam in a Johnstown flood.
One of the causes for this kind of speculating on
a margin is that a broker's commission is only 12
POSSIBILITIES OF PROFIT
57
cents per share, and it does not pay to do small-
lot business. 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 hun-
dred 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 specu-
lator on 10% 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 business."
Such a method
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.
of buying and selling stock is absolutely unreliable;
and unless men are willing to spend money for
fundamental statistics, they should purchase no
listed securities, but confine their purchases to
inactive bonds recommended by high-grade bond
houses. On the other hand, it is possible to create
a fortune by the method that is herein outlined,
although it is practically the only method which
can de depended upon. It is also the most prof-
itable, as all other methods come under the head of
"accumulation by arithmetical progression" rather
than "accumulation by geometrical progression."
In order to increase an investment of $5,000 to
$1,000,000 in thirty years by any other method,
58
BUSINESS BAROMETERS
a man must accumulate about $25,000 a year, ΟΙ
$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.
This can best be illustrated as follows:-If one
has $1,000 invested in only ten shares of stock, it
does not seem very wonderful for it to double in
value in three or four years, enabling its sale for
$2,000, which is at a profit of $1,000. This is due
to the fact that one is accustomed to the thought
of handling $1,000; yet with $100,000 in the same
stock, it would just as surely become $200,000,
giving a profit of $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 tre-
mendous difference whether one adds $1,000,
making the amount $101,000, or multiplies said
amount by two, making the amount $200,000. It
POSSIBILITIES OF PROFIT
59
is for this reason that it is not only possible to
create a great fortune through conservative invest-
ments, but this is the safest way it can be accomplished.
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% in addition to the interest received.
From every point of view a study of these tables.
clearly shows that the study of fundamental sta-
tistics is of great value even to the banker or in-
vestor who purchases only bonds. If he buys 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
about 12% on all purchases. In order that the
reader may not think that these tables were pre-
pared by us merely in the interests of the study
of fundamental statistics we take pleasure in stat-
ing that they were prepared by a leading New York
investment house, whose natural object would be to
show that bonds fluctuate very little. It, however,
will be seen that bonds have their normal price
line as well as stocks. Every abnormal action
away from this line, is followed by an equal reac-
tion on the other side.
Burl., Cedar Rap. & Nor. 1st 5s
Chesapeake & Ohio 6s (Ser. A)
Can. Southern 1st 5s
Chi., Burl. & Quincy, Iowa Div., 4s
PANIC OF 1884
COMPARATIVE PRICES OF BONDS
Low
June
951
83
92
89
Chi., Mil. & St. Paul, Hastings & Dak. Div., 78 116
Chi. & Northwestern Deb. 5s
Del. & Hud., Penn. Div., 7s
N. Y., Lack. & West. 1st 6s
Hannibal & St. Jo. Consol. 6s
Metropolitan Elevated 6s
Nash., Chat. & St. Louis 7s
New York Central 7s
Northern Pacific General 6s
Missouri Pacific Consol. 6s
Rome, Wat. & Ogdensburg 5s
St. Louis, Iron Mt. & So. Consol. 5s
901/1
1884
High
December
102
105
99
931/
120/1/
96
Rise from
Low
3
6214
22
Rise from
High 1885
June 1884
Aug.
141
1091/
110
109
127
106
Mar.
27
Dec.
17
Dec.
1029/
34
99234
Dec.
11
Oct.
15/1/
July
121
Dec.
13
MAT
1251
115
110
98
113
127
132
120
115
110/2/20
HAHNH
7445O CO LO LO
34HỊN
12212
7/12/20
1371/
128
119
118
Aug.
9
13/
1278
11/1/7
Dec.
20
120/1/0
126/
Dec.
133
6
1381/
Dec.
98
103/10
5/1/2
115
Dec.
17
90/1/
97/1/
108
Dec.
64
74
10
90
Dec.
26
53
73
20
91
Dec.
38
17/1/
Average Rise
17/0
In the panic of 1884 the storm burst in all its violence on May 14th, and the financial depression following
reached its depth on the last day of June. The first of July was the great turning point. The year 1885 was one
of remarkable recovery. It will be seen from the above table that the average rise of sixteen active bonds from
the low in June to the high in December, 1884, was 81%, while the average rise from the low in June, 1884, to
the highest prices touched by the same bonds during the year 1885 was 17%.
PANIC OF 1893
1893
Low
High
Rise from
Rise from
August
December
Low
High 1894
Aug. 1893
Canada Southern 1st 5s
Cent. of N. J. 5s
99
109/
10/1/
102
1141
121
Chesapeake & Ohio Consol. 5s
90
103/
13/1/
Chesapeake & Ohio General 41s
612/10
Chi., Burl. & Quincy, Nebraska 4s
Chi., Mil. & St. Paul General 4s
79/1/2
3412
a86
78
87910
93
colo
16
8/3/3
C. C. C. & St. Louis, St. L. Div. 4s
89
91
East Tenn., Va. & Ga. Consol. 5s
83
92
Louisville & Nash. Unif. 4s
75
78/1/20
Metropolitan Elevated 6s
112
1142
Mo., Kan. & Tex. 1st 4s
69
82/1/
1}#{CO}#{C
Mo. Pac., Pac. of Mo. Ext. 4s
93
98
N. Y., Chic. & St. Louis 1st 4s
89/1/
98
Pennsylvania Co. 41s
10421
110
ст 00 ст со
31
21
13/1/
HNHHHN H+H[∞
6729am
H+H+HN
114
Dec.
15
117/1/
Aug.
15/1/
110
781/10
92/1/
913/
Sept.
CAUTPF
Aug.
20
161/
Apr.
13
Dec.
5/1/
100
H24
Rio Grande Western 1st 4s
54
74
20
St. Louis, Iron Mt. & So. Consol. 5s
60
79/1/20
19/1/20
St. Louis Southwestern 1st 4s
50
61/1/
11/
Wabash 1st 5s
93
103/31/
10/10
West Shore 1st 4s
93/1/2
104/1/
109
HİN HİN OTH20|00
Average Rise.
92
Oct.
3
107
Oct.
14
791/0
Sept.
4층
​122
Oct.
9/1/20
83/1/10
Apr.
14층
​1031
Dec.
101
1029
Dec.
1131
May
8/1/1
71/1/0
Nov.
17/1/2
1039/
May
439/
62/1/1
Dec.
12/
107/1/
Apr.
14/12
1062/1
Dec.
131
139
9/1/1
H∞ HĨNH∞ H}+&{∞ H[~=[20]∞HNHNH
19:00
aJuly: sales in August, 1893.
The panic of 1893 was one of extreme severity, being followed by an industrial depression extending over about
three years. The average rise of nineteen active bonds from the low in August to the high in December, 1893, was
about 9.93%, while the average rise from the low in August, 1893, to the highest points touched by the same bonds
during the year 1894 was about 13%.
PANIC OF 1903
1903
Low
High
Rise from
Rise from
August
December
Low
High 1904
Aug. 1903
Balto. & Ohio, Prior Lien, 31s
91/1/
96
Balto. & Ohio, Southwestern, 31s
86/1/2
89/17
Canada Southern 1st 5s
102/
1059/
4/1/2
330
31/1
Central of New. Jersey 5s
1261
131
42140
Chi. & Alton Ry. 31s
702/14
76/1/
523240
Chi., Burl. & Quincy, Ill. Div., 31s
89/1/20
94959
5층
​Chi., Burl. & Quincy, Nebraska, 4s
1021/
1052/
31
4
Chi., Burl. & Quincy Joint 4s
87/1/
93/1/
Chi. & Eastern Ill. Consol. 5s
113/9/
115/
Chi. Mil. & St. Paul General 4s
103
111
Chi. & Northwestern General 31s
951
Chi., Rock Island & Pacific General 4s
999
Denver & Rio Grande 1st 4s
97/
Kansas City Southern 3s
65/1/
Louisville & Nashville Unified 4s
97/1/
HQ500 HIGHNHN
991
1100
104
100
70/1/
1002/10
New York Central 3 s
95
100
Northern Pacific 1st 4s
99/2/
i|
103
Reading General 4s
94
972/10
Rio Grande Western 1st 4s
94
97
St. Louis & San Francisco Ref'd 4s
78/3/
85/1/00
St. Louis Southwestern Consol. 4s
66
71/1/20
Southern Railway Consol. 5s
1111/
1142
18HE3TH
H|23|01|00|HM]HH|00
+++H 10 10 0 ∞ - ∞ ∞ HQ 4 DO LO DO CO CO CO LO M
962/4
Nov.
94
Dec.
106
June
136/1/1/0
Dec.
10
82/3
Dec.
12
97
Dec.
6230
HH0]∞MIH
107
Oct.
730274
3/1/1
7310
4
101/1/
Dec.
13
120
Sept.
61
112
Dec.
2/1/2
1000000 HIN
10011
Sept.
1061/
Dec.
6/1/1
3478
102/0
Dec.
731
Aug.
7
4
1042/1
Dec.
H
101/
Dec.
6/1/2
1234
106
Dec.
6/1/20
103/
Dec.
101
July
7
HAHNA+
91
Dec.
12/1
83
Nov.
17
121
Dec.
9
Union Pacific 1st 4s
Wisconsin Central 1st 4s
Average Rise.
PANIC OF 1903-Continued
1903
Low
August
High
December
Rise from
Low
991/10
87
103 21/0
91
44
4층
​11/0034
High 1904
107/1/
93
Dec.
Dec.
Rise from
Aug. 1903
7
34
6
8.05
The year 1903 was not marked by a financia panic, strictly speaking, although developments on the New
York Stock Exchange under the great shrinkage of values there recorded were at times closely suggestive of
panicky conditions. Nor did the country have to go through the throes of a great commercial convulsion, although
there was necessarily some hesitation and decline in general business. Industrial and financial affairs during
1904 were again on the up-grade. The average rise of the twenty-four active bonds given in the above table
from the low in August to the high in December, 1903, was 4.33%, while the average rise from the low in August,
1903, to the highest prices touched by the same bonds during the year 1904 was 8.05%. It will be observed that
the decline in bonʻl quotations during 1903 was not nearly so great as the decline in either 1884, 1893, or 1907.
+
Atchison, Topeka & Santa Fe General 4s
PANIC OF 1907
High
Low
Fall from
High
Rise from
1905-1906
1907
High 1906
1909
Low 1907
1041/
89/1/20
15
1017/
Baltimore & Ohio 1st 4s
105/1/
88
17/1/
101/
Baltimore & Southwestern 3½s
93
80
13
913/3
Central of Georgia Consol. 5s
114/1/
85
29/1/0
111/9/
Central of New Jersey General 5s
132
113
19
129
16
Chesapeake & Ohio Consol. 5s
119/
101
18/1/
113
Chesapeake & Ohio General 41s
109
87
22
1069/
12/10
13
11
269/9
121
199
0001001000100
145000
Chicago & Alton Ref'd 3s
82/1/
58
24/1/00
80
22
Chi. Burl. & Quincy, Ill. Div., 3 s
95/1
82/1/
122
93
Chi., Rock Island & Pacific General 4s
103/1
88
151
1011/
10/1/
13/1/
H2H{N
Chi., Rock Island & Pacific Ref'd 4s
97
80
17
94
14
Chi., Rock Island & Pacific R.R. 4s, 2002
81/1/
Colorado & Southern 1st 4s
96/1/
Delaware & Hudson Conv. 4s
1127
121270
493
75
88
Erie 1st Consol. Prior 4s
102
84/1/20
Illinois Central Gold 31s
100
911
Kansas City, Ft. Scott & Memphis Ref'd 4s
87/1/13
61
Lake Shore Deb. 4s 1931
100
83
Louisville & Nashville Unified 4s
1041
92
Mo., Kan. & Tex. 1st 4s
103
89/1/20
Mo. Pacific Coll. 5s
108/1/
89/1/2
1212
MHHNN∞07] 200
7867
HNHH
HAHIN
31210
82/1/1
21/1/0
241/
17/1/
82/2
26/1/
99
1079/
91
94
86
25
17
94
11
2200221
32/1/10
199
101234
New York Central 33s
99
85
Norfolk & Western Div. & General 4s
99/2
81/1/0
Northern Pacific 1st 4s
106
93
Pennsylvania Conv. 3s 1915
101
13 S
1250 HİN
1210
13/
19
142
18
129/
1021/
101
1011
1121
103
14
حت إحجر
94
49
9/21/
4
95
13/1/20
17/1/
10:00 12
104
109390
100
161/
Reading Co. General 4s
Rio Grande Western 1st 4s
St. Louis & San Francisco Ref'd 4s
Southern Pacific Ref'd 4s
Southern Railway Consol. 1st 5s
Union Pacific 1st 4s
Wabash 1st 5s
Wabash, Pittsburgh Term. 1st 4s
Western Maryland 1st 4s
West Shore 1st 4s
Average Rise
PANIC OF 1907-Continued
High
1905-1906
Low
Fall from
High
Rise from
1907
High 1906
1909
Low 1907
1029
86/1/
16/1/
101
14/1/0
100
81
19
100/1
19/
88
66/1/
21/1/
89
22/0
979
82
15
9817
161/1
1191/1
90
29/1/
113/
231/1
106
921/2
119
90/1/
88
1/2140/00
109
999
58
591/
94
125100
321
1-100
141
1042
121
1999
114
141/
32/1/
28-310
55
N
29/10
15
100 10
88
28/1/1
104
10
15.38
From these tables it will be seen that there is an average fluctuation of about 15% every five or six years, or
about 3% for each year. As these bonds yield about 5% when purchased during panics, this makes a total average
yield of about 8%. Now, $5,000 at 8% compound interest becomes over $68,000 in about 40 years, and $10,000
becomes about $50,000 in only about 20 years. This shows how rapidly money can be multiplied by the use of
fundamental statistics, even though one confines one's investments to the highest grade bonds
(For another list of active bonds which ranged from about 107 in 1905 to 88 in 1907 and back again, see the large
sheet in the Addenda.)
66
BUSINESS BAROMETERS
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 which appeared
in one of the many valuable financial articles pub-
lished by the Van Norden Magazine, are extremely
instructive. Of course, one may invest in new
schemes and lose all the money invested; but if
one will confine his investments to securities of
established railroads, he has nothing to fear from
reorganizations. The Law of Equal Reaction will
protect him.
Without any noteworthy exceptions the reor-
ganizations have been carried out with the intention
of placing the companies in a position of solid-
ity and strength with respect to their fixed obli-
gations, on the low basis of business as it existed
at that time. To accomplish this the stockholders
and owners of the junior securities of the bank-
rupt companies were induced to forego a large
part of their immediate income from their in-
vestments and take their chances of larger returns
with the growth of the companies. With the
object of making these chances as bright as possible.
the reorganization committees were almost invari-
ably quite liberal to the holders of such obligations
in their allotment of new securities, especially to
such of the old holders as paid the assessments
necessary to provide the new capital required.
In the tables presented no attempt is made to
include all possible obligations of all reorganized
companies. No one would be justified in pre-
REORGANIZATIONS
67
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 reorganiza-
tions 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 secu-
rities of typical companies have been taken, repre-
senting all parts of the country. Says Mr. Evans:
"The conservative investor who makes it a
practice to buy only the best class of first mortgage
bonds with the purpose of insuring 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% to 30% or 40% is the best evi-
dence of this."
:
TABLE A—STOCKS AFFECTED BY REORGANIZATION
Phila. & Reading,
Baltimore & Ohio,
44
Norfolk & Western,
Union Pacific,
Northern Pacific,
Atch., Top. & San. Fe,
Erie
(N. Y., L. E. & W.)
Averages
Old Stock Surrendered
One Class
First Preferred.
Second Preferred
Common
Preferred.
Common
One Class
Preferred
+
•
Common.
One Class
Preferred.
Common.
{Preferred
· •
Assessment
1st Pfd. Stk.
Rec'd
2nd Pfd. Stk.
Rec'd
20 %
•
•
2 %
20 0%
none
521%
20 %
none
20
121%
12%
15 %
%
20 %
F
none
none
10
15 %
50 %
15
none
10 °
10 %
Com. Stk.
Rec'd
100 %
75 %
150 %
100
1121%
75 %
100 %
50 9
100 %
100 %
8 %
none
100 %
none
12 %
none
none
13.1%
14 %
83%
100 %
88%
Total Per Cent of Stocks.
Per Cent of Old Principal and Assessment.
1101%
98 %
TABLE ABONDS AFFECTED BY REORGANIZATION
New
1st Pfd.
2nd Pfd.
Com.
Old Bonds Surrendered
Rate Assess't
Bonds
Rate
Stock
Stock
Stock
Rec'd
Rec'd
Rec'd
Rec'd
Union Pacific,
First Mortgage.
•
富豪
​"
Kansas Div. First Mortgage
Kansas Div. Consol.
• • •
none
100 %
50 %
none
none
100 %
50 0%
none
none
50 %
110 %%%
none
"
64
Northern Pacific,
44
Kansas Div. Incomes
Sinking Fund
General First Mortgage
General Second Mortgage
General Third Mortgage.
N. P. & Mon. First Mortgage.
none
80
none
75
none
135
none
100
none
100
50 %
100 %
none
50 %
50 %
none
•
none
none
none
none
Consolidated Mortgage
none
50
621%
none
none
50 %
50
none
D
44
44
"
James Riv. Val. First Mortgage.
Collateral Trust Notes
none
50 %
3 %%
50
none
none
100 %
4 %
20
none
TABLE Ą — BONDS AFFECTED
BONDS AFFECTED BY REORGANIZATION - Continued
Old Bonds Surrendered
New
1st Pfd.
2nd. Pfd.
Com.
Rate
Assess't
Bonds
Rate
Stock
Stock
Stock
Rec'd
75 %
4
%
Atch., Top. & San. Fe.
Baltimore & Ohio,
General (First) Mortgage.
Second Mortgage, Class A
Second Mortgage, Class B
Loan of 1853 (First Mortgage)
4 %
none
*32 %
4
%
}
Rec'd
none
Rec'd
Rec'd
none
·
4 %
4%
none
105 %
none
4 %
4%
4 %
none
Loan of 1874 (First Mortgage)
6 %
none
42
Pitts. & Con'lsv. 1st Ext'd Mortgage
4 %
none
none
1024%
121%
112 %
12 %
1021%
121%
110 %
none
48
44
Phila. Div. First Mortgage
•
431%
none
100 %
Terminal.
►
46
"
4
Erie,
(N. Y., L. E. & W.),
Norfolk & Western,
Consolidated Mortgage.
Reorganization First Lien.
Second Consol. Mortgage.
Collateral Trust
Md. & W. Div. First Mortgage.
Clinch V. Div. First Mortgage.
Adjustment Mortgage.
100 Years Mortgage.
Equipment Mortgage
• •
·
6
•
•
• ·
Phila. & Reading,
44
<< 5 CODDZ LO LO LO HLO LO LO
41%
none
100
%
5 %
none
{
6 %
none
none
105
121%
100 0
75 %
09H HIS SHO
31%
4%
14 %
none
مرات
مرات
%
16 %
none
}}
4 %
26%
none
81%
none
none
none
•
·
none
સ
none
none
none
55 %
none
none
none
110 %
none
none
none
none
70 %
none
50 %
none
125 %
4
44
Debentures 1892
General Mortgage
•
•
First Income.
Second Income.
Third Income.
+Chesapeake & Ohio,
First Mortgage, Series B.
Second Mortgage Currency.
*Second Mortgage Bond.
indicated in table.
†The 1st and 2nd Pfd. stocks of new C. & O. Co. were later exchanged for bonds, and final results were as
none
none
none
none
60 %
4
none
100 %
4 %
100 %
4
%%%% %%%
621%
70%
18 07
72100
100 %
none
none
•
none
•
+
·
none
none
48 %
none
none
none
none
20%
none
30 %
100%
none
20%
none
20%
none
none
none
65%
35%
55 %
85 %
10
6 %
+66%
none
11 %
+22
41
6 %
none
†331%
663%
TABLE A-BONDS AFFECTED BY REORGANIZATION—Continued
Old Bonds Surrendered
Rate Assess't
New
Bonds
Rec'd
Rate
1st Pfd.
Stock
Rec'd
2nd Pfd.
Com.
Stock
Stock
Rec'd Rec'd
M., Kan. & T. U. P. R.R., So. Branch First and other First Mortgages on portions of main system were declared to be due and were
paid off in full including the First Consolidated 7%
Mortgage.
64 %
4: %
&&
General Consol. Mortgage.
6 %
none
*55 %
271%
none
4%
General Consol. Mortgage.
5 %
none
55
4 %
20%
none
5 %
none
*50 %
100 %
4 %
St. Louis S. W.,
St. Louis & San Francisco,
*Second Mortgage Bond.
St. L., Ark. & Tex. First Mtge.
St. L., Sal. & Ark., First Mtge..
Kan. City & S. W., First Mtge...
6 %
none
*25 %
5 %
none
6 %
none
35
50
65
go do
4 %
20 %
none
4 %
none
40%
60%
%
none
40%
60%
TABLE B-BONDS OF FIRST CLASS
Bonds either entirely or predominantly first lien on main properties
Old
Rate
Old Bonds Surrendered
of
New
Principal
Received
New
Immediate Subsequent
Principal
Return on
Return on
Received
Former
Former
Return
in Bonds
in Stock
Principal
Principal
Union Pacific,
Northern Pacific,
Atch., Top. & San. Fe,
Baltimore & Ohio,
First Mortgage.
6 %
100 %
50 %
6.00 %
6.00 %
Kansas Division, First Mortgage
General First Mortgage.
6
100 %
50 %
6.00 %
6.00 %
·
135
%
none
5.40 %
5.40 %
General (First) Mortgage
107
none
4.28 %
4.28 %
46
66
"
"
Norfolk & Western,
St. Louis S. W.,
Averages
·
Pitts. & Connelsv. (First Ex. Mortgage).
Phila. Division (First Mortgage)
Maryland & Wash. First Mortgage.
St. L., Ark. & Tex. First Mortgage
Loan of 1853 (First Mortgage)
Loan of 1874 (First Mortgage)
115 %
14 %
4.55 %
4.55 %
6
124 %
16 %
5.04 %
5.04
4
115 %
4
4.34 %
4.34 %
.
•
100 %
2619
5.06 %
5.06
70 %
624%
5.30
5.30
•
6 %
5.1%
125 9%
109.1%
20 %
24.3%
4.00
5.00%
4.997%
5.097%
TABLE C-BONDS OF SECOND CLASS
Bonds constituting practically second liens on main properties
New
Principal
Received
Union Pacific,
Northern Pacific,
Atch., Top. & San. Fe,
Baltimore & Ohio,
Chesapeake & Ohio,
Averages
•
Old Bonds Surrendered
Kansas Division, Consol. Mortgage.
General Second Mortgage.
Second Mortgage, Class A and B
Consolidated Mortgage
First Mortgage, Series B
•
Old
Rate
New
Principal
Immediate Subsequent
Return on
Return on
of
Received
Former
Former
Return
in Bonds
in Stock
Principal
Principal
6
50 %
110 %
6.40%
6.40%
6
100 %
50 %
6.00%
6.00%
none
103 %
0.00%
5.15%
5 %
1171%
83%
4.52
4.52%
•
89 %
5.40%
71.30%
11 %
56.50%
4.35%
4.45%
4.25%
5.30%
TABLE D-BONDS OF THIRD CLASS
Bonds constituting practically third liens on main properties
New
Principal
Received
Union Pacific,
Northern Pacific,
Norfolk & Western,
Phila. & Reading,
Chesapeake & Ohio,
Mo., Kan. & Texas,
Averages.
Old Bonds Surrendered
Sinking Funds.
Kansas Division Incomes
•
General Third Mortgage.
Adjustment Mortgage.
General Mortgage
Second Mortgage Currency
General Consol. Mortgage
•
•
Old
Rate
New
Principal
Immediate Subsequent
Return on
Return on
of
Received
Former
Former
Return
in Bonds
in Stock
Principa
Principal
75 %
100 %
7.00%
7.00%
80 %
50 of
%
5.20%
5.20%
100
0%
50 0%
5.00%
5.00%
125
18 %
5.72%
5.72%
100
331%
none
4.00%
4.00%
663%
1.50%
2.16%
6 %
6.29%
119 %
271%
4.76%
5.86%
90.33%
44.43%
4.74%
4.9%
6
•
•
TABLE E-BONDS OF FOURTH CLASS
Bonds constituting practically fourth or fifth liens on main property
Old Bonds Surrendered
Northern Pacific,
Erie,
(N. Y., L. E. & W.),
Norfolk & Western,
Phila. & Reading,
44
44
"
Averages
Consolidated Mortgage.
Reorg. First Lien.
Second Consol. Mortgage
100 Year Mortgage.
First Income.
•
Second Income
Third Income
• •
•
†Including 20% assessment.
Old
Rate
of
New
Principal
Received
New
Principal
Immediate Subsequent
Return on
Return on
Received
Former
Former
Return
in Bonds
in Stock
Principal
Principal
5 %
50 %
621%
4.00%
4.00%
100 %
none
4.00%
4.00%
75 %
55 %
3.00%
5.20%
60 %
721%
5.30%
5.30%
†6
none
130 %
0.00%
5.20%
+6
none
1201%
0.00%
4.20%
†6 %
5.71%
none
120
0.00%
4.80%
40.71%
80 %
2.33%
4.76%
Northern Pacific,
Norfolk & Western,
TABLE FLOWER GRADE DIVISIONAL OR BRANCH LINE BONDS
St.Louis & San Fran.,
44
Averages
GRADE DIVISIONAL OR BRANCH
Old Bonds Surrendered
N. Pac. & Mont. First Mortgage
James River Valley First Mortgage.
Clinch Val. Div. First Mortgage.
St. L., Salem & Ark. First Mortgage.
Kan. City & So. W. First Mortgage.
Old
Rate
of
Return
6 %
New
Principal
Received
in Stock
50%
1117
New
Principal
Received
in Bonds
50%
50%
Immediate Subsequent
Return on
Former
Principal
3.50%
3.50%
50%
50%
100%
4.80%
2.00%
Return on
Former
Principal
3.50%
3.50%
4.80%
+3.60%
6 %
65%
100%
2.60%
+4.20%
5.6%
53%
74%
3.28%
3.92%
†The dividends on St. L. & San Fran. second preferred stock have not been continuous.
50%
70%
TABLE G- MISCELLANEOUS BONDS, DEBENTURES, EQUIPMENTS, COLLATERAL, ETC.
Immediate Subsequent
Return on Return on
Former
Old
New
Rate
Principal
New
Principal
of
Received
Received
Former
in Bonds
in Stock
Principal
Principal
4635
100%
100%
20%
4.80%
4.80%
none
4.00%
4.00%
%
110%
none
4.40%
4.40%
none
100%
4.00%
4.00%
A
100%
48%
5.92%
5.92%
Northern Pacific,
Baltimore & Ohio,
Erie,
Norfolk & Western,
Old Bonds Surrendered
Collateral Tr. Notes.
Terminal.
• • D
N. Y., L. E. & W., Collateral Tr.
Debentures 1892.
Equipment Mortgage
Return
6 %
41%
TABLE H-SUPPLEMENTARY TABLE-STOCKS-ALL CLASSES
Old Stock Surrendered
One Class
Preferred
•
New Principal
Received in Stock
for Old Principal
and Assessment
Immediate
Return on Old
Principal and
Assessment
0.52%
1.82%
Subsequent
Return on Old
Principal and
Assessment
Union Pacific,
Northern Pacific,
Atch., Top. & San. Fe,
Baltimore & Ohio,
44
Erie, N. Y., L. E., & W.,
Norfolk & Western,
Phila. & Reading,
Averages.
Common
•
One Class
•
First Preferred.
Second Preferred.
Common
Preferred.
Common
Preferred
Common
One Class
►
•
·
•
·
100.0%
90.9%
9.21%
5.00%
86.9%
none
6.08%
100 0%
none
4.10%
125.0%
2.05%
6.47%
141.6%
0.66%
8.17%
100.0%
0.66%
5.66%
92.6%
none
3.70%
89.3%
none
none
•
100.0%
none
4.00%
•
66.7%
none
2.67%
83.3%
none
3.33%
98.0%
0.476%
4.866%
74
BUSINESS BAROMETERS
"There were a few prior mortgage bonds which
had their interest rate reduced while otherwise un-
disturbed, but the best grade bonds that were
disturbed fared approximately as indicated in
Table B. As shown in Table B, the principal on
the old first mortgage bonds disturbed was not only
conserved but increased an average of 33.3%
as compensation for a reduction in the return
on each dollar. This in itself has been a decided
advantage inasmuch as the old mortgages, if they
had been left to mature, would, at maturity, be
redeemed at par or extended on a basis of 4%
or less, whereas the average holder of old dis-
turbed firsts, now has well secured principal greater
by 33.3%, the whole probably yielding him a 4%
rate.
"This outcome places him on a level with the
holder of an undisturbed first mortgage having a
high rate of interest and a long period to run
which on account of the subsequent enhancement
of the credit of the company commands a price of
133.3%. The table also shows that the average
reduction in immediate return on the bonds in-
cluded was very slight, being only from an aver-
age return of 5.1% to 4.997%. The rate later
increased to 5.097% and with a fair prospect that
later it might attain to an appreciably higher
figure.
"Thus the buyer of the first mortgages found him-
self more than justified in his practice, in that the
average holder, instead of merely conserving his
principal, received a new principal 133.3% of the
REORGANIZATIONS
75
old, and although the return was cut down at
first, the cut was very slight, and after a compara-
tively few years, the return was restored to about
the original rate with every reasonable prospect of
eventually becoming greater.
"Of the second, third or fourth grade bonds se-
cured on main properties or low grade divisional
and branch line bonds, which follow in their re-
spective tables, each class received a correspond-
ingly severe cut in both their immediate and pro-
spective return. Some typical miscellaneous bonds
fared as shown in Table G.
"It might be laid down as a general rule that
Equipment Trust mortgages were always favorably
treated. The treatment of Collateral Trust bonds,
of course, varied materially, depending on the qual-
ity of the collateral pledged. Yet, it is interesting to
observe, in view of the recent adverse discussion of
bonds secured by pledge of collateral, that the great
majority of bonds of that class were either paid off
at par and all accrued interest either by the new
company directly, or as a result of the liquidation
of the pledged collateral, or were given new se-
curities to full amount of principal, the income.
from which represented a reduction of only a small
proportion of the old income."
That this was the case was nothing short of re-
markable considering the depression in the prices
of all securities at that time and the difficulty of
obtaining any market for even the best of bonds or
stocks. Here again we see the workings of the
inevitable Law of Equal Reaction. If we err, we
76
BUSINESS BAROMETERS
cannot avoid the consequences. If we do right,
we are sure to profit by it.
The average non-mortgage debenture or the
average terminal bond probably fared as per Table
G, with a preference in favor of terminal bonds.
To the more speculative investor also, whose pref-
erence runs to stocks, the outcome of reorganiza-
tions should be of interest. There is much in the
subjoined table (H) well worth notice both as call-
ing attention to the success attending the subsequent
development of the reorganized companies and as
a commentary on the actual prosperity enjoyed
by the companies in the period elapsed since 1896-
a prosperity perhaps beyond all expectations of
even the reorganizers.
Table H indicates very clearly that the average
return on most junior securities issued shows a
rate of return on the par value of the old junior
securities which approximates, very closely at the
present time, and promises soon to equal and event-
ually far to exceed the return on the original par
value of the very best grade of bonds. The signifi-
cance of this is enhanced when we recollect that
whereas the old first mortgage bonds probably re-
mained at a price which averaged near par even
when in default, and could probably never have
been purchased by the investor at much less than
that figure, the stocks of the old companies prob-
ably had an average price for a considerable time
before reorganization of not over 50%, and for a
very long time many sold as low as 10%, so that
a purchaser who bought those securities at those
REORGANIZATIONS
77
prices and held the new securities issued in ex-
change, is actually receiving from two to ten times
more return on his investment than an investor
in the old first mortgage bonds. This outcome
was, of course, preceded by a period in which there
was practically no return, but that period was very
short.
The table on the following page, summarizing
the tables already given, is appended for the pur-
pose of giving the reader a more ready comparison.
There is still another lesson to be learned from
these tables which should be most carefully remem-
bered by such as look down upon the principle of
buying and selling every one to four years, outlined
in this book. We refer to the fact that those most
'conservative" investors and trustees, who buy
only for permanent investment, can still well afford
to study fundamental statistics.
((
Whether or not they ever intend to sell, they
should confine their buying to times when funda-
mental statistics show that underlying conditions
are becoming sound. This last is very important,
as it is a great mistake to buy simply because prices
are low.
Investors, if students of fundamental statistics, can
well afford to purchase defaulted bonds and other
securities of established railroads in the process
of reorganization and make tremendous profits.
thereby, provided they are willing to study funda-
mental statistics, or, to state it in another way, they
can purchase at 50, bonds which, during normal
times after the reorganization is completed, they
Group
First Class
Second Class.
·
Third Class
•
Fourth Class
Low Grade Div. & Branch Line Bonds
Stocks.
SUMMARY
Old
Rate of
Return
New
Principal
Received
New
Principal
Received
Immediate
Return on
Former
Subsequent
Return oe
Forma
Average
in
5.10%
109.10%
24.3 %
4.997%
5.097%
5.40%
71.30%
56.50%
4.250%
5.30%
6.29%
90.33%
44.43%
4.74 %
4.99%
5.71%
40.71%
80.00%
2.333%
4.76%
5.60%
53.00%
74.00%
3.280%
3.920%
none
none
98.00%
0.476%
*4 87%
*This is the rate on par amounts of old securities and assessments if any.
r
REORGANIZATIONS
79
would otherwise purchase at 110. They should,
however, be careful not to purchase securities of
companies which will soon have to go through a
reorganization, just because these securities are
selling low. The better way, as above suggested, is
to wait until the reorganization is in force and then
to purchase only after a careful investigation.
The keenest investors-depending upon the Law of
Equal Reaction-systematically sell their investments
in old companies and reinvest the proceeds in reor-
ganized companies. The old saying that it is only
three generations from "shirt sleeves to shirt sleeves"
seems to apply to investments. What is best today is
likely to be the poorest tomorrow, and vice versa.
CHAPTER III
RANGE OF COMMODITY MARKET SINCE 1860,
SHOWING THE POSSIBILITIES
OF PROFIT
TO MERCHANTS AND BANKERS.
TABLES ON COMMODITY PRICES.
A
SPECIAL
KNOWLEDGE of Fundamental Statistics
is as important to merchants and manufac-
turers as to investors. The commodity
market offers almost as great an opportunity for
profit as the stock market. Capital invested in
commodities should not depend upon chance for its
development. To the merchant or anyone else
interested wholly or in part in the price movement
of crops, manufactures, raw material or merchan-
dise, general figures on underlying conditions, con-
trolling demand and supply, are essential.
To know when to buy and when to sell commodi-
ties, in order to take advantage of the larger swings
of the market, the merchant must know what the
present conditions are and which way the pendu-
lum is swinging. To know how soon to curtail
credits extended to customers, and acquire the cash
needed to save his credit, when loans cannot easily
be renewed, he must watch the Compositplot.
Keeping his eyes only on the details of his own
business will not enable him to avoid "hard times."
Moreover, by broadening his study he is able greatly
to increase his profits, as well as to eliminate losses.
The study of twenty-five important factors like
those described in subsequent chapters of this book

1865
1870
1875 1880
1885
1890 1895 1900 1905 1910
1865 1870
1875
0
220
%
220
200
200
180
A-STOCKS
180
160
160
110-
140-
120
120
100-
100-
1880 1885 1890 1895 1900 1905 1910
B-STOCKS
M
80
80
60-
60
40-
40.
38
350
325
36-
34
300
275
32
30-
250
28
225
26-
200
24
175
150
125
100
75
50
WHEAT
CORN
22-
20
COPPER
18-
V
16-
14-
12-
25
65
10-
50-
60-
55
15-
48-
46
50-
14-
451
13-
COTTON
44
42-
40
12-
35-
401
"1-
WOOL
38-
30
10-
25
20
15
7-
10-
40
38
36-
34
32-
30
28
26
24-
PIG IRON
22-
20-
18-
116-
14
12-
10-
40
38
36-
34
32
30.
28.
26-
24-
22-
20-
COFFEE
18
16-
14-
12-
10-
8-
6-
120
115
110-
RUBBER
105-
100-
35-
90
36
34
80-
32-
75-
30-
70-
28-
26
PORK
65-
60-
24
22-
55-
50
20
18
16-
14-
12-
10-
8-
6.
25-
23-
21-
19-
10-
17-
9-
SUGAR
15-
8-
13-
11-
6-
9-
5-
7-
4-
5-
3-
CHART SHOWING PRICES OF LEADING COMMODITIES SINCE 1860
The above plots show the fluctuation in the prices of commodities and also their relation to changes in the Stock Market. Plots
A and B are duplicates and show the main movements of the Stock Market since 1860. The other plots are for the following com-
modities:
(1) Wheat, (2) Corn, (3) Cotton, (4) Pig Iron, (5) Pork, (6) Copper, (7) Wool, (8) Coffee, (9) Rubber, (10) Sugar.
During the war and at other times certain of the commodities sold at abnormally high prices and such places appear as broken
lines in the plot. In the cases of cotton and sugar, a larger vertical scale is used for the period from 1873 to 1913 than for the period
previous to 1873. As the commodity prices were so seriously affected by the war they should not be studied analytically previous to
the panic of 1873 which reduced commodities to a normal state. There are two points of vital interest to notice in connection with this
plot, as follows:---
(a) Commodity prices have always fallen and risen with every cycle of the Stock Market.
(b) Commodity prices reach their low point and their high point about two years after the Stock Market reaches its low or high
point respectively.
RANGE OF COMMODITY MARKET
81
by methods similar to those there outlined, results
in the perception of clearly defined industrial
movements in the past and shows the bearing these
factors are having today in commerce and in-
dustry, as well as on the monetary and stock mar-
ket outlook. Great fortunes have been made, the
history of which reveals the fact that their possessors
had a very accurate knowledge of approaching con-
ditions, because of a keen understanding of funda-
mental statistics.
As an illustration of possible profits that can be
made simply by the purchase and sale of commodi-
ties in connection with a study of Fundamental
Statistics, the following problem is submitted.
Starting with a capital of a little over fifty thousand
dollars, ten commodities were selected for pur-
chase. Bought first in 1860, they were sold and
bought again at intervals of from three to seven
years, according to what the figures on "under-
lying conditions" indicated. The prices used
are those given in the closing paragraphs of this
chapter and no departure from the years selected
was made, except where there was a choice of
either of two years. In such cases, it was assumed
that the purchaser would buy later, sell earlier, or
leave more cash on deposit as the conditions war-
ranted. The original proportion of the different
articles has been kept the same; and the interest,
added to the principal on deposit in the intervals
between selling and buying, has been reckoned at
4%. Since all commodities are not affected alike
by the same conditions, slight losses were allowed
82
BUSINESS BAROMETERS
to occur as they would naturally. The resulting
amount shows that in about fifty years $54,931
becomes about $1,000,000; or that $1,000,000
would become $18,000,000. By working a similar
problem with a single commodity, a very much
greater profit would have been possible. Thus, if
$53,000 was invested in iron in 1860, it would have
equalled today about $3,000,000. This clearly
demonstrates that even the great mercantile for-
tunes have been acquired by taking advantage of
the same laws and changes that give opportunities
of profit to the banker and the investor.
PROBLEM
FROM
USING
ILLUSTRATING
TRANSACTIONS
FUNDAMENTAL
PROFITS DERIVED
IN COMMODITIES
STATISTICS AS A
GUIDE IN BUYING AND SELLING, 1860 TO
1917
Basis, original quantities: 1,000 tons iron; 5,000
bushels wheat; 5,000 bushels corn; 10,000 lbs.
cotton; 10,000 lbs. sugar; 10,000 lbs. wool; 10,000
lbs. coffee; 1,000 lbs. rubber; 500 barrels pork;
10,000 lbs. copper. After the first transaction thesc
quantities were multiplied by the numbers shown in
the parentheses.
PRICES SAME AS IN TABLES FOLLOWING
Original purchase 1860.
First sale 1864..
·
$54,931.00
130,476.25
Capital on dep. 4 yrs. @ simp. int. P. & I. to
1869.
151,352.45
150,737.85
Second purchase 1869 (1.8 X orig. quan.).
Remaining capital.
Second sale 1872 (1.8 × orig. quan.)
•
Capital plus 5 yrs. int. and remaining capital
& int. to 1878.
Third purchase 1878 (4.46 X orig. quan.)..
614.60
153,194.40
184,669.14
•
184,554.80
RANGE OF COMMODITY MARKET
83
Remaining capital.
•
•
Third sale 1882 (4.46 X orig. quan.).
Proceeds of third sale on dep. 2 yrs..
Remaining capital & int. on dep. 7 yrs.
Total capital 1885..
·
Fourth purchase 1885 (7.19 × orig. quan.).
Remaining capital.
·
•
Fourth sale 1887 (7.19 X orig. quan.)
Proceeds of 4th sale on dep. 8 yrs. to 1896.
Remaining capital on dep. 11 yrs. to 1896.
Total capital 1896..
Fifth purchase 1896 (15.3 X orig. quan.)
Remaining capital.
·
Fifth sale 1902 (15.3 × orig. quan.)
Proceeds of 5th sale on dep. 1 yr. to 1904.
Remaining capital & int. to 1904.
Total capital 1904..
•
•
$114.34
261,547.78
282,471.60
146.36
•
282,617.96
•
282,610.14
7.82
349,574.21
461,437.96
11.26
·
461,449.22
459,872.10
1,577.12
697,914.09
725,830.65
2,081.80
727,912.45
Sixth purchase 1904 (18 X orig. quan.)
Remaining capital.
• •
727,875.00
37.45
Sixth sale 1907.
•
892,913.40
Proceeds of 6th sale plus capital and int. on
remaining capital to 1908.
892,956.84
Seventh purchase 1908 (20.9 X orig. quan.).
891,281.55
Remaining capital.
•
1,675.29
Seventh sale 1910..
1,000,483.00
Proceeds of 7th sale on dep. 3 yrs. to 1914.
1,120,540.96
Remaining capital & int..
2,010.35
Total capital 1914...
1,122,551.31
Eighth purchase 1914 (26.2 X orig. quan.).
1,119,630.80
Remaining capital
2,920.51
Eighth sale 1917..
•
2,132,418.50
Proceeds 8th sale plus remaining capital
and int. to April, 1917..
2,132,768.96
84
BUSINESS BAROMETERS
•
When one realizes that if a capital of $50,000
could have been increased to about $900,000 in less
than fifty years, simply by a study of fundamental
statistics and without borrowing any money or pur-
chasing any but suitable commodities, the great
value of this subject to the merchant becomes evi-
dent. This, moreover, can be accomplished with-
out any salesman, overhead charges, or other
expenses. If to these figures we should add the
natural profit derived from buying at wholesale
and selling at retail, or an average manufacturing
profit, the $50,000 would become nearly $20,000,-
000. Thus a capital of $2,500 would accrue to over
$1,000,000 by combining either the manufacturer's
or retailer's profit with a knowledge of funda-
mental statistics.
In addition to the value of Fundamental Statistics
for determining the trend of demand, supply and
prices, they are of even more value for determining the
amount of credit which manufacturers and merchants
should at any time extend to customers; but as their use
in connection with "credits" is so well understood, no
detailed explanation is given in this book.
PRICES OF TEN STAPLE COMMODITIES
AVERAGE WHOLESALE PRICE FROM 1860-1915
1860
Wheat $1.37 per bu.; corn $0.73 per bu.; cotton
$0.11 per lb.; sugar $0.0988 per lb.; wool $0.55
per lb.; iron $22.70 per ton; copper $0.2287 per lb.;
urbber $0.55 per lb.; pork $20.00 per bbl.; coffee
$0.1306 per lb.
RANGE OF COMMODITY MARKET
85
1861
4
Wheat $1.30 per bu.; corn $0.60 per bu.; cotton
$0.1301 per lb.; sugar $0.08 per lb.; wool $0.38
per lb.; iron $20.26 per ton; copper $0.2225 per lb.;
rubber $0.55 per lb.; pork $21.00 per bbl.; coffee
$0.1275 per lb.
1862
Wheat $1.28 per bu.; corn $0.592 per bu.; cotton
$0.3129 per lb.; sugar $0.11ğ per lb.; wool $0.48
per lb.; iron $23.92 per ton; copper $0.2187 per lb.;
rubber $0.48 per lb.; pork $15.34 per bbl.; coffee
$0.205 per lb.
1863
Wheat $1.16 per bu.; corn $0.84 per bu.; cotton
$0.6721 per lb.; sugar $0.14 per lb.; wool $0.75
per lb.; iron $35.24 per ton; copper $0.3387 per lb.;
rubber $0.87 per lb.; pork $18.50 per bbl.; coffee
$0.2965 per lb.
1864
Wheat $2.01 per bu.; corn $1.44 per bu.; cotton
$1.015 per lb.; sugar $0.25% per lb.; wool $1.00
per lb.; iron $59.22 per ton; copper $0.47 per lb.;
rubber $0.80 per lb.; pork $44.00 per bbl.; coffee
$0.3775 per lb.
1865
Wheat $2.04 per bu.; corn $1.26 per bu.; cotton
$0.8338 per lb.; sugar $0.215 per lb.; wool $0.75
per lb.; iron $46.08 per ton; copper $0.3925 per lb.;
rubber $1.20 per lb.; pork $38.00 per bbl.; coffee
$0.2537 per lb.
86
BUSINESS BAROMETERS
1866
Wheat $2.20 per bu.; corn $0.90 per bu.; cotton
$0.432 per lb.; sugar $0.163 per lb.; wool $0.70 per
lb.; iron $46.84 per ton; copper $0.3425 per lb.;
rubber $1.00 per lb.; pork $34.00 per bbl.; coffee
$0.1718 per lb.
1867
Wheat $3.33 per bu.; corn $1.21 per bu.; cotton
$0.3159 per lb.; sugar $0.15 per lb.; wool $0.55
per lb.; iron $44.08 per ton; copper $0.2537 per lb.;
rubber $0.65 per lb.; pork $24.50 per bbl.; coffee
$0.16 per lb.
1868
Wheat $2.43 per bu.; corn $1.23 per bu.; cotton
$0.2485 per lb.; sugar $0.16
per lb.; iron $39.25 per ton;
per lb.; wool $0.46
copper $0.23 per lb.;
rubber $0.67 per lb.; pork $30.00 per bbl.; coffee
$0.115 per lb.
1869
Wheat $1.50 per bu.; corn $1.023 per bu.; cotton
$0.2901 per lb.; sugar $0.16, per lb.; wool $0.48
per lb.; iron $40.61 per ton; copper $0.2425 per lb.;
rubber $0.82 per lb.; pork $34.00 per bbl.; coffee
$0.0931 per lb.
1870
Wheat $1.30 per bu.; corn $1.02 per bu.; cotton
$0.2398 per lb.; sugar $0.1351 per lb.; wool $0.46
per lb.; iron $33.23 per ton; copper $0.2118 per lb.;
rubber $1.00 per lb.; pork $30.50 per bbl.; coffee
$0.10 per lb.
RANGE OF COMMODITY MARKET
87
1871
Wheat $1.60 per bu.; corn $0.77 per bu.; cotton
$0.1695 per lb.; sugar $0.1312 per lb.; wool $0.62
per lb.; iron $35.08 per ton; copper $0.2412 per lb.;
rubber $1.00 per lb.; pork $23.00 per bbl.; coffee
$0.1375 per lb.
1872
Wheat $1.62 per bu.; corn $0.70 per bu.; cotton
$0.2219 per lb.; sugar $0.1237 per lb.; wool $0.72
per lb.; iron $48.94 per ton; copper $0.3556 per lb.;
rubber $0.721 per lb.; pork $16.00 per bbl.; coffee
$0.1631 per lb.
1873
Wheat $1.76 per bu.; corn $0.63 per bu.; cotton
$0.2014 per lb.; sugar $0.1136 per lb.; wool $0.50
per lb.; iron $42.79 per ton; copper $0.28 per lb.;
rubber $0.74 per lb.; pork $18.00 per bbl.; coffee
$0.1862 per lb.
1874
Wheat $1.39 per bu.; corn $0.86 per bu.; cotton
$0.1795 per lb.; sugar $0.1050 per lb.; wool $0.53
per lb.; iron $30.19 per ton; copper $0.22 per lb.;
rubber $0.75 per lb.; pork $24.75 per bbl.; coffee
$0.2625 per lb.
1875
Wheat $1.33 per bu.; corn $0.84 per bu.; cotton
$0.1546 per lb.; sugar $0.1061 per lb.; wool $0.52
per lb.; iron $25.53 per ton; copper $0.2268 per lb.;
rubber $0.58 per lb.; pork $23.50 per bbl.; coffee
$0.1806 per lb.
88
BUSINESS BAROMETERS
1876
Wheat $1.35 per bu.; corn $0.62 per bu.; cotton
$0.1298 per lb.; sugar $0.1051 per lb.; wool $0.38
per lb.; iron $22.19 per ton; copper $0.21 per lb.;
rubber $0.64 per lb.; pork $22.75 per bbl.; coffee
$0.175 per lb.
1877
Wheat $1.63 per bu.; corn $0.591 per bu.; cotton
$0.1182 per lb.; sugar $0.1073 per lb.; wool $0.50
per lb.; iron $18.92 per ton; copper $0.19 per lb.;
rubber $0.58 per lb.; pork $17.95 per bbl.; coffee
$0.1943 per lb.
1878
Wheat $1.24 per bu.; corn $0.53 per bu.; cotton
$0.1122 per lb.; sugar $0.0907 per lb.; wool $0.36
per lb.; iron $17.67 per ton; copper $0.1656 per lb.;
rubber $0.49 per lb.; pork $11.35 per bbl.; coffee
$0.1385 per lb.
1879
Wheat $1.24 per bu.; corn $0.47 per bu.; cotton
$0.1084 per lb.; sugar $0.0881 per lb.; wool $0.37
per lb.; iron $21.72 per ton; copper $0.1862 per lb.;
rubber $0.51 per lb.; pork $13.75 per bbl.; coffee
$0.1387 per lb.
1880
Wheat $1.30 per bu.; corn $0.55 per bu.; cotton
$0.1151 per lb.; sugar $0.0980 per lb.; wool $0.46
per lb.; iron $28.48 per ton; copper $0.2143 per lb.;
rubber $0.81 per lb.; pork $19.00 per bbl.; coffee
$0.15 per lb.
RANGE OF COMMODITY MARKET
89
1881
Wheat $1.30 per bu.; corn $0.62 per bu.; cotton
$0.1203 per lb.; sugar $0.0970 per lb; wool $0.42
per lb.; iron $25.17 per ton; copper $0.1818 per lb.;
rubber $0.76 per lb.; pork $20.00 per bbl.; coffee
$0.1212 per lb.
1882
Wheat $1.32 per bu.; corn $0.77 per bu.; cotton
$0.1156 per lb.; sugar $0.0935 per lb.; wool $0.42
per lb.; iron $25.77 per ton; copper $0.1912 per
lb.; rubber $0.87 per lb.; pork $24.75 per bbl.;
coffee $0.0975 per lb.
1883
Wheat $1.17 per bu.; corn $0.64 per bu.; cotton
$0.1188 per lb.; sugar $0.0865 per lb.; wool $0.39
per lb.; iron $22.42 per ton; copper $0.165 per lb.;
rubber $1.07 per lb.; pork $20.15 per bbl.; coffee
$0.0931 per lb.
1884
Wheat $1.00 per bu.; corn $0.61 per bu.; cotton
$0.1098 per lb.; sugar $0.0675 per lb.; wool $0.35
per lb.; iron $19.81 per ton; copper $0.13 per lb.;
rubber $0.96 per lb.; pork $19.50 per bbl.; coffee
$0.1062 per lb.
1885
Wheat $0.94 per bu.; corn $0.51 per bu.; cotton
$0.1045 per lb.; sugar $0.0653 per lb.; wool $0.32
per lb.; iron $17.99 per ton; copper $0.1083 per lb.;
rubber $0.56 per lb.; pork $13.25 per bbl.; coffee
$0.09 per lb.
90
BUSINESS BAROMETERS
1886
Wheat $0.88 per bu.; corn $0.52 per bu.; cotton
$0.0928 per lb.; sugar $0.0623 per lb.; wool $0.33
per lb.; iron $18.71 per ton; copper $0.1100 per lb.;
rubber $0.61 per lb.; pork $12.20 per bbl.; coffee
$0.095 per lb.
1887
Wheat $0.88 per bu.; corn $0.483 per bu.; cotton
$0.1021 per lb.; sugar $0.0602 per lb.; wool $0.34
per lb.; iron $20.93 per ton; copper $0.1385 per lb.;
rubber $0.76 per lb.; pork $24.00 per bbl.; coffee
$0.1684 per lb.
1888
Wheat $0.94 per bu.; corn $0.594 per bu.; cotton
$0.1003 per lb.; sugar $0.0718 per lb.; wool $0.29
per lb.; iron $18.88 per ton; copper $0.1677 per lb.;
rubber $0.76 per lb.; pork $16.00 per bbl.; coffee
$0.1581 per lb.
1889
Wheat $0.91 per bu.; corn $0.432 per bu.; cotton
$0.1065 per lb.; sugar $0.0789 per lb.; wool $0.35
per lb.; iron $17.76 per ton; copper $0.1349 per
lb.; rubber $0.74 per lb.; pork $13.37 per bbl.;
coffee $0.1765 per lb.
1890
Wheat $0.92 per bu.; corn $0.48 per bu.; cotton
$0.1107 per lb.; sugar $0.0627 per lb.; wool $0.33
per lb.; iron $18.41 per ton; copper $0.156 per lb.;
rubber $0.80 per lb.; pork $13.62 per bbl.; coffee
$0.1793 per lb.
RANGE OF COMMODITY MARKET
91
1891
Wheat $1.05 per bu.; corn $0.67 per bu.; cotton
$0.086 per lb.; sugar $0.0465 per lb.; wool $0.31 per
lb.; iron $17.52 per ton; copper $0.1276 per lb.;
rubber $0.78 per lb.; pork $13.00 per bbl.; coffee
$0.1671 per lb.
1892
Wheat $0.908 per bu.; corn $0.54 per bu.; cotton
$0.0771 per lb.; sugar $0.0435 per lb.; wool $0.28
per lb.; iron $15.75 per ton; copper $0.1156 per lb.;
rubber $0.6763 per lb.; pork $15.05 per bbl.; coffee
$0.1430 per lb.
1893
Wheat $0.739 per bu.; corn $0.499 per bu.; cotton
$0.0856 per lb.; sugar $0.0484 per lb., wool $0.24
per lb.; iron $14.52 per ton; copper $0.1075 per lb.;
rubber $0.7167 per lb.; pork $21.80 per bbl.; coffee
$0.1723 per lb.
1894
Wheat $0.611 per bu.; corn $0.509 per bu.; cotton
$0.0694 per lb.; sugar $0.0412 per lb.; wool $0.20
per lb.; iron $12.66 per ton; copper $0.0952 per lb.;
rubber $0.6744 per lb.; pork $14.573 per bbl.; coffee
$0.1654 per lb.
1895
Wheat $0.669 per bu.; corn $0.477 per bu.;
cotton $0.0744 per lb.; sugar $0.0412 per lb.; wool
$0.18 per lb.; iron $13.10 per ton; copper $0.1053
per lb.; rubber $0.7425 per lb.; pork $12.87 per
bbl.; coffee $0.1592 per lb.
92
BUSINESS BAROMETERS
1896
Wheat $0.781 per bu.; corn $0.340 per bu.; cotton
$0.0793 per lb.; sugar $0.0453 per lb.; wool $0.17
per lb.; iron $12.95 per ton; copper $0.1098 per lb.;
rubber $0.80 per lb.; pork $10.85 per bbl.; coffee
$0.1233 per lb.
1897
Wheat $0.954 per bu.; corn $0.319 per bu.; cotton
$0.07 per lb.; sugar $0.0455 per lb.; wool $0.21 per
lb.; iron $12.10 per ton; copper $0.1136 per lb.;
rubber $0.8454 per lb.; pork $9.00 per bbl.; coffee
$0.0793 per lb.
1898
Wheat $0.952 per bu.; corn $0.376 per bu.; cotton
$0.0594 per lb.; sugar $0.0497 per lb.; wool $0.28 per
lb.; iron $11.66 per ton; copper $0.1205 per lb.;
rubber $0.9271 per lb.; pork $12.30 per bbl.; coffee
$0.0633 per lb.
1899
Wheat $0.794 per bu.; corn $0.413 per bu.; cotton
$0.0688 per lb.; sugar $0.0492 per lb.; wool $0.29
per lb.; iron $19.36 per ton; copper $0.1776 per lb.;
rubber $0.9954 per lb.; pork $10.45 per bbl.; coffee
$0.0604 per lb.
1900
Wheat $0.804 per bu.; corn $0.453 per bu.;
cotton $0.0925 per lb.; sugar $0.0532 per lb.; wool
$0.281 per lb.; iron $19.98 per ton; copper $0.1665
per lb.; rubber $0.9817 per lb.; pork $16.00 per bbl.;
coffee $0.0822 per lb.
RANGE OF COMMODITY MARKET
93
1901
Wheat $0.803 per bu.; corn $0.567 per bu.; cotton
$0.0875 per lb.; sugar $0.0505 per lb.; wool $0.25
per lb.; iron $15.87 per ton; copper $0.1672 per lb.;
rubber $0.8496 per lb.; pork $16.80 per bbl.; coffee
$0.0646 per lb.
1902
Wheat $0.836 per bu.; corn $0.684 per bu.; cotton
$0.09 per lb.; sugar $0.0446 per lb.; wool $0.26 per
lb.; iron $22.19 per ton; copper $0.1216 per lb.; rub-
ber $0.7273 per lb.; pork $18.70 per bbl.; coffee
$0.0586 per lb.
1903
Wheat $0.853 per bu.; corn $0.372 per bu.; cotton
$0.1118 per lb.; sugar $0.0464 per lb.; wool $0.31½
per lb.; iron $19.92 per ton; copper $0.1372 per lb.;
rubber $0.9054 per lb.; pork $18.37 per bbl.; coffee
$0.0559 per lb.
1904
Wheat $1.107 per bu.; corn $0.594 per bu.; cotton
$0.1175 per lb.; sugar $0.0477 per lb.; wool $0.32
per lb.; iron $15.57 per ton; copper $0.1301 per lb.;
rubber $1.0875 per lb.; pork $16.58 per bbl.; coffee
$0.0782 per lb.
1905
Wheat $1.028 per bu.; corn $0.593 per bu.; cotton
$0.098 per lb.; sugar $0.0526 per lb.; wool $0.36
per lb.; iron $17.88 per ton; copper $0.1589 per.lb.;
rubber $1.2425 per lb.; pork $16.50 per bbl.; coffee
$0.0832 per lb.
94
BUSINESS BAROMETERS
1906
Wheat $0.865 per bu.; corn $0.56 per bu.; cotton
$0.115 per lb.; sugar $0.0452 per lb.; wool $0.33
per lb.; iron $20.98 per ton; copper $0.1961 per
lb.; rubber $1.2131 per lb.; pork $20.00 per bbl.;
coffee $0.0811 per lb.
1907
Wheat $0.963 per bu.; corn $0.64 per bu.; cotton
$0.121 per lb.; sugar $0.0465 per lb.; wool $0.34 per
lb.; iron $23.89 per ton; copper $0.2125 per lb.; rub-
ber $1.0633 per lb.; pork $17.56 per bbl.; coffee
$0.0658 per lb.
1908
Wheat $1.043 per bu.; corn $0.786 per bu.; cotton
$0.106 per lb.; sugar $0.0496 per lb.; wool $0.34 per
lb.; iron $17.70 per ton; copper $0.133 per lb.; rub-
ber $0.8708 per lb.; pork $15.973 per bbl.; coffee
$0.0628 per lb.
1909
Wheat $1.20 per bu.; corn $0.767 per bu.;
cotton $0.126 per lb.; sugar $0.0476 per lb.; wool
$0.35 per lb.; iron $17.81 per ton; copper $0.129 per
lb.; rubber $1.505 per lb.; pork $21.5673 per bbl.;
coffee $0.0783 per lb.
1910
Wheat $1.18 per bu.; corn $0.663 per bu.; cotton
$0.15 per lb.; sugar $0.0497 per lb.; wool $0.31
per lb.; iron $17.36 per ton; copper $0.127 per lb.;
rubber $1.956 per lb.; pork $24.04 per bbl.; coffee
$0.0952 per lb.
RANGE OF COMMODITY MARKET
95
1911
Wheat $0.99 per bu.; corn $0.635 per bu.; cotton
$0.129 per lb.; sugar $0.05345 per lb.; wool $0.28
per lb.; iron $15.71 per ton; copper $0.1240 per lb.;
rubber $1.16 per lb.; pork $19.63 per bbl.; coffee
$0.1341 per lb.
1912
Wheat $1.099 per bu.; corn $0.727 per bu.;
cotton $0.115 per lb.; sugar $0.049 per lb.; wool
$0.295 per lb.; iron $16.40 per ton; copper $0.163
per lb.; rubber $1.080 per lb.; pork $19.72 per bbl.;
coffee $0.143 per lb.
1913
Wheat $1.05 per bu.; corn $0.698 per bu.;
cotton $0.128 per lb.; sugar $0.043 per lb.; wool
$0.251 per lb.; iron $16.97 per ton; copper $0.152
per lb.; rubber $0.897 per lb.; pork $22.06 per
bbl.; coffee $0.108 per lb.
1914
Wheat $1.08 per bu.; corn $0.784 per bu.; cotton
$0.109 per lb.; sugar $0.047 per lb.; wool $0.262
per lb.; iron $15.07 per ton; copper $0.132 per lb.;
rubber $0.724 per lb.; pork $22.60 per bbl.; coffee
$0.082 per lb.
1915
Wheat $1.378 per bu.; corn $0.829 per bu.; cotton
$0.103 per lb.; sugar $0.057 per lb.; wool $0.301 per
lb.; iron $15.25 per ton; copper $0.181 per lb.;
rubber $0.626 per lb.: pork $18.21 per bbl.; coffee
$0.074 per lb.
96
BUSINESS BAROMETERS
!
1916
Wheat $1.412 per bu.; corn $0.912 per bu.;
cotton $0.1425 per lb.; wool $0.329 per lb.; iron
$21.20 per ton; copper $0.2846 per lb.; rubber
$0.745 per lb.; pork $25.875 per bbl.; coffee $0.092
per lb.; sugar $0.07 per lb.

Index
of 20
Stocks
1854
1855
1856
1857
1858
16981
|0981
1861
1862
1863
1864.
1865
19931
|2981|
1868
6981
1870.
1871
[3481
1873
1874
1875
19281
1877
1878
1879
1880
1881
1882
1883
1884
1885
18861
1887
8881
1889
1890
1891
1892
1893
1894
1895
1896
1897
8691
6681
140
128
SPECIE
PAYMENTS
DISCONTINUED
SPECIE
PAYMENTS
-RESUMED-
INDEX OF STOCK PRICES
116
104
92
M
A
80
1900
1061
1061
1903
1904
1905
1906
1907
1908
6061
1910
1911
1912
1913
1914
| S161]
9165
2017
1918
1919
Index
of 32
Stocks
109
97
MA
85
73
61
68
56
44
www.
M
PRICES OF
STOCKS AND COMMODITIES
SINCE THE CIVIL WAR
Commodity
Scale
$5.00
4.50
-4.00
-3.50
4.00
-2.50
BABSON COMMODITY INDEX
-2.00
-1.50
1.00
In comparing prices of stocks and commodities with those during the period of 1862–1878, it must be remembered
that quotations during those years were in paper money. The dash lines show what the record would have been
had payment been made with gold. The average of twenty rails were used to 1904. Since then we have used the
usual average of thirty-two rails and industrials. The scale for the thirty-two stocks had to be dropped thirty-one
points in order to make the chart line for the thirty-two stocks begin where the chart line for the twenty stopped.
RANGE OF COMMODITY MARKET
97
A WORD TO BANKERS
As a check upon the above specific figures, the
same general results may be shown by the use of
Bradstreet's Index of American Commodity Prices
or the Economist's Index of English Commodity
Prices. Both of these indices show tremendous
fluctuations, and most clearly demonstrate the
great need for merchants and all dependent upon
the welfare of merchants, to study fundamental
statistics.
Though economists agree that there is a very inti-
mate relation between the prices of commodities
and the price of money, many banks expend far too
little time in studying fundamental statistics and in
forecasting future money conditions. With a gen-
eral foreknowledge of the tendency of rates, a bank
may so arrange its maturities as to obtain at least
one-half of one per cent more on outstanding loans
than is possible without such knowledge. It may
be necessary to allow a customer to choose either
the "rate" or the "maturity," but banks should in-
sist upon their right to fix the other factor and,
when doing so, should have in mind the tendency of
the money market. If the tendency is upward and
the borrower desires to pay only the market rate, the
bank should insist on a short loan; while if the bor-
rower desires a long-time loan, the bank should in-
sist on a rate above current market rates. The
reverse is true if the tendency of money is down-
ward. Some banks even keep a weekly record of
the exact rate of income their loans average.
To buy bonds when money is cheap, in order to
98
BUSINESS BAROMETERS
obtain a higher income than can be obtained on
notes, is a very dangerous practice. Banks then
purchase bonds after the price has advanced and
are often compelled to sell them at a loss during
the next money stringency or else refuse accommo-
dation to customers. By studying the teachings of
fundamental statistics, however, a bank may safely
purchase high-grade securities with the expecta-
tion of later selling them at a profit. Then such
banks know when this time for selling said securi-
ties is at hand. The most conservative banks pur-
chase for permanent investment only government
or such bonds as can be counted as "Reserve,"
and purchase general corporation bonds (those of
the very highest grade) only for the purpose of sell-
ing again at a profit in the course of a short time.
Such banks buy them during a period of high money
when bonds are always low; and sell them before
money again becomes high.
These conservative banks not only receive an in-
come of about 4% upon such securities and a profit
of from 10% to 20% on the sale, but also are always
in the strongest possible condition with very large
reserves at the time of a crash or money stringency.
Therefore, the study of fundamental statistics
enables banks to receive greater income from their
loans and large profits from the purchase and sale
of securities. Such a study also helps such banks
to buy only the highest grade of securities, and,
moreover, sell them before the money is needed
for reserve purposes and the accommodation of
local customers.
RANGE OF COMMODITY MARKET
99
In short, banks have two distinct functions:
(1) Collecting of savings and directing their
investment.
(2) Regulating the number and growth of trans-
portation, industrial and commercial enterprises.
The first function is performed by collecting
money from a large number of people, known as
"depositors," and loaning the same for definite
periods by purchasing therewith commercial paper
and other securities such as most depositors would
be unable to do independently.
The second function is performed in two ways:
(1) By varying the amount of cash and securi-
ties held; for instance, during periods of panic
or of depression, when most individuals withdraw
money from useful channels and withhold cash,
it is a bank's duty to give out all cash possible by
purchasing such good commercial paper and high-
grade securities as are selling below their true
value. On the other hand, during periods of great
prosperity, it is a conservative bank's duty to dis-
pose of a large portion of this commercial paper and
these other securities, storing up large cash reserves
pending the next period of money stringency and
panic conditions.
(2) By creating and monetizing credit through
the issue of notes and creation of deposits, and
placing this credit at the disposal of those enter-
prisers whose venture the bank officials believe
likely to prove sound and profitable.
In this way such banks not only perform a great
service both to depositors and borrowers by com-
100
BUSINESS BAROMETERS
bining small sums and loaning them in safe and
profitable channels, but also act as regulators and
"storage basins" for the entire business community.
Conservative banks store cash and curtail credits
during periods of great prosperity, when the public
is willing to loan anybody and buy anything, and
then give out such cash and expand their credits
during periods of depression when the public re-
fuses to loan solvent borrowers or to purchase even
the highest-grade securities. Moreover, for per-
forming these two functions such banks receive a
twofold reward, namely: the market rate of interest
on the loans and securities held, and also every few
years a large profit on the sale of securities. More-
over, banks which do not fulfill these two func-
tions not only fail to serve fully their true purpose
in the community, but also make very much smaller
profits and assume very much greater risks.
Many banks have heretofore failed to perform
this second function owing to their inability to ob-
tain independently the necessary statistics for cor-
rectly judging the trend of conditions; but as such
statistics may now be obtained at small expense
from a central agency,* this objection is overcome.
The above also applies as well to borrowers of
money as to lenders.
Moreover, the most successful manufacturers and
merchants have found that the system of "fixed"
*In order that firms may keep accurately informed as to present and
future conditions my statisticians accumulate and analyze the necessary
facts and figures used in determining the same. These figures we supply
to our subscribers together with certain Weekly Barometer Figures. These
Barometers are of great value in connection with the purchase of merchan-
-dise, the discounting of commercial paper and the investment of money.
R. W. B.
RANGE OF COMMODITY MARKET
101
credit limits for customers is absolutely wrong in
principle; unjust to customers; unfair to the sales
force and a source of danger to the firm. Instead,
a system of "flexible" credit limits is used by which
credits are increased and decreased, in accordance
with the relative position and size of the latest
area of the Compositplot of Business Conditions
explained in the following chapter. This system
invariably results in greatly increased sales and yet
insures that a firm shall be in a strong financial
position at a time of panic or business crisis. These
various practical applications of fundamental sta-
tistics cannot, however, be explained in detail in
this volume.
An understanding of the Law of Equal and Oppo-
site Reaction is of great value in the study of credits.
This law can always be depended upon. There
never was known to be an exception. The law applies
both to general conditions and to individual concerns.
CHAPTER IV
THE LAW OF EQUAL AND OPPOSITE REACTION
THEORY OF THE COMPOSITPLOT
AL
LL that has been said up to the present regard-
ing Fundamental Statistics has been to show
their great value to bankers, merchants and
investors. It is now time to show how the subjects.
heretofore mentioned are studied, and what justifi-
cation we have for using the laws upon which this
work is based.
All readers at once associate the name of Sir Isaac
Newton with an apple falling from a tree. This is
because Sir Isaac was the first who asked why
apples fall down instead of up, which question led
to his discovery of the law of gravitation. It is
evident from a study of Newton's life, however,
that he may have considered his greatest work,
not the discovery of the law of gravitation, but
rather his researches into the Law of Action and
Reaction.† Newton felt that his studies of the law
of gravitation were practically complete, and nothing
new would be discovered from further investigation
thereof. He was sure, however, that he had only
made a meagre investigation of the Law of Action
and Reaction, and that research into that law
would be rewarded by new and wonderful dis-
coveries. Briefly, the Law of Action and Reaction
is, “To every action there is always opposed an equal
reaction."*
*See page 15 of Newton's Mathematical Principles of Natural Philos-
ophy-"Motts Second Edition.'
For brevity this law is often referred to as the Law of Equal Reaction.

Bar. Scale
96
Explanation of the Compositplot
The large black areas are formed by combining and plot-
ting the Desk Sheet figures on New Building, Crops, Clear-
ings, Immigration, Total Foreign Trade and Money (adjusted
scales), Failures, Commodity Prices, Railroad Earnings,
Stock Prices and Politics (when necessary) in order to give
a Compositplot of business in the United States. Idle cars
were substituted for railroad earnings March, 1911, but
railroad earnings were resumed in December, 1914, when
idle car reports were discontinued; revised scales for bank
clearings were introduced Jan. 1, 1909, for monetary figures
Aug., 1912. The line X-Y represents the country's net gain
or growth. Based on the economic theory that "action and
reaction are equal" when the two factors of time and in-
tensity are multiplied to form an area, the sums of the areas
above and below said line X-Y must, over sufficiently long
periods of time, be equal, provided enough subjects are
included, properly weighed and combined. The areas, how-
ever, need not have the same shapes. When considering
that the X-Y line represents normal consumption, the black
areas above the X-Y line representing over production and
the areas below representing under production, it is evident
that these areas should alternate from one above to one be-
low. At present we are in an area of prosperity, F, above the
X-Y line.
It will be seen that each area is divided into halves by a
narrow white line. This is to emphasize the fact that the
first halves of Areas A, C and E are really reactions from the
extravagance, inefficiency and corruption which existed
during the latter half of the preceding "prosperity" area.
Contrariwise, the first halves of Areas B, D and F are really
reactions from the economy, industry and righteousness
developed during the hard times just preceding. Knowing
that the areas tend to balance, one can always estimate the
length of any period by watching each week its height or
"rateof flow," which shows how rapidly it is being consumed.
The high points of the stock market have come in the early
part of the prosperity areas and the low points have come
about the beginning of the depression areas, although in
1914 the war held prices of both stocks and bonds down
longer than usual. Low money rates and high bond prices
have usually come about the end of the depression areas and
high money rates and low bond prices at about the end of
the prosperity areas.
To use this Compositplot in connection with one's own
business, the observer should plot his own sales thereon
and note what portion of the respective areas has been con-
sumed when his own sales were greatest or smallest. When
using this plot for any purpose, it should be remembered
that this work in its present state should be watched in con-
junction with other data and not be treated "as a rule of
thumb" or substituted for independent thought and judg-
ment. Moreover, owing to the increased study of funda-
mental conditions these areas may slowly decrease in size.
The slope of the line X-Y must always be estimated for the
current year and is thus shown dotted and undetermined for1917.
After the close of 1917, however, we shall know better what
its slope should be and will then indicate the same with a
solid black line, in accordance with clearings, etc., subject
only to revision, if necessary, at the end of the cycle. In
fact, it may be necessary to revise portions of the Plot from
time to time, as conditions change and new data are secured.
Bar. Scale
1904
All Rights Strictly Reserved and Protected
1905
Babson Compositplot of the Summary Barometer Figures for American Business Conditions
1906
1907
1908
1909
124
1910
1911
1912
120
116
112
108
104
100
96
92
88
84
80
76
72
EXPLANATION
The solid red line is a record of important
rallies and declines of 40 stocks. The red scale figures
under 1918 refer to this line.
The dotted red line is a record of the aver-
age yield of twenty active bonds. The red figures
under 1911 (with scale inverted) refer to this line.
The solid black line is a record of money
rates for prime commercial paper. The black figures
under 1913 refer to this line.
----The broken black line is a record of the
average wholesale price of 10 commodities, excluding
foodstuffs. The figures under 1913 refer to this line.
★Stars mark last quotations before going to press.
LATEST BAROMETER FIGURES
Manufacturing and Mercantile Conditions
107 +1*
1-
Banking and Monetary Conditions
231 +9
Investment and other Conditions
50 +3
for
SUMMARY BAROMETER FIGURE
present conditions (Avge. 3 preceding figures) 129 +4
★ Figures in this column show changes from last week.
Change in Monetary Index due to increase in Commodity Prices; in
Investment Index to higher Stock Prices.
68
64
60
56
52
48
44
B
40
36
32
28
24
20
X
12
16
1404822
16
24
A
1913
1914
1915
1916
Business 129 1918
Commodity
Price Scale
$2.80
2.65
2.50
Stock Scale
124
120
116
112
108
104
100
116
114
92
112
88
*Commodities $2.50
84
2.35
F
Y 108
80
106
76
104
72
102
68
Bond Yield
cale (inverted)
D
3.909
8.9
0%
8%
E
1775
4.20%
4.30%
7%
1.60
4.40%
6
4.50%
4.60%
1.45
5%
4.70%
4.80%
10001
% 1.30
5.00%
5.10%
3% 1.15
5.20%
1.00
Money Rates
Scale
2.20
64
100
98
60
2.05
56
96
Stocks 94.75
94
52
92
48
44
90
88
40
86
36
84
32
82
28
24
80
20
78
16
76
★Money 43%
12
74
72
8
4
Bonds 4.98% 70
0
68
4
66
8
64
12
62
16
60
20
58
56
24
FUNDAMENTAL STATISTICS
103
This is one of the most fundamental laws of the
universe, underlying as it does all the sciences, from
astronomy to chemistry. At the present time, it is
usually taught to young people in connection with
the study of physics under a chapter relating to
mechanics. Almost everyone has endeavored to
lift a rock by the use of a crow bar. In doing this,
he has placed one end of the crow bar under an
edge of the rock which he is attempting to raise,
and then a few inches from that end of the crow
bar which is underneath the rock, he has put a small
stone which he uses as a fulcrum. A person who
could not raise this load one-thousandth of an inch
by straight lifting is able to raise it several inches
by pressing down on the far end of the crow bar.
Of course crow bars were used to raise stones when
the pyramids were being built in Egypt, centuries.
before Sir Isaac Newton was born; but Newton was
the first man to discover that the distance on the
crow bar from the fulcrum to the operator's hand
multiplied by the force used by the operator equals
the distance from the fulcrum to the stone multi-
plied by the weight of the stone.
After the discovery that the Law of Action and
Reaction applied to the lifting of materials, con-
struction of all kinds was made much simpler; for,
knowing the weight of the object to be lifted, and
the measurements of the lifting machine, one can
figure with pencil and paper just the force required
to perform the work. Conversely, with a limited
amount of power, a builder is able to figure just
how much he can move with the levers, pulleys,
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BUSINESS BAROMETERS
etc., which he has on hand, and how much larger
machinery he must get in order to do additional
work.
As soon as Sir Isaac Newton published these
facts, a scientific reason existed for the ordinary
balance scales and scores of other instruments which
were then in use and which have since been de-
veloped. This law is the basis of the steam engine,
the electric dynamo, water-power machinery, and
every other power machine. All calculation of
forces and all formulas relating to them derived
their conception from this Law of Action and Re-
action.*
If there is one thing which science teaches, it is
that this Law of Action and Reaction cannot be
eliminated. We may dread it and attempt to ignore
it, but it is always in operation in thousands of
diversified ways. Whether making a balloon as-
cension or raising our feet in walking, we are working
in accordance with the Law of Action and Reaction.
The study of hygiene is comparatively in the
same stage in which that of mechanics was a couple
of centuries ago. As a matter of history, it has
been only in recent years that fundamental laws
have been scientifically applied to the study of the
human body. Instead of grasping the fact that the
*There is another simple illustration of this law, however, as applied
to mechanics, to which I wish to refer: namely, the spring. Every one
who has used a spring gun, knows that in loading the gun he himself has
pushed back the spring, yet he is likely to think that the gun has more
energy than he has. This idea, however, is fallacy. It is impossible for
a person to store in any spring more energy than he has in his body.
The spring has simply the energy that one expends in pressing it down;
while in shooting the bullet, the spring simply expends the energy which
was put into it. Consequently there is a constant mathematical relation
between the distance that the bullet goes and the force which one uses
in loading the rifle.
FUNDAMENTAL STATISTICS
105
same laws apply to men as to commodities, phy-
sicians used to doctor with different methods and
various drugs, hoping to hit something, by hook or
by crook, that would perform a cure. Recently,
however, there has been a great change, and they
have learned that men are simply machines, and
that to do good work they themselves must be good
mechanics. This means that instead of bleeding a
patient and filling him up with drugs, as they did
years ago, physicians now look upon their patients
as machines and realize that the machine needs
to be kept clean, well oiled and supplied with fresh
power. The great heart specialists are now simply
utilizing Newton's Law of Action and Reaction as
applicable to the pump, while other specialists are
realizing that other organs of the body are nothing
but individual sewerage systems, power plants,
and various other mechanical contrivances.
Moreover, physicians recognize Newton's Law
of Action and Reaction in its relation to sleep,
breathing, eating, exercise, etc. For instance, every
man has a certain normal line of sleep; that is, he
requires a certain amount of sleep, which varies
with different individuals at different ages, but
which for a given individual at a given age, is a
constant factor. Furthermore, for all a man varies.
from this normal line of required sleep in one direc-
tion he must compensate by varying a correspond-
ing amount the other side of the line. This can be
illustrated by considering the X-Y line of our regu-
lar Compositplot* as representing the normal
*See chart inserted in this chapter.
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BUSINESS BAROMETERS
amount of work which a given man can average,
the outline of the black areas representing the
amount of work that he actually does. Whenever
the man performs an abnormal amount of labor,
causing him to lose sleep, a black area is formed
above the X-Y line. It then becomes necessary
for him to rest a corresponding amount, and this
causes the black area to go below the X-Y line.
Moreover, when any man attempts to ignore the
Law of Action and Reaction and remain above his
normal X-Y line too long, he suddenly becomes ill,
and is forced to go to bed and make up his required
amount of rest. This Law of Action and Reaction
applies in the same way to man's breathing, food
and exercise. Our bodies are like the spring rifle;
we get out of them only what we put into them.
Not only are certain physicians making great
progress today through the use of Newton's Law
of Action and Reaction, but psychologists as well
are employing it in their experiments. It is a fact
well known to students of Newton's investigations
that the great scientist found this law to apply not
only to mechanical and astronomical phenomena,
but also believed it to apply to affairs more remotely
removed from such sciences. McLaurin, in his
famous treatise, entitled Sir Isaac Newton's Philo-
sophical Discoveries,* discussing Newton's ideas con-
cerning even spiritual manifestations, and referring
to the Deity, says:
"The establishing of the equality of action and
reaction, even in those powers which seem to sur-
*Page 388, edition of 1748.
FUNDAMENTAL STATISTICS
107
pass mechanism, and to be more immediately de-
rived from Him, seems to be an indication that those
powers, while they derive their efficacy from Him,
are, however, in a certain degree circumscribed and
regulated in their operations by mechanical prin-
ciples."*
A student of this treatise will see that Newton
believed that the voluntary actions of men en masse
are subject to the Law of Action and Reaction. We
look upon a mob as the last thing which would
work in accordance with scientific law, but psy-
chologists tell us that the mob is one of the best il-
lustrations of Newton's Law of Action and Reac-
tion. In our study of history we look upon the
French Revolution as something abnormal, but it
could have been foretold by applying this law.
*Notwithstanding the developments of the Action and Reaction Theory
in the mechanical, chemical and economic worlds, however wonderful
and revolutionary they at times appear, nothing interests the writer so
much as the study of its application to the teachings of Jesus. For cen-
turies, people have mechanically read over the philosophy of Jesus, that
"whatsoever a man soweth, that shall he also reap," without recognizing
the scientific basis existing for these words as applied to spiritual matters.
We have read about "overcoming evil with good," and have considered
the Golden Rule as a splendid altruistic motto for life, but the scientific
aspect of these precepts has never properly been emphasized. When,
however, it is generally realized that the purpose of life is to acquire true
happiness, and that religion is simply a force to aid us in such acquisition,
the relation of the Law of Action and Reaction to these teachings will
be recognized. Then scientists will be employed in religious work, as they
long have been in connection with material studies, and as they are now
becoming interested in biology and the study of the human body.
The fundamental teachings of the church relating to conduct have been
respected, but have not been considered practical in their application
to everyday life. Consequently, the precepts of the Hebrews and the
Sermon on the Mount, as well as the words of other great religious leaders,
have not been taken seriously as scientific teaching. A study of Newton's
Law of Action and Reaction, however, in connection with the funda-
mentals of religion, shows that a scientific basis exists for faith, obedience,
sacrifice, and everything else which the great prophets have emphasized
as essential. This is referred to in Emerson's essay on "Compensation"
as follows:
"Always pay; for, first or last, you must pay your entire debt. Per-
sons and events may stand for a time between you and justice, but it is
only a postponement. You must pay at last your own debt. Benefit
is the end of nature. But for every benefit which you receive, a tax is
levied. He is great who confers the most benefits. But the benefit we
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BUSINESS BAROMETERS
Moreover, if some way could be found to multiply
the intensity of the strained conditions existing
prior to this revolution by the length of time that
these conditions existed, it could doubtless be
shown that the product thus obtained is approxi-
mately equal to the intensity of the French Revolu-
tion multiplied by its duration. Owing to the same
law, the Napoleonic Wars were a natural reaction
from the Revolution. Similarly, every intelligent
police captain, engaged in handling acute situa-
tions, such as existed in London during the Suf-
fragette activities, realizes the application of the
Law of Action and Reaction to his work. By con-
sidering the number of persons engaged in a certain
uprising and the intensity of that uprising, he is
able to figure very closely when the next uprising
will occur.
One of the most spectacular examples of this law
is shown by the history of Japan. Many persons
receive must be rendered again, line for line, deed for deed, cent for
cent, to somebody.
"The physiologist has observed that no creatures are favorites, but a
certain compensation balances every gift and every defect. A surplusage
given to one part is paid out of a reduction from another part of the same
creature. If the head and neck are enlarged, the trunk and extremities
are cut short. Every excess causes a defect; and every defect an excess.
"This Law of Compensation will not be balked of its end in the small-
est iota. It is in vain to build or plot or combine against it. Things
refuse to be mismanaged long. If the government is cruel, the governor's
life is not safe. If you tax too high, the revenue will yield nothing. If
you make the criminal code sanguinary, juries will not convict.
"The law of nature is: Do the thing, and you shall have the power:
but they who do not the thing have not the power. Everywhere and
always this law is sublime. The absolute balance of Give and Take, the
doctrine that everything has its price; and if that price is not paid, not
that thing but something else is obtained, and that it is impossible to get
anything without its price-this doctrine is not less sublime in the columns
of a ledger than in the budgets of states, in the laws of light and darkness,
in all the action and reaction of nature."
Some day there surely will be a great religious revival which will far
exceed, both in intensity and permanency, anything which has ever been
witnessed before. Moreover, this will be due to a general recognition of
the fact that the fundamental teachings of Jesus are based on purely scien-
FUNDAMENTAL STATISTICS
109
wonder how the Japanese nation has been able to
expand so rapidly during the last sixty years since
Commodore Perry opened its ports to commerce.
The Japanese are held up as world wonders for the
tremendous progress which they have made in less
than two generations. The explanation, however,
is very simple when the Law of Action and Reaction
is considered. For centuries that nation had been
bottled up and had been gradually accumulating
energy. Suddenly, the doors of opportunity were
thrown open and the same result occurred psycho-
logically as occurs mechanically when a charge of
dynamite explodes. Furthermore, a mathematical
equality exists between the product obtained by
the multiplication of the number of years that
Japan was bottled up and the intensity of that
period, and the amount of its recent advancement
multiplied by its duration. The book entitled,
"The Great Illusion," by Norman Angell, illus-
tific grounds, especially upon Newton's Law of Action and Reaction, and
that the Golden Rule is simply a statement of this law in general terms
applicable to the man in the street.
All that we take away from others must, in some way, at some time,
be given back. All that we do for others will, in some way, at some time,
come back to us. We all have our normal X-Y lines, and all that we
raise ourselves through covetousness above this X-Y line must be made
up below it. Life is the same as the boy's spring gun; we can get out of it
only what we put into it, although we can increase our capacity just as
the boy could remodel and increase the capacity of his gun. We can raise
the slope of our X-Y line of happiness, but to attempt to go above this
line artificially is of no avail, as it must be made up by an equal reaction
at some later date.
Moreover, it is interesting to think what it means to keep on our X-Y
line. Scientifically, this simply means dealing justly, and doing unto
others as we would that they should do unto us. For a long time artists
have personified justice as a woman holding a pair of scales, without realiz-
ing the scientific fact that the primary Law of Action and Reaction under-
lies both moral justice and the mechanical scales. When we deal justly
we keep on our line of growth, but whenever we deal unjustly we get off
this line, and some day we must compensate therefor. Whatever we do that
raises the X- Y line of civilization is good, and reacts upon us as good; but
whatever we do that lowers the X- Y line is evil, and such performances react
upon us as evil.
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BUSINESS BAROMETERS
trates on every page the effect of Newton's Law of
Action and Reaction upon nations and communi-
ties, which effect is vividly demonstrated in the
recent great European War.
In this connection the following quotation of
Prof. Wilhelm Ostwald* will be of interest:
"No large enterprise of a technical or industrial nature
is undertaken nowadays without a very comprehensive
knowledge of what its future is to be. We are not afraid
to invest millions of dollars in a work which at the moment,
when the expenditure is determined upon, has no other
existence than a prophecy in the form of calculations and
drawings made by engineers. But we know for a certainty
that when the directions in the calculations and blueprints
are carried out, a structure will arise possessing all the fore-
told properties, whether it be a bridge, a steamship, or an
electrical plant.
"While in the technical pursuits prophecies of this sort
have been developed to an extraordinary degree of accuracy,
it is somewhat more difficult to gain foreknowledge and
power of prophecy in the economic world. That is why
the few who possess this quality to a greater extent than
others, those who are able to foresee the future with greater
certainty than others, easily achieve economic superiority.
They conduct their transactions in accordance with their
prophetic capacity, and so are able to pocket greater gains
than their competitors. This ability to see into the future
depends upon knowledge of the natural laws involved.
"Just as mathematics long ago succeeded in separating
even the most complicated movements into their simple
periodic component parts, so the statesman must learn to
decompose the totality of human movements into the simple
wave elements produced by self-regulation in the various
fields of human activity. In this way politics can be trans-
formed from a mere knack, as it has been regarded since
olden times, into a science like technology with the power
of sure and far-reaching prophecy."
*Professor Ostwald's work in the field of chemistry has given him an
international reputation. He formerly held the chair of chemistry at
Leipzig University and is now applying to life the lessons he learned in
the laboratory.
FUNDAMENTAL STATISTICS
111
That the law of equal reaction applies to eco-
nomic or business conditions is indicated along two
main lines, physical and psychical. This is because
the conditions which prevail in the business world
have as their effective causes both physical and
psychical factors. For example, rainfall is an
important physical factor that affects business
cycles. This result is reached through the effect
of rainfall on the crops which are always an influ-
ential factor in determining conditions. The rec-
ords of the weather bureau show that dry and wet
years do not alternate indiscriminately, but rather
follow a clearly defined wave movement. This is
to say that we have a series of years of sub-normal
precipitation followed by a series of super-normal
precipitation. An attempt has been made to show
that sun spots were the cause of these variations in
rainfall and that these followed an oscillatory mo-
tion, rising, increasing in size and activity, then
gradually dying down. Whether or not sun spots
can be used to forecast periods of sub-normal and
super-normal rainfall, the fact is that weather
bureau statistics show the existence of such periods.
This means that whatever effect crop conditions
have on economic cycles is exerted in accordance
with the law of equal reaction.
But more important than the influence of rainfall
are the psychical factors. Prosperity has a well-
understood and clearly definable effect on men's
minds. So also has a period of depression or ad-
versity. Business conditions depend chiefly on
what men do. What men do depends on what
112
BUSINESS BAROMETERS
they believe and think; I mean that men act
according to their real beliefs and valuations--not
necessarily according to what they say they believe
and think.
This becomes clear if we follow through the
sequence of events involved in a regular business
cycle. Let us assume that we are in a period of de-
pression. Mills are idle or running half-time, there
is little demand for goods, and prices are low. Prob-
lems of unemployment are worrying our legislators.
There is little or no profit in doing business and
therefore little business done. Much capital lies
idle, and money rates are low. The fact that a
considerable number of people are out of employ-
ment and others have had their wages cut, reduces
the buying power of the people as a whole. But
this reduction of consumption is not caused by
reduced buying power alone. The psychical effect
of "hard times" is to induce economy. People
have had their wages reduced, have been out of
work themselves or seen others out of work. They
become fearful of the future and are impressed with
the advisability of saving something for a rainy
day. Furthermore it is easier to save if everybody
else is doing it. In a period of expansion, free
expenditure is popular. We have to spend more to
"keep up with the Joneses," but in hard times the
"Joneses," like ourselves, have had their pay re-
duced. So we can reduce our expenditure without
having their ostentation flaunted before our eyes.
Economy, being a necessity, is made a virtue, and
we are not ashamed to practise it.
FUNDAMENTAL STATISTICS
113
This wave of economy and resulting saving is
not confined to the rank and file. The capitalist
class is hit by the reduction of dividends and the
lowering of the rate of interest. Hardest hit of
all are the business enterprisers-those who organize
and direct industry, who take the responsibility of
ownership and contract to pay fixed interest to
capital and fixed wages to labor. They rely on
the difference between the expenses of production
and the price of the finished product for their
share in distribution. When prices first commence
to fall, this class acts as a buffer and stands con-
siderable loss before reducing wages and closing
plants.
Economies which result in a lowered demand
for all goods, affect with special force the demand
for luxuries. Hence those business enterprises that
cater to the demand for luxuries suffer most. Fail-
ures are numerous; those firms that are high cost
producers, whether because of poor natural condi-
tions, over-capitalization, or inefficient manage-
ment, are forced into bankruptcy. In fact, the
only firms that survive such a period of readjust-
ment are the efficient low-cost producers of the
wares that people want and will pay for. Their
business is in sound condition, their credits not
over-extended, their natural advantages at least
reasonably good, their capitalization low and man-
agement efficient. In short, the whole commercial
fabric is on a sound and practical basis.
The cutting off and giving up of luxuries has two
important effects. By throwing out of employment
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BUSINESS BAROMETERS
persons engaged in the production of luxuries, it
forces them to seek employment in the production.
of more necessary commodities, thus helping to
lower the price of the latter to the consumer. The
effect of the increase in savings which results from
the popularization of economy is always a large
increase in bank deposits, especially in the savings.
banks. Thus funds and credit accumulate and are
available for use when the tide turns.
The other psychological effect of hard times is
the increase in temperance and industry. Both of
these are due in part to the economy referred to
above. People realize the necessity of clinging to
a job. When there are many candidates for few
positions, those who have positions know that
should they fail to give satisfaction it would be an
easy matter to replace them. This is equally true
of the business enterpriser. He is dependent for
his business upon the patronage of his customers.
Competition is keen and buying is slack. His
success in business is measured by his ability to
please his customers. This all leads to a powerful
realization on the part of all classes that the only
road to success is the road of service. It is clearly
seen at such times that wealth is the natural reac-
tion from service. Thus temperance, industry,
regulated plain living, and a willingness to serve go
to characterize to a large degree all classes of the
population. It is just this psychical condition
which lays the strongest foundation for a period
of prosperity. Such conditions cannot fail to fore-
cast improvement.
FUNDAMENTAL STATISTICS
115
Ordinarily some specific event serves as the
immediate stimulus to the inevitable upswing.
That event may be a war, the opening of new
lands, bumper crops or an abnormal increase in
the circulating medium. The accumulation of
savings is certain, sooner or later, to burn holes.
in the pockets of the savers. That is human nature.
In any case, the primary element in the stimulating
factor is the new demand for goods. This new
demand raises the price of those goods upon which
the demand falls; and since expenses of production
do not rise at first or in equal degree, a consider-
able "spread" is thereby created between the price
of the finished product and the expenses of produc-
tion. This means profit for the business enter-
prisers in the lines affected. The wheels, therefore,
begin to hum, more help is taken on, the mills work
full time and the demand for necessary raw ma-
terial rises.
If the new demand be sufficiently powerful so
that it cannot be satisfied by the operation of the
existing plants, other enterprisers with adaptable
facilities are induced to enter the field. This means
a call for more material, for labor, and as addi-
tions and new constructions are planned, a demand
for building material, plants and machinery. As
when a stone is thrown into the water, the ripples
spread out in wider and wider circles, so the new
demand for goods soon spreads out through the
various relations of interdependence until it has
affected the whole economic fabric.
With the general advance in the cost of living,
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BUSINESS BAROMETERS
wage-earners are led to demand that the price of
their services be increased to correspond with the
rising scale of commodity prices. Demands for
increased wages are generally granted because the
price of goods is such that employers would rather
pay a high rate than lose business by a strike.
Just as a period of depression carries its antidote
in the sound psychological conditions which are
created by depression, so a period of prosperity
produces within itself a poison which destroys this
prosperity. Prosperity makes men extravagant
and careless. Higher prices show large profits on
the books of the business enterprisers. Burning
with a desire to make still more profits, they extend
their plants and embark eagerly upon new business
ventures. Increased income leads to an increase
in personal expenditure. The employee who has
steady work and who has seen his wages advance
is filled with optimism, buys a motor-cycle, builds
a shack in the woods or at a popular beach. Simi-
larly, his employer buys a couple of high-priced
motor cars and sends his family to Palm Beach for
the winter.
A large market develops for luxuries of all kinds.
Business enterprisers push on into this field also
and the demand for new equipment still increases.
As the natural reaction of adversity is economy,
thrift, industry and temperance, so the reaction
of prosperity is to make men extravagant, waste-
ful, self-indulgent and careless. High prices are
relied upon to make good the loss by waste and
inefficient management. There is little effort to
FUNDAMENTAL STATISTICS
117
please the customers when the books are already
filled with orders for the year ahead. Labor, while
insisting on an increase of remuneration, grows
increasingly careless as regards the quality of serv-
ice given in exchange. Every man knows that if
he is rebuked or his work criticised, he can easily
find employment elsewhere.
A decrease in productivity is the inevitable result.
The willingness to serve is then forgotten and in
its place comes the notion that the high road to
wealth and prosperity is the path of speculation.
The air is full of stories of brokers' clerks and
messenger boys who secured bargains in stocks or
land and in consequence are now buying motor
cars and country estates. Industry, perseverance
and honest labor are at a discount and each one
hopes to make his fortune by a lucky strike. There
is no idea that can possess the human mind that
has a more destructive effect on those qualities
that are necessary for efficient production.
With increased production and rising cost of
raw materials and labor, the "spread" between the
price received for the finished product and the
expense of production is gradually reduced. It
ultimately becomes manifest that there has been
a disproportionate investment in fixed capital in
certain lines of industry. The great expansion in
industry which characterizes a period of prosperity
always produces a strain on financial resources. It
takes more money to finance a business enterprise
on a high scale of prices. The amount that banks
will loan on stocks and bonds is based on their
118
BUSINESS BAROMETERS
market values, this amount rising and falling as
the market value increases or diminishes. Simi-
larly, also, the amount that can be borrowed on
real estate and equipment depends upon the esti-
mated value of the security. The value of stocks
depends not upon their earnings, but upon their
expected earnings. It is also possible to borrow
more on the plant that is making large profits and
expects to continue to do so, than upon one that is
earning but little. Thus all along the line credits
open and extend in proportion to expected earnings.
When the rising costs of production result in reduc-
ing profits in the lines in which they first advanced,
the high cost producers in these lines find them-
selves in a weak position. The demand for funds.
makes the interest rate high toward the close of
a period of prosperity and this high cost of funds
is a further check on the progress of industry.
Creditors at this point begin to take alarm. Stocks
are widely distributed on narrow margins, and con-
ditions are ripe for a decline.
When the decline comes, the contraction of
values necessitates a contraction of the credit
which had been built up on the basis of the former
inflation. Loans are called, and securities must
be sold to meet them. Money rates rise and a
panic ensues, accompanied by the failure of an
increasing number of business enterprises. Com-
modity prices fall. Just as when prices are advanc-
ing, everyone is anxious to buy in anticipation of
further advance, so when prices begin to fall every-
one is anxious to sell in anticipation of further
FUNDAMENTAL STATISTICS
119
decline. Thus demand collapses as the selling
pressure increases. Since retailers will not order,
wholesalers cannot, and manufacturers find them-
selves forced to curtail production. The keynote.
of this period is disappointment. Business enter-
prisers are disappointed at the failure of the ex-
pected profits. Investors are disappointed at the
failures of those enterprises in which their money
was invested. Wage earners are disappointed,
first because their increased wages will not buy
as much as they had expected; later, because the
high wages and easy positions fail to be maintained.
When expansion is checked and the volume of
business falls off, the demand for funds is also
reduced. The interest rate falls because there is
little profit in employing funds and we are enter-
ing upon another period of reaction. The dura-
tion of this reaction is dependent upon the time
necessary to liquidate the unhealthful condition.
which the profits and period of prosperity have
created. If the reaction is very intense this may
be accomplished in a comparatively short time; if
less intense the time will be longer. Not until
the unsound business conditions and the disastrous
psychological effects of too much prosperity have
been liquidated and corrected can the foundations
be laid for another period of prosperity.
There have always been periods of depression,
periods of prosperity, and intermediate periods,
as everyone already knows.* There is absolutely
*See Monetary Commission volume on "Crises," by Prof. O. M. W.
Sprague of Harvard, a foremost authority on "Applied Economics."
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BUSINESS BAROMETERS
no dispute regarding this first point, but as to the
duration of these periods there is a distinct differ-
ence of opinion. It is the general impression that
the great major cycles are of about twenty years'
duration, and the minor cycles are of about five
years' duration, with possibly still other cycles
of about ten years' duration. Probably the most
interesting work on this subject was done by
Samuel Benner, who, from 1875 to 1884, formulated
a most elaborate system of charts and who, with-
out doubt, clearly foretold the panics of 1884 and
1893, and the prosperous years intervening. Many
other men have devised other charts and theories,
some based on supposed economics and others
based on superstition, but all have been found to
fail, and have been forgotten.
Upon careful examination all these charts and
theories are found to have two great defects; and it
is chiefly because the Area Theory herein discussed
eliminates these two defects that the theory and
the Compositplot described in the following pages
deserve attention.
Reaction Equals Action
The first defect in the old theory of Benner and
other writers consisted in the fact that they based
their calculations simply on either time or intensity,
instead of on their product. There is no law in
physics or nature that any action or any reaction
must come with any definite regularity. There is,
however, as before indicated, a law under which
mechanics, medicine, and other sciences move,
FUNDAMENTAL STATISTICS
121
namely that “action and reaction are equal." This
is absolutely true; but when the student attempts
to go one step farther, he generally fails. For in-
stance, we may say that certain reaction amounts
to one hundred foot-pounds, but whether the body
weighs one hundred pounds and is moved one foot
or weighs only one pound and is moved one hun-
dred feet, we have no way of knowing until we
learn one factor.
In other words, to say that a period of prosperity
or period of depression will last any given time,
irrespective of the business activity of the country
during such time, is contrary to all basic law. Yet
upon such reasoning most of our predecessors have
worked, while the others believed that a change in
conditions comes when figures for pig-iron, bank
clearings or commodity prices reach a certain point.
They entirely ignore the product of time and in-
tensity. Only by multiplying one by the other
can the true reaction be ascertained. Time, then,
may be compared to space, and intensity may be
compared to weight, and their product to space
multiplied by weight, or to "foot-pounds."
For this reason, when studying a Compositplot
like the annexed, which is based on a representative
and comprehensive number of business indicators,
able bankers and merchants today do not only
study height or length, but study area. That is,
such men believe that the shaded portions above
the average line of growth X-Y, shown in the plot,
should approximately equal in area the shaded
portion below said line. Thus, if the country is
122
BUSINESS BAROMETERS
enjoying a condition of only medium activity,
prosperous conditions may be expected to extend
over a longer time than if tremendous prosperity
now abounds, and vice versa.
*
All Subjects Must Be Considered
The second great error heretofore made by these
economists consisted in the fact that each man
seemed to focus his attention on only one or two
subjects, instead of making a composite interpre-
tation of all. Some would study bank clearings,
some foreign trade, others gold movements and so
on, believing that, as the figures on their particular
pet subject or subjects changed, it was possible to
forecast future conditions. Many still believe it
is possible to utilize certain subjects in this way,
but all such systems are absolutely wrong. No one
of these subjects, when studied independently,
serves to foretell the great changes in conditions
which have occurred since 1860. Some of the
subjects seem to work out better than others, but
all of them entirely fail to give proper warning in
all instances.t
*See "Cours d'Economie Politique," by Vilfredo Pareto, Vol. II.
For illustration, "gold movements" formerly was used as one of the
very best barometers of future conditions. During heavy imports of gold
(such as occurred in 1878-1882) the United States enjoyed unparalleled
prosperity and after said imports declined and the exports of gold exceeded
the imports (as in 1882-1883) followed the panic of 1884. This same rule
worked most admirably in forecasting the prosperous times of 1888-1890
the panic of 1893, and the prosperous times of 1898-1902. The rule, how-
ever, did not work in forecasting the panic of 1903 nor the prosperous
years following, and the heaviest imports of gold the United States ever
enjoyed preceded the panic of 1907. Of course the reason for these huge
imports in 1906-1907 is now well understood; but any one, who in 1906
simply studied the bare figures, without knowing that such importations
were artificial, would have been justified in expecting that 1907 and 1908
would be years of great prosperity. On the other hand, such an error
would not have been possible if a study had simultaneously been made
of the other leading subjects.
FUNDAMENTAL STATISTICS
123
However, a study of all these subjects reveals.
the fact that there has not been a single case when
a change in conditions has not been fully and
plainly foretold by a majority of these subjects.
Four general rules can be worked out for each
subject—one rule for each of the four periods of
prosperity, decline, depression and improvement,
respectively. These rules are given in detail for
each of the subjects under the twelve headings, in
Chapters VI, VII and VIII. The basis of these
rules is that very high figures, such as appear during
very prosperous conditions, foretell a panic or
period of decline. Very low figures, such as appear
during a depression, foretell a period of improve-
ment.
General Considerations
From the foregoing it is evident that it is better
to reduce all figures to a single summary plot, in
order to ascertain the "area" above or below the
average line X-Y, although the separate charts on
the different subjects may be again referred to as a
check and interpreted in accordance with the laws
just outlined. If both the Compositplot and the
individual interpretations foretell the same change,
this change may surely be expected to come to pass;
while if both do not foretell the same change, one
may assume that at this moment conditions are
uncertain, although a little later this uncertainty
may not exist.
This practically completes the diagnosis, although
as a further study, it is interesting to refer back to
124
BUSINESS BAROMETERS
previous history and ascertain what changes, after
such conditions as exist today, have followed in the
past. This is accomplished by referring back to
points in the various past business cycles when (1)
the same area above or below the average line
existed as exists today; and (2) when a majority
of the individual subjects foretold the same condi-
tions which they foretell today.
In connection with this study there is a certain
sequence of events which is a distinct aid to bankers,
merchants and investors. This sequence is similar
to the various stages of disease with which physi-
cians are so familiar. Sometimes one stage of the
disease "runs" longer than usual; but the sequence is
always the same. In the same way, it is not always
possible to judge correctly the exact duration of
each period of increase or decline in prices; but by
a study of fundamental statistics it is always possible
to ascertain approximately in which of the following
periods we are. If, for instance, a study of funda-
mental conditions shows us to be in a period of in-
creasing money rates, we know that we shall pass
through the following cycle before we shall again
enter a period of increasing money rates. This
cycle is as follows:
Increasing Real Est. Prices 10
Increasing Com. Prices 9
Increasing Stock Prices 8
Increasing Bond Prices 7
Low Money Rates 6
1 Increasing Money Rates
2 Declining Bond Prices
3 Declining Stock Prices
4 Declining Com. Prices
5 Declining Real Est. Prices
FUNDAMENTAL STATISTICS
125
The prices of stocks continue to rise after the
prices of bonds begin to fall. Industry, as a whole,
generally follows several months behind stock prices.
The prices of commodities generally stop rising at
about the time business reaches its height. Interest
rates are likely to continue to rise until the prices
of land values have declined sharply. This latter
event usually completes the decline in prices that
precedes and accompanies a panic. Conditions in
other countries and crop conditions in this country
also have much to do with the date and extent
of these periods.
In short, this study of fundamental statistics
consists simply in ascertaining present conditions
and interpreting them with the view of forecasting
future conditions. It is like the work of a physi-
cian when he examines a man for life insurance.
The physician first ascertains the man's present
conditions and his mode of life. Applying his
knowledge based on previous history of what usu-
ally follows such conditions, he makes a forecast
of the man's probable length of life. That action
and reaction are equal and that history usually
repeats itself is the foundation of both the science
of medicine and the great business of life insurance.
These fundamental principles apply equally in the
field of economics and hence the merchant and
the investor should give the subject of funda-
mental statistics his most careful attention and
consideration.
126
BUSINESS BAROMETERS
The Mechanical Work
In the first portion of this book is described the
meaning of fundamental statistics and their use.
In this chapter is outlined the theory underlying
the work and the reason why such statistics may
be depended upon. Now a few words must be
given to explaining the mechanical work of com-
piling and reducing these figures to one single
"Summary Barometer Figure" such as is the basis
of the Compositplot.
In approaching the work, although other methods
may seem sufficient, the need of direct and definite
results leads the student to seek a systematic,
comprehensive and uniform practice, so that a
basis of comparison from period to period may be
established at the outset. The course usually
followed by the leading bankers, merchants and
investors when studying fundamental statistics is
to collect data covering a long period of years, and
relating to such subjects as the following, which
are grouped under twelve headings.
These twelve headings correspond almost iden-
tically with the twelve subjects mentioned in Chap-
ter I.
I.
II.
Building and Real Estate.
Building Operations (with fire losses).
Bank Clearings.
Total Bank Clearings of the United States.
Bank Clearings of the United States, exclud-
ing New York City.
FUNDAMENTAL STATISTICS
127
III. Business Failures.
Tables on number of failures, amount of lia-
bilities, and ratios.
IV. Labor Conditions.
V
VI.
Tables of immigration figures and notes on
the general situation.
Money Conditions.
Money in Circulation.
Comptroller's Reports. (This is the only
one of the twenty-five subjects for which
no figures can be obtained monthly.)
Loans of the New York Banks.
Cash held by the New York Banks.
Deposits in the New York Banks.
Surplus Reserves of the New York Banks.
Foreign Trade.
Imports of Merchandise into the United
States.
Exports of Merchandise from the United
States.
Balance and Volume of Trade.
VII. Gold Movements.
Gold Movements, with tables on the exports,
the imports and the balance of gold move-
ments.
Domestic and Foreign Money Rates and
Foreign Exchange, with tables on the rates
in London, Paris and Berlin.
VIII. Commodity Prices.
Production of Gold. (Tables giving the
128
BUSINESS BAROMETERS
IX.
X.
XI.
production in the Transvaal Mines which
best show the trend in the production of
the entire world.) Prices of Commodities,
including wheat, corn, cotton, iron, copper,
etc.
Investment Market.
Stock Exchange Transactions.
Tables on
number of shares traded in, the bond sales,
and the high and low prices of the ten lead-
ing investment stocks given in Chapter II.
The latter tables contain the high and low
prices for each year since 1859, and the
high and low for the current year, revised
each month.
New Securities. Tables for the new securities
listed on the New York Stock Exchange
and figures relative to other issues publicly
offered or authorized, but as yet unlisted.
Crops and Commodity Statistics.
Crop Conditions and Production of commodi-
ties, including pig-iron and copper.
Railroad Earnings.
Gross and Net Earnings of ten leading rail-
roads, with annual figures for all railroads
relative to the new mileage constructed, etc.
Idle Car Figures, for the current year and the
corresponding months of the preceding two
or three years.
XII. Social Conditions.
Political Factors.
Religious Statistics.
FUNDAMENTAL STATISTICS
129
The figures on most of these subjects are kept
upon large desk sheets, and may be divided into
the above twelve sections. It has taken many years
to accumulate these figures, as they represent tedious
and careful research. They are the foundation of
the entire work, and it is impossible to make practical
use of fundamental statistics except in connection
with these tables for preceding years and months.
The Compositplot
The subjects in the list above outlined are
arranged so they may be grouped and classified
under the three following headings:
1. Tables used when studying mercantile con-
ditions.
2. Tables used when studying monetary con-
ditions.
3. Tables used when studying investment and
other conditions.
In detail this classification is as follows:
(These divisions are purely arbitrary, as every
subject affects in some manner each of the
three divisions.)
Mercantile Conditions.
Immigration.
New Building.
Failures.
Bank Clearings.
(And Similar Subjects.)
130
BUSINESS BAROMETERS
Monetary Conditions.
Commodity Prices.
Foreign Trade.
Foreign Money Rates.
Domestic Money Rates.
(And Similar Subjects.)
Investment Conditions.
Yield of Leading Crops.
Railroad Earnings.
Political Factors.
Stock Market Conditions.
(And Similar Subjects.)
Investors and merchants who carefully study the
figures on these subjects each week obtain one
barometer figure for present conditions for each
of the three groups given above. Then, by aver-
aging the three figures, they obtain a final summary
barometer figure for present conditions, on a princi-
ple similar to that used by the London Economist
for combining and reducing the prices of a large
number of commodities to one index figure. The
Compositplot is really a graphic illustration of the
statistics compiled and collated from the subjects
under the twelve headings on the large desk sheets.
These statistics are gathered from a variety of
authoritative sources and tabulated and kept up-to-
date regularly each week. The figures appear in
many denominations: for example, Bank Clearings
are expressed in dollars, Crop Production in bushels,
Immigration in number of people arriving, certain
railroad statistics in dollars, etc. To combine all
FUNDAMENTAL STATISTICS
131
these into one figure, it is necessary to do away
with the different denominations and express all
in one abstract figure, or index.*
Because business activity fluctuates so widely,
being at some times very much depressed and at
other times greatly over-expanded, the line X-Y
has been drawn through the plot to show the aver-
age line of growth of general business throughout
the country. In short, this line represents the net
gain made by the nation, a gain in the actual
wealth which is the result of the right use of land,
labor and capital in all forms. By "right" use of
the factors is meant that use which brings about
efficient production of wealth together with a con-
*To accomplish this, we introduce a set of intermediate figures called
Scale Figures. The steps by which these Scale and Index Figures are
obtained are as follows: Take, for instance, the Actual Figures for Immi-
gration from 1898 to 1908, inclusive. The Actual Figures, 18,300, for
January of the year 1901 was found to be the lowest for that month of the
ten-year period and was placed at the lower end of the Scale Table for
January. 56,200 (in 1905) was found to be the highest Actual Figure in
January during the same time, and was therefore placed at the high end
of the Scale Table. The difference between the two Actual Figures was
37,900, which was divided by 10, and the result, 3,790, added to 18,300
to make the second figure, 22,090, added again to that for the next, 25,880,
and so on in arithmetical progression up to 56,200, the highest Actual
Figure.
In February, the lowest Actual Figure was approximately 23,400 in
1908; the highest, 68,700, in 1906. The difference, 45,300, divided by
10, equals 4,530, which added to 23,400 gives 27,930, and, successively,
the other figures opposite February. Working out each month in the same
manner, we have as a result a table which is called the Scale Table on
Immigration. This table gives a scale for each month in which the left
and right ends are Actual Figures, and the figures between, proportional or
mathematically graded figures. These are what we mean by Scale Figures.
We then arrange the Scale Figures in columns, placing zero over the
column whose average approximates most closely to the average condi-
tions of the years 1903 and 1904,—that is, the depression following the
1903 panic. This date is taken arbitrarily as the starting point of the
Barometer. We then place the other Index Figures in series to the left
and right of zero. If the volume of business increases, so as to go beyond
the scales, higher scale figures are added, using the same arithmetical
progression as at first, so that the actual condition of the years 1898-1908
serves as a constant by which to compare succeeding years. Scales similar
to this one on Immigration have been prepared for all the subjects, and
with these in hand, we are prepared to combine our figures and prepare a
Compositplot. By having a separate scale for each month, the seasonal
fluctuations are eliminated.
Moreover, persons using different scales would obtain similar plots.
132
BUSINESS BAROMETERS
sumption of this new wealth which is also productive
and not wasteful.
As economists differ in their definitions of wealth,
so statisticians differ in their selection of the basis
upon which to draw this line. For both the econo-
mist and statistician the most interesting and most.
satisfactory subjects for study are the census reports
on the growth of manufactures, farm values, mineral
products, lumber cut, population, etc. But for
the business man it is necessary to select another
indicator of this growth because of the long periods.
of time elapsing between two census years. The
business man needs to know how far the composite
Although their definite figures for each week or month would differ, yet
the relation of one week to another should be identical.
A simple illustration of the way the scales are used is the following:
Suppose domestic money rates are 4%. By referring to the money rates
scale, we find that a 4% rate equals +20 on the index. +20, therefore, is
the index figure, and since it is abstract, it can be combined with the index
figures for all of the subjects. A similar process is performed with each of
the other subjects.
In order to get a single index figure of general business conditions, we
have simply to average the individual index figures together. In like
manner, the figures may be grouped, as previously shown, into those
indicating mercantile, monetary, and investment conditions, and a sepa-
rate figure obtained for each group. It is the summary index figure, how-
ever, which all business men and investors watch most closely and it is
this figure which is charted to form the Compositplot.
In reality it makes little difference what the definite scale figure is, pro-
vided the base is submitted therewith to use for comparative 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 definite date; but the relation 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, today 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 today;
(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?
FUNDAMENTAL STATISTICS
133
line of business is above or below a normal line and
how much of a given area has passed, in order to
know what to expect from the present conditions
of fundamental factors. After considerable study
of the different subjects, it seems clear that the
subject most successful as an indicator, from this
practical point of view, is the volume of bank
clearings* for the country, excluding New York.
(New York is excluded because its clearings repre-
sent so large a proportion of the entire figure that
they hide the true industrial conditions shown by
the remaining cities.)
*We, however, recognize that this indicator is not wholly satisfactory.
First, because the increasing use of checks tends to make too high a level
for a line of normal growth; second, because the new Federal Reserve
Banks are eliminating many bank clearings (this tending in the opposite
direction); third, clearings are affected by price changes as well as by
actual quantity of goods moved. The subject, however, has still great
value because: (1) Bank clearings from all over the country are reported
more frequently and thoroughly than any other statistics; and (2) Clear-
ings are sure to rise and fall as business contracts or expands.
But as it is always dangerous to use one subject alone, especially a
subject reflecting surface movements, it is necessary to take bank clearings
as an indicator only, and to check conclusions based upon it, at the end
of each year, by all the important barometers of wealth which report
annually; and again, at the end of each cycle, by the areas of the Composit-
plot. Thus far we have been able to rely on our statistics alone in locating
this X-Y line, but we frankly assume that the areas should be equal.
Therefore this chart does not prove that the law of action and reaction
applies to business, but rather assumes it.
There are now two complete cycles on the Compositplot. The first
(Areas B and C) runs from 1905 to 1909. The second (D and E) runs
from 1909 to the latter part of 1915. In the first cycle the X-Y line was
arbitrarily drawn to make Areas B and C approximately equal, its course
following the trend of bank clearings. Since then, however, the line has
been mathematically located on the following basis: the line X-Y runs
through +24 of the scale at the end of 1905 and through +27 at the end
of 1908. Compared with clearings outside of New York, the line between
these dates rises 3 points for 6% increase in clearings, or a point for
every 1% increase in clearings. Therefore for subsequent years the line
X-Y, as determined by clearings, is raised at the same ratio. We use a
horizontal dotted line until a fair estimate of the total clearings of the
year can be made; but this dotted line should at all times be regarded as
subject to change according to what clearings show. Furthermore, if at
any time a majority of subjects on the Desk Sheet show that clearings
are expanding or contracting too much, the line may be modified accord-
ingly. Whenever a distinct cycle appears to have been completed and
statistics have been received regarding its course, the line may again be
revised, the object always being to keep its slope true to conditions of
actual net growth in order that the amount of area consumed above or
below the line may always be known as accurately as possible.
134
BUSINESS BAROMETERS
The location of this line is fundamentally based
on the assumption that action and reaction are
equal when the total force involved is considered,
which force may be expressed graphically by an
area. If this assumption is correct, the sum of the
areas below the line of normal growth must ap-
proximately be equal to the sum of the areas above
the line of normal growth; and by the law of aver-
ages all the areas tend to be approximately equal.
In other words, if the law of action and reaction
is applicable in economics as in every other science,
then our line is located with sufficient correctness;
on the other hand, if this law of action and reaction
does not apply to economics, then of course the
Area Theory cannot be relied upon for forecasting
business changes and these areas are of use simply
as a general bird's eye view of conditions. At the
end of the last cycle, however, no readjustment was
necessary to make Areas D and E equal. This
fact is a most interesting testimonial for the Area
Theory.
The solid red line represents the average price of
certain stocks during the past years and the dotted
red line, the average yield of bonds. Although
during these years the stock line has discounted the
black area, yet this cannot be depended upon, as
previous to 1903 there were instances when the
black area rose and fell first. Therefore, the only
safe method is to study both of these together,
giving the most weight to the black plots. More-
over, it should be remembered that the areas usually
refer only to periods in our minor cycles and not
FUNDAMENTAL STATISTICS
135
to the major cycles extending over about twenty
years. Hence we may be in a prosperous period of
a minor cycle and still be in a declining period of a
major cycle.
Although the main use of the barometer figures
is to plot the "area" mentioned earlier in this
chapter, the figures themselves are also useful.
Practically speaking, they are mathematically cor-
rect. If, during a period of depression, the final
barometer figures for a long period of weeks show a
continuous but slow increase, the country is usually
facing improved conditions, however poor business
may appear to the average merchant. On the other
hand, during a period of prosperity, if the barometer
figure for surface conditions continues to increase
abnormally, there is likely 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
the sums of the areas above and below the
line X-Y must, over sufficiently long periods
of time, be equal.
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
136
BUSINESS BAROMETERS
twenty-five or more subjects mentioned above,
interpreted* each month for what they signify.
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 the necessary 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
*The interpreting of these figures is greatly simplified by the following
arrangement:-Monthly figures on the various subjects, and their sub-
divisions, for the last ten years, are tabulated on desk sheets before men-
tioned. These figures are brought up to date once a month. Annual
figures on most of these subjects since 1860 can also be obtained, being
brought up to date every year.
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 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
subjects signify continued improvement; how many signify no improve-
ment; 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-
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; but arrangements can also be made to have
them tabulated in sheet form and interpreted once a month. This, there-
fore, eliminates all mechanical work on the part of any bank, firm or in-
dividual, and it is only necessary for one to note the summary plot together
with the interpretations once a week, and take a general view of the
tables whenever convenient. Upon so doing, one automatically makes a
forecast of future mercantile, monetary or investment conditions.
FUNDAMENTAL STATISTICS
137
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 whole industrial organization of the country
is governed by the law that reaction equals action.
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 abnormal and are always significant of a
marked change; a change for the better in time of
depression, when present conditions are very un-
satisfactory; 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,
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 be
afraid of? The very question sounds absurd. Nevertheless, in a speech,
on entering California this week, our worthy President, after sounding the
pæan 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.'
Of course, our President was right and our es-
teemed contemporary wrong. Great prosperity
138
BUSINESS BAROMETERS
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 by interest
rates. For instance, when interest rates gradually
increase and surplus reserves gradually decrease
after a period of depression, the combination is
significant of improved present conditions; when
commercial paper is discounted at 34%, one may
always be sure that the country is not prosperous,
that many factories are idle and many men out of
work. As the mills resume operation and as busi-
ness becomes more active, money rates increase
and surplus reserves decrease, all of which is shown
by higher barometer figures for monetary condi-
tions. Then, as money rates increase too much,
and the surplus reserves decrease to very low fig-
ures, the change is significant of unsatisfactory
future conditions. In other words, when money
rates are below normal it shows business 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: The Rate of Interest; The Macmillan Co.
Antecedent
Conditions
Initial
Steps in
Crisis
Extent of
Crisis
Immediate
Effect
Duration
of Crisis
Legislation
COMPARISON OF THE MAIN FEATURES OF FIVE PANICS WITH SPECIAL REFERENCE TO THEIR EFFECT IN THE UNITED STATES
1857
1873
American Civil War and Franco-German War.
1884
1893
1907 (Not a major panic)
Mexican War at home-Crimean War abroad.
Great and rapid expansion of the West, and A period free from destructive wars. Great Widespread business stagnation followed
Gold discoveries of 1848-49-production $400,- The Chicago fire.-Gold output of United States enormous railroad construction. Earnings of railway and industrial development by England 1893. Great distress of workmen. Second
000,000 up to 1856, aiding in preventing panic for prior 16 years $735,750,000. Railway, indus- railroads large, on account of hauling their own in her colonies and in such regions as South- Boer war, Chinese-Japanese war, Spanish-Amer-
which might have been caused by suspension of trial and other construction work all over the supplies for construction, the earnings declining Africa and South America. Many highly specu- ican war and Russian-Japanese war. Destruc-
United States Bank and other banks. It also world on scale previously unknown. Great prog- as the roads approached completion. Parallel lative enterprises launched. Heavy and increas- tion of San Francisco by earthquake and fire in
contributed to recovery from depression incident ress in development of our natural resources. lines constructed in the endeavor to compete in ing demands on capital precipitated a crisis 1906. Fear of free coinage of silver settled at
to crisis of 1857. United States a rapidly de- Enormous increase in manufacturing, and agri- traffic. Large iron production. Tremendous abroad, signalized by the Baring failure in 1890. polls. Congress protected Treasury's gold from
veloping nation, at the same time financially cultural activity and output, involving colossal inflation of securities by new issues and by pay- In the United States, while the decade prior to depletion by "endless chain." Railroads emerged
weak as compared with European countries, absorption of capital. Limited business organi- ment of large stock dividends. Silver question 1893 saw many railroad receiverships, there was from receiverships; great railroad systems
Large absorption of capital through activity in zation, much destructive competition and no more or less in evidence as a disturbing factor. much competitive railroad building and absorp- further perfected by purchases and mergers;
canal and railroad construction, especially in little looseness in business morality. National Bank clearings increasing enormously. The tion and extension of smaller lines by larger greatest development period country has ever
1856, and through great national development credit high, but monetary system imperfect and Trunk Line Rate War raged among the rail- systems. Period one of varying prosperity in known, especially in business organization to
along many lines. Enormous expansion in busi- currency somewhat inflated. National banks roads; disastrous to earnings. Considerable the United States, due largely to local causes. secure stability, economy in administration,
ness, great prosperity and much extravagance. created chiefly to insure a market for government tariff agitation.
Specie payments resumed in 1879. Silver ques- efficiency in production and protection from de-
Proportion of specie to loans and to circulation bonds, through bond-secured national bank
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-
pansion of business.
Banks in 1846, 707; in 1857, 1,416.
Bank capital in 1846 $196,000,000; in 1857 $370,000,000
Metallic reserves in
1847..
Note circulation in
1843.
Deposits in 1846.
Loans in 1843.
Circulation per capita
Excess merchandise
in 1840...
imports for 8 years
prior to 1857...
35,000,000
58,000,000
91,000,000
254,000,000
10.91
Excess gold exports during same period.
59,000,000
National Banks
2,625
1,486
tion settled in Congress, but continued disturb- structive competition. Relations between capi-
Other Banks ing element for three years. An era of unrest. tal and labor adjusted with less friction; distinct
$133,884,004 Our country was going ahead in leaps and advance in standards of business morality
196,400,000 lawful money-
bounds, in agriculture and manufacturing and through agitation and public demand for full
reserves: data
in production of iron and steel. A time of publicity in corporate management. Whole
incomplete
Note circulation... 330,689,893
readjustment between labor and capital and of period marked by astounding growth in the
Deposits.
1,587,379.650 progress in business concentration through or- nation's prosperity, wealth and importance as a
Loans..
Per capita circulation
ganization. Usual waves of extravagance, but world power, but with corresponding develop-
Excess merchandise exports for 11 prior years, 1,475,363,359 held somewhat in check by fluctuations in ment of extravagance, while the demand on
Excess gold imports for 11 prior years.
92,456,148 prosperity. Cumulative abuse of credit which capital reached fabulous figures.
banks were without power to control.
979,020,350
1,269,862,936
22.65
notes. Government became more closely identi- Number in 1884..
fied with the nation's banking affairs, but no Bank capital.. $522,515,996
means provided enabling banks to check over- Reserves.
straining of credit. Steady expansions of loans,
great prosperity, a scale of living and personal
expenditures never before seen in United States.
*Other Banks
1,968
$490,109,801 $42,780,809
252,178,503
338,964,475 174,714
641,121,775 913,117,643
925,557,682 514,081,496
18.04
National Banks
+
Nunber in 1873
Bank capital in 1873.
Reserves in 1873...
Note circulation..
214,000,000 Deposits in 1873.
•
284,445,017 Loans in 1873
684,000,000 Per capita circulation in 1873..
Excess merchandise imports for
16 prior years.
1,204,676,204
Excess gold exports for 16 prior years.
*Incomplete data taken from Report of Comptroller for
15.81
335,210,824
275,519,564
1873.
•
•
990,837,064
The inflated condition of things in 1881 needed
only some severe shock to throw the country into
687,941,419 a decline, which event occurred in the assassina-
tion of President Garfield. The country 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
Stock Exchange securities declined, and mar- High interest rates for preceding two years, market was still further shaken by partial crop
ket became demoralized. High interest ruled, extremely low reserves, irregularity in security failures and a new tariff. In the beginning of
transaction of business became difficult, con- prices and panicky conditions on the Stock 1884, Henry Villard failed. This was soon fol-
traction set in, and being accompanied by bank Exchange. Enormous amount of railway secu- lowed by failure of Jas. R. Keene, the Marine
failures, loss of confidence ensued and sudden rities placed on the market, embarrassing insti- Bank, the Metropolitan Bank, and the house of
collapse followed. Failure of Ohio Life Insur- tutions endeavoring to float them. Crisis on Grant and Ward. This last failure was dis-
ance & Trust Co. on August 24, 1857, marked United States ushered in by failure on Septem-heartening, as General Grant was the idol of the
beginning of crisis, although panic was post- ber 18 of Jay Cooke & Company, followed by nation. Startling frauds were brought to the
poned till October 13.
panic conditions.
Initiated by excessive development in the
United States and extended all over the world.
Largely due to over development in America
it began in Germany and became world wide.
surface,
A severe panic convulsed France in 1882, but
matters did not come to a head in the United
States until 1884. All Europe felt the effects of
depression.
National Banks
Number in 1893
3,796
Bank capital... $683,598,120
Reserves......
513,900,000 (32.66% Oct.
Note circulation 182,959,725
Deposits.
Loans.
1,451,124,380
1,843,634,167
6,625
*Other Banks
17,508
$807,178,262
Data incom-
plete
29,519
8,776,900,000
6,082,662,903
National Banks
Other Banks Number in 1907
Bank capital..
5,685
$901,681,681
Reserves.
$406,007,240
1,033,578,142 (20.8%)
Data incom- Note circulation...
687,340,835
plete
9,534 Deposits (individual) 4,176,873,717
Loans..
4,585,337,095
3,070,462,680
32.22
Per capita circulation
82,297,377,436
*Investigations by Director of the Mint reduce the esti
Excess merchandise exports for 14 prior years, 5,763,661,646
Excess gold imports for 14 prior years.
198,299,557
mate of gold coin July 1, 1907, $135,000,000, as com-
pared with previous year.
Excess merchandise exports for 20 prior years, 1,871,363,691
Per capita circulation 24.03
Excess gold exports for 20 prior years...... 7,290,381
•
1
•
Issue of silver certificates beginning June, Credit conditions among several nations fa-
1890, warded off crisis initiated in England, but vorable to crisis. A business momentum which
alarmed European investors who returned Amer- the credit resources of the country were unable
ican securities. Great excess of imports; diffi- to meet. Enormous money requirements of
cult to maintain national redemption fund; gold railroads and industrial enterprises. Steady
driven out through "endless chain"; enormous advance in interest rate, Stock Exchange liquida-
expansion of bank loans in West and South. tions covering a year. Increase cost of com-
Stock Exchange securities declined 30 to 50 modities and labor finally offset business profits.
per cent; sudden contraction of loans early in Recession in business with liquidations in com-
summer of 1893; issue of Clearing House certi- modities; loss of confidence from several causes.
ficates; Reading Railway and National Cordage Crisis inaugurated by runs on prominent bank-
Company failed. Actual beginning of crisis ing institutions, suspension of Knickerbocker
July 25, when Erie failed and Milwaukee Bank Trust Co. and panic conditions lasting several
suspended.
days.
all over the world. Had its first expression in
Developed through similar causes coincidently
the United States.
Almost identical with effects of 1893; runs on
Runs on banks-hoarding by banks and indi- Bank deposits withdrawn; loans unobtainable
viduals. Banks refuse to redeem notes in specie. on collateral; much money disappeared from cir-
Bank notes were discounted. Interest rates culation; legal tender notes at 3% premium; ings decreased tremendously, and the customary
Railroad Construction declined, Bank Clear-
rose to 25 per cent and later to 100 per cent; gold at 106; bank failures; 9 failures in every failures were very large. Commodity prices suf- to other European nations, but did not reach the
Originating in England in 1890, it extended
securities were unsalable. Failures of banks, 1,000 commercial houses. $15,000,000 of gold fered a severe decline, and the New York Clear- United States till 1893.
commercial and industrial institutions numer-imported. Stock Exchange closed for 10 days,
ous, and widespread and general business suspension of payments lasted 40 days. No in- ing House, as in the panic of 1873, came to the
stagnation ensued. Railroads temporarily sus- dustry remained unaffected. Universal discon-ficates. Stock fell from high values to the lowest ing, difficulty in securing loans. Clearing House banks; hoarding of money; banks refused to
rescue with an issue of Clearing Houses certi- The usual phenomena of runs on banks, hoard-
pended payments. Commodity prices fell tinuance of work, commodities dropped 20% point of any date since 1879. Manufacturing and certificates issued to the amount of $41,490,000. make loans; many loans called and no money
from 10 to 35 per cent even wheat was and many were unsalable. Treasury bought
unsalable through unusual harvests abroad. $13,500,000 government bonds, New York Clear- commercial industries withstood the shock fairly Many banks refused to honor checks for cash offered on New York Stock Exchange for 24
Gold imports for the year ended June 30, 1857, ing House issued $26,565,000 certificates and well, being on a firm basis.
payments, others only paid cash for payroll pur- hours. Banks refused cash to depositors; and
$6,654,636. Exports of gold and silver, $69,- made common fund of associated banks' legal
poses. Bank checks issued for currency at 4 per currency premium 3%. $74,461,027 Clear-
cent premium. This stimulated hoarding to ing House certificates were issued. Freedom
136,922.
Crisis was of short duration. The stock market secure premium, but also aided gold importation. from European indebtedness, premium on money
was at its lowest point in the fall of 1884, and in- During August to November $51,936,111 of gold and need of American cereals and cotton abroad
creased the next year considerably, the crops arrived, $35,007,645 being received in August made gold imports impossible; over $100,000,000
in that year helping out the situation. Final alone. 160 national banks suspended and 13 imported to January 1, 1908.
recovery was made during 1886, and plans for business houses in every thousand failed. Con-
large undertakings were set forth. By 1887 gress repealed the vicious Silver Purchase Law
prosperity was again in full swing.
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.
Congress took no steps to improve currency
and banking conditions.
tender notes.
Crisis period about three 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.
Various bills for reduction of the tariff defeated
in Congress, bringing increased confidence to the
trading public. The passing of the Interstate
Legislation provided a safe but inelastic bond- Commerce Act in 1887 inaugurated the policy
Commerce Act in 1887 inaugurated the policy
of railroad control by the government.
secured currency.
of 1890.
Stock Exchange was at its lowest July 26.
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 1, 1897, general busi-
ness revival had set in strongly.
No broad measures for improving the currency
system. Repeal of Silver Purchase Law on
October 30, 1893.
The Secretary of the Treasury co-operated
with the 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 January 1
being nearly $700,000,000. Emergency currency
based on assets and commodities devised by
clearing houses and groups of bankers; 21
national banks suspended.
•
FUNDAMENTAL STATISTICS
139
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 conditions; and by reference to the monthly
figures once a month, these conditions may then be
interpreted in accordance with the rules mentioned.
Moreover, the average banker, merchant or in-
vestor is satisfied to depend upon the Composit-
plot, barometer figures and reports furnished by
this central agency, simply making a personal de-
tailed examination at desired intervals.
However, no matter what the time and money
expended in studying fundamental conditions, the
investigator always finds the subject absorbingly
interesting, the more so because such studies indi-
cate what may be expected of the future.
If, during a period of depression, uncertainty
and discouragement, the Compositplot and indi-
vidual charts show distinctly that the country is
about to enter a period of prosperity, investors buy
stocks, merchants buy goods, and bankers extend
loans. The result is that, when prosperity returns,
such investors and merchants find that they have
purchased very much below the prevailing prices
and obtain many times the profit that they other-
wise would.
On the other hand, during a period of great pros-
perity and extravagance, when everybody is buying
goods or securities and there is a general increase of
indebtedness, if the Compositplot and the other
charts foretell a change for the worse, investors sell
their securities for cash, merchants reduce their
140
BUSINESS BAROMETERS
merchandise and outstanding credits, and bankers
reduce loans or place a large part of them "on call."
These statistics, therefore, both serve as an insur-
ance against loss and also enable men to be prepared
to take advantage of the very low prices which are
sure to prevail during the formation of an area of
depression below the line of normal growth.
CHAPTER V
CONDITIONS AND EVENTS SINCE 1860
T
1860
HOUGH 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 considerably unfavorable
balance. The index of English commodity prices
for the year was 2,692.
On the stock exchange, prices were generally low.
Certain conservative stocks rose from 59 in the spring
to 93 in the fall. 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 3,849,469 bales at 11 cents per lb.
Panic con-
ditions began in November with the election of
142
BUSINESS BAROMETERS
Lincoln to the Presidency and the subsequent
action of the Southern States towards secession.
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. Certain stocks, selling at 84 early in the
year dropped to 62 in the fall. The production of
wheat and corn decreased considerably. The
number of bales of cotton amounted to 4,500,000.
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 manufacturing conditions. Thus,
in spite of the beginning of the Civil War, condi-
tions improved steadily after the middle of the year.
EVENTS SINCE 1860
143
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 lower.
The progress toward improved conditions was
marked by a low volume of foreign trade amount-
ing to about $380,000,000. The index of English
commodity prices was 2,878.
Transactions in the stock market increased and
prices rose steadily. Certain stocks sold for 71
in the spring and for 107 in the fall. Railroads
prospered. Among the crops, cotton production
amounted to 1,600,000 bales at $.31 per lb.; while
wheat sold at $1.28 a bushel and corn at $.60
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.
Money conditions were temporarily aided by
144
BUSINESS BAROMETERS
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. Certain stocks rose
from 106 in the spring to 153 in the fall. Wheat
sold for $1.16 and corn for $.84; 450,000 bales of
cotton were produced at an average price of $.67
per lb. Railroad earnings increased and the first
horse car line was constructed in New York. Con-
gress passed the Internal Revenue Act to increase
the 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
175,000.
Inflation of currency and exportations of gold
continued to an abnormal degree and money rates
rose. Foreign trade increased to over $475,000,000.
The index of English prices was 3,787.
EVENTS SINCE 1860
145
Before the end of the year, prospects as indicated
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 securi-
ties for the year were higher than in 1863. Certain
stocks, selling at about 150 in January, rose to 177
in April, fell to 141 in October and rose again to 155
in December. Cotton production amounted to
about 300,000 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, Lincoln was re-elected to the Presidency.
1865
Conditions were unstable and unsatisfactory
during this year. While 1,177 miles of new road
were constructed, the production of pig-iron de-
creased sharply to 831,770 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 several stocks
fell from about 160 in the spring to 125 later in the
146
BUSINESS BAROMETERS
year. Railroad earnings were erratic in behavior.
The production of cotton jumped up to 2,269,316
bales, selling at $.83 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 certain
stocks went as low as 99 and as high as 128. The
first official crop report of the national government
gave a production of about 152,000,000 bushels of
wheat sold at $2.20; 867,946,000 bushels of corn sold
at $.90 per bushel, and 2,097,254 bales of cotton
EVENTS SINCE 1860
147
sold at $.43 per lb. Though, as shown by these
figures, fundamental conditions appeared to be some-
what improving, still the surface conditions es-
pecially evident in the action of the stock market
were decidedly depressed.
1867
During this year, though. depression still existed,
improvement was plainly visible. There were
2,249 miles of new railroad constructed, and 1,305,-
023 tons of pig-iron produced at $44.08 per ton.
Bank clearings amounted to $28,675,159,000 and
failures increased to 2,780 with liabilities of $97,-
000,000. Immigration amounted to 310,965.
Monetary conditions showed a slight improve-
ment over those of the previous year. Gold expor-
tations decreased and rates were somewhat lower.
Foreign trade amounted to $681,615,000 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 seven stocks
ranged from 100 to 122. Railroad earnings im-
proved. 2,519,554 bales of cotton sold at $.31 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 prosperity.
1868
This was a year of marked prosperity. New
railroad construction increased to 2,979 miles; and
148
BUSINESS BAROMETERS
1,431,250 tons of iron were produced at $39.25 per
ton. Bank clearings amounted to $28,484,288,000.
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.
Money rates were slightly higher. The excess
of gold exports amounted to $51,217,027, or five
millions more than that of the previous year. The
volume of foreign trade amounted to $649,328,000,
with a balance in favor of imports amounting to
$87,000,000. The English commodity price index
was 2,682.
The market became active. Certain stocks rose
from 108 to 144. 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-
EVENTS SINCE 1860
149
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
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 were high. The excess of gold ex-
portations decreased to only $17,990,000, while the
balance of trade in favor of imports increased to
$101,079,906. The English commodity price index
was 2,666.
On the market, the stocks, at 144 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 287,745,626 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.
150
BUSINESS BAROMETERS
1870
Prosperity continued through this year in spite
of the unsatisfactory monetary conditions at the
close of 1869. There were 6,078 miles of new road
constructed, and 1,665,000 tons of iron produced at
$33.23 per ton. Bank clearings, to be sure, declined
to $27,804,000,000; and failures increased in num-
ber to 3,546; but wages were high and immigra-
tion amounted to 387,000.
In the money market, rates remained firm, al-
though money was easier than it had been in the
preceding year. The excess of gold exports amount-
ed to $42,673,184, while the excess of imports of
merchandise decreased to $57,546,000, and the
volume of foreign trade was $864,718,000. The
English commodity price index was 2,689.
The stock market, though steady, dropped during
the year, so that the stocks selling for 120 in the
first part of the year were selling at about 102 later.
Wheat was somewhat decreased in both price and
production as compared with 1869; but a phenome-
nal corn crop, amounting to 1,094,255,000 bushels,
sold at $1.02; and the cotton crop increased to
4,352,317 bales, selling at $.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 1,706,793 tons of iron were produced
at $35 a ton. Bank clearings rose to $29,300,-
000,000. The number of failures fell to only 2,915,
EVENTS SINCE 1860
151
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
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 $1,033,463,000,
with an excess of imports of $112,759,000. The
English commodity price index for the year was
2,590.
On the stock exchange, stocks rose during the
year from 103 to 117. Railroad gross earnings
per mile were $9,040, an unduly high figure. Crops
were not as good as those of the preceding year.
Cotton amounted to less than 3,000,000 bales selling
at $.169, corn to 991,898,000 bushels selling at
$.77, and wheat to 230,722,400 bushels selling at
$1.60. Added to the decline in crops were other
factors which hastened panic conditions which
were soon to follow. The Chicago fire, coming
in this year, shook confidence and helped to in-
crease money rates. In political circles much cor-
ruption sprang up; and the Tweed Ring exposures
produced a still further disquietude and lack of
confidence.
1872
The general decline which had begun in 1871 was
in this year somewhat checked by a number of
causes. New construction declined to the more
nearly normal figure of 5,878 miles; and the produc-
tion of iron increased to 2,548,000 tons selling at
about $49. This great increase of iron production
152
BUSINESS BAROMETERS
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-
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 $1,124,802,000, with an
excess of imports amounting to $187,000,000.
The English commodity price index was 2,835.
Speculation was active on the stock exchange.
Certain stocks dropped from about 110 to about 97.
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 confi-
dence. 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 practically consumed, and imme-
diately 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
EVENTS SINCE 1860
153
2,560,000 tons and sold at $42.79 a ton. Bank clear-
ings rose to $35,461,052,000. Business failures in-
creased to 5,000, with liabilities over $100,000,000
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 $1,163,000,000 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. 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
154
BUSINESS BAROMETERS
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 nec-
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 time has come for a house cleaning, they with-
draw their support, although the people are still
bullish and the ordinary store-keeper is borrowing
money to buy goods; and third comes the panic it-
self, which in the case of the great panic of 1873
caused the failure of Jay Cooke & Co., and many
other firms. This panic made imperative the
closing of the New York Stock Exchange from
September 18th 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-
EVENTS SINCE 1860
155
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.
1874
In this year panic passed into depression. New
railroad construction declined to 2,117 miles; and
the production of pig-iron fell off somewhat, to
2,400,000 tons selling at only $30. Bank clearings
declined to $22,900,000,000. 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 $1,131,988,000, exports exceeded
imports by $7,700,000. The English index figure
for commodity prices was 2,891.
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 1,158,251,-
200 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
156
BUSINESS BAROMETERS
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
$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 $1,014,100,000.
The index figure for English commodity prices was
2,778.
On the stock exchange stocks were irregular and
declining in price. Stocks averaged 100 high and
87 low. Gross railroad earnings amounted to
$7,010 per mile, showing a considerable falling
off, and both the Erie and the Wabash defaulted
interest on their bonds. Money continued high
and confidence was greatly upset. The crops,
however, were much better than in the preceding
year. Cotton production amounted to 4,632,313
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-
EVENTS SINCE 1860
157
tion, to be sure, rose somewhat to 2,712 miles; but
iron production decreased to 1,869,000 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.
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-
ward. Stocks, selling at 100 in the spring, dropped
to 62 in the winter. Railroad earnings continued
their decline to a gross per mile of $6,764. Crops
were again about the same as the year before in
- yield, with prices slightly lower. Money rates in
New York on time loans had declined to 5%; and
abroad, to 31%. 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-
158
BUSINESS BAROMETERS
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
stocks which these investors sold at an average of
160 a share in 1869, many now purchased at an
average of 73 a share, while others who waited.
until the beginning of the following year purchased
at an average price of $54.
*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
exports decreased to $140,000,000. Commodity
prices, as indicated by the Economist's index figure,
declined to 2,715.
On the stock exchange,* stocks dropped during
the spring and summer to 54, but began to rise in
the fall, selling at 75 in December. Gross rail-
* See page 33.
EVENTS SINCE 1860
159
road earnings per mile declined to $6,380; and net
per mile to $2,307. Crops were good: 4,773,865
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 $1.63 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
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 $17.67. Bank clearings declined slightly to
$22,508,000,000. Failures increased in number to
10,478, and in liabilities to $234,000,000. Immi-
gration 'declined still further to the low point of
138,000.
Monetary affairs reflected the improvement which
was under way. The volume of foreign trade re-
mained the same as in the preceding year; but the
excess of exports increased to $305,000,000, and
the gold movements showed an excess of imports
amounting to $1,822,000. The London Econo-
mist's commodity figure of 2,554 indicated the
160
BUSINESS BAROMETERS
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. Stocks rose from 69 in the spring
to 82 in July. Net railroad earnings per mile,
however, showed an increase to $2,375. The
crops of corn and cotton were about the same as
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 $1,278,762,000, 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 stocks rallied from
EVENTS SINCE 1860
161
69 to 104, and transactions nearly doubled. Net
railroad earnings increased to $2,610 per mile.
Crops were as follows: cotton, 5,755,000 bales selling
at $.108 per lb.; corn, 1,754,000,000 bushels selling
at $.47 per bushel; and wheat 459,000,000 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
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 6,706 miles, and pig-iron production
amounted to almost 4,000,000 tons selling at $28
a ton. Bank clearings jumped to $37,000,000,000.
Failures decreased still further to only 4,735 in.
number or .63 of 1% of all the firms in business,
with one exception the lowest point on record. The
number of immigrant arrivals increased to 457,000.
In money matters, the volume of foreign trade in-
creased to $1,586,490,000, 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 illustrated by the
English index figure of 2,538. The average sur-
plus reserve of the New York banks declined from
$6,800,000 in 1879 to $6,100,000 in this year.
162
BUSINESS BAROMETERS
On the New York Stock Exchange, transactions
increased from 72,000,000 to almost 98,000,000
shares. The stocks rose from 99 to 123. Net rail-
road earnings increased to $3,029 per mile. Crops
were excellent; 6,606,000 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
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 increased slightly and the price declined.
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 de-
creased slightly, and the balance "in favor of"
EVENTS SINCE 1860
163
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. Stocks
selling at an average price of 125 in January, rose
to 134 in June, and fell again to 121 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 increased 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. Tre-
mendous stock issues were being floated, and large
stock dividends were being declared. While to
outsiders everything appeared to be very prosper-
ous, 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
disaster, 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, prosperous conditions continued in many
of the important lines during this year and the
164
BUSINESS BAROMETERS
next. New railroad construction amounted to
11,659 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.
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 increased to $1,520,000,000
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. Nine stocks fell
to a low point of 113 in the early summer and
rose again to 126 in August. 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 6,950,-
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.
EVENTS SINCE 1860
165
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
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 $51,643,495,000.
Failures increased in number to 9,184 and in lia-
bilities to $172,800,000. Immigration also showed
a decline.
Money conditions were supported by a volume
of foreign trade amounting to $1,480,275,000.
The balance in favor of this country increased to
166
BUSINESS BAROMETERS
$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 com-
modity 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
insiders the opportunity to liquidate. Stocks
fell from 119 to 109. Railroad earnings increased
slightly both in gross and net. Money rates in
New York averaged 61% and in Europe, 31%.
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
EVENTS SINCE 1860
167
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. Stocks sold at 113 in February, and
85 in the winter months. Net railroad earnings
declined to $2,318 per mile. Crops, however, 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, followed the panic, in this
year. Only 2,975 miles of new railroad were con-
structed; and iron production declined to 4,044,000
tons, selling at $18. Bank clearings declined to the
low figure of $41,321,754,000. Failures were slightly
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 $1,274,118,000 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
168
BUSINESS BAROMETERS
$48,000,000. The English commodity price index
was 2,023.
The stock market was comparatively active.
Stocks rose from 86 to 111. There was a consid-
erable issue of new stocks and bonds amounting
together to $567,500,000. Railroad earnings dropped
to the low figure of $2,185 net per mile. Money
rates in New York dropped from 6% to 5% on
time loans. The crops were rather better than in
the preceding year, but prices were considerably
lower. In politics, the silver agitation rather in-
creased the general weight of depression 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 8,018 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 decreased
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 reserve 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
EVENTS SINCE 1860
169
this year.
Transactions amounted to more than
100,000,000 shares, and stocks rose from 106 to
118. Money rates in New York dropped to 4%
and the banks began pretty generally to buy bonds.
Railroad earnings improved both in gross and net;
and crops were about the same as in the preceding
year in yield, but somewhat lower in prices. Cot-
ton sold for $.092 per lb., corn for $.52 per bushel
and wheat for $.89 per bushel. A period of im-
provement had commenced, and although many
small merchants were only beginning to feel the
effects of the great depression, true conditions were
distinctly more than normal and the pendulum
was swinging too far the other way. In view of
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
$52,000,000,000, and failures amounted in number.
to 9,634 or .90 of 1% of all the firms in business.
Impelled by the tide of prosperity, immigration
increased to 490,000.
170
BUSINESS BAROMETERS
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
the preceding year, and the prices of stocks
fell from 125 to 112 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 $49,497,500,000;
EVENTS SINCE 1860
171
and failures, though increased in numbers, were
decreased in total liabilities. The number of
immigrant arrivals increased to 546,000.
Monetary conditions were interesting. While
exports decreased, imports increased and the
total volume of foreign trade decreased to $1,417,-
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 result-
ing excess exportation of gold amounting to $23,500,-
000. Domestic money rates remained at 5%, but
surplus reserves in New York banks increased to an
average reserve of $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.
Early in the year, stocks stood at a low point of
113, after the election they bounded up to 126 in
December. In fact, with the election of the Repub-
lican candidate, General Harrison, business in
general showed a marked improvement. The net
railroad earnings for the year amounted to $2,045
per mile, a low figure. Total crops, too, showed no
great increase, 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 5,162 miles; while iron pro-
duction increased to 7,600,000 tons selling at $17.76
a ton. Bank clearings rose to $56,000,000,000, and
172
BUSINESS BAROMETERS
failures increased somewhat.
clined to 444,000.
Immigration de-
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,-
584,000. Exportations of gold, however, continued
to exceed imports, in this year, by $38,900,000. Sur-
plus reserves of the banks were somewhat below
normal. As indicated by the index figure of the
London Economist, which was 2,362 for this year,
commodity prices had somewhat dropped.
On the stock exchange, transactions showed an
increase. Stocks rose from 123 in the spring to
136 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
7,472,511 bales sold at $.106 per lb.; the corn crop
of 2,112,892,000 bushels sold at $.44 per bushel;
and the wheat crop of 468,373,968 bushels sold at
$.91.
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
EVENTS SINCE 1860
173
clearings also rose to $60,800,000,000, and failures
increased only slightly. Immigration showed little
change.
In monetary matters, the volume of foreign
trade increased to $1,680,000,000 and the excess
of exports amounted to $34,000,000. Exports of
gold exceeded imports by only $3,800,000. Surplus
reserves in the New York banks fell to the low
average figure of $3,700,000. The English com-
modity price index figure, 2,247, shows a still further
drop in prices.
The stock market conditions were peculiar.
Railroad earnings rose to a net per mile of $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%. Ten stocks which
remained above 130 until the fall, suddenly dropped
then to 118. 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 con-
ditions of this year, confidence was not fully restored.
174
BUSINESS BAROMETERS
New railroad construction decreased to 4,026 miles
and pig-iron production fell off nearly a million tons.
Bank clearings also declined to $56,900,000,000; and
failures increased to 12,273 in number with liabilities
of $189,868,000. Immigration increased to 560,319.
Foreign trade continued to develop, amounting
in volume to $1,798,830,000 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
index figure of commodity prices declined to 2,207.
On the stock market, the listing of new securities,
which had amounted to the large figure of $1,122,-
800,000 in 1890, declined in this year to $476,500,-
000. The Exchange was dull. Ten stocks sold
around 115 until the late summer, when they rose
to 128. 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.
EVENTS SINCE 1860
175
1892
The prosperity of this year, so-called, was largely
due to artificial causes. New construction amounted
to only 4,441 miles, while the production of pig-
iron rose to more than 9,000,000 tons and its price
fell off to $15.75 per ton. Bank clearings increased
to $62,321,000,000; failures declined in number
to 10,344 and in liabilities to $114,000,000, and
immigration figures rose to 623,000.
In monetary matters, though the commodity ex-
ports exceeded imports by $97,000,000, still there
was an exportation of gold in excess of imports
amounting to $59,000,000. The New York banks'
average surplus reserve amounted to $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 2,107 indicates that there they were
low.
On the New York Stock Exchange, transactions
increased to 85,875,000 shares. Ten stocks fluc-
tuated between 126 and 135, beginning and ending
the year at about 130. 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.
176
BUSINESS BAROMETERS
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 $54,309,-
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.
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 135 to 102.
Railroad earnings showed no particular change
from the year before; but commercial paper rates in
New York averaged 7%. 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
EVENTS SINCE 1860
177
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 $45,686,000,000; failures were still high,
at 13,885 in number, though liabilities decreased
to $172,900,000; and immigration declined to
314,467.
Monetary matters showed the same depression.
The volume of foreign trade declined to $1,501,415,-
000 while the excess of exports increased (through
a decided decrease in imports) to $150,000,000.
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 115
in the spring and fell back again to about 106
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 9,900,000 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
178
BUSINESS BAROMETERS
had fallen below 1,600,000,000 bushels during the
70s, yet a very much smaller area was then under
cultivation and conditions were entirely different.
As figures clearly show, a small increase or decrease
in crops does not affect business excepting senti-
mentally; but a great failure such as was witnessed
in 1894 gives the country a shock from which it may
take several years to recover. In addition to the
crop failures, the Pullman strike occurred in this
year, and the Wilson bill affecting the tariff was
also passed; in fact, 1894 was apparently the worst
year since the Civil War.
1895
This year began in great gloom. The depression
of the preceding two years, during which so many
bankers and merchants had failed and one-third
of the total railroad mileage of the United States
had fallen into the hands of receivers, began to
have its effects upon all labor and even upon the
most humble storekeeper. 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,-
EVENTS SINCE 1860
179
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 from 105 in March to about
121 in September only to fall back to about 108 in
the winter. Railroad earnings were $1,804 per mile
net, or practically the same as in 1894. But crops
were somewhat improved. The cotton yield of
7,000,000 bales sold at $.074 per lb.; the corn crop of
2,000,000,000 bushels sold at $.477 per bushel; and
the wheat crop of 467,000,000 bushels sold at $.669
per bushel. And, added to the fair crops, there was
the low domestic money rate of 31% 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
180
BUSINESS BAROMETERS
iron production declined to 8,600,000 tons selling
at $13 a ton. Bank clearings decreased to $51,-
000,000,000. Failures increased considerably to
15,000 in number with total liabilities of more than
$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.
Money rates on
The New York Stock Exchange was dull in trans-
actions, but listed more than $1,000,000,000 of
new securities about equally divided between bonds
and stocks. The ten stocks once more fluctuated
between 113 and 99 in August. Railroad earnings
increased to $1,840 per mile net.
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-
EVENTS SINCE 1860
181
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 9,600,000 tons. Bank clearings increased to
$57,000,000,000 and failures decreased in number
from 1.36% of all the firms in business to 1.23%.
Immigration 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 $38,500,000.
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 31%
of 1895, and railroad earnings continued to improve.
Crops, too, remained strong. Though corn showed
a decrease, wheat increased to 530,000,000 bushels
182
BUSINESS BAROMETERS
and cotton increased to 11,000,000 bales. The
three sold respectively at $.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 $12;
Bank clearings jumped up to $68,931,000,000.
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
in exports in spite of the fact that imports had
somewhat declined. Exports which had amounted
to only $824,000,000 in 1895 had increased steadily
with the improving crops until in this year they
amounted to $1,255,000,000 or rather more than
two-thirds of the total volume. Imports of gold
increased correspondingly to the immense figure of
$158,163,952. 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 115 to a high point of 127 in
EVENTS SINCE 1860
183
June. Net railroad earnings jumped up to $2,111
per mile.
Once more money rates were normal,
time loans in New York averaging 4%. The crops,
too, kept pace with the advancing prosperity, for
cotton amounted to 11,200,000 bales, corn to
1,900,000,000 bushels, and wheat to 675,000,000
bushels. Although the Spanish War temporarily
disarranged business, it was so short that it acted
in the end as a great stimulus to trade.
1899
Conditions, already prosperous, continued to
improve throughout this year. New mileage
amounted to 4,000 miles; iron production advanced
to 13,600,000 tons. Bank clearings showed a
phenomenal growth to $94,000,000,000, while fail-
ures 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 listing of
new securities amounted again to nearly $1,230,-
184
BUSINESS BAROMETERS
000,000. The ten stocks continued their rise from
126 to 144. 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 consolidation
in industries and towards "integrating trusts"
began in earnest with this burst of prosperity. In
fact, this year saw the beginning of many of our
largest trusts and monopolies in their present form
of organization.
1900
With the turning of the century, prosperity was
in full swing. To be sure some of the figures in the
fundamental subjects showed a slight decline as
compared 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 more than $15,-
000,000,000 greater than the clearings of two years
before. Failures 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
EVENTS SINCE 1860
185
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 but a smaller amount of new securities were
listed. Though suffering the usual spring slump of
this period, the ten stocks rose from a low point of
132 to a high point of 155. 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 2,620,000,000 bushels
and sold respectively at $.804 and $.453 per bushel.
The reëlection 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 $118,579,954,282 and
failures remained about the same as in 1900.
immigrants increased somewhat in number to
487,900.
New
A slight increase came in the total volume of
186
BUSINESS BAROMETERS
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 heretofore, rose from 154 to 174 between
January and November, 1900, but more active
stocks continued the sharp advance begun in 1900,
to May of 1901. Meanwhile net railroad earnings
continued their increase to $2,688 per mile; and
money rates and crops remained strong. To be
sure the corn crop decreased 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
Compositplot, 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
EVENTS SINCE 1860
187
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
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 remained at about $118,-
000,000,000 while failures remained abnormally low
at 11,615 in number or only .87 of 1% of all the firms
in business. Immigration increased to 648,743.
Monetary conditions showed a slight decrease in
the total volume of trade, as well as a decrease to
$391,000,000 in the excess of exports, due, again,
entirely to an increase in imports. Gold imports
exceeded exports by $8,000,000. Bank reserves were
abnormally 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,
188
BUSINESS BAROMETERS
knew that a day of reckoning must come soon.
Meanwhile, the ten stocks continued to rise from
170 to 190, but fell again to about 170 in December.
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 production increased about 1,000,-
000 bales, about the same as in 1901. But even
these excellent figures could not save the unsound
conditions of the money and stock markets. Fur-
thermore, confidence was unsettled by severe anti-
trust agitation 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
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 except
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 to $109,000,000,000. Fail-
EVENTS SINCE 1860
189
ures decreased in number to 10,928 or .85% of
all the firms in business. Immigration 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 180 to
146. 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
figures were not extremely unsatisfactory.
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
In
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
190
BUSINESS BAROMETERS
immediately in 1904. New 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 increased slightly
in actual numbers, and also in percentage of firms
in business to .86 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 forty stocks* rose again
after their sharp decline in 1903. Net railroad
earnings increased to $2,980 per mile. Time loan
rates dropped to 4% in this country and 31%
abroad. In crops, cotton amounted to the largest
yield on record of 13,506,000 bales, selling at $.117
per lb.; corn amounted 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, Roosevelt's administration was continued
*Beginning 1904, the forty stocks (twenty rails and twenty industrials)
have been used in place of the ten stocks previously mentioned.
EVENTS SINCE 1860
191
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 amounted
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 10,740. Immigration
increased rapidly to 1,026,000 persons.
Both volume of foreign trade and excess of exports,
showed an advance, and $3,498,000 were imported
in excess of gold exports. The average surplus re-
serve of the New York banks declined to only $10,-
200,000. 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 forty stocks in this
year had an unprecedented rise from 82 to 100.
Net railroad earnings advanced to $3,129 per mile.
Though the cotton crop declined 3,000,000 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.
192
BUSINESS BAROMETERS
1906
Prosperity was abnormally inflated. New con-
struction in this year amounted to 5,425 miles,
and iron production advanced to 25,000,000 tons
selling at $21. Bank clearings were at the second
high point on record, increasing to $160,003,265,000,
while failures declined in number to only 10,031 or
.72 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. 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 aver-
age surplus reserve of the New York banks dropped
to only $7,300,000. 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 forty
conservative stocks dropped from the high of 114 in
January to a low point of 100 in the winter. Rail-
road net earnings advanced to $3,580 per mile.
Crops were tremendous. Cotton yielded 13,000,000
bales at $.115; corn yielded 2,927,000,000 bushels at
$.56; and wheat yielded 735,000,000 bushels at
$.865. Such satisfactory crop conditions, however,
only served to increase the mad pace which prosper-
ity 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
EVENTS SINCE 1860
193
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 Earth-
quake and the culmination of the major bull move-
ment 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 foreseen except by
those students of fundamental statistics who clearly
saw by means of a Compositplot 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
decreased to 5,362 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 10,990. Immigration advanced to 1,285,000.
In monetary affairs, the total volume of foreign
trade continued its increase to the unparalleled
figure of $3,346,000,000; the balance from excess of
exports increased to $500,256,000; 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 under
$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.
194
BUSINESS BAROMETERS
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 forty stocks which had temporarily
recovered from their severe decline in 1906, dropped
again from a high point of 111 in December, 1906,
to a low point of 60. Railroad net earnings con-
tinued 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 $.64 respectively.
Domestic rates on time loans advanced nearly
to 6%, while rates abroad advanced to 42%. Legis-
lation adverse 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.
1908
Depression had, in this year, extended from the
stock market to other lines of business. New
building was at a very low ebb. Although 3,918
miles of new railroad were constructed, only 15,-
900,000 tons of pig-iron were produced, and there
was little new building construction. Pig-iron
sold at about $17.70 per ton. Bank clearings de-
clined to $132,408,000,000 and failures increased in
number to 14,873. The condition of the labor market
EVENTS SINCE 1860
195
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,-
209,000 and the balance of trade "in favor of"
the United States amounted to $636,461,000, 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 Index declining
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 forty stocks, which had
remained under 80 all during the spring, rose in
December to 92. Railroad net earnings declined
to $3,144 per mile. Fortunately, crops remained
good. Cotton, yielding 13,432,131 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 $1.05. 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
196
BUSINESS BAROMETERS
improvement. In fact, by the spring of the next
year, the area of 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 $165,838,-
000,000, and failures decreased in number to 12,430.
Immigration continued low at 751,786 new arrivals.
In monetary affairs, money rates continued at a
low level, as is usual in depressions following a
panic. But the volume of foreign trade advanced
to more than $3,000,000,000, due entirely to an
increase in importations, while the excess of exports
decreased to $252,677,000. Once more gold ex-
portations exceeded imports, reaching in this year
the high point of $88,793,000. Bank reserves
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
274,000,000 shares, while new securities listed
increased to $2,424,000,000, almost equally di-
vided between stocks and bonds. The forty stocks
rose from 86 to 105. Railroad earnings increased
slightly in the gross, while the net was $3,582 per
mile as a result of economies introduced during the
EVENTS SINCE 1860
197
depression. Though crop reports in the early part
of the year were unsatisfactory, the final figures
showed a decline only in cotton, while wheat and
corn were good. Cotton yielded more than 10,000,-
000 bales selling at $.126 per lb.; corn yielded 2,552,-
000,000 bushels selling at $.767 a bushel; and wheat
reached the high point of 683,000,000 bushels selling.
at $1.26 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. Only the slowing up of business, as
general conditions became increasingly unsound,
saved the situation. Iron production, which aver-
aged 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
to less than $16 before the end of the year. Bank
clearings declined slightly to about $164,095,000,000,
and liabilities in failures increased by an average
of $4,000,000 a month over those of 1909. The
number of immigrants increased to over 1,000,000.
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
198
BUSINESS BAROMETERS
month earlier than the usual rise due to crop move-
ments. The loans of the New York Clearing House
banks averaged per month more than the deposits
for the twelve months of the year. These facts,
together with a yearly figure for Bradstreet'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 forty stocks dropped from
104 to 83. Although gross earnings of the rail-
roads showed an increase over the year before, the
unfavorable 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 $1.12
a bushel, $.131 a pound and $.66 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.
!
EVENTS SINCE 1860
199
1911
Mercantile conditions continued to decline. Total
bank clearings showed a decline of 3%. Under
conditions of normal growth along the line X-Y,
clearings for the country, excluding New York,
should have been increased greatly instead of re-
maining so nearly on a level. There was a larger
number of failures, and liabilities were about 5%
lighter. A marked decline of more than 15% was
shown in immigration reports. Average per mile
earnings of the railroads reporting to the Interstate
Commerce Commission declined, but both gross
and net earnings of the ten roads recorded on the
Desk Sheet increased, as compared with 1910.
Commodity prices declined, and this slackening
was followed by an advance in food-stuffs, which
checked the decline of Bradstreet's index of com-
modity prices.
Money rates were much easier, but students of
fundamental conditions did not feel that the loans
of the banks had been sufficiently liquidated to
render the situation satisfactory. In January and
March the National Banks reported a percentage
of loans to deposits, with the exception of the call
of September 1, 1910, higher than at any time since
1908. The net deposits also increased, the figure
$6,689,018,000 on June 7, being the highest on
record, with the per cent of reserve at 22.10%
compared with a previous high of 23.94% in 1908.
Imports declined, and exports of general merchan-
dise increased about 15%.
Investment conditions during 1911 were very
200
BUSINESS BAROMETERS
unsatisfactory. Dullness was at times exceedingly
marked. On the New York Stock Exchange the
number of shares traded was very small, 127,-
207,058, compared with 164,150,061 in 1910.
Bond sales increased, and fewer new securities
were listed, but the amount of actual issues was
nearly 15% greater. Gold production continued
to increase. A severe drought reduced the yield in
some of the crops; wheat, oats, hay, and potatoes
were below the average; corn was only fair, while
the largest acreage of cotton ever known produced
over 14,000,000 bales. Investment conditions were
adversely affected by the Supreme Court decisions
and reorganization of large corporations under the
Sherman Law, the consequent discussion and un-
certainty reacting unfavorably on the market and
business in general.
1912
With the exception of the activity attendant
upon the good crops, business remained for the
most part below the line of normal growth. Failures
numbered even more than in the preceding year.
Bank clearings, although responding in the late
fall to the crop influence, remained nearly at a
level for the first three quarters of the year. Com-
modity prices advanced sharply throughout the
year. Pig-iron production increased to more than
29,000,000 tons. Railroad earnings as reported to
the Interstate Commerce Commission showed a
gain; both gross and net earnings of the ten roads
on the Desk Sheet also increased. Immigration
showed a marked gain.
EVENTS SINCE 1860
201
Money rates were very high. Circulation in-
creased. Surplus reserves of the New York clear-
ing house banks (excluding the trust companies)
reported at $44,000,000 in February, was reduced
in July to a deficit of more than $200,000. Im-
ports gained about 19% for the year, giving the
largest total in the history of the trade. The bal-
ance in favor of the United States was $581,144,938
compared with a previous high of $636,461,360 in
1908. Gold exports gained about 27% over 1911,
with gold imports remaining about the same, thus
resulting in a rather less favorable balance.
Investment conditions were. not satisfactory.
Prices of forty representative stocks fluctuated
from a winter low of 89 to a high of 100 in August.
Bond sales fell off and prices were lower than in
any recent year since 1908. The crops were large,
but cotton made a small showing as compared with
the big crop of 1911. Tariff discussion, corporation
investigation, and other unsettling influences, dis-
turbed the market and business in general. Labor
troubles were particularly in evidence and exerted
a most adverse effect. Students of fundamental
conditions saw in Mr. Wilson's election the fulfill-
ment of the great law, that whenever there is deep
social and economic unrest and dissatisfaction, the
people seek a new administration in hope of relief.
1913
The decline in business which started in 1911
continued this year. Over-expanded conditions were
temporarily bolstered up by bumper crops in 1912,
202
BUSINESS BAROMETERS
but in 1913 the decline was rather hastened by un-
usual events, notably the Ohio flood in March and
the financial strain caused by the Balkan War, which
ended during the year. Failures again increased
in number from 14,647 to 15,296, and in liabilities
from $202,085,974 to $282,232,584, although the
average liabilities per failure were somewhat less.
Immigration was not at first affected. Commodity
prices declined throughout the year, indicating that
the turning point had been reached in 1912. Pig
iron production during the first of the year was
the heaviest in history, but after the first few
months declined rapidly.
Monetary stringency and contraction of credit.
were characteristic throughout the entire year.
Rates for prime commercial paper averaged over
52% and rates of the banks of England, France
and Germany averaged nearly 5%, the highest
since 1875 and probably for many years before that.
Much of the strain was caused by the financing of
the Balkan War, which ended during the year.
If foreign monetary affairs had not been so serious,
the heavy balance of exports would have been
favorable. As it was, Europe settled the balance
by returning United States securities. Two direct
results of the monetary stringency were, a steady
contraction in business, and the speedy enactment
of a new currency law.
Security prices declined steadily from the first
of the year, and on June 11 broke sharply in a near
panic. The forty stocks which averaged 94 in
January, dropped to 76, and the ten bonds fell
EVENTS SINCE 1860
203
from 96 to 91. The summer market picked up
considerably, but another drop occurred in Decem-
ber, when many issues sold lower than in June.
Listings dropped to $968,738,315, a lower point
than in 1907. New issues fell from $2,253,587,300
in 1912 to $1,645,736,200, and fewer corporations
were chartered than in any year since 1908. The
copper stock market held up remarkably well, con-
sidering depression in other lines, due to heavy
European demand for copper in preparation for
war. Politics caused uncertainty throughout the
entire year because of important legislation pending
and active anti-trust investigation. During the last
three months the tariff and income tax law (on
October 3) and the new currency law (on December
23) were passed. Crops were about average; winter
wheat was a bumper crop, but corn did only fairly
well. To students of fundamental conditions, it
was evident that a year of depression lay ahead.
1914
By far the greatest event in this year was the
beginning of the European War. The decline of
1913 quickly developed into depression. Several
enormous failures occurred in June and July, in-
cluding the Claflin catastrophe. This liquidation,
however, seemed to clear the air. There were
many indications that an improvement in business
would come with the bountiful fall harvests. Such
was the situation when on August 1 the European
War burst upon the world, bringing panic to finan-
cial circles, the closing of exchanges, and stagnation
204
BUSINESS BAROMETER S
to business. As business was well liquidated,
no serious national catastrophe occurred, and mat-
ters soon began to adjust themselves to the new
situation.
The total barometer figures for the year tell of
severe depression, though they do not show the
stagnation which occurred during the latter half
of the year. Bank clearings for the whole country
fell to $155,000,000,000 from $170,800,000,000 in
the previous year. Liabilities of failures touched
nearly $360,000,000, the heaviest mortality for
twenty-two years, involving over 1% of the total
number of firms in business. Immigration was
the smallest since the depression of 1908. The
commodity price index, which had been declining
in sympathy with general business, shot up to
$9.8495 when war was declared, by far the highest
point in history, but prices soon fell off again when
it was realized that imports from Europe would
be resumed. Pig iron production dropped to
23,000,000 tons, new building was very quiet, and
railroad construction fell to 1,532 miles, the low-
est in seventeen years. Railroad earnings declined
sharply.
Monetary conditions during the first half of the
year were distinctly easy. Commercial paper rates
ruled below 4%, with surplus reserves of the New
York Banks (excluding trust companies) as high as
$40,000,000. The declaration of war in a moment
transformed this comfortable position into a danger-
ous crisis. Enormous shipments of gold bullion and
coin were made from New York to the Bank of
EVENTS SINCE 1860
205
England, but sterling exchange soared to $5.10.
The heavy surplus in the New York Banks was
soon displaced by a deficit of about $30,000,000.
Money rates rose to the nominal figure of 8%, but
funds could hardly be obtained at any price. Clear-
ing house certificates amounting to $124,695,000
were issued in New York, and over $360,000,000 of
emergency currency was taken out, raising the per
capita circulation to $37.31. In Europe a general
moratorium of debts was established. Enormous
grain exports soon built up a favorable trade bal-
ance, thus stopping gold exports, and the inaugura-
tion of the Federal Reserve law on November 16 re-
stored the monetary situation to comparative ease.
When all of the stock exchanges throughout the
rest of the world closed, an avalanche of selling was
turned upon the New York market. On July 30
the forty stocks dropped to 71 and the ten bonds.
to 89.5. The New York Exchange closed, and the
other United States exchanges quickly followed
suit, reopening December 12. Some trading was
carried on in outside markets, where prices ruled
considerably below the closing prices of the New
York Exchange. When the exchanges were finally
opened, severe restrictions and minimum prices
were imposed to prevent another flood of European
selling, but stocks for the most part averaged above
the closing prices of July 30. The ten bonds,
however, sold down to 86½. The crops, especially
winter wheat, were excellent, and because of “war
prices" for grains were the most valuable ever
grown. Wheat sold up to $1.68 a bushel. Cotton,
206
BUSINESS BAROMETERS
however, was forced down to 6 cents a pound.
When the war broke out anti-trust agitation by
the government was dropped and the eastern rail-
roads were allowed to increase freight rates. With
these factors added to the sound fundamental con-
dition of business, close students of the situation
looked for a substantial improvement during the
coming year.
1915
The year 1915 was one of phenomenal expansion,
demonstrating in a most forcible way the applica-
tion of the law of equal reaction to business
conditions. It opened with business in the depth
of depression, and ended in the midst of the great-
est prosperity ever known. The solid foundation.
laid in the depression of 1914 was the real basis
of this tremendous expansion. War orders and
continued huge grain shipments gave the first
impetus to business. Gradually domestic trade.
began to revive, and finally, when the success of
tremendous crops was assured, the boom in busi-
ness broke all bounds. Although the total yearly
figures show only to a limited extent the tremen-
dous activity attained by business during the
latter part of the year, they present a wonderful
record. Clearings for the year increased to $187,-
000,000,000 compared with $155,000,000,000 the
previous year. Failure liabilities dropped from
$358,000,000 in 1914 to $294,000,000, the number
of small failures considerably increasing, as is usual
at the close of a period of depression. Gross rail-
EVENTS SINCE 1860
207
road earnings amounted to $863,000,000 compared
with $837,000,000 in 1914. Commodity prices
moved rapidly upward to levels never before known.
The iron and steel industry experienced the great-
est revival in its history. Pig iron production for
the year amounted to 29,600,000 tons compared
with 23,000,000 tons in 1914, while unfilled tonnage
of the United States Steel Corporation nearly
doubled during the year.
Monetary conditions throughout the year were
extremely easy, in spite of enormous business
activity. Commercial paper rates, even during the
fall months, dropped below 3%, while surplus
reserve of the New York Clearing House Banks
(excluding trust companies) swelled to over $200,-
000,000, figured under the new reserve require-
ments. This unprecedented ease in money was
due principally to the enormous importation of gold
from Europe. Huge exports of merchandise from
the United States to the belligerents had completely
reversed the international balance of 1914, and
forced European exchange rates to unheard-of
low levels. Sterling exchange, which touched $5.10.
in 1914, dropped to $4.50, and exchange of the
other belligerent countries suffered even greater
depreciation. In order to make further purchases
in the United States, the European nations there-
fore shipped more than $400,000,000 in gold to
this country. The effect of such a great increase
in our money supply was immediately evident.
Circulation per capita at once increased and by
the end of the year had swelled from $34.55 to
208
BUSINESS BAROMETERS
$38.48, while the banks, especially in New York,
suddenly found themselves with more money than
they could profitably employ.
The advance which took place in certain stock
prices was one of the most spectacular in history.
Early in the year it became evident that a number
of companies were going to be greatly benefited
by war orders. Bethlehem Steel, among the first
of the "war stocks," in a few months' time jumped
from about 46 to 600. Suddenly, late in the spring,
the whole stock market began to boil, for funda-
mental conditions were sound and a reaction from
the preceding long period of low prices was due.
The greatest activity occurred in the industrials,
the rails being depressed by heavy foreign selling.
The average of the forty stocks, which stood at
about 72 at the first of the year, by December
had risen to 102. By this time, however, a substan-
tial part of the prosperity area on the Composit-
plot had been formed, and students of fundamental
conditions accordingly began to liquidate their stocks
in spite of the fact that other surface conditions were
the most favorable in many years. Bonds ruled
heavy throughout the year, due to the war's tre-
mendous demand for fixed capital, although some
strengthening in bonds occurred during the last
two months. Grain prices were very high during
the first of the year, wheat selling up to $1.80 per
bushel. The 1915 grain crops, however, sold con-
siderably lower. Cotton advanced to over 12
cents per pound, due to increased demand. Wage
advances were evident in nearly every branch of
EVENTS SINCE 1860
209
industry and labor shared in the general pros-
perity to a greater extent than ever before. Do-
mestic politics were more favorable to general
business.
1916
Phenomenal expansion in United States business
and finance continued throughout 1916. The
Barometer Index figure advanced from about 75
to 124. Nearly every line of industry participated
in the great boom and production increased far
beyond all previous records. Bank clearings
amounted to $260,000,000,000, a gain of more than
35% over 1915. Failures numbered 16,700 com-
pared with 20,600 the year before, while liabilities
fell off to less than two-thirds of those in 1915.
Gross railroad earnings amounted to over $1,000,-
000,000 compared with $860,000,000 in 1915. The
Babson Price Index of Industrial Commodities
jumped from $1.30 to $2.20. Bradstreet's index
rose 30%. Pig iron production exceeded 39,000,000
tons, 8,000,000 greater than any previous record
year.
Rates for short-time money continued easy
until the last of the year, when a gradual strength-
ening took place. Net gold imports of $530,000,000
kept the banks in a fairly easy position, notwith-
standing unprecedented loan expansion. In De-
cember gold imports slackened and call rates at
New York temporarily soared to 15%. Resump-
tion of gold imports, however, soon forced rates
back again to low levels. The loan item of New
210
BUSINESS BAROMETERS
York Clearing House Banks averaged $2,270,000,000
for the year, against $1,816,000,000 in 1915. The
balance of foreign trade in favor of the United
States exceeded $3,000,000,000 and about six times
the average balance in peace times. Money in
circulation per capita jumped from $38 to $43
during the year. Sterling exchange was well sup-
ported by gold shipments and ruled about $4.75
throughout the year. Exchange on the other
belligerents, however, sank to new low figures.
The average stock prices experienced a smaller
net gain than other economic subjects. This was
due to the fact that the stock market at the begin-
ning of 1916 had already well discounted current
business prosperity. Prices declined during the
summer. Early in the fall, however, when it be-
came apparent that the war would last another
winter, great advances were scored by certain in-
dustrial stocks. United States Steel touched
12934, Bethlehem Steel 700, Chino Copper 7434,
Utah Copper 130, Central Leather 123, etc. The
whole average of 40 stocks for a few weeks in No-
vember and December held close to 110. Then
came President Wilson's first peace note to the
belligerents, which precipitated a drop of about
ten points in the stock averages. The year closed
with the 40 stocks several points lower than when
it began.
Bonds gained slightly toward the last of the
year, but the scarcity of funds for long time invest-
ments prevented any extended advances. During
the year a great wave of industrial expansion took
EVENTS SINCE 1860
211
place. More than 30,000 new corporations were
formed, among which a host of wild-cat promo-
tions were included. Students of fundamental
conditions recognized this as a sign of a coming
reaction. Crops, on the whole, were disappointing
and were inadequate to meet the foreign and
domestic demand. Wheat sold up as high as $1.90
a bushel while cotton touched 21 cents per pound.
Unprecedented advances in wages were obtained
by labor in nearly every line of business. Keen
students of the whole industrial and financial situ-
ation put their affairs in shape to weather the
reaction which they knew must come.
CHAPTER VI
SUBJECTS RELATING ESPECIALLY TO
MERCANTILE CONDITIONS
W
HEN interpreting the Desk Sheet 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 decline. This is due to the
fact that the same change in the figures of a given
subject signifies 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 Compositplot.
After deciding in what period the country is, each
set of subjects must be interpreted in accordance
with certain rules. In other words, with a given
subject a decrease signifies one thing, an increase
signifies another, while no change signifies a third.
Therefore, the figures on each subject should be ex-
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
conditions," "less satisfactory conditions," or "un-
certainty." After reaching this conclusion, relative
to what the figures on the subject under con-
MERCANTILE CONDITIONS
223
sideration 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 the next change.
In short, the study of Fundamental Statistics
consists simply of (1) obtaining the latest figures
on
each subject, noting their trend; (2) compar-
ing both the figures and the trend with normal
figures and normal trends for said subject; and (3)
deducing one final conclusion as to whether the
figures and their general trend are becoming more
or less normal, considering the areas of the Com-
positplot and the Law of Equal Reaction.
In this study, 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 Compositplot. Therefore,
although the directions given in these three chap-
ters are very valuable for use as a check upon what
the Compositplot indicates, yet no independent
subject should be allowed to overshadow what the
Compositplot indicates, viz.: (1) the Composit-
plot always shows at a glance in what minor period
we are and what period may next be expected;
224
BUSINESS BAROMETERS
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 Compositplot, 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 exer-
tion, 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-
factures 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
be included in the term circulating capital. There
is also fixed capital, which includes tools, machines,
factories, buildings occupied or used by those en-
NEW BUILDING
225
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
$187,739,071,090, according to the estimate of
1912.
ESTIMATED WEALTH OF THE UNITED
STATES
Real property taxed.
Real property exempt..
Live stock..
Farm implements and ma-
•
1904
$55,510,228,057
1912
$98,362,813,569
•
6,831,244,570
12,313,519,502
4,073,791,736
6,238,388,985
chinery.
844,989,863
1,368,224,548
Gold and silver coin and
bullion..
1,998,603,303
2,616,642,734
Manufacturing
machin-
ery, tools, etc..
3,297,754,180
6,091,451,274
Railroads and their equip-
ments.
11,244,752,000
•
16,148,532,502
226
BUSINESS BAROMETERS
(a) Street railway, etc...
1904
1912
$4,840,546,909 $10,265,207,321
•
18,462,281,792
107,104,211,917
34,334,290,655
187,739,071,090
$2,219,966,000 $4,596,563,292
(b) All other property.
Grand total.
a. Street railways, etc. (itemized)
Street railways..
Telegraph systems.
Telephone systems..
·
Pullman and private cars
•
•
227,400,000
223,252,516
585,840,000
1,081,433,227
123,000,000
123,362,701
Shipping and canals. .
846,489,804
1.491,117,193
Privately owned water works.
275,000,000
290,000,000
Privately owned electric light and power
stations.
• •
562,851,105
2,098,613,122
Total.
4,840,546,909
9,904,342,051
1,899,379,652
5,240,019,651
7,409,291,668
14,693,861,489
495,543,685
826,632,467
408,066,787
815,552,233
·
2,500,000,000
•
4,295,008,593
5,750,000,000
8,463,216,222
Total.
18,462,281,792
34,334,290,655
b. All other property (itemized)
Agricultural products.
Manufacturing products.
Imported merchandise.
Mining products...
Clothing and personal ornaments
Furniture, carriages, etc..
•
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 $34,514,351,382 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 $616.97
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 constructions, give us the most interesting
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
NEW BUILDING
227
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.
The business of these firms is to make a thorough.
canvas 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.
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
228
BUSINESS BAROMETERS
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, while the in-
direct losses, so well known to the students of
forestry, cannot be calculated for use at frequent
intervals. The monthly record which is obtainable,
however, is a valuable 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
improvement as a result of new construction, are
both necessary and valuable barometers of busi-
ness and show where to increase or decrease in-
vestment in land, labor and capital.
Another factor of importance, and bearing a
relation to the second group of subjects we are
considering, 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
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
NEW BUILDING
229
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 con-
struction, (2) fire losses and (3) real estate values.
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
ascertain 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
illustrative 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
*This is done because it has been impossible to obtain good records
strictly for "New Building" previous to 1902.
230
BUSINESS BAROMETERS
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
increase 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
estate speculation resulted in a similar increase in
the assessed valuation of both city and country
property.
The second great crisis came in 1857, and was
likewise preceded by a period of great increase
in new construction. Immediately following the
panic in 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
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.
NEW BUILDING
231
During the ten years between 1837 and 1847, only
about 4000 miles of new track were constructed, yet
in the ten years from 1847 to 1857 about 20,000
miles were constructed. When studying such fig-
ures 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
destitution.
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
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
232
BUSINESS BAROMETERS
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.
*Special Note:-In using the rules-as also is true in regard to the
rules given subsequently under other subjects one must 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 barometers
must not be misled by seasonal changes which are wholly normal.
NEW BUILDING
233
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 suggests that prosperity
is nearing an end.
(b) A decrease may tend to lengthen the
period 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
as a temporary "clearing house." To illustrate:
234
BUSINESS BAROMETERS
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 separate
building and has regularly salaried employees.*
Up to August 15, 1916, the clearing houses above
mentioned conducted the entire clearing business of
the country. On that date, however, the Federal
reserve banks assumed the functions of clearing
houses and extended the existing clearing facilities
to many outlying districts, which up to that time
had not been served by the clearing houses. Under
the new plan each of the twelve Federal reserve
banks handles checks for all the banks in their
*For further particulars as to the details of clearings and the business
of clearing houses refer to Jas. G. Cannon's most complete book on the
subject, entitled "Clearing Houses," and also to "The Principles of Money
and Banking" by Conant. For a very simple and condensed statement,
refer to pages 80-86, inclusive, of "Money and Investments" by Mont-
gomery Rollins. The changes in the clearing system brought about by
the Federal Reserve law should also be considered.
BANK CLEARINGS
235
respective districts which agree to remit to them
at par. This includes checks on all national banks
throughout the country, and checks on a large num-
ber of state banks and trust companies. Eventu-
ally the Federal reserve banks expect to be able
to collect checks on practically all the commer-
cial banks throughout the country. Therefore, by
taking the reports of the Federal reserve banks,
together with those of the clearing house associa-
tions, we have a much more comprehensive record.
of bank clearings than formerly. Of course some
allowance must be made for this change when
comparing current figures for bank clearings with
those previous to August, 1916.
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
with Prof. Irving Fisher's "Equation of Exchange"*;
but taken by themselves they are of little value.
*See Professor Fisher's book, "The Purchasing Power of Money."
236
BUSINESS BAROMETERS
On the other hand, some critics do not care "to
know about present conditions, but desire only to
forecast future conditions." This point of view is
also illogical, as a knowledge of present conditions is
a necessary step toward forecasting future conditions.
Were it not for the systematic reports received on
bank clearings, the Compositplot 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 cir-
culation," 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 fluctations 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
BANK CLEARINGS
237
the fluctuations of the last portion of the plotted
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 up-
ward 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 plan 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 Clearing of U. S.
Bank Clearing of U. S.
Excluding N. Y.
Year
Total
Year
Total
1883 $51,643,495,673
1883
$14,209,194,801
1884
43,905,007,805
1884
12,919,136,635
1885 41,321,754,610
1885
13,169,553,274
1886
49,193,261,051
1886
15,513,431,439
1887
52,050,705,235
1887
17,566,148,967
1888 49,497,500,202
1889 56,175,427,997
1888 18,397,472,681
1889 20,280,223,092.
238
BUSINESS BAROMETERS
Bank Clearings (continued)
1890 $60,829,090,002
1891 56,946,838,805
1891
1890 $23,370,482,393
23,197,539,593
1893
1892 62,321,984,539
54,309,562,775
1892 25,659,515,337
1893
23,048,525,045
1894
45,686,235,075
1894
21,298,428,055
1895
53,282,278,527
1895
23,506,684,638
1896
51,373,931,439
1896 22,304,476,717
1897
57,321,973,206
1897
23,894,945,735
1898
68,931,197,724
1898
26,959,415,287
1899
94,177,969,223
1899 33,416,297,332
1900
86,205,688,683
1900 33,771,486,823
1901 118,579,964,282
1901 39,152,278,440
1902 118,023,298,740
1902
41,695,109,575
1903 109,208,987,769
1903
43,238,849,809
1904 112,621,012,71
11
1904
43,971,594,038
1905 143,909,448,441
1905
50,087,388,239
1906 160,003,265,739
1906
55,327,436,983
1907 145,175,733,493
1908 132,408,849,136
1909 165,838,191,330
1910 164,095,229,989
1911 160,230,773,656
1912 173,952,914,911
1913 169,815,701,000
1914 155,245,115,000
1915 187,815,580,000
1916 261,075,152,000
1907 57,993,565,112
1908 53,132,968,880
1909 62,249,402,999
1910 66,820,729,906
1911 67,856,959,831
1912 73,208,937,649
1913 75,181,420,000
1914 72,228,539,000
1915 77,251,185,000
1916 101,494,501,000
BANK CLEARINGS
239
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 second
step, the merchant notes from the monthly tables
the actual figures received for the current year to
date and estimates the probable clearings for the
remainder of the year. This may be illustrated
somewhat as follows: The merchant notes what
proportion the clearings for January, February
and March have heretofore borne to the clearings.
of the entire year. (A novice might think it was
simply necessary to multiply the clearings of three
months by four in order to have an estimate for
the entire year, but such a method is not cor-
rect, since it does not provide for the seasonal
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 would 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
240
BUSINESS BAROMETERS
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
subject into the two main classes as per the preced-
ing tables. The reason for this subdivision is as
follows: The clearings of New York alone are more
than one-half of those of the entire country. If
these clearings 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 always be included with the clearings
of other cities. The facts of the case, however,
show that an exceedingly large percentage of New
York clearings is affected by the transactions of
bankers or is intimately related to the stock ex-
change transactions. This may be clearly shown
by plotting two lines, one for the transactions of
the New York Stock Exchange and the other for the
bank clearings of New York. These lines, although
very "zig-zag," are almost parallel to each other,
and when one rises the other follows, and vice
BANK CLEARINGS
241
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 coun-
try is increasing, while during a very active period
on the New York Stock Exchange, the bank clear-
ings of the entire United States including New
York, may show an increase, even though general
business throughout the country 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-
tion of New York City. If the figures for the United
States with the exception of New York City have been
properly studied and a conclusion drawn, it is also
well then to note the figures for the entire country,
including New York City. If the figures for New
York City confirm the conclusion arrived at when
not including New York City, then the result may
be considered absolutely correct. The most suc-
cessful merchants tabulate, each month, 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.
Note 1. 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.
242
BUSINESS BAROMETERS
The first objection need not be taken very seri-
ously 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 is, therefore,
well to always note the change in the Commodity
Price Index, which index shows how much allow-
ance 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 much in size and the published figures
do not include the cars in repair shops.
Note 2. It is pointed out also that clearings re-
ported by one city may be reported also by another
city. For example, the business of a branch house
may be reported in the clearings of the city in which
it is located and again as part of the business cleared
by the main office in the home city. Just what the
percentage of duplication is, it is impossible to
determine, but it is probably small compared with
the total clearings of the country.
When the Federal Reserve System gets into full
operation, it is expected that a much more compre-
hensive record of clearings will be kept than at
present.
BANK CLEARINGS
243
CONCLUSIONS RELATIVE TO BANK CLEARINGS
1. During a Period of Business Depression.
(a) An increase signifies that trade is im-
proving.
(b) A decrease signifies that 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 continu-
ing to improve.
(b) A decrease signifies that the improvement
has temporarily been checked.
slow.
(c) No change shows that progress is very
3. During a Period of Prosperity.
(a) An increase shows that trade conditions
are very prosperous, although too great an increase
under such conditions forecasts trouble.
(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.
244
BUSINESS BAROMETERS
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 statistics,
therefore, are of use principally in determining the
probable length of a period of depression as shown
by the following figures. From these, it will be seen
that after a crisis in no case has prosperity 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
in Millions
Failures in Millions
1857
4,932
291.8
1864
520
8.6
1858
4,225
95.7
1865
530
17.6
1859
3,913
64.4
1866
1,505
53.8
1860
3,676
79.8
1867
2,780
96.7
1861
6,993
207.2
1868
2,608
63.7
1862
1,652
23.0
1869
2,799
75.0
1863
495
7.9
1870
3,546
88.2
FAILURES
245
Year
No. of
Liabilities
Year
No. of
Liabilities
Failures
in Millions
Failures in Millions
1871
2,915
85.2
1894
13,885
172.9
1872
4,069
121.1
1895
13,197
173.2
1873
5,183
228.5
1896
15,088
226.1
1874
5,830
155.2
1897
13,351
154.3
1875
7,740
201.0
1898
12,186
130.7
1876
9,092
191.1
1899
9,337
90.9
1877
8,872
190.7
1900
10,774
138.5
1878
10,478
234.4
1901
11,002
113.1
1879
6,658
98.1
1902
11,615
117.5
1880
4,735
65.8
1903
12,069
155.4
1881
5,582
81.2
1904
12,199
144.2
1882
6,738
101.5
1905
11,520
102.7
1883
9,184
172.9
1906
10,680
119.2
1884
10,968
226.3
1907
11,725
197.4
1885
10,637
124.2
1908
15,690
222.3
1886
9,834
114.6
1909
12,924
154.6
1887
9,634
167.6
1910
12,652
201.7
1888 10,679
123.8
1911
13,441
191.1
1889
10,882
148.8
1912
15,452
203.1
1890
10,907 189.9
1913
16,037
272.6
1891
12,273
189.9
1914
18,280
357.9
1892 10,344 114.0
1893 15,242
1915
22,156
302.3
346.8
1916
16,993 196.2
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
large, there is a reduction of liabilities amounting
to more than 67 per cent. The next three years
show depression by a relatively large number of
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
246
BUSINESS BAROMETERS
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.
Number
Average
Liabilities
per firm in
Per cent
Year
Failures
Liabilities
Liabilities
business
failing
1875
7,740
$201,060,333
$25,960
$339.78
1.21
1876
9,092
191,117,786
21,020
305.15
1.33
1877
8,872
190,669,936
21,491
302.60
1.36
1878
10,478
234,383,132
22,369
259.49
1.55
1881
5,582
81,155,932
14,530
108.65
.71
1882
6,738
101,547,564
15,070
129.94
.83
1883
9,184
172,874,172
18,823
210.23
1.06
1884
10,968
226,343,427
20,632
261.94
1.21
1885
10,637
124,220,321
11,678 137.28
1.16
1886
9,834
114,644,119
11,651
124.60
1.01
1893
15,042
346,779,889
22,751
290.65
1.28
1894 13,885
172,992,856 12,458
155.25
1.25
1895 13,197
173,196,060
13,124
145.06
1.09
1896 15,088
226,096,134 14,992 190.57
1.31
1900 10,774
138,495,673 12,854
119.63
.92
1901 11,002
113,092,376
10,279
94.63
.90
1902 11,615
117,476,769
10,114
94.85
.93
1903 12,009
155,444,185
12,879
122.33
1.12
1904 12,199
144,202,311
11,820
111.33
.92
1905 11,520
102,676,172
8,193
78.75
.85
1906 10,682 119,201,515
11,159
86.52
.77
1907 11,725 197,385,225
16,834
139.75
.82
1908 15,690
222,315,684
14,169
153.58
1.08
1909 12,924
154,603,465
11,964 104.01
.80
1910 12,652
201,757,097
15,947
133.16
.80
1911 13,441
191,061,665
14,215
125.28
.81
1912 15,452
203,117,391
13,145 129.85
.98
1913 16,037
272,672,288
17,003
168.68
.99
1914 18,280
357,908,859
19,579
216.19
1.10
1915 22,156 302,286,148
13,644
180.49
1.32
1916 16,993 196,212,256
11,547
114.90
.99
FAILURES
247
From this second table we have another view of
the usefulness of failure statistics. While, as in
Table I, the panic years are also plainly marked in
Table II, by the percentage of failures to the total
number of firms in business, Table II, in addition,
shows something new relative to business conditions.
Thus we find that up to 1878 the possibility of
loss, that is the ratios of "liabilities" to the "num-
ber of firms actually in business," was large or in-
creasing from year to year, as was also the case
from 1893 to 1896; while, on the other hand, the
effects of the crisis of 1903 gave place very quickly
to prosperous conditions, surpassing any known in
thirty years previous. Furthermore, from the "per
cent of failures" to the firms in business, we find
that such figures as 11,002 for the failures in 1901,
and 10,478 for 1878 mark two degrees of depression
more widely different than they would seem at
first glance, and that the high number of 11,725 of
1907, or even 15,690 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
248
BUSINESS BAROMETERS
October with its signal failures of certain New York
banks have become a part of history closely joined
to later 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, but will be found on the desk sheets* from
1906 to date as will also the percent of failures
to firms in business. If additional tables are de-
sired, the "percent 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
16.751
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
*Tables on the desk sheet are an average of figures by Dun and Brad-
street. The above figures are by Dun alone.
FAILURES
249
Month 1907
1908
1909
1910
1911
Jan. $13.628
$27.099
$14.008
$32.015
$24.090
Feb.
10.283
27.064
16.734
27.435
17.086
Mar.
8.163
21.542
13.718
13.628
18.474
Apr.
11.082
20.316
16.825
17.752
16.924
May
9.965 13.643
14.383
9.590
13.469
June
16.445
14.708
12.607
11.817
13.652
July
12.334
14.222
9.527
13.790
12.150
Aug.
15.197
23.782
9.620
12.442
11.116
Sept.
18.935 17.298
8.446
15.933
11.900
Oct.
27.414 15.898
12.529
18.977
19.270
Nov.
17.637 12.599
9.812
11.324
15.266
Dec.
36.296 14.139
14.625
17.039
17.659
Month 1912
1913
1914
1915
1916
Jan. $19.770
$22.972
$39.374
$49.641
$39.374
Feb.
21.477
28.141
22.354
32.405
22.354
Mar. 21.763
25.718
21.493
23.658
21.493
Apr.
16.874
18.445
20.549
43.518
20.549
May
15.277
16.863
23.447
21.053
23.447
June
12.847
20.767
57.881
18.313
57.881
July
16.098
20.325
20.377
18.935
20.377
Aug.
16.153
20.848
43.468
17.734
43.468
Sept.
13.280 22.662
23.018
16.208
23.018
Oct.
15.762 20.245
29.702
25.522
29.702
Nov. 15.646 24.199
25.489
15.694
25.489
Dec. 18.164 31.480
30.899
19.605
16.705
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 ist
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 before
or just after the fiscal year.
250
BUSINESS BAROMETERS
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 100%
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
September, 1905, surely the change in ratio could
have told something very definite as to the approach
of bad times. By the quickest, roughest estimates,
the course of affairs can be very plainly traced by
having these failure statistics 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.
The following table (Bradstreet's) is also of
interest in connection with analyses of failures.
PERCENTAGE OF FAILURES AND LIABILITIES CLASSIFIED
AS TO CAUSE-UNITED STATES (PER CENT)
Failures due to.
Incompetence..
Inexperience..
Lack of capital. .
Unwise credits
·
• •
Failures of others..
Extravagance..
Neglect.
Competition..
•
Number
2.6 3.5 3.4
1.4 2.0 2.2 2.5
.9
Liabilities
1907 1906 1905 1904 1907
·
•
22.6 22.3 24.4 23.1
1906 1905 1904
8.9
15.5
4.9
21.6 14.1
4.9 4.8 5.1
3.2
2.2
2.1
37.1
35.9
35.9 33.4 32.2
3.2
18.4
30.9
33.0
2.3
31.8
3.1 2.1
4.2
4.8
3.3
8.8
4.5
8.2
1.0 1.1
.8
.5
.9
1.2
2.5
1.2
2.2 2.9
.7
3.1
.5 1.5
1.1
1.6
4
16.3
17.3
•
.4
.9 1.0
16.3 19.1
51.7
.7
.8
.7
17.9 15.5
22.7
.8
4.9
10.1
10.0 9.2 8.6
3.6 7.7
5.3
5.1
16.2 8.2
6.4
Specific conditions.
Speculation..
Fraud....
•
•
1.0 1.5 1.3
FAILURES
251
Number
Liabilities
Failures due to.
Incompetence..
Inexperience.
Lack of capital.
Unwise credits...
Failures of others...
1911 1910 1909
1908
•
1911 1910 1909 1908
27.0
26.6
24.2
•
21.6
23.5
21.3
20.9
16.0
4.1
4.4
4.9
4.0
2.2
1.9
2.6
1.8
•
31.4
33.9
34.5
34.2
28.3 27.9
28.6
27.2
2.0
1.7
1.9
2.0
2.2
•
1.9
3.2
3.7
1.3
1.0
1.2
1.8
4.2
3.1
5.9
5.0
Extravagance..
.9
.7
.9
1.0
1.2
•
.5
2.3
.9
Neglect.
2.2
2.5
3.0
2.2
1.3
.9
2.1
.8
Competition.
2.9
2.6
2.5
1.8
4.8
1.9
1.4
1.7
Specific conditions.. 16.9
14.4
15.3 18.9
20.7
21.1
21.1
20.2
31.3
Speculation..
.7
1.0
•
.8
1.0
2.7
7.4
4.4
4.7
Fraud..
10.6
11.2 10.8 11.5
8.9
12.1 8.4 6.9
Number
Liabilities
Failures due to.....
1915
1914 1913
1912
1915
1914 1913 1912
Incompetence..
29.9
28.0
28.6
30.2
•
17.3
13.4
18.4
26.8
Inexperience..
Lack of capital.
Unwise credits..
Failures of others.
5.4
5.6
5.1
4.6
2.4
1.9
2.0
3.0
27.5
29.4
29.2
•
29.7
•
28.4
31.6
24.9
33.5
2.4
2.5
2.6
2.0
3.9
•
•
3.2
16.0
2.6
1.0 1.8
1.9
1.3
9.2
16.7
11.4 4.9
Extravagance..
.6
.9
.8
.7
.6
.6
•
.6
.9
Neglect.
1.9
2.2
2.0
2.0
1.0
1.0
.7
1.0
Competition..
5.7
3.0
2.3
1.9
3.3
1.2
.9
1.3
Specific conditions..
18.9
16.4
15.3 16.5
24.7
19.8
14.0
13.8
Speculation..
.4
.7
1.1
.8
2.2
3.5
2.7
3.4
Fraud..
6.3
9.5 11.1
10.3
7.0 7.1 8.4
8.8
Number
Liabilities
Failures due to..
1916
1916
Incompetence.
33.2
21.8
Inexperience..
6.0
4.4
Lack of capital.
30.3
31.9
Unwise credits.
1.9
2.6
Failures of others..
.9
4.6
Extravagance...
.6
.6
Neglect.
2.4
1.0
Competition.
4.2
2.5
Specific conditions..
13.4
19.3
4
3.9
6.7
7.4
Speculation..
Fraud..
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
252
BUSINESS BAROMETERS
of failure statistics is a practical necessity for them
as well as for those whose money is invested in their
interests.
As Bradstreet's table excludes all losses except
those strictly commercial (that is, it includes only
those failures involving loss to creditors of individ-
ual firms or corporations engaged in legitimate
mercantile occupations), they cannot be compared,
figure for figure, with the tables from other sources;
but believing that the figures due to failure in in-
surance, 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 "com-
mercial death rate" is growing less. The decrease
is as yet not one-half of one percent, but the rate
is being reduced from 12% maximum to some-
thing under 1%. Of course, we should like to
believe that this is a permanent improvement in
business intelligence, 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 some time after the effect is felt by the larger
firms. For this and other reasons, the study of
this subject is especially valuable as a guide and
protection to small merchants and storekeepers.
FAILURES
253
In conclusion I will repeat that figures on busi-
ness 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 sub-
siding, and a knowledge of the condition of each
tributary stream assists very much in estimating
the time when seed may be planted in the rich bot-
tom land, now under water, or inversely as the case
may be. We need not carry this figure of speech
further in order to show that it contains the idea
upon 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.
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
improvement.
(c) No change signifies that caution is still
necessary.
254
BUSINESS BAROMETERS
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, forecasts a decline.
(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.
(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
IMMIGRATION
255
the statistics at present available, it is absolutely
impossible to compile figures that are sufficiently
complete to tabulate for comparative purposes. It
is hoped that some day either the labor unions or
the government will find some practical means of
keeping exact records of the number of men out
of work, the rate of wages in effect and other items
necessary for this purpose.
At present, the only complete figures are the cen-
sus reports compiled once in ten years, and partial
figures of some of the states reported only once in
five years, but neither set of figures is of much use
to the business man. There are also certain states
which, in connection with the public employment
bureaus, publish a classified list every week or
month entitled "applicants desiring work"; but
these lists are very incomplete and their records are
of little more practical use than are the similar
records kept by the leading charitable institutions.
If every city or charitable institution did the work
thoroughly and kept the dead matter weeded out,
their records would be worth while, although they
might cover but a small portion of the country.
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-
256
BUSINESS BAROMETERS
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, only 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.
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
IMMIGRATION
257
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
exact understanding of the condition of labor in this
country. In other words, in the preparation of
the Compositplot, 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
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 may 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
258
BUSINESS BAROMETERS
Italian boards a steamer and returns to Italy.
Therefore, as the Government keeps a careful record
of when 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 signi-
fying a culmination of such a period of prosperity.
Conversely, a very low number of alien arrivals
during a period of depression is one of the factors
significant of a readjustment to a sounder basis.
As is the case with most of the others of these
subjects studied by bankers and merchants, an in-
crease or a decrease does not at all times mean the
same thing under all circumstances. Sometimes
an increase is a dangerous sign and sometimes a
decrease is a dangerous sign. These things cannot
be reduced to a rule of thumb, but the merchant
must use his judgment to a certain extent. The
IMMIGRATION
259
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.
More important than this is the fact that the
arrival of many immigrants during a period of
prosperity insures a plentiful supply of labor. This
makes possible an extension of business under-
takings that would otherwise be impossible. This
tends to accelerate the pace and accentuate the
unhealthy conditions that a period of prosperity
creates. Hence the reaction will be greater and
more severe than if these people had not entered
the country. Immigration has thus tended to
accentuate the extremes of the business cycle.
At present (1917) the inability to get immigrant
labor is materially retarding the war boom.
260
BUSINESS BAROMETERS
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 no definite trend.
3. During a Period of Prosperity.
(a) A great increase signifies no further im-
provement or a decline.
(b) A decrease signifies that the corner is
being turned and a decline may be expected, and
thus calls for caution.
(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.
*These figures have special bearing on the demand for unskilled labor
in the United States.
CHAPTER VII
SUBJECTS RELATING ESPECIALLY TO MONETARY
CONDITIONS
T
MONEY IN CIRCULATION
HIS subject may, at first thought, seem un-
interesting and of little concern to the mer-
chant or manufacturer; yet, as a matter of
fact, the "Amount of Money in Circulation" is of
vital interest not only to the merchant and manu-
facturer, but also to the humblest store-keeper and
day laborer.
The trade of the corner grocery store is regulated
by the amount of money in circulation in the neigh-
borhood; and the amount of money in circulation
in the neighborhood is dependent upon the amount
circulating in the entire country. As the local
banks in every small town have deposits in some
large city such as New York, Chicago or St. Louis,
money cannot be abundant in one city and scarce
in another, except for a very short time. The
banks of the various cities are so related through the
great banking institutions of the large cities, that
money like water immediately seeks its own
level. As a result, all parts of the country must
prosper or suffer in accordance with the amount of
money in circulation. The store-keeper must,
therefore, study figures of the entire country, and
not simply the conditions in his own town or in his
own neighborhood.
262
BUSINESS BAROMETERS
Many a mill has been closed and many a laborer
been thrown out of employment because employers
could not obtain enough actual money to pay
wages. In times of prosperity such conditions are
hard to conceive; nevertheless, they have happened
and will recur. Sometimes mills continue to oper-
ate by paying their employees by check, although
this is a very unsatisfactory method unless the
checks can be readily cashed. We know of one
city in Massachusetts where for several weeks in
1907, all of the factory hands and clerks were paid
by checks, and moreover by checks marked "Pay-
able only through Clearing House." Checks so
marked cannot be cashed. The holders can only
deposit them in the bank and draw new checks
against them; and, since these new checks were also
marked "Payable only through Clearing House,"
it was still impossible for the employees to obtain
their cash. As 95% of the employees had no bank
account, the only practical method was for each to
give his check to one of the local store-keepers,
receiving credit for the amount. As the man was
obliged to leave the full amount of the check at one
store, he found it advisable to select a large depart-
ment store, carrying dry goods, groceries, medicines
and other goods. The result was that the business
of the small store-keepers, excepting that derived
from their regular "charge" customers, was almost
ruined during this period; the business of a store,
the cash sales of which ordinarily amounted to $100
a day, decreased to only $10 a day. This is but one
illustration; it shows, nevertheless, how vital an
MONETARY CONDITIONS
263
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 gross amount of money per capita,
whether hoarded or in use.
2. The net amount of working money in circu-
lation.
These two amounts may be defined as follows:
"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
264
BUSINESS BAROMETERS
of individuals is counted in this item. This amount
of money in circulation usually stands at about
$35* 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 exist-
ence, wherever located in the United States. It
has been estimated that in order to keep this figure
in the vicinity of $34 or $35 per capita, it is nec-
essary to create or import about $50,000,000 net
in coin and bills each year.
The "net amount of working money" means the
amount in actual use in making payments from
day to day plus the sum of checks drawn against
bank deposits. When a farmer deposits in his
bank money received from the sale of cotton in
Liverpool, he increases the gross amount of money
in circulation but not the net unless the bank
loans the money out to someone else. When he
checks this out to an American firm in payment for
fertilizer he increases the net amount of active money
but not the gross. Should he draw this money out
and hoard it he does not affect the gross amount of
money in the country but may indirectly affect the
net by curtailing the loaning power of the bank.
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 seldom realizes that
the act is affecting the financial condition of the
*Has risen since European War to $45 (May, 1917).
MONETARY CONDITIONS
265
country; but if 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 difference
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 pocketbooks or safe deposit
boxes.
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
266
BUSINESS BAROMETERS
best warnings of impending contraction of the net
amount of money in circulation. The study of sta-
tistics in such instances is of little value. In other
words, as soon as such a thing happens, the mer-
chant may be reasonably certain that his trade will
be diminished, and the effect of his curtailment will
be felt by the manufacturers, the merchants and
the railroads.
On the other hand, the merchant should be
-equally on the watch for the time when confidence.
will be restored and when the people will decide to
part with the money they have been hoarding. As
it is human nature to hoard money in case of
trouble, it is also human nature to forget this
trouble quickly. Moreover, people seem unable
to withhold money from circulation beyond a cer-
tain length of time; they become uneasy under the
loss of interest, and it finally occurs to them that
their money is in more danger in their houses than
when deposited in a bank. Thus periods of finan-
cial stringency, which are caused by the temporary
withdrawal of money from circulation, are invari-
ably followed by a great increase in the net amount
of working 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.
MONETARY CONDITIONS
267
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 "total 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-
try. This is due to the fact that panics and depres-
sions are so often caused by over prosperity. Therefore,
this gross amount of money per capita is a good barom-
eter of prosperity. If the gross amount of money
in circulation, as reported by the government,
shows a steady increase per capita for several years
and the country is prosperous mills running over-
time, labor in great demand, and everybody happy
and contented then the merchant and manufac-
268
BUSINESS BAROMETERS
turer 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 net amount of working money in circu-
lation*: .
1. During a Period of Business Depression.
(a) An increase signifies declining money rates,
and more satisfactory conditions.
(b) A decrease signifies higher money rates
and 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 importance.
3. During a Period of Prosperity.
(a) A large increase calls for caution.
(b) A sudden decrease signifies higher money
rates and forecasts reaction.
(c) No change signifies continued prosperity.
4. During a Period of Decline Following a Period
of Prosperity.
(a) An increase checks the decline, but fore-
casts continued unsatisfactory conditions.
*The reader should study The Purchasing Power of Money, by Irving
Fisher, Professor of Political Economy at Yale University. The Mac-
millan Co.
BANK LOANS
269
(b) A decrease forecasts higher money rates
and continued decline.
(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
270
BUSINESS BAROMETERS
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
BANK LOANS
271
are payable within six months or a year at the
utmost.
Investments: In reality, 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 practical
purchase than the notes; but for a bank the same
statement cannot be made. Strict adherence to
the original principle of banking often demands
that a bank shall refuse to purchase the bonds of a
corporation of which it may willingly accept the
notes.
Notes when purchased by banks may be listed
under the head of "Loans and Discounts," but
bonds so purchased must be listed under the head
of "Investments." The national law forbids the
purchase by national banks of real estate, 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
272
BUSINESS BAROMETERS
"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 sufficient to convince the reader of the
truth of the following statement:
(1) The banking 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 place a large amount of funds
in permanent investments, that item must be in-
dependently analyzed and the above rule must be
supplemented by the following:
(2) With a given ratio of loans to resources,
conditions become more critical as the proportion of
investments to resources increases, and conditions im-
LOANS AND RESOURCES OF THE UNITED STATES BANKS
Ratio
Date
Banks Reporting
Loans
1865
1,960
$362,400,000
Resources
$1,126,500,000
Ratio of Loans
to Resources
Loans and
Investments
of Loans and
Inv. to Res.
32.17
$766,700,000
68.06
1866
2,267
550,400,000
1867
2,279
588,500,000
1,476,400,000
1,494,100,000
37.27
1,015,600,000
68.79
39.38
1,031,600,000
69.04
1868
2,293
655,700,000
1,572,200,000
41.70
1,096,200,000
69.73
1869
2,354
686,300,000
1,564,200,000
43.94
1,100,900,000
70.38
1870
2,457
719,300,000
1,510,700,000
47.61
1,125,400,000
74.49
1871
2,796
789,400,000
1,730,600,000
45.61
1,209,300,000
69.88
1872
3,066
871,500,000
1,700,800,000
49.21
1,302,700,000
73.57
1873
1,968b
1,439,900,000
2,731,300,000
52.71
2,153,100,000
78.83
1874
1,983b
1,564,500,000
2,890,400,000
54.13
2,287,700,000
79.15
1875
3,336
1,748,100,000
3,204,600,000
54.55
2,541,200,000
79.29
1876
3,448
1,727,100,000
3,183,100,000
53.94
2,534,400,000
79.62
1877
3,384
1,720,900,000
3,204,100,000
53.68
2,562,100,000
79.96
1878
3,229
1,561,200,000
3,080,600,000
50.68
2,427,100,000
78.78
1879
3,335
1,507,400,000
3,212,600,000
46.92
2,539,300,000
79.04
1880
3,355
1,662,100,000
3,399,000,000
48.90
2,562,700,000
73.39
1881
3,427
1,901,900,000
3,869,100,000
49.16
2,902,800,000
75.02
1882
3,572
2,050,300,000
4,031,100,000
50.86
3,099,400,000
76.88
1883
3,835
2,233,600,000
4,208,000,000
53.08
3,084,800,000
73.31
1884
4,111
2,260,700,000
4,221,300,000
53.55
3,291,100,000
77.96
1885
4,350
2,272,300,000
4,426,900,000
51.33
3,224,300,000
72.83
1886
4.378
2,456,700,000
4,521,500,000
54.33
3,487,800,000
77.13
1887
6,179
2,944,900,000
5,203,700,000
56.59
3,944,800,000
75.80
1888
6,647
3,161,100,000
5,470,400,000
57.78
4,273,200,000
78.11
1889
7,203
3,475,200,000
5,940,900,000
58.49
4,587,100,000
77.21
1890
7,999
3,842,100,000
6,343,000,000
60.57
5,000,100,000
78.83
1891
8,641
3,965,900,000
6,562,100,000
60.44
5,008,400,000
76.32
1892
9,338
4,336,600,000
7,245,300,000
59.85
5,606,000,000
77.37
1893
9,492
4,368,600,000
7,192,300,000
60.74
5,722,700,000
79.56
1894
9,508
4,085,000,000
7,290,600,000
56.03
5,530,300,000
75.85
1895
9,818
4,268,800,000
7,609,600,000
56.09
5,834,000,000
76.66
1896
9,469
4,251,100,000
7,533,900,000
56.28
5,925,500,000
78.44
1897
9,457
4,216,000,000
7,822,100,000
53.89
5,948,300,000
76.04
1898
9,485
4,652,200,000
8,609,000,000
54.04
6,511,900,000
75.64
1899
9,732
5,177,600,000
9,904,900,000
52.27
7,356,600,000
74.26
1900
10,382
5,657,500,000
10,785,900,000
52.45
8,055,800,000
74.69
1901
11,406
6,425,200,000
12,357,500,000
52.00
9.246.400,000
74.82
1902
12,246
7,189,000,000
13,363,900,000
53.80
10,228,400,000
76.54
1903
13,684
7,738,900,000
14,303,100,000
54.11
11,139,000,000
77.87
1904
14,850
7,982,000,000
15,198,800,000
52.52
11,636,200,000
76.56
1905
16,410
9,027,200,000
16,918,200,000
53.36
13,015,100,000
76.91
1906
17,905
9,893,700,000
18,147,600,000
54.52
13,967,200,000
76.96
1907
19,746
10,763,900,000
19,645,000,000
54.79
15,141,000,000
77.07
1908
21,346
10,438,000,000
19,583,400,000
52.27
14,883,900,000
76.00
1909
22,491
11,373,200,000
21,095,000,000
53.91
15,987,600,000
75.78
1910
23,095
12,521,800,000
22,450,300,000
55.78
17,245,200,000
76.82
1911
24,392
13,046,400,000
23,631,000,000
55.21
18,098,300,000
76.59
1912
25,195
13,954,000,000
24,987,000,000
55.84
19,312,489,000
77.29
1913
25,993
14,626,700,000
25,712,100,000
56.89
20,033,900,000
77.92
1914
26,765
15,339,477,000
26,971,398,000
56.89
20,924,402,000
77.58
1915
27,062
15,758,700,000
27,801,100,000
56.68
21,640,600,000
77.84
1916
27,513
17,811,600,000
32,271,200,000
55.19
24,646,400,000
76.37
b-Number of national banks only, number of state, etc., not reported.
BANK LOANS
273
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 banking situation
becomes more critical; and as the ratio of the two com-
bined items to "Aggregate Resources" decreases, the
banking situation improves.
The accompanying table shows the record of the
national, state and private banks and trust com-
panies of the United States reporting to the Comp-
troller between 1865 and 1915. A study of these
274
BUSINESS BAROMETERS
figures, with the other subjects, would have made
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 expansion is going too
far. These figures date back only to the Civil War,
as the system of national banks was not established
until 1863. Consequently, this is the only period
which gives satisfactory data to form a basis for any
theory regarding the relation of banking conditions
to general business, and conversely, the effect of
business conditions upon banking conditions. The
latter clause is added because, although strained
banking conditions cause a recession in general
business, it has always been found true that great.
activity in business has caused strained banking
conditions.
Therefore, when business has been very active
and the country very prosperous, bankers may
surely anticipate strained and critical banking con-
ditions. Conversely when strained banking con-
ditions have existed for a certain period, business
men may be sure of a reaction. The figures show
that after a period during which there was a more
or less noticeably rapid increase in the ratio of
"Loans and Investments" to "Resources," there
followed invariably a period of depression until the
BANK LOANS
275
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 155% and the
"Investments" 153% against the increase in "Re-
sources" of 151%. 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 nec-
essary in order to give the banks an opportunity
to recuperate and again enjoy healthy and normal
conditions. These figures are still more dangerous
when it is considered that during the period be-
tween 1887 and 1897 the aggregate "Resources"
showed an increase of 50%, even though the market
value of securities was not increasing.
During the ten years between 1897 and 1907, the
increase in aggregate "Resources" was largely due
to the inflated prices and the growing market value
of securities held, and possibly not at all to larger
numbers of investments. These changes, it is true,
have been irregular rather than constant and have
caused varying conditions of strength and weakness.
in the banking situation; but the figures plainly in-
dicate that in 1906 banks were in a very weak con-
dition with their investments over-extended. The
above figures would appear somewhat different if
276
BUSINESS BAROMETERS
figures of all private banking houses, such as J. P.
Morgan & Co., Kuhn, Loeb & Co., and others were
included, but nevertheless they are sufficient.
Referring to earlier years, we see that in 1873 the
ratio of "Loans" to "Resources" first exceeded 50%
and in fact reached a ratio of 52.71%. 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% in 1885. Consequently, business became
BANK LOANS
277
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 movement
continued without any marked change until the
early nineties when "Loans" reached a very high
proportion, 60.57%. Large crops in this country,
with small crops abroad, helped to postpone trouble
for a time, but a depression came in 1893 when the
ratio of "Loans" to "Resources" was even higher
than in 1890, namely 60.74%. All business men
and investors who were then studying these figures
were absolutely sure that a panic 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
recuperate. This recuperation was completed in
1908, and very soon banking conditions were again
normal. In 1914 the Federal Reserve Banking
278
BUSINESS BAROMETERS
System went into force of this we treat in detail
on later pages.
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 previous table we have given
aggregate figures for all banks, in order to show
general banking conditions, such figures are also of
service relative 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
"Investment" 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
be normal, and that it bear a proper relation to the
*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."
BANK LOANS
279
figure for "Deposits,"—thus giving a sound, safe
amount for "Surplus Reserve." See also the discus-
sion of the Federal Reserve law, page 284.
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 that
fundamental conditions are becoming unsound.
(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.
280
BUSINESS BAROMETERS
CASH IN THE BANKS
This subject may be considered in two ways:
(1) Ratio of the "Cash" in the banks to the
"Deposits."
(2) Ratio of the "Cash" in the banks to the
"Resources."
In reality these are two entirely different sub-
jects, as the "Deposits" of a bank are liabilities
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 thor-
oughly 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 banking situation grows more critical as
the ratio of cash to deposits decreases, and the
situation improves as the ratio of cash to deposits
increases.
CASH IN THE BANKS
281
National banks are now compelled by law to
maintain an actual reserve equal to from twelve
to eighteen 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, 1914.
Ratio of
Cash to
Year
Reporting
No. of Banks
Individual
Deposits
Total Cash in
Banks
Individual
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
282
BUSINESS BAROMETERS
Ratio of
Cash to
No. of Banks
Year
Reporting
Individual
Deposits
Total Cash in
Banks
Individual
Deposits
1868
2,293
$968,600,000
$200,700,000
20.72
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
15.50
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
1887 6,179 3,308,200,000
4,378 2,812,000,000
375,500,000
13.00
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
1891 8,641 4,796,800,000
7,999 4,062,500,000
478,300,000
11.77
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
9,509 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
1900 10,382 7,238,900,000
1901 11,406 8,460,600,000
9,732 6,768,700,000
723,300,000
10.69
749,900,000
10.36
807,500,000
9.54
1902 12,424 9,104,700,000
848,100,000
9.31
1903
13,684 9,553,600,000
757,200,000
8.97
WORLD MONEY RATES
10
3
during the following panic years

|JAN.|FEB.MCH|APR. MAY JUN. JUL. AUG. SEP.OCT.NOV.DEC. JAN. FEB.MCH|APR.|MAY|JUN. JUL.|AUG.SEP.OCT.NOV.DEC. ^~
SEP
10
1866
1857
1907
1873
1057-8
1066-7
1873-4
1907-8
1874
3
2
2
1867
1
JAN. FEB.MCH APR. MAY JUN. JUL. AUG.SEP.OCT.NOV.DEC. JAN: FEB.MCH APR. MAY JUN JUL AUG SEP OCT NOV DEC.
From the Wall Street Journal
SEP OCT
NOV DEC
This chart shows the course of money in the years following four severe panics: 1857, 1866, 1873, 1907. Each square
represents one percent vertically, and one month horizontally. The figures at the side indicate the minimum discount
rate of the Bank of England. The left twelve squares of the chart represent the months of the year; those at the right
the year following the panic.
CASH IN THE BANKS
283
No. of Banks
Year
Reporting
1904
14,850
Individual
Deposits
$10,000,500,000
Total Cash in
Banks
Ratio of
Cash to
Individual
Deposits
$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
1908
1909
1915
1916
1907 19,746 13,099,600,000 1,113,700,000
21,246 12,784,511,169 1,368,300,000
22,491 14,035,500,000 1,452,000,000
1910 23,095 15,283,400,000 1,423,800,000
1911 24,392 15,906,300,000 1,554,200,000
1912 25,195 17,024,067,607 1,572,953,479
1913 25,993 17,501,006,000 1,560,709,447
1914 26,765 18,557,978,467 1,639,219,163
27,062 19,195,151,304 1,457,702,138
27,513 22,844,801,601 1,486,118,322
8.51
10.70
10.34
9.32
9.77
9.24
8.92
8.83
7.59
6.51
It is very interesting to note that the ratio of
"Cash" to "Deposits" decreased in 1891 to prac-
tically the lowest figure known up to that time, and
in 1893 to a still smaller figure, just before the panic.
of 1893. As in the case of all panics, this resulted
in the calling of loans and the immediate strength-
ening by the banks of their cash resources, so that
in 1894 this ratio had increased more than 32%.
In the following year the ratio again dropped 13%.
From 1897 it continued to fall until the next very
low point reported, namely, for the year ending
June 30, 1903. At that time, experts in these mat-
ters publicly prophesied a panic followed by a
284
BUSINESS BAROMETERS
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
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 to suffi-
ciently 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 inevi-
table. This came in 1907-8, and again in 1913.
The figures in the table given above are for the
entire country, and a study of them is very suggest-
tive. As they in general are similar to those out-
lined in the paragraphs on "Loans," they need not
be described further here. When studying the
ratio of "Cash" to "Deposits," one must not only
note this ratio, but must also keep in mind the
aggregate of cash and the aggregate of deposits.
Very largely upon this relation does the "price
of money" or the rate of interest depend. The
accompanying chart shows this range of rates of
interest during and after four great panics. Such
a plot corresponds almost identically with one based
on the relation of "Cash" to "Deposits," excepting
that one plot is the reciprocal of the other.
The following conclusions relative to the ratio
of "Cash" to "Deposits" are suggested:
CASH IN THE BANKS
285
(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
reviving.
(c) No change signifies that conditions are
stationary.
2. During a Period of Improvement Following a
Period of Business Depression.
(a) After money rates have been very low for
some time, a further increase in the ratio of “Cash”
to "Deposits" often means that there has been an-
other recession in business.
(b) A decrease under such conditions usually
signifies renewed activity.
(c) No change signifies a period of hesitation.
3. During a Period of Prosperity.
(a) An increase in the ratio of "Cash” to “De-
posits" tends to prolong the period of prosperity.
(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
i
of Prosperity.
(a) An increase in the ratio of "Cash" tends
to delay the depression.
286
BUSINESS BAROMETERS
tance.
(b) A decrease is very unsatisfactory.
(c) No change signifies nothing of impor-
•
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,
which may be called Graniteville. The executor
of his estate found $5,000 in gold stored away in the
house, and deposited it with the Graniteville Trust
Company, thereby increasing the deposits of that
company by $5,000. Shortly after, John Smith
borrowed of the trust company $4,500 of the amount
deposited in order to buy stone with which to build
a block of buildings. The local granite company,
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
BANK DEPOSITS
287
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.
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
288
BUSINESS BAROMETERS
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-
posits" are normal and bear a proper relation to
"Loans," thus showing a proper "Surplus Reserve."
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
BANK RESERVES
289
are usually high during the periods of business ac-
tivity and low during periods of depression. The
price of money, however, is not as important a
factor as the supply. In other words, provided the
merchant can obtain the money when needed and in
sufficient quantities, an abnormal interest rate is
less harmful in its effects than the inability to get
money at all.
A variation in the rates for borrowed money has
a more direct effect upon the market for stocks and
bonds than upon the market for merchandise.
When the speculator can borrow money at three or
four per cent to purchase securities paying five or
six per cent, the temptation is to borrow and make
the purchases, thus increasing the demand and con-
sequently the market price for the securities. Under
such circumstances, there is a profit on the "interest
account," even though there is no increase in the
value of the investments. On the other hand, this
increased incentive to purchase does not exist when
money commands six or seven per cent and secu-
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
290
BUSINESS BAROMETERS
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
papers. The figures under what is known as "call
rates" or "call money" denote the rates which the
stock exchange houses and bond dealers are re-
quired to pay for money on loans which may be
called any day and on which the rates may change
from day to day. Sometimes this figure is more
and sometimes less than the figure for "time rates."
"Time rates" apply to loans maturing at a fixed
date, such as six months or a year. When the
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-
BANK RESERVES
291
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-
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
outside banks, and without doubt the time is com-
ing when all of the large banks in this country will
report 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,"
or "Excess Reserve" as it appears in the official
statement. Two items are always given here: "Re-
292
BUSINESS BAROMETERS
e
serve Required" 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."
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 possibly 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
two items; thus an increase in surplus may be due
either to a decrease in one of the items, or to an in-
crease in the other. The best bank statement is
the one where the increase in "Surplus Reserve"
BANK RESERVES
293
is due to a reduction in loans with increased de-
posits.
All merchants should keep a monthly record of the
"Surplus Reserve" as per the first day of each
month.
The following conclusions are suggested relative
to the "Surplus Reserve."
1. During a Period of Business Depression.
(a) An increase signifies lower money rates
but continued dullness.
(b) A decrease signifies higher money rates
but improved conditions.
(c) No change signifies continued dullness.
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 a danger signal and
is always the forerunner of higher money rates.
(c) No change may signify either condition.
294
BUSINESS BAROMETERS
4. During a Period of Decline Following a Period
of Prosperity.
(a) An increase tends to prolong present
conditions and to lower money rates.
(b) A decrease is a sign that conditions are
growing worse and that higher money rates may be
expected.
(c) No change signifies uncertainty.
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 an exact 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.
THE NEW YORK CLEARING HOUSE STATEMENT
UNDER THE NEW BANKING SYSTEM
Since the inauguration of the new banking law,
the New York Bank Statement has been issued in
more detail than before, and certain changes in the
items have been necessary. Below is an example
of the New York Clearing House Statement as it is
issued under the new law. This statement was for
the week ending Saturday, May 1, 1915, 61 banks
reporting. (* marks new items. †marks items in
which changes have been made.)
BANK STATEMENT
295
Total capital of all institutions.
$175,300,000
Net profits of all institutions.
304,078,400
Loans, discounts and investments .
2,410,938,000
*Gold.
265,923,000
Legal tender
66,761,000
•
*Silver.
82,869,000
*Nat'l Bk. notes counted as reserve (for non-
member state institutions and trust com-
panies only)
*Nat'l Bk. notes not counted as reserve.
6,200,000
2,663,000
†Nat'l Bk. Circulation.
37,797,000
*Federal Reserve notes (not counted as reserve

except by non-member banks)
1,365,000
·
•
Net demand deposits.
2,324,279,000
*Net time deposits.
126,088,000
*Reserve with legal depositaries
150,382,000
*Excess due from reserve depositaries.
Cash reserve in vaults..
•
Total cash reserve in vaults and depositaries
†Reserve requirements
63,518,000
421,753,000
572,135,000
On demand dep. of Fed. Res. Bks. (18%) $266,337,180
On time dep. of Fed. Res. Bks. (5%).
On demand dep. of State Banks (18%). 49,460,760
On demand dep. of Trust Co.'s (15%)..
581,600
85,476,900
401,856,440
reserve and reserve requirements).
►
170,278,560
†Total reserve requirements
Surplus reserve (difference between total cash
"Gold" and "silver" holdings are now given separately
instead of under the single head of "specie," as previously.
Holdings of "national bank notes" now appear in two items:
notes held as reserve by banks which are not members of
the Federal Reserve system, and notes held by member banks.
(These cannot be counted as reserves.)
As the new law provides that national bank "circulation"
must all be retired within twenty years after passage of the
law, this item should gradually decrease. "Federal Reserve
notes" are the new currency authorized by the law and are
described later. "Reserves" are now itemized under two
headings: Reserve with Legal Depositaries and Cash Re-
serve in Vaults. Previously the reserves of all the New
York banks except trust companies were held in their own
vaults, but now a portion of these reserves are deposited
with the Federal Reserve Bank of that district.
"Time deposits," a creation in the new law for national
banks, comprise all deposits payable only after thirty days'
notice. These are now segregated from demand deposits and
only a 5% reserve is required to be held against them. In
fact, the "reserve requirements" of all the New York banks,
296
BUSINESS BAROMETERS
except trust companies, have been reduced from 25% to
18% of the net deposits. Reserve requirements of trust com-
panies remain unchanged at 15%. These reductions in the
reserve requirements have à direct bearing on "surplus re-
serves" which now signify the amount of reserves held above
18% instead of above 25% of net deposits as formerly. This
7% difference, according to net deposits on May 1, 1915,
means a reduction of about $160,000,000 in reserve require-
ments, and surplus reserves were therefore greatly increased.
It is a great question among bankers as to how far they
will dare to reduce their reserves. Theoretically, under the
new law, member banks should carry no larger surplus re-
serve than they have in years past. There are two reasons,
however, why this may not be so. First, because the banks
may need to carry a larger amount of cash on hand to trans-
act their daily business than the present reserve requirements
would call for. Second, because many bankers do not feel
that the present reserve requirements are sufficient for safety.
What the result will be can be determined only by experi-
ence, but certainly such a radical change in policy will come
about very slowly. During the 1907 panic, as per the Comp-
troller's call of December 3, 1907, 21.9 was the lowest point
reached by the reserves of the New York national banks.
Of course the new system offers a more available relief in
case of sudden financial stringency, but it may take some time
to convince the majority of bankers that they would be safe
in carrying reserves of only 18%. It is evident, therefore,
that surplus reserves must be considered on a higher basis.
In fact, during the next few years a surplus for the New York
Clearing House Banks of less than 3% of demand deposits
will probably indicate a strain in monetary conditions. In
the statement given above this would amount to $69,000,000,
whereas under the old system a surplus reserve of $15,000,000
was not uncommon.
What ultimate effect the new system will have on deposits
(and also on "loans") of the Clearing House Banks, depends
for the most part on the extent to which outside banks with-
draw their accounts from the New York banks. The extent
of these withdrawals can be determined roughly from the
Comptroller's reports by watching the item "Amount Due
to Banks and Bankers" by New York City banks. Of
course the Comptroller's reports present figures of only the
members of the Federal Reserve system, but these banks
represent about 60% of the total deposits of the New York
Clearing House Association Banks. So far the large amount
of money released by lowering the reserve requirements is
largely responsible for the great increase shown in deposits,
(and consequently loans) and this factor will tend to offset
the loss from out-of-town deposits.
BANK STATEMENT
297
It is questioned by some whether the statements
issued by the banks comprising the New York Clear-
ing House should be taken as an indicator of the
trend of banking conditions throughout the whole
country, especially since the new bank law has
come into operation. These banks have heretofore
been doing about one-fourth of the banking of the
whole country. While the Federal Reserve system
in practice will tend to reduce the importance of
New York as a banking center, inasmuch as the
balances which the Reserve City banks and the
country banks carry in New York can no longer be
counted by the former as part of their reserve, it
must be remembered that New York will always be a
great commercial center. For this reason, many banks
outside of that city will doubtless continue to carry
balances with the New York banks. The free collec-
tion of checks by the Federal Reserve Banks of
course, tends to reduce such balances, but it does
not yet entirely do away with the necessity of hav-
ing bank correspondents in the large commercial
centers. Of course, eventually the Federal Reserve
Banks will probably take over all of the work of
the clearing houses, but this simply means that
we shall have weekly statements showing banking
conditions in each of the twelve Federal Reserve
districts instead of simply those for New York.
In fact even now the Federal Reserve Bank state-
ments are a valuable barometer of the monetary
situation. After November 16, 1917, all legal
reserves formerly carried by country banks in the
central reserve cities will have been transferred to
298
BUSINESS BAROMETERS
the Federal Reserve Banks. In times of monetary
stringency it is the Federal Reserve Banks which
will have to bear the burden, and therefore we
should watch their condition very carefully.
THE COMPTROLLER'S REPORTS UNDER THE NEW
SYSTEM
In the items of the Comptroller's Reports, which
cover the whole country, certain changes have also
occurred which students must take into account
when comparing current figures with past figures.
Loans have greatly increased. The reduction in
reserve requirements theoretically released about
$500,000,000 in cash, against which more than
$2,000,000,000 in loans could be made which would
not have been possible under the old system. The
importation of more than $400,000,000 of gold
during 1915 was also a strong factor for expansion
in loans. Between the new law and these gold
imports, loans of the national banks during the
first year and a half under the new system increased
nearly $1,000,000,000 without creating any appar-
ent monetary strain.
"Cash" is much smaller. Whereas under the old
system banks were required to hold 6%, 1212% or
25% of their deposits in cash (according to the class
of bank), they must under the new system hold
only 12%, 15%, or 18% in reserves of which only
4%, 5%, and 6%, respectively, need be held as
cash in vault. According to distribution of deposits
on October 31, 1914, therefore, the new law au-
thorized an average reduction of about 46% in
cash holdings, but bankers will probably not find
COMPTROLLER'S REPORT
299
it practicable or wise to hold so little cash on hand.
A large reduction in "cash" will eventually take
place, however, under the new system.
"Investments" should not be changed a great
deal by the Federal Reserve system. While one
of the chief aims of the system is to turn the banks
from long term investments, such as bonds, etc.
(which constitute "Investments"), to short term
business paper, still many banks will continue to
carry a "back log" of good bonds among their
holdings. During the first year and a half of the
new system a large amount of bond buying has
been done by the banks, but this was not due
(directly, at least) to the new system.
"Aggregate resources" should expand on account
of the increase in the "loans" item. "Surplus"
should not be directly affected by the new system.
The "surplus" of a bank, as in any other business
concern, is the "nest egg" which it saves out of its
earnings, and it is not expected that the earning
capacity of the banks will be greatly altered.
Deposits are much larger. Individual deposits
include all deposits except those of other banks.
The net deposits include all deposits, less of course
any duplications between the banks. As explained
above, there is more money in active circulation.
This means more money to loan, and as most of
the money loaned finds its way back to the banks in
the form of individual deposits, a substantial increase
in this item is to be expected under the new law.
It must be remembered that the above are simply
suggestions as to the allowance which should be
300
BUSINESS BAROMETERS
made for the effect of the new system. It is im-
possible to do more than approximate these changes
for no one can tell how far the bankers will feel free
and business conditions will permit them to take
advantage of the lower reserve requirements and
other provisions of the law. Moreover, the war
has greatly complicated the situation. Care must
be taken, therefore, in comparing the current fig-
ures with figures previous to the inauguration of
the new system.
THE FEDERAL RESERVE BANK SYSTEM
For many years it was evident that the banking
system of the United States was inadequate to meet
the great financial needs of the country, not only
due to certain defects but because the old system
lacked certain necessary provisions which go to
make an efficient banking system. Although the
new law embodies changes which are far reaching
and of great importance, still its framework is for
the most part that of the old banking system, the
good features of which have almost without excep-
tion been retained. Briefly, the new system has
five prime purposes which are named below, al-
though it also seeks to make many other important
corrections.
(1) The creation of a joint mechanism for the extension
of credit to banks which possess sound assets (especially in
times of emergency) and which desire to liquidate them for
the purpose of meeting legitimate commercial, agricultural,
and industrial demands on the part of their clientele.
(2) The creation of an elastic currency which will con-
tract and expand directly with the demands of business; also
the ultimate retirement of the present bond-secured cur-
rency, with suitable provision for the fulfillment of government
obligations to bondholders.
FEDERAL RESERVE BANK SYSTEM
301
(3) The establishment of a public discount market for
commercial paper and a better market for farm land mort-
gages which will furnish the merchant, the manufacturer
and the farmer with better facilities with which to care for
their financial needs.
(4) The provision for better extension of American banking
facilities in foreign countries to the end that our trade abroad
may be enlarged and that American business men in foreign
countries may obtain the accommodations they require in
the conduct of their operations.
(5) To establish a more effective supervision of banking
in the United States and to secure the co-operation of the
nation's banking power for the mutual protection and profit
of the banks and the public.
In each of the above aims is embodied the desire
to utilize the credit of the country to its greatest
extent, at the same time providing against danger-
ous inflation.
The greatest defect in the old system was in the
matter of bank reserves. First, because of the lack
of centralization of reserves which would combine
the power of all the country's banks to withstand
the strain of financial crises. Hitherto each bank
had been rather a unit in itself. By law it was
required to reserve a certain percentage of its de-
posits, part of which had to be held in its own
vaults while the remainder could be deposited with
banks of either of the three central reserve cities,
New York, Chicago or St. Louis, and also in re-
serve cities where it drew about 2% interest. This
resulted in a large accumulation of funds in these
cities, especially in New York where they were
loaned to a large extent against stock exchange
collateral. In case of sudden financial stringency,
the outside banks were unable to call in their re-
serves because the central reserve city banks them-
selves could not liquidate their funds.
302
BUSINESS BAROMETERS
The Federal Reserve system has attempted to
correct this condition by providing a series of twelve
great reservoirs, one reservoir for each district,
from which the banks of that district can draw
freely in time of need. These reservoirs are called
Federal Reserve Banks. In reality each reserve
bank is an association in itself, having as members
all of the national banks and any other banks which
wish to join it. Instead of these member banks
depositing a portion of their required reserves in
New York, Chicago or St. Louis banks, they will
eventually carry them with their respective Fed-
eral Reserve Bank. Instead of having to depend
simply upon their reserve in an emergency, mem-
ber banks can at once convert their commercial
paper by having it rediscounted with the Federal
Reserve Bank. The proceeds they may have
credited to their accounts, thus creating a balance
with the Federal Reserve Bank which counts as
reserve, or they may take out Federal Reserve
notes to pay out over their counters as cash.
Thus the great advantage to the member banks
in "pooling" their reserves with the Federal Re-
serve Banks is at once evident. All of our worst
panics in the past have started in a single section,
and, like a great fire, have spread over the country
because other depositors, becoming frightened, began
to draw their balances from their banks, causing
the so-called "runs" and creating a general panic.
By extending the proper aid to the banks first
affected, the worst features of our nation-wide
FEDERAL RESERVE BANK SYSTEM
303
panics could have been quenched with compara-
tively little difficulty.
To accomplish its next great object, that of sup-
plying an elastic currency, the new law has pro-
vided a currency which will be based entirely on
commercial paper. It will be known as Federal
Reserve notes. These notes are to be issued only
by Federal Reserve Banks to their member banks
in return for standard commercial paper which their
member banks deposit with them. Thus when
business activity increases, as in the fall of the year,
the amount of commercial paper offerings will in-
crease so that collateral for the new currency will
automatically become available. Moreover, as
business demands decrease, the currency will also
decrease; for when the discounted paper which is
furnished as collateral falls due, it must be col-
lected. Since a member bank has indorsed the
paper, the reserve bank will presumably deliver it
to the member bank for collection and the latter
will, in so far as possible, deliver national bank
notes, reserve bank notes or Federal Reserve notes.
If, however, business demands still continue heavy
when the collateral paper falls due, the member
bank may substitute other collateral in its place or
the Federal Reserve Bank may keep the Federal
Reserve notes outstanding by depositing gold with
its Federal Reserve agent.
As to the national bank notes now outstanding, it
is provided that after December 23, 1915, and for
twenty years the Federal Reserve Banks will, in
reality, take over the national bank notes (at the
304
BUSINESS BAROMETERS
rate of not more than $25,000,000 a year), paying
the member banks par value for the government
bonds which now secure said notes. In order to
fill the gap in the currency left by retiring the
national bank notes, the Federal Reserve Banks may
issue reserve bank notes in their place. These must
not be confused with the Federal Reserve notes.
The reserve bank notes are the same as the old
national bank notes except that they are issued
only to the Federal Reserve Banks which can take
any amount of them by depositing an equal par
amount of United States bonds with the Treasurer
of the United States. These notes are intended to
fill the need of a minimum circulating medium,
which fluctuates very little and has no need for
elasticity. Their advantage over the national bank
notes is that they can readily be retired, being
controlled entirely by the Federal Reserve Banks.
The third major purpose of the Federal Reserve
Act is to facilitate the financing of legitimate in-
dustrial, commercial and agricultural transactions.
To this end it has given commercial paper prece-
dence over every other form of credit and has
made it legal for certain national banks to pur-
chase farm real estate mortgages. Commercial
paper has been made the very basis of the new
currency. Banks should now be willing to take a
large line of commercial paper which meets the
requirements for rediscount with the Federal Re-
serve Banks, since, in case of emergency, they can
immediately turn it into cash with which to pay
their depositors.
FEDERAL RESERVE BANK SYSTEM
305
The requirements for eligibility to rediscount
which are imposed on commercial paper are very
important. They place it on a basis of the char-
acter of the maker as well as on his financial stand-
ing. The requirements are so framed as to make it
easier for the man of ability and character to obtain
the credit to which he is rightly entitled. All of
the great influence of this important section of the
Act has been turned to the fostering of productive
enterprise and to discouraging speculation which is
unproductive and harmful. Such a fundamental
change in the banking practice of a country must
necessarily come about rather gradually, but the
principle of the new system is economically sound
and there is good reason to believe that it will ultimately
be successful.
To facilitate the financing of foreign trade, the
Act provides that member banks of the system will
be allowed to deal in foreign acceptances and to
establish foreign branches, a radical departure from
the old policy. Briefly, foreign acceptances will be
used as follows: A merchant in this country who
is buying wool in Argentina will go to a bank here.
and get a letter of credit which he will send to his
buyer in Argentina. His buyer will pay for the
wool by a draft on the American bank in dollars
instead of pounds sterling as heretofore. That
draft, when it comes to this country, is accepted by
the American bank and then is sold in the open
market. When it becomes due, the merchant can
pay it at his own bank. The practice heretofore
has been that the United States bank would give
306
BUSINESS BAROMETERS
the merchant in this country a letter of credit
drawn on either a German or English banker, pay-
able in one of those two countries. Besides the
commission which the United States merchant had
to pay, which amounted in some cases to four or
five separate commissions, he was obliged to buy
exchange in this country, converting dollars into
the foreign medium to pay that draft when it
became due. Besides running the risk of conver-
sion, he lost on an average of about ten days' time
through his having to remit. While the develop-
ment of a foreign acceptance market in this country
will doubtless be slow, there is good reason to
believe that this provision in the new law will
eventually become a great factor in building up
our foreign commerce.
All of the provisions described above have aimed
at the fullest employment of the nation's finances.
The question now arises, "What is to prevent a
tremendous over-expansion of credit, now that the
bars are down?" This has been the subject of much
discussion which really only the coming years can
definitely settle. Important among the safeguards
which have been provided is the one that only
gold or high-grade commercial paper (as defined
by the Federal Reserve Board) is acceptable as
collateral for Federal Reserve notes. The paper
must have not longer than ninety days before ma-
turity, and except in the case of "bills of exchange
drawn in good faith against actually existing values"
no bank can lend in excess of 10% of its capital
and surplus to any one firm or individual. Also

FEDERAL RESERVE BANK LAW
Enacted Dec. 23, 1913, inaugurated Nov. 16, 1914.
FEDERAL RESERVE BOARD-7 MEMBERS
Secretary of Treasury -Chairman
FEDERAL ADVISORY COUNCIL
Composed of one representative from
each Federal Reserve District.
Meets
at least 4 times a year in Washington,
D. C. To confer with Federal Reserve
Board. To advise regarding general
business conditions; to make recommen-
dations on discount rates, reserve con-
ditions and general affairs in reserve
districts.
POWERS OF
FEDERAL RESERVE
BOARD
(See foot note
No. 2)
Secretary of Treasury- ex-officio
Comptroller of Currency
latter to receive salary of $7,000.
a year additional to present salary.
FEDERAL RESERVE BANKS
Chartered for 20 years. unless sooner dissolved by Congress,
or is disfranchised by violation of law
MEMBERS AND QUALIFICATIONS
Five members appointed of remov
ed by President with consent of
Senate; only one from a district;
term of office-10 years; term of one
member expires every 2 years; 2
must be experienced in banking;
all to give entire time; salary
$12,000 a year each; one of these
to be Governor and one Vice-Gov-
ernor of Board as designated by
the President.
No member of Congress shall
be a member of this Board; all
members and Asst. Secretar-
ies of Treasury shall hold no
office position or employment
in any member bank while in
office nor for two years there-
after. No member shall be
an officer, director or stock-
holder of any bank, banking
institution or trust company.
MEMBERS AND QUALIFICATIONS
BOARD OF DIRECTORS-9 Members.
Ferm-3 years; one new director selected each year,
in each class; divided into 3 classes-"A", "B" and
"C", selected as below; no member of Congress
shall be an officer or director; shall annually select
from each Reserve District a member of Fed. Ad-
visory Council.
CLASS "C"-3 Members
Appointed by Federal Reserve Board;
one to have banking experience who
is to be Chairman and Federal Reserve
Agent; none can be officers, directors,
employes or stockholders of any bank.
NATIONAL BANKS
CLASS "B":
CLASS "A"
3 members
elected by
3 members
elected by
member banks member
to represent banks to
business inter-]] represent
ests of district;
none can be of-
ñcers, directors
or employes of
any bank.
these
banks.
CAPITALIZATION
Not-less than $4,000,000; shares $100 par value; tax exempt;
to be subscribed by member banks in the district; if they
fail to subscribe this amount then public may subscribe but
limited to $25,000 to each individual subscriber. If banks
and public subscriptions are insufficient the United States
shall receive an allotment to be disposed of by Secretary of
Treasury. Only member bank's stock shall be voted.
FEDERAL RESERVE AGENT
Through him Federal Reserve
Board issues notes and super-
vises the Federal Reserve
Bank. (See foot-note No. 1.)
KIND AND QUALIFICATIONS
All National Banks in a district must join Federal Reserve Bank. Given
60 days from December 23, 1913, to signify in writing intention of be-
coming a member; given 30 days from notification to subscribe to stock.
Any bank failing to join within a year forfeits charter. Each bank
must subscribe to stock equal to 6% of its paid-up capital and surplus;
one-sixth payable on call; one-sixth within 3 months; one-sixth with-
in 6 months, and balance on call. All payments to be in gold or gold
certificates. A foreign branch can be maintained by a National
Bank which has a capital and surplus of $1,000,000 or over. Any
National Bank outside of Central Reserve cities may make loans
secured by improved and unencumbered farm lands in district. No
loan shall be for over 5 years nor for more than 50% of actual value
of property put up as security. Total of such loans made by any
bank shall not be more than 25% of its capital and surplus or one-
third of its deposits.
STATE BANKS
May become a member of Federal Reserve Bank.
Must comply with reserve and capital requirements
of National Banks and submit to examination. Must
subscribe and pay for stock on same basis as a National
Bank. Federal Reserve Board may disfranchise
member bank, after hearing, when it fails to comply
with provisions and regulations.
POWERS OF
FEDERAL RESERVE
MEMBER BANKS
See foot-note No..4
REFUNDING OF U. S. 2% BONDS
BANKS
(See foot-note No. 3)
From December 23, 1915, for 20 years any member bank
can ask Secretary of Treasury to sell the U. S. bonds
securing its circulation notes. The Federal Reserve
Board may direct the Federal Reserve Banks to buy
at par not over $25,000,000 of these bonds in any one
year. The bonds sold for account of each member bank
shall be assigned in writing to the Federal Reserve
Bank purchasing same. The U. S. Treasury shall pay
to member bank selling such bonds any balance due
after redeeming its outstanding notes; the Federal
Reserve Banks purchasing such bonds can take out
circulating notes equal to a par value of such bonds.
RESERVES
Must maintain at
least 35% of deposits
in gold or lawful
money; also 40% in
gold against its re-
serve notes in actual
circulation;5% of this
latter reserve shall
be in the U. S.
Treasury.
EARNINGS
Dividends cumulative
at 6% rate. One-half of
balance of net earnings
to surplus until it amts.
to 40% of paid-in capital;
other one-half of net
earnings to be paid to
United States as fran-
chise tax to be applied
either to gold reserve or
to retire outstanding U.
S. bonds. After accum-
ulation of 40% surplus
all earnings above 6%
dividends to be paid to
the United States.
RESERVES
FEDERAL RESERVE NOTES
Issued to Federal Reserve banks
by the Federal Reserve Board and
are obligations of U. S.; denom-
inations $5, $10, $20, $50, and $100;
redeemable in gold at U.S.Treas-
ury and in gold or lawful money
at Federal Reserve Banks; receiv-
able for all taxes, customs and
other public dues; secured by assets
of issuing bank and by equal
amount of paper endorsed by the
member bank accepted for re-
discount.
Demand deposits are those payable within 30 days;
time deposits are those payable after 30 days.
Reserves must be held as below,
IN COUNTRY BANKS:
12% of demand and 5% of
time deposits; of this five-
twelfths for first 3 years
(four-twelfths afterward)
in own vaults; five- twelfths
in Federal Reserve Bank
(two - twelfths for first year
and one - twelfth each_suc-
ceeding 6 months); three-
twelfths in own vaults or
Federal Reserve Bank.
In Reserve City Banks
15% of demand and 5% of
time deposits; of this six-
fifeenths for first 3 years
(five-fifteenths afterward)
in own vaults; six-fifteenths
in Federal Reserve Bank
(three-fifteenths for first
year and one-fifteenth for
each succeeding 6 months);
four-fifteenths in own vaults
or in Federal Reserve Bank.
IN CENTRAL RESERVE
CITY BANKS
18% of demand and 5%
of time deposits of
which six-eighteenths
in own vaults; seven-
eighteenths in Federal
Reserve Bank; five-
eighteenths in own
vaults or Federal Re-
serve Bank.
NOTE NO. 1.
The Federal Reserve Agent: Shall be the Chairman of Board of Directors of a
Federal Reserve Bank and must give bond. He shall maintain a local office on premises
of Federal Reserve Bank and be the official representative of the Federal Reserve Board
and make regular reports to it. Salary fixed by Federal Reserve Board but paid by the
Federal Reserve Bank to which he is designated. He holds collateral put up by a Federal
Reserve Bank to secure the notes it issues. He shall hold the gold, gold certificates or
lawful money, which a Federal Reserve Bank puts up to reduce its outstanding notes
exclusively for this purpose, or if so directed by the Federal Reserve Board may transmit
gold to Treasury of United States for the exclusive purpose of redeeming such notes.
NOTE NO. 2.
Powers of Federal Reserve Board: To regulate the issue and retirement of Federal
Reserve notes; to suspend or remove officials of Federal Reserve Banks; to levy upon said
banks semi-annual assessments to meet estimated expenses of this Board. This Board
may exercise functions of Clearing House and may require Federal Reserve Banks to do
the same for member banks; may fix rate of interest to be charged Federal Reserve Banks
on Federal Reserve notes issued, and also the charges to be collected by member banks
for checks cleared through Federal Reserve Banks. It has power to examine Federal
Reserve Banks and member banks and to exercise general supervision over Federal Reserve
Banks. This Board can establish a tax on decreasing reserves and to suspend for stated
periods reserve requirements. It shall publish weekly statements showing condition of
each Federal Reserve Bank and of all in consolidated form; has power to require writing
off doubtful assets of Federal Reserve Banks; to suspend or remove officers or directors
of a Federal Reserve Bank and to suspend, reorganize or liquidate Federal Reserve Banks
violating this Act. It shall fix salaries of all bank examiners and report same to Congress;
shall have all Federal Reserve Banks examined at least once a year and may add from time
to time to the list of cities in which National Banks cannot make lɔans secured by real
estate.
NOTE NO. 3.
Powers of a Federal Reserve Bank: To establish branch banks within its district
or any district where Federal Reserve Bank has been suspended; to deal in gold coin and
bullion at home or abroad; to buy or sell at home or abroad bonds and notes of the United
States, and state, county, district or municipal notes, revenue bonds and warrants with
a maturity of not over 6 months from purchase date; to buy from member banks and sell
bills of exchange arising out of commercial transactions; to establish from time to time
through Federal Reserve Board rates of discount on each class of paper. It shall have
power to use corporate seal, make contracts, sue or be sued, appoint employes and define
their duties. It may receive deposits from United States, any of its member banks, and
from other Federal Reserve Banks. It shall receive on deposit from member banks of
Federal Reserve Banks, at par, checks and drafts drawn on any of its depositors. It may
discount acceptances based on importation or exportation of goods having not more than
3 months to run and endorsed by one member bank. Such discounts shall at no time
exceed one-half the paid-up capital stock and surplus of the bank for which the rediscounts
are made.
NOTE NO. 4
Member Banks: Shall not be subject to visitorial powers except those authorized
by law. No officer, director, employe or attorney of a member bank shall benefit by or
receive directly or indirectly any fee, commission, gift or other consideration in connection
with the business of the bank, except the usual salary or director's fee, under penalty of
fine and imprisonment. Every member bank shall be examined at least twice a year by
examiners appointed by Comptroller of Currency. The provisions that a National Bank
shall count the 5 per cent fund for redemption of its notes as its lawful reserve, and that
it shall deposit with Treasury U. S. bonds before commencing business, are repealed. No
member bank shall keep on deposit with a non-member bank more than 10 per cent of
its own paid-up capital and surplus, except when State banks are required by State laws
to keep reserve deposits with State institutions. No member bank shall act as Agent
of a non-member bank in obtaining discounts from a Federal Reserve Bank except by
permission of Federal Reserve Board. Every Trust Company within District of Columbia
must signify in writing within 60 days after the passage of this Act, its acceptance of the
provisions contained therein.
Copyright 1914 by Marshall M. Ferguson
FEDERAL RESERVE BANK SYSTEM
307
there are provisions regarding bank examinations.
and reports.
These restraints in themselves, however, could
never prevent inflation. The great responsibility for
safety lies with the bankers and the officials of the
system. First, all loans will be carefully scrutinized
by the individual bankers. If, however, the situa-
tion gets beyond their control, the reserve bank
of the district will take a hand. Rates for redis-
count will be raised and commercial paper offered
as collateral will be more carefully scrutinized.
Finally, if over-expansion continues, the Federal
Reserve Board, which will keep a close watch
wherever trouble is evident, will reject the Reserve
Bank's applications for notes, and insist that a
higher rate of discount be charged the member
banks of the district affected, and if outside help is
needed, it will permit or require the other Reserve
Banks to rediscount for the Reserve Bank of the
district in which over-expansion is threatened.
In short, the supervision of the nation's banking
by men of ability and experience is the law's great-
est provision against inflation and there is good
reason to believe that it will prove effective, just
as it has in the leading nations of Europe. Per-
haps instead of describing this great provision of
the system last, we should have placed it first,
for it promises a new era in the nation's banking.
In the few pages devoted to this subject, no
attempt has been made to describe more than the
main features of the law, for nearly all of the details
of organization are shown on the accompanying
308
BUSINESS BAROMETERS
chart more clearly than we could describe them.
If, however, the reader wishes a still more com-
plete discussion of the law, we would refer him
to the admirable book by Professors Conway and
Patterson, entitled "The Operation of the New
Bank Act," also "The Federal Reserve Act" by
C. W. Barron, and to the Act itself, which is in very
readable form.
CLEARING HOUSE CERTIFICATES
Although there is nothing in the new law which
prohibits the use of Clearing House Certificates, the
provision made for elasticity of currency is so com-
prehensive that recourse to Clearing House Cer-
tificates in the future is not probable. However,
some facts from an article which appeared in Van
Norden's Magazine relative to these certificates will
show the part which they have taken in previous
panics.
"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; they
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 12

1873
JANUARY FEBRUARY MARCH APRIL
171.8
21
1884
JANUARY FEBRUARY
62.4
626
58
76.5
MAY JUNE
JULY
746
Certificates
Issued May 15, Retired June 27.
Total $24,915,000
Max. 1 21 855 vue
MARCH APRIL
MAY
1890
JANUARY FEBRUARY MARCH
72.91
72.06
70.65
1893
JANUARY FEBRUARY MARCH
70.9
47.65
JUNE
APRIL
MAY
JUNE
78.04
JULY
Clearing House Certificates
Laoved Sept 22,1973 Total 426,80€,000
Artured Fan,1%, 1874 Maximum at any one
time $22,410,000
AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
72
747
CLOSED
$$3
AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
152.6
47.2
48.9
48
44.9
47.7
Max
C.H.Certificades
Jasð Nor,ia; Ref Feb
Total #16,645,000
15,206,000
7,9
JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
71.78
74,01
67.4
Clearing House Certificates
Issued June 21; Retired November 1
Total # 41,440,000
Maximum at any date 4 38,250,000
AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
APRIL
MAY
JUNE
JULY
66.31
633
6275
51.33
565%
$7.95
34.5
50.3
2.66
From Vun Norden's Magazine
THE COURSE OF THE MARKET IN FOUR 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
309
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 21, 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
therefor 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 passed, the holders were charged 7 per cent.
interest. The plan was successful in stopping the
panic. A period of liquidation ensued. From
January 5 to August 17, 1861, the specie deposits
doubled and the bank loans were reduced from
$129,000,000 to $108,700,000.
"Within a few months thereafter, the Associated
Banks of New York, at three different times, issued
Clearing House certificates to enable them to sub-
scribe for new issues of United States bonds which
could be paid for only in specie. 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:"
310
BUSINESS BAROMETERS
CLEARING HOUSE CERTIFICATES ISSUED IN
NEW YORK
Date of
Date of
Year
First Issue
Final Cancellation
Total
Maximum Out-
standing at any
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
Mar. 28, 1908
101,060,000
88,420,000
1914
Aug. 3
Dec. 1, 1914
124,695,000
108,185,000
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
IMPORTS OF MERCHANDISE
311
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-
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 secondly, 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
Per
Per
Year Imports
1860 $353,616,119
1861 289,310,542
Capita
Year
Imports
Capita
$11.25
1889
$770,521,965
$12.58
9.02
1890
823,397,726
13.15
1862
189,356,677
5.79
1891
828,320,934
12.96
1863
243,335,815
7.29
1892
840,930,955 12.91
1864
316,447,283
9.30
1893
776,248,924 11.68
1865 238,745,580
6.87
1894
676,312,941
9.97
1866
434,812,066 12.26
1895
801,669,347
11.60
1867
371,476,175
10.23
1896
681,579,556
9.66
1868
368,006,572
9.94
1897
742,595,229
10.32
1869
438,455,894 11.60
1898
634,964,448
8.66
1870
461,132,458 11.97
1899
798,967,410 10.68
1871
573,111,099 14.47
1900
829,149,714 10.86
1872
655,964,699 16.15
1901
880,419,910 11.34
1873
595,248,048 14.27
1902
969,316,870 12.30
1876
1874 562,115,907
1875
503,153,936 11.43
427,347,165
13.13
1903
995,494,327
1904
1,035,909,199
12.42
12.71
9.47
1905
1,179,144,550 14.24
1877
480,246,300
10.37
1906
1,320,501,572 15.69
1878
431,812,483
9.07
1907
1,423,169,820 16.29
1879 513,602,796
10.52
1908
1,116,374,087 12.54
1880
696,807,176 13.88
1909
1,475,520,724 16.28
1881
670,209,448 13.06
1910
1882
752,843,507 14.36
1911
1,562,904,151
1,532,359,160
1883
687,066,216 12.81
1912
1884
629,261,860 11.48
1913
1885
585,868,673 10.49
1914
1886
663,429,189 11.57
1915
1,778,596,695
1887
708,818,478 12.09
1916
18.00
17.60
2,391,654,335 23.28
16.94
16.32
1,818,073,055 19.04
1,792,596,480 18.47
1,789,276,001
1888 725,411,371 12.11
312
BUSINESS BAROMETERS
*
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, namely,
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
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 1883-84. 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 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
IMPORTS OF MERCHANDISE
313
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 increased
to the above figures, therefore showing that the
same law has been observed in connection with all
panics excepting that of 1903, which, as explained
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,
several hundred percent, 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 neces-
sitates the exportation of too much gold; and
secondly, it signifies too great an extravagance on
the part of the American people. As continued ex-
ports of gold are usually followed by advanced
money rates, so too great an expenditure of money
for luxuries and unproductive material, especially
when imported, is followed first, by higher com-
modity 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-
314
BUSINESS BAROMETERS
gestive of better times. This latter phase is espe-
cially well illustrated in an article which appeared
some time ago in the New York Evening Post.
It began by referring to a Wall Street man who
rather facetiously remarked that good times were
surely coming for he noticed that people were
"wearing 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
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 manufacturers shows that the
IMPORTS OF MERCHANDISE
315
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 it is not always with clothes that people
adopt a policy of retrenchment. If, for example,
they cut down by only one-third the amount they
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
316
BUSINESS BAROMETERS
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 more than 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-
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 same 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
IMPORTS OF MERCHANDISE
317
$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 studying foreign trade,
instead of considering exports and imports sepa-
rately, 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
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 nothing im-
portant, provided said increase does not adversely
affect the balance of trade.
(b) A decrease signifies that fundamental
conditions are improving.
(c) No change signifies nothing of importance
provided the exports are likewise constant.
*These figures are valuable both as a barometer of the American demand
for luxuries and for forecasting money conditions.
318
BUSINESS BAROMETERS
2. During a Period of Improvement Following a
Business Depression.
(a) An increase, if not too great, is natural.
(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 prosperity is nearing its end.
(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.
4. During a Period of Decline Following a Period
of Prosperity.
(a) An increase calls for caution.
(b) A decrease is only natural.
(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.
EXPORTS OF MERCHANDISE
319
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-
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 more than $2,000,000,000 and this increase
has been much larger in manufactures than in
other products. In 1893 the United States was
exporting about $677,000,000 in food products and
raw materials, which amount increased only to
about $946,000,000 for the fiscal year of 1913,-
an increase of less than 40 percent. On the other
hand, the exports of manufactured products in-
creased from about $177,000,000 in 1893 to more
than $1,500,000,000 in 1913,—an increase of more
than 747 percent.
320
BUSINESS BAROMETERS
Such a change in the proportions between the
agricultural and manufactured exports is important.
If exports are to depend upon manufactured articles
rather than on raw materials, bread-stuffs, etc.,
the decline in exports which heretofore has occurred
during years of crop failures will tend to be elimi-
nated. Andrew Carnegie has said that the time ist
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 manufactured articles. If so,
the American manufacturers 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 twenty-odd
years seem to prove it, our exports probably will
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
EXPORTS OF MERCHANDISE
321
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 sepa-
rately, add them together and call their sum the
volume of trade. This figure is valuable as a ba-
rometer of 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.
*These figures are valuable both as a barometer of foreign trade con-
ditions and for forecasting money rates.
322
BUSINESS BAROMETERS
2. During a Period of Improvement Following á
Business Depression.
ment.
(a) An increase signifies continued improve-
(b) A decrease signifies no improvement.
(c) No change signifies nothing definite.
3. During a Period of Prosperity.
ment.
(a) An increase signifies continued improve-
(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.
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
foreign merchants raw materials or merchandise
greater 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
BALANCE OF TRADE
323
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 secu-
rities are paid or when at any time before they
are due the foreign dealers decide to sell them, will
often nullify the good of a certain portion of the
trade balance in our favor for that year.
If trade balances were dependent wholly on the ex-
ports and imports of raw material, merchandise, etc.,
it would be unnecessary for merchants and investors
independently to tabulate monthly figures on gold
movements 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, expenditures of tourists travelling
abroad, etc., it is necessary to tabulate figures also on
gold movements and these other factors.
Certain merchants when tabulating figures on
324
BUSINESS BAROMETERS
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
barometer for discerning present conditions and for
forecasting 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
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.
*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
325
2. During a Period of Improvement Following a
Period of Depression.
ment.
(a) An increase signifies continued improve-
(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.
ment.
(a) An increase signifies continued improve-
(b) A decrease signifies that the end of the
period of prosperity is approaching.
(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 the end of the decline.
(b) A decrease signifies continued decline.
(c) No change signifies nothing of importance.
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,
326
BUSINESS BAROMETERS
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 tabu-
late the monthly production of the Transvaal Mines.
"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
GOLD MOVEMENTS
327
"
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
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
328
BUSINESS BAROMETERS
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
firmly established gold supply to some distant
market.'
There are three distinct influences which bring
about such movements. The first is the necessity
of making international payments for merchandise
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-
GOLD MOVEMENTS
329
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 will
readily appear that it is a mistake to imagine that
the development of our international financial
relations 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
system 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
circumstances and at times when it is impossible
that there should be a sufficient amount of exchange
available. It is hard to see how, even if an inter-
national system 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
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-
330
BUSINESS BAROMETERS
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,
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.
GOLD MOVEMENTS
331
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 large 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-
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 circula-
tion is obtained at the cost of diminished activity
and volume of business under ordinary conditions.
332
BUSINESS BAROMETERS
"M. Paul Leroy-Beaulieu 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 quan-
tity 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 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 objects 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
GOLD MOVEMENTS
333
have furnished distinct indications prior to each
period of disturbance, but their significance 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
not an unfavorable condition. It indicates pur-
chases upon advantageous terms.
"Second, 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.
"Third, an unusual balance of exports of gold,
334
BUSINESS BAROMETERS
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-
tial particulars they 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 mer-
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
GOLD MOVEMENTS
335
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
influences 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 country
to coincide with an excess of imports of merchan-
dise. 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
now actually "staved 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,
336
BUSINESS BAROMETERS
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.
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 and suggests caution.
(b) A decrease forecasts lower money rates
and no improvement.
*It is an interesting fact that while the United States is the only one of
the great nations which produces much gold, yet we draw more heavily on
the international supply than any other country except France and Ger-
many; 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 result 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 normal current of gold.
GOLD MOVEMENTS
337
(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 retards the 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, 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.
338
BUSINESS BAROMETERS
FOREIGN MONEY RATES AND FOREIGN
EXCHANGE
These two subjects are usually discussed to-
gether, first because they are co-related and
secondly, because the subject of foreign money
rates of itself is not sufficiently important to be
treated independently. 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 Ameri-
can 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,
the Bank of France and the Bank of Germany. The
FOREIGN MONEY RATES
339
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:
June 6, 1901:3
June 13, 1901:3
Jan. 23, 1902:34
Feb. 3, 1902:3
Oct. 2, 1902: 4
Oct. 31, 1902: 4
May 24, 1903:33
Nov. 7, 1907:7
Jan. 2, 1908: 6
Jan. 16, 1908:5
Jan. 23, 1908:4
Mar. 5, 1908:3
Mar. 19, 1908:3
May 28, 1908: 21
Jan. 14, 1909:3
Sept. 28, 1905: 4
Apr. 5, 1905:3
May 3, 1906:4
June 21, 1906:3
Sept. 13, 1906: 4
Oct. 11, 1906:5
Oct. 19, 1906:6
June 18, 1903:3 Jan. 17, 1907:5
Sept. 3, 1903:4
Apr. 14, 1904:33
Apr. 21, 1904:3
Mar. 9, 1905: 24
Sept. 7, 1905: 3
|
Apr. 11, 1907:43
Apr. 25, 1907:4
Aug. 15, 1907:41
Oct. 31, 1907:5
Nov. 4, 1907:6
Apr.
1, 1909: 2
Oct.
7, 1909:3
Oct.
14, 1909:4
Oct.
21, 1909:5
Dec.
9, 1909: 4
Feb. 8, 1912:3 | Oct. 2, 1913:5
May 9, 1912:3 Jan. 7, 1914: 4|
Aug. 29, 1912:4 Jan. 22, 1914:4
Oct. 17, 1912:5 Jan. 29, 1914:3
Apr. 17, 1913:4 July 30, 1914:4
| Jan.
6, 1910:4
Jan. 20, 1910:3}
Feb. 10, 1910:3
Mar. 17, 1910:4
June 2, 1910:3
June 9, 1910:3
Sept. 29, 1910:4
Oct. 20, 1910:5
Dec. 1, 1910:4}
Jan. 26, 1911:4
Feb. 16, 1911:34
Mar. 9, 1911:3
Sept. 21, 1911:4
July 31, 1914:8 | July 3, 1916:6
Aug. 1, 1914: 10 Jan. 17, 1917:51
Aug. 6, 1914:6
Aug. 8, 1914:5
No change in 1915
340
BUSINESS BAROMETERS
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 exchange 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
dealer; the quotation 'posted rate' means the prelimi-
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
FOREIGN MONEY RATES
341
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 where 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 where 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
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 $1.00 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 525 centimes (5
francs, 25 centimes) is purchased for $1.00 it costs
less than if $1.00 is paid for 511 centimes; or, putting
342
BUSINESS BAROMETERS
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 the 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.
"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 ascertained
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,
FOREIGN MONEY RATES
343
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 were 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,
panic broke out in Hamburg, Germany, carrying
down two great commercial houses. 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 rescue
by guaranteeing the assets of banks then subject
to a run by depositors. What this part of the his-
tory 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.
344
BUSINESS BAROMETERS
"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
world-wide liquidation and reaction, in both finance
and commerce which followed and which long pre-
vailed, in Europe, Asia, Africa and South America,
as well as in this country, were the logical and in-
evitable outcome." Therefore the necessity of
studying foreign conditions and not simply condi-
tions in only one country, is apparent. Consider-
ing the recent great European War the necessity
for such study is even more potent.
The following conclusions are suggested relative
to "Foreign Money Rates,"* as expressed 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."
*These figures are also of special value in judging the course of domestic
rates.
FOREIGN MONEY RATES
345
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 retard further improvement.
(b) A decrease is favorable.
(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 prosperity is nearing its end.
ment.
(b) A decrease signifies continued improve-
(c) No change means normal conditions.
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 further trouble.
(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
346
BUSINESS BAROMETERS
gold (which is used as a standard of value and a
medium 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
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 view 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
PRODUCTION OF GOLD
347
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
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-
creases 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
348
BUSINESS BAROMETERS
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. Professor Irving Fisher has also given a
great deal of study to this subject, and his book,
"The Purchasing Power of Money," and his other
able studies on the decrease in the purchasing power
of the gold dollar, etc., should be read by all who
wish to be well informed concerning this important
matter. Another book on this subject is "How to
Invest When Prices are Rising," published by G.
Lynn Sumner & Co., Scranton, Pa. Based upon
the assumption that the output 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.
(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
PRODUCTION OF GOLD
349
tend to decrease the net profits of all concerns the
prices 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, mines, forests,
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 commodities,
stocks and real estate.
(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.
i
350
BUSINESS BAROMETERS
(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:
"It 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 offset 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
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."
PRODUCTION OF GOLD
351
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 affecting prices and interest
rates. In fact, an increase in credits of any form
(that is, bank deposits subject to check), and
especially an increase in the velocity of circulation
of said moneys and credits, are also important fac-
tors. The increase in population, the destruction
of natural resources, industrial combination, labor
unions, increased cost of agricultural lands and many
other factors tend to increase the prices of commodi-
ties, rates of interest and investment values.
Nevertheless, "Gold Production" is an important
subject, and it is the practice of most careful bankers,
manufacturers and merchants regularly to tabulate
the monthly production of the Transvaal mines as an
index of the world's production. Of this production
it is said: "Treatment of ore in Johannesburg
continues seven days a week, and February, with 28
352
BUSINESS BAROMETERS
days, is always a small month; while, other things
being equal, a month with 31 days will have a bigger
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.
From the time of the Boer War up to 1913, the
Transvaal output increased steadily. In 1913,
however, the production declined, due largely to
labor troubles and also to added difficulty in min-
ing at great depths. If this decline continues for
a number of years it will prove an important fac-
tor, unless new deposits are discovered to make up
the deficiency.
While a continued reduction in the world's gold
production may not be felt for years, it may mean
ultimately a reduction in price of all commodi-
ties not artificially supported; an advance in price
of bonds; a reduction in rate of interest on mort-
gages; lower wages in view of the consequent
greater purchasing power of gold; and a decline in
price of stocks caused by the transference of invest-
ments 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
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 to cause an improvement.
PRODUCTION OF GOLD
353
(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 conditions
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.
(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.
354
BUSINESS BAROMETERS
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 of 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
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
*This is why the price of iron is tabulated each month-as a barometer
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 years after the stock market reaches its low
point.
COMMODITY PRICES
355
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 fell to a minimum in the latter part of the year
1878, though steel rails and standard sections of iron
rails fell 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 had fallen to
$16.50 per gross ton, less than one-third the price of
September, 1872.
"In 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
$16.50 in November, 1878, rose to $41.00 in Febru-
ary, 1880; rolled bar iron to $85.12 in the same
month; steel rails to $85; cut nails to $5.25 in the
months of February and March. After the month
of March, 1880, there was a sharp decline, though
interrupted by numerous fluctuations. A steady
decline 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
356
BUSINESS BAROMETERS
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 earlier
months of 1887, the months of February and March
of that year showing maximum prices in most varie-
ties 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 decades 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 increased de-
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 was less than in 1897, the demand
did not keep pace with the increasing supply, and
improvements in production were constantly exert-
COMMODITY PRICES
357
•
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,
in which 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.
Again the improved conditions of 1909-10 were
preceded by a remarkable increase in the price and
production of iron, followed later by an increase in
the production of copper and other commodi-
ties. From the high point of 1909-10, prices of iron
and steel declined again to a low point in December,
1911, followed by a rapid advance in 1912.
358
BUSINESS BAROMETERS
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 crises of 1825 and 1837, nearly
a year prior to that of 1873, and several years prior
to the crises 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
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 movement preceding the maxi-
COMMODITY PRICES
359
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, when
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, 1879, or for six
months; prior to the maximum of $19.90 in January,
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
360
BUSINESS BAROMETERS
1899 was the most remarkable of all, because it had
been considered by iron manufacturers in the pre-
ceding years that the equipment for production was
sufficient to properly meet any increase of demand,
and yet the rapid rise in that year was unprece-
dented. The great increase in the price of iron and
steel in that year, with the steady increase in produc-
tion after 1894, proves the more general use of these
products 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
several reasons:
First. The continuous increase in the amount
of active circulating medium. In normal conditions
money is valued only as a means of purchasing
goods. A certain amount must be kept as "till
money" and for bank reserves. People only hoard
money when they become frightened. Hence, an
increased supply of money is ordinarily reflected in
an increased demand for goods, resulting in higher
prices (since there is no corresponding increase in
the supply of goods offered).
The output of gold which is being supplied at the
rate of about one million dollars per day* is directly
*See Prof. Irving Fisher's studies on the decrease in the purchasing
power of the gold dollar.
COMMODITY PRICES
361
responsible for much of the steady increase which
has taken place in the world's stock of money.
Indirectly, it forms the basis for credit expansion,
the effect of which is even more important. The
financial history of the past sixty years has been
characterized by a great expansion in the use of
credit instruments. Bank notes, treasury notes
and bank deposits, subject to check, act as a me-
dium of exchange and thus perform the functions
of money. Most checking deposits are created by
loans made to enable the borrower to purchase
goods, and therefore this credit money has the
same effect on prices as the same amount of specie.
Second. Another effect in maintaining high
prices is the growing pressure of population on the
land supply. The best mining and agricultural
opportunities of the new world have been occupied.
The insistent demand for raw material to clothe,
feed, house, educate and amuse the steadily in-
creasing population is continually forcing resort to
less advantageous sites. These yield their product
only at a higher cost per unit.
A given area of land can be made to yield more
grain per acre only by the use of more fertilizer
or more thorough cultivation. After a certain
point is passed, additional product per acre can
be obtained only at a disproportionate additional
outlay in labor or capital, or both. This will not
be undertaken unless the price of the products
is sufficient to justify it. The resort to poorer
lands, and lands farther from the market will be
undertaken only under the same condition.
362
BUSINESS BAROMETERS
Broadly speaking, mining, the other great de-
partment of extractive industry, is governed by the
same general principle. It is true that new and rich
ore deposits are discovered from time to time,
but the operation of extracting the product from
known mines proceeds in a manner practically
similar to the method of agriculture. Those de-
posits are worked first that can be worked at the
lowest per-unit cost, and as these are exhausted,
it becomes necessary to dig deeper into the ground,
to extend operations to less easily accessible terri-
tory, or to resort to poorer grade of ore. Increas-
ing demand is thus constantly forcing prices to
higher levels.
Third. The maintenance of high prices is in
part due to the rise of the standard of living which
a period of increasing wealth first produces, and
then establishes with a resisting power that even
in times of depression resists with a new force
any recession in its newly gained advantages.
Fourth. There is a final factor behind existing
price levels in the forms of the wastes due to war
and the maintenance of great armaments, and in
the millions of misdirected capital which have
helped to enhance the costs of profitable production.
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.
Such figures especially interest bankers since much
more money is needed to finance a given volume
COMMODITY PRICES
363
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 signifies a temporary check to
improvement.
(c) No change calls for caution.
3. During a Period of Prosperity.
(a) A great increase in commodity prices.
signifies no further improvement, and 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.
4. During a Period of Decline Following a Period
of Prosperity.
(a) An increase is not unusual as commodity
364
BUSINESS BAROMETERS
prices sometimes continue to increase about one
year after the decline in stocks takes place. Such
an increase, however, clearly signifies that no im-
mediate improvement may be expected.
(b) A decrease 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.,
Chairman.
The most scientific discussion of prices may,
however, be found in Prof. Irving Fisher's book,
entitled "The Purchasing Power of Money" and
published by Macmillan & Co., New York. Pro-
fessor Fisher deserves the very highest commen-
dation for his original researches along these lines,
and all of his works deserve the most careful
attention.*
*
*See page 258.
CHAPTER VIII
SUBJECTS RELATING ESPECIALLY TO INVEST-
T
MENT CONDITIONS
STOCK EXCHANGE TRANSACTIONS
HERE 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.
entitled "New Securities," page 361.)
QUOTATIONS
(See section
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, however, 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 tendency of the market is downward.
In order to study this matter intelligently, a plot
366
BUSINESS BAROMETERS
should be made of the average prices of the leading
railroad and industrial stocks. Up until recently
the rails have been the leading stocks in the market
and their fluctuations have best indicated the
market trend. The range of prices since 1860 of
ten leading railroad stocks is given in Chapter II.
The Wall Street Journal publishes an average
which is widely used as indicating the trend of the
market. This list contains 40 stocks, 20 industrial
stocks: American Beet Sugar; American Can;
American Car & Foundry; American Locomotive;
American Smelting; American Sugar; American
Tel. & Tel.; Anaconda; Baldwin Locomotive; Cen-
tral Leather; General Electric; Goodrich; Rep.
Iron & Steel; Studebaker; Texas Co.; U. S. Rubber,
U. S. Steel; Utah Copper; Westinghouse; Western
Union; and 20 active railway stocks: Atchison;
Baltimore & Ohio; Canadian Pacific; Ches. & Ohio;
St. Paul; Delaware & Hudson; Erie; Illinois Cen-
tral; Lehigh Valley; Louis. & Nash.; Kansas City
So.; N. Y. Central; New Haven; Southern Pacific;
Southern Ry.; Norfolk & Western; Northern Pacific;
Penn.; Reading and Union Pacific.
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
are then connected with a line and this line shows
at a glance the tendency of the market.
When two or three plots are made, it is interest-
ing to compare a railroad plot with one for in-
dustrials. Up until about 1911 or 1912 the railroad
STOCK EXCHANGE QUOTATIONS
367
quotations almost always preceded the industrials
either up or down. Since that time, however, the
reverse has been true. Space does not permit a
detailed account of the reasons for the change, 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.
Another interesting plot is that for bond prices,
and the following ten are those which we have
compiled and which we use as an index of this
market: Atchison, Top. & Sa. Fe. Gen. 4's; Balti-
more & 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 Cen-
tral 3's; St. Louis & San 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. The New York Times publishes
a useful average of the prices of 50 stocks and 40
bonds.
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 often the first visible sign of a
change in general business conditions. Railroad
earnings are absolutely dependent upon business
conditions, and stock market quotations are
dependent upon anticipated earnings. Therefore, a
rising market over a certain period of time, means
368
BUSINESS BAROMETERS
that the majority of operators believe that funda-
mental conditions are more sound, while a falling
market means that these operators believe that
fundamental conditions are unsound and unsatis-
factory. In other words, a study of the stock market
gives one a composite idea of the opinions of the
ablest bankers and brokers. This is the reason why
the stock market often turns to go down while rail-
road earnings are increasing, and often turns to go
up while railroad earnings are still decreasing.
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
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 volume of transactions is usually largest at
about the culmination of a long swing bull move-
STOCK EXCHANGE TRANSACTIONS
369
ment, and during severe liquidation. Between
these points, however, the variations in volume are
less significant. It is believed by many market
traders that, in the trading from day to day, when
the volume of transactions diminishes as prices fall
off, and then increases as prices rise, that this
shows the real trend of the market to be upward.
On the other hand, when the volume is heaviest
on the down grade and lighter on the rallies, a
general decline may be expected.
There is probably some truth in this idea, but
such matters are subject to manipulation to such
an extent that one can never safely trust to such
surface indications. Manipulation is always pres-
ent, and there are always pools and individual
operators trying to put the market up or down
as suits their interest. Certain of these are said
at times to control the market. Though hard
to prove, this is probably true as regards many of
the minor movements and short swings.
Yet no pool or group of operators, however
strong, can hold up a market indefinitely, when
fundamental conditions are against them, nor can
they prevent a rise (though they may delay it)
when fundamentals are right for a real improve-
ment. Of course those operators who foresee
aright and who conduct their operations in har-
mony with fundamental conditions reap great
profits, and in the popular gossip are often credited
with causing the movement. The merchant or
investor, or the conservative speculator, basing
his purchases and sales on a careful study of funda-
370
BUSINESS BAROMETERS
mental statistics, and playing for the long swings
only, had better not pay too much attention to
transactions, or worry himself trying to solve the
mysteries of manipulation.
The following conclusions are suggested rela-
tive to "Stock Exchange Prices."
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.
ment.
(a) An increase signifies continued improve-
(b) A decrease signifies no improvement.
(c) No change signifies temporary uncer-
tainty.
3. During a Period of Prosperity.
(a) A great increase usually is a very unfa-
vorable sign and calls for caution.
(b) A great decline calls for caution.
(c) No change signifies temporary uncertainty.
4. During a Period of Decline Following a Period
of Prosperity.
(a) An increase signifies a temporary halt in
the decline.
(b) A decrease forecasts further depression.
NEW SECURITIES
371
(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 an 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 companies, new promo-
tions and new listings is reached, after which an in-
crease again becomes a source of danger.
Out of the list of Desk Sheet 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
one subject, as many panics have taken place when
372
BUSINESS BAROMETERS
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 money, 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:
Bonds: Total Value
Including New Capital,
Old and Refunding Issues
Year
Stocks: Total Value
Including New Capital,
Year
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
1891
188,914,954
1891
287,645,700
NEW SECURITIES
373
Stocks: Total Value
Year
Including New Capital,
Year
Old and Refunding Issues
Bonds: Total Value
Including New Capital,
Old and Refunding Issues
1892
$237,036,105
1892
$317,861,500
1893
198,245,261
1893
288,803,400
1894
251,193,003
1894
309,804,600
1895
143,373,970
1895
257,275,400
1896
590,732,215
1896
582,286,700
1897
502,974,891
1897
357,415,902
1898
528,153,996
1898
700,064,680
1899
704,172,605
1899
525,384,240
1900
620,935,000
1900
443,713,000
1901
1,642,013,715
1901
923,010,100
1902
784,032,595
1902
a533,519,300
1903
426,890,295
1903
581,288,800
1904
175,866,800
1904
535,079,600
1905
533,434,900
1905
980,026,650
1906
662,769,450
1906
b571,898,500
1907
576,032,050
1907
420,813,000
1908
513,927,450
1908
872,958,000
1909
1,325,526,485
1909
1,098,956,500
1910
1,239,501,545
1910
808,162,500
1911
643,614,830
1911
580,834,400
1912
1,161,030,790
1912
654,977,750
1913
611,993,230
1913
648,066,100
1914
571,796,360
1914
488,993,000
1915
939,326,240
1915
541,192,300
1916
967,161,758
1916
1,829,186,000
(a) Does not include Imperial Russian State 4% Certificates $1,155,-
000,000.
(b) Does not include $425,000,000 Japanese Government bonds.
374
BUSINESS BAROMETERS
Therefore all the merchants systematically tabu-
late each month the amount of new securities admitted
to the list, although the "stock" and "bonds" are
added; thus avoiding the necessity of two tables.
The following conclusions are suggested relative
to "New Securities."
1. During a Period of Business Depression.
(a) An increase signifies improvement.
(b) A decrease signifies no improvement.
(c) No change signifies nothing important.
2. During a Period of Improvement Following a
Period of Business Depression.
ment.
(a) An increase signifies continued improve-
(b) A decrease signifies no improvement.
(c) No change calls for caution.
3. During a Period of Prosperity.
(a) An increase, especially if great, is a sign
of 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.
CROP CONDITIONS
375
(c) No change signifies no improvement, if
large issues are still being offered, but otherwise it
shows nothing of importance.
CROPS AND PRODUCTION OF COMMODITIES
This subject does not now hold the same rela-
tive importance in the study of Fundamental
Statistics that it once held when statistics on other
topics were less carefully compiled. But the con-
dition of the standing crops will always be inter-
esting and valuable as a barometer inasmuch as
the full annual harvest of the grains and cotton is
one of the factors at the bottom of American busi-
ness prosperity. Of all subjects studied by the
merchant and investor it is the only one which the
government attempts to forecast. Figures on bank-
ing conditions, labor conditions, imports and ex-
ports are accumulated by the government and are
valuable as a matter of history; but for none of
these subjects is there any 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
376
BUSINESS BAROMETERS
distributing these forecasts should be clearly under-
stood and the following is a detailed explanation.
thereof:
"The title of the Bureau in charge of the prep-
aration of crop reports has been changed from
"Bureau of Statistics" to "Bureau of Crop Esti-
mates," in order to indicate more clearly the nature
of its work. As reorganized the Bureau has two
main divisions, namely, a Division of Crop Reports,
with a field force to collect information and an
office force of tabulators and computers, and a
Division of Crop Records, with a corps of statis-
tical scientists and clerks, to compile data from
published sources relating to agriculture in this
country and in foreign countries.
"Statistical information concerning crop produc-
tion 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
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.
CROP CONDITIONS
377
"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-report-
ing service, and by misleading reports speculators
should depress the price a single cent per pound, the
growers would lose $70,000,000 or more; if the prices
were improperly increased, the manufacturers and
allied interests would be affected to a proportionate
degree. All interests therefore demand that the true
condition of crops should be made known promptly,
and harmful speculation discouraged.
"The Bureau of Crop Estimates issues each
month detailed reports relating to agricultural
conditions throughout the United States, the data
upon which these facts are based being obtained
through a special field service, and through a large
body of voluntary correspondents composed of the
following classes: county correspondents, township
correspondents, individual farmers, and special
cotton correspondents.
378
BUSINESS BAROMETERS
"The special field service is composed of efficient
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.
"The Bureau also employs a cotton crop special-
ist, a tobacco crop specialist, a rice crop specialist
and a truck crop specialist, each of whom special-
izes in the crop assigned to him and travels
throughout the region of its growth. Their reports
supplement those of the regular state field agents.
"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
CROP CONDITIONS
379
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 Crop
Estimates 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 individual farming operations during the year;
and valuable data are also secured from about
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-
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 yearly from each of the field agents,
crop specialists, county correspondents, and town-
ship correspondents, and one report 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 cotton crop specialists,
from the field agents, from the county correspond-
ents, and from township correspondents. The
first and last of these reports relate to the acreage
and production from individual farmers, special
correspondents, and cotton ginners.
380
BUSINESS BAROMETERS
"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.
"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.
CROP CONDITIONS
381
"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,
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 ṛye 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 few 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 interest
and favorable comment.
"Previous to the preparation and issuance of the
Bureau's reports each month, the correspondents
332
BUSINESS BAROMETERS
of the several classes send their reports separately
and independently to the Department at Wash-
ington.
"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 crop specialists and the field agents are
sent to the Secretary of Agriculture in specially
prepared envelopes addressed in red ink with the
letter "A" plainly marked on the ends. By an
arrangement with the postal authorities these
envelopes are delivered to the Secretary of Agri-
culture in sealed mail pouches. These pouches
are opened only by the Secretary or Assistant
Secretary, and the reports, with seals unbroken,
are immediately placed in the safe in the Secre-
tary'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 field agents and crop specialists 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 field service in relation to
non-speculative crops are sent in similar envelopes
marked "B," which go to the Bureau of Crop
CROP CONDITIONS
383
Estimates, and are kept securely in a safe until
the data contained in them are required by the
Statistician in computing estimates 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 Crop Estimates 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 several
years of trial it has been demonstrated that such is
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 crop
specialists and field 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 crop
specialists and field agents which have been placed
unopened in a safe in the office of the Secretary
384
BUSINESS BAROMETERS
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 con-
venient parallel columns on final tabulation slips.
The board is thus provided with several separate
estimates covering each State and each separate
crop, made independently by the respective classes
of correspondents and agents of the Bureau, each
reporting for a territory or geographical unit with
which he is thoroughly familiar.
"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 identical 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.
CROP CONDITIONS
385
"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 seventh or eighth 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
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 data concerning principal crops in each
State and totals for the United States are tele-
graphed to the Weather Bureau Station director
in each State, and the information is printed and
issued immediately to all the local papers of the
State, thus insuring wide publicity to the crop
reports within a few hours of their issuance at the
Washington office.
386
BUSINESS BAROMETERS
"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, a publication of the Bureau of
Crop Estimates, under the authority of the Secre-
tary of Agriculture. An edition of over 200,000
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.
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 today. 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.
A large part of the income of the railroad lines is
derived from the shipments of grain, produce and
cotton. A total of 78,736,587 tons of agricultural
products was given to the roads from their own
PRODUCTION OF COMMODITIES
387
territory in the year 1910; of this tonnage, grain
contributed 37,420,965 tons, flour and other mill
products nearly 15,000,000 tons more, and cotton
3,023,757 tons. Some idea of the great volume of
this agricultural product appears in the realization
of the fact that it represents over 8% by weight of
the total freight originating along the line of the
railroads; while the entire soft coal tonnage origi-
nating on these traffic lines which is expected to be
very large is only 257,460,017 tons, or about 33%
of the total freight.
It is, therefore, not to be wondered at, that in
times that are dull in the manufacturing world, or
in the general trade, great wealth may be brought
to the railroads, and through them to the nation,
by the moving of successful crops. Years of very
rich harvests, such as 1906 and 1912, may increase
enormously the revenue of every railroad in the
country.
If the good years have such an effect on the
general prosperity of the United States, it is not
surprising to see the tide turned in the opposite
direction by a yield below the average. Crop values
reach more than $3,000,000,000, and a fluctuation
of $500,000,000, or over in this great total has in
every way a wide-spreading effect on the business
of the country. Even partial crop failures may
result at once in a depression, and bumper crops
may boom a stock market as no other influence
has power to do. This influence operates especially
through its effect on railroad earnings and on the
export trade. Full crops yield a surplus for export
388
BUSINESS BAROMETERS
and help pay a nation's debt; they may create a
credit and turn an adverse gold movement into a
favorable balance and increased imports of gold.
Viewed from all parts then, the progress of the crops.
and the study of crop statistics should be regarded
as of the utmost importance.
One writer states:
"The country requires an increase in yield of at
least 5% in all 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
reducing the cost of living about which so much just
complaint is heard. It would also stimulate larger
exports, the decline of which during some years
has been one of the most unfortunate accompani-
ments of our business depressions. Larger exports
of agricultural products would do more than
anything 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
PRODUCTION OF COMMODITIES
389
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 Compositplot.
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 con-
stant 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 therefore tabulate each month as pub-
lished, 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.
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.
*The conditions of the crops has direct bearing upon the condition of the
farmer, and an indirect interest for every investor and merchant,
390
BUSINESS BAROMETERS
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
according to what it represents.
3. During a Period of Prosperity.
to
(a) Improved crop conditions tend
lengthen 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.
(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-
RAILROAD EARNINGS
391
pendent; second, 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.
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
392
BUSINESS BAROMETERS
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 are increasing; and the same is
true conversely, if the freight earnings are decreas-
ing. Therefore the earnings of the railroads may
be considered in the same manner as the clearings
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;
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.
RAILROAD EARNINGS
393
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 had nearly regained.
their former high level, and this was steadily raised.
By reducing "maintenance charges," the net
earnings increased for a year after the reaction.
began, the gain between 1873 and 1874 having been
more than three percent. 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
years in which the gross receipts sank from top to
bottom levels, the difference in net was considerably
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 (1870-72) pre-
ceding the panic, operated mileage increased by
about 13,250 miles, or 25%, which of course is
always a distinct danger signal.
394
BUSINESS BAROMETERS
The depression of 1884-5 differed from other
depressions in the relation of operating expenses to
volume of business. 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 proportionate reduction in
earnings. The comparison of top and bottom levels
in this depression follows:
Gross
Net
Mileage
1883
106,938
$807,112,780
1885
123,320
772,568,883
Decrease
*16,382
34,543,897
Percent
*15.3
4.2
$291,587,588
269,493,931
22,093,657
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
apply to individual undertaking. Constant addi-
tion of new mileage tends to reduce the record of
damage sustained by the old roads. The reduc-
tion of the figure to a mileage basis would still be
an inaccurate test, because the earning power of new
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."
RAILROAD EARNINGS
395
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
175,442
$1,207,106,626
1894
178,054
1,066,943,358
$358,648,918
317,757,399
Decrease
*2,613
140,163,268
40,891,519
Percent
*1.5
11.6
11.4
1907
224,382
2,602,757,503
1908
230,085
2,407,019,810
833,339,600
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 8%, the low point
having been reached in the latter part of the sum-
mer of 1908. After that time there was a gradual
improvement up to 1911, when net earnings were
reduced about 2%.
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
396
BUSINESS BAROMETERS
figures for all roads are published they also are in-
teresting to note; but for practical purposes it is much
better to tabulate the earnings of the same ten roads.
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 the cul-
mination of the period of prosperity.
(b) A decrease during a period of prosperity
is practically impossible.
(c) No change calls for caution.
4. During a Period of Decline Following a Period
of Prosperity.
(a) An increase signifies no immediate im-
provement can be expected.
*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
397
(b) A decrease signifies that conditions are
rapidly becoming worse.
(c) No change signifies nothing definite.
IDLE CAR FIGURES
Idle car figures have been available only for a
comparatively short time and investors and mer-*
chants have as yet given but little attention to this
subject. They are, however, of even more direct
interest in forecasting 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 month
from the officials of each railroad, the number of
their surplus cars or the number of the cars they
are short, as the case may be. Of course no one rail-
road will 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 each month.
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
398
BUSINESS BAROMETERS
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 investor
and the merchant are able to forecast the publication of
an increase or a decrease in railroad earnings almost
three months before its appearance. As railroad earn-
ings are such an excellent barometer of trade condi-
tions, so idle car figures serve as even a more valuable
barometer, the only unsatisfactory feature 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 153 roads located as follows:
New England. .
N. Y., N. J., Del., Md., & E. Pa.
Ohio, Ind., Mich., & W. Pa..
Va., W. Va., No. Car., & So. Car.
Ky., Tenn., Miss., Ala., Ga., & Fla..
Iowa, Ill., Wis., Minn., the Dakotas
Mont., Wyo., & Neb.
Kans., Colo., Okla., Mo., & Ark. .
Tex., La., and New Mex..
Ore., Idaho, Cal., Nev., & Ariz.
Canadian Lines .
Total
No. of Roads
7
23
25
9
17
22
2
16
9
19
4
153
IDLE CAR FIGURES
399
The following conclusions are suggested rela-
tive to "Idle Car Figures.
11*
1. During a Period of Business Depression.
(a) An increase of idle cars signifies no im-
provement.
(b) A decrease signifies that a change for
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.
3. During a Period of Prosperity.
(a) An increase in idle cars calls for caution.
(b) A great decrease or a car shortage calls
for caution.
(c) No change signifies nothing unsatisfac-
tory.
4. During a Period of Decline Following a Period
of Prosperity.
(a) An increase is natural.
(b) A decrease suggests a check in the decline.
(c) No change signifies no improvement.
*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.
400
BUSINESS BAROMETERS
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. Certainly
this statement appears reasonable to some, but it
is probable that political as well as social changes are
largely governed and influenced by other funda-
mental business conditions. For instance, at a time
of great expansion of business when commodity
prices are rising, the common people gradually get
disgruntled and wish a change in administration.
On the other hand, at a time of depression the
political party in power is likely to suffer from the
liquidation in wages and customary hard times.
In fact, once in every little while the populace
assumes control, institutes a few improvements, but
soon becomes divided by contentions, and again
capital and the conservatives are given the reins.
Nevertheless a study of politics as reflecting the
underlying conditions of the country is quite neces-
sary. 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
POLITICAL FACTORS
401
those various political factors may be mentioned the
following:-
The "Embargo Act" in the early part of the
century and the war of 1812.
The establishment 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 payments.
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 '90's followed by the
prosperous conditions of 1900.
The various Bryan scares.
President Roosevelt's campaigns against trusts.
Continuation of campaigns against trusts under
President Taft's administration.
The organization of a national Progressive Party,
and the victory of the Democratic Party in 1912.
Anti-trust legislation and the tariff, income tax
and currency laws of 1913.
Federal Reserve banking legislation.
402
BUSINESS BAROMETERS
Of all these various acts, by far the most influ-
ential were those affecting the currency and the tariff.
Both of these are extremely sensitive questions.
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 systems
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 manufacturers,
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 usually
precede a general crisis.
POLITICAL FACTORS
403
As to the propriety of high or low duties on
foreign goods, this is an open question. Although
nearly all bankers are in favor of protection, yet.
most economists (on whose advice the bankers de-
pend regarding many matters) are almost without
exception against heavy 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 may give 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
404
BUSINESS BAROMETERS
the tariff laws of 1842 and 1857. There can be no
question that the twenty or more tariff enact-
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 reve-
nue only, which eventuated in the Wilson bill.
The prosperity which the States subsequently
enjoyed must be attributed 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 this 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 bankers, merchants and in-
vestors always carefully watch political conditions and
POLITICAL FACTORS
405
if possible reduce them to a decimal or barometer
index number.
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.
ment.
(b) A decrease usually signifies an improve-
(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.
ment.
(b) A decrease usually signifies an improve-
(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.
*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.
406
BUSINESS BAROMETERS
(c) No change is unfavorable or favorable
according to whether or not any important measure
is under consideration.
4. During a Period of Decline Following a Period
of Prosperity.
(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
SOCIAL CONDITIONS
407
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 by a laxness in moral and social cus-
toms. Conditions, religiously, socially and morally,
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
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 was 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 finan-
cial and social corruption, and even General Grant,
although himself incorruptible, could not save
his country from the effect of greed and wrong-
doing.
408
BUSINESS BAROMETERS
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 is the
case during all such periods of personal, commercial
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 swept 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 few 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
SOCIAL CONDITIONS
409
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
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 conditions 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
410
BUSINESS BAROMETERS
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
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, manufacturers and 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 was
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
SOCIAL CONDITIONS
411
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 subjects.
Thus Ex-President Taft said: "The hum of pros-
perity and the ecstasy of great profits are likely to
dull our interest in these reforms and to lead us back
again to the old abuses, unless we insist upon leg-
islation which shall clinch and enforce those stand-
ards 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.
412
BUSINESS BAROMETERS
STATISTICS SHOWING INCREASE IN THE MEM-
BERSHIP OF CONGREGATIONAL CHURCHES
IN THE UNITED STATES BY PROFESSION
(This denomination is chosen as an illustration owing to
its 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.
to
July
Churches
Mem-
bers by
Profession
Total
New
Members
Business
Conditions
Additions by
Profession per
100,000 Population
1860 2,585 7,468 14,821
1861 2,555 5,522 12,151
1862 2,580 6,196 12,629
1863 2,652 7,765 14,378
1864 2,667 9,032 15,809
1865 2,723 11,030 18,442
(C
1866 2,780 11,249 19,994 Improvement.
1867 2,810 19,127 30,210
1868 2,951 16,432 28,246 Prosperity
1869 3,043 15,167 27,373
CC
25,137 Decline.
31,735
((
1870 3,121 13,501
1871 3,202 13,271 23,343
1872 3,263 13,945 25,394
1873 3,325 13,216 24,620
1874 3,403 15,279 27,300 Depression.
1875 3,437 17,306 29,645
1876 3,509 20,844 33,294
1877 3,564 24,138 35,111
1878 3,620 20,498
1879 3,674 16,689 27,506
1880 3,745 12,230 22,749 Prosperity
1881 3,855 11,311 22,646
1882 3,936 13,539 25,895 Decline.
1883 4,010 14,800 28,377 Depression.
1884. 4,092 17,923 32,055
1885 4,170 21,729 37,135
1886 4,477 27,166 43,185 Improvement.
1887 4,404 41,156 67,530
1888 4,569 25,994 45,036 Prosperity
1889 4,689 29,286 49,859
1890 4,817 27,592 47,782
((
1891 4,985 30,614 52,086 Decline.
1892 5,140 31,582 54,576
1893 5,236 34,444
57,561 Depression.
1894 5,346 38,853 62,946
1895 5,486 35,327 57,932
Decline.
24 Persons
Depression.
17
19
Prosperity
Decline.
23
27
Depression.
32
•
32
•
•
53
45
40
35
34
(C
34
(C
32
36
•
39
66
46
52
Improvement.
43
(C
•
34
24
•
22
26
28
•
33
((
39
47
66
•
•
70
(C
43
48
(C
44
(C
48
((
49
•
52
("
·
(C
58
51
SOCIAL CONDITIONS
413
((
Year
to
No. of
Churches
Add.
July
Mem-
bers by
Total
New
Members
Business
Conditions
Profession
1896 5,546 32,147 54,640
Improvement.
Additions by
Profession per
100,000 Population
46 Persons
52,211
44,492
44,185
66
44
((
Prosperity
35
(6
•
4
((
33
((
36
(C
37
38
36
66
•
37
•
•
42
38
CC
Decline.
Depression
40
•
40
66
•
·
38
•
57,689
33
((
•
32
66
•
32
•
•
36
42
"
•
43
1897 5,614 31,090
1898 5,620 25,189
1899 5,604 24,514
1900 5,650 27,101 48,602
1901 5,753 28,398 49,879
1902 5,821 29,195 51,627 Decline.
1903 5,900 29,403 51,521 Depression.
1904 5,919 30,193 58,198 Improvement.
1905 5,931 34,881 57,722 Prosperity.
1906 5,923 32,890 56,543
1907 5,989 34,642 59,346
1908 6,006 35,100 59,792
1909 5,991 34,245 62,461
1910 6,033 30,582
1911 6,048 30,319 57,667
1912 6,064 30,776 57,662
1913 6,096 34,294 61,430
1914 6,093 40,787 68,467
1915 6,103 43,172 70,026
(C
Prosperity
Depression.
Transition .
Decline...
Depression..
Improvement.
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.
2.
(c) No change signifies uncertainty.
During a Period of Improvement Following a
Period of Depression.
(a) An increase in social righteousness signi-
fies continued improvement.
(b) A decrease signifies no improvement or
that the improvement may temporarily be checked.
414
BUSINESS BAROMETERS
(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.
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.
Economies due to Improved Methods.
Statistics on Frauds and Lack of Credit.
The Abuse of Credit.
The Contraction of Circulating Mediums.
Overproduction.
MISCELLANEOUS STATISTICS
415
Psychological Tendencies.
Military Armament.
Income Taxes.
Excise and Internal Revenues.
Associated Charity Reports.
Velocity of Circulation of Money.
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 any
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.
A
CHAPTER IX
A TALK ON COPPERS
S 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 increase in the cir-
culating medium and the increased consuming
power of a rapidly growing population. 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 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 difference in the fluc-
tuations of different commodities as some com-
A TALK ON COPPERS
417
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. It is possible, however, 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 ac-
cumulate a certain amount, they seem determined
to invest it, even though they know that by de-
positing 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
418
BUSINESS BAROMETERS
who have the self-control to act in accordance with
their better judgment, the opportunities to make
money are unlimited. Such persons can, more-
over, confine themselves to absolute and outright
cash purchases and invest in only the most con-
servative stocks, based on standard commodities.
We cannot here study the application of the above
theory to all classes of commodities and all classes.
of stocks. Therefore, as an illustration, only one.
application will here be considered: namely, that of
purchasing and selling high grade standard divi-
dend-paying copper stocks in accordance with the
market price of copper.
Instead 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:-first, that one
must keep in constant touch with business con-
ditions; and second, that one must always keep
informed of the best mines, realizing that the rela-
tive conditions 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 today may
not be those in which it was best to invest a few
years ago. It therefore is necessary to obtain data
A TALK ON COPPERS
419
on these points from some reliable agency operated
for the purpose. The press cannot be relied upon
for this information, for reasons that can be readily
understood. It is impossible for the press always
to state the facts, especially when the outlook is un-
favorable.
One can best obtain an idea as to whether the
present price of copper is low or high from a study
of fundamental statistics. Tables showing the
high and low prices of the metal, over a long period
of years, should of course, also be studied; but these
figures are not nearly so important as figures on
"Clearings," "Failures," "Foreign Trade," etc.,
by which the movement in the price of metal may
be forecasted. The price of the metal bears the same
relation to the price of copper stocks as railroad earn-
ings bear to the price of railroad stocks. After the
price of the metal publicly changes, it is too late to
trade in the stock. In order to successfully trade in
the stock, one must, therefore, forecast changes in the
price of the metal. This can be done only by a study
of fundamental statistics relating to general business
conditions.
The next difficulty comes in selecting a list of
mines in which to invest. The following table
gives a list of twelve coppers showing what the
companies would theoretically earn with copper
at 28 cents a pound and under. These figures are
not exact, as they are based on the assumption that
the cost per pound will be constant, whatever the
output, when in reality the smaller the output, the
420
BUSINESS BAROMETERS
greater the cost per pound.* These figures, there-
fore, may be taken as maximum figures throughout.
14c
16c
18c
20c
24c
28c
$6.33 $9.14 $11.95 $14.76 $20.38 $26.00
14.53 19.37 24.22
7.27 9.69 12.11
Anaconda.
Cal. & Ariz...
Cal. & Hec. (¹).
33.75 48.75
63.75
78.75 108.75 138.75
Chino.
•
Copper Range.
Granby Cons...
5.74 7.44
6.21 8.29
9.14
10.37
8.22 13.21
"
Greene-Cananea 4.52 6.78
Inspiration.
Miami..
Mohawk.
•
Old Dominion.
6.08 8.11
3.34 4.68
9.30 12.40
6.82 9.55
6.02
15.50
12.28
Osceola.
7.28 11.44 15.60
15.01 20.47
19.76
10.84 14.24 17.64
12.45 16.61 20.76
18.20 23.19 33.17 43.15
9.04 11.30 15.82 20.34
10.14 12.17 16.23 20.29
7.36 10.03 12.71
18.60 24.80 31.00
25.93
28.08 36.40
Quincy.
6.00 10.00 14.00
18.00
26.00
34.00
Ray Cons.
2.34 3.33
4.32
5.31
7.29
9.27
·
Utah Copper..
8.28 10.77
8.28 10.77
13.26 15.75 20.73 25.71
(¹) Earnings do not include income from securities owned.
Such tables are compiled by taking the present
output of the mine and its net cost per pound† of
the ore mined. The investor then deducts this cost
per pound from the selling price given in the table,
ascertains the profit per pound, multiplies the
profit per pound by the output, and divides by the
number of shares outstanding.
There is another factor which enters: namely,
that as the price declines, the production decreases.
Therefore with a price of 14 cents probably only
three-fifths as much copper is mined as at a price
of 24 cents, and therefore the figures on the above
table should be correspondingly cut down. From
the various reports of the companies, the output.
of each mine can be obtained without difficulty,
and one can at any time ascertain the relation
*This is not absolutely true as the price of labor generally decreases as
the output decreases.
†Consider the present cost, for instance, to Chino 6.75 cents; to Lake
10 cents; to Copper Range 8 cents; to Osceola 10 cents.
A TALK ON COPPERS
421
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 $12.00 to $2.00. If, however, the second
company had the same capitalization as the first,
namely 250,000 shares, then the drop would be
from $2.40 per share with copper at 18 cents to 40
cents per share with copper at 13 cents. A fluc-
tuation of 1 cent in the price of copper means a
difference of 40 cents per share in the profits of
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 $2.49
per share, Copper Range about $1.04, and Quincy
approximately $2.00. Of course after reaching
422
BUSINESS BAROMETERS
this point it is possible to go a step further by
ascertaining the percent earned on the selling price,
as well as the percent 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 percent 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.
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 varies not only as between
different mines, but also in the same mine as be-
A TALK ON COPPERS
423
tween different levels and deposits of ore. Latest
figures can be obtained from any broker.
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 when the stocks should be sold,
although at this time probably the majority of in-
vestors are just beginning to purchase stocks.
When the stocks have been sold, the money should
be deposited in some safe bank or invested in 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-
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 willing 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
424
BUSINESS BAROMETERS
two assumptions that the mines will not become ex-
hausted, and that no unforeseen event will make the
working of these mines unprofitable. We refer to
the physical arrangement of the mines, to the dis-
covery of much richer and greater mines in other
countries, and to the development of some other
substance which will supersede copper in the in-
dustrial world.
Neither of these assumptions need be considered
when investing in conservative railroad or industrial
stocks, as railroads will always be of value both
for their tangible assets and for their earning ca-
pacity. Therefore, for an investment this author
personally believes that "railroads" and industrials
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 undesirable legislation and cer-
tain other unfavorable factors.
The author wishes to emphasize, however, the
importance of purchasing a large number of stocks
rather than to invest in stocks of one or two com-
panies, and this especially applies to mines for the
reasons above stated. It is best not to try to com-
pare any one copper stock with another except in a
broad way. The man who takes the position that
he knows nothing definitely about any of them, and
purchases a sufficient number of stocks to be inter-
ested in the industry as a whole is the one who is
in the strongest position. If one purchases enough
different copper stocks so as to have an interest in the
A TALK ON COPPERS
425
companies which control about two-thirds of the output,
and buys these stocks when the average copper stock
market is at a low level, he should receive a handsome
profit on the investment when the industry revives.
Whatever may happen to one individual stock, the
average profit should be very substantial. One,
however, should not buy "prospects" which are
little known, but should select a group of coppers
which are paying dividends, or about to pay divi-
dends.
In this connection it is argued by many that the
uncertainty in regard to ore reserves does not apply
to the "porphyries." The ore in these mines being
regularly distributed through the soil, it is possible
to block out a very large known tonnage in advance
of extraction. For many years it has been known
that land in certain parts of this country contained
a small percentage of copper, but not until a few
years ago have chemists perfected a process by
which the copper could be extracted. These com-
panies now have large known supplies blocked out,
and because of this they are considered especially
attractive by many investors.
426
BUSINESS BAROMETERS
PRODUCTION AND PROFITS OF
Amount
Name of Company
Shares Issued Par Valuc
Dividends
Paid in 1916
Total
Dividends
Last
to Date
Quarterly
Dividend
Granby
Ahmeek..
Allouez.
•
Anaconda.
Calumet & Arizona.
Calumet & Hecla..
Cerro de Pasco.
Chino..
Copper Range.
East Butte.
Greene-Cananea.
Inspiration.
Isle Royale.
Kennecott.
Magma.
•
·
200,000 $25.00
100,000 25.00
$2,000,000
$6,850,000
$4.00
700,000
1,050,000
3.00
2,331,250
50.00
16,318,750
117,891,875
2.00
•
642,462 10.00
100,000
5,556,708 28,925,269
3.00
25.00
7,500,000 136,750,000
25.00
•
.
1,000,000
Nom.
2,666,664
2,666,664
1.50
869,980
5.00
7,177,335 13,875,330
2.50
•
394,001
25.00
3,851,870
19,108,758
3.50
•
411,000
10.00
411,000
411,000
1.00
149,985 100.00
1,424,850
6,875,259
2.50
►
488,444 100.00
2,928,016
7,792,950
2.00
·
1,181,967
20.00
6,185,116
8,548,050
2.00
150,000 25.00
450,000
900,000
2.00
2,786,522 Nom.
15,325,871
15,371,495
1.50
Mass. Consolidated.
240,000
100,000 25.00
5.00
480,000
720,000
.50
192,000
192,000
1.00
Miami..
747,114
5.00
4,355,900
9,695,783
2.00
Mohawk.
•
100,000
25.00
1,700,000
6,575,000 10.00
(semi-an.)
Nevada Consolidated.. 1,999,4
,457
5.00
7,497,964
27,474,122 1.50
North Butte..
430,000
15.00
1,407,500
13,689,500
.75
Old Dominion.
293,353 25.00
3,826,882
11,147,360
3.50
Osceola.
Quincy..
Ray..
Shannon.
96,150 25.00
110,000 25.00
1,577,179 10.00
300,000 10.00
1,538,400
15,064,175
6.00
1,760,000 23,537,500
5.00
4,336,000
8,931,100
1.00
150,000
900,000
.50
Shattuck Arizona.
350,000 10.00
1,662,500
5,075,000
1.25
United Verde Extension 1,050,000
.50
1,050,000
1,575,000
.50
Utah Consolidated.
300,000
5.00
1,125,000
10,275,000
1.50
Utah Copper.
•
•
1,624,490
10.00
20,306,125
52,215,777
3.50
Wolverine.
60,000
25.00
720,000
9,120,000 6.00
(semi-an.)
A TALK ON COPPERS
427
Prices, 1916
High Low
Production
1916.
Pounds Cop.
LEADING COPPERS FOR 1916
Est'd Earnings
per Share with
Copper Selling at
Estim'ed
Cost per
Pound
Annual
Dividend
Rate on
Nets
Inv't
Last or
Nx't Div.
Basis Last
at
(Cents)
M'k't
Pay. Date
15 cts.
28 cts.
Quarter
125 91
24,069,000
.10
$8.75 $25.00
$16.00
17%
Jan. 10
83 58
10,222,000 .10
5.80 19.40
12.00
20%
Jan. 3
105 77
336,900,000
.08
9.30 26.60
8.00
10%
Feb. 20
101 66
72,000,000
.08
7.90 22.40
12.00
15%
Mch. 19
640 510
510
102,000,000
10
51.00 183.60
100.00
19%
Dec. 20
47 321
71,200,000
.07
5.69 14.95
6.00
17%
Mch. 1
74 46/1/
75,761,000 .07
6.90 18.85
10.00
19%
Dec. 30
88 54/1/
41,000,000 .10
6.25 20.80
14.00
23%
Dec. 15
20% 11/
18,562,000 .13
1.30 6.85
4.00
32%
Jan. 29
120 77
44,702,000 .11
12.00 51.00
10.00
13%
Feb. 1
56 34
59,327,000 .10
6.09 21.82
8.00
19%
Feb. 26
742 42 122,500,000 .08
6.30 19.95
8.00
14%
Jan. 29
43
25 12,364,000
.12
2.05 12.70
8.00
26%
Jan. 31
64 40
216,755,000
.051
6.00 16.40
6.00
10%
Dec. 30
69 13
8,500,000
.10
1.77 6.40
2.00
4%
Dec. 30
192/ 10
4,750,000
.13
0.45 6.30
4.00
34%
Feb. 15
493 33
53,700,000 .08
4.43 13.53
8.00
22%
Feb. 15
108
77
13,834,000 .08
9.10
27.30
20.00
25%
Feb. 1
34층 ​15
90,734,000 .09
3.15 9.00
6.00
22%
Dec. 30
33 20
24,500,000
.13
1.15 8.55
3.00
14%
Jan. 29
821 59
40,437,000 .09
6.00 20.15
14.00
24%
Dec. 29
105 70
19,656,000 .11
8.00 34.00
24.00
30%
Jan. 31
106½ 80
21,000,000 .12
5.75 30.50
20.00
23%
Dec. 18
37 20
77,856,000 .097
2.85 9.60
4.00
16%
Dec. 30
12층 ​7ㅎ
​9,659,000 14
0.35 4.60
2.00
25%
Feb. 15
6/1/10
H∞ CH #
4
401 22
45
301 62/200
130 742 242,323,000
67 45
18,162,000 .08/ 3.30 9.95
5.00
20%
Jan. 20
25,000,000
.08
1.56
4.65
2.00
5%
Feb. 1
7,500,000 .03
3.00 6.25
6.00
37%
Dec. 20
.069 13.50 35.70
14.00
13%
Dec. 30
6,185,000
.09
5.00 18.00
12.00
27%
Oct. 2
428
BUSINESS BAROMETERS
TABLE SHOWING RANGE IN PRICE OF LAKE
COPPER SINCE 1860
Highest
Lowest
Year
Av.
Price
Month
Price
Month
1860 22
1861
22
22
24.0
(Jan.)
to
19.7
(Dec.)
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
1870 21 23.3
1871 24 27.0
1872 35 44.0
1873
(Feb.) to
21.5
(Dec.)
(Nov.)
to
19.0
(Mar.)
(Dec.)
to
21.2
(Apr.)
(Apr.) to
27.1
(Jan.)
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
(Apr.)
1883 16 18.1
1884 13 15.0
1885 10 11.8
1886 11 12.1
1887 13 17.7
1888 16 17.6
1889 13 17.5
1890 15 17.2
(Jan.)
to
14.8
(Nov.)
(Dec.)
to
11.0
(Dec.)
(Feb.) to
9.8
(May)
(Dec.) to
10.0
(May)
(Dec.)
to
9.9
(May)
(Nov.) to
15.8
(Jan.)
(Jan.) to
11.0
(Sept.)
(July) to
14.0
(Mar.)
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
(Apr.)
1896 10
12.0
(June)
to
9.7
(Jan.)
1897 11 12.0
(Jan.)
to
10.7
(Nov.)
1898 12
1899 17 19.3
1900 16 17.2
13.2
(Dec.)
to
11.0
(Jan.)
(Apr.)
to
13.2
(Jan.)
(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
429
Highest
Lowest
Year
Av.
Price
Month
Price
Month
1903
13
15.3
(Mar.)
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
(Mar.)
to
12.5
(Oct.)
1908 13
14.4
(Dec.)
to
12.7
(May)
1909
13
14.3
(Jan.)
to
12.8
(Mar.)
1910
13
13.8
(Jan.) to
12.5
(July)
1911 12 14.3
1912 16 17.8
(Dec.)
to
12.2
(May)
(Sept.)
to
14.2
(Jan.)
1913
16 17.8
(Jan.) to
14.5
(Dec.)
1914
1915
14
18 23.0
1916 28 35.0
15.5
(Feb.)
to
11.3
(Oct.)
(Dec.)
to
13.0
(Jan.)
(Dec.) to
23.0
(Jan.)
TABLE SHOWING RANGE IN 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.).
430
BUSINESS BAROMETERS
1893 AVERAGE 65-89
Osceola ranged from 36 (Jan.) to 25 (Aug.);
Quincy 143 (Jan.) to 105 (Aug.).
1894 AVERAGE 59–76
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.);
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.).
A TALK ON COPPERS
431
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
(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.);
432
BUSINESS BAROMETERS
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 (July)
to 185 (Dec.); Mohawk 55 (Mch.) to 85 (Dec.);
Osceola 93 (Mch.) to 151 (Dec.); Quincy 114
(Jan.) to 80 (July); Utah Cons. 70 (Jan.) to 52
(June); Wolverine 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.).
A TALK ON COPPERS
433
1908 AVERAGE 66-100
Amalgamated ranged from 45 (Feb.) to 88
(Nov.); Copper Range 55 (Feb.) to 84 (Nov.);
Granby 80 (Jan.) to 110 (July); North Butte 41
(Feb.) to 90 (Nov.); Calumet & Arizona 93 (Feb.)
to 103 (Aug.); Mohawk 45 (Feb.) to 73 (Nov.);
Osceola 77 (Feb.) to 135 (Dec.); Quincy 77 (Feb.)
to 100 (Aug.); Utah Cons. 29 (Jan.) to 50 (Aug.);
Wolverine 115 (Jan.) to 155 (Nov.).
1909 AVERAGE 80-105
Amalgamated ranged from 65 (Feb.) to 96
(Nov.); Copper Range 68 (Feb.) to 87 (Nov.);
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 122 (Feb.) to 170 (Dec.); Quincy 99 (Jan.)
to 83 (Dec.); Utah Cons. 37 (Feb.) to 50 (Nov.);
Wolverine 139 (Mch.) to 158 (Aug.).
1910 AVERAGE 53-97
Amalgamated ranged from 90 (Jan.) to 55 (July);
Copper Range 85 (Jan.) to 58 (Feb.); Granby 111
(Jan.) to 20 (July); North Butte 50 (Jan.) to 18
(June); Calumet & Arizona 103 (Jan.) to 45 (July);
Mohawk 75 (Jan.) to 43 (July); Osceola 166 (Jan.)
to 114 (July); Quincy 92 (Mch.) to 66 (July); Utah
Cons. 46 (Jan.) to 12 (Dec.); Wolverine 150 (Jan.)
to 102 (July).
1911 AVERAGE 44-69
Amalgamated ranged from 72 (June) to 45
(Sept.); Copper Range 70 (Feb.) to 47 (Sept.);
Granby 44 (June) to 26 (Aug.); North Butte 36
434
BUSINESS BAROMETERS
(June) to 20 (Sept.); Calumet & Arizona 45 (Sept.)
to 64 (Dec.); Mohawk 36 (Apr.) to 57 (Dec.);
Osceola 124 (Jan.) to 81 (Sept.); Quincy 55 (Sept.)
to 76 (Dec.); Utah Cons. 10 (Jan.) to 20 (June);
Wolverine 122 (Feb.) to 74 (Nov.).
1912 AVERAGE 52-79
Amalgamated ranged from 60 (Feb.) to 92 (Oct.);
Copper Range 66 (Apr.) to 48 (Dec.); Granby 33
(Feb.) to 77 (Nov.); North Butte 22 (Feb.) to 39
(Oct.); Calumet & Arizona 57 (Feb.) to 83 (Aug.);
Mohawk 50 (Jan.) to 73 (June); Osceola 130 (June)
to 100 (Dec.); Quincy 95 (June) to 72 (Dec.); Utah
Cons. 20 (Apr.) to 9 (July); Wolverine 117 (Apr.)
to 65 (Dec.).
1913 AVERAGE 43-66
Amalgamated ranged from 81 (Jan.) to 62 (June);
Copper Range 53 (Jan.) to 32. (Dec.); Granby 51
(June) to 78 (Sept.); North Butte 35 (Jan.) to 22
(June); Calumet & Arizona 73 (Jan.) to 57 (June);
Mohawk 65 (Jan.) to 38 (Nov.); Osceola 107 (Jan.)
to 67 (Dec.); Quincy 80 (Jan.) to 52 (Dec.); Utah
Cons. 11 (Jan.) to 7 (May); Wolverine 76 (Jan.) to
39 (Nov.).
1914 AVERAGE 42-56
Amalgamated ranged from 78 (Feb.) to 49 (Dec.);
Copper Range 41 (Feb.) to 29 (Dec.); Granby 91
(Feb.) to 60 (Dec.); No. Butte 31 (Feb.) to 20
(Dec.); Calumet & Arizona 70 (March) to 53 (Dec.);
Mohawk 39 (Apr.) to 50 (Dec.); Osceola 84 (Feb.)
to 64 (Dec.); Quincy 68 (Feb.) to 52 (Dec.); Utah
Cons. 9 (Jan.) to 14 (Feb.); Wolverine 48 (Feb.)
to 30 (Dec.).
A TALK ON COPPERS
435
1915 AVERAGE 39–74
Anaconda ranged from 25 (Feb.) to 92* (Nov.);
Copper Range 30 (Jan.) to 65 (Dec.); Granby 58
(Jan.) to 94 (Apr.); No. Butte 22 (Jan.) to 38
(Apr.); Calumet & Arizona 51 (Feb.) to 79 (Apr.);
Mohawk 46 (Jan.) to 98 (Dec.); Osceola 64 (Jan.
& Feb.) to 93 (Apr.); Quincy 50 (Jan.) to 95 (Apr.);
Utah Cons. 9 (Feb. & Mch.) to 16 (June); Wol-
verine 32 (Jan.) to 70 (Apr.).
1916 AVERAGE 59–86
Anaconda ranged from 77 (July) to 101 (Sept.);
Copper Range 55 (July) to 87 (Nov.); Granby 79
(July) to 120 (Nov.); No. Butte 20 (July) to 32
(Nov.); Calumet & Arizona 66 (July) to 101 (Nov.);
Mohawk 77 (July) to 108 (Nov.); Osceola 79 (Aug.)
to 105 (Nov.); Quincy 81 (July) to 109 (Nov.);
Utah Cons. 12 (July) to 30 (Nov.); Wolverine 67
(Feb.) to 45 (Oct.).
*Par value of Anaconda increased from $25 to $50 May 19.
FINAL WORD TO READERS
It occurs to the author that this book may
possibly be the means of causing some persons who
will not give the proper study to statistics and
general conditions, to invest in stocks. I therefore
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.
Success comes not by forecasting, but rather by
doing the right thing at the right time and always
being willing to change one's course. For this
reason much more money is made by directing
one's business and investments with a purpose of
preventing panics than by trying to forecast panics
and then pursuing a policy based upon the belief
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 prepared for whatever the
future is most likely to bring forth.
ROGER W. BABSON.
“No sir, ye can bet it ain't th' people 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, 102.
Annual events, of 1860, 141;
of 1861, 142; of 1862, 143;
of 1863, 143; of 1864, 144;
of 1865, 145; of 1866, 146;
of 1867, 147; of 1868, 147;
of 1869, 148; of 1870, 150;
of 1871, 150; of 1872, 151;
of 1873, 152; of 1874, 155;
of 1875, 155; of 1876, 156;
of 1877, 158; of 1878, 159;
of 1879, 160; of 1880, 161;
of 1881, 162; of 1882, 163;
of 1883, 165; of 1884, 166;
of 1885, 167; of 1886, 168;
of 1887, 169; of 1888, 170;
of 1889, 171; of 1890, 172;
of 1891, 173; of 1892, 175;
of 1893, 176; of 1894, 177;
of 1895, 178; of 1896, 179;
of 1897, 181; of 1898, 182;
of 1899, 183; of 1900, 184;
of 1901, 185; of 1902, 186;
of 1903, 188; of 1904, 189;
of 1905, 191; of 1906, 192;
of 1907, 193; of 1908, 194;
of 1909, 196; of 1910, 197;
of 1911, 199; of 1912, 200;
of 1913, 201; of 1914, 203;
of 1915, 206; of 1916, 209.
Balance of trade, 322; gen-
eral rules concerning, 324.
Banks; cash in, 280; Comp-
troller's Reports, 269; de-
posits of, 286; economic
laws concerning, 272-3,
280; functions of, 99; in-
vestments of, 271, 272;
loans of, 269; notes of, 271;
resources of, 272; state-
ment of New York banks,
286, 288, 290, 292; table of
loans and resources, opp.
273; effects of Federal Re-
serve Law on bank state-
ments, 295.
Bank clearings, 233; as a
barometer, 19, 126, 233; of
New York, 240; general
rules concerning, 243.
Baring failure, 173.
"Black Friday" panic, 148.
Bonds; possibility of profits
from, 59; tables of panic
prices in 1884, 60; in 1893,
61; in 1903, 62, 63; in 1907,
64, 65; tables showing ef-
fect of reorganizations on
prices, 68-9, of 1st class,
70, of 2nd class, 71, of 3rd
class, 71, of 4th class, 72,
of miscellaneous, 73.
Building statistics, as a ba-
rometer, 226, 229; general
rules concerning, 232-233.
Business failures, 244; as a
barometer of business con-
ditions, 20, 127, 244, 247;
tables of, 244, 246, 248;
general rules concerning,
253.
Capital, 224.
Cash in banks, 280; historic
survey of, 283; ratio to
deposits, 280; table of, 281;
general rules concerning,
285.
Certificates of Clearing
Houses, 308; table of, 310.
Clearing Houses, functions
of, 233; certificates of, 308;
table of certificates issued,
310.
Commodity prices, 354; as a
barometer, 21, 128; in
crises, 354; chart of since
1860, opp. 80; affected by
gold production, 347; in-
dexes of, 360; interest of
to bankers, 97; problem
in, 82; rules concerning,
363; tables of since 1859,
84; tendencies affecting,
358.
Comparative statistics, value
of, 13, 25.
INDEX
Composite Chart, U. S., 103;
method of plotting, 130,
131 (foot note); subjects
involved in, 130; X-Y line,
discussion of, 131.
Comptroller's reports, 269.
Copper, 416; table of maxi-
mum dividends of fifteen
companies, 420; table of
production and profits of
leading mines, 426; table
of profits per share of lead-
ing stocks, 427; range in
price of Lake Copper since
1860, 428; range in price of
leading stocks since 1889,
429.
Crops, 375; as a barometer,
23, 130; government board
on, 383; government re-
ports on, 376; nature of
monthly reports on, 379;
general rules concerning,
389.
Cycles, controlling law of,
111; foretold by funda-
mental statistics, 17; rules
concerning, 123, 222;
length of, 119; periods of,
15, 24, 119, 120, 121.
Deposits of banks, 286.
Exports of merchandise, 318;
benefit from increase in
exports of manufactured
goods, 319; general rules
concerning, 321.
Failures in business, 244; as
a barometer, 20, 127, 244,
247; tables of, 244, 246,
248; general rules concern-
ing, 253.
Federal Reserve System, 300.
Fire losses, as a barometer,
227.
Foreign exchange, 338.
Foreign money rates, 338;
general rules concerning,
344.
Foreign trade, 310; as a
barometer, 21, 127; bal-
ance of, 322; exports, 318;
imports, 310; table of, 311;
volume of, 322.
Fundamental statistics, 15,
17; composite chart of, 103;
list of twenty-five subjects
under, 17, 127; three gen-
eral heads under, 129; me-
chanical work of collecting,
126; methods of handling,
130, 131 (foot note), 134;
need of studying many
subjects in connection
with, 122; theory of, 25;
value to merchants, 80.
General heads under funda-
mental statistics, twelve,
18, 127; three, 129; ar-
rangement of the twelve,
under the three, 129.
Gold, movements of, 325; as
a barometer, 21, 127; pro-
duction of, 345; relation of
production to prices, 346;
general rules concerning,
352.
Idle car figures, 397; general
rules concerning, 399.
Immigration, 254; as a ba-
rometer of labor conditions,
20, 127, 257; general rules
concerning, 260.
Imports of merchandise, 310;
dangers accompanying in-
crease in, 313; general rules
concerning, 317; table of,
311.
Industrial cycles, foretold by
fundamental statistics, 17;
the law maintaining in the
past, 16; controlling law of,
111; length of, 119; periods
in, 15, 24, 123; rules of
periods in, 124.
Investment conditions, sub-
jects related to, 365; crops,

INDEX
375; foreign money rates,
338; idle car figures, 397;
new securities, 371; politi-
cal factors, 400; railroad
earnings, 390; social condi-
tions, 406; stock exchange
transactions, 368.
Investments of the banks,
271.
Labor conditions, indexed by
immigration figures as a
barometer, 20, 127; lack of
satisfactory figures on, 255,
256.
Loans of banks, 269; historic
survey of, 273; relation to
resources, 272; general
rules concerning, 279; table
of, opp. 273.
Mercantile conditions, sub-
jects related to, 222; bank
clearings, 233; business fail-
ures, 244; immigration,
254; new building, 224.
Miscellaneous statistics, list
of headings for, 414.
Monetary conditions, sub-
jects related to, 261; bal-
ance of trade, 322; cash of
banks, 280; Comptroller's
report, 269; deposits of
banks, 286; exports, 318;
gold movements, 325; loans
of banks, 269; money,
261; surplus reserves, 297,
298, 301; volume of trade,
322.
Money, 261; as a barometer,
20, 127, 148, 261; chart of,
during four great panics,
opp. 284; gross and net
supply of, 263, 264, 267;
effect on merchants of the
supply, 266; prices and the
supply of, 346; general
rules concerning, 268; for-
eign rates of, 338.
New railroad construction,
as a barometer, 19, 128,
229; in the panic of 1837,
229; in the panic of 1857,
230; general rules concern-
ing, 232.
New securities listed, eco-
nomic laws affecting, 371;
general rules concerning,
374.
Panics: of 1837, 229; of 1857,
opp. 138, 230; of 1865, 145;
of 1869, 148; of 1873, 152,
opp. 138, 230, 395; of 1884,
166, 394; of 1890, 172; of
1893, opp. 138, 176, 312,
395; of 1903, 188, 249, 322;
of 1907, opp. 138, 193, 248,
342; of "Black Friday,"
148; of "Undigested Secu-
rities," 188; a cause, 313;
chart of money course dur-
ing four panics, opp. 284;
chart of stock market dur-
ing four panics, opp. 308;
derived from unbridled
prosperity, 137, 408; fore-
told by "loans to re-
sources," 274; movements
of, 281; relation of
"money in circulation" to,
265, 267; tables of bond
prices, in 1884, 60; in 1893,
61; in 1903, 62; in 1907, 64;
table of four major panics
with accompanying events,
opp. 138.
Periods of a cycle, 15, 24, 112,
124; rules of, 123, 222; fore-
told by fundamental sta-
tistics, 17.
Political factors, 400; as a
barometer, 24, 129; list of,
401; general rules concern-
ing, 405.
Quotations on the stock ex-
change, 365; affected by
"transactions," 368; gen-
eral rules concerning, 370.
INDEX
Railroad earning, 390; as a
barometer 23, 128; as af-
fected in three depressions,
393; general rules concern-
ing, 396.
Real estate as a barometer,
224, 228.
Reorganizations, 66; tables
of bond and stock prices as
affected by, 68–73.
Resources of banks, 272; re-
lation to loans, 272; table
of, opp. 273.
Social conditions, 406; as a
barometer, 129; general
rules concerning, 413.
Stock Exchange, quotations,
365; list of ten conserva-
tive stocks, 366; the "Wall
St. Journal's" list of thirty-
two stocks, 366; list of ten
bonds, 367; transactions,
368; new securities, 371.
Stock prices, as a barometer,
¡
22, 128; chart of prices
since 1874, opp. 30; possi-
bilities of profits from
stocks, 50; problems in
profits, 50, 53, 57; quota-
tions, 365; table with an-
nual high and low prices
of leading stocks since 1860,
33; table of prices of ten
stocks in 1907 to 1914, 31;
table showing effect of re-
organization on prices, 68-
73.
Surplus reserves, 288; gen-
eral rules concerning, 293.
Transactions on the stock ex-
change, 368; general rules
concerning, 369, 370.
"Undigested Securities"
panic, 188.
Volume of trade, 322.
Wealth, as a barometer, 224;
table of, 225.
X-Y line: discussion of, 131.
BABSON'S REPORTS
ON
"Fundamental Conditions"
A Special Service to furnish Merchants,
Manufacturers, Investors and Bankers up-
to-date information on the subjects men-
tioned in this book.
(To avoid any misunderstanding we desire to state that this work did
not originate with us, but was inaugurated years ago by some of the lead-
ing banking and mercantile firms of this country. The expense incurred
through performing the work independently was so great that the smaller
houses hesitated to assume the burden individually. We therefore took up
the work in the common interest of all concerned, dividing the cost among
the firms and individuals who subscribe and share the resulting advantages.)
A. Desk Sheet of Figures
In order that the client may have all the figures
with which this organization works and upon
which its conclusions are based, we supply monthly
figures on the principal subjects which are repre-
sentative of the entire country, such as Bank Clear-
ings, Railroad Earnings, Exports, Imports, Gold
Production, New Building, Immigration, etc. These
subjects are divided into twelve main divisions
according to whether they pertain especially to
Mercantile and Manufacturing Conditions, to Bank-
ing and Monetary Conditions, or to Investment
and other Conditions. It should be especially
noted that each issue of this Desk Sheet contains
not only the latest figures, but previous figures as
well, thus obviating the necessity of posting, filing,
BUSINESS BAROMETERS
or any clerical work whatever. The old sheet is
simply destroyed upon receipt of the new, which is
merely laid on a desk or table under plate glass.
The Desk Sheet is the foundation of our
service and contains impartial, reliable and
up-to-date figures on the subjects discussed
at length in this book as the chief barometers
of business. In order that the trend of these
figures may at any time be detected at a glance,
we have added graphic plots of them in red ink.
It is believed that this combination of statistics
and charts on the Desk Sheet laid before the client
each month is of the utmost value, presenting, ast
it does, every factor in the current fundamental
situation.
B. Weekly Barometer Letter and Composit-
plot
The Weekly Barometer Letter and Babson
Compositplot is issued every Tuesday, and sum-
marize in a nutshell the general situation actually
existing in the Mercantile, Monetary and Invest-
ment worlds, as shown by the change in the figures
on the Desk Sheet.
The Barometer Letter is in no way designed to
replace original thought on the part of clients,
and should not be regarded as a "market letter"
in any sense. It is more in the nature of an engi-
neering report, prepared solely in the interests of
the client and affords him a helpful check and
IMPORTANT ADDENDA
comparison when determining what course of
action and policy is most profitable. In connection
with the Barometer Letter, a summary index figure
is also given which is a composite of the figures
on the Desk Sheet, showing the changes in
general business from week to week and month
to month.
The Composit-plot shows graphically the trend
of this index figure during the past ten years, brought
up to date each week. It gives a bird's-eye sum-
mary of the past, an exact record of the present,
and the clearest possible indication of the future
of business in the United States. By watching from
month to month the movements of the Composit-
plot, one can see at a glance the trend of general
business, and also the tendency of commodity
prices, security prices and money rates. The
close relation which these latter subjects bear to
general business conditions is clearly indicated by
the Composit-plot inserted in Chapter IV.
It is not enough, however, to watch conditions
in this country alone, for business throughout the
world has now become so closely related that pros-
perity or depression in any of the principal coun-
tries has a great effect on business conditions in
the United States. In order that our clients may
easily watch these foreign factors, Babson Com-
positplots for foreign countries are submitted to
clients once a month, together with a summary
plot (including the United States) showing a com-
posite of business conditions for the world. With
these data before him, the merchant or manufacturer
BUSINESS BAROMETERS
can at once detect any changes which are taking
place in the affairs of all the leading countries,
thus obtaining a broad view of business conditions.
Our clientele may be generally divided into the
following four groups:
1. Merchants, manufacturers, and others engaged
in industrial, commercial, and mercantile lines,
including corporation directors.
2. Individual investors, trustees, treasurers of
endowed institutions, insurance companies, and
other enterprises-apart from banks-in which
investment has a leading part.
3. Bankers and directors of banks.
4. Those interested in the work in general; sta-
tistical departments, universities, economists.
As previous mentioned, the features A and B.
deal with general business conditions and are
common to all our services, since it is absolutely
necessary for every one, whether he be merchant,
banker, or investor, to form his policies in accord-
ance with fundamental conditions. In order to
help our clients more specifically, however, we have
provided the following additional portions of our
service, which take up various phases of the ques-
tion in detail.
1. Semi-Monthly Speculative - Investment
Bulletin
The Desk Sheet and Weekly Barometer Letter
and Compositplot give the client the basis for
IMPORTANT ADDENDA
determining when to buy and when to sell securities
in order to take advantage of the long swings of
the stock market. Equally important with the
knowledge of when to buy and when to sell, how-
ever, is the knowledge of what to buy and what to
sell, and to make the service complete, the semi-
monthly Speculative Investment Bulletin takes up
this phase of the science of investment. Further-
more, while the Barometer Letter treats only of
the long swings of the market, extending over a
year or more, the Investment Bulletin goes into it
more in detail. Each issue contains a review of
the general investment situation and an analysis.
of one or more specific securities. Although we
believe the ideal investment plan and policy to be
that outlined at length in the pages of this book,
we recognize the fact that all investors do not have.
the patience to wait for panics and panic prices,
but desire to buy some securities more frequently.
Such investors are especially interested in the
work of our corps of engineers, which is constantly
studying factors which determine the value of these
individual securities.
In order to be of greater help to investing clients,
we have established an inquiry department which
will answer any reasonable questions in regard to
the individual investments in which they are in-
terested. Neither the Investment Bulletin nor the
Inquiry Service, however, will help the day to
day trader, for nobody can tell what a particular
security will do in a day or a week, but when used
in connection with the rest of the service, this
BUSINESS BAROMETERS
department fills the needs of the conservative
investor who desires all the profit that is consistent
with safety.
The real value of this Investment Service,
however, is found in the fact that it is pre-
pared solely and exclusively from the stand-
point of the investor. We neither buy nor
sell securities, in any way, shape, or manner,
nor have we any connections whatsoever,
direct or indirect, which influence our judg-
ment. Clients thus secure for themselves
strictly professional work of the highest char-
acter, which if paid for individually would
be beyond the means of any but the most
wealthy.
2. Semi-Monthly 6% Investment Bulletin
While the Speculative Investment Bulletin meets
the needs of the speculative investor, there is of
course a great demand for investments which take
into account only security and yield. To take care
of this need we issue a "6% Investment" Service.
The prices of bonds follow the law of equal
reaction and the study of fundamental statistics,
therefore, is very necessary in connection with the
purchase and sale of such securities. This is shown
by referring to the dotted red line on the Com-
positplot inserted in this book.
The purchaser of high grade bonds considers.
security, income and marketability as the three
important elements of successful investment. While
IMPORTANT ADDENDA
4% and even 5% can be safely obtained without
much trouble, to get a larger yield requires the
services of a trained corps of engineers such as
our Organization affords.
The first and second pages of this Bulletin give.
a live resumé of the current bond and investment
market, taking especial care to point out all cases
where bonds are selling above or below their true
value. Page three is devoted to an analysis of some
"6% Investment" which has been sifted by our
experts from the great mass of securities. A page
or more is devoted to a list of carefully selected
short time securities and current commercial paper
offerings. This Bulletin also gives a comprehen-
sive study of the money market.
In short, this "6% Investment Bulletin" is de-
signed for the most discriminating bankers, trustees,
and individual investors.
3. Semi-Monthly Mercantile Map and Bul-
letin
North American Mercantile Map
The Mercantile Map represents graphically busi-
ness conditions in North America and is especially
suited to Credit and Sales Departments. That is,
this work indicates those sections where business
is improving, failures decreasing, and the general
outlook optimistic; and shows Sales and Adver-
tising Departments where their effort should be
centered in order to produce the largest results
for dollars spent. From those members of the
sales force whose territory lies in the yellow areas.
BUSINESS BAROMETERS
(which signify the best conditions), clients can ex-
pect the most business, while more meager results
shown by salesmen in other sections are rightly
accounted for by poorer business conditions in
those districts. The Advertising Department
should always campaign especially in the yellow
and green areas in order to assist the sales force
as much as possible in closing the order before
conditions change. In other words, it enables the
sales and advertising forces to "make hay" where
"the sun shines.”
The Map is also prepared with the Credit De-
partment especially in mind, and the same facts
are treated from this point of view. That is, it
clearly portrays the areas of decreasing business,
increasing failures, over-extended credits and slow
collections in order that the manufacturer or mer-
chant may avoid misplacing his selling effort and
may carefully watch further extension of credit
in unfavorable localities. On the other hand, the
Map shows him more favorable sections where he
can be liberal with credit extensions. In short,
the Credit Department finds these Maps invaluable
because general external business conditions affect-
ing the customer are often more important than
the customer's statement.
Mercantile Bulletin
With each issue of the Map, which appears
twice a month, there is a Mercantile Bulletin
showing conditions in specific industries and locali-
IMPORTANT ADDENDA
ties. This bulletin covers each time different in-
dustries and localities as a whole, and enables the
manufacturer, merchant, and jobber to know the
trend of business in those particular industries and
localities, giving him an exceptional guide as to
whether he should lay particular stress in one
direction or whether he would find it more prof-
itable to place the effort in some other mercantile
field. Briefly, the Maps and the Mercantile Bulle-
tins treat of localities and industries, showing the
detailed condition of business and its probable trend,
while the Compositplot and Barometer Letter,
mentioned above, show the volume of business and
its future tendency.
4. Semi-Monthly Commodity Bulletin
We have explained in the above paragraphs
the information supplied as to specific localities.
and industries. Another most essential factor is
the price of various commodities and their rela-
tion to the general business situation. The Com-
modity Bulletin supplies this information twice a
month and covers all the leading commodities
completely and specifically, showing the present
condition and price trend of each, and stating
when to buy and when to refrain from buying.
From the very nature of the work, the Commodity
Bulletin must be specific, and is invaluable to
every buyer no matter how large or small
the quantity purchased.
BUSINESS BAROMETERS
5. Semi-Monthly Labor and Co-operation
Bulletin
As the employer is vitally interested in the
future trend of the labor movement, Mr. Babson
has a special staff which does nothing but investi-
gate and study the labor and social conditions
affecting our industries, namely the differences
that exist between employer and employee. In
this bulletin we give absolutely impartial and
unbiased reports on all important strikes and con-
troversies between the employer and employee,
show the cause of the trouble, and what the prob-
able outcome will be. In this bulletin Mr. Babson
also gives his personal opinion on practical methods
calculated to lessen the friction between labor
and capital. These bulletins help the employer
to settle labor troubles by presenting in interesting,
simple form the practical, concrete plans which
have been successfully tried along profit sharing,
vocational education, co-operative competition and
similar lines. These unique Labor and Social
Bulletins can be used by any individual, even
though he may not be an employer of labor.
6. Semi-Monthly Foreign Trade Service
In addition to the service on North American
mercantile conditions previously described, a great
many of our clients, especially those interested in
South and Central American trade, desire to obtain
in an absolutely comprehensive manner the salient
fundamental features of South American, Central
American and world business conditions.
IMPORTANT ADDENDA
South and Central American Maps
These Maps are made up on a similar plan to
the North American Sales and Credit Maps. They
are issued as a part of the Foreign Trade Service
and they alternate with the World Map. They
give at a glance the condition of the various coun-
tries and enable sales and credit managers to act
accordingly. The yellow areas represent compara-
tively the best opportunities, the green areas fair
opportunities, and the blue areas show where con-
ditions are the most unfavorable. These Maps are
practically indispensable for those who are inter-
ested in South American, Mexican, and Central
American trade.
World Map
This Map is a graphic representation of busi-
ness and financial conditions everywhere, made
on the same plan as the North American and
South and Central American Maps. It portrays
the credit, sales, and investment conditions through-
out the world with great clearness, colored areas
being utilized as in the North and South American
Maps. Manufacturers engaged in foreign trade
find it a most valuable asset. Furthermore, in-
vestors who are interested in real estate, industrial,
railroad, mining, or other properties are always
kept informed as to the exact conditions prevailing
in the localities where their investments are placed.
BUSINESS BAROMETERS
Foreign Trade Bulletin
With each of the South, Central American and
World Maps goes a bulletin giving detailed informa-
tion on South and Central America and the world.
These bulletins discuss the special opportunities.
for investors, merchants, jobbers, exporters or
manufacturers, and show that there is nearly
always an opportunity for profitable sales or in-
vestments in some part of the world. They also
show in complete detail the credit situation.
In short, this service enables investors, manu-
facturers, merchants, and exporters to do business
intelligently throughout the world, with special
emphasis on South America and that portion of
Central America included between the Rio Grande
and the southern boundary of Venezuela. To give
clients the best service obtainable, we have estab-
lished Latin American headquarters in Guatemala
City, and are in this way collecting statistics and
other valuable information for them first hand.
For further particulars relative to the
Babson Services address
THE BABSON STATISTICAL ORGANIZATION
Wellesley Hills, Mass., U. S. A.
NOV 1 182
Books by Roger W. Babson
BUSINESS BAROMETERS
A book indicating to the student the trend of business, containing
a commercial and financial history of the United States from 1860
to date; the prices of leading commodities and stocks over a period
of fifty years;
and various tables on failures, clearings, crops, rail-
road earnings, exports, imports, commodity prices, and many other
subjects which determine price movements. In addition Mr. Babson
shows how great merchants, bankers and investors use these figures
for anticipating the trend of prices.
Leather bound, flexible-Price $2.00
BONDS AND STOCKS
A very pleasing but instructive study of these two kinds of securities,
showing in a comprehensive and concise manner their strong and
weak points together with reasons why some classes of securities
are attractive, and why others are unattractive and therefore should
be avoided. A revelation of facts heretofore unpublished in book
form.
Leather bound, flexible-Price $2.00
COMMERCIAL PAPER
A practical study of commercial paper, and suitable as a text-book
for colleges. Prepared in collaboration with Ralph May. Great
attention has been given to make the book valuable both to the buyer
and seller of commercial paper, showing the business man how to
make his notes safe and attractive to banks, and showing the banker
and investor how to select good paper.
Leather bound, flexible-Price $2.00
THE FUTURE OF SOUTH AMERICA
South America is a land of opportunities. Argentina has a news-
paper larger than any in the United States, Brazil is a monster country
of vast resources, and Peru is the treasure chest of the world. This
book is especially authoritative and official, as Mr. Babson has the
co-operation of the leading government officials of the South Amer-
ican republics; copiously illustrated and contains special instructions
for developing trade and making investments in South America.
Leather bound, flexible-Price $2.50
THE FUTURE METHOD OF INVESTING
MONEY
This is said to be the frankest and briefest explanation of the "inside
of the investment business ever published. An important chapter is
devoted to showing when to buy. Mr. Babson believes that to know
this is more important than to know what to buy.
Library binding, bold type
Price 60 cents and 5 cents for postage
THE FUTURE OF THE WORKING CLASSES
A book which has shocked both social workers and capitalists
alike, and of intense interest to all educators. The book is based
upon a lecture delivered by Mr. Babson at the London School of
Economics in 1913.
Library binding, bold type
Price 60 cents and 5 cents for postage
THE FUTURE OF THE NATIONS
The other title for this book is "Prosperity," and it shows what
nations must do in order to become truly prosperous. Here Mr.
Babson explains how wars will eventually be eliminated and nations
will for self-protection compete in developing men instead of guns.
Library binding, bold type
Price 60 cents and 5 cents for postage
THE FUTURE OF THE CHURCHES
We all at times wonder what is to be the future of the churches
and what we shall teach our children about them. In this little book
the answer is given by one in sympathy with the churches, but in a
businesslike manner which appeals to those who never attend. It
shows the "ups and downs" of the past and their causes-with appli-
cations to present time.
Library binding, bold type
Price 60 cents and 5 cents for postage
THE FUTURE OF THE RAILROADS
This book discusses one of the livest commercial questions of today.
In it Mr. Babson, a recognized expert on railroads, clearly indicates
what must be their future if they are to serve the people. It will be
read with absorbing interest by the general public as well as by shippers
and railroad men.
Library binding, bold type
Price 60 cents and 5 cents for postage
THE FUTURE OF WORLD PEACE
The recent European war is called "the greatest crime of the ages,
but much of the talk of the professional pacifists and the profes-
sional militarists is alike foolish. Peace must be based on an
economic foundation. In this book, which is largely devoted to
pictorial diagrams illustrative of the real facts in the case, Mr.
Babson shows conclusively the only way in which "peace" can come
about.
Library binding, bold type
Price 60 cents and 5 cents for postage
THE FUTURE OF US BOYS
A book, edited by Mr. Babson, of intense practical value. This
book shows why our boys are so inefficient, and what must be done
to correct this growing evil. It should be read by every employer,
parent and teacher.
Library binding, bold type
Price 60 cents and 5 cents for postage
*
THE BABSON STATISTICAL ORGANIZATION
Wellesley Hills, Mass., U. S. A.
MOODY MANUAL SERVICE
ON RAILROAD AND CORPORATION SECURITIES
This is believed to be the most comprehensive and reliable year book
on American Railroad, Industrial, Public Utility and other Corpora-
tions. It contains the history, earnings and full particulars regarding
their various stocks and bonds.
The two volumes complete with Free Information Service.
Moody Manual Co., 33 Broadway, New York City, U. S. A.
CORPORATION AND MUNICIPAL BOND
AND INACTIVE STOCK OFFERINGS
A confidential service for dealers only, which shows the market on
all unlisted securities, where they may be bought or sold. Cumulative
and self-indexed, covering about 15,000 issues and always up to date.
The National Quotation Bureau
66 Liberty Street, New York City, U. S. A.
INSTRUCTION COURSES
For investors, employees of bond houses, stock exchange firms and
banks.
These courses were prepared under the direction of Mr. Babson by
able specialists on railroad, public utility, and other corporations,
and are now being studied by the keenest students everywhere. Full
details will be sent on request.
Booklet B outlines our Bondsalesman's Course.
Booklet I outlines our Investment Course.
Investment Bankers Bureau, Wellesley Hills, Mass., U. S. A.
“OFFICIAL” CARD SYSTEM
Statistics relative to railroad, industrial and copper stocks and bonds
are collected, analyzed, indexed and forwarded to subscribers in all
parts of the world; printed on standard-sized (5 in. x 8 in.) cards, thus
allowing for the daily revision of any individual security without
interfering with the alphabetical arrangement.
Sample cards and complete details on request.
Standard Statistics Co., 47 West St., New York City, U. S. A.

UNIVERSITY OF MICHIGAN
3 9015 06450 1300