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THE UNIVERSITY 
 
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 LIBRARY 
 
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 Latest Date stamped below. A 
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 University of Illinois Library 
 
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 371 
 
 
 DEC 23 
 
 1993 
 
 
 OCTO 
 
 1 1993 
 
 
 
 
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By P rank Crowell 
 
 TICKER PUBLISHING COMPANY 
 
 2 Rector Street 
 NEW YORK CITY 
 
Copyright, 1911, 
 
 By Ticker Publishing Co. 
 
t vtik, 'i.'s t) w.a_x- 
 
 CONTENTS 
 
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 Ajf 
 
 lT 
 
 O 
 
 c 
 
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 35 a 
 
 egge^' 
 
 Page 
 
 I. Seme Fundamental Conceptions. 7 
 
 II.—Beginning the Twenty Year Cycle.... i 7 
 HI*—Labor Better Employed and Prices 
 
 Risin S. oR 
 
 IV.—Good Times. 
 
 1 V.—Public Demand for Stocks. 
 
 VI-—Era of Stock Speculation to Securities 
 Panic . 
 
 VII. After Securities Panic to Excessive 
 Prosperity. 
 
 VIII.—Excessive Prosperity to Waning of 
 Stock Boom . 
 
 IX.—Latter Part of Boom Period. 
 
 39 
 
 45 
 
 55 
 
 64 
 
 73 
 
 87 
 
 X.—Stock Boom Ends First—Business Now 
 Affected . 
 
 XI.—Business Declining . 
 
 XII.—In the Shadow of the Panic. 
 
 XIII. —The Commercial Panic. 
 
 XIV. —Depression Following Commercial Panic 
 
 99 
 
 119 
 
 139 
 
 155 
 
 168 
 
 try try ry 
 
Introduction 
 
 The claim of this book to the attention of the 
 business man and the investor lies chiefly in the 
 broad experience and careful observation of the 
 author during an active and successful business career 
 covering nearly forty years. 
 
 While he has not neglected the theoretical studies 
 of economists, he has in the main relied upon his 
 own knowledge, reasoning and observation; and he 
 now makes the results public for the benefit of 
 others. 
 
 In editing the book, I have been continually sur¬ 
 prised at the clearness and simplicity with which he 
 traces the history of the typical trade cycle from 
 year to year and I do not see how his work can fail 
 to be of the greatest interest and value to investors 
 and business men. It is, in fact, a real “key to finan¬ 
 cial success,” for those who will read it carefully 
 and use it. 
 
 It may be well to mention here that the author is 
 far from claiming any ironclad law of periodicity in 
 the twenty year cycle. It should be obvious that 
 the period may be somewhat lengthened or short¬ 
 ened by current events, but the general operation 
 of the cyclical law remains substantially uniform. 
 
 G. C. SELDEN. 
 
 4 
 
/ 
 
 Preface 
 
 I have endeavored to make this work as easy as 
 possible to comprehend, omitting all abstruse reas¬ 
 oning and technical terms. 
 
 I started collecting my notes with no idea of 
 publishing them, and changed my mind toward the 
 last, so that there may be several quotations incor¬ 
 porated in the work that I would have been pleased 
 to give the author credit for, but it is too late to 
 attempt to identify them. Occasionally, I repeat ad¬ 
 visedly, where I wish to bring out a fundamental 
 principle and impress it on the reader. 
 
 I wish to acknowledge my indebtedness to the 
 following writers on economics: C. D. Wright, 
 author “Alphabet of Finance”; Carroll, “Principles 
 of Finance”; G. F. Johnson, S. Leavitt, William Gib¬ 
 son, William Burton, W. B. Jones on “Economic 
 Crises”; Conant, Jevons, Mills, Juglar, Prof. Nor¬ 
 ton, and especially to Theodore Burton. 
 
 My dates at the head of chapters are necessarily 
 approximate, but will be found to be very close, so 
 far as the past is concerned. The reader can easily 
 allow for any small discrepancy in point of time. 
 Most of my references to “commercial panics” re¬ 
 fer to 1873 or 1893. 
 
 FRANK CROWELL. 
 
 New York City, 
 
 July 1, 1910. 
 
 5 
 
I 
 
I.—Some Fundamental Conceptions 
 
 A T first might was right; later barter was 
 evolved. —In the very early stages of man’s 
 existence as the cave dweller he undoubt¬ 
 edly took what he desired by right of 
 might or by stealth. Later on began tribal rela¬ 
 tions and barter sprang up among the members of 
 the tribe only; a simple transfer at first of one 
 article for another. In order to barter, however, 
 they had first to agree on values; and labor was 
 finally recognized as the chief basis of value. 
 
 Division of labor. —Later, as the tribe increased 
 in numbers, a division of labor took place and those 
 who were not equal to fighting manufactured for 
 the tribe; thus the factory began in the home. As 
 the workers became more expert and manufactured 
 more than was needed, there sprang up a pressing 
 need of some medium of exchange whereby unequal 
 things could be bartered, and also to enable the 
 manufacturer to store up the results of his surplus 
 labor in the form of some object of general desire, 
 that he could convert later on into whatever he 
 then wanted. 
 
 Gold the chosen medium of exchange.— As long 
 as barter was confined to the tribe, some convenient 
 object of general desire having an inherent value 
 
8 
 
 HOW TO FORECAST 
 
 recognized by all, was utilized; but as this inter¬ 
 course extended to other tribes it became necessary 
 to have some common medium of exchange. Metals 
 were found to have an intrinsic value, were easily 
 portable, indestructible and divisible. Finally gold 
 was adopted as the best medium of exchange. Its 
 value was at first established entirely by demand 
 and supply. Later on the king or government as¬ 
 sumed the sole right to coin money. Money, there¬ 
 fore, is the accepted tool of exchange—a merchan¬ 
 dise with a special character.* 
 
 Paper money introduced.—As business increased 
 the amount of gold coined was insufficient for the 
 requirements of exchange. Gold was also too bulky 
 for large transactions; and credit money, in the 
 shape of paper, was issued by the Government. 
 
 Credit.—When the world had become desirous of 
 extending business operations, and sufficiently civil¬ 
 ized to regard the sanctity of a promise and to en¬ 
 force it by law, credit was introduced into business 
 transactions. The owner parted with the goods and 
 accepted the purchaser’s promise to pay in lieu 
 thereof. Also notes, bills of exchange and checks 
 were introduced, expressive of the growing confi¬ 
 dence in business circles, and because even money 
 became too cumbersome as business transactions 
 increased. 
 
 Laborer paid in kind. —Before money was orig¬ 
 inated the laborer was paid in kind, and this kept 
 him a vassal to his feudal lord, but the use of 
 money allowed the laborer to wander from place 
 to place and finally made a free man of him. Grad¬ 
 ually this enabled the lord to dispose of the products 
 
 * Compare Carroll’s Principles of Finance; also Alphabet of 
 Finance. 
 
BUSINESS CONDITIONS 
 
 9 
 
 of his soil to other than his followers, opening lip 
 for the first time a market for his surplus. 
 
 Broker first; later became banker.— As money 
 began to circulate widely the different kinds be¬ 
 came difficult to equalize and the money broker was 
 evolved—one whose business it v/as to act as a go- 
 between. Exchanging monies was his principal busi¬ 
 ness; but later, as the supply of money increased 
 and it came into general use, he naturally became 
 the depository of this money, then loaned it, and so 
 evolved into a banker. But in America it was as 
 late as the dawn of the nineteenth century before 
 the people felt reasonably safe in placing their sav¬ 
 ings out of their own control in the hands of 
 bankers. 
 
 Man’s utilization of power affected business 
 greatly.— As long as man’s motive power consisted 
 only of manual labor supplemented by animals, and 
 later by the windmill, his producing capacity was 
 very small and his business transactions of a prim¬ 
 itive order. This continued as late as one hundred 
 years ago, when steam was discovered, furnishing 
 cheap power. Steam, however, was not generally 
 utilized until between 1850 and 1865. It made pos¬ 
 sible, from that time forward, our steamboats, rail¬ 
 roads and great manufacturing capacity; to be sup¬ 
 plemented later on by the discovery of electricity. 
 These factors, increasing the volume of business so 
 enormously, both made necessary and formed the 
 foundation of modern business methods, the keynote 
 of which is systematic distribution. 1 
 
 Old panics caused by drouth and famine.~/lt was 
 famine conditions, superinduced by war, drouth, or 
 floods, that created panics in olden times, but by 
 the aid of the railroad, the steamboat and modern 
 
10 
 
 HOW TO FORECAST 
 
 business methods, famines have been practically 
 abolished among civilized nation!^ 
 
 Former panics destroyed values. —The old time 
 panic resulted from actual destruction of goods, 
 whereas our modern panics create a derangement 
 of the country’s industries for the time being, with 
 but a small percentage of actual destruction. 
 
 Modern panics of recent origip^Our best writers 
 agree that modern panics are of very recent origin 
 and have their chief basis in our credit system, 
 which at times is inadequate to meet the require¬ 
 ments of our vast and increasing production. This 
 is the very reverse of the failing supplies of former 
 times.* \ 
 
 Birth of corporations. —The birth of modern cor¬ 
 porations was in response to an increasing supply 
 of wealth among the masses, demanding an invest¬ 
 ment outlet. By means of corporations the people 
 were able to become interested in great business 
 undertakings. 
 
 Effect of corporations. —The corporation, with its 
 aggregation of capital, and with a wide market for 
 its shares, gave to many properties and enterprises 
 a mobility and divisibility which greatly facilitated 
 their management. To this great step forward in 
 business organization we owe our modern banks, life 
 insurance and trust companies, canals, railroads, etc. 
 
 Prof. Newrath in Economic Review, v. 17, p. 28. Jones, 
 Economic Crises, pp. 1-5, says: “The crisis is practically of nine¬ 
 teenth century origin.’’X.Also see First Annual Report of the 
 Commissioner of Labor on Industrial Depression, p. 15: “In¬ 
 deed the economic crisis in its modern form is essentially a phe¬ 
 nomenon of the organization of industry and credit.” See also 
 Burton, Crises and Depressions./^Jones, Economic Crises, says: 
 “The conditions under which crises occurred formerly are so 
 different from those prevailing since, that it may be safely said 
 that littlev of value can be found in discussions published prior 
 to 1837.” >See Bolles, Financial History of the U. S., p. 1, 1774- 
 1787. ^ 
 
BUSINESS CONDITIONS 
 
 11 
 
 Practically all the great undertakings of the last 
 fifty years have been accomplished through corpora¬ 
 tions. 
 
 Periodicity of panics. —Science teaches that “an 
 original impulse of any kind finally resoves itself 
 into periodic or systemical motion.” Working under 
 this law, the periodicity of panics is so marked, es¬ 
 pecially in the older countries, as to be almost be¬ 
 yond question. The cycles are periods of approxi¬ 
 mately ten years, with a variance that is ordinarily 
 but slight, due mainly to political events, as a war 
 or a revolution, debasing the currency, or unwise 
 legislation.* 
 
 Two kinds of panics. —I divide panics into two 
 main divisions: the securities or financial panic, in 
 which the crisis is the main feature; and the other 
 the general or commercial panic, in which the de¬ 
 pression that follows is more severe in its effects 
 than the crisis itself. The former is a stock panic 
 and has sympathetic effect on business. The latter 
 affects all financial, commercial and industrial lines 
 and is altogether a very serious affair. These are 
 
 * See Webster’s Essays; also Prof. Nicholson, Political Econ¬ 
 omy, v. 2, pp. 213-214. Gibson, Cycles of Speculation, pp. 24-33, 
 says, “That there has been a recurrence of these troubles (crises) 
 about once in ten years, is not a debatable question.” Also 
 Prof. Pareto, Cours d’Economie. Jevons divides crises by al¬ 
 most exactly ten years periods. Burton, Crises, pp.307-308, says: 
 “Periodicity is no accident, as an examination of the rules which 
 govern industrial and commercial movements will show.” Also 
 consult Walter Bagehot’; and Jones, Economic Crises, pp. 1-22. 
 Frederick Engels, Socialism, pp. 64-65, says: “The world’s in¬ 
 dustrial and commercial production and exchange are thrown 
 out of joint about once every ten years.” First Annual Report 
 of Commissioner of Labor on Industrial Depression, p. 15, says: 
 “The features of regularity and contemporaneousness of crises 
 and depressions have been apparent since the commencement of 
 the century.” Consult Conant, Yale Review, v. 9, p. 386. Mill 
 divides the ten years between panics into three periods. Ed¬ 
 mond Therey in N. Y. Times, Jan. 20, 1910,, says: “The law of 
 periodicity of crises being clearly established,” etc. See Selden, 
 Trade Cycles, in Quar. Jour, of Economics, v. 16. 
 
12 
 
 HOW TO FORECAST 
 
 both periodical. It takes each about twenty years 
 to culminate and readjust values. One occurs every 
 alternate ten years, so that the two occur in each 
 twenty year cycle and can be thereafter fairly ac¬ 
 curately forecasted unless delayed or expedited by 
 war or some other influence of vast economic im¬ 
 portance. 
 
 A third but minor division would include inci¬ 
 dental crashes or flurries occurring from time to 
 time, which are the result of temporary causes; 
 such as money stringency, political happenings, un¬ 
 wise currency or other legislation, manipulation in 
 Wall Street, a convulsion of nature, such as an 
 earthquake or great fire, some great failure, etc. 
 Most of these affect only the money and credit mar¬ 
 ket, and have temporary effect on the stock market, 
 more or less severe, but they seldom seriously de¬ 
 press the commerce or industries of the country. 
 They are mostly of short duration and usually cause 
 only a temporary displacement of values. 
 
 Securities panic. —The securities panic is preceded 
 by a long period of liquidation in stocks, generally 
 
 of two or three years duration, and is followed by 
 
 * 
 
 stagnation on the stock exchange for a year or more 
 thereafter, a readjustment of stock values and a 
 reflex effect in business lines. 
 
 Commercial panic.— -The commercial or business 
 panic is preceded and followed by several years of 
 liquidation, causing great losses and wages and price 
 reductions and affecting all values. The period of 
 readjustment covers several years. 
 
 Greatest of minor panics.-— The greatest of the 
 minor panics, so called, comes-at the termination of 
 the great rise in stock and commodity prices during 
 a boom period. When the strain of money and 
 
BUSINESS CONDITIONS 
 
 13 
 
 credit from the pressure of the great volume of 
 business done in all lines is too great, a crisis oc¬ 
 curs, and if at this time the element of fear as to 
 the stability of financial institutions is introduced, 
 it may beget a stringency panic, such as occurred 
 in November, 1907, and was only narrowly avoided 
 in 1887 and 1867. Such a crisis is more serious and 
 lasting, because it comes at a time when the reac¬ 
 tion from excessive prices and over-extended credit 
 has naturally set in. 
 
 Universality of panics. —-As our relations with all 
 other countries grow more intimate, the tendency 
 is toward a uniformity of panic periods. The crisis 
 is merely a natural reaction from a period of excess¬ 
 ive extravagance and speculation, which, if con¬ 
 tinued, would only lead to still worse results. After 
 recovery from every crisis the people live on a 
 higher plane of consumption and enjoyment. 
 
 Cause of fall in prices.-— Vanishing credit, in time 
 of panic, is the primary cause of the fall of prices. 
 Too often we have resorted to inflation as a means 
 of preventing panic, forgetting that, fundamentally, 
 it is not business that adjusts itself to the volume of 
 money, but money that adjusts itself to the volume 
 of business. Inflation defeats its own purpose by 
 furnishing the speculator with more funds to boom 
 prices with at the very time when the slowing down 
 of business and the decline of prices is the natural 
 and necesssary remedy. 
 
 Effect of increased gold output.—-The wonderful 
 gold output of late years, the supply increasing 
 much faster in proportion than the increase in popu¬ 
 lation, has stimulated commerce and industry won¬ 
 derfully and been greatly instrumental in raising 
 prices. The increased gold supply has been brought 
 
14 
 
 HOW TO FORECAST 
 
 about by improved methods of mining, new invent 
 tions, and economies in production. Prof. Norton 
 states that from Jan. i, 1896, to Nov. 1, 1906, our 
 gold output increased 80.7 per cent, and our com¬ 
 modity prices 37.2 per cent. Ten to fifteen years 
 ago, he says, “it did not pay to operate a mine 
 where the average yield of gold was less than $12 
 per ton; now $1.30 per ton will yield a paying re¬ 
 turn.” It is cheapened production, of gold as of 
 other things, that is most influential in placing man 
 on a higher plane of living and in making the bare 
 necessities of life more easily obtainable. 
 
 Effect of modern financial methods. —Modern 
 financial methods, as exemplified in banking in par¬ 
 ticular, increase greatly the circulation of money, 
 making one dollar do the work that several form¬ 
 erly did, and being practically equivalent to a great 
 increase in money. Especially is this so in the 
 cities, where money will do many times the work 
 that it would do in the wilds of Africa, for instance. 
 Credit also has increased so greatly that in the 
 United States only about 3 per cent, cash is used in 
 the Clearing House and 5 per cent, in banking and 
 business operations; until now credit is the chief 
 medium of exchange and gold is mainly used for 
 reserve purposes and to adjust balances. 
 
 Abuse of credit.—Evidently we must be careful 
 of credit in our endeavors to increase the supply 
 of money, the latter representing so small a per¬ 
 centage; and as this credit structure grows, one can 
 easily realize that this small percentage of money 
 must be the best possible, without the shadow of a 
 doubt attached to it, or the whole vast structure 
 will be involved in ruin. Hence mere agitation of 
 the subject is a serious matter. It finds instantane- 
 
BUSINESS CONDITIONS 
 
 15 
 
 ous reflection in the financial world and, if con¬ 
 tinued, in the commercial and industrial world as 
 well. As credit vanishes its burden of work is 
 shifted to money, but the task is too great and 
 hoarding sets in; prices fall and general liquidation 
 is in order. 
 
 The bulk of bank and trust company deposits are 
 not cash but credits—mere bookkeeping entries 
 backed up by the depositors’ checks, notes, or se¬ 
 curities. National banks in central reserve cities can 
 issue credits equal to four times the amount of their 
 money reserves; and banks in the smaller cities 
 and towns six to twenty times the actual cash in 
 their vaults. In times of great activity credit even 
 exceeds this, because withdrawals of cash decrease 
 the reserve below the legal limits. 
 
 Interest.—The true rate of interest is best meas¬ 
 ured by six months loans on good collateral or by 
 gilt-edged commercial paper, rather than by the 
 rate paid by stocks. Fluctuations in interest rates 
 are often caused by changes in the relative supply 
 of circulating and fixed capital. Interest rates are 
 also affected by rising or falling commodity prices, 
 as such changes increase or decrease the demand 
 for money. The degree of activity in business and 
 on ’change are, of course, factors that affect interest 
 rates. 
 
 Prices governed by economic laws.—Prices of 
 securities and commodities are governed by econo¬ 
 mic laws. The speculator is only an incident, and 
 must work with the law or suffer the consequences. 
 His activities (unless he improves, as by building) 
 cannot create values. All he can do is to hasten 
 the tendency of the times somewhat, or if working 
 against the law, to assist in creating a slight and 
 
1G 
 
 HOW TO FORECAST 
 
 temporary displacement of values. His dealings are 
 reflected in the bank clearings, where, however, 
 they cannot be identified, nor do they show his 
 profits or losses. For this reason bank clearings do 
 not tell all the story,* although, generally speaking, 
 they do reflect the volume of business, or of business 
 and speculation combined. 
 
 * Burton, Crises, p. 165. 
 
XT— Beginning tlic Twenty Year Cycle 
 
 Improving Times. About Three Years after Com¬ 
 mercial Panic. 
 
 [Note — These conditions last occurred in 1896. If 
 the next commercial panic takes place in 1913, for 
 example, they may he expected substantially to repeat 
 themselves about 1916.] 
 
 T HE reader to forecast coming financial situ- 
 ations.-— My desire in the following pages 
 is to trace financial, commercial and in¬ 
 dustrial development closely from stage 
 to stage during the twenty year cycle (after which 
 period financial history starts in to repeat itself), so 
 that the reader may at any time be able to locate 
 the present status of business affairs, to know in 
 great measure what is before him, understand the 
 laws governing the conditions, prepare himself for 
 what is to come, and thus make timely investments 
 or withdrawals. 
 
 We will begin at that period of the depression 
 following a commercial panic when business starts 
 on an ascending scale, with a dawning light of bet¬ 
 ter things to come. 
 
18 
 
 HOW TO FORECAST 
 
 Excesses carry germs of their own destruction.— 
 
 The extremes of good and bad times have in them¬ 
 selves the elements of their own destruction, for 
 nature abominates an excess. Extreme bad times 
 beget economies and wise management that result 
 in the accumulation of new wealth. This soon 
 causes consumption to outstrip production, and 
 finally requires the employment of more men and 
 the payment of better wages in order to produce 
 enough to satisfy these increased demands. 
 
 Country with greatest resources recovers first.— 
 Of two nations that have been equally speculative, 
 the one that has natural resources to fall back on 
 will recover first, for these natural resources con¬ 
 stitute a storehouse of wealth that can be drawn 
 upon in bad times; whereas labor is the main asset 
 of the older country, and even this is more or less 
 dependent on the natural products of the younger 
 country to employ it. 
 
 Conditions necessary before betterment. —Before 
 any change can take place, not only must over¬ 
 production have ceased but the liquidation must be 
 thorough and complete—old debts paid and few new 
 ones contracted, all lines of business on as near a 
 cash basis as practicable, confidence restored in the 
 financial integrity and ability of those we do busi¬ 
 ness with, and above all, a feeling of assurance that 
 prices will go no lower. At this time there will 
 also appear a large excess of exports and low inter¬ 
 est rates. All these are indicative of a finished liqui¬ 
 dation and a subsequent steady accretion of wealth. 
 Mercantile and financial conditions must have 
 cleared up enough to allow one to do business safely 
 even though on a very small profit. 
 
 Farmer and miner feel change first.—It is to the 
 
BUSINESS CONDITIONS 
 
 19 
 
 farmer and miner, those original creators of wealth 
 from the bowels of mother earth, that we must look 
 for the first signs of improvement. By stern neces¬ 
 sity driven, we now produce more grains and other 
 farm products than ever before, due to greater care 
 and improved methods being adopted by many, and 
 also to the fact that a large number of persons have 
 been driven to farming as a last resort. 
 
 Farmer pays up. —The price for farm products is 
 low, partaking of the tendency of the times, and the 
 export business consequently large; yet gradually 
 the farmer pays his debts and gets on a solid basis, 
 in condition to be greatly benefited by a good crop 
 or two at fair prices, and the accumulation of 
 money, now idle in the banks, forms the basis later 
 for better prices for his products. His crops now 
 generally yield well, for he is working harder and 
 putting more brains into his work than ever before, 
 with consequent good results. 
 
 Where crop money goes first.—The returns from 
 these crops go first toward paying up our European 
 indebtedness and liquidating the mortgage obliga¬ 
 tions of the farmer, later into bank coffers tempo¬ 
 rarily. 
 
 Miner producing gold steadily. —The miners, 
 meanwhile, are busy producing new gold, to be 
 added to the general fund which is accumulating 
 quietly and steadily, in every bank throughout the 
 land. Bank statements reflect the stagnant condi¬ 
 tion of trade by the steadily increasing percentage 
 of reserves as compared with loans. 
 
 Liquid capital must be renewed. —The destruc¬ 
 tion and diversion of liquid capital was one of the 
 main causes of the commercial panic, consequently 
 this capital has to be replaced and added to before 
 
20 
 
 HOW TO FORECAST 
 
 confidence can be restored. The actual cash in large 
 amounts must be in sight, and interest rates go 
 low enough to render manufacturing profitable, even 
 at the low prices then existing. 
 
 Great increase in money depreciates it. —The pro¬ 
 duction of gold has increased during these hard 
 times much faster than the population. This con¬ 
 tinues until gold is out of proportion to everything 
 else and so depreciates. The foundation is thus laid 
 for a rise in bonds, stocks and commodities; for the 
 only way gold, being the measure of value, can 
 show a depreciation, is through a rise in the articles 
 whose values it measures. As the supplv of gold 
 increases its purchasing power grows less\ 
 
 Some time before increase raises prices. — Xt first 
 this increasing supply of money is not reflected in 
 the financial world. Hume, Mill and others show 
 that while the volume of money might be increased 
 or diminished instantly, the resulting movement of 
 prices would occur only after an interval when it 
 had time to permeate all the channels of trade. 
 
 How an expansion of money with confidence acts. 
 —An expansion of money such as occurs at this 
 time, when confidence is restored, acts as follows: 
 “It first lowers interest rates, then advances prices 
 generally, developing great activity ultimately in 
 business lines, and continues until all of this new 
 supply of money is in active service. Then interest 
 steadily rises, under the stimulus of this growing 
 demand from profits realized, and finally reaches 
 impossible rates and so brings about its own fall.” 
 At present, however, it has only reached that stage 
 where it has forced down interest rates to low fig¬ 
 ures (foreshadowing the great reaction that is to 
 come, for the greater the fall, the greater the re- 
 
BUSINESS CONDITIONS 
 
 21 
 
 bound), and it is now quietly at work stimulating 
 prices for the rise soon to take place. 
 
 Growing impatience of owner of idle money.-— An 
 early indication at this time is the growing impa¬ 
 tience of the money owner with the small yield of 
 his capital in interest returns. This feeling is soon 
 followed by an early stage of returning confidence; 
 then comes a desire to invest. 
 
 Stocks and bonds attractive because easily con¬ 
 vertible—realty not. —Those investments which are 
 the most easily convertible and from which the 
 quickest results can be obtained, naturally have, if 
 deemed safe, the greatest attraction for the people, 
 especially when, as at this time, investors are so 
 timorous. Hence the attraction of the stock ex¬ 
 change, with its constant action, ready sales and 
 semi-liquid assets, as against real estate with its 
 slow methods, which place it at a great disadvant¬ 
 age, and in bad times, owing to its lack of converti¬ 
 bility, make it an unattractive asset to those who 
 want to realize quickly. It is therefore to the finan¬ 
 cial world that we must look for any improvement. 
 All great rises depend on the money market; there¬ 
 fore, before any such movement occurs there must 
 be an unusually strong bank showing of available 
 funds on hand. 
 
 All wondering why advance does not start in.—At 
 
 this time every one v «4i£*is tired out waiting for the 
 change and all are wondering why, with all the ma¬ 
 terial wealth that is being created, the times do not 
 improve; not realizing that this wealth has gone into 
 debt paying and into building up a new supply of 
 liquid capital, to be utilized later in the various busi¬ 
 ness channels when confidence is restored. 
 
 Masses timid.—The masses have been frightened 
 
22 
 
 HOW TO FORECAST 
 
 and deeply injured as well in their pocketbooks; 
 they are, therefore, timid and afraid, especially as 
 they are surrrounded with an atmosphere of fear 
 that has its psychological effect on us all. They 
 feel that they can afford to take no risks. Their 
 very financial existence often depends upon a wise 
 investment of their capital, so they intend, if pos¬ 
 sible, to make no mistakes. Their investments must 
 be readily convertible, so that if afraid at any time 
 they can receive back their cash. They desire to 
 have it in such shape that they can keep posted as 
 to its various rises and falls, so that they can be 
 ready to act at a moment’s notice; but, above all, it 
 must be safe. 
 
 Bonds are most attractive.—The stock market an¬ 
 swers these requirements. At this period stock 
 values seem uncertain, but bonds are a prior lien. 
 Especially attractive are United States, state and 
 municipal bonds, and bonds representing first liens 
 on large corporations that investors know all about. 
 
 Safe investments only.—It is investment securi¬ 
 ties that the people want, and of the safest kind. 
 Their opinion also is strengthened by knowing that 
 the banker who, they realize, is an expert in this line 
 and as a trustee should be careful, has also been 
 quietly purchasing bonds. The banks have found 
 good commercial paper very scarce, business being 
 quiet and money plenty, hence they have sought 
 other investments. So to the bond market we look 
 for the first signs of betterment, indicating a les¬ 
 sened fear, and the quiet birth of an investing move¬ 
 ment which, as we shall see, steadily grows as it 
 proceeds. 
 
 Poorer classes now buying.—Later, a demand for 
 small denominations of government bonds indicates 
 
BUSINESS CONDITIONS 
 
 23 
 
 that the poorer classes are getting- over their fright 
 and are investing, taking their money from hiding 
 places and from the savings banks for that purpose. 
 
 Bonds active when interest is low.—The rate of 
 interest yielded by bonds is low, therefore they are 
 most active when interest rates in general are low. 
 This occurs when the business and speculation of 
 the country are quiet, dating from the time busi¬ 
 ness slackens until it starts up again, and until 
 money is in active demand at higher rates than 
 bonds will yield. 
 
 Institutions buy bonds.-—Institutions have also 
 been buying bonds, as most other securities have 
 been discredited because of the want of confidence 
 and the small amount of business transacted. 
 
 Speculator first to buy stocks.—The low rate of 
 interest proves very attractive to the speculator, as 
 at existing prices choice stocks will pay six per cent 
 or perhaps even better, and in large sums he can 
 borrow money of the bank at one, one and one-half, 
 or two per cent. This leaves him a handsome mar¬ 
 gin. He accordingly buys, rather timidly at first, 
 but more boldly later, as he finds his faith justified 
 and his calculations successful.* 
 
 Money goes to Wall Street.—Money must seek an 
 outlet for investment from which it can realize a 
 paying rate of interest, and if mercantile pursuits 
 are dull it generally goes to Wall Street, to be 
 loaned out for investment or speculative purposes. 
 For a time Wall Street is to have a large part of the 
 country’s loanable funds at its disposal, and this lays 
 the foundation for a boom in stocks later on. 
 
 Banker buys stocks.—The banker, who has here¬ 
 tofore purchased bonds, at length finds that the 
 
 * See Burton’s Economic Crises, p. 232. 
 
24 
 
 HOW TO FORECAST 
 
 increased demand for these has so raised the price, 
 that their yield is no longer sufficiently remunera¬ 
 tive. In the meantime his deposits are growing, and 
 often he is paying interest on the deposits of out- 
 of-town banks. He must have better returns if he 
 is to show satisfactory results to his stockholders, 
 who will hold him accountable. He has watched 
 the Wall Street investor—or speculator, for the 
 operation above described partakes of both invest¬ 
 ment and speculation. Finding him successful and 
 the outlook now better, fear having in the main sub¬ 
 sided and liquidation having ceased, the banker 
 cautiously and advisedly purchases gilt edged 
 stocks. These are now a better investment than 
 formerly, as the general buying of bonds, together 
 with the benefits derived from the successful opera¬ 
 tions of the farmer and miner, and the increased 
 export trade, are relieving the acute financial con¬ 
 ditions of the railroads, and they are paying up their 
 floating debts. This is placing the railroads in a 
 position where they will soon be thinking of spend¬ 
 ing money in improvements and betterments of 
 road and equipment, which they are now, through 
 long enforced neglect, sadly in need of. 
 
 Investors now buying gilt edged stocks.—As in¬ 
 vestments in bonds increase and values advance, 
 the interest return becomes too small, and investors 
 are driven into the stock market, having confidence 
 that earnings will increase in the near future. They 
 purchase, however, only the gilt edge securities of 
 those large corporations that have been known long 
 and favorably by the public as reliable dividend 
 payers. 
 
 Mining stocks bought by professionals.-—Mining 
 stocks are in more demand than heretofore among 
 
BUSINESS CONDITIONS 
 
 25 
 
 those whose business it is to buy, sell and develop 
 mines. This is not now a general speculative move¬ 
 ment. The public are not in it. It is a quiet absorp¬ 
 tion by those who are posted on values and are 
 content with a reasonable investment return. Mines 
 are thus developed and the gold output increased, 
 establishing a solid basis for our finances and there¬ 
 by materially aiding the return of prosperous times. 
 
 Farmer and miner have money, which with sur¬ 
 plus money in bank, now seeks investment.—The 
 farmer, as we have seen, has paid his debts, and if 
 his crops, with the greater care taken, are now 
 reasonably good, he has money to make purchases 
 on a more extended scale. It is this money and the 
 new wealth from the mines, together with the 
 money going quietly into stocks and bonds, that 
 now begins to show important effects in the com¬ 
 mercial and industrial world. Commerce deals 
 chiefly in commodities, which are less readily con¬ 
 vertible than bonds and stocks and are therefore 
 slower to move. These markets also must needs 
 apply to the financial world for a portion of that 
 liquid capital which enters into all business opera¬ 
 tions, and which is now timidly seeking* investment. 
 So under normal conditions capital and enterprise 
 seek each other, for the mutual benefit to be derived 
 from the transaction. 
 
 Purchasing ability of masses.—At this time the 
 purchasing power of the masses and their disposi¬ 
 tion to buy are two very important factors, to be 
 studied in their bearing on the business situation. 
 
 Low prices for materials encourage the manufac¬ 
 turer.—We will now consider the commercial and 
 industrial sides of business life, to note there, if 
 possible, signs of improvement. Cheap prices for 
 
26 
 
 HOW TO FORECAST 
 
 raw material and labor and low interest rates start 
 up manufacturing. Decreased cost of production 
 often benefits the manufacturer as much as an in¬ 
 crease in the price of the finished article, by bring¬ 
 ing the product within the purchasing power of a 
 larger number of new buyers and making it more 
 tempting to former buyers, and thus increasing the 
 sales. 
 
 Surplus stocks of goods disappearing a good 
 sign.—The first favorable indication, noted some 
 time after the panic, is that surplus stocks on hand 
 are quietly dwindling, due to the diversion of any 
 excess, where possible, to foreign countries, and the 
 restriction of output to meet the demands of the 
 times. Restriction of output, however, is, in nearly 
 every line, merely temporary, and is terminated by 
 a diligent search for foreign buyers, or if the prod¬ 
 uct is not exportable, then finally by growth in popu¬ 
 lation, the quiet gain in the purchasing power of the 
 people, and the betterment in the financial world, 
 with its reflection in all business life. 
 
 Consumption outstrips production.—As there is at 
 this time very little inducement for capital to go into 
 production, gradually consumption increases faster 
 than production. Excess stocks first supply these 
 greater requirements but this is only temporary. 
 Requirements must be met later by increased pro¬ 
 duction, and the volume of business then increases 
 decidedly. , 
 
 New orders first reflect betterment.—Competition 
 must arise between buyers anxious to fill orders 
 before there can be any rise in prices. The first 
 sign of this changing condition of affairs is not 
 found in the clearinghouse returns but in new 
 orders. The former, however, soon follows, and 
 
BUSINESS CONDITIONS 
 
 27 
 
 some time afterwards we find larger loans and a 
 small decrease in the reserve percentage of the 
 banks. 
 
 Markets bare and competition sets in.—The in¬ 
 creased demand now discloses the fact that certain 
 markets are understocked. The demand is greater 
 than the supply and in the competition that fol¬ 
 lows prices move slowly upward in those lines first 
 affected. 
 
 Capital necessary for a rise.—The first essential 
 condition for a rise is capital. No matter how favor¬ 
 able may be natural conditions, their effectiveness 
 is contingent upon the amount of loanable capital in 
 sight. This great loan fund is most essentially an 
 outgrowth of modern conditions, and has begotten 
 modern financial methods. Banks are merely the 
 reservoirs that contain it. 
 
 Other features also necessary for a rise.—Long 
 continued economies practiced by the people result 
 in a large supply of cheaply loanable funds, and 
 these, with good crops, cheap interest, labor and 
 raw materials, cessation of political agitations, the 
 return of confidence (so necessary for future cred¬ 
 its) and an underproduction are the advance agents 
 of prosperity. Increase in population and the de¬ 
 mand that goes with it is also a very important 
 factor, and hastens the upward movement in those 
 countries that are growing rapidly, giving them an 
 advantage by augmenting their recuperative powers. 
 
 Confidence now building up future credits.—Back 
 of all credit, and a fundamental condition for it, is 
 confidence; and this confidence, now quietly gener¬ 
 ating, is preparing the way for future credits. 
 
III.—Labor Better Employed and Prices 
 
 Rising 
 
 About Four Years After Commercial Panic. 
 
 [Note —These conditions last occurred in 1897. If 
 the next commercial panic takes place in 1913, for 
 example, they may he expected substantially to repeat 
 themselves about 1917.] 
 
 R AILROADS now have funds.—The railroads, 
 once more having a market for their bonds 
 and stocks, and having enforced rigid econo¬ 
 mies for some time past, are now in a posi¬ 
 tion to make repairs and replace worn out equip¬ 
 ment and rails. The work is at first confined, how¬ 
 ever, to what is strictly necessary, and does not as 
 yet include new extensions. These will come later 
 when profits appear. 
 
 Prices of raw materials go up. —The greater de¬ 
 mand and competition between buyers to assure 
 early delivery, finally gives the producer an oppor¬ 
 tunity to charge a higher price—a moderate advance 
 at first, but increasing as he has to pay a greater in¬ 
 terest and wage rate, and becoming still greater later 
 on as the necessities of life advance and the pur- 
 
BUSINESS CONDITIONS 
 
 29 
 
 chasing power of the currency, by which the value of 
 his product is measured, decreases. 
 
 Manufacturer at first hurt by rise in materials.— 
 This rise in the price of raw materials at first sub¬ 
 tracts from the manufacturer’s profits, as he is not 
 able at once to raise his own prices correspondingly 
 (coming in competition, as he must, with old stocks 
 on hand) but he does it shortly thereafter as this 
 old supply is exhausted. 
 
 Pig iron and copper among fiS^st to rise.—Pig iron 
 and copper are raw materials that experience an 
 early rise, entering as they do into the manufacture 
 of so much that is necessary for the daily use of 
 the consumer, and into materials sadly needed at this 
 stage by the railroads of the country, such as struc¬ 
 tural iron for bridges, rails, electrical supplies, etc. 
 For this reason iron has been called the barometer 
 of trade, and copper might be added of late years, 
 since its uses have expanded so greatly. Lumber 
 and coal rise later and in a less degree. Then fol¬ 
 lows a gain in cotton goods. These are among the 
 first to rise in the line of manufactured textiles, be¬ 
 cause they enter so largely into the necessities of 
 both rich and poor. 
 
 Betterment reflected in clearings, and buyers in¬ 
 crease orders.—The improving conditions are first 
 reflected in the bank clearings of the South and 
 West, the home of raw materials, iron, copper, cot¬ 
 ton and food products. All these are basic necessi¬ 
 ties and the surplusage of them has now been used 
 up. The buyers from these localities, therefore, are 
 the first to increase orders, and this gives a more 
 cheerful aspect to the market. 
 
 Many doubt improvement.—There are many 
 doubting Thomases at first who can see no signs of 
 
30 
 
 HOW TO FORECAST 
 
 betterment, because, while our crops are good, there 
 is as yet no large return flow of gold from abroad, 
 and business conditions reflect no marked or obvi¬ 
 ous betterment; but the money is going into settling 
 our debts at home and abroad, and into paying for 
 securities returned to us from Europe. Many for¬ 
 eign holders of American securities foolishly sell on 
 the first rises in the stock market, to regret it later 
 after conditions have improved, when they buy back 
 at much higher prices. 
 
 Prosperity now starts in earnest.—It is when this 
 period of debt paying has passed that prosperity 
 starts in at a surprisingly rapid rate, growing 
 faster all the time; so that even the worst pessimist, 
 whose whole stock of small talk has been the hard 
 times, is finally compelled to abandon it. 
 
 Wholesale grocers feel betterment before cloth¬ 
 iers.—Wholesale grocers receive larger orders at an 
 early date. They experience the improving condi¬ 
 tions before wholesale clothiers, as clothing can be 
 worn when old but food must be replaced. Dry- 
 goods do not feel the betterment at first, outside of 
 the increased orders for cotton goods already men¬ 
 tioned. 
 
 Human nature wisely optimistic.—The depressed 
 period has now lasted a long time and has been a 
 severe strain on the nerves and pocket books of all 
 of us. Human nature in the main is optimistic. It 
 was wisely made so by the great Intelligence, in 
 order for mankind to look ahead and plan, and first 
 mentally see and then perform the great undertak¬ 
 ings which nature is always calling upon us to 
 accomplish in order to better our condition. It is 
 now a time, with basic conditions right and confi¬ 
 dence growing, to cast aside the depression of the 
 
BUSINESS CONDITIONS 31 
 
 past, to look again on the bright side of things and 
 to gather strength for the work before us. 
 
 Excess money now loaned and credit started.— 
 The great excess of loanable funds in bank vaults 
 acts as a constant stimulant to speculation, and 
 with growing confidence and improved conditions, 
 money is now loaned more freely and profitably 
 than before, and so helps revive the element of 
 credit, which is later to expand to enormous pro¬ 
 portions. 
 
 First rise in railroad stocks is based on hopes.— 
 
 The first advance in railroad stocks, which, as v/e 
 have seen, precedes the rise in commodities, is al¬ 
 ways based on hopes of future profits to the rail¬ 
 roads, and so anticipates any actual gain. Rapidly 
 diminishing losses at this time are an early indi¬ 
 cation of the impending rise. The rise in stocks is a 
 sort of reflection of improving conditions in the 
 business world, having as yet no actually tangible 
 basis in profits. It results from a lively apprecia¬ 
 tion of what is to come and is therefore more or less 
 speculative. 
 
 Freight returns better while passenger still poor. 
 
 —The actual revival in railroad business first ap¬ 
 pears in increasing freight returns, and when this 
 starts passenger traffic is often making its poorest 
 showing, due to the fact that the people are staying 
 at home, attending strictly to business, and con¬ 
 ducting it after the most economical fashion. They 
 are using the mails rather than the railroads to 
 secure new orders, wherever feasible, and traveling 
 for pleasure alone is naturally at a minimum. 
 
 Money market gives first signs of improvement.— 
 All changes for the better from time to time, can be 
 early noticed in the money market, for it is here that 
 
32 
 
 HOW TO FORECAST 
 
 all have to come to get the wherewithal to do busi¬ 
 ness with; and the condition of the money market 
 is soon reflected in the stock market. 
 
 Railroad dividends often lessened after rise.—For 
 some months after the rise in stocks begins, even 
 prominent railways may reduce their dividends, for 
 those represent, not the present period, but the past 
 six months or year. This fact often temporarily 
 mystifies and disappoints many who had begun to 
 entertain hopes of better things to come. 
 
 Rise may take place even when furnace output is 
 decreasing.—Stocks also may rise on ’change, and 
 often do, while the furnace output of iron is still 
 decreasing. This is due, as already explained, to the 
 belief that adverse conditions are changing into 
 favorable ones. The shadow of coming events ap¬ 
 pears and is acted upon. 
 
 Rear failures now.—On this rising market there 
 are apt to be failures of bear operators. For a long 
 time every rise in the market has been followed by 
 a fall, and generally greater than the rise (during 
 the poor times). Many speculators do not yet 
 appreciate the fact that the gain is a permanent one, 
 to be followed by still greater gains. This early rise 
 is much of it manipulative and is financed mostly on 
 borrowed capital. 
 
 Public orders first come from outside towns.—The 
 first sign of the general public purchasing stocks 
 appears from out-of-town orders, from localities 
 nearer to the raw materials, where the general busi¬ 
 ness atmosphere is at this time more conducive to 
 optimism than in a large city like New York, which 
 is still suffering from the long continued depression. 
 
 Some railroad earnings may even now show 
 losses.™During this period there may be a halt in 
 
BUSINESS CONDITIONS 
 
 33 
 
 the net earnings of some railroads and even a falling 
 off for a short time, with an increased gain later on. 
 This may be due to a severe winter, or strikes, or 
 politics, or, later on, to the more important factor 
 of a rise in wages and commodities that temporarily 
 counterbalances the gain in gross business shown 
 by railroad returns. 
 
 Overdo it at first in other lines also.—Moreover, 
 this slight reaction is not confined to railroad circles 
 alone. In other lines the same reaction occurs. The 
 people’s hopes and their eagerness have led them at 
 first to overdo things; also on the appearance of the 
 first new orders there springs up a fierce competi¬ 
 tion for a short time, which retards advancement 
 and adversely affects prices. 
 
 Trunk lines show first benefit of increased earn¬ 
 ings.—-It is the decrease in expenses and the econo¬ 
 mies practised that have paved the way for in¬ 
 creased earnings, not only for the railroads but in 
 all other occupations as well. It is generally among 
 the trunk lines, so called, that this gain is first 
 noticeable. Formerly new railroad construction was 
 one of the most important indications of improv¬ 
 ing times. This is not now so great a feature as in 
 the past, the country having been pretty well grid- 
 ironed by roads, but the expenditure for new rails 
 and bridges to replace the old, and for new equip¬ 
 ment, is greater than ever before. 
 
 Money from hiding places, new banks, etc.—As 
 confidence grows money comes from its hiding 
 places. Also, all kinds of products are now being 
 grown and manufactured more freely. It is the 
 function of banks to put both money and products 
 into circulation, and there gradually spring up 
 throughout the country many new banks to meet 
 
34 
 
 HOW TO FORECAST 
 
 these growing necessities. Each bank creates new 
 currency and introduces new lines of credit in its 
 vicinity, thus adding greatly to business activity. 
 But there must be a demand for banks before they 
 are organized; and the creation of products must 
 precede the demand for their circulation by the 
 bank. 
 
 The relatively low prices at this time of govern¬ 
 ment bonds, which are used by the national banks 
 as a basis for putting new notes into circulation, 
 together with the increasing demand for money, 
 make it profitable for old banks to take out addi¬ 
 tional circulation and for new ones to organize. 
 
 Public likes to buy on rising market.—We have 
 seen that the rise in commodities begins early in 
 pig iron, while the finished products are dull for a 
 time thereafter; but when the change comes in the 
 latter it is very rapid, and the advance in prices 
 stimulates further purchasing. The public likes to 
 buy on a rising market, as they think there is an 
 opportunity to make money, while on a falling 
 market they refrain from purchasing till the last 
 moment, fearing a loss and desiring to buy as 
 cheaply as possible. 
 
 Merchants increase orders.—When times improve 
 merchants place larger orders and later on antici¬ 
 pate their wants, as successive rises in prices have 
 taught them that there is money to be made in buy¬ 
 ing as largely as possible. At this time life insur¬ 
 ance companies and savings banks increase their 
 purchases of mortgages. 
 
 Slight cause may bring temporary reaction.— 
 
 When the volume of business has increased and 
 prices advance, in the very early stages of a pro¬ 
 longed rise, a comparatively slight cause may bring 
 
BUSINESS CONDITIONS 
 
 35 
 
 about a temporary reaction—as too sudden a gain, 
 any disturbing political or financial clouds on the 
 horizon, etc. These are mere incidents in the up¬ 
 ward tendency, birth pains, as it were, foreshadow¬ 
 ing the greater prosperity to come. 
 
 interest rates will go up enough to offset prices.— 
 When commodity prices are rising, the interest rate 
 will eventually advance an amount sufficient to off¬ 
 set the loss in the purchasing power of the principal, 
 in order to retain the proper equilibrium. The 
 plethora of money tempts people to borrow, thus 
 creating a greater purchasing power; and these pur¬ 
 chases increase the demand for money to produce 
 and circulate them, thus raising interest rates. 
 
 Public now eager to buy on advance.—The rise in 
 prices has now started in earnest, and the public, 
 which required long continued rising values before 
 becoming interested, is now becoming eager to pur¬ 
 chase. It has been said “that a shortage of five per 
 cent, in commodities or a rise in demand of that 
 amount over supplies, starts competitive bidding 
 that may raise prices as high as fifty per cent/' 
 
 Consumption greater than production for a time.— 
 In improving times consumption is greater than pro¬ 
 duction for a while, so that in order to perceive the 
 first proof of changing conditions one must scan 
 closely the consumptive demands;* also outside 
 conditions and happenings may have a great influ¬ 
 ence for the time being. 
 
 Improvements began some time before advance.— 
 
 The surplus has to be worked off before any better¬ 
 ment in prices can take place. There must be 
 plenty of orders on hand and a scarcity of material 
 to fill them with. The betterment commences prob- 
 
 * Burton on Crises, p. 171. 
 
36 
 
 HOW TO FORECAST 
 
 ably six months before the rise in prices begins. 
 Increasing prices, therefore, are not the first indi¬ 
 cation, The restoration of confidence awakens the 
 people to their long neglected wants, and the rise 
 in prices that follows indicates that conditions are 
 reversing, and that consumption is outstripping 
 supply. 
 
 Retailer cannot raise prices as fast as wholesaler. 
 
 —When this rise in prices first occurs the retailer 
 is at a disadvantage, as he cannot raise prices as 
 fast as the wholesaler. He has to begin, as it were, 
 a campaign of education along that line, and quietly 
 accustom the public to paying an enhanced price. 
 
 Wages last to rise—Labor is the last to receive 
 the benefit of rising prices in an enhanced wage, but 
 shows it almost from the first in more hands em¬ 
 ployed and longer hours of work. 
 
 Laborers in raw materials get first raise—The first 
 wages to be raised are the wages of those who are 
 engaged in producing raw materials and manufactur¬ 
 ing them. This rise is not important until competi¬ 
 tive bidding sets in for the services of the workmen, 
 and this cannot take place until idle labor is set to 
 work, at least in those occupations where a rise is 
 to occur. 
 
 Merchants, etc., can afford to pay higher interest. 
 
 —As prices rise merchants and manufacturers can 
 afford to pay higher rates of interest, because of the 
 profits made by them out of the rising commodity 
 prices. 
 
 A little income property bought.—Generally three 
 or four years after a commercial panic there 
 springs up a small demand for choice income prop¬ 
 erty, the timid capitalist realizing that here is a 
 solid investment that cannot “take unto itself wings 
 
BUSINESS CONDITIONS 
 
 37 
 
 and fly away.” This demand is small, being limited 
 to a few wise investors, most of whom are not in 
 business but who have money in the bank that must 
 now be put to work to earn an income for the 
 owner. Business property is on a firm basis, the 
 inflation having by this time been squeezed out of 
 it, but not yet out of vacant speculative holdings. 
 
 Speculation raises prices of grain so as to hurt 
 exports.—At an early stage of the improvement 
 speculation, that child of optimism, which is ever 
 with us watching its opportunity, starts in, first in 
 stocks and then in agricultural products, and raises 
 prices, until, later on, prices for farm products be¬ 
 come so high and our consumptive demand so great 
 that our export business is seriously lessened. Our 
 foreign customers at this period cannot afford to 
 pay the enhanced prices, as conditions with them 
 have not improved as much as with us. This for a 
 while acts as a deterrent to better times, as it tends 
 to prevent sales of these natural products and the 
 beneficial effects of the circulation of the money 
 their purchase price would yield; but conditions 
 gradually improve abroad and prices for our farm 
 products fall somewhat, so that at this time such 
 conditions correct themselves without serious harm 
 being done. 
 
 We import chiefly raw or partly manufactured 
 materials.—Though our increasing orders for their 
 wares materially help the foreigner from now on, 
 these increased orders at first are mainly for goods 
 only partly manufactured or for raw products that 
 we can manufacture here. 
 
 Stages of progression.—We will here repeat the 
 various stages of progress in mercantile circles that 
 take place at this time. A working off of the sur- 
 
38 
 
 HOW TO FORECAST 
 
 plus through an increase in new orders is the first 
 indication, and precedes a rise in prices. More work¬ 
 men employed and at longer hours go before an ad¬ 
 vance in wages. Railroad repairs, betterments and, 
 later, extensions or branches. Existing facilities for 
 manufacture and for office quarters are gradually 
 taxed to the utmost. This is followed by enlarge¬ 
 ment of these facilities, with the idea of reducing 
 cost by producing more and at less expense, as 
 through new machinery, improved business facili¬ 
 ties, and the like. 
 
IV.—Good Times 
 
 About Five Years After Commercial Panic. 
 
 [Note —These conditions last occurred in 1898. If 
 the next commercial panic takes place in 1913, for 
 example, they may he expected substantially to repeat 
 themselves about 1918.] 
 
 A ctive rise in prices now.—When the steps 
 previously explained have been taken and 
 consumption still outstrips production, then 
 comes an active rise in prices, instead of the 
 cessation of price cutting, which was the earlier 
 sign. New factories, new machinery, new office 
 quarters and the like are created to meet the con¬ 
 sumptive demand, which by this time is increasing 
 faster than it can be provided for. Those things 
 rise first which are most easily and speedily mar¬ 
 keted. 
 
 Labor more fully employed than capital.—Labor is 
 fully employed before capital is, so that now labor 
 has the advantage, but ere long capital finds avenues 
 in which to employ itself. Labor, having now the 
 advantage of competitive bidding for its hire, experi¬ 
 ences its first material rise and the country is pros¬ 
 perous. 
 
40 
 
 HOW TO FORECAST 
 
 Next wage rise in unskilled city laborers.—The 
 
 rise in wages takes place now among the unskilled 
 masses in the cities, those who do the preliminary 
 work, as it were, connected with the necessaries of 
 life. Later arises the demand for workers upon 
 those articles that are more expensive, and finally 
 upon luxuries. 
 
 Rise in wages helps raise prices.—The rise in 
 wages acts as a stimulant to raise prices, not only 
 by adding to the cost of production, but also by giv¬ 
 ing a greater purchasing power to the laboring 
 classes. 
 
 Merchants enlarge their credit to buy goods.— 
 
 Under the stimulus of rising prices the wholesaler 
 and retailer, desirous of making all the profits they 
 can through the continuing rise, order more and 
 more goods, enlarging their credit for the purpose 
 and so greatly increasing the demand for money. 
 
 Speculation grows on profits realized.—At first the 
 use of money is confined mostly to strictly produc¬ 
 tive enterprise, but prospective profits have ever 
 acted as a spur to speculation, so that the latter 
 soon grows, modestly at first, but later to over¬ 
 shadow everything with its excesses. 
 
 Capital loses its timidity.—The field of operations 
 must be attractive to induce capital, which is still 
 timid, to enter, and these attractions must quietly 
 increase and capital must realize its profits again 
 and again before it finally loses its timidity, and 
 becomes in the end overbold, overconfident, beget¬ 
 ting a rashness of investment that in the future is 
 to prove its undoing. 
 
 What increases in clearings indicate.—The first 
 decided increase in bank clearings indicates stock 
 speculation and some investing, and later an in- 
 
BUSINESS CONDITIONS 
 
 41 
 
 creased volume of general business. Still further 
 on the rise of commodity prices adds to the volume 
 of clearings, as transactions in the same quantity of 
 a commodity are represented by more money, owing 
 to the higher price. 
 
 Benefits of crops felt mostly after opening of new 
 
 year.—Good crops and fair prices, as we have seen, 
 aid greatly toward better times, but as fall crops 
 are not gathered until late in the season, we do not 
 fully experience their beneficial effects until after 
 the opening of the new year. They are then en 
 route to market and the return flow of money in 
 exchange for them slowly circulates through the 
 various arteries of business life. 
 
 Cheerful tone to business.—The cheerful tone that 
 now pervades all business is healthful and refresh¬ 
 ing, a most gratifying change from the depression 
 and ever deepening gloom of the last few years. 
 
 Interest depends on profits made.™Bankers and 
 investors are now able to get satisfactory interest on 
 their capital. The interest market, like the wage 
 market, depends not so much on the volume of 
 money in circulation as on the profits made. It is 
 out of the fund of value created that both capital 
 and labor must receive their shares, and the larger 
 the fund the larger the return in both interest and 
 wages. At this period the reservoir from which they 
 both grow is steadily augmenting. 
 
 Confidence necessary for credit building.—Confi¬ 
 dence is a basic necessity for all credit building; and 
 the gradual growth of confidence is accompanied by 
 a corresponding increase in credits, which helps the 
 money market, gives a stimulus to business, and 
 later, as we shall see, results in excesses which 
 eventually bring about its own destruction. 
 
42 
 
 HOW TO FORECAST 
 
 What failures indicate.—One of the early signs 
 of improvement was that total liabilities in failures 
 were smaller but the number of failures larger, 
 showing that failures were confined to the little 
 fellows, while the concerns doing a larger business 
 were at least holding their own. The next step is 
 that failures become smaller both in number and in 
 liabilities, showing that the strain under which they 
 have been laboring for years past is now being re¬ 
 moved from all classes. 
 
 Employers slow to employ new labor.—Employers 
 at first hesitate to employ more hands or raise exist¬ 
 ing wages; when they do, it is an indication that the 
 betterment has existed some little time. It is often 
 when labor is complaining the most that a change 
 for the better has set in. Labor, as wages begin to 
 rise, gives very little trouble for a while, as the 
 workman is continuously employed and often at an 
 enhanced wage. He is fairly well satisfied, and 
 prices have not yet risen enough to affect his buying 
 capacity. 
 
 Western and Southern buyers first to give larger 
 orders.—In drygoods the first sign of improvement 
 is in the orders of Southern and Western buyers; 
 but while the commodity rise commences in the 
 West, it is overshadowed for some time to come in 
 the bank clearings of the country as a whole by the 
 increasing stock dealings of the East. 
 
 Test as to improvement.—The true test as to the 
 extent of the business improvement comes after the 
 first enthusiasm passes away. “At first there is a 
 tendency to overbuy, due to a feeling of optimism 
 (tinctured by speculation); the rebound, therefore, 
 often goes too far, and now it is up to the purchas¬ 
 ing capacity of the small consumer to help the deal- 
 
BUSINESS CONDITIONS 
 
 43 
 
 ers out. This is the supreme test of business im¬ 
 provement, and is even more true in stocks.” 
 
 Railroads accumulate a surplus.—At as early a 
 period as possible some of the railroads adopt the 
 policy of accumulating by adding to their surplus, in 
 order to inspire confidence in their stock issues. 
 
 Imports of certain luxuries.-—A further gain in 
 imports indicates a continued growth in the pur¬ 
 chasing power of the people. We are now not only 
 importing for manufacturing purposes, as before, but 
 the more necessary classes of luxuries as well are 
 coming into demand. 
 
 How in early times we paid for imports.—At an 
 
 early stage in our history, as with all new countries, 
 we were debtors, and imports exceeded exports, the 
 balance being made up by the sale abroad of inter¬ 
 ests in our resources. At first we sold our raw 
 products and broad acres direct, but later sales were 
 mostly in the shape of stocks and bonds, as that is 
 the most convenient modern form of transferring 
 ownership. 
 
 Later exported more than we imported.—As we 
 
 gradually acquired the means to develop our re¬ 
 sources we exported more than we imported, and 
 this, because of our great natural wealth, brought 
 money in ever increasing amounts to our shores. 
 
 Old nations have excess of imports.—As the re¬ 
 sources of old nations are mostly developed, they, 
 like a very young nation, import more than they 
 export, and the balance is paid out of interest or 
 principal owing to them from abroad, as in the case 
 of England. They also sell to the newer country 
 the products of their factories; for as each nation 
 passes the earlier stages it goes more heavily into 
 manufacturing, because <5f its abundant supply of labor. 
 
44 
 
 HOW TO FORECAST 
 
 How large supply of gold acts.—The increase in 
 the supply of gold at first reduces interest rates, but 
 as it gets into circulation it creates employment for 
 itself, the demand that springs up is greater than 
 the supply, and interest rates advance—especially 
 as speculation, v/hose very life blood money is, 
 starts in and gradually increases. The banker avails 
 himself of the increasing supply of gold to make it 
 the basis of credit. In the bank statement later on 
 this credit appears as “deposits.” The new gold 
 affects first the prices of bonds and stocks, next the 
 most necessary commodities, as wheat, cotton, corn, 
 iron, steel and copper; later it affects all lines. 
 
V.- “Public Demand for Stocks 
 
 About Six Years after Commercial Panic. 
 
 [Note — These conditions last occurred in 1899. If 
 the next commercial panic takes Place in 1913, for 
 example, they may be expected substantially to repeat 
 themselves about 1919.] 
 
 D IFFERENCE between the public and invest¬ 
 ors.—A clean cut distinction should be 
 drawn between the investing class and the 
 public in general. Investors are attracted 
 by low values, safety and good interest yield. The 
 public go into stocks chiefly from speculative mo¬ 
 tives. With the public, value cuts but little figure. 
 What they desire is a rapid rise in prices, and quick 
 returns, often with little regard for intrinsic value. 
 Rising prices long continued awaken their cupidity, 
 and about this time they begin to make their ap¬ 
 pearance on ’change—veritable “lambs,” as they are 
 so aptty called. 
 
 Beginnings of Stock Exchange.—“It was on May 
 17, 1792, that twentj^-four brokers met under a tree 
 which grew on a spot opposite 60 Wall Street, and 
 signed an agreement regarding a uniform rate of 
 
46 
 
 HOW TO FORECAST 
 
 commission, and afterward held irregular meetings 
 at the Tontine Coffee House, Wall and Water 
 Streets. This was the beginning of the Stock Ex¬ 
 change. In 1817 it was formally organized in the 
 Merchants Exchange Building, now the Custom 
 House. Ever since then New York has been the 
 headquarters, of the speculative tendencies of the 
 country, with its great exchanges to facilitate the 
 transfer of securities and commodities of all kinds. 
 
 Clearinghouse system adopted. —“It was not till 
 1890 that they adopted a clearing house system, 
 when they awoke to the fact that instead of having 
 to carry bank deposits to pay for stocks bought 
 and sold, all that was necessary to carry was the 
 balance between the two, and this was less than one- 
 fortieth of the whole amount.”* 
 
 Why bonds and stocks rise first. —As stocks and 
 bonds are in a much more negotiable shape than an 
 interest in a business enterprise not thus divided, 
 and consequently are easier to buy and sell and 
 more interesting to the speculator, they rise first 
 and, naturally, sooner reach the limit of their rise, 
 and are consequently the first to fall later on. Also, 
 the public, being timid, prefer to invest in stocks and 
 bonds because, in the main, these securities repre¬ 
 sent old and tried undertakings. 
 
 Stock rises always started by manipulators.— 
 Stock rises have ever been started by manipulators, 
 aided, of late years, by the purchases of a small class 
 of investors who study values closely. The general 
 public will not come in until after prices continue to 
 rise for some time. This the professional under¬ 
 stands and it is this inducement that he skilfully 
 offers them from time to time. If his efforts are 
 
 * Securities as a Means of Payment, by C. A. Conant. 
 
BUSINESS CONDITIONS 
 
 4? 
 
 continued long enough he will be successful and the 
 public will buy. quietly at first, but with a rush later 
 on. 
 
 Public’s surplus funds go into stocks.—At first 
 stock investments are made from the surplus funds 
 of the public and hence are by far the greatest at 
 this time, after a long period of enforced saving. 
 Business in general, while better, does not offer as 
 yet sufficient inducement to idle capital; hence these 
 surplus funds for some time past have been gradu¬ 
 ally seeking Wall Street. Stocks and bonds at this 
 time pay a higher rate of interest than can be ob¬ 
 tained in general business. Moreover, as business 
 now requires a relatively small part of the funds 
 seeking employment, New York banks are able to 
 offer to their outside correspondents a rate of inter¬ 
 est that causes a vast sum of money to accumulate 
 in New York at the disposal of Wall Street; hence, 
 later, the great rise that takes place and the many 
 new companies formed. At no other time in the 
 evolution of the cycle does Wall Street ever interest 
 the public so greatly, or have such vast sums at its 
 disposal. 
 
 Speculators want action.—Rapid fluctuations in 
 market prices of stocks are attractive to the specula¬ 
 tor, as he loves “action,” and when values are ad¬ 
 vancing, having idle money, and having chafed 
 through a long enforced repression of his energies, 
 the inducements offered in this field prove vastly 
 attractive to him. 
 
 Why stocks are so susceptible to influences.— 
 
 Stocks fluctuate more than commodities and offer 
 less resistance to surrounding influences, because 
 their price depends on the rate of dividend they pay. 
 This being the fact, they come into competition with 
 
48 
 
 HOW TO FORECAST 
 
 the market rates of interest, which change from day 
 to day; and if these rates change in any great de¬ 
 gree—because of a temporary stringency, a political 
 happening, some important act of nature, etc.—the 
 change is reflected almost at once in stocks. 
 
 Why commodities are slower to rise.—Commodi¬ 
 ties are, as a rule, slower in moving and so take 
 longer time to be affected. Most events have passed by 
 before they have time to change commodity prices 
 to any important extent. The cause of the disturb¬ 
 ance has to be great and to continue some time in 
 order to affect commodities. The elements of labor, 
 raw material, railroad rates and the like, all enter 
 into commodity prices, in addition to interest on 
 capital invested. An exception to this rule some¬ 
 times occurs in a time of general panic, when public 
 fear may cause commodity prices to fall quickly. 
 
 Public often erroneously credited with good sense. 
 —The public forget the losses of the past and go 
 down to Wall Street as to a Mecca. They are too 
 often credited with exercising good sense and learn¬ 
 ing from the losses of the past, when as a matter 
 of fact, the cause may be either that their purchasing 
 powers are impaired, or that interest returns on the 
 investment are not sufficient, or that they can do 
 better elsewhere. 
 
 Hopeful feeling runs into speculation.—On a ris¬ 
 ing market such as now exists in stocks, every one 
 interested is hopeful and success breeds confidence; 
 and if long continued this increasing hopeful feeling 
 seeks expression in speculation, for it needs must 
 have some outlet. 
 
 Lambs make money.—In the early part of this 
 movement the lambs, perhaps for the only time in 
 the financial cycle, have an opportunity to make 
 
BUSINESS CONDITIONS 
 
 49 
 
 money in Wall Street. Their purchases are so large 
 and so continuous and the volume of their savings is 
 so great that they force stocks steadily up. The sea¬ 
 soned operator, after every fair rise, looks for a re¬ 
 action and buys and sells accordingly; but there is 
 no reaction to speak of for a long time because of 
 the enormous sums pouring steadily into the market, 
 so that his profits at this time often do not equal 
 those of the lamb. 
 
 Europe sells us our stocks.—Europe, tempted by 
 the higher prices and needing the money more than 
 we do, is apt, on this advance, to sell us stocks in 
 large amounts. But this has surprisingly little effect 
 upon the market, so great is the investing and spec¬ 
 ulative movement and the purchasing power of the 
 masses. 
 
 Shortage of stocks.—Later, to the surprise of all, 
 the demand for securities exceeds the supply, enor¬ 
 mous as it has seemed in the past. Stocks are stead¬ 
 ily withdrawn from the market and blocks are taken 
 up by financial heavyweights. The quiet growth of 
 the country in wealth has overtaken the supply of 
 securities, and promoters busy themselves and sup¬ 
 ply the demand on terms very liberal to themselves. 
 
 Good news sought for, bad unheeded.—On an 
 improving market good items of news are eagerly 
 sought for and made the most of, whereas bad news 
 seems to fall on inattentive ears; and the reverse is 
 true in periods of declining values. 
 
 Investing class increasing.—The investing class 
 are constantly increasing, as our country matures, 
 at the expense of the speculative element. As the 
 country’s wealth grows more substantial investors 
 will ever exercise an increasing and beneficial influ¬ 
 ence on the stock and bond market, as they are 
 
50 
 
 HOW TO FORECAST 
 
 strongly opposed to speculative managements and 
 dishonest methods and in favor of a conservative 
 building up of values, with wise forethought for the 
 dull days sure to come later on. 
 
 From the very nature of their methods they are 
 bound to flourish and increase at the expense of the 
 rash and often foolhardy speculative element. Spec¬ 
 ulators are far better suited to a new country, with 
 its great natural resources, which require more or 
 less chance-taking for development; but speculative 
 methods stand little show of success (barring a very 
 few exceptions) when opposed to the wiser methods 
 of the true investor. 
 
 Ninety-five per cent, of business on credit.— 
 
 Ninety-five per cent, of the business of the country 
 is done on credit, and as Wall Street is the financial 
 center of our country, it is there that the machinery 
 of credit is regulated; hence the importance of Wall 
 Street in business organization. 
 
 Credit system demands honesty in business.— 
 This great increase in the use of credit instead of 
 money will hereafter unceasingly demand a greater 
 degree of honesty in business life. Credit must de¬ 
 pend on confidence. The recent outbreak of indig¬ 
 nation against the dishonest practices that have oc¬ 
 curred in Wall Street for years past and heretofore 
 have been only casually noticed, is in a measure an 
 instance of this demand, and will continue until 
 financial operations are conducted on a basis that 
 will inspire confidence. 
 
 Credit expanding and more goods bought.—At 
 
 this period in the cycle credit is expanding, and 
 with the increasing volume of business and the ad¬ 
 visability of carrying large stocks because of enhanc¬ 
 ing values, many abandon their former conservative 
 
BUSINESS CONDITIONS 
 
 51 
 
 methods of doing business on a cash basis and tak¬ 
 ing advantage of the cash discount, which was more 
 or less of a necessity in hard times if profits were 
 to be made. They now make use of the credit of¬ 
 fered them and buy more freely. This is one of the 
 great factors in improving times; for money, as we 
 have seen, can be very plentiful, yet the times be 
 very hard. 
 
 Public, now possessed of credit, buys first bonds, 
 then stocks.—Bank deposits, checks, bills of ex¬ 
 change, cable transfers, book accounts, bonds and 
 n«tes are some of credit’s efficient agents. Pos¬ 
 sessed of these, buyers investigate the opportunities 
 offered to them for investment. As we have seen, 
 they are invariably attracted first to the bond mar¬ 
 ket; then, as bonds go up, and interest rates for 
 money at the same time increase, they desert bonds 
 for stocks, which not only pay a better rate of in¬ 
 terest, but have the additional advantage of partici¬ 
 pating in the profits resulting from rising values. 
 This introduces an element of speculation which 
 bonds, with their fixed interest rates, lack. 
 
 Stocks, not bonds, get the increased profit.—-The 
 greater the amount of bonds outstanding against a 
 corporation, the greater the percentage of profits 
 coming to the stock as prosperity advances; for the 
 bond, with its fixed interest rate, cannot participate 
 in the increased earnings. The stock gets all the 
 increase. 
 
 Demand for small currency.—A demand for small 
 currency at this time indicates that the minor trades¬ 
 men and working classes are doing better, that they 
 have money to keep in their tills and to carry about 
 on their persons. This demand is ultimately so 
 
HOW TO FORECAST 
 
 62 
 
 great that it results in the government printing new 
 issues of small denominations. 
 
 Circulation increases and raises prices.—The eager 
 hunt for gold and silver during the hard times has 
 resulted now in a large additional coinage. This, 
 together wdth the increased circulation taken out 
 by banks, adds greatly to the improving conditions 
 and enhances prices. John Stuart Mill goes so far 
 as to say on this subject that “If the whole money in 
 circulation has doubled prices would be doubled. 
 * * * A great increase in money is a certain 
 
 harbinger of greater business, rising prices and in¬ 
 creasing production.” It is this great increase in the 
 gold output that, later on, makes prices appear to 
 be on a higher basis than they really are. 
 
 Low exchange rate indicates credit balance drawn 
 on.—-A low rate of exchange at this time, with 
 steady gaining in percentage of imports over ex¬ 
 ports, indicates that our credit balance abroad is 
 being drawn upon. As home consumption outruns 
 production prices go up and, from then on, the 
 increase in per cent, of shipments gradually favors 
 imports as against exports. 
 
 Railroads increase both earnings and bond is¬ 
 sues.—Railroads now not only show an increase 
 in gross earnings, but a larger per cent, of gain in 
 net, indicating better business combined with econ¬ 
 omy of management. There is peace between the 
 various railroads now because there is a larger vol¬ 
 ume of traffic, sufficient for all, and therefore no oc¬ 
 casion for fighting and rate cutting. The volume of 
 borrowing is now greatly increased by railroads 
 converting their short time notes into long time 
 bonds, and adding new issues for necessary better¬ 
 ments and for their steadily increasing expenses. 
 
BUSINESS CONDITIONS 
 
 53 
 
 Industrial companies gain more slowly .—Indus¬ 
 trial companies do not reflect improving times as 
 quickly as one would anticipate, because they have 
 not only had old stocks to work off, in which there 
 is but little profit, but they have orders to fill which 
 were taken some time ago when times were dull and 
 prices lower, which also yield but little profit. 
 
 Imports increase.—Having reached this degree of 
 prosperity, we may export a moderate amount of 
 gold, as we set a lower value on it than do those 
 countries not so far advanced towards prosperous 
 times. We have passed through the anxious stage, 
 have ceased to hoard, and are disposed to purchase 
 more goods abroad.. Much of the merchandise thus 
 imported is composed of materials for manufacturing 
 purposes. Of course gold is the only kind of money 
 we can settle our foreign obligations with, and mod¬ 
 erate exports at this time are not to be viewed with 
 alarm, as the return flow will soon set in. 
 
 Railroads now call for raw materials.—Money is 
 now readily procurable in railroad circles through 
 the sale of securities; and the urgent necessity of 
 the roads for repairs and for additional rolling stock, 
 owing to the increase in population that has been 
 going on for years in contiguous territory, leads to 
 a general railroad building and repairing movement. 
 This causes a demand for labor and materials and 
 for iron and coal, and hence a demand for iron and 
 coal mines. Likewise, improving business creates a 
 demand for new gold and silver mines, and new 
 discoveries of copper mines follow the increasing 
 use of copper in the building of electric roads, elec¬ 
 tric light and power companies, etc. 
 
 Money remains cheap.—Money, though now used 
 in such vast quantities, at first remains cheap, to the 
 
54 
 
 HOW TO FORECAST 
 
 surprise of every one, the banker included. The 
 constant percolation of money into the banks from 
 many sources freshens the supply, and is the best 
 indication of the quiet but great accretion of wealth, 
 and the vast liquidation, that have quietly taken 
 place during the hard times. Some of this money 
 has perhaps been in hiding for years. Gold imports 
 from abroad also increase our supply of cash. 
 
 Clearings reflect better times.—Improving times 
 are reflected in the bank clearings of the day; a 
 steady fall in cash and a rise in loans now indicate 
 increasing business and enhancing values. Cash is 
 now passing more rapidly from hand to hand in 
 circulation, instead of remaining idle in the banks 
 as formerly. 
 
VI.-—Era of Stock Speculation to Secur¬ 
 ities Panic 
 
 Six to Ten Years after Commercial Panic. 
 
 [Note. —These conditions last occurred 1899-1903. If 
 the next commercial panic takes place in 1913, for 
 example, they may he expected to repeat themselves 
 about 1919-1923.] 
 
 C OMMODITIES and equities rise in value.— 
 
 As money increases in volume and circula¬ 
 tion prices of commodities and of all securi¬ 
 ties possessing equities (as distinguished 
 from bonds or mortgages covering only a fixed and 
 invariable hen) tend to rise. 
 
 Rising prices make South and West active.—Ris¬ 
 ing prices and money in abundance start the West 
 and South everywhere at work developing their nat¬ 
 ural resources. Improving times abroad are re¬ 
 flected in business circles here by an increasing de¬ 
 mand for our products, modest at first but steadily 
 growing. 
 
 Increasing speculation demands European gold.— 
 
 Increasing volume of speculation creates a demand 
 
56 
 
 HOW TO FORECAST 
 
 for money. The golden tide is reversed, and com¬ 
 mences to flow in steadily increasing volume to our 
 shores from Europe under the stimulus of the higher 
 interest paid here. Gold naturally seeks those coun¬ 
 tries where capital and industry are the best organ¬ 
 ized, where natural resources are the greatest, and 
 where the greatest returns are coupled with a rea¬ 
 sonable degree of safety of principal. These borrow¬ 
 ings grow so extensive that the}'- become the great 
 factor in finally turning a credit into a debit balance 
 against us abroad. 
 
 Easy security markets finance business undertak¬ 
 ings.—This easy market for new and old securities 
 alike facilitates greatly all business and railroad 
 operations and finances our great undertakings. 
 There is a marked and natural tendency at this pe¬ 
 riod of the cycle toward financial concentration to 
 meet the requirements of the times. As the country 
 grows and business organization develops, larger 
 and larger sums of money are required to finance 
 important enterprises. Large organizations are 
 more desirable, effective and economical than 
 smaller ones, as great savings can be effected in 
 purchases of raw material, in manufacturing, and in 
 placing goods on the market, where capital and vol¬ 
 ume of business are large. 
 
 The people’s money makes the financier.—It is for 
 the most part the money of the people accumulated 
 in banks and trust companies that supplies the funds 
 to negotiate these great undertakings, and not the 
 money of any rich individual or coterie of capitalists. 
 On the contrary, it is the use of the people’s money 
 that has created the multimillionaire, and without 
 this fund to draw from he would never have ex¬ 
 isted. 
 
BUSINESS CONDITIONS 
 
 57 
 
 Great gold output helps keep up agricultural 
 prices.—The great output of gold and increased is¬ 
 sues of other currency during this period help make 
 better times by raising prices. This is especially 
 important as affecting the prices of agricultural 
 products, which always form the most essential 
 foundation for real prosperity. 
 
 This is best time for majority.—The best period 
 for the majority of our people, and the healthiest 
 financially, is now, before stock prices have gone 
 too high, and before the period of excessive specula¬ 
 tion and extravagance has begun. Debts have been 
 paid and all are remuneratively employed. Fru¬ 
 gality, temperance and the greatest amount of hon¬ 
 esty we experience in business life, govern our ac¬ 
 tions. Commodities and wages have risen suffi¬ 
 ciently to be remunerative, but are not excessive. 
 At this time almost everyone in business can save 
 money, if he is so disposed, and is not mentally or 
 physically disqualified. 
 
 There is a gradual decrease in the amount of 
 mortgages foreclosed, and also, for a time (until 
 the realty market gets active later on) of new mort¬ 
 gages given. 
 
 Great movements begin with great bank reserves. 
 
 —Great movements in business or speculation have 
 their commencement in large bank reserves, and 
 end when the surplus of reserves over reserve re¬ 
 quirements has been brought down to a minimum. 
 These surplus reserves diminish when good times 
 are in full operation, and increase as the times grow 
 poorer and less money is employed in business and 
 speculation. 
 
 Savings banks and trust companies have money to 
 
 loan.—The savings banks and trust companies, “the 
 
58 
 
 HOW TO FORECAST 
 
 one the depository of the provident poor, the other 
 of the provident rich,” have both grown in import¬ 
 ance and have large amounts of money to invest— 
 the former in safe investments regulated by law, 
 while the latter too often at this time place large 
 sums at the disposal of powerful manipulators for 
 stock promotion or stock jobbing purposes. 
 
 Price fluctuations not so injurious when market is 
 scantily supplied.—Fluctuation in the price of com¬ 
 modities is not nearly as injurious now in its ef¬ 
 fects, when the market is scantily supplied, as when 
 it has an overabundance of commodities on hand; 
 and failures are far less frequent in the former than 
 in the latter case. 
 
 Advancing commodity prices.—One of the best 
 indications of the consuming power of the people is 
 commodity prices; when these are advancing an 
 improving condition of the public purse is indicated, 
 and when the advance is very rapid the presence of 
 more or less speculation is shown. 
 
 Stock market generally barometer of uninvested 
 capital.—The stock market is the barometer of the 
 supply of uninvested capital and the demand for it; 
 with the exception, however, of those times when 
 fear has taken possession of the market, or when 
 stocks are temporarily a discredited investment. 
 Stocks are preferred to real estate by investors and 
 speculators because of the much quicker action in 
 buying and selling, and because the cost of transfer 
 and the trouble connected therewith are so much 
 less, only a few hours being required, as against a 
 much longer time for the selection and transfer of 
 real estate; nor are there bad titles to cause long 
 delays or endless litigation. If listed on Wall 
 
BUSINESS CONDITIONS 
 
 59 
 
 Street, especially, stocks have that most important 
 feature in estimating value—easy convertibility. 
 
 Stocks susceptible to money market.—It takes 
 cash to buy stocks, so stocks are very susceptible to 
 any influence, either passing or permanent, that af¬ 
 fects the supply of ready money; hence the frequent 
 smaller panics on Wall Street that have but little 
 influence on the country at large. 
 
 Stock buying a popular craze.—Stock purchasing 
 now becomes a popular craze, and the printing 
 presses are kept busy morning, noon and night, 
 striking off handsomely lithographed stocks, many 
 of doubtful worth, which are sold to the unsophisti¬ 
 cated at prices often far above their real value. 
 
 Tricks of manipulators.—The unscrupulous ma¬ 
 nipulator circulates stories of many kinds, all cal¬ 
 culated to work on the imagination of the lamb and 
 induce him to bujq and constantly manipulates prices 
 so far as he is able, with the purpose of transfer¬ 
 ring money from the pockets of the innocents to his 
 own. He makes fictitious purchases and sales to 
 offset each other, but which will appear in the public 
 prints as purchases or sales, and thus convey the 
 idea to his victim that there is great activity in the 
 particular stock or stocks that he is for the time 
 being offering. Even securities of easy virtue at¬ 
 tract now, and the desire to get rich quick grows 
 among the people, as it always will if prosperity 
 lasts long enough. 
 
 Speculation runs riot.—At this time, when the un¬ 
 used funds of the United States and Europe are at 
 the disposal of Wall Street, it is natural that specu¬ 
 lation runs riot, and there comes a period of excess 
 that might well be called the “merger and promo¬ 
 tion period,” because of the great activity of pro- 
 
60 
 
 HOW TO FORECAST 
 
 moters. It is only after a long period of false hopes 
 and promises temptingly held forth, that the foolish 
 public finally ask the professional to make good; 
 and when he fails to do so, the public become dis¬ 
 couraged and sell, and condemn good and bad alike. 
 
 Supply of money becomes exhausted, and public 
 become disgusted.—As it is easier to create new 
 companies than it is new money, the supply of the 
 latter becomes finally exhausted, and credit as well. 
 The public gradually withdraw their confidence and 
 purchase fewer stocks, and as prices shrink their 
 eyes are opened (for few speculators can see the 
 error of their ways as long as they are successful). 
 Disgust gradually takes the place of their old time 
 enthusiasm, and money is withdrawn steadily from 
 Wall Street. But before this has taken place the 
 manipulator, desirous of exchanging his paper profits 
 for hard cash, has unloaded vast amounts of stocks 
 upon the shoulders of unwary lambs. 
 
 When bad news does not affect prices.—When 
 bad news does not affect stock values adversely but 
 prices rise instead, it is an indication that stocks are 
 under the control of cliques, and that they are rais¬ 
 ing prices for their own purposes. 
 
 Prior to securities panic, a decline in stock values. 
 
 —For two or three years before a securities panic 
 there is a gradual decline in stocks, but this does not 
 affect commodity values to any great extent, as 
 money is still depreciating, owing to the larger gold 
 output and the inflation of currency, and growing 
 confidence is increasing its circulation. The general 
 want of confidence that sets in is directed solely 
 against Wall Street and corporate mismanagement 
 there. Money is withdrawn gradually from stocks, 
 
BUSINESS CONDITIONS 
 
 61 
 
 but there is plenty to be had at normal rates for 
 general business purposes. 
 
 Merchants now in safe condition.—The merchants 
 are in a healthy financial condition, very conserva¬ 
 tive, owing but little, with prices as yet reasonable, 
 and therefore in no condition to be severely injured 
 by a panic. The few among them who do fail later 
 on, have either lost heavily in stock speculation, or 
 belong to that class who venture everything on 
 small margins, so that the continuance of good 
 times alone can keep them afloat, or are otherwise 
 in a bad way for some special reason. 
 
 Great rise or fall preceded by long dull spell.— 
 Any great rise or decline in stocks is generally pre¬ 
 ceded by a long continued dull season. If they have 
 unduly risen it precedes a fall, if they are excessively 
 depressed it goes before the rise—which, however, 
 may be a long time in coming. 
 
 Long decline shakes out weak holders.—When 
 stocks have been going down for some time weak 
 holders are shaken out. A short interest is built up 
 and stocks go into strong hands. 
 
 Long rise develops weakness in holders.—On the 
 contrary, during a long continued rise stocks pass 
 from strong hands into weak ones, pyramiding takes 
 place and overexpansion of credit develops. This 
 weakens the market and renders it liable to suffer 
 from vigorous attacks of the bears. The market 
 strengthens as stocks decline and weakens as they 
 advance, thus carrying within itself the natural rem¬ 
 edy for an excess in either direction. 
 
 Securities market discounts coming events.—The 
 securities market, in its advances and declines, dis¬ 
 counts coming events, and is more easily affected by 
 psychological reasons than is the merchant or the 
 
62 
 
 HOW TO FORECAST 
 
 manufacturer. This is chiefly because the money 
 market acts quicker and more thoroughly on Wall 
 Street securities, which are more mobile, than it 
 does on commodities, as before explained. 
 
 Public has financial gastritis.—With the specula¬ 
 tive public disgusted and their stock purchasing 
 power at an end, with prices topheavy and stocks 
 thoroughly watered, financial gastritis sets in, 
 brought about by trying to absorb too many indi¬ 
 gestible securities. 
 
 Minor panic may occur two or three years before 
 greater one.—Under the great strain put upon the 
 money market the weakest point has to give way, 
 and that is an inflated stock market. A selling 
 movement starts in and a minor panic may take 
 place on ’change about two or three years before the 
 genuine securities panic arrives. The people sell 
 and continue to sell thereafter, and prices steadily 
 fall. 
 
 Professionals unable to support market.—Manip¬ 
 ulators and professionals at this time buy to protect 
 their other holdings, and a little later because they 
 think stocks are a good purchase; but finally the 
 volume of sales is so great and continuous and 
 prices fall so abominably, that the professional 
 eventually reaches the limit of his capacity to buy, 
 having exhausted his credit here and abroad. With 
 insufficient buyers and liberal offers of stock at 
 falling prices, and a stringent money market in Wall 
 Street, the crash finally takes place and the Finan¬ 
 cial Panic is on. 
 
 Resume of events.—A brief resume of the happen¬ 
 ings is as follows: Speculators start the buying, 
 bankers encourage it, the public later begins to get 
 excited at the sight of sudden wealth easily acquired 
 
BUSINESS CONDITIONS 
 
 08 
 
 and buys right and left at high prices. Speculators 
 thereupon nurse and stimulate the excitement by 
 reports of what is to happen next; prices rise to a 
 point where they can go no higher, and the public 
 becomes impatient and frightened. The banks’ re¬ 
 sources are exhausted, and excessively high money 
 rates coincide with unmistakable signs that insiders 
 are selling out to the public and realizing their 
 paper profits. With stock prices so high as to yield 
 but scant interest, and with no more money in sight 
 to draw upon for purposes of stock speculation, 
 overstrained confidence is shattered, and everyone 
 tries to sell and no one to buy. Rotten disclosures 
 are now due to come to the surface and the crash 
 follows. 
 
VII.—After Securities Panic to Excessive 
 
 Prosperity 
 
 About io to 12 Years after Commercial Panic. 
 
 [Note —These conditions last occurred 1903-1905. If 
 the next commercial panic takes place in 1913, for 
 example , they may he expected to repeat themselves 
 about 1923-1925.] 
 
 F EW business men foresee the panic.—Com¬ 
 paratively few have foreseen the panic, as 
 business conditions remain so good and busi¬ 
 ness men in general are so immersed in their 
 own affairs that they do not watch the operations 
 of the Stock Exchange closely; nor do they bother 
 with what apparently does not concern them. 
 
 Panic affects speculators worst, and business only 
 to a small extent.—It is confined in a great degree 
 to the speculative element, and to banks doing a 
 Wall Street business. The business interests of the 
 country at this time occupy the position of creditor 
 and owe little or nothing; whereas Wall Street, 
 being the home of stocks and bonds, is a heavy 
 debtor, owing every source it can borrow from at 
 home and abroad, and never ceasing to borrow 
 until its credit is exhausted and the crash comes, 
 
BUSINESS CONDITIONS 
 
 G5 
 
 when payment is demanded. For this reason the 
 effects of the panic are mostly confined to Wall 
 Street, and while affecting business for a year there¬ 
 after through the money market, most of the effect 
 is of a sympathetic nature and affects the sale of 
 luxuries more than anything else. The panic is a 
 rich man’s affair, the public having mostly sold out 
 to the rich speculator, as we have seen. The cause 
 is not serious enough to affect labor to any marked 
 degree, and consequently has but small influence on 
 the prices of the necessaries of life. 
 
 Panic makes labor reasonable.—It, however, has 
 one very beneficial effect on labor. Labor has been 
 so fully employed, and at so much higher wages, 
 that its demands (as in 1902) have become very un¬ 
 reasonable; continued success and compliance with 
 its wishes have, as is usual with human nature, been 
 too much for it, and the lesson administered after a 
 security panic brings its demands back to a more 
 reasonable basis. 
 
 A credit panic.—The Securities or Financial Panic 
 is a credit crisis and is not accompanied outside of 
 Wall Street by money stringency due to exhaustion 
 of credit and over-action of money in all lines and 
 conversion of liquid capital into fixed value, as is 
 the case in a commercial panic. This is shown by 
 the low rate of interest paid by merchants, even 
 during the panic. 
 
 Securities and commercial panic compared.—The 
 
 securities panic is the result of overproduction and 
 speculation in stocks and stocks only, whereas the 
 commercial panic is preceded by an inflation of stock 
 prices and of all industrial and commercial values 
 and by great indebtedness, and followed by a great 
 fall in prices of commodities and real estate, as well 
 
66 
 
 HOW TO FORECAST 
 
 as of stocks. Both panics are preceded by extrava¬ 
 gance and the prices reached and indebtedness in¬ 
 curred strain credit; but in the former case credit is 
 withdrawn from stocks only, in the latter a with¬ 
 drawal of money and credit from stocks, business 
 and speculation occurs. 
 
 When iron and steel fall.—-Iron and steel prices, 
 generally recognized as a barometer of trade, be¬ 
 have differently in the two kinds of panics. When 
 a securities panic is impending they do not fall until 
 just before or just after the panic, as this panic is 
 confined mainly to securities and business lines are 
 but slightly affected. In a general commercial panic, 
 on the other hand, iron and steel begin to fall at an 
 early stage of the decline in general prices. 
 
 Money leaves Wall Street and goes into busi¬ 
 ness.—-The money of the country is now diverted 
 from Wall Street speculation and placed*- once more 
 in general lines in which the owner has confidence. 
 The public have lost faith in Wall Street, have de¬ 
 manded an accounting, and are transferring their 
 business elsewhere, thoroughly displeased with stock 
 speculation. This transference is indicated at the 
 time by increasing loans in business lines, while 
 great liquidation is going on in stocks. After the 
 panic, however, there is a disinclination for a time 
 to undertake new operations which will tie up capi¬ 
 tal and change it into fixed values, until the capitalist 
 can quietly investigate the situation and become 
 positive as to how far the damage will extend, but 
 this is only a short halt. 
 
 Losses to banks not near as heavy as after com¬ 
 mercial panic.—The Wall Street obligations do not 
 entail nearly as heavy losses on banks as do the 
 heavy borrowings of all classes prior to a commer- 
 
BUSINESS CONDITIONS 
 
 67 
 
 cial panic; for the former are, of late years, gener¬ 
 ally well secured on stock collateral, and the banker 
 has learned from experience to sell out this collat¬ 
 eral in time to secure himself. 
 
 West suffers less than East.—The West being the 
 home of the natural product and having indulged in 
 very little stock speculation, suffers much less than 
 the East, especially New York City, which is the 
 center of stock transactions. The damage to the 
 West is mainly in the temporary slowing up of 
 business during the continuance of fear and the 
 liquidation that results; but the East, being the 
 financial center, is most affected by a panic that is 
 mainly financial. 
 
 Rich mostly affected.—The few failures, the com¬ 
 paratively quick improvement in stock prices, the 
 fact that business is so little injured and that earn¬ 
 ings of railroads during and after a securities panic 
 are but little affected, show that the wealthy bear 
 most of the losses. There were no intrinsic defects 
 in most of the securities which suffered, but exces¬ 
 sive stock speculation, inflating values wildly and 
 tying up a large amount of liquid capital needed in 
 other lines, resulted in temporary congestion of the 
 money market. 
 
 Recovery quick.—The recovery is far quicker than 
 after a commercial panic, a year being about the ex¬ 
 tent of it, for stocks are in themselves semi-liquid 
 and therefore the liquidation is much easier effected 
 than when it has to permeate all lines of business, 
 ending up in real estate. 
 
 Outside of Wall Street people have been saving 
 money.—While many have speculated, yet the per¬ 
 centage is comparatively small when spread all 
 through the country. Many of the public deserted 
 
68 
 
 HOW TO FORECAST 
 
 the market at an early date, when it lost the attrac¬ 
 tion of constantly increasing values. Most people 
 have beeen employed and have saved money, and 
 the railroads and farmers are doing well. Wall 
 Street is the one spot financially diseased. 
 
 Public slow to return to Wall Street.—When the 
 public desert stocks and go into other lines of in¬ 
 vestment or business, as they do after a securities 
 panic, it is a long time before they wander back, 
 and in the meantime prices have to react. The pub¬ 
 lic must believe that the investment is a tempting 
 one before they return—not that they ever pur¬ 
 chase in large amounts at the lowest figures, for 
 they do not; rising prices and the hope of their 
 going up still further are always the temptation that 
 induces renewed speculative buying. It is only the 
 regular investors who are wise enough to recognize 
 bargains and buy them. 
 
 Bank customers have to pay up for stocks.—For 
 months after the securities panic bank clients have 
 to redeem from the banks inferior securities given 
 as collateral, that the public would not take, and 
 are obliged to sacrifice good ones to do so. In 1903, 
 in order to do this immense borrowings and credits 
 had to be obtained abroad, and these extended to a 
 point that led to just criticism of our credits and 
 methods. 
 
 European crops.—At the time of our financial 
 panic if Europe has had poor crops the effects of 
 the panic are apt to be more severe, as it closes 
 much of that market to our bargain sales. We can¬ 
 not under these circumstances sell Europe both 
 crops and stocks, and as a result the latter have to 
 suffer. 
 
 Some effects of securities panic.—The securities 
 
r~~ f ' • 
 
 BUSINESS CONDITIONS 
 
 69 
 
 crisis cuts down profits and reduces the volume of 
 business, and for a very short time a few hands are 
 discharged from shops and factories. It is, how¬ 
 ever, the sale of pictures, the receipts of swell res¬ 
 taurants, etc., that feel its worst effects, and most 
 of this in New York City. Wall Street and Fifth 
 Avenue suffer most. 
 
 Origin of losses.—Much of the loss that is sus¬ 
 tained in a securities panic comes from downright 
 rascality in formation of some new companies and 
 watering of the old, the misleading information put 
 forth, and the excessive booming of stocks through 
 rank manipulation. The remainder the public must 
 lay to the gambling spirit that possesses them. 
 
 Shrinkage in bank clearings.—It is well to re¬ 
 member that the shrinkage in bank clearings is 
 mostly confined to the East, especially New York 
 City, and that the loss, if analyzed, is in a measure 
 due to the elimination of past speculative purchases, 
 and sales of stocks at lower figures. However, quite 
 a percentage of previous sales of stocks at higher 
 prices have been on “matched orders,” and the let¬ 
 ting of the wind out of these bubbles is really a 
 benefit to the community. Commodity sales are lar¬ 
 ger than thought, as prices are still low, so that such 
 sales do not show up in the volume of clearings for 
 as much as they are really entitled to. The quiet 
 improvement that sets in later on in business cir¬ 
 cles is not noticed as soon as it should be, owing 
 to the fact that it is overshadowed in the East by 
 the great shrinkage in stock sales. 
 
 European loans after panic.—After the panic, for 
 as long a period as fear is a prominent feature, few 
 great railroad or other loans can be negotiated here 
 and applications of this nature have to be taken to 
 
70 
 
 HOW TO FORECAST 
 
 Europe, and unless they are very good and the price 
 reduced considerably so as to tempt buyers, they 
 will not be accepted. In Europe there is a large 
 investing class who have money and are not in¬ 
 volved to any great extent and these become pur¬ 
 chasers. 
 
 Incorporations.—As the times improve in business 
 lines there are numerous incorporations, mostly at 
 first for manufacturing purposes that supply the in¬ 
 creasing demand for commodities, next for building 
 and real estate purposes in the large cities, and later 
 on for speculation in these lines. 
 
 Mostly speculators who get benefit of stock rise.— 
 The public are now so interested in other affairs 
 and their experience with stocks has been so recent 
 and disastrous, that they have not again acquired a 
 fancy for stock speculation; so that when times im¬ 
 prove sufficiently to warrant an advance in stocks, 
 it is mostly the professional and investing class 
 who reap the harvest, and not so much the specula¬ 
 tive public in general as was the case before. Pro¬ 
 fessionals, as usual, borrow money in every direc¬ 
 tion, and Europe and the West contribute largely, 
 attracted by the high rates of interest that finally 
 prevail on Wall Street. 
 
 Staple investments.—Many of the public are now 
 in favor of more staple investments than stocks, 
 something that the purchaser can control himself, 
 so they invest their money in factories, warehouses, 
 home building, realty and business, and much t>f this 
 capital ceases to be circulating. 
 
 Mining stock craze on.—Others are smitten with 
 a craze (for such it eventually amounts to) to in¬ 
 vest in mining stocks, which spring up as it were 
 from under a magician’s wand to tap the hidden 
 
BUSINESS CONDITIONS 
 
 71 
 
 sources of wealth. The tools used often seem to 
 be the printing press, the post offce, and a few acres 
 of land thrown in—rock, if possible, and preferably 
 inaccessible or near some good mine, providing it 
 can be bought for a song. Often a hole scooped 
 out of the ground a few feet deep, is all that is nec¬ 
 essary, so that the owners can expatiate learnedly 
 about “development work,” for the purchaser never 
 cares to inspect it. It is also well to be a little 
 lavish in issuing a fine stock certificate, one that will 
 appeal to the purchaser’s imagination, and with a 
 fluent talker at the office one is ready for business. 
 This movement, like others of its kind, originally 
 started with solid merit as a foundation. Those 
 whose business it is have for some time past been 
 hard at work developing mines and putting them on 
 a paying basis. 
 
 In boom times ordinary rules of common sense 
 do not govern.—We must remember that in boom 
 tims a psychological influence is exerted, exercising 
 as it were an intoxicating effect, the natural out¬ 
 growth of long continued success, and that at this 
 time the ordinary standards of common sense do not 
 govern and dreams appear to many as actualities. 
 
 Clerks and artisans have saved money.-—All 
 through the hard times there has been a large class 
 of clerks and artisans who, having had steady work 
 at fair wages, have been able because of the low 
 prices to save up money. Many of them have lived 
 in cramped quarters and disagreeable neighbor¬ 
 hoods, and long for a detached home, with fresh 
 air and better social surroundings, to bring up a 
 family in. Rents have risen as vacant houses grow 
 scarcer, and competition sets in, until finally it is 
 cheaper to build, because of the reasonable price of 
 
72 
 
 HOW TO FORECAST 
 
 lots and building materials, than it is to pay rent. 
 It is this class, and not the rich, that now start a 
 building movement—at first mostly towards the out¬ 
 skirts, where they can better afford to live. 
 
 When houses pay.—As a well-known writer says, 
 “If the rents of houses pay better than money at in¬ 
 terest, houses will advance rapidly in selling value, 
 and the owner of capital at interest will call it in, 
 hire men, buy material and build houses, until the 
 old equilibrium between capital in houses and capi¬ 
 tal at interest is restored.” 
 
 Investment movement in realty.—For a long time 
 (three to five years) this is an investment movement 
 only. The buying of vacant tracts for subdivision, 
 and by the builder who intends to build thereon, 
 is at this period entirely legitimate, as they are 
 intended to supply a want—not merely to pass from 
 hand to hand at higher and higher prices in a con¬ 
 tinuous gamble. The proof that the movement is 
 not at first speculative is disclosed by the fact that 
 lots not needed for building purposes are neglected 
 and as unsalable as ever, while those that have 
 this value attached to them gradually rise in price. 
 This rise is normal, and finally makes a good 
 many friendly toward real estate who have hitherto 
 preferred stocks. This realty movement may start 
 in about a year before the securities panic in those 
 cities that have received the greatest increase in 
 population, like New York City, Seattle or Los An¬ 
 geles in recent years. In other cities it does not 
 start until nearly a year after the panic. 
 
VIII.—Excessive Prosperity to Waning 
 
 of Stock Boom 
 
 About 12 to 13 Years after Commercial Panic. 
 
 [Note —These conditions last occurred 1905-1906. If 
 the next commercial panic takes place in 1913, for 
 example, they may be expected to repeat themselves 
 about 1925-1926.] 
 
 M ONEY and confidence beget rise in prices. 
 
 —The history of economics has always 
 shown that an abundance of cheap money 
 and long time credits, with confidence (the 
 presence of which is now shown by the feverish pace 
 of enterprise) and rising prices, especially if aug¬ 
 mented by a great increase in gold output, sooner 
 or later develop inflation and speculation. People 
 are tempted to go heavily in debt. The use of this 
 credit increases the demand for commodities, caus¬ 
 ing them to circulate rapidly by reason of their 
 ready sale. That is necessary before they can 
 boom. All this enhances prices and results in a 
 greater demand for money and a consequent rise in 
 interest rates. This movement spreads through all 
 forms of fixed capital, and when sufficiently inter- 
 
74 
 
 HOW TO FORECAST 
 
 esting is taken up by the speculator and continued 
 to exhaustion. 
 
 Many new companies organized.—Company pro¬ 
 motion booms follow the tide of prosperity. The 
 great amount of money and credit in circulation 
 begets the desire to utilize them. The best and 
 quickest way to do so is through company organi¬ 
 zation. 
 
 A period of excess.—We are now entering upon 
 an era of excessive development, internal improve¬ 
 ments and railroad building, of overproduction and 
 overaction in all lines, commencing with stocks and 
 ending up in real estate—a period when prices are 
 raised to an extreme so great that the public finally 
 becomes rebellious. 
 
 Many not now interested in stocks.—Only a part 
 of the speculative public is interested in stocks after 
 the financial panic. The main enhancement in 
 prices at that time is the work of the rich cliques 
 and manipulators, supported by a steady invest¬ 
 ment buying. This is shown by the fact that after 
 the great fall in the stock market when business gets 
 the upper hand (as in March, 1907) there are com¬ 
 paratively few failures in the business world. That 
 the manipulators and capitalists interested in the 
 stock market are rich, is shown by their ability to 
 put up additional collateral on a rapidly falling 
 market, and eventually to stand the very severe 
 losses entailed by the crash, without failing them¬ 
 selves and bringing down others with them. 
 
 Choice bonds languish.—Choice bonds, with their 
 small fixed interest rates, begin to languish, and 
 more doubtful issues yielding a larger income 
 are for a time in favor; but a further rise 
 in interest rates finally makes even these second 
 
BUSINESS CONDITIONS 
 
 75 
 
 class bonds unsalable. This tendency of bonds to 
 fall indicates that interest rates are advancing and 
 are now too high to allow bonds to compete, hence 
 bonds fall in price in a further endeavor to hold 
 their place in the money market. This drives many 
 investors into speculative stock issues or other in¬ 
 vestments that are perhaps not conservative or even 
 safe. It also indicates that both increasing business 
 and speculation are making greater demands on the 
 money market. 
 
 Commodity prices rise.—Commodity prices also 
 rise with interest rates, and so increase the demand 
 for money and credit. The greatest rise in com¬ 
 modity prices in boom times is in primary commodi¬ 
 ties—those needed by manufacturers. These in¬ 
 creases in prices stimulate mercantile classes to 
 greater activity and larger purchases, and the banks 
 are spurred on to increase their lines of credit. 
 
 Money begins to go from stocks into business.— 
 As their business grows, many business men with¬ 
 draw their capital from Wall Street and devote their 
 time and money to their own enterprises; and the 
 first serious setback to the rapid rise in prices causes 
 many to desert the Street and leave the field there¬ 
 after to the manipulator and simon-pure investor. 
 
 Investors become speculators.—When stocks 
 yield but small returns on the selling price and in¬ 
 terest rates are high, the main inducement to buy 
 stocks is the hope of a rise. The buyer now be¬ 
 comes a speculator, not an investor. 
 
 Your genuine investor, if wise (but many hold on) 
 then sells his stocks, places his money elsewhere, 
 and leaves the market to the professionals and 
 cliques to fight it out as they see fit. Battles royal 
 often take place between these great warring inter- 
 
76 HOW TO FORECAST r ~^ 
 
 ests, in which the small speculator may be gathered 
 up incidentally by either party and landed on some 
 side street, as it were, shorn of his cash and possibly 
 conscious of the foolish part he has been acting. 
 
 Stock market passes to a speculative basis.—The 
 stock market has now passed from an investment 
 to a speculative basis, as is evidenced by the fact 
 that dividend yields on stocks are considerably 
 below commercial rates of interest. At this time 
 rumors are much used to enhance or maintain prices, 
 and this helps to mark the change. 
 
 We become world’s creditors.—In February, 1905, 
 we ceased temporarily to feed the world with food, 
 but gave it gold instead, paying up our foreign debts 
 and loaning foreigners, for the first time, part of 
 our surplus gold. We thus made our initial entry 
 into the list of creditor nations. We are not a very 
 important factor in the list as yet, but are likely to 
 increase greatly in the future along these lines. Our 
 wealth is rapidly increasing because, owing to ma¬ 
 chinery and better methods, one man’s work now 
 produces several times as much as it did in 1850, 
 and from what was formerly wasted, fortunes are 
 being made. 
 
 High rate of exchange.—A high or rising rate of 
 exchange at this time often indicates an increase of 
 indebtedness, or it may mean that our exports are 
 light. 
 
 What continued prosperity brings.—Long con¬ 
 tinued prosperity brings inflation of prices and 
 credit and consolidation of great interests, unprece¬ 
 dented construction, high priced labor and generous 
 living. Extravagance is greatly increased by easy 
 credit and successful speculation. When the people 
 
BUSINESS CONDITIONS 
 
 77 
 
 have money it is human nature to spend it and even 
 to run into debt. 
 
 Failures decrease. —At these times, when prices 
 are rapidly augmenting and sales are easy, there are 
 fewer failures, for the debtor can quickly dispose of 
 his properties at constantly increasing prices, and 
 this, together with the ease with which credits can 
 be obtained, permits him to pay up and acquire new 
 indebtedness—to swap it, as it were, and so keep 
 his credit good for the time being. 
 
 Sales of our bonds and stocks in Europe diminish. 
 —Also improved times in Europe now raise interest 
 rates there and so lessen the foreign demand for our 
 stocks and bonds; especially the latter, because of 
 their small interest and their non-participating char¬ 
 acter. 
 
 New gold fields. —The large amount of money and 
 credit now available, together with improved labor- 
 saving devices and new chemical and engineering 
 methods, make it easy to get money to explore new 
 gold and copper fields, and the great amount of gold 
 obtained adds to prices and speculation. 
 
 The effect of this increased gold output is more 
 noticeable :'n those countries where the credit sys¬ 
 tem is well developed by means of banks, than it is 
 in other countries where exchanges of commodities 
 are chiefly effected by the circulation of money 
 from hand to hand; as the banker uses the new 
 gold as a basis of credit expansion, forming a sort 
 of additional credit circulation. Increased rapidity 
 of circulation has the effect, as we have seen, of a 
 greater supply. 
 
 Public think prosperity will last. —At this period, 
 when most events are favorable, the impression per¬ 
 meates the masses that these conditions are to con- 
 
78 
 
 HOW TO FORECAST 
 
 tinue indefinitely, that supplies are short and the 
 demand great, and this acts as a stimulus to advance 
 prices still further. 
 
 Realty becomes a competitor with savings banks. 
 
 —Real estate operations are now making large de¬ 
 mands on the money market, and become a com¬ 
 petitor with the savings banks for the earnings of 
 the people. This affects bank balances greatly for 
 several years. 
 
 People demand better transit.—Now springs up a 
 demand for better transit facilities in the over¬ 
 crowded cities, due not only to the increase in popu¬ 
 lation, but to the sale of lots in the outskirts to the 
 poorer classes for homes. People living in these 
 districts, as their numbers increase, demand better 
 transit facilities to and from their business. Later 
 on this real estate movement broadens out into 
 speculation, and the demand then becomes more 
 insistent than ever. 
 
 Famine of small currency indicates more active 
 trade.—-A currency famine setting in with a scarcity 
 of small bills is a sure sign of active trade, indicat¬ 
 ing as it does that people are carrying more money 
 about their persons and consequently spending 
 more, and that the small trader is keeping more on 
 hand in his till for business purposes. 
 
 Increase in circulation begets excessive loans.—A 
 steady and large increase in circulation makes it 
 easier for the banks to grant excessive loans and 
 discounts, and so overstimulates business. The very 
 ease with which debts can be incurred in good times 
 proves often an irresistible inducement to many to 
 assume obligations which later on they cannot meet. 
 
 When business is good merchants do not worry. 
 —When merchants have more than they can attend 
 
BUSINESS CONDITIONS 
 
 79 
 
 to (as In 1906) they are so pre-occupied in business 
 lines that there is a disposition to let the future take 
 care of itself when any disturbing features arise, 
 and to trust to the good sense of the people; so they 
 do not worry as much as they do in poorer times 
 over threatened legislation or the disastrous losses 
 arising from great fires, earthquakes and the like. 
 
 Modern business puts small concerns at a disad¬ 
 vantage.—Our modern methods of doing business 
 on as small a margin of profit as possible, and the 
 great cost of modern machinery, have made it nec¬ 
 essary, in many lines, to have a very large capital 
 at one’s disposal in order to do business on the most 
 economical basis. This places individual firms at a 
 great disadvantage, and they have to give way to 
 large corporations with greater capital and influ¬ 
 ence. Individual ownership and old business meth¬ 
 ods are fast becoming a thing of the past, and this 
 tendency will continue to grow as the supply of 
 capital increases. As one writer aptly puts it, “econ¬ 
 omic evolution is making for the triumph of the 
 strong combination over the weak individual.” 
 
 Corporate management as honest as private.— 
 Notwithstanding all that has been said to the con¬ 
 trary, we shall probably find as much honesty under 
 corporate management as under private control, and 
 in time the former, being more subject to public 
 inspection and legislative action, will become the 
 favorite of the two, especially as corporations are 
 less likely to fail; but perhaps it will have to be 
 eventually on a cooperative basis, where all em¬ 
 ployees participate in the profits. 
 
 Commercial banks should not pay interest.—The 
 bad habit of banks (other than savings) offering in¬ 
 terest, compels the banks to seek a high rate of in- 
 
80 
 
 HOW TO FORECAST 
 
 ? 
 
 terest in order to recoup themselves for the interest 
 they are paying. Oftentimes the rate the bank must 
 earn is so high that only the speculative mind can 
 see any profit (real or imagined) in borrowing at 
 such rates. This attracts an undesirable class of 
 loans, and so sows the seeds of future trouble for 
 the bank. Also, such banks are not safeguarded by 
 the same laws as savings banks, and hence are not 
 as safe a depository. 
 
 Small reactions good.—From time to time in the 
 upward movement small reactions occur. These 
 are remedial and corrective and indicate that the up¬ 
 ward swing is becoming too rapid and dangerous 
 and that a slowing down is temporarily advisable. 
 
 Speculation active.—Fascinated by the rapid rise 
 in prices, as one writer says, many now join in the 
 speculative movement and ride gaily to a cropper, 
 and bankers and brokers are too often found encour¬ 
 aging a speculation that brings them business. Easy 
 credit and plenty of money are ever great factors 
 in creating speculation. Many companies have at 
 this time such a large amount of surplus profits that 
 it becomes fairly burdensome, and it is natural that 
 these funds should be easily diverted to specula¬ 
 tion. The professional manipulator encourages and 
 stimulates the excitement by reports of what is to 
 happen next, and plays upon the hopes or fears of 
 the public as a musician would on an instrument. 
 An intense ambition to acquire money now leads 
 frequently to an abuse of credit. 
 
 Most attractive ventures taken up first.—The spec¬ 
 ulator selects the ventures which are most attrac¬ 
 tive, promising the greatest returns, and these are 
 taken up in the regular order of their financial at¬ 
 tractiveness, real estate being last. 
 
BUSINESS CONDITIONS 
 
 81 
 
 It is action that your true speculator desires, a 
 chance to guess, and hope and conceit delude him 
 with the idea that he will come out a winner. As 
 Thomas Gibson says, “Speculation in moderation, 
 connected with natural fluctuation in values based 
 on the law of supply and demand, is wholesome and 
 legitimate, but is bad if connected with artificial 
 fluctuations; the latter is simply a gambling em¬ 
 ployment of capital, bad for legitimate business and 
 for those engaged in speculation as well. This ficti¬ 
 tious species of speculation, bearing within itself 
 no means of improving, on the average, the means 
 of those engaged in it, must clearly result, in the 
 long run, unsatisfactorily to the speculator. It is 
 a guess at what is going to be. The fascination of 
 hope keeps the speculator in the field till his Iasi 
 dollar is spent. In this way speculation fixes its 
 own limits and naturally wears itself out.” 
 
 Mr. Gibson, in “Pitfalls of Speculation,” taking 
 4,000 speculative accounts in stocks and cereals, ex¬ 
 tending over a period of ten years, finds that 80 per 
 cent, showed a final loss, that the tendency to buy 
 at the top and sell at the bottom was most prevalent, 
 and that most of the operations appeared to be of a 
 purely gambling nature. The further fact was es¬ 
 tablished that they universally led to excesses. He 
 says: “Speculation feeds upon wide and frequent 
 fluctuations and wanes as values become steadier, 
 whereas unsteadiness interferes with the employ¬ 
 ment of capital in legitimate business.” 
 
 One line may absorb too much money.—At this 
 time and thereafter, one source of investment, as 
 stocks, real estate, etc., may absorb an undue 
 amount of money, thereby not only crippling other 
 lines for awhile because cash and credit are with- 
 
82 
 
 HOW TO FORECAST 
 
 held from them, but even becoming dangerous as a 
 result of excessive capital being drawn into the one 
 channel. 
 
 City attracts country men.—The movement 
 toward the cities that now takes places is in search 
 of the greatest opportunities and attractions. The 
 cities offer superior opportunities to labor, greater 
 social advantages, and wider range of entertainment. 
 Their attractive power is therefore very great, and 
 ultimately a surplus of labor in the great cities re¬ 
 sults. Later, when times become stringent, the tide 
 of population ebbs back to the country again. The 
 subtraction of population from the country, while 
 in many ways a great inconvenience, yet benefits 
 the farmer, as it adds to consumers and subtracts 
 from agricultural producers, and so tends to raise 
 the prices of farm products. 
 
 Increasing use of machinery.—The quantity of 
 food and raw materials consumable by each human 
 being is limited, whereas the value that machinery 
 may add to materials, is almost or quite illimitable. 
 One dollar’s worth of material is often manufactured 
 into many hundreds of dollars’ worth of products. 
 Thus the proportion of machinery to population is 
 continually increasing and that of itself, under ordi¬ 
 nary circumstances, must cause a moderate, nat¬ 
 ural and continued flow of population from agricul¬ 
 ture to manufactures, from country to city life. 
 Improved machinery makes the trades at least tem¬ 
 porarily more remunerative than farming; but this 
 is being constantly offset by the application of better 
 machinery and methods to agriculture, making it 
 more profitable and pleasant. 
 
 No ordinary event can check great economic laws. 
 —The economic laws which determine production, 
 
BUSINESS CONDITIONS 
 
 83 
 
 distribution and consumption, are too great to be 
 stopped in their onward progress by even extraordi¬ 
 nary happenings. Thus the great fire in New York 
 in 1835, with all its enormous destruction of capital, 
 did not stop the real estate boom then on, nor did 
 the Spanish war, the Russo-Japanese conflict, or the 
 great ’Frisco fire in 1906, stop the good times; 
 showing how great is the impetus when one of these 
 movements gets fully under way. It moves on as 
 irresistibly as destiny itself, unless at the time of 
 these events the apex of prosperity has been nearly 
 reached, so that the workings of the law favor or 
 would soon favor a decline. 
 
 The influence of such happenings is at the mo¬ 
 ment merely to accelerate or retard the workings of 
 the law, not to upset its action. The great burden 
 of the losses inflicted is felt later, when the decline 
 is reached. 
 
 Manufacturer forced to produce cheaper.—The 
 
 rise in wages and materials, by reducing the profits 
 of the manufacturer, forces him to adopt means 
 that will reduce the cost of production and distri¬ 
 bution, such as improved machinery, better fac¬ 
 tories and better business methods. These often 
 work a hardship for the individual later on, as he 
 may have overenlarged his plant or overextended 
 his operations; but the public sooner or later gets 
 the benefit in reduced prices. 
 
 Money still coming from West and Europe.— 
 Money, attracted by the high rates in New York,' 
 comes here from the West and from Europe still, 
 and is principally occupied on Wall Street in main¬ 
 taining the high prices now prevalent there. 
 
 Real estate.—Real estate, being the most perma¬ 
 nent form of investment, is the last developed and 
 
84 HOW TO FORECAST 
 
 the last in which speculation sets in; it has begun, 
 as we have seen, in an investment movement, shortly 
 after the securities panic and in certain cities even 
 before; but, proving profitable, it now attracts (in 
 cities receiving the greatest tide of immigration and 
 advertising) the attention of the speculator. As 
 real estate goes up in price, it tends to increase the 
 cost of production, as rent enters largely into the 
 cost of living, factory and office sites, railroad termi¬ 
 nals, etc. The extension of main and branch line 
 railroads necessitates new towns, and these are now 
 seized upon by the speculator as presenting a good 
 opportunity to realize quick profits. 
 
 Employers concede to striking workmen.—The 
 working man is now well employed and does not so 
 often indulge in strikes, and when he does they are 
 sooner settled. Employers generally concede the 
 most, as they cannot afford to risk a shut-down 
 when orders may already be behindhand. Strikes 
 are consequently not, as a rule, so bitter, unless the 
 recognition of the trade union is required, in which 
 case the}' are more lasting and harder to handle. 
 
 Rise in wages.—There comes a larger and more 
 substantial rise in wages when prosperity has suffi¬ 
 ciently progressed, and prices have advanced enough 
 to warrant corporations paying larger or additional 
 dividends. The great scarcity of men, and the very 
 important fact that business is so good, makes em¬ 
 ployers yield in whole or in part to the demands of 
 their employees. The worker argues that everything 
 costs him more and it is only fair he should have 
 some benefit from the better times. The rise in 
 wages, however, is very seldom commensurate with 
 the rise in commodity prices, so that if it were not 
 for the more steady employment and longer hours 
 
BUSINESS CONDITIONS 
 
 85 
 
 in certain lines and the larger number employed, 
 it would work a universal hardship on the workmen. 
 In fact, it does in many cases, and those suffer who 
 are living on a fixed income and have to meet in¬ 
 creased expenses. To this class the high prices may 
 seem almost unbearable before the reaction comes. 
 
 Trade unions grow.—Good times encourage the 
 growth and extension of trade unions, begetting a 
 spirit of independence in the men and a disposition 
 often to throw up an occupation which may not be 
 to their entire satisfaction. 
 
 Immigration grows.—Immigration is greater as 
 prosperity increases and becomes known abroad and 
 advertised, as it were, by the remittances that for¬ 
 eigners here send to their friends in Europe. Some 
 of these remittances are used to purchase tickets 
 for our shores. The news of the arrival of the 
 money spreads rapidly where it is received and the 
 advice to come here induces many to start and try 
 their luck, hoping to do as well as the sender, whom 
 they generally know. 
 
 Railroads buy other roads.—At this time railroads 
 purchase other roads or their stock, and incur ex¬ 
 penses freely in the faith that they will be able to 
 pay for it all at some future time; but when these 
 obligations mature later on, the money market is 
 likely to be exhausted from the many demands made 
 upon it by business and stock market interests. 
 
 Wall Street market now speculative.—The Wall 
 Street market now is likely to be a professional one, 
 stocks being so high and the attraction of rising 
 prices having ceased. The operations of profes¬ 
 sional speculators have little or no permanent bear¬ 
 ing on the market, being mostly confined to certain 
 speculative shares, and showing merely whether the 
 
86 
 
 HOW TO FORECAST 
 
 buyers or the sellers are at the moment in the as¬ 
 cendant. “Stocks now become wall flowers, and 
 business does the dancing.” 
 
 Stocks set aside by business.—“Bulls and bears” 
 do not, as people think, always make prices. It is 
 the times and conditions that are the main govern¬ 
 ing factors. As long as the public back them up, 
 prices advance, but, having reached the limit, the 
 public have now departed from the market and have 
 left it to the manipulator. Stocks have ceased to 
 rise, and both a commercial and a stock boom can¬ 
 not be run successfully at the same time. Past ex¬ 
 perience has shown that the stock boom Anally has 
 to retire in favor of business, having had its day. 
 
IX.— Latter Part of Boom Period 
 
 Business Increasing at Expense of Stock Specula 
 tion—About 13 Years after Commercial Panic. 
 
 [Note —These conditions last occurred about 1906. 
 If the next commercial panic takes place in 1913, for 
 example, they may be expected to repeat themselves 
 about 1926.] 
 
 F ROM two to three years after the financial 
 panic Wall Street has again locked up a lot 
 of money in stocks at inflated prices. Inter¬ 
 est returns are lost sight of, hopes have been 
 discounted and stocks of good companies yield less 
 than their bonds. The banks are overloaned, the 
 money is badly needed in legitimate lines, and busi¬ 
 ness makes desperate efforts to get it back by forc¬ 
 ing holders of stocks to liquidate. Stocks are now 
 so high that they yield but small dividend returns, 
 whereas commercial rates have been quietly rising 
 and are now probably two per cent, higher than the 
 average stock yields. Since money goes to the 
 highest bidder, the fight is an unequal one, and 
 stocks are doomed to defeat. This is indicated from 
 time to time by spasms in call money, stringency 
 
88 
 
 HOW TO FORECAST 
 
 in time money, recurrent bank statement deficits, 
 and violent fluctuations in stocks, whose values the 
 manipulators and large speculators, now desperate, 
 are trying vainly to uphold, despite the reaction 
 which has set in. 
 
 Bull combines beaten.—“The slow attrition of 
 Dear attacks, the dribble of long stocks from tired 
 holders and the accumulation of interest charges” 
 finally down the bull combines, and a slow, quiet 
 reaction in prices begins, notwithstanding the stub¬ 
 born efforts of the bulls to resist it. Their prom¬ 
 ises have all failed and they are discredited proph¬ 
 ets. The support that manipulators give stocks has 
 finally become so self-evident, that it arouses the 
 suspicions of the public and drives them away. 
 
 Stocks are now so inflated that they become 
 water-logged and, like some old derelict on the 
 ocean, are abandoned to the winds and tides of the 
 financial seas, with but few to watch their wander¬ 
 ings. A high rate of dividend is not sufficient to 
 support the price of a stock under these conditions, 
 as was seen in the first six months of 1907, when 
 stocks shrunk two billions. Union Pacific fell over 
 60 points, though paying 10 per cent, dividends, and 
 similar declines occurred in Chicago & Northwest¬ 
 ern, Great Northern, Northern Pacific, etc. 
 
 Bankers discriminate.—At this time, when the 
 pressure for money is growing severe, bankers com¬ 
 mence to discriminate in their loans against “wild¬ 
 cats” and all industrials, and this is perhaps one of 
 the earliest signs of the coming change. 
 
 Improvement general; business takes money from 
 speculation.—The improvement in general business, 
 the growing steadiness in values, and the gain in 
 confidence have, as we have seen, had a strong in- 
 
BUSINESS CONDITIONS 
 
 89 
 
 fluence in drawing away capital from speculative 
 employment. “Wall Street operations are founded 
 on money—the surplus funds of the community at 
 large; and when, to move his crops, to operate his 
 mills, or for other reasons, the real owner of the 
 money demands its return. Wall Street must com¬ 
 ply and look elsewhere for capital.” For a time, 
 capital is obtained from Europe by paying high 
 rates for the accommodation. 
 
 When agricultural and commercial demands be¬ 
 come sufficiently great, they work along the lines 
 of least resistance. They take money for their pur¬ 
 poses from those sources from which it is easiest to 
 get it, where it is in a semi-fluid condition already, 
 and easily convertible. The most important of these 
 sources is the stock market. 
 
 Rising prices give merchants the debt habit.— 
 
 The stimulus to commercial enterprise and expan¬ 
 sion resulting from high commodity prices and 
 large profits, from having money or credits on hand, 
 and from seeing friends making money, induces 
 merchants and others to borrow more money than 
 they have ever borrowed before and to run in debt 
 further than is advisable—a habit that breeds 
 trouble for them later on. 
 
 Steadily rising prices are sure, if continued, to 
 appeal to the speculative side of man’s nature, and 
 to draw into the vortex of speculation people from 
 all walks of life. 
 
 Each successive boom has a solid basis.—There 
 is a legitimate basis for the boom in each kind of 
 property, as it comes in succession, beginning with 
 stocks and ending with realty. Each must show a 
 handsome profit before being taken up. Thus the 
 
HOW TO FORECAST 
 
 50 
 
 boom in copper started in 1906 on a showing of 100 
 per cent, profit on every pound of copper mined. 
 
 Proof that speculation is rife.—A sure indication 
 that speculation is in the saddle, accompanied by 
 greater carelessness and waste in all lines of busi¬ 
 ness, is now shown by an increase in the number of 
 failures, with greater and more fraudulent liabili¬ 
 ties. This period is marked by steadily decreasing 
 cash reserves compared with bank loans and dis¬ 
 counts. The cash is in hand-to-hand circulation, and 
 later is used in the form of gold exports to satisfy 
 foreign demands because of lessened exports of 
 commodities. Extravagance of both municipal and 
 central governments is another significant feature. 
 
 When loans exceed deposits at New York, the 
 great money center, or the surplus is below the 25 
 per cent, required by law, it shows that banks are 
 making excessive loans, or that they have them¬ 
 selves invested heavily in securities. 
 
 Car shortage on.—A car shortage is likely to ap¬ 
 pear, due to the excessive amount of freight han¬ 
 dled, and when passenger cars are side-tracked, as 
 is now sometimes the case, in favor of fast freights, 
 it is an indication that the condition is becoming 
 acute and congestion is threatened. This adds to 
 the already stringent condition of the money market 
 by delaying goods on the way to the retailer or ma¬ 
 terial shipped to the manufacturer, thus tying up 
 capital for the time and rendering collections 
 slower. 
 
 New stocks and bonds yield better returns.—The 
 
 railroads badly need new equipment, rails, and term¬ 
 inals. They issue new stocks and bonds to secure 
 the required money, but these have to yield a much 
 higher rate of interest to the investor than the old, 
 
BUSINESS CONDITIONS 91 
 
 for they must meet the market rates. Their ap¬ 
 pearance in competition with other securities ac¬ 
 celerates the fall of the older issues and tightens up 
 the money market. Convertible bonds, issued at 
 this time, are a concession made to buyers to induce 
 them to purchase. 
 
 Higher interest rates indicate increased profits.— 
 
 The rise in interest rates indicates the enormous in¬ 
 crease in all lines of business. While prices are ris¬ 
 ing the higher rates are readily paid out of the large 
 profits earned, but later, as profits diminish, the 
 high rates become onerous and have to fall. Mean¬ 
 while, the craze for buying everything purchasable 
 extends to the markets for household supplies and 
 luxuries, and extravagance becomes general. 
 
 When to sell.—A writer gives the following as a 
 good time to sell: ‘"When the rise caused by exces¬ 
 sively good times has gone so high that loans and 
 discounts, after a steady and long continued rise, 
 either become stationary for a period or else de¬ 
 crease progressively, coincident with a steady de¬ 
 crease in available funds.” 
 
 Liquid capital turned into fixed.—Too great an 
 increase in productive power in the form of fac¬ 
 tories, mills, etc., now taking place, is a useless du¬ 
 plication, and so changes liquid into fixed capital. 
 This, however, is not as injurious to the world at 
 large as if the capital were tied up permanently in 
 a non-producing form and its usefulness thereby de¬ 
 stroyed. 
 
 Increase in currency and gold.—A quiet inflation 
 of the currency has been going on for some time 
 past, stimulating speculation, extravagance and 
 waste on all sides. The gold we import from Eu¬ 
 rope now, instead of going to strengthen the gold 
 
92 
 
 HOW TO FORECAST 
 
 reserve, is often used to prevent the liquidation that 
 nature is trying to enforce, or to inflate prices still 
 higher that are already too high. This inflation and 
 that caused by war have often been mistaken for 
 true prosperity, instead of being recognized as an 
 unduly stimulated condition, that must be paid for 
 later on. 
 
 Government surplus.—As the volume of business 
 increases the demand for money grows with it, 
 until the attention of Wall Street (Wall Street first, 
 because at the time it is most in need of money, and 
 because it is the great market for money) and later 
 on the attention of the merchant, are called to the 
 large amount of idle capital in the government’s 
 possession. They demand that this idle fund shall 
 thereafter be lessened. This gradually helps beget 
 a tariff agitation, which becomes more insistent as 
 business profits are narrowed down—even though 
 the surplus may In the meantime have turned to a 
 deficit. Tariff revision generally results, which in 
 itself is always unsettling. It first affects business 
 lines, and some time is always required to readjust 
 credits. In consequence many writers have as¬ 
 cribed this as a cause of panic, rather than as an 
 effect produced by other and greater causes. 
 
 Banks overloaned.—When banks overloan, they 
 often, instead of reducing their loans, take out new 
 circulation, and attracted by big interest rates, loan 
 this money out in order to increase profits, instead 
 of keeping it in their reserves. 
 
 Scarcity of labor injures business and railroads.— 
 The great scarcity of labor that has existed—two 
 jobs for ever}'- unemployed man—has been a mate¬ 
 rial factor in increasing costs; for not only is labor 
 scarce, but its efficiency or producing value has 
 
BUSINESS CONDITIONS 
 
 03 
 
 fallen off considerably. This affects all lines, but 
 particularly the manufacturer and the railroads. 
 The New York Herald, June 24, 1907, quoting 
 
 Frank A. Vanderlip, President of the City Bank, 
 says: “With the advanced wages of the last three 
 or four years labor has on an average shown a de¬ 
 creased efficiency of 20 per cent.” 
 
 Inflation breeds further inflation.—An increase of 
 prices caused by inflation calls for still further in¬ 
 flation, as it takes more money now to do the same 
 amount of business. 
 
 As values continue to rise they finally reach a 
 point where the wage earner and the man with a 
 fixed income are at a disadvantage, and the owners 
 of commodities, real estate, etc., have, because of 
 the inflated prices of their property, a decided ad¬ 
 vantage. 
 
 Purchasers do not buy as eagerly as formerly in 
 anticipation of their wants. There is not the 
 money in it for the purchaser that there was, as 
 prices are not rising as they formerly did. This in¬ 
 dicates that the top is nearly reached. 
 
 Dividends increased to offset higher interest rates. 
 —When business increases in boom times and inter¬ 
 est rates are high, in consequence of the great de¬ 
 mand for money, so that it will not pay to hold high 
 priced stocks yielding small returns on the invest¬ 
 ment, there is an endeavor on the part of those in 
 control to meet the emergency by raising the divi¬ 
 dends of stocks so far as it is possible, with an idea 
 of selling out to the public; but this can only be 
 done in isolated cases, and is not effective in stem¬ 
 ming the falling tendency of stock values due to 
 lessened money supply. A great deal of formerly 
 liquid capital has by this time been converted into 
 
94 
 
 HOW TO FORECAST 
 
 fixed values, and the demands of business are now 
 greatly increased by high commodity values, etc. All 
 want more than they can get. 
 
 Bonds and stocks sold to get money to loan.— 
 Bankers and others gradually sell their stocks and 
 bonds, attracted by the higher interest obtainable 
 in the money market, as overproduction and exag¬ 
 gerated prices compel recourse to credit. A period 
 of dear money is in full force. 
 
 Masses overdiscount the future.—The sanguine 
 temperament of the masses during a boom leads 
 them to overdiscount the future, so that when the 
 results are accomplished they are apt to be disap¬ 
 pointing, and a small fall in prices occurs, unless 
 the results exceed the greatest estimates. 
 
 Generally wrong to increase money supply in a 
 stringency.—Increased trade activity and specula¬ 
 tion (to which there can be no limit, except through 
 the money market) have absorbed the greater gold 
 and currency output. For years, and even at pres¬ 
 ent, the erroneous idea, in boom times when money 
 becomes stringent, has been to increase the supply 
 of money no matter how badly inflated it may al¬ 
 ready be; instead of allowing natural laws to work 
 and force a liquidation that will bring prices and 
 business down again to normal conditions. This 
 always has the effect of driving out foreign capital 
 and causing shipments from Europe of our stocks, 
 bonds and evidences of indebtedness. It sows the 
 seeds of distrust at home also, producing a curtail¬ 
 ment of operations and a drawing in of capital. 
 The measures we take should always be of a kind 
 to assist nature, not to oppose her. 
 
 Many spend more and save less.—The masses 
 have spent more and saved less than they do under 
 
BUSINESS CONDITIONS 
 
 §5 
 
 quieter conditions, and many go so far as to capi¬ 
 talize hopes and spend freely on the strength of it. 
 With boom times comes to many of those who have 
 succeeded beyond their anticipations, a desire for 
 luxuries and self indulgence, which begets selfish¬ 
 ness and greed and so warps their minds to the 
 rights of others that it weakens the foundations of 
 integrity in business as well as in social life. The 
 hosts of desires that spring up clamoring for the 
 means of indulgence, call continually for more and 
 more money, and hence the disgraceful disclosures 
 that show up so plentifully when bad times set in 
 again. 
 
 We strain our credit to maintain prices.—In our 
 
 eagerness for money, to meet the demands of busi¬ 
 ness and our own inflated plans, we seek it in the 
 lowest market, and hence at this time always accu¬ 
 mulate a large foreign indebtedness. We keep on 
 borrowing from this source until we have exhausted 
 foreign loanable funds, or until the limit of our 
 credit is reached, or both. Especially is this over¬ 
 straining of our foreign credit applicable to our 
 railroads and to Wall Street speculators, the latter 
 using it at first to raise and now to sustain inflated 
 prices, to the detriment of everyone, themselves 
 included. 
 
 The greater the rise, the greater the reaction.— 
 
 The longer the period of uninterrupted prosperity 
 and activity and the greater the pace, the surer and 
 greater is the ultimate reaction; but no one cares 
 to entertain such thoughts at present, for everything 
 is booming. 
 
 Excessive interest rates contribute to high prices, 
 as interest enters so heavily into cost. During the 
 boom, manufacturers, railroads, etc., lose sight of 
 
96 
 
 HOW TO FORECAST 
 
 economy in the rush to secure orders or to deliver 
 on time. 
 
 Increase in incorporations indicates large busi¬ 
 ness. —The turning of private business into corpora¬ 
 tions and the formation of trusts is one of the signs 
 of inflation. It indicates a larger business than 
 individuals can carry on to good advantage, and also 
 a desire to produce goods cheaper and to wield more 
 power, and sometimes to control the market if pos¬ 
 sible. It allows of bank loans on stock, and so 
 opens up a larger line of credit. This is not a bad 
 feature in itself were it not that the stock is fre¬ 
 quently inflated, and often promoters are able to 
 secure the services of bankers to assist them in 
 the flotation of their stocks at exaggerated values. 
 
 Improved methods increase gold output. —New 
 chemical and engineering methods and a larger sup¬ 
 ply of available capital are in a measure accountable 
 for the greatly increased gold output and for a large 
 part of the increase in ratio of wealth in the United 
 States to population. 
 
 Developing our magnificent resources. —Another 
 cause is the tremendous resources of our magnifi¬ 
 cent new country. Our rapid increase in popula¬ 
 tion; our quickness to create and use labor-saving 
 devices, making labor so much more productive; 
 our freedom of government and of the conditions of 
 labor; our great and beneficial mixture of nations; 
 our varied climate and the great area of our coun¬ 
 try, where unhealthy crowded conditions, as in 
 Europe, do not exist—all tend to make the United 
 States experience a greater degree of prosperity 
 than Europe, and consequently a greater reaction. 
 The extreme swing one way roughly measures the 
 return, as in the movements of the pendulum. 
 
BUSINESS CONDITIONS 
 
 97 
 
 The West and Uncle Sam. —The West is now 
 using considerable money developing her great nat¬ 
 ural resources, and is calling upon the East for its 
 surplus funds, so adding to the stringency of the 
 money market in the East. Uncle Sam is also add¬ 
 ing to this condition, for as the times improve his 
 income grows larger and he has a greater surplus 
 locked up in his vaults, that is badly needed in busi¬ 
 ness. Later he has to come to the assistance of 
 the money market. 
 
 Features of the times. —When great increases in 
 clearings in interior towns .continue, with no cor¬ 
 responding increase in quantities of goods moved or 
 marketed, it means that speculation is spreading, 
 conditions are unhealthy and legitimate business has 
 ceased to expand. The trunk lines indicate this 
 condition best, as they carry the harvest and return 
 laden with commodities. Bank clearings are now 
 deceptive, as they may indicate a larger business due 
 to excess of speculation, when legitimate business 
 may be halting; and also because it now requires 
 much larger clearings to transact the same amount 
 of business as formerly, because of high prices. 
 
 Very high and fluctuating rates of interest on 
 ’change without apparent cause (as in Dec., 1905), 
 are apt to be due to overexpansion of credits, and 
 often for the use of an already inflated stock mar¬ 
 ket. 
 
 Commodity prices go up so high, after a long 
 period of good times, that the wage earner cannot 
 save as much, and the savings banks (having less 
 deposits) consequently buy fewer bonds and stocks. 
 
 Public leaving stocks. —The stock market is now 
 constantly being deserted by the public, as not only 
 do they need the money for other purposes, but 
 
98 
 
 HOW TO FORECAST 
 
 many realize that the long continued bull market 
 has finally reached the point (as it always does 
 where success has been long continued) where 
 prices represent not only actual values but capital¬ 
 ized future hopes as well, and stocks yield much 
 less than interest and therefore are unsafe. 
 
 Quiet decline in stocks first. —This condition has 
 started a quiet decline, hardly noticed at first, but 
 continuing despite the fact that nothing has hap¬ 
 pened to injure the position of the railroads or other 
 industries. Earnings continue phenomenal, bank 
 clearings the largest ever, and all departments of 
 the nation’s activity appear to be in fine condition; 
 but interest returns are unsatisfactory and business 
 needs money, and there is a shortage of it because of 
 overexpanded volume of business and speculation. 
 
 Diminishing bank reserves.—Excessive loans and 
 underwritings by bankers on rapidly diminishing 
 bank reserves are another feature of the abnormal 
 pressure for funds. 
 
 The securities market is eventually governed by 
 the money situation, no matter how hard the manip¬ 
 ulator and others may at times try to avoid that 
 result. 
 
X. Stock Boom Ends First—Business 
 
 Now Affected 
 
 About Fourteen to Sixteen Years after Commercial 
 
 Panic. 
 
 [Note —These conditions last occurred 1907-1909. If 
 the next commercial panic takes place in 1913, for 
 example, they may be expected to repeat themselves 
 about 1927-1929.] 
 
 W HEN stocks are excessively high and bank 
 reserves dangerously low and obligations 
 continue to increase, it is only a question 
 of time when the penalty is paid through 
 the enforced liquidation of stocks. This may or 
 may not be accompanied by panic conditions, de¬ 
 pending chiefly on the degree of confidence entrust¬ 
 ed in the banks at this time. The bank reserves 
 must be replenished when below the safety limit, 
 and must be put on a safe, substantial footing as 
 soon as possible. Nature’s way of doing it is 
 through liquidation. 
 
 Man, from time to time, has tried other methods 
 of solving this question, such as inflation of cur- 
 
100 
 
 HOW TO FORECAST 
 
 rency, etc., but at best these are only temporary 
 expedients, leaving the situation finally worse than it 
 was before. The speculator can always use funds 
 faster than they can be supplied to him, and if the 
 process is continued, doubts arise as to the stability 
 of an inflated currency. These fears increase and 
 finally kill all confidence and so close up all avenues 
 of business, and gloom and depression then rule in 
 the financial and commercial worlds. 
 
 Liquidation in stocks.—The fall in stock values, 
 which has been in progress for a year, still con¬ 
 tinues, followed later by stagnation. Prices will not 
 rise again until the inflation of credit has passed 
 by, and money becomes plentiful by reason of less¬ 
 ened demands for it (as late in ’o8). When that 
 time comes, interest rates fall to a minimum, so 
 that capital yields small returns in the money mar¬ 
 ket; and stocks in the meantime have fallen so 
 greatly, that dividend returns on the latter compare 
 favorably with the small interest yields in the 
 money market. 
 
 Consolidations beget distrust.—The consolidation 
 of existing manufacturing and business houses (pur¬ 
 chased at extravagant figures, perhaps) into one 
 large corporation, capitalized on a sufficiently liberal 
 basis to yield great profits to the promoters, assist¬ 
 ing bankers and guaranteeing syndicates and also 
 to allow of the sale of the stock at what appears to 
 be a liberal discount to the confiding public, makes 
 the future of such a corporation very problematical 
 to say the least. When these consolidations have 
 been effected in many industries and branches of 
 trade and many new corporations have been formed, 
 a feeling of distrust is engendered which helps to 
 start a fall in values, first in these new untried 
 
BUSINESS CONDITIONS 
 
 101 
 
 shares and then spreading through the entire list, 
 not sparing even those which make an increased 
 dividend showing. 
 
 Recapitulation of progress of events. —The prog¬ 
 ress of events is as follows: Prosperity ushers in 
 an era of money making, evidenced by a rise in 
 values, by increased bank clearings, growth in the 
 traffic and revenues of transportation lines, lessened 
 mercantile failures, car shortage and scarcity of 
 labor, higher wages, consumption outstripping pro¬ 
 duction, and a general feeling of confidence; these 
 carried to an extreme result in overproduction (as 
 compared with present needs), unwarranted specula¬ 
 tion, extravagance, and excessive prices; then comes 
 a fall in values, exhaustion of capital, and fear, end¬ 
 ing later on in panic. 
 
 We are now very sensitive to foreign conditions. 
 
 —Borrowing heavily from Europe as we now are 
 and have been for some time past, our markets are 
 very sensitive to anything that affects Europe finan¬ 
 cially, fearing the loss of that market to borrow 
 from. Undue borrowing abroad, like undue inflation 
 of currency, provokes extravagance, begets great 
 credits and eventually undermines public confidence. 
 The country is plunged into debt for luxuries, a 
 foreign balance accumulates against us, and the day 
 of reckoning surely follows. These conditions now 
 exist. 
 
 Banks supply capital to manufacturers. —In boom 
 times so great is the volume of business done that 
 manufacturers often have to apply to the banks for 
 loans to supply temporary working capital, much of 
 their own capital having been absorbed in perma¬ 
 nent forms, as in factories and the like. Thus bank¬ 
 ing conditions quickly react on business. 
 
102 
 
 HOW TO FORECAST 
 
 High interest rates eventually wear out specula¬ 
 tion.—A high rate of interest long continued, will 
 in time wear away an}' speculative movement, and if 
 continued unduly will seriously affect business oper¬ 
 ations; and when business is on an inflated basis as 
 at present, the injection of the element of fear, espe¬ 
 cially if directed against the banks, will, if the finan¬ 
 cial tension is not relieved, bring on liquidation and 
 perhaps panic. 
 
 Pools operating now.—Pools and cliques now op¬ 
 erate on the stock market where individuals used to. 
 They find it a difficult proposition to finance their 
 deals, and equally hard to keep up prices of their 
 favorite stocks. 
 
 Banks borrow at home and abroad.—Many banks 
 have borrowed out-of-town funds at high rates of 
 interest and have used the money to help promote 
 speculation. These borrowed funds form the basis 
 for enormous loan expansions. The banks also bor¬ 
 row from abroad to bolster up their reserves and to 
 aid further expansion. The result is that later on 
 our exports have to go toward settling up this for¬ 
 eign indebtedness instead of easing finances at home. 
 
 Western banks sold stocks first.-—Even before 
 Eastern banks were forced into selling stocks the 
 Western banks had done so, as their relations with 
 the stock market were not so intimate, and the 
 demands of business in the West, owing to the great 
 development work there, were even more urgent 
 than in the East. 
 
 Syndicates and new securities out of favor.—“Syn¬ 
 dicates, formerly hailed with delight, also new secu¬ 
 rities, become a source of alarm and give Wall 
 Street a chill,” and are now abandoned as failures. 
 For a time they are floated in Europe, as a last 
 
BUSINESS CONDITIONS 
 
 103 
 
 resort, at a higher rate of interest; but as American 
 conditions become better understood abroad, and as 
 conditions there also become poorer, the foreign 
 market for new securities also fails. 
 
 High prices increase imports.—Prices are so high 
 now that many foreign goods are sold here despite 
 the tariff wall we have erected; and foreign pur¬ 
 chases, discouraged by our high prices, fall off, so 
 that exports decrease in many lines while imports, 
 owing to our extravagance, are steadily increasing. 
 So at the same time we open wider the flood gates 
 of the world’s competition, and diminish our own 
 resources to pay with—a decided step onwards 
 toward hard times. Later we attempt to shut the 
 gates but find it is too late, for the damage has been 
 done. 
 
 When maximum of employment and business 
 activity.—I quote from Burton on “Crises,” pp. 183, 
 89, 153: “The maximum of employment somewhat 
 precedes the date of the highest prices and fre¬ 
 quently precedes the maximum of production.” 
 
 “In the period of exhaustion preceding a depres¬ 
 sion imports will be very large, and will bear an 
 unusually large proportion to exports.” 
 
 “The greatest degree of prosperity is some time 
 before the breaking out of the crisis or commence¬ 
 ment of the depression.” 
 
 Maximum of imports and activity compared.— 
 
 “In a debtor or developing country, the maximum 
 proportion of exports to imports occurs at a consid¬ 
 erably earlier date than the maximum activity (gen¬ 
 erally two years), and indicates that the greatest 
 amount of business activity is contemporaneous with 
 the maximum of consumption rather than with the 
 
104 
 
 HOW TO FORECAST 
 
 maximum of production. It indicates that the peo¬ 
 ple are spending freely/’ 
 
 Government deficit apt to occur.—As times get 
 poorer government revenues fall off rapidly, espe¬ 
 cially as goods now accumulate unsold, many of 
 which have been previously purchased in hopes of 
 a demand which does not materialize. Finally a 
 government deficit occurs and a new tariff may be¬ 
 come a necessity to replenish the exhausted ex¬ 
 chequer. If so, instead of a revision downward, it 
 results in an increase in rates, much to the disgust 
 of the public, and to the loss of prestige of the polit¬ 
 ical party in power. 
 
 Overprosperity breeds adversity.—A condition of 
 exceeding prosperity germinates and nourishes the 
 seeds of adversity. It begets overconfidence, reck¬ 
 lessness, overextension of credits, overdoing in all 
 lines of business, greed, corruption and extrava¬ 
 gance—qualities exactly the reverse of those which 
 caused the good times. When corporations and 
 municipalities have set the example it is no wonder 
 that such conditions have gradually permeated, all 
 lines of business. 
 
 International fight for gold.—When prosperity is 
 at full tide the active commercial nations are all 
 using a good deal of money, and an international 
 contest, as it were, for gold sets in. Each nation 
 tries to retain the gold it has on hand and to acquire 
 as much more as possible. The most successful in 
 this contest are the most progressive nations, with 
 the largest resources in the most active stage of 
 development. These are the bidders that can afford 
 to pay the highest price and so secure the coveted 
 gold. Sometimes the price proves ruinous in the 
 end. 
 
BUSINESS CONDITIONS 
 
 105 
 
 Increased failures among manufacturers show 
 lessened profits.—For some time after prosperity 
 has reached its height the falling off is not clearly 
 perceptible in the volume of business done, but the 
 risks of business grow greater and the margin of 
 profit is less. Competition becomes so active that 
 net results grow poorer. This does not come until 
 the working capacity of manufacturing and business 
 plants has been greatly increased. Up to that time 
 there has been more than enough for all, and hence 
 no need for active competition—no necessity to 
 hunt for orders which were clamoring to be filled. 
 This condition of lessening profits is shown by the 
 increased number and amounts of failures among 
 the manufacturers, which indicate the presence of 
 both speculation and excessive competition. 
 
 Hard to be honest now.—Human nature finds it 
 very hard to be strictly honest in times of feverish 
 speculation and overtrading, with extravagant habits 
 and desires clamoring for gratification and the 
 money in hand for the purpose. When the reaction 
 sets in, many find it a struggle to maintain their 
 financial standing. As a consequence, a condition 
 of -financial rottenness shows up just before and for 
 some time after a panic, that is most deplorable, and 
 is one of the agents quietly at work sapping our 
 confidence in values and in men, and so adding 
 later on to the panicky and depressed feelings of 
 the public. 
 
 Neither labor nor capital fully prosperous now.— 
 
 Neither labor nor capital at this time enjoys the 
 full measure of prosperity; they are both subject 
 to the law of compensation and both have to pay 
 higher prices for everything. Toward the end of 
 good times the margin of profit grows smaller, indi- 
 
106 HOW TO FORECAST 
 
 eating growing competition, and that the cost of 
 articles is advancing faster than the seller can raise 
 his prices to the customer. 
 
 Greater sale of cotton goods.—When the wage 
 earners and those with stated incomes curtail their 
 purchases, a relative increase in the sale of cotton 
 goods is observed, as they are necessary staples and 
 cheap, while sales of silks and woolen goods, which 
 are higher priced, fall off. Likewise automobiles 
 and diamonds are in less demand. 
 
 Why inefficient business men have succeeded.— 
 Under modern conditions large profits in business 
 are realized only for a short period. Competition is 
 active most of the time, and the margin of profit 
 is generally small. Close attention to business and 
 to small savings are necessary to success. But the 
 period now just passing has been exceptional. The 
 demand for goods has been so great that many who 
 would not have the qualifications to succeed at other 
 times have done well; but their speculative and 
 overtrading methods come to grief later on, and 
 greatly swell the list of failures. The test of de¬ 
 clining values and keen competition proves too 
 much for their loose and speculative business meth¬ 
 ods. 
 
 Railroad financiers are shown preference over 
 merchants.—The railroad financiers, doing a very 
 large business through banks in placing their stocks, 
 bonds, etc., naturally are closely allied to the great 
 banking interests, so that merchants are apt to com¬ 
 plain from time to time of the preference shown to 
 the railroad as against the merchant in the extension 
 of credits. 
 
 Prices rise faster than wages.—Prices of commod¬ 
 ities and rents advance faster than wages, so that 
 
BUSINESS CONDITIONS 
 
 107 
 
 towards the end of the prosperous period and there¬ 
 after the poorer classes complain. In New York, 
 especially, meetings are likely to be held denouncing 
 butchers and landlords and small riots may occa¬ 
 sionally occur. Still later, when prices become 
 higher than workmen can stand they may even call 
 the boycott to their aid. 
 
 Car shortage.—Car shortage, now at its most 
 acute stage, works considerable damage to the busi¬ 
 ness interests of the country tending to restrict out¬ 
 put and to compel the idleness of more or less capi¬ 
 tal. Perishable freight, of course, suffers the worst 
 of all. 
 
 Money still for Wall Street but conditions un¬ 
 healthy.—During these years money still pours into 
 Wall Street, at intervals, from all over the country, 
 to take advantage of the high rates of interest of¬ 
 fered—rates that are bound soon to fall, as they are 
 prohibitive to all non-speculative lines of business. 
 In our last boom several of the banks and trust 
 companies in New York City paid as high as four 
 per cent, to get out of town deposits to help main¬ 
 tain inflated prices, and these prices formed the basis 
 for a further great expansion of loans. Frequent 
 spasms in the money and stock markets emphasize 
 the feverish and unhealthy condition of affairs, and 
 the desperate efforts being made to resist the con¬ 
 tinued fall in stocks. 
 
 Why merchants now sell their stocks.—A falling 
 market and high interest rates make merchants who 
 need the cash sell their securities rather than bor¬ 
 row at exorbitant rates. This adds to the liquida¬ 
 tion. “It is a law that speculation will run its 
 course until it devours [or frightens] capital,” and 
 both events are now occurring; also that “the vul- 
 
108 
 
 HOW TO FORECAST 
 
 nerability of a speculative market increases as prices 
 advance” and more and more capital is thus tied up. 
 
 Great increase in municipal indebtedness.—The 
 
 increase in municipal indebtedness during good 
 times is something enormous, and goes on so quietly 
 throughout the country that no one has any idea of 
 the extent of it until the panic comes. Afterward, 
 many municipalities have, in past cycles, ceased 
 payment. Thus the Philadelphia Social Science 
 Association in its reports 1871 to 1879, estimated 
 that in 1873 the cities of the United States owed 
 one billion dollars, on four hundred millions of 
 which payment of principal or interest was stopped 
 when the panic of 1873 came on. The same author¬ 
 ity figured that by 1877, of the 2,200 million rail¬ 
 road bonds, one-quarter had defaulted interest; and 
 of two billions in railroad shares, three-quarters in 
 the East and four-fifths in the West paid no dvi- 
 dends, and all the roads had to retrench and reform. 
 Fortunately, however, for us, our railroads have 
 now passed the experimental stage and the territory 
 through which they run is fairly well peopled, so 
 that such a deplorable showing is not likely to occur 
 again. We may hope that municipalities also have 
 been taught a lesson, and that hereafter they will 
 not plunge so deeply into the quagmire of debt. 
 
 Excessive prices hurt small dealer.—During this 
 period every great advance in wages and commodity 
 prices injures the small dealer, as it demands more 
 money of him to do the same volume of business 
 with, besides lessening his gains and so compelling 
 him to do more business if he wishes to maintain 
 his usual inflow of profits. If he attempts to raise 
 prices as a last resort, his sales fall off. Moreover, 
 
BUSINESS CONDITIONS 
 
 109 
 
 such a condition is likely to entail a greater loss of 
 perishable goods, and also in bad debts. 
 
 Prosperity passing.—Great prosperity, with all its 
 excesses, is now about to pass away, to be sup¬ 
 planted eventually by the other extreme. There are 
 two things that must be taken into consideration in 
 comparing the good and bad features of great pros¬ 
 perity, which are not shown up in figuring mathe¬ 
 matically on the rise in wages as against the rise in 
 commodity prices. One is the increase in the num¬ 
 ber of establishments in which certain kinds of 
 labor are employed, and the consequent greater 
 chances for advancement; as exemplified in the evo¬ 
 lution, during good times, of the house servant into 
 the factory girl, the office boy into the stenographer 
 or clerk, etc. Yet notwithstanding this, the con¬ 
 sensus of opinion among those who have studied 
 the subject is that the wage earner in boom times 
 does not get his full share of the benefits arising 
 from the great activity in all lines of business. But 
 it might here be added that the compensation of 
 labor has been steadily increasing from the “good 
 old times” (so called) in England, when the labor¬ 
 er’s reward for a day’s work was only a penny or 
 two, and that often thrown to him with a curse. 
 
 Business men incur indebtedness.—As one writer 
 says, in good times many of the railroads and busi¬ 
 ness men seemed to be engaged in piling up obliga¬ 
 tions, which they meet with a smile when times are 
 good, but which bring the sheriff to the door when 
 bad times are in the saddle. Another said in 1864 
 that the people were hopeful, extravagant and in 
 debt. In fact, the economic waste of boom times is 
 only exceeded by the ravages of war. 
 
 Railroads offer short time notes.—Railroads now 
 
110 
 
 HOW TO FORECAST 
 
 find the rate of interest so high that they cannot 
 afford to issue long time bonds on such a basis—a 
 policy which past experience has shown often re¬ 
 sults in ruin. They now offer short time notes in¬ 
 stead, bearing a high rate of interest. These sup¬ 
 plant the long time bond for the time being, as they 
 are more attractive, running for a short time only 
 and bearing a higher rate of interest. But money 
 becomes so very scarce that it is difficult to float 
 even these in any considerable amounts. Later on, 
 when business is waning and money is thus released 
 in large amounts, these notes, being somewhat dan¬ 
 gerous as floating liabilities, besides being very 
 costly, are replaced with long time bonds bearing 
 more reasonable rates of interest. 
 
 Syndicates terminate with a loss.—Banking and 
 promotion syndicates may, under present circum¬ 
 stances, find it impossible to sell stocks or bonds, 
 and they often terminate by dividing up the loss and 
 the stocks or bonds on hand, because of sheer in¬ 
 ability to secure the necessary funds to complete 
 the operation. 
 
 Increase in mortgage indebtedness.—When the 
 increase in mortgage indebtedness grows faster than 
 the increase in realty values it is a bad sign, for it 
 is real estate and mortgage indebtedness that weighs 
 most heavily on the public in times of panic and is 
 the hardest to get from under. 
 
 Credit will not always take the place of capital.— 
 “No matter what book profits a country or business 
 may show, prosperity cannot continue wdth steadily 
 increased expenditures, without a corresponding 
 accumulation of capital. Credit will take its place 
 for a time but there is a certain end to that.” 
 
 Thrift is begotten in the school of hard times. 
 
BUSINESS CONDITIONS 
 
 111 
 
 Continued good times lead us to forget these les¬ 
 sons, and they can only be taught again by a return 
 to adverse conditions. 
 
 Builder for profit first to stop when materials too 
 high. —When materials get too high, the first one to 
 discontinue operations is the builder who is build¬ 
 ing to sell again. It is his profit that is absorbed by 
 the excessive rise in building materials and lots. 
 
 As capital becomes fixed, interest rises.—Trade 
 and stock activities have now outrun the point at 
 which they can be financed. Liquid capital has been 
 greatly overworked and in part disappears, and as 
 it grows less the use of the diminishing balance 
 commands a higher and higher rate of interest, until 
 the rate becomes prohibitive to the successful car¬ 
 rying on of business. Finally the amount of capital 
 offered is so small that it is practically unobtainable, 
 thus forcibly checking further expansion. 
 
 Railroads and other companies retrench.—Rail¬ 
 roads and industrial companies, finding money prac¬ 
 tically impossible to borrow, issue as few bonds or 
 notes as possible, and so gradually lessen the de¬ 
 mand for money. They soon discharge workmen, 
 and confine their expenditures to those absolutely 
 necessary for the maintenance of the road or al¬ 
 ready contracted for, and this is one of the first 
 great checks to prosperity. 
 
 Realty movements.—The action in real estate 
 varies in point of time in different parts of the 
 country. An advance in rents, sufficient finally to 
 make it cheaper to build than to pay rent, starts 
 very quietly what might be called a consumptive de¬ 
 mand. This first sets in some years before, shortly 
 after the financial or securities panic. It is a de¬ 
 mand for houses and lots for use, and has no ele- 
 
112 
 
 HOW TO FORECAST 
 
 ment of speculation in it. The lots are bought to 
 build houses on, and only lots for this purpose are 
 salable. 
 
 In the East, especially in parts of New York City 
 —which is the money center, and whose population 
 is increasing rapidly, not only by births but also by 
 the incoming tide of immigration—this movement 
 may begin even before the securities panic. Other 
 cities follow, especially those where the tide of im¬ 
 migration has been flowing for some time past into 
 the city and surrounding country, and those which 
 the newspapers have widely advertised. The popu¬ 
 lation of Los Angeles, for example, is greatly aug¬ 
 mented by well-to-do tourists who locate or visit 
 there in large numbers, and have money with which 
 to buy. In such localities the boom flourishes and 
 runs to a finish (excepting certain parts of New 
 York and suburbs) earlier than in the greater part 
 of the United States—like the Central West, which 
 has of late had no particular advertising or excep¬ 
 tional increase of population, but has moved along 
 quiet, home-building lines only. These latter sec¬ 
 tions, while experiencing a betterment, do not ex¬ 
 perience a real boom until more favored localities 
 have ceased to move, or even later, when general 
 business may be on the wane. 
 
 Bank deposits show decreases.—“When bank de¬ 
 posits begin to show decreases during boom times, 
 it is an indication that these deposits of credit, as 
 most of them are, are gradually ceasing, due either 
 to compulsory measures on the part of the creditor, 
 or to the fact that people prefer to pay their notes 
 rather than to seek new investments, or both. This 
 change always marks the beginning of a decline in 
 the price level.” 
 
BUSINESS CONDITIONS 
 
 113 
 
 Abandoning of new enterprises shows less busi¬ 
 ness.—As interest rates have now become too high 
 to permit the launching of new enterprises at a 
 profit, they are consequently abandoned; and this is 
 one of the noticeable signs of unhealthy business 
 conditions. 
 
 Enforced economies.—When prices have gone so 
 high that people living on a fixed income and the 
 wage earning class cannot pay them, the only thing 
 left to do is to curtail the expense account by lessen¬ 
 ing purchases and buying cheaper articles. This 
 marks the end of the good times period. The result 
 is felt immediately by the manufacturer in a loss 
 of orders, and he has the alternative either to in¬ 
 crease his business or to reduce his prices. This 
 latter is very objectionable to him, as at this time 
 he has not yet been able to raise his prices suffi¬ 
 ciently to meet the last increase in the cost of raw 
 materials and labor; nor does he wish to discharge 
 valuable help that he may need in the future, as he 
 is still hopeful of better conditions. Consequently 
 he elects to do a larger business, if possible, even 
 at a smaller percentage of profit. Thus, when the 
 masses are forced to curtail purchases, competition 
 sets in for the lessened business in sight and mer¬ 
 chants suffer severely; but not as much as still 
 later on, when falling values turn profits into losses. 
 
 Money stringency and perhaps panic.—It is at 
 this time, when the culmination of high prices has 
 been reached and reaction sets in, when business 
 has begun to decline and railroads have been forced 
 to curtail their operations, that the supply of ready 
 money becomes so limited that a great money 
 stringency occurs. If the strain on the money mar¬ 
 ket is too great, and fear of the banks’ solvency be- 
 
114 
 
 HOW TO FORECAST 
 
 comes wide-spread, credit will be suddenly curtailed, 
 and a run on the banks takes place. Hoarding 
 ensues, and a money stringency panic is on—the 
 most severe by far of all the minor forms of panic. 
 
 Such a panic occcurred in December, 1907, and 
 came close to occurring in 1867 and 1887. It is 
 doubtful, however, if there would have been a real 
 panic in December, 1907, had it not been for the 
 fact that several of our old New York banks and 
 trust companies had come under the control of rash 
 speculators. For this reason the financial standing 
 of these institutions in the minds of the public be¬ 
 came so weakened that with the approach of strin¬ 
 gency came fears of their stability. Rotten dis¬ 
 closures had been gradually coming out for some 
 time previous and the great moneyed powers saw 
 the absolute necessity of eliminating irresponsible 
 speculators from the control of important financial 
 institutions. This aim could be accomplished at this 
 particular time by merely refusing to extend aid 
 to them. The fact that Morgan and the New York 
 clearinghouse banks stopped the panic after it was 
 under full headway showed plainly that they could 
 have stopped it at the start, had they really desired 
 to do so. This was done in 1867 and in 1887 when 
 the strain came, although the banks were then com¬ 
 paratively weak and not united, whereas now they 
 have not only learned to act in unison but their 
 power to carry out their designs is almost incon¬ 
 ceivably greater. Such a panic as 1907 is not likely 
 to occur again for the same reason, as the consoli¬ 
 dation of great banking interests that has been going 
 on ever since and the lesson already taught will 
 probably prevent outside speculators from again at- 
 
BUSINESS CONDITIONS 
 
 115 
 
 tempting to gain control of banking institutions of 
 any great importance. 
 
 Money stringency at this point in the cycle occurs, 
 luckily, at a time when past profits have been large, 
 so that the people are able to stand the strain. 
 
 Liquidation necessary.—Liquidation is a necessary 
 prerequisite to the progress of convalescence. It is 
 a readjustment of values on a lower basis and must 
 go far enough to relieve the great money strain; but, 
 working under the law of action and reaction, prices 
 will go as much too low as they went too high pre¬ 
 viously. The liquidation is apt to be started by 
 some prominent event, if coincident with the period 
 of change. Thus speculation was temporarily halted 
 in 1881 by Garfield’s assassination, and in 1901 by 
 President McKinley’s. 
 
 Review of events leading up to panic of 1907.— 
 
 Commodity prices in 1907 rose to the highest point 
 since the Civil War, creating, with speculation, an 
 excessive strain on credit. Commerce had increased 
 2600 per cent, since Jefferson’s time but securities 
 had multiplied a thousand fold. Morgan had pur¬ 
 chased the steel interests for 300 millions—a most 
 exorbitant price, many thought—and had capitalized 
 them for a billion and a half. H. II. Rogers had 
 turned forty millions of copper interests into a veri¬ 
 table flood of securities. Heinze had sold Butte 
 Coalition to the Standard Oil Company for eleven 
 millions and they had capitalized it for forty millions. 
 Much of this stock was sold to the public, who were 
 easily induced to buy, under the excitement of boom 
 times, when men with names of great financial prom¬ 
 inence engineered the operations. J. J. Hill issued 
 150 millions of new securities against ore lands in 
 Minnesota. Ryan had issued millions of traction 
 
116 
 
 HOW TO FORECAST 
 
 securities, and the Metropolitan Street Railway Com¬ 
 pany went into the hands of a receiver.* 
 
 In 1907 alone $2,102,555,000 in new securities were 
 issued, for it is far easier to create new securities 
 than it is to supply new money. The liquid capital 
 of the country necessarily became greatly dimin¬ 
 ished, and we suffered the consequences of inflation 
 in security, commodity, labor and realty values, and 
 the excessive speculation that accompanied it. The 
 wonder is that the collapse did not come before, 
 especially when we realize that some of our banks 
 and trust companies were under the control of reck¬ 
 less speculators. In fact, fear of the methods of one 
 of the several who were later indicted, was the 
 cause, in 1907, of the failure of five of our best finan¬ 
 cial institutions—among them one of the oldest in 
 New York, which had been a pillar of strength in 
 previous panics. 
 
 Panic bound to come.—The elements were all 
 there, and a panic was bound to come. Indeed, it 
 was fortunate that it came when it did, otherwise 
 these speculative bankers, operating, as they would 
 have to later, on a falling market, would necessarily 
 have plunged deeper and deeper into the mire, and 
 would perhaps have acquired control of bank after 
 bank to prop up their falling fortunes, so that event¬ 
 ually a dozen Morgans and Rockefellers could not 
 have controlled the situation, and we would have 
 had the worst panic that the world has ever seen. 
 
 Not a true commercial panic.—It takes a long 
 period of declining profits, shrinking stock and com¬ 
 modity values, losses and debts to make a lasting 
 panic. Panics like 1907 are to be classed as financial 
 rather than commercial panics like those of 1873 
 
 •Wall Street Journal. Dec. 16, 1907 
 
BUSINESS CONDITIONS 117 
 
 and 1893. The financial panic does not clear up the 
 atmosphere like the commercial panic, by reducing 
 prices in general and checking extravagance for 
 years thereafter. 
 
 A sharp rally from this panic.—Later a rally sets 
 in, business is better for a time, and plenty of cheap 
 money enables rich manipulators to raise stock 
 prices to an abnormal height, hoping thereby to in¬ 
 duce the general public to come in and buy—which 
 they never do, however, to any great extent. Com¬ 
 modity prices also rise again, if the crisis occurs be¬ 
 fore prices have reached their limit; and if good 
 crops are garnered business is better, especially with 
 the railways, owing to the great reduction in their 
 expenses, as well as to better business. The mer¬ 
 chants, however, especially the retailers, never real¬ 
 ize again the former boom profits. Confidence has 
 been shaken and losses have been too heavy, and the 
 excessive cost of goods does not permit the retailer 
 to charge the buyer the usual per cent, of profit. 
 
 Competition among retailers.—At this period the 
 retail merchants complain considerably; for while 
 the volume of business is large, competition among 
 the smaller merchants reduces greatly the business 
 done by each individually. When times were good 
 many, incited by the sight of others making money, 
 went into 'the retail business. Others went into 
 business because high prices reduced so greatly the 
 purchasing power of the interest received from their 
 investments that they had to do something to aug¬ 
 ment their incomes. Especially is this the case 
 when prices remain high and interest rates become 
 low, during the depression. Therefore at this time 
 we find the retail business overcrowded and net 
 profits comparatively small, while the wholesalers 
 
118 
 
 HOW TO FORECAST 
 
 are doing a good business. The competition of in¬ 
 creased numbers in their lines is not nearly so 
 severe as among the retailers, owing to the larger 
 capital and greater experience necessary to embark 
 in a wholesale or manufacturing business. Later, 
 however, increased numbers affect these lines also. 
 
 Stocks again weaken.—Stocks are the first to fall 
 again, as at this time the public are not purchasing 
 and stock prices have been unduly raised by manipu¬ 
 lation, operators having taken advantage of the 
 cheap money rates following the reaction to force 
 up prices on borrowed money. The great increase 
 in imports, due to extravagance, and the relative 
 falling off in exports because of the prohibitive 
 prices of many of our exportable products, results in 
 exports of gold; and, because of the greater demand 
 for money due to business improving after the crisis, 
 bankers call in many of their speculative loans. 
 This once more pulls the money prop from under 
 the market and a reaction in stocks begins. 
 
XI.—Business Declining 
 
 Accompanied by Competition and Lessened Profits, 
 also Falling Values and Wages. About 17 to 18 
 Years after Commercial Panic. 
 
 [Note — These conditions prevail as this book is writ¬ 
 ten 1910. They may naturally be expected to continue , 
 in a general ivay, through 1911.] 
 
 I F a panic occurs when the crisis is reached, as in 
 1907, stocks, about a year after, will have rallied 
 under the skillful manipulation of large opera¬ 
 tors, who, with low interest rates to help out, 
 will once more be in the saddle; but this is only 
 temporary and a downward movement sets in. This 
 commences when our heretofore favorable foreign 
 trade balance is so greatly diminished—by reason 
 of the prohibitive prices of many of our export 
 products, and the extravagance of purchasers of 
 imported articles, resulting in increased imports and 
 lessened experts—that gold has to be exported in 
 large quantities to pay our foreign obligations. For 
 a time the exchange market is kept partially in hand 
 by foreign borrowings; but the drain of gold finally 
 
120 
 
 HOW TO FORECAST 
 
 compels bankers to lessen their loans to stock spec¬ 
 ulators. This results in the gradual withdrawal of 
 support from the market and in quiet selling on 
 every bulge, so inaugurating a downward movement 
 in stocks. 
 
 Course of liquidation.—This liquidation is event¬ 
 ually to extend through all lines of business, in sub¬ 
 stantially the following order: First, shares of cor¬ 
 porations, then raw materials, then manufactured 
 goods at wholesale, next goods at retail, then rents, 
 and finally real estate values. Ready money is over¬ 
 worked and credit becomes exhausted, the latter 
 being expanded out of all proportion to the gold 
 reserve, and fear, that graveyard of prosperity, is 
 beginning to make itself felt. Especially is stock 
 liquidation great at this time if scandalous disclos¬ 
 ures come to the surface, as is apt to be the case. 
 
 Cliques and investors now own stocks.—Stocks are 
 now mostly held by big speculators and by the in¬ 
 vesting classes. The former bought stocks from the 
 original owners, mainly on the strength of bank 
 credits, in order to sustain prices. Such obligations 
 they have to pay up to their now anxious bankers. 
 The genuine investor buys stocks at what he con¬ 
 siders bargain prices with his ready cash, and of 
 late years the number of small investors who have 
 taken advantage of sharp declines to buy has greatly 
 increased. 
 
 Banks overloaded with securities.—But there is 
 
 still a great mass of undigested securities in the 
 hands of underwriters, and other first holders. Banks 
 also are often laden with securities that the public 
 does not want, and hence are not able to give satis¬ 
 factory assistance to their merchant clients. The 
 banks now have to refuse to finance new companies 
 
BUSINESS CONDITIONS 121 
 
 or consolidations of any kind, and finally they are 
 compelled to limit credits greatly because of their 
 growing fear as to the solvency of some of their 
 customers, and because of gradual withdrawals by 
 depositors from the banks, thus lessening their aver¬ 
 age balances. 
 
 Liquidation gradually extends to commodities.— 
 
 When the decline in stocks began business was 
 active and remained so for some time thereafter, but 
 the trouble is plainly seen in the money market, and 
 if the supply of ready cash remains inadequate after 
 the fall in stocks, liquidation then extends to com¬ 
 modities and affects general business, inaugurating 
 an era of retrenchment and saving all along the 
 line. 
 
 Reduced railroad buying. —As railroads are the 
 heaviest consumers in many lines of industry, their 
 greatly reduced purchases seriously affect the activ¬ 
 ity of general business. 
 
 High prices have checked consumption. —High 
 prices, having reached the limit of many of the 
 purchasers’ ability to pay, have checked consump¬ 
 tion. This hastens the accumulation of a surplus 
 in production, and thus a fall in prices—the result 
 of excessive competition, oversupply and undercon¬ 
 sumption; and finally the resulting falling off in 
 production decreases, in a measure, the urgent call 
 for money. 
 
 Easier to manufacture goods than to get money.— 
 
 Since the introduction of modern machinery, it has 
 always been easier to manufacture goods than it is 
 to secure the necessary money to finance the output. 
 The withdrawal of a large body of purchasers at this 
 time expedites the process of liquidation. 
 
 High interest rates, high priced and insufficient 
 
122 
 
 HOW TO FORECAST 
 
 labor and dear raw materials reduce profits; and, 
 with a money stringency, are now quietly stifling 
 most new enterprises and making it more difficult to 
 continue old ones. 
 
 Who discharge help first.—During money strin¬ 
 gency many of the first to discharge hands are manu¬ 
 facturers who are doing a very large business and 
 who cannot secure the necessary ready cash to pay 
 running expenses, especially wages. Suspensions 
 and failures occur at this time in greater numbers 
 among manufacturers than in any other class, and 
 especially among those who are financed in the East, 
 where the money stringency is greatest. 
 
 High prices and interest lessens gold output.—It 
 ma}^ be noticed in passing that excessive commodity 
 prices and high priced money and labor eventually 
 make gold and silver mining less productive and 
 lessen the output by shutting down many low 
 grade mines. In time this becomes a factor in again 
 lowering commodity prices and reducing wages; but 
 the operation of this influence is slow and extends 
 over a period of years. 
 
 Long continued prosperity begets indebtedness.— 
 
 A long period of prosperity begets a large volume of 
 new indebtedness, which finally grows so great, prior 
 to and at this time, that it helps gradually to break 
 down credit and force liquidation. “Credit demands 
 a rock basis to rest on,” and where this basis gradu¬ 
 ally changes to the shifting sands of dishonesty, debt 
 and speculation, the destruction of credit follows 
 and liquidation sets in. 
 
 Movement from city to country.—Excessive com¬ 
 modity prices force many from the city to the coun¬ 
 try, there to become producers and thereby eventu¬ 
 ally to lessen the prices of commodities. This move- 
 
BUSINESS CONDITIONS 
 
 123 
 
 ment assumes large proportions as the times grow 
 harder later on. 
 
 When want of confidence begins.—Want of confi¬ 
 dence sets in when prices are so high as to raise 
 doubts of their permanency, and when there is a 
 lack of money and credit to do business on; and 
 this occurs when the overdoing of business and 
 speculation cause a money stringency, for no 
 amount of money and credit can satisfy the demands 
 of speculation. 
 
 Bank credits and prices.—Contraction of bank 
 credits acts in exactly the same manner as a con¬ 
 traction of the currency in producing a fall in prices, 
 and this fall in prices, creating distrust, makes it 
 harder to get bills discounted and so works for 
 lower prices still. 
 
 A few prepare for what is coming.—A few far¬ 
 sighted business men, anticipating the general trend 
 of events, now refrain from speculative enterprises 
 and prepare themselves for whatever change may 
 be coming. 
 
 Prices decline before production.—Prices decline 
 before production; for when the price of an article 
 advances, production will increase until demand 
 lessens or overproduction takes place and prices 
 decline. Retail prices fall more slowly than whole¬ 
 sale.* 
 
 Iron and steel a barometer of trade.—The iron and 
 steel trade, being so vast and its ramifications into 
 other lines so great, is generally accepted as the 
 barometer of trade. In dull times it feels the reac¬ 
 tion more keenly than any other business, as orders 
 have to be given six or eight months ahead, and 
 these are often cancelled if conditions appear un- 
 
 * Burton on Crises, pp. 48 and 170. 
 
124 
 
 HOW TO FORECAST 
 
 favorable. Many of these orders are in the nature 
 of options, accepted on the faith that they will prob¬ 
 ably be wanted, and sometimes given in order to 
 secure precedence of delivery when needed later. 
 This liability to cancellation occurs in other manu¬ 
 facturing lines (although not to so marked a de¬ 
 gree) and consequently may change the business as¬ 
 pect for the worst at very short notice. At this 
 time iron and copper suffer especially, as they enter 
 so largely into new construction and new construc¬ 
 tion depends on new investments, which have prac¬ 
 tically ceased at this period. 
 
 Interest rates fall with commodities.—It should 
 be borne in mind that during a slow and long con¬ 
 tinued fall of commodity prices, interest rates will 
 decline, so as to offset, at least in part, the gain in 
 purchasing power of the principal, thus tending to 
 maintain a proper equilibrium. Also, as profits de¬ 
 crease in business undertakings interest rates will 
 fall, for the latter depend on profits and must, in the 
 long run, come out of profits. 
 
 Speculation shifts to commodities.—On the other 
 hand, when speculation in the securities market is 
 dull, we often see traders shift their operations to 
 the speculative commodity markets—grains, cotton, 
 pork, etc. After the defeat of stocks in the money 
 market, speculative capital is no longer attracted to 
 stocks, but seeks activity on the produce exchanges, 
 where commodities are most readily bought and 
 sold and where values are less intimately connected 
 with the rate of interest. 
 
 Realty next.—These speculative commodities 
 gradually become less inviting from being over 
 boomed. Meantime a percentage of speculative op¬ 
 erators have wandered into the next most attractive 
 
BUSINESS CONDITIONS 
 
 125 
 
 field of operations, which because of previous good 
 showing for several years past is likely to be city 
 real estate, in the unboomed cities only. This specu¬ 
 lators can manage for themselves and it cannot be 
 juggled with. Less capital than one would suppose, 
 is required at this time to start speculation in real 
 estate, as it has already gained the confidence of the 
 people. Investments in lots and houses for home 
 purposes have for some time been fairly heavy and 
 quite satisfactory, so that a considerable activity 
 already exists in this line. 
 
 Many who are afraid to invest in bonds turn to 
 real estate mortgages, attracted by the good rate of 
 interest paid by the latter and by the solid character 
 of the collateral offered. This money helps the real 
 estate movement by supplying necessary funds to 
 aid in financing it. 
 
 A condition precedent to this speculative move¬ 
 ment is a decided fall in interest rates and a surplus 
 of money in the banks, whereas high rents are still 
 maintained, they being the last to decline. The fall 
 in interest rates in this case has the same effect as a 
 rise in rents, causing a marked gain in the percent¬ 
 age of profit paid by realty in comparison with other 
 investments. All other lines having been tried and 
 exhausted, real estate is the last to be taken up. 
 Having steadily risen when other commodities and 
 stocks have fallen, and with a fair supply of idle 
 money at reasonable rates, realty of late has proven 
 a very attractive field to the speculator who inflates 
 values, often in a manner to result disastrously. 
 
 As this movement grows it is joined in time by 
 many merchants who have a surplus, and by others 
 that are doing poorly and hope to make outside 
 profits, and still later on, by some of the refugees 
 
126 
 
 HOW TO FORECAST 
 
 from Wall Street. (It is when this boom is over 
 that the public find themselves weighed down with 
 vast obligations which prove to be the hardest of 
 all to liquidate. It is then that the fall in values sets 
 in in real earnest in all lines and becomes excessively 
 burdensome, leading to a rapid exhaustion of re¬ 
 sources and ending in panic.) 
 
 Land movement.—High prices for their products, 
 with mortgages paid, has superinduced heavy land 
 buying in those Western districts where lands are 
 still cheap. Many of the purchasing farmers borrow 
 of local banks and insurance companies, to assist 
 them in their purchases, so incurring a considerable 
 indebtedness. 
 
 In a dull market the element of convertibility is 
 lost.—As the market becomes dull, one great essen¬ 
 tia). of value is seriously impaired, viz., convertibility; 
 and values recede the more easily in proportion as 
 this element of support wanes. 
 
 Both jobbers and retailers cautious.—When prices 
 commence to fall, jobbing houses and retailers alike 
 buy as little as possible, in order to avoid losing 
 money by the fall in prices, and in the hope of 
 purchasing cheaper. This is a serious check on 
 production, and is apt to overload the manufacturer 
 with stocks on hand that he finds it hard to get rid 
 of, and eventually sells only by a decided reduction 
 in price or, in some cases, by resorting to the auction 
 mart. 
 
 Manufacturer most affected.—The manufacturer is 
 thus affected more than anyone else, for not only 
 does he suffer from the decreased purchasing of 
 consumers, but he has now to carry a larger propor¬ 
 tion of finished goods, which requires considerable 
 money. It is no wonder, therefore, that this condi- 
 
BUSINESS CONDITIONS 
 
 127 
 
 tion is now reflected among business failures, the 
 proportion of increase among manufacturers being 
 decidedly the largest. 
 
 Indices of liquidation.—Besides the features above 
 mentioned as conducive to a period of liquidation, 
 there are certain indications which point as an index 
 finger to the coming change, a few of which are 
 given below. 
 
 Lessened profits.—A narrowing down of the mar¬ 
 gin of profits indicates overproduction and overcom¬ 
 petition. This feature has been in operation for 
 some time before the fall in values which is now 
 occurring. 
 
 Imports.—A gradual falling off in the importation 
 of luxuries. In new, developing countries like the 
 United States, imports will often show an abnormal 
 increase prior to and during the early part of the 
 depression, and will grow much faster than exports 
 until within about three years of the panic. This in¬ 
 tensifies the failing times by running us into debt 
 and causing a foreign balance against us. Some 
 mistakenly consider these large imports as a sign 
 of prosperity whereas they are simply an indication 
 of the extravagance of the people. 
 
 Solicitation of orders.—The solicitation of new 
 orders should be closely watched for an early indi¬ 
 cation of poorer times. Unusual eagerness of the 
 producer to secure contracts indicates lessened pur¬ 
 chasing and increased competition; later appears a 
 quiet concession in terms and prices. 
 
 Buyers holding back.—Another indicator is that 
 buyers are not so anxious to purchase ahead, and 
 now hold back their orders for lower prices. Con¬ 
 cessions in price follow, for no combination, how- 
 
128 
 
 HOW TO FORECAST 
 
 ever powerful, can resist the tendency of the period 
 for any great length of time. 
 
 Railroads affected before industrials.—Railroad • 
 gross earnings may for a short time increase after 
 the top wave of real prosperity has passed, but 
 items constituting expense have so increased owing 
 to dear labor, high interest rates and high cost of 
 materials, that net earnings show a lessened per¬ 
 centage of gain or even a loss. As a rule, they 
 suffer from these conditions before industrial com¬ 
 panies do, as the railroads are so much more an 
 object of public attention and criticism that it is 
 very difficult for them to raise their rates. In the 
 long run, however, the railroads, if well managed, 
 keep up a better showing than general business; for 
 finished goods, although a result of overproduction, 
 have to be marketed some time, even if at a loss to 
 the owner, and in many cases old orders are being 
 filled and freight rates paid on them. Besides, the 
 railroads reap the benefit of the efforts of those 
 who try to make up for diminishing profits by doing 
 a larger business. Still later, they are favored by 
 the lower commodity prices and decreased wages. 
 They are also able to practise economies in mainte¬ 
 nance of track and equipment and in stopping new 
 construction, resulting in a great reduction in ex¬ 
 pense account. Again, many merchants are still 
 hopeful, anticipating that each year will usher in 
 better times, endeavoring to do more business and 
 going to expense for that purpose. All this makes 
 freight for the railroads. 
 
 Eastern roads show a decline first, as the East is 
 the manufacturing center and manufacturers are at 
 this period more affected than farmers and mer¬ 
 chants. Also Eastern roads have been put to a 
 
BUSINESS CONDITIONS 
 
 129 
 
 greater expense per mile than Western to meet the 
 increased traffic. Their terminal improvements and 
 extensions are much more expensive, and are often 
 of a nature that does not yield a profit. 
 
 Currency in circulation.—At this time, normally, 
 the volume of currency in circulation should begin 
 to contract, indicating that business is decreasing, so 
 that there is more than money enough on hand to 
 finance the existing volume of trade. But under our 
 present laws contraction of currency is difficult and 
 unused money is likely to accumulate in bank vaults, 
 thus helping materially to reduce interest rates 
 later on. 
 
 A quiet withdrawal of national bank notes from 
 circulation indicates a falling off in business, and a 
 consequent calling in of some of the banks’ idle 
 circulation. 
 
 How labor is affected.—Before a reduction in 
 wages comes first a cessation of overtime work; 
 then, employment in certain lines not being so 
 steady, work gradually ceases to demand the laborer, 
 leaving him to seek work with increasing difficulty, 
 until finally many are not working full time or are 
 even idle. 
 
 Better demand for bonds.—A better demand at 
 this time for bonds sold over the bankers’ counters, 
 with stocks falling, shows the early stages of a 
 development of fear on the part of the public. This 
 demand grows as the feeling spreads. The public 
 are looking for securities bearing a fixed income, 
 fearing a reduction in stock dividends. 
 
 Surplus stocks—empty cars—economies.—A sur¬ 
 plus of iron and copper stocks on hand occurs, fol¬ 
 lowed by an overproduction in other lines, due 
 partly to excessive development of manufacturing 
 
130 
 
 HOW TO FORECAST 
 
 facilities and partl} r to lessening demand. Empty 
 freight cars and an excess of locomotives are now 
 noticed, and a practicing of economies, heretofore 
 disregarded in the rush of boom times, takes place. 
 
 Jobber and wholesaler affected after manufacturer. 
 —The jobber and the wholesaler may yet be doing 
 a fair business, while the manufacturer who has 
 overproduced is worrying over the surplus left on 
 his hands; but the former classes enjoy this im¬ 
 munity for a short time only. 
 
 Merchants not discounting paper.—Fewer mer¬ 
 chants are now discounting their paper or taking 
 advantage of cash discounts. This indicates a short¬ 
 age of money and poorer collections. 
 
 Orders cancelled.—Cancellation of manufacturers’ 
 orders is a sign of fast approaching trouble. It is 
 likely to occur first in railroad and then in indus¬ 
 trial orders. 
 
 Extent of liquidation.—Liquidation must proceed 
 so far that bank surpluses become excessive, and 
 interest rates correspondingly low, before the proc¬ 
 ess is at an end. 
 
 Railroads pay up short time notes.—Railroads 
 now, because of their increased borrowing capacity, 
 are enabled gradually to pay up their short time 
 notes, replacing them with long time bonds. This 
 allows them to make absolutely necessary repairs 
 and to settle long standing obligations, and to that 
 extent they help out the business community in 
 general. 
 
 Small bills return to banks.—Lessening activity 
 always releases small bills from the tills and pocket 
 books of the middle and poorer classes, as there is 
 less use for them. People are becoming less dis¬ 
 posed to spend money. There is, in consequence, a 
 
BUSINESS CONDITIONS 
 
 131 
 
 steady flow of these small bills into the banks from 
 all directions. 
 
 Surplus product sets the price.—When overpro¬ 
 duction sets in the surplus product exercises an 
 unduly potent influence in establishing the price for 
 the entire output. Overproduction finally forces not 
 only a price but later a wage readjustment. Lower 
 prices are necessary so as to dispose of the excess 
 by enlarging the market, and prices must eventually 
 fall sufficiently to allow this to be done. 
 
 First year of decline.—During the first year of the 
 decline the volume of business still remains large 
 (unless a stringency panic occurs to hasten matters) 
 but the results ate not satisfactory. The margin of 
 profit has been decreased, the demand greatly less¬ 
 ened, consequently there has not been the usual 
 addition to the wealth of the country. Also plenty 
 of money and easy credit beget speculation in com¬ 
 modities, as wheat, corn, cotton, etc. This induces 
 owners to hold for higher prices; while at the same 
 time increasing bank clearings considerably. During 
 the earlier half of the year, also, the adverse showing 
 is delayed by the filling of old orders, which were 
 taken at profitable rates. 
 
 Labor last reduced.-—The liquidation must be quite 
 extensive before the great body of employers dis¬ 
 charge hands or reduce wages, especially the latter. 
 They do not start doing so, in most cases, until 
 fairly forced to, although when the movement is 
 once under way many who are really making fair 
 profits seize this opportunity to add to them by this 
 means. 
 
 Manufacturers hold back orders.—Manufacturers, 
 taking their cue from those who purchase of them, 
 now hold back their orders for raw materials and 
 
HOW TO FORECAST 
 
 [32 
 
 labor until the last moment, hoping to buy cheaper, 
 and making a saving in the item of interest, which, 
 to one who carries a large stock, amounts to consid¬ 
 erable at the end of the year, especially during a 
 period when small savings have to be enforced. 
 
 Liquidation greater in a presidential year.—If this 
 liquidation occurs in a presidential year it is apt to 
 be more intense, owing to the uncertainty as to what 
 policies are to be enforced in the future. A political 
 campaign interferes more or less with business, 
 especially if currency or tariff issues are prominent. 
 
 Gold is exported.—When liquidation is fully under 
 way gold is exported to Europe to pay our outstand¬ 
 ing debts there, and money later flows from the 
 West to the East, attracted by the interest offered by 
 the New York city banks. 
 
 Stocks continue to fall.—Even before the city real 
 estate boom throughout the country commences to 
 wane, and before commodity prices have fallen seri¬ 
 ously, a steady decline in stock values has been in 
 progress, which no manipulation can withstand. 
 Later, many of the minor promoters and speculators 
 desert the Street, where there is now very little to 
 be made on either the bull or the bear side of the 
 market, and some of them promote new industrials, 
 such as light and power companies, city railways, 
 and other lines of business, trying to enact there the 
 same role they did in Wall Street. 
 
 Why there are no great bull leaders.—The reason 
 there are no great leaders to engineer bull cam¬ 
 paigns from now on is because so many of the old 
 leaders have left the street, and those that remain 
 have either suffered severe losses or else are over¬ 
 loaded with stocks. They cannot do the one thing 
 necessary to raise prices, viz., buy continuously, and 
 
BUSINESS CONDITIONS 
 
 133 
 
 the public will not help them out, as it never pur¬ 
 chases on a stagnant or falling market. 
 
 Most news now depressing.—On a receding stock 
 market the news received, and most of the unex¬ 
 pected events that occur from time to time are of 
 an unpleasant nature. The fears of the traders 
 magnify bearish items, and so accustomed are their 
 minds to depressing news, that they become incap¬ 
 able of fully appreciating good news when it comes. 
 
 Friction between railroads.—Owing to keen com¬ 
 petition, a great deal is heard of friction, strife and 
 ill-will among powerful railroad interests, especially 
 in the West where most of the new mileage is, and 
 where pool agreements and rate associations are at 
 this time apt to go for naught. This factor, how¬ 
 ever, is lessening of late years because of the many 
 mergers that have taken place and because experi¬ 
 ence has shown that it has been ruinous in the past 
 
 Early signs of decline in realty.—One of the early 
 signs of a decline in the real estate movement is a 
 temporary increase in bank surpluses in the locality 
 of the boom. This shows that less money and credit 
 are being used in the real estate movement. Real 
 estate, unlike stocks, has no bears to sell it short 
 and so lessen the force of the reaction. It lacks, in 
 great measure, that essential element of value—easy 
 convertibility; and hence the liquidating process is 
 a very slow and tedious one and at great loss to 
 the owner. 
 
 Money withdrawn from trade.—Muck capital is 
 now withdrawn from unprofitable trade channels. 
 The strongest houses are left in control of the 
 greatly lessened markets, and money accumulates in 
 banking centers. Nevertheless, a large expense ac¬ 
 count (greatly increased in boom times), greed for 
 
134 
 
 HOW TO FORECAST 
 
 money, an innate love of doing, and ignorance of 
 conditions keep many active in business and specu¬ 
 lative operations, when prudence should whisper cau¬ 
 tion and at times even inaction. Some are now 
 driven into speculative lines because of lessened 
 profits or even losses in their regular business, and 
 so incur an indebtedness which weighs heavily upon 
 them later on. 
 
 Falling prices and interest rates.—As falling prices 
 
 always diminish profits or even inflict a loss, there is 
 no inducement for capital to seek investment, and 
 it is allowed to remain idle in the banks at a loss of 
 interest to the owner. As interest rates fall, the 
 value of all securities which bear a fixed rate of 
 interest rises, also of all properties which pay a 
 higher return. 
 
 Inducements offered for trade.—When commer¬ 
 cial and industrial affairs are growing duller and 
 competition most active, finally, to induce purchases, 
 extended credit facilities are offered by sellers to 
 their customers, and to a much greater extent than 
 is prudent or safe. Eventually this results in a 
 large indebtedness among the merchant class. This 
 has an important effect in bringing on the panic. 
 Such indebtedness bears particularly hard on the 
 small dealer and also leads to excessive loans by 
 the banks to help out their clients. It tends to keep 
 interest too high and cuts down profits, and so has 
 a bad effect on the business situation. We conse¬ 
 quently find this condition reflected in the failure 
 list by a gradually increasing number, with smaller 
 liabilities. The small manufacturer feels the effect 
 first and the small trader soon after. 
 
 Outside ventures turned into cash.—As the liquida¬ 
 tion proceeds many business men turn their outside 
 
BUSINESS CONDITIONS 
 
 135 
 
 ventures and miscellaneous assets into cash and 
 strengthen their bank accounts, and so fortify their 
 business relations. 
 
 Another trust forming period.—We are now about 
 to enter a second trust forming period, when divers 
 and often warring interests are consolidated into 
 trusts, in order to reduce the cost of production 
 and of doing business, by reason of larger sales 
 and greater capital, to make a living profit by the 
 practice of wholesale economies, and to put a stop 
 to ruinous rivalry. These combines are defensive in 
 character, giving weak concerns the strength to 
 successfully resist competition; whereas in prosper¬ 
 ous times trusts were formed mainly to control the 
 market and were often of an aggressive character, 
 sometimes working harm to their competitors and to 
 the purchasing public. 
 
 Fear begins.—Just as on a rising market every one 
 is hopeful, so on a falling market fear is quietly 
 generated, and increases as time passes and values 
 continue to fall. Fear gradually exhausts what we 
 might call the staying power of the people, as well 
 as their financial resources, and eventually ends in 
 collapse. 
 
 Farmers hold crops.—As falling prices extend to 
 farm products, there is a disposition on the farmer’s 
 part to hold his crops for a time in the hope of better 
 prices. This reacts on many lines of trade—dimin¬ 
 ishes sales and makes collections slower. 
 
 Speculators worst hit.—Falling values naturally 
 have the most immediate and greatest effect on those 
 doing a credit business, and among these the specu¬ 
 lative fraternity are the least able to stand a depres¬ 
 sion; hence it is at first in their ranks that the 
 largest percentage of failures occur. There is also 
 
13 6 
 
 HOW TO FORECAST 
 
 always a large number of merchants who venture 
 everything on narrow margins, and good times only, 
 when all conditions are favorable, can keep them 
 afloat. These are apt to fail when any severe and 
 prolonged strain is put on the finances of the 
 country. 
 
 Europe buys American investments.—As the times 
 become poorer in European countries and idle 
 money fills their banks, they are disposed to invest 
 in gilt-edged American securities, as they pay a bet¬ 
 ter rate of interest than foreign securities—unless 
 they are afraid of our financial condition at the time. 
 
 Imports larger than expected.—On the present de¬ 
 clining market imports are apt to decrease slower 
 than one would expect (with only a temporary de¬ 
 cline if a money stringency occurs). This is because 
 previous high prices have attracted goods here from 
 all over the world and it is difficult to change the 
 inflowing tide so suddenly; also many of the goods 
 were ordered months before, and as European mar¬ 
 kets also are falling foreigners are anxious to realize 
 on their wares. They may even send goods here to 
 be sold on commission, knowing that their own 
 market is very poor, but not realizing at first how 
 seriously and permanently ours is affected as well. 
 
 Also, many Americans who buy foreign goods do 
 not at first realize how serious the situation is, but 
 imagine that it will soon change for the better, and 
 so continue their purchases. They thus avoid for 
 the time being the discomfort and humiliation at¬ 
 tending a serious curtailing of their expenses, with 
 consequent loss of social prestige. 
 
 Capital timid.—When capital is hampered by un¬ 
 certainty as to the future, that condition operates as 
 a check on all business operations and prevents the 
 
BUSINESS CONDITIONS 
 
 137 
 
 capitalist from placing his money out on anything 
 like a long time engagement, when events beyond 
 his control might intervene to cause him an ulti¬ 
 mate loss. He prefers to take a lower rate of inter¬ 
 est and place his capital where it is absolutely safe. 
 
 Business large, profits small.—While during this 
 period and before the commercial crisis there are 
 years when the volume of business is large and the 
 situation looks more cheerful, yet on close investiga¬ 
 tion it will be found that appearances are very 
 deceiving; that the risks of business have been in¬ 
 creasing and the percentage of profits quietly de¬ 
 creasing. Appearances, therefore, are at times semi- 
 prosperous, yet real prosperity is not attained. In 
 fact, some countrjr store-keepers find business so 
 unprofitable, owing to the double loss, as it were, 
 entailed first by excessive competition and second 
 by falling values, that they offer to exchange their 
 stocks for realty, in the hope of bettering their 
 condition. 
 
 Weaker companies pass dividends.—The first com¬ 
 panies to reduce or pass dividends or to pay in script 
 are the weaker ones, whose credit in the money 
 market is poor, and who therefore at this time are 
 often unable to secure funds to pay expenses in¬ 
 curred or to be incurred. 
 
 Why imports lessen.—When prices go so low that 
 the addition of freight and tariff to cost makes it 
 unprofitable for foreigners to sell goods in America, 
 imports lesssen and our manufacturers reap the 
 benefit. 
 
 Exports increasing.—The ratio of exports to im¬ 
 ports now begins to increase, as manufacturers are 
 prepared, by reason of their improved plants, less¬ 
 ened charges for interest, raw material and labor. 
 
138 
 
 HOW TO FORECAST 
 
 and new economies practiced, to manufacture goods 
 at less cost than heretofore.* Prices must eventu¬ 
 ally go low enough to allow us to compete with the 
 world’s products and so finally to pay our debts 
 abroad. 
 
 Emigration East to West.—A quiet flow of emi¬ 
 gration from the overcrowded East to the partially 
 settled West, with its greater opportunities, is one 
 of the results of the liquidation in operation during 
 this period. Also, much Eastern capital goes West 
 in search of greater activity, where interest rates 
 are higher and profits more promising. 
 
 * 'Burton on Crises, p. 89. 
 
XII.—In tlie Shadow of the Pam 
 
 ic 
 
 [Note — These conditions last prevailed in* 1892. They 
 may naturally he expected to recur about 1912.] 
 
 T HE entire period of liquidation up to the 
 time of the panic averages about six years 
 or thereabouts. It was so from 1887 to 
 1893 and from 1867 to 1873. We are now- 
 arrived, in this chapter, at a period about one year 
 before the coming panic, when the shadow of what 
 is to come may be seen by the student of finance; 
 for all great events are preceded by warnings legi¬ 
 ble to those who can read. We are about to decipher 
 these signs down to the time of the panic. 
 
 A brief summary of the past.-—In forecasting the 
 future we must remember that each new year is the 
 product of the years preceding it, and to appreciate 
 what is coming we will briefly summarize the past. 
 
 “First comes an ascending wave of activity and 
 rising prices, then prices reach a point that checks 
 demand, then comes a period of hesitation and cau¬ 
 tion.. then contraction by lenders and discounters 
 and temporary exhaustion of liquid capital, next a 
 weakening of values, and then holders simultane¬ 
 ously endeavor to realize, and so accelerate a general 
 
140 
 
 HOW TO FORECAST 
 
 fall in prices of stocks and commodities.” Credit 
 in business lines becomes more sensitive and is 
 contracted, transactions are diminished, losses are 
 incurred through keen competition and depreciation 
 in values, and finally the ordeal becomes so severe 
 upon the debtor class that forcible liquidation has 
 to be resorted to, and insolvent firms and institu¬ 
 tions must be wound up, to begin anew later on 
 perhaps. 
 
 Events before a panic.—Small profits and declin¬ 
 ing wages and credits continue for several years 
 before a commercial panic, together with increasing 
 losses by reason of bad debts, and finally a gradual 
 decrease in activity and production. This latter 
 entails the heaviest loss on the manufacturer, as he 
 not only receives less for his product, but by reason 
 of his not producing to the limit of his capacity his 
 goods are costing him more. This situation doubly 
 impairs the profits of his business, and throws many 
 of the smaller manufacturers into bankruptcy. 
 
 Lessened activity in other countries.—Diminishing 
 activity and purchasing power in other countries 
 also, generally precede a commercial panic here. 
 
 Panics in some foreign countries.—Panics in some 
 other countries generally occur within a year of the 
 panic in ours. They more often precede ours by a 
 year. This is because of the intimate relations ex¬ 
 isting between all countries, through the telegraph 
 and cheap and rapid transportation, making, as it 
 were, of all modern nations one big family. For¬ 
 merly a panic was likely to be limited to the country 
 where the famine or war that brought it on occurred. 
 
 Signs of panic years.—In panic years bank loans 
 and discounts reach a maximum and specie a mini¬ 
 mum. There is a general drawing in, a tendency to 
 
BUSINESS CONDITIONS 
 
 141 
 
 touch nothing speculative, and collections are slower 
 and grow harder as the panic approaches. 
 
 Insufficient money not cause of panic.—An insuffi¬ 
 cient amount of money in circulation is not the 
 cause of the extended distress, for at this time prices 
 fall rapidly and much money has been released from 
 various undertakings, but is jealously hoarded. Later 
 on, after the panic, interest rates become very low. 
 This is as much due to lack of confidence in the 
 times and the borrowers as to losses in the imme¬ 
 diate past. 
 
 Banks have often helped on panic.—When we 
 realize that the bank is the headquarters for money 
 and credits, that the banks in the United States 
 have all had to learn their business in a compara¬ 
 tively short period, and that many to-day who 
 branch out as bankers are utterly ignorant of the 
 business or perhaps are speculators who have organ¬ 
 ized a bank for their own purposes, we are not sur¬ 
 prised that some of them have at times been promi¬ 
 nent factors in creating a panic. They have often 
 solicited deposits from the people and then placed 
 these deposits where they could not be had when 
 the people wanted them. They have sometimes 
 boomed stocks beyond reason, and then, becoming 
 frightened, have suddenly withdrawn credit to an 
 extent disastrous to business. They have at times 
 issued excessive credits and wild-cat currency. Some 
 bankers regard their banks as mints to issue un¬ 
 limited currency and credits for their own benefit, 
 instead of as intended to assist trade with judicious 
 loans. Sometimes, after the banker has fostered 
 speculation, he has been the first, later on, to hoard 
 cash in order to save the bank. 
 
 These dangerous features, however, are gradually 
 
142 
 
 HOW TO FORECAST 
 
 disappearing. The number and influence of con¬ 
 servative bankers has been growing rapidly of late 
 years, as the experimental stage of American bank¬ 
 ing passes, and eventually they will doubtless in 
 great measure do away with excessive speculation. 
 
 Banks feel the money drain first.—Banks, being 
 the depositories of ready money, which is so much 
 desired when distrust sets in, are the first to feel 
 the drain. Especially is this true of savings banks, 
 which first show a deposit shrinkage (generally one 
 to two years before a commercial panic), because 
 they have a class of depositors who are more easily 
 influenced by fear, and whose needs, also, are the 
 greatest, as their entire income depends, in most 
 cases, on wages, and these are reduced, or in some 
 cases stopped altogether. They have to fall back on 
 the only resources left them, their savings bank de¬ 
 posits. The business man whose capital has been 
 impaired through losses is now found anxiously so¬ 
 liciting loans of the commercial banks and so reduc¬ 
 ing greatly their balances. 
 
 Inflationists active.—Both before and after a panic, 
 inflationists are apt to busy themselves trying to 
 save the nation with their quack nostrums. It was 
 the greenbacker in 1873, and the silverite in 1884 and 
 1893. A large number of people always think that 
 money is the panacea, and often at the very time 
 when the banks are loaded down with it. 
 
 Strikes.—Serious strikes begin about two years 
 before the commercial panic and this condition 
 grows worse until some time after the panic is over. 
 Continued depression at last shows the strikers 
 finally the hopelessness of their efforts at this time, 
 when there are so many workmen idle who stand 
 ready to take the strikers’ places. 
 
BUSINESS CONDITIONS 
 
 143 
 
 Trade unions lose members.—Failing times bring 
 into operation among trade unionists the greed, self- 
 interest and necesssities of the individual, as against 
 the demands of his union, and if the depression is 
 great and long continued, vast numbers will desert 
 the unions and look after their own individual inter¬ 
 ests. Also, the payment of the dues grows burden¬ 
 some. 
 
 Radical changes proposed.—Radical changes in 
 fiscal or economic policies are often proposed as a 
 remedy for stringent money conditions. Such pro¬ 
 posals at this time serve only to intensify existing 
 evils and render them still more acute. 
 
 Excess of imports a bad feature.—A continued 
 excess of imports over exports, in a debtor country 
 like the United States, indicates danger ahead. We 
 cannot continue permanently to buy more than we 
 sell. (In a creditor country this feature has not the 
 same significance. See Burton on Crises, p. 201.) 
 The decrease in imports is compulsory and is due 
 to diminished consumption or purchasing power. 
 
 Wall Street’s wealth is promises.—The wealth of 
 Wall Street, its bonds, its stocks and commercial 
 paper, consists of promises to pay, or shares in 
 prospective profits. Raise a doubt as to the solvency 
 of these promises and you upset the financial, com¬ 
 mercial and industrial world. Wall Street is the 
 headquarters of all this wealth and of ready money 
 as well, and it forms, therefore, the nerve center of 
 American business. 
 
 Lessening bank reserves.—Diminishing bank re¬ 
 serves are an important danger signal before every 
 panic. The time comes when the banks’ supply of 
 cash gives way under the mighty strain put upon it 
 by expanded credit. This always generates fright. 
 
144 
 
 HOW TO FORECAST 
 
 The mere fact that cash is running low makes every 
 one want it. Prices decline and paper profits are 
 often supplanted by losses. The seeds of panic were 
 planted in a time of abundant money and credit, and 
 it is the withdrawal and destruction of these that 
 bring on the panic. 
 
 Money stringencies necessary.—The government, 
 acting through its officials, has often helped to tide 
 over a money stringency, but its methods have gen¬ 
 erally been those of further inflation which, in the 
 end, only intensify the depression by furnishing a 
 basis of money with which speculators may con¬ 
 tinue their operations. The efforts of the banks, 
 also, have frequently had a similar effect. 
 
 Money stringencies, under present conditions, are 
 necessary to restore things to the normal, restrain¬ 
 ing overproduction and overtrading. Such condi¬ 
 tions should be, in most cases, allowed to work out 
 their natural course. Measures of relief should be 
 temporary, simply to tide over a crisis without per¬ 
 manently inflating the currency. 
 
 Effect of large harvests now.—An abundant har¬ 
 vest now is not enough to avert a panic except for a 
 short time, even though foreign harvests are poor; 
 but such a harvest does alleviate the liquidation 
 afterwards, unless agricultural prices are exception¬ 
 ally low. 
 
 Some producers having a hard time.—Manufac¬ 
 turers who have incurred obligations on the basis of 
 the old inflated prices and have made investments 
 which can be profitable only on a high price level, 
 are now forced to sell goods at a sacrifice, to con¬ 
 tract their operations and to reduce wages and work¬ 
 ing time. Others, with the great fall in prices and 
 
BUSINESS CONDITIONS 
 
 145 
 
 the consequent rise in the value of money, find 
 themselves unable to meet their obligations. 
 
 Part railroads have played.—It was in 1830 that 
 railroads first appeared, with about sixteen miles 
 built at the end of that year. It was not until 1845 
 that they had got fairly under way and were any¬ 
 thing of a power in the business world. They have 
 been the great developers of our country, but have 
 been necessarily a disturbing feature as well, as 
 any great, new, untried factor entering into busi¬ 
 ness life must necessarily be at first. The railroad 
 had its excesses to go through, when it was built 
 far in advance of the times, as in 1873. Competitive 
 building, as in 1884 and before, brought ruinous rate 
 wars. Railroad conditions helped largely to bring 
 about the panics in both the above years. Unjust 
 discriminations and high rates were met, in poor 
 times, by granger and even national opposition, ex¬ 
 pressed in adverse legislation. The general legal 
 status of the railroad, its powers and limitations, 
 had to be established by constant legal strife. At 
 present the railroads, like all other corporations and 
 individuals, are forced to combine their forces and 
 capital in order to meet the demands of modern 
 industrial organization for the production of the 
 best at the lowest price possible. This want can be 
 met only by large capital doing a large business on 
 a basis of small profits. This principle is often 
 reduced to such a fine point that economies in oper¬ 
 ation and the saving of former waste, pay the profits 
 demanded by capital. 
 
 Corporations necessary.—The fact that corpora¬ 
 tions sometimes abuse their powers is no argument 
 against their existence. They represent the cheapest 
 form of production and distribution. Errors that 
 
146 
 
 HOW TO FORECAST 
 
 grow up may be remedied by legislation and by 
 public opinion, but lawmakers should be careful not 
 to so handicap corporations as to impair their utility. 
 
 Fear grows greater. —Gradually the public begins 
 to realize that the country has been deluded with all 
 sorts and varieties of paper evidences of indebtedness 
 or ownership, in the shape of bonds, stocks, con¬ 
 struction companies’ notes, etc., while extravagance 
 and speculation have crept into all lines of business 
 and into private life. It takes time for the people to 
 realize this, but with diminishing profits and a less¬ 
 ening volume of business, the consciousness finally 
 comes home to them and the feeling of fear grows 
 greater and greater. “The year before a [commer¬ 
 cial] panic is apt to be one of apprehension and 
 stringency in the money market; rapid fluctuations 
 on ’change and a downward tendency in stocks; a 
 year of poor business in all lines, a foreshadowing, 
 as it were, of what is to come.” 
 
 On a declining market the fear that an evil may 
 materialize is very effective, whereas on a rising 
 market it is lightly tossed aside. The seeds of fear 
 germinate best where the soil has been properly 
 prepared. 
 
 The people become restless. —The sale of luxuries 
 falls off first, then “necessary luxuries,” so called, 
 and finally necessaries. It is at the latter stage, 
 when wages have been reduced that the masses be¬ 
 come discontented and all sorts of panaceas are 
 freely aired on the political platform. Ill-advised 
 laws are in danger of passage and the more turbulent 
 at times indulge in violence. It is a hard thing for 
 most people, and an impossible thing for some, to 
 practice close economy and patience, especially if on 
 an empty stomach. This unrest extends to all the 
 
BUSINESS CONDITIONS 
 
 147 
 
 peoples of the civilized world. They want greater 
 political freedom, and if the government is an auto¬ 
 cratic one the outlook frequently becomes serious. 
 Governments have often in the past hinted vaguely 
 at great dangers surrounding the nation, in order to 
 secure from the people the desired appropriations or 
 to divert their attention for the time being. 
 
 Call for cash shows up weak institutions.—The 
 constant call for cash during this year is apt to 
 show up to bad advantage many of our financial 
 institutions that may have indulged in outside ven¬ 
 tures, or that have been ruined by some one of their 
 officials. This year of depression, on the other hand, 
 is not without its benefits, as it stops all branching 
 out and enables many to curtail their purchases and 
 operations and reduce their indebtedness, the burden 
 of which is now felt heavily.* 
 
 Government bonds in favor.—At these times 
 banks, trust companies and insurance companies 
 buy United States Government bonds, not only be¬ 
 cause they are the safest investment, but also be¬ 
 cause no other class of investment could so effectu¬ 
 ally strengthen their position, or be so relied upon 
 for immediate use in raising money when suddenly 
 needed. 
 
 Credits shrink—Credits continually shrink as 
 losses are made and dishonorable methods exposed 
 in business life. Fear spreads throughout financial 
 circles and money is gradually hoarded, until finally 
 conditions are ripe for the panic. 
 
 Immigration.—During the period of depression 
 that precedes the commercial panic the immigration 
 question becomes one of the important features of 
 the day, and is pretty sure to be embodied in some 
 
 * See Financial Chronicle, Jan. 24, 1874. 
 
148 
 
 HOW TO FORECAST 
 
 form in the political platform of either or both par¬ 
 ties. The unemployed are naturally jealous of alien 
 competition, and as the times grow harder, they 
 demand the abrogation or modification of existing 
 laws on this subject, making it harder for the for¬ 
 eigner to enter the country. 
 
 Western banks feel strain.—The great demand for 
 money prior to a commercial panic and the conse¬ 
 quent strain on the banks, the custodians of money, 
 is felt severely out West among the new banks, 
 whose methods of business are new and more or 
 less untried and have often not been of the best. As 
 these banks now begin to fail confidence is still 
 more shaken in the business centers. 
 
 Narrow stock market.—At this period most of the 
 business on the stock exchange is represented by 
 half a dozen favorite issues, which are manipulated 
 by professionals. The public are not interested. 
 
 Bank no stronger than its securities.—A bank is 
 no stronger than the securities which back it up, so 
 that when doubt sets in as to the solidity of these, 
 it is apt to extend to the bank that holds them. 
 
 Loan increase.—A steady, long continued increase 
 in bank loans occurs at about this time. It is espe¬ 
 cially serious if attended by a scarcity of specie, and 
 at the same time by diminishing prices. The scarcity 
 of metallic money is in part a result of gold exports. 
 Gold is going abroad to pay debts, as foreigners are 
 worried, and specie is the only money accepted 
 abroad for our debts and in payment for the stocks 
 which foreigners are now sending back to us (as 
 before 1857, 1873 and 1893). Shrinkage in bank re¬ 
 serves and increase in liabilities is an important 
 feature foreshadowing a coming panic at this time. 
 
 Call and time money.—Call money very low and 
 
BUSINESS CONDITIONS 
 
 149 
 
 time money correspondingly high and scarce, indi¬ 
 cates fear on the part of lenders. 
 
 Increase in paper money over specie.—An unusual 
 increase in the percentage of paper money to specie 
 occurs in panic years, not only because foreigners 
 accept only specie in payment, but also because gold 
 is the favorite form of money for hoarding. 
 
 Great demand for money.—When many are, as 
 now, trying to get on as near a cash basis as possible 
 in order to be safe, the demand for money becomes 
 at times very great and is quickly reflected in the 
 stock exchange, where the fluctuations are rapid, 
 causing sharp declines in stock values, sometimes 
 verging on panic. 
 
 Commodities accumulate.—As the panic comes 
 nearer, commodities which formerly found ready 
 consumption, even though at reduced prices, how 
 accumulate in manufacturers’ hands. In some lines 
 auction sales are inaugurated in order to get rid of 
 them, and many are exported, but still the accumu¬ 
 lation goes on and the demand quietly lessens. 
 
 Events preceding panic.—Falling prices, lack of 
 work, small or no profits or even losses, declining 
 wages; lessened credits, stagnation in stock, com¬ 
 mercial and industrial circles, stringent money mar¬ 
 kets, high interest rates; lack of confidence, rumors 
 of business troubles, gradually becoming more defi¬ 
 nite, and increasing failures, all precede a great com¬ 
 mercial panic. As conditions grow more acute, 
 rumors are afloat in regard to solvent and insolvent 
 firms alike, sometimes even the greatest names in 
 the business and banking world. 
 
 Low prices for agricultural products.—The low 
 prices for cur agricultural products that generally 
 come at panic periods when all values are falling, not 
 
150 
 
 HOW TO FORECAST 
 
 only reduce the debt-paying power of the producers 
 but the money value of our exports as well, and so 
 act doubly to intensify the bad times. 
 
 Bonds go down.—Bonds steadily decline just be¬ 
 fore a panic while stocks may fluctuate. This is 
 because banks, trust companies, etc., have constantly 
 to sell bonds to get funds to meet the demands of 
 their customers, while stocks are more subject to 
 speculative influences. 
 
 Foreign exchange high.—If foreign exchange is 
 high at this time, it indicates that Europe is absorb¬ 
 ing our gold, or that exports are small, or both. 
 
 Decrease in deposits.—There is a decrease in de¬ 
 posits just before a panic. This decrease would of 
 course be much larger if all deposits consisted of 
 cash, as in the early days of banking; modern de¬ 
 posits mostly represent mere bank credits, and these 
 are often increased before a panic by reason of 
 loans. The borrower receives his loan in the form 
 of a check, which he at once deposits at his own 
 bank. 
 
 Talk of booming stocks.—Often, before the panic 
 comes on, certain stocks are heavily manipulated 
 and there is talk of booming them, due probably to 
 an effort on the part of those who are under the load 
 to sell out at the last moment. 
 
 Cash and short credits supplant long credits.— 
 When the panic is in sight cash and short credits 
 gradually take the place of long credits, and this 
 continues for some years after the panic. The enor¬ 
 mous shrinkage in deposits when the panic is on and 
 thereafter, represents not only the actual withdraw¬ 
 als but also the fading away of these long time 
 credits on the books of the banks. 
 
 Dishonest disclosures. — Dishonest disclosures 
 
BUSINESS CONDITIONS 
 
 151 
 
 sweep over the land like a wave of crime just before 
 and just after a panic. This often represents cor¬ 
 rupt acts begun some years back, but only coming 
 to light when failure takes place. 
 
 Gold in demand.—During and just prior to a com¬ 
 mercial panic, so universal is the distrust that many 
 have lost faith in everything but actual cash, gold 
 generally preferred, “not only because it is the 
 measure of all values, but also for the reason that 
 it is the only article in the market that i^ appreci¬ 
 ating.” Indeed, at this time the value of gold, as 
 measured by what it will buy, is rising at a most 
 rapid rate, whereas everything else is falling. 
 
 Panic started by banks curtailing credits.—The 
 panic is precipitated by the banks curtailing credits 
 and later on enforcing payment of notes and indebt¬ 
 edness of clients whose capital for some time past 
 has been gradually depleted, and who have made 
 their bank borrowings take the place of this lost 
 principal. The banks finally can no longer supply 
 this demand, because of the gloomy outlook and 
 their own overloaded condition. The first signal 
 generally comes by the country banks calling on the 
 New York banks for their balances, which they now 
 need for their own protection or use. 
 
 Some large financial institution first to fall.—The 
 first failure before a panic, which usually ushers the 
 panic in as it were, is apt to be some large financial 
 institution with fiduciary features attached, as a 
 well known bank or trust company. Against this in¬ 
 stitution charges of fraud or speculation are very 
 likely to be made. A disclosure of this description 
 has the greatest and most lasting effect when it re¬ 
 veals a condition which may be more or less general, 
 and is not a mere passing incident. This corporation 
 
152 
 
 HOW TO FORECAST 
 
 is usually in a line of business that requires ready 
 money. It probably has large sums coming due, but 
 it is made vulnerable by having deposits that a 
 frightened public can demand. If it has the addi¬ 
 tional handicap of a poor or speculative reputation 
 among those who know its standing, such reports 
 will now spread rapidly, and thus intensify the de¬ 
 mand on it for cash, and perhaps prevent others 
 from coming to its aid. 
 
 Who started previous panics.—“In 1873 the panic 
 was started by a banker who had advanced to a rail¬ 
 road, and could not renew his notes. In 1893 it was 
 a railroad which had bought up other roads and 
 could not meet its obligations. In 1907 it was a 
 copper speculator who got his bank in trouble by 
 trying to corner a copper stock.”* 
 
 Each panic has its own features.—Each panic has 
 some particular feature, such as wild land specula¬ 
 tion in 1837; excessive increase of money circulation 
 and wild-cat banking prior to 1857; overextension 
 of credit in 1866-67; inflation of currency and unwise 
 building of railroads into unproductive country be¬ 
 fore 1873; free silver agitation and competitive rail¬ 
 road building in 1884; free silver agitation and over¬ 
 issue of silver dollars and certificates before and 
 after 1893. 
 
 Runs on banks follow.—This failure is the final 
 blow which upsets all lines of business. A run fol¬ 
 lows upon banks and other fiduciary institutions, 
 securities are sacrificed first by the victims of the 
 run, then other necessitous holders follow suit, and 
 others still who wish to strengthen their position, 
 until the rush to sell becomes general and finds 
 
 * The Evening Post, Nov. 9, 1907. 
 
BUSINESS CONDITIONS 
 
 153 
 
 expression in the outbreak of panic, when the public 
 for the time being seem to have parted with their 
 senses in their wild rush for money. 
 
XIII.—Tke Commercial Panic 
 
 [Note —These conditions last occurred in 1893, In 
 the natural course of the 20 year cycle, they would be 
 repeated in 1913. Of course there can be no certainty 
 that the 20 year period will be exact to the year, but at 
 present writing there is no factor in evidence that 
 zvould seem likely to cause any wide variation .] 
 
 D EFINITION of panic.-—The Century Diction¬ 
 ary defines panic as sudden or groundless 
 fear—"an exaggerated alarm, which takes 
 possession of a trading community on the 
 occurrence of a financial crisis, such as the failure 
 of an important bank or the exposure of a great 
 commercial swindle, inducing a general feeling of 
 distrust and impelling to hasty and violent measures 
 to secure from possible loss, thus often precipitating 
 a general financial disaster which was at first only 
 feared.” 
 
 Crisis defined.-—Crisis is defined as the point of 
 culmination—a critical time—a decisive point. The 
 two words are often used indiscriminately, but panic 
 properly refers to a mental state and crisis to an 
 existing condition; the one disappears but the other 
 
 remains. 
 
BUSINESS CONDITIONS 
 
 155 
 
 A crisis has its origin in the money market, a panic 
 in the minds of the people. Either one may bring 
 about the other. The crisis comes with the culmina¬ 
 tion of high prices and the panic is the fierce com¬ 
 petitive bidding for money in exchange for goods, 
 securities, or credit. A panic starts with nervous¬ 
 ness and often develops into hysteria and frenzy. 
 
 Panic results from inflation, speculation and ex¬ 
 travagance.—The primary or basic conditions must 
 be unsound to beget a commercial panic. It is the 
 natural result of excessive debt-incurring, inflation, 
 rash speculation and extravagance, which have at 
 length broken down the credit system. 
 
 Some of the features leading up to panic, as enu¬ 
 merated by various writers, are as follows: Turning 
 liquid capital into fixed forms; excesssive real estate 
 inflation; wild-cat banking and too rapid formation 
 of new banks; wars; dishonesty and intense desire 
 to get rich quick; too great a volume of business in 
 proportion to capital; too long commercial credits, 
 leading to speculation instead of debt paying; un¬ 
 wise expansion of credits and circulation by banks, 
 or unnecessary hoarding of cash by them and by the 
 people; withdrawals of credits when the financial sky 
 darkens; stoppage of business enterprises caused by 
 fear of shortage of money; too much borrowing of 
 capital at home and abroad; want of confidence; 
 contraction, expansion or debasing of the currency; 
 extravagance, waste and wild speculation; excessive 
 importations; overproduction and overdoing in all 
 lines; inventions destroying existing values and tem¬ 
 porarily depriving many of wages; inflation in se¬ 
 curity and commodity values; fraudulent disclosures 
 in business; railroad and other stock watering incor¬ 
 porations; changes of administration and political 
 
156 
 
 HOW TO FORECAST 
 
 agitation; excessive building of railroads, mills and 
 factories; excessive rise in prices of labor and mate¬ 
 rials; railroad wars and rate cutting, and price cut¬ 
 ting in commodities; distrust setting in, accompanied 
 by a growing desire to get from under the load of 
 debt; excessive output of gold, causing a too rapid 
 enhancement of values. 
 
 It will be seen that most of these causes merely 
 represent different phases of the same general con¬ 
 dition. Widespread indebtedness, involving over- 
 extension of credit by the banks, is the main feature 
 that brings on a panic, and we must, in every case, 
 have a condition of extensive indebtedness before a 
 great panic can occur. 
 
 Catastrophe alone not sufficient to bring on panic. 
 
 —A great catastrophe may induce lower prices, but 
 it can of itself never bring on more than a temporary 
 money stringency or a flurry in general business, un¬ 
 less there is a great existing indebtedness to beget 
 widespread distrust. As an instance, the passage of 
 the Embargo and Non-intercourse act in 1807, 
 though it almost destroyed our foreign commerce, 
 was not sufficient to bring on an actual panic, there 
 being no excessive indebtedness at the time. The 
 great ten million dollar fire in New York City, De¬ 
 cember, 1835, was not sufficient to bring on a panic 
 or even to cause a cessation of the wild realty boom 
 then on, and because of the rapid rise in prices, to 
 the amazement of all, it did not even cause a failure. 
 Neither Black Friday nor the great Union Pacific 
 corner affected commercial and industrial lines to 
 any important extent. Likewise the San Francisco 
 fire failed to check the great business activity of 
 1906. 
 
 The failure of the great Panama Canal, though it 
 
BUSINESS CONDITIONS 
 
 157 
 
 hurt thousands financially, did not create a panic in 
 France, as it would have done had the shareholders 
 been indebted to banks, instead of having paid for 
 the stock out of their savings. 
 
 No commercial panic is possible when business is 
 contracted and on almost a cash basis, when mer¬ 
 chants are engaged in no hazardous undertakings 
 and old debts have been mostly liquidated, and 
 when everyone is practising economy, as is the case 
 two or three years after a commercial panic. Any 
 disaster happening then would simply tend to in¬ 
 crease the depression—there could be no important 
 recurrence of panic. 
 
 Rapidly growing countries suffer most from 
 panic.—To develop natural resources both capital 
 and credit are required. Success leads on naturally 
 to an extension of credit until it is stretched to the 
 limit, and hard times coming on find the borrower 
 unable to pay, as cash, not material resources, is nec¬ 
 essary for payment. Hence a rapidly growing coun¬ 
 try, with vast resources to develop, like the United 
 States, generates far more credit than an older coun¬ 
 try like France, for example, where the tendency to 
 overproduction and overextension of credit is much 
 less and where exports and imports do not vary so 
 greatly; therefore the former suffers much more fre¬ 
 quently and severely from the effects of panic. 
 
 We are a young, optimistic, enterprising nation, 
 exhilarated by the great opportunities before us, and 
 we are apt to overdo and to overstrain our credit. 
 Our business methods are as yet not fully estab¬ 
 lished. We are still, to a great extent, in the forma¬ 
 tive, experimental stage. Also our thirst for capital 
 is keener than that of any other leading nation, as 
 the direct result of our greater resources and the 
 
158 
 
 HOW TO FORECAST 
 
 
 task of developing them. The more rapid the prog¬ 
 ress made, the more frequent and acute are these 
 financial crises. 
 
 Investment buying in older countries.—Also, in 
 the older countries there is a large and rich invest¬ 
 ing class, who have money to buy stocks at panic 
 prices, and who loan when money is high, so miti¬ 
 gating to a certain extent the effects of the panic. 
 
 East feels panic worst.—In the United States pan¬ 
 ics start in the East, as it is the money center, and 
 a panic always begins in the financial markets with 
 an urgent demand for money. New York City, being 
 the chief money market, is the first to feel the ef¬ 
 fects. It is some time, generally a month, before 
 the panic is fully felt on the Pacific Coast. New 
 York City also feels it the worst, though many 
 smaller towns, owing to an insufficient supply of 
 money, may take longer to work out a recovery. 
 
 When crisis comes.—Says one writer: “When loan¬ 
 able funds and money seeking investment are ab¬ 
 sorbed, then the check thereby imposed on further 
 ventures brings on a crisis. Securities and goods 
 accumulate, an appeal to the banks is made (as it is 
 money that is needed), but they are unable to re¬ 
 spond (or disinclined through fear). A bargain sale 
 of goods and securities finally ensues in order to get 
 ready cash to pay pressing debts, and a crisis is on, 
 intensified by the widespread feeling of panic that 
 prevails.’ 5 
 
 Crisis not due to scarcity of money.—Because 
 money is hard to get in a panic, there has often 
 arisen a popular delusion that scarcity of money is 
 the cause of the crisis. In fact, however, there was 
 an abundance of money in 1837, 1857, 1873 and 1893, 
 the per capita circulation in each case being above 
 
BUSINESS CONDITIONS 
 
 159 
 
 or near the previous maximum, and there was also a 
 large amount of paper money compared to specie. 
 The crisis is due, not to scarcity of money, but to ex¬ 
 cess of credit. The banks, previously overloaned, are 
 compelled by the general fright to call in their loans 
 suddenly, and sometimes unadvisedly. 
 
 Why recent crises are world-wide.—“Recent 
 crises have been as world-wide as the extension of 
 the modern mechanism of industry and credit, and 
 the spread of the disturbance over a wider area 
 seems to mitigate its seve nty at a given point.” This 
 is due in large measure to cheap and rapid trans¬ 
 portation facilities, the telegraph and improved busi¬ 
 ness methods. A surplus in one market is conveyed 
 quickly and cheaply to another where a shortage ex¬ 
 ists, so that prices are better equalized. 
 
 Old wheat prices.—In 1840, one writer says, grain 
 varied 100 per cent, in price between England and 
 Prussia, and a deficiency of one-sixth in the English 
 harvest (which is a frequent occurrence in every 
 grain-growing country) raised prices there from 100 
 to 200 per cent. Wheat in England in 1243 was 6 s. 
 a bushel, 48 s. in 1246, 72 s. in 1257, and 28 s. in 1286. 
 Before the era of cheap transportation freight on 
 wheat from New York to Buffalo was more than 
 the wheat was worth. It took longer to send a mes¬ 
 sage from Wall Street to Forty-second Street in 
 New York City than it takes now from New York to 
 San Francisco. A crop failure in past centuries often 
 meant starvation; cheap transportation, better bank¬ 
 ing and business methods, crop rotation, etc., have 
 changed all this. 
 
 The civilized world as a partnership.—Now our 
 business relations with the rest of the world are fast 
 assuming many of the phases of a partnership, or 
 
160 
 
 HOW TO FORECAST 
 
 at least a mutuality of interests, so that severe 
 panics or reactions in one country soon find their 
 reflection in others. 
 
 It is the money market that is at the basis of all 
 financial operations, and the world’s capital becomes 
 every year more readily transferable from one 
 country to another. Hence money market con¬ 
 ditions affect all at about the same time. It is easier 
 now for New York to borrow money from Europe 
 and complete the transaction, than it was fifty years 
 ago to borrow it from Philadelphia. Alfred R. Wal¬ 
 lace says, “The ties of commerce unite nations alike 
 for good and evil, and render the property of each 
 dependent upon the equal prosperity of all the rest.” 
 
 Panic features.—When the panic is first on, we 
 pour into the outstretched hands of Europe, at 
 panic prices, our securities and our grain, and we 
 borrow at big interest rates or discounts all the 
 ready money we can get, to help tide over. At this 
 time the universal demand is for money and almost 
 any sacrifice will be made to obtain it. 
 
 Disturbance before and after panic.—A point 
 worth noting is “There is a distinct tendency towards 
 the occurrence of a pressure or disturbance almost 
 attaining the magnitude of a crisis at a time both 
 preceding and succeeeding the date of the crisis 
 proper. In several instances the interval, both be¬ 
 fore and after, has been two years. This presssure 
 usually occurs at the same season of the year as 
 the crisis.”* 
 
 Panics usually occur in spring or fall.—Panics sel¬ 
 dom occur in midsummer, as business is not so ac¬ 
 tive then and the demand for money is therefore 
 less. They generally occur in the spring or fall; in 
 
 * Burton on Crises, p. 30. 
 
BUSINESS CONDITIONS 
 
 161 
 
 the spring when the foreign drain of gold is likely 
 to be greatest, and in the fall when there is the lar¬ 
 gest demand for money to move the crops, and in . 
 some years to carry over summer accumulations of 
 manufactured goods. 
 
 Some differing features of securities and commer¬ 
 cial panics.—In a financial or stock panic the panic 
 itself is the main feature, as the depression follow¬ 
 ing it is short lived and limited in scope; but in a 
 commercial crisis, while the panic is severe, it is but 
 a secondary feature compared with the long and try¬ 
 ing depression that sets in thereafter. 
 
 The commercial panic affects not only financial 
 markets, but also manufacturing, mining, agriculture, 
 transportation; hence all lines contribute to the list 
 of failures, and their numbers and aggregate lia¬ 
 bilities grow for several years thereafter. In the 
 case of the financial panic, the maximum of failures 
 occurs in the first twelve months following and those 
 later on are relatively small; but after a general com¬ 
 mercial crisis failures will continue large for a series 
 of years, and will probably reach the largest amount 
 in one of the later years. 
 
 First failures.—When the panic starts, the first 
 failures occur mostly through inability to obtain 
 credit or to realize by immediate sales, whereas later 
 on the cause is more apt to be the shrinkage of 
 values and inability to pay because of exhaustion of 
 resources. During the early stages bankers and 
 brokers, and those whose obligations are payable 
 on demand, feel the pinch worst. Bankers are often 
 weighed down by the burden of unsalable stock or 
 bond issues. The banker is the broker in money 
 and credit, and most of his debts, are payable on 
 demand; therefore during a panic period he is be- 
 
162 
 
 HOW TO FORECAST 
 
 sieged from all directions, as the demand is for 
 money and ever more money. Brokers also are 
 among the first to succumb, as they have continu¬ 
 ally to borrow large sums of money and their obliga¬ 
 tions are payable in cash or short time paper. 
 
 Modern business is carried on mostly on borrowed 
 capital, in the form of bills, notes, checks and open 
 accounts. This is credit. It is the business of the 
 banks to issue and discount these evidences of credit, 
 therefore the banks are the storm center of every 
 panic. Less than five per cent, of the banker’s busi¬ 
 ness is in cash, and his main customer, the big mer¬ 
 chant, uses checks and paper almost entirely in his 
 business. The banker transfers credits. Checks and 
 notes constitute buying power and represent credit, 
 and back of all credit is confidence. Impair confi¬ 
 dence and the whole structure falls. 
 
 Business houses fall later.—Commercial houses, 
 having a long line of credits to fall back on and 
 being given time on their purchases, do not feel the 
 worst effects of the panic as soon as banks, trust 
 companies and brokers. They therefore do not fail 
 as quickly as the latter, but their turn comes later 
 on. 
 
 Farmers feel panic least.—The agricultural 
 classes are little affected by a securities panic, and 
 are slower to feel the effects of a commercial panic 
 than the rest of the country; in fact, they never feel 
 it as badly, and farmers seldom fail. This is be¬ 
 cause they incur but little indebtedness and their 
 assets are always salable, being food products. As 
 we must live, these are always in demand at some 
 price. 
 
 Runs on savings banks.—Before and during a 
 panic depositors start runs on savings banks, but 
 
BUSINESS CONDITIONS 
 
 163 
 
 most of them shortly after return the money to the 
 bank. Some, however, continue to hoard it, seek¬ 
 ing out naturally, through heredity perhaps, the hid¬ 
 ing places used by their ancestors.* 
 
 No money in Wall Street.—It is usually the case 
 that for several days during the height of the panic 
 practically no money is to be had in Wall Street at 
 any rate of interest. 
 
 Greatest fall is in securities.—In a panic the great¬ 
 est fall is in securities, as commodities, being in a 
 less liquid form and not so directly connected with 
 the money market, are not so easily affected and de¬ 
 cline more gradually. Stocks bear the brunt of the 
 excitement. 
 
 Industrials fall most in panic.—During a panic in¬ 
 dustrial stocks fall the most (especially the non-divi¬ 
 dend payers), as their business is less stable and will 
 feel the depression before the railroads. The greater 
 part of the shrinkage in stocks takes place during a 
 few days of great excitement on ’change. The 
 reason why the fall in stocks at the end of the 
 commercial panic period is not still greater is 
 that for several years previous stocks have been 
 very low. The greatest inflation in stocks ended 
 disastrously several years before, and prices 
 failed to recover their old level. Moreover, they 
 have fallen greatly the j^ear preceding the panic. 
 The stock market has been very quiet, the general 
 public being entirely out and professional specula¬ 
 tors being unable to raise sufficient funds to keep up 
 
 * It is impossible to form any accurate estimate of the amount 
 of hoarding that goes on before, during and after a panic. 
 Everyone who hoards knows that his act is making matters 
 worse, and he is therefore very secretive about it. Even large 
 capitalists are sometimes suspected of storing up gold or cur¬ 
 rency when a panic is imminent. 
 
164 
 
 HOW TO FORECAST 
 
 much activity. Hence there is no great indebtedness 
 in Wall Street, as compared with previous years. 
 
 Why gilt edge bonds fall.—Gilt edge bonds would 
 probably depreciate but little in panic times were it 
 not for the fact that so many institutions holding 
 them have to fortify their cash accounts by hasty 
 sales. In such periods as this only the best find sale 
 and then at rapidly falling prices. The great fall in 
 such bonds does not usually indicate fear of these 
 securities, but on the contrary, that they are so good 
 that they can be sold in the worst of times, when 
 poorer offerings have no market. 
 
 Government bonds fall least.—During a panic 
 there is for a time an almost complete lack of con¬ 
 fidence in everything except government bonds. 
 These fall but little and soon recoyer and advance. 
 Next to these in stability are state and municipal 
 bonds and the inactive securities of solid enter¬ 
 prises in the great financial centers, providing their 
 credit has been excellent in the past. 
 
 Security of principal now sought.—The extent of 
 the fall in securities, after the initial shock, natur¬ 
 ally depends first on the degree of confidence felt in 
 the security of the principal, the rate of interest cut¬ 
 ting but small figure for a time. 
 
 Foreign money attracted.—During a panic, when 
 interest rates rapidly advance, foreign money rushes 
 in to be loaned, as it is a natural law that money 
 goes where the rate of interest is highest, providing 
 it can do so safely. This helps end the panic by 
 supplying gold. 
 
 English buj\—The English, having closer business 
 relations with us, are apt to be among the first for¬ 
 eigners to buy our bonds and stocks during a panic. 
 The low prices tempt them, and being further re- 
 
BUSINESS CONDITIONS 
 
 165 
 
 moved from the seat of trouble, they generally have 
 a clearer and sounder view of the situation. This 
 buying helps to end the hysterical stage of the panic, 
 as it shows confidence on the part of foreign buyers 
 that the bottom has been reached. 
 
 Most people will not buy in a falling market.—It is 
 not human nature to buy on a declining market, 
 therefore prices in panic periods are not sustained, 
 but go greatly below the intrinsic value of the prop¬ 
 erty. 
 
 The psychological aspect.—The panic stage would 
 not be so severe if it were not for the psychological 
 effect of violently falling prices on the mind of the 
 speculator. Elis imagination conjures up the worst 
 that can happen, and in mortal fear of that worst or 
 of some bogie which he has created in his own mind, 
 he becomes panic stricken, and often acts like a 
 madman on that occasion; and the general loss of 
 confidence and depression of sentiment has almost 
 as much effect as the actual market depreciation. At 
 such times some of the excess excitement generated 
 must work off through the muscles or the results 
 to the brain would be serious. Even such a sea¬ 
 soned speculator as Jay Gould, when prices were 
 going against him in a panic and he was losing con¬ 
 trol of the assets of a big life insurance company, 
 suddenly administered a vigorous kick to a chair 
 opposite him and exclaimed “Wow, wow!” As men 
 become more intellectual and less emotional, this 
 psychological aspect of the panic is likely to grow 
 less important, a change which will eventually work 
 great good. 
 
 Who suffer most.—The wage earner and the re¬ 
 tailer suffer less during and immediately after a 
 panic than the manufacturer and wholesaler, because 
 
166 
 
 HOW TO FORECAST 
 
 a reduction in prices does not affect them so quickly, 
 and the decline actually benefits those who have 
 fixed incomes or assured salaries. 
 
 Material wealth little affected.—The effect of a 
 panic is not as widespread as it first appears; for 
 the material wealth of the country is but little af¬ 
 fected (except as it has been previously sunk in 
 permanently unproductive ventures—see John Mills 
 on Credit Cycles). Indeed, as Burton says, “Those 
 countries which seem to suffer most from these dis¬ 
 turbances show from decade to decade the greatest 
 increase in wealth and material prosperity.” Juglar 
 also says, “Paradoxical as it may seem, the riches 
 of nations can be measured by the violence of the 
 crises which they experience.” 
 
 Unfilled orders.—Unfilled orders help out bank 
 clearings and wages in a panic year, as compared 
 with the years that follow. 
 
 Stock exchanges closed.—Stock exchanges have 
 sometimes closed for a few days in times of panic, 
 in order to give the people time to recover from the 
 influence of the mad fear they are under. Often, 
 however, the closing of the exchange has merely 
 served to intensify the fright. 
 
 Clearinghouse certificates.—In recent American 
 panics the banks have relieved the situation by issu¬ 
 ing clearinghouse certificates, which circulate as 
 money until the hoarding of money is over, when 
 they are gradually retired. 
 
 First indications that panic is lessening.—The ces¬ 
 sation of the intense demand for money is the first 
 indication that the panic is ending, but confidence 
 will not be restored for some time thereafter. The 
 reign of terror ceases, but confidence, on which 
 credit is based, is slow to revive. 
 
BUSINESS CONDITIONS 
 
 167 
 
 Effect of high money rate.—“In panicky times the 
 demand on the banks for loans and discounts com¬ 
 pels bankers to raise the discount rate; this dimin¬ 
 ishes the demand for credit from those who can do 
 without; the high rate attracts capital abroad and 
 locally as well, and prevents also the calling in of 
 many loans which are continued at higher rates, and 
 so helps out the crisis considerably. After the acute 
 stage has passed, the demand for credit, because of 
 the arrested activity and the want of good collateral, 
 declines to a minimum, resulting in a great reduc¬ 
 tion of loans and discounts, while the diminished 
 demand for currrency sends it back to the solvent 
 banks, and results in the rapid piling up of specie in 
 their reserves.”* 
 
 Gold imports a turning point.—Gold imports mark 
 generally the turning point in the panic. The high 
 money rates and the small premium on gold or cur¬ 
 rency which usually appears at this time, enable the 
 banks to borrow gold in Europe. After this comes a 
 falling off in the demand for this European gold; in¬ 
 dicating that the situation is now being controlled 
 and that the worst is over. 
 
 Disposition now to do little or no business.—Dur¬ 
 ing a panic and for some time thereafter, there is a 
 strong disposition to do as little business as possible, 
 and to reduce indebtednesss as rapidly as may be. 
 
 * Chas. A. Conant, Yale Review , Vol. 9. 
 
XIV—Depression Following Commercial 
 
 Panic 
 
 Covering About Three Years After the Panic, and 
 Including the End of Liquidation. 
 
 [Note .—These conditions last prevailed in 1893-1896. 
 If the next commercial panic occurs in 1913 , for ex¬ 
 ample, they would be substantially repeated about 1913 - 
 1916 .] 
 
 T HE depression is that part of the twenty year 
 period after the panic, when a long period 
 of adjustment sets in, when lowest prices are 
 reached and resources are husbanded, so 
 paving the way for better conditions later on. In 
 general, this is a period of gloom, yet a necesssary 
 stage, leading up finally to the convalescence of the 
 patient. 
 
 Money in actual circulation shows activity of busi-, 
 ness.—It is the amount of money in circulation, and 
 not the amount in banks, that shows whether busi¬ 
 ness is active or otherwise. After a panic money 
 soon becomes abundant but everyone is too timid to 
 use or loan it, hence it remains stored up idle in the 
 
BUSINESS CONDITIONS 
 
 169 
 
 banks. There is a shrinkage of values, a diminution 
 of the use of money, stagnation in trade, decline in 
 manufactured output, and intense endeavors on the 
 part of business men generally to make both ends 
 meet. 
 
 Falling off in imports.—A rapid decline in im¬ 
 ports takes place as the people practice economies in 
 expenditures. Prices fall in all lines, so that impor¬ 
 tations of many articles become unprofitable. What 
 makes the falling off in imports seem even greater 
 is that a fall in values abroad takes place at the same 
 time. Hence even the same quantity of imports rep¬ 
 resents less money. 
 
 Gilt edge bonds.—The principal investments for a 
 while are those which have withstood the panic best, 
 as United States Government, state, municipal and 
 some other gilt edge bonds, on which the owner can 
 borrow money as he may need it. The small de¬ 
 mand that exists for bonds at first comes from the 
 banks, trust and insurance companies, estates and 
 cautious investors, these being the main sources of 
 ready money. Most individuals need their money in 
 their business or are too poor to have any surplus, 
 or have so little and are so ignorant on the subject 
 of investment that they prefer to place it in savings 
 banks to be invested for them. Some are so badly 
 frightened that they trust no one and even hide their 
 mone}*. 
 
 The bonds of cities have generally only a local 
 demand, and are therefore not as much favored by 
 the outside public as government bonds. The same 
 applies in a lessened measure to state bonds. The 
 bonds of the best and most favorably known states 
 and municipalities fall less, and are later on more 
 
HOW TO FORECAST 
 
 $70 
 
 eagerly sought after than of those not so well 
 known. 
 
 Government bonds first to rise.—United States 
 Government bonds are the first to rise after the 
 panic. The high price and small interest return are 
 for a while but little considered by purchasers, as 
 they still look principally to safety of principal. 
 
 Governments go through same paying up period.— 
 
 The United States Government, states, cities, coun¬ 
 ties, corporations and individuals, all alike go 
 through the same paying up period after a commer¬ 
 cial panic. All this reduces credits and so releases 
 money for general circulation. 
 
 Protests against taxes.—An indication that the 
 shoe pinches now is found in protests against high 
 taxes which were increased in boom times and were 
 cheerfully borne then, when realty prices were mov¬ 
 ing upwards, but which for some time past, with 
 declining values, have been a burden. 
 
 Social unrest.—-During the period of depression 
 before and after the commercial panic, the world’s 
 rulers are kept awake nights with the burning ques¬ 
 tions of the hour, and the people are demanding 
 greater rights. In America, as the people them¬ 
 selves are the ruling power, the position of the gov¬ 
 ernment is not so precarious. The unrest takes more 
 the form of antagonism toward the excessively rich 
 capitalist and his corporate enterprises. These agi¬ 
 tations, while in the long run evolving much that is 
 good, undoubtedly tend at the moment to intensify 
 existing conditions. Strikes also, on a falling market, 
 act in the same way, and often bring out some of 
 the worst phases of human nature. They are seldom 
 successful at this time, leaving both employer and 
 
BUSINESS CONDITIONS 
 
 171 
 
 employee in worse shape than before to meet the 
 depressing conditions. 
 
 Small business in Wall Street. —Brokers and 
 traders complain that the public now takes no in¬ 
 terest in Wall Street; yet everywhere and at all times 
 professionals are publicly predicting all manner of 
 evil happenings. Some one with courage starts an 
 incipient bull movement and everyone else immmedi- 
 ately sells short and yells “Panic.” Still they com¬ 
 plain that the stock market remains dull. The pub¬ 
 lic is seized with a condition of nervous indecision 
 and is content to do nothing. Prices go below in¬ 
 trinsic values owing to an almost entire absence of 
 purchasers and speculators. Securities susceptible 
 of easy conversion and those which retain their mar¬ 
 ket values the best are about the only ones purchased 
 by the public. 
 
 Pig iron. —The production of pig iron may show 
 a small increase just after a panic. If so, it is the 
 result of filling old orders, and does not come from 
 new ones. The amount of new orders received is 
 the better indicator of the times. 
 
 Exports increase. —Early in the depression our 
 exports increase, first because of the decreased pur¬ 
 chasing power of our people and the sale of what 
 we have on hand abroad at bargain prices. Later 
 the increase is due to still lower prices and enlarged 
 output—the fruitage of economy, enlarged manufac¬ 
 turing facilities, lessened wages, and the enormous 
 natural wealth at our disposal. Inventive genius is 
 also at work reducing costs, and labor, after futile 
 strikes, is much more tractable and efficient. All 
 these factors, backed up by dire necessity, open up 
 to us foreign markets that we had thought were 
 hopelessly closed against us. This enables us in 
 
172 HOW TO FORECAST 
 
 time not only to pay up our European debts, but 
 eventually to become the creditor ourselves. 
 
 Mercantile failures.—-Mercantile houses begin to 
 fail in great numbers about two weeks after the 
 panic. Comparatively few fail before then, being 
 those who happen to have, at that time, urgent calls 
 for ready money. The constant rise in values dur¬ 
 ing boom years enabled the half-insolvent debtor to 
 extend his liabilities from year to year on the 
 strength of the showing he could make by the aid of 
 the rise, while still increasing his volume of in¬ 
 debtedness. When this support is removed and 
 prices begin to fall, the decline soon dissipates his 
 equity, and he finds himself leading the list of newly 
 fledged bankrupts. 
 
 When most failures.—If the crisis itself were the 
 most important event, as in the securities or finan¬ 
 cial panic, the greatest number of failures would 
 occur then, but when the depression is the most im¬ 
 portant, as in all commercial panics, the failures are 
 large for some years and reach the maximum in 
 from three to five years—as after 1873, in 1878, and 
 after 1893, in 1896. 
 
 Assets realized.—The percentage of assets real¬ 
 ized from firms that fail two or three years after the 
 panic is less than from those that fail during the 
 panic year. The former have held on until the last 
 moment and have graduallly exhausted their re¬ 
 sources, and often a species of dry rot, as it were, 
 has set in; whereas the latter, having outstanding 
 obligations to meet that called for immediate pay¬ 
 ment, were compelled to fail while still owning as¬ 
 sets which later could be realized upon. Those who 
 fail later have exhausted this fund by the time they 
 
BUSINESS CONDITIONS 
 
 173 
 
 assign. Many of those who fail in panic times are 
 able to resume if dealt with leniently. 
 
 Interest rates fall when fear lessened.—When the 
 demands of the necessitous after a panic have been 
 satisfied or lefused, money accumulates in the banks 
 and interest rates fall correspondingly; not at once, 
 but as soon as the great fear has lessened. 
 
 Some of the hoarded money now spent.—The first 
 money that comes from hiding after a depression, 
 and when measures have been taken by banks to 
 prevent further hoarding, is the money actually ex¬ 
 pended for necessaries and overdue bills which must 
 be paid in cash. The actual depositing in banks of 
 surplus hoarded cash does not take place till later, 
 when confidence is more fully established. 
 
 Prices still falling.—After a panic values still fall 
 in many lines so that merchants continue to incur 
 losses, hoping always for the time when they can do 
 business on a safe, conservative basis. This time 
 will not come until values reach their bottom level, 
 expenses are cut to a minimum and frugal habits es¬ 
 tablished. In the meantime it is a case of the sur¬ 
 vival of the fittest. The weaker drop out one by one 
 and terminate their careers in the bankruptcy court 
 or in financial oblivion. 
 
 Raw materials fall most.—Raw materials now fall 
 more in proportion than manufactured articles. The 
 products of the soil, mines and forests have had the 
 greatest rise, and are, moreover, less affected by 
 combinations and trade agreements and so lack this 
 supporting element. However, the tendency, even in 
 natural resources, is toward larger ownership by 
 constantly decreasing numbers of persons. 
 
 Which stocks suffer most.—The highly speculative 
 stocks, which in boom times were active favorites 
 
174 
 
 HOW TO FORECAST 
 
 on the Stock Exchange, suffer more severely during 
 and after the panic than those that have not been 
 manipulated so extensively. Non-interest-bearing 
 stocks are, naturally, among the first to fall, go the 
 lowest, and are the last to rise. 
 
 Railroad earnings keep up better than industrial.— 
 The railfoads maintain their earnings better than 
 industrials, as some manufacturers endeavor to en¬ 
 large their output in order to make up for deficiency 
 in profits, part of their goods being, in many cases, 
 shipped abroad. Moreover, there is a rush after a 
 panic to realize cash at any price, and this also in¬ 
 volves transportation. Thus tonnage was larger in 
 the panic year 1893 than in 1892. A year after 
 the panic the railroads begin to feel its full effects, 
 as it takes some little time for business to subside to 
 the lowest level and so react fully on these great 
 highways of transportation, which represent in their 
 yearly business the volume of freight and passengers 
 transported during the year. 
 
 Railroads curtail expenses.—Railroads now curtail 
 expenses and reconstruction and so fortify their po¬ 
 sition. Absorption of some of the weaker lines usu¬ 
 ally takes place. Their high interest bearing obliga¬ 
 tions are refunded at lower interest, fixed charges 
 are scaled down, and speculative managements are 
 succeeded by more conservative ones. Later on, 
 aided by large tonnage from the crops and by gradu¬ 
 ally increased business, they are slowly lifted out 
 of their unhappy condition. 
 
 Imagination conjures up many fears.—In times of 
 severe depression the people go to extremes and im¬ 
 agine that the existing unfavorable conditions will 
 continue indefinitely and even develop into still 
 worse; that production is steadily increasing over 
 
BUSINESS CONDITIONS 
 
 175 
 
 consumption, and that other bad features are acting 
 more adversely than is really the case. Consequently 
 prices drop abnormally—a barometer, as it were, of 
 the fears of the public, rather than of actual condi¬ 
 tions. 
 
 People hold on to their money.—F\or some time 
 the people choose to do nothing, after their surfeit 
 of speculation, rather than run the risk of doing 
 wrong. Those who have money now hold on to it 
 with the grasp of anxiety and distrust, imagining in 
 almost every proposition offered a scheme to part 
 them from their precious belongings. Better to 
 leave their money idle in the bank or vault, they 
 think, than to venture it in such financial weather. 
 It is not until considerably later, when the bell weth¬ 
 ers in finance have ventured out and are undeniably 
 making money, that the masses acquire courage 
 enough to follow their example. 
 
 Business on cash basis.—After the panic, as credit 
 is partially destroyed, business has to get as near to 
 a cash basis as is possible under modern methods. 
 It is only after some little time, when the fright is 
 over and values cease falling, and when business 
 men know to whom it is safe to extend credit, that 
 credit begins to enlarge. This movement is slow at 
 first, especially as many prefer, because of small 
 margin of profit, to do less business and avail them¬ 
 selves of cash discounts. 
 
 Idle fund sign of stagnation.—The plethora of 
 funds on deposit is now an indication of suspended 
 industry and a barometer of the times. We are 
 likely to loan to Europe at this time, as interest 
 rates there may be higher; and this, with debt pay¬ 
 ing and taking back our securities, causes gold to be 
 exported. 
 
176 
 
 HOW TO FORECAST 
 
 We pay up foreign debts and take back our stocks. 
 
 —When a debtor finds it hard to pay a creditor, the 
 creditor is apt to lose confidence in the debtor. After 
 a panic, Europe as the creditor demands a speedy 
 settlement before doing any more business with us. 
 There follows a period of paying up our foreign 
 debts and taking back our stocks from abroad. This 
 continues through exports of gold and merchandise 
 until the indebtedness is settled and a large credit 
 balance accumulates in our favor, putting us finally 
 on a solid basis once again. 
 
 People working hard.—The people now settle 
 down to hard work in earnest to make up for the 
 losses sustained or debts incurred. We are con¬ 
 stantly studying now how to make our expenditures 
 less and our money and efforts more productive. 
 Overstocks are greatly reduced, even below what 
 they should be; extravagant expenses in living and 
 in business are within bounds; wages are universally 
 lowered, prices of raw material cut, and cost of pro¬ 
 duction in all its elements reduced, to enable business 
 to be done with as many chances as possible in its 
 favor. 
 
 Expensive houses vacated.—At this time many of 
 the finer houses are closed or offered for sale cheap, 
 and their occupants sojourn in boardinghouses, 
 which now increase and multiply, though often not 
 on a living basis. The numbers of such boarding¬ 
 houses is increased by many owners of homes who 
 now take in boarders in order to augment their slen¬ 
 der means, but too frequently this merely prolongs 
 their worries until the mortgage is finally foreclosed. 
 
 Back to the land.—The source of all wealth is 
 Mother Earth, so back we go at an early period of 
 the depression, to the tilling of the soil, working in 
 
BUSINESS CONDITIONS 
 
 177 
 
 mines and forests, and at the fisheries, to recuperate 
 our wasted fortunes and rebuild the sub-strata for 
 another upward movement in the future, producing 
 raw materials cheaper than before and thus cheap¬ 
 ening manufactures, opening up a foreign market, 
 and gradually increasing home consumption by 
 reason of low prices. There is and has been for 
 some time past a quiet but steady flow of population 
 from the city to the land. 
 
 Depression helps people the West.—-The depres¬ 
 sion attending a commercial panic increases emigra¬ 
 tion from East to West. In 1873 it peopled the 
 country west of the Missouri, and in 1893 added 
 vastly to the number of farmers about Omaha and 
 in the far Northwest. The East, being the manufac¬ 
 turing and business center, has no employment for 
 many of its people, so they go West, where the nat¬ 
 ural resources are the fountain of all wealth. 
 
 Rally from panic.—A year or two after the panic 
 there is a short rally, which is greater than is justi¬ 
 fied, and raises the hopes of the masses; but hopes 
 will not change actual conditions and depression 
 soon assumes full control again. After a panic many 
 entertain the erroneous idea that all that is neces¬ 
 sary to restore business to a paying basis is the res¬ 
 toration of confidence; but finally they realize that 
 confidence does not pay debts, but that every dollar 
 has to be earned, while their living expenses con¬ 
 tinue, and that the readjustment, though long and 
 irksome, must run its regular course. 
 
 Legal measures.—After the panic, if there has been 
 legislation which helped to bring it on or to intensify 
 the depression, laws are likely to be passed, after 
 long and tedious delays, to remedy the same; but, 
 unfortunately, not content with this, legislators are 
 
178 
 
 HOW TO FORECAST 
 
 apt to go further and endeavor by passing other laws 
 to help out the situation. Most such laws are 
 framed in ignorance, and the majority of them fail 
 of passage. The state legislatures being smaller and 
 less deliberate bodies than the national Congress, and 
 often ignorant or swayed by passion, are more apt 
 to enact hasty laws which leave a depressing influ¬ 
 ence. The mere discussion of many of these meas¬ 
 ures in Congress or in state legislatures retards 
 financial recovery. 
 
 A new political party.—The birth of a radical 
 party (or a great growth in some such existing 
 party) is an event likely to take place some time be¬ 
 fore this period, but it does not receive sufficient en¬ 
 couragement to be a really serious menace to the 
 public welfare, until later, when it is joined by many 
 of the farmers, now thoroughly discontented with 
 their lot because of low prices for their farm prod¬ 
 ucts. If not satisfied with the platform of this party, 
 the farmers may form one of their own. 
 
 Bankruptcy law passed.—Some time after the com¬ 
 mercial panic a bankruptcy law is generally passed, 
 if not already in existence, to allow the financial 
 wrecks to clear up their records and start anew. 
 
 Plenty of idle money.—During a depression money 
 is plenty, owing to a cessation of all but absolutely 
 necessary work and the consequent partial stagna¬ 
 tion in all lines of business. Again Western bank 
 money seeks New York City banks, in order to get 
 the small rate of interest paid on out of town bank 
 deposits. An increase in savings bank deposits in 
 poor times is not a positive indication of the better¬ 
 ment of the working classes, for some of it is money 
 that in better times would be invested so as to bring 
 in a higher return. 
 
BUSINESS CONDITIONS 
 
 179 
 
 Wreckage being cleared away.—Bank clearings, of 
 course, show less business done; yet the times are 
 really improving, inasmuch as the wreckage is being 
 cleared away, and we are no longer leaning on crip¬ 
 pled banks for support. 
 
 Money begins to find its way to Wall Street.— 
 
 When bank deposits increase so that they become 
 fairly burdensome, interest rates go still lower, and 
 money begins to seek Wall Street owing to the 
 decidedly better returns on stocks and bonds than 
 in business ventures. Later, these moneys help to 
 raise the price of Wall Street securities, but too 
 many safe deposit vaults still hold worthless stocks 
 and bonds and other evidences of speculation, for 
 the times to improve much as yet. 
 
 How long dull market lasts.—When prices are 
 high a dull market is not apt to last long, but when 
 it comes at the end of a long decline it may seem 
 almost interminable. In the former case the rise has 
 enriched the owners of securities and they are in a 
 position to do business, but the decline has entailed 
 heavy losses and has curtailed credits, so that the 
 dullness is of long duration at this time. 
 
 Capital not ready to act yet.—As long as the coun¬ 
 try is loaded down with an incubus of bad debts and 
 rottenness in firms and corporations continues to de¬ 
 velop, brought over as a heritage from the panic year 
 and augmented by the subsequent depresssion, cap¬ 
 ital is in a state of suspense and timidity. The fear¬ 
 ful investor will not place his money on any sort of 
 time engagement when unfavorable legislation, an 
 attack on the soundness of the currrency, a threat¬ 
 ened or actual war, or other causes which might at 
 any time loom up before him, would work him a loss. 
 
 Any future tinged with doubt and uncertainty 
 
180 
 
 HOW TO FORECAST 
 
 acts as a check on business enterprise, especially the 
 placing of capital in permanent investments, which is 
 so necesssary to the return of prosperous times. The 
 labor strikes attending the depression must be elim¬ 
 inated before a decided improvement takes place and 
 the unpleasant disclosures attending the panic must 
 become a thing of the past. 
 
 Competition now active.—Railroads are hauling 
 freight at a very small profit in order to keep busy, 
 doing as all are now d<3ing in an endeavor to in¬ 
 crease their profits or save themselves from loss by 
 transacting a large business even though at low 
 rates. Competition is active and later is made more 
 so by the accumulation of idle capital trying to earn 
 even a small rate of interest. 
 
 Agreements to restrict output now futile.—At¬ 
 tempts by individuals or corporations to sustain un¬ 
 natural prices by agreements to restrict production 
 are self defeating at this time, for the tendency of 
 capital is to favor the enterprises that are strong 
 enough to sustain themselves against the world. 
 
 Coming of good times may be delayed.—When 
 general conditions are favorable to a rise, the ad¬ 
 vent of good times may yet be deferred by the fear 
 of unwise financial tinkering of the laws, or by de¬ 
 mands of one of the great political parties that might 
 lead to an unsettling of values. 
 
 A trying period.—-The completion of liquidation 
 after a panic is marked by dull business, steady 
 prices, and a great increase in bank surplus. It is 
 at this period, in the very last stages of the depres¬ 
 sion, that the times are hardest upon the business 
 man, and it causes the heaviest drain on his already 
 lessened capital and his patience. It has been a 
 slow and tedious liquidation, especially to many 
 
BUSINESS CONDITIONS 
 
 181 
 
 who have lived too long the life of spendthrift heirs 
 to make the process a pleasing one, however healthy 
 and necessary it may be. 
 
 Why large crops and mineral output now.—Sev¬ 
 eral years after the panic, so many have gone into 
 developing the country’s natural resources and have 
 worked so hard at it that the result is apt to be 
 large crops and a great output of minerals and other 
 raw materials. 
 
 Purchasing power of people increased.—During 
 the latter part of the hard times the purchasing 
 power of the people is gradually increasing, and far 
 more than one thinks. This continues for a long 
 time thereafter. The lowest period of the depres¬ 
 sion, to the unobservant eye, appears to last several 
 years before there is any visible sign of improve¬ 
 ment. As a matter of fact, however, the period is 
 much shorter than this. Natural forces soon cause 
 either an advance or a further recession, abhorring a 
 period of inaction almost as much as nature abhors a 
 vacuum. 
 
 Savings banks.—During the depressed times be¬ 
 fore and after a commercial panic the prices of bonds 
 and choice stocks fall to a level that enables savings 
 banks to buy advantageously. Then after the re¬ 
 covery gets under way, the banks can increase their 
 rate of interest, and this helps to draw money from 
 hiding places. Such purchases often afford the bond 
 market support at a time when it is very acceptable. 
 
 Railroad bonds finally inspire confidence.—As the 
 process of foreclosure, liquidation and substitution 
 of lower interest bearing bonds nears its end, rail¬ 
 road securities, the bonds particularly at first, gradu¬ 
 ally itispire more confidence in t financial circles. It 
 is the old, tried, well-known issues that are wanted 
 
182 
 
 HOW TO FORECAST 
 
 at this time, and no new issues can be floated unless 
 they are unquestionable first liens on the best roads. 
 The successful flotation of new issues marks a period 
 of returning- confidence and shows that the crisis 
 feature is over and the depression is passing away. 
 Both banks and investors grow less cautious in their 
 selections as the supply of money keeps piling up, 
 and as good securities are gradually taken out of the 
 market and transferred to the strong boxes of the 
 purchasers. 
 
 Returning confidence.—Money piling up in the 
 banks instead of going into use, indicates an abnor¬ 
 mal condition—that fear still reigns in place of con¬ 
 fidence; but the accretion of funds steadily continues 
 until confidence gradually asserts its sway. The 
 growth of confidence naturallly depends on the force 
 of the shock it previously sustained, and on the vari¬ 
 ous surrounding conditions, favorable and unfavor¬ 
 able. But the knowledge that such great sums are 
 accumulating in the banks of the country is an im¬ 
 portant factor in restoring confidence. Such an ac¬ 
 cumulation of money acts as an object lesson and 
 tends ultimately to cheapen the value of money, de¬ 
 priving it of the false estimate that has been put on 
 it for some time past. Finally it becomes necessary 
 for the owners of this capital to get an interest re¬ 
 turn, and the money gradually begins to circulate 
 in businesss channels and thus to start up better 
 times. So again an extreme cures itself. Loans and 
 discounts are the best indices at this time of the re¬ 
 turn of confidence, and they form at all times the 
 best barometer of mercantile activity. 
 
 Duration of depression.—The depression that fol¬ 
 lows a securities panic is generally light and lasts 
 only about a year, but that following a commercial 
 
BUSINESS CONDITIONS 
 
 183 
 
 panic is far more severe and lasts from four to six 
 years. The greater the depression and the longer 
 continued, if the result of ordinary causes, the 
 greater finally will be the reaction; for it is during 
 this time that savings are accumulating, and the lar¬ 
 ger this fund becomes the larger is the amount to 
 draw upon when prosperity starts, and consequently 
 the greater the boom that follows. 
 
 Production checked and decline stopped.—Prices 
 have, in some industries, fallen to the average cost 
 of production or even below, and in all cases the 
 profit is now small. This has diminished production 
 and checked the decline, and marks the end of the 
 liquidation. The number of failures is still large, but 
 the liabilities are growing smaller. This indicates 
 that liquidation has reached the point where those 
 financially well fortified are producing cheaper and 
 marketing at less cost than their small competitors, 
 and that the trouble is now mostly confined to these 
 latter, whose insufficient capital is a severe handicap 
 and does not allow them to do a sufficient volume of 
 business at the lessened rate of profit to make their 
 business pay. They are unable to take advantage 
 of the many little savings that a larger concern can 
 put into operation; so that, while the large manufac¬ 
 turers and wholesalers are first to feel improving 
 conditions, the small manufacturers and dealers are 
 often still in extremis. 
 
 When lowest point may be expected.—The lowest 
 point of the depression is usually in June or July, 
 when most business lines would naturally be most 
 affected by the approaching midsummer dullness. 
 
 Confidence returns when once bottom is reached. 
 —Much capital remains idle and dividends dimin¬ 
 ished or discontinued until the liquidation has been 
 
184 
 
 HOW TO FORECAST 
 
 thorough and business is mostly down to a cash 
 basis, with short time credits, economy in manage¬ 
 ment, investments strictly non-speculative and on an 
 interest basis, new enterprises almost eliminated, and 
 prices so low as to meet the necessities of the con¬ 
 sumer and so create a market. At length nearly 
 everyone becomes satisfied that the bottom has been 
 reached, and from then on confidence gradually 
 grows and forms the basis of new credits; for there 
 is nothing that will undermine confidence, and hence 
 credit, like falling values. 
 
 When to buy.—One writer has said that the time 
 to buy is when the decline caused by a panic has 
 produced such liquidation that loans and discounts, 
 after steady and long continued diminution, either 
 become stationary for a period or begin to increase 
 progressively, coincident with a steady increase in 
 available funds. It is this period in the stage of pro¬ 
 gression that we have now reached, when the bot¬ 
 tom has been touched and the tendency, though 
 often so slow as not to be realized, turns upward. 
 
 First year of betterment.—The year that shows the 
 greatest number of failures is the period when the 
 first signs of betterment are noticeable—it is the 
 clearing up of the atmosphere after the storm. 
 
 Even low interest rates attract idle capital.—When 
 the masses are satisfied that the bottom has been 
 reached (for there can be no hope of recovery until 
 faith in the permanence of values can be re-estab¬ 
 lished), even a low rate of interest serves to attract 
 capital and to start enterprises that can now be made 
 to pay, even at low prices; for interest, wages and 
 raw materials are all corrrespondingly cheap, and 
 the population which represents the demand is in- 
 
BUSINESS CONDITIONS 
 
 185 
 
 creasing much faster than is allowed for by the pro¬ 
 ducer. 
 
 A slow rise in prices.—Production has now fallen 
 below what is sufficient to keep up with the increase 
 in population. After this condition has existed for 
 some little time, surplus stocks become thoroughly 
 exhausted and competition in demand causes the ffrst 
 rise in prices. This soon induces greater production, 
 and finally the increasing demand makes new invest¬ 
 ments attractive. Until this rise in prices takes place 
 the average merchant does not feel any decidedly 
 beneficial effects from the changing conditions. 
 
 Europe sells back to us our best stocks and bonds. 
 —Tempted later by higher prices, Europe now re¬ 
 turns to us some of our choicest bonds and stocks, 
 and so delays the inflow of gold into this country 
 for some time after one would naturally expect it to 
 flow toward our shores. 
 
 It has taken up to the present time for us to pay 
 up our European obligations and to have an accumu¬ 
 lating surplus there to our credit. The process has 
 been long and tedious and has needed some good 
 crops to help out; but until this has taken place, no 
 real prosperity can be expected, as our surplus capi¬ 
 tal, instead of being used at home, is being diverted 
 abroad. 
 
 Increase in purchasing.—The period of limiting 
 one’s purchases to less than one’s needs, let alone his 
 desires, is passing away, and long felt wants now 
 begin to find expression in increased purchases. 
 The years of enforced economy and hesitation are 
 passing. 
 
 A land movement now.—Towards the end of the 
 depresssed period, about the third or fourth year 
 after the panic, and especially if the previous year 
 
186 
 
 HOW TO FORECAST 
 
 has seen a good crop and good prices, a land buying 
 movement of large proportions will set in, due to 
 the fact that the farmer has suffered less than any 
 other class, to the increase in population, and to the 
 fact that dull business in the cities has driven many 
 back to the land. Land has paid the best of all in¬ 
 vestments and farmers have suffered the least. The 
 saving habits of the farmer, now long enforced, with 
 a fairly good price for his crops, have made him well 
 to do and have given him a balance in the bank. 
 This he naturally puts back into the land, for the 
 benefit, often, of his children, who have increased in 
 number, and some of whom have reached an age 
 where they need more land to cultivate. Also, a 
 number of the younger generation have themselves 
 saved up enough to make first payments on account 
 of land purchases. 
 
 Recovery slow.—The recovery of the business 
 world from its long period of depression is like that 
 of a sick man from the effects of a severe illness. It 
 is slow and tedious and there are times when reac¬ 
 tions set in that for a while dash the sanguine hopes 
 of the patient and his friends. But while slow it is 
 sure, and the rising sun of prosperity finally floods 
 the land with its brightness. 
 
 People live on higher plane.—In each new period 
 of prosperity the people reach a higher plane of con¬ 
 sumption and enjoyment than ever before. 
 
 We have gone through the changes of the twenty 
 year cycle, with its good and bad times, and have 
 now caught up to the period mentioned in the first 
 chapter of this book. 
 
 Panic features lessening.—It is difficult at present 
 to forecast how severe the next panic will be, owing 
 to the 1907 panic having occurred—an experience we 
 
BUSINESS CONDITIONS 
 
 187 
 
 did not have prior to other commercial panics; but 
 there is no doubt that in time the panic feature will 
 be practically eliminated, and the depression that 
 follows greatly mitigated. In fact, this has already 
 occurred in the case of the financial panic, for 1903 
 was nothing like as severe as 1884. 
 
 Superior business and banking methods; the rapid 
 development of our country’s resources, passing 
 from a speculative to an investment basis; the great 
 accumulations of capital and the growth of a large 
 investment class; better transportation facilities and 
 growing solidity of our railroads, which are now 
 past the experimental and competitive stage; the 
 lessening of adverse and purely theoretical legisla¬ 
 tion which is bound to come; the abandonment of 
 schemes of inflation or unwise tampering with the 
 currency, and the passage of necessary laws regu¬ 
 lating our banking and circulation systems; and our 
 better handling of the situation when the crisis is 
 on, as a result of past experience—all these factors 
 will work together to modify the effects of future 
 panics and depressions. 
 
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