3?S UNIVERSITY OF ILLINOIS-URBANA 3 0112 062003667 i ILLINOIS 14 Railway Purchases Measure General Business Prosperity ADDRESS BY E. B. LEIGH At the Annual Meeting of the Railway Business Association December 11, 1913 # (J) — m 0) W E ~ oj i ° 0) J * j Q TO O £ §5l = a £ 221 •4s o 2«» t J^ 0) — «25 Ia ^ < p _2>>«s^~J a+- i0 Sw' 17 c o •2 j* • +- ro 9 a - *5sp * a ^^^=2^ en — «»8. i|lii c a § a c a * c G a c a c 5 c f a | c i £ , s a S *f 5'gt 3 1 ■ I p I < r c. < c t C c c e t c I c t o c c c c « * •< C c 1 03 <<- ^ If b JS ■ «+. o * A O 1 X vE A \p Railway Purchases Measure General Business Prosperity Address by E. B. Leigh President Chicago Railway Equipment Co. Delivered at the Annual Meeting of the Railway Business Association, the national organization of manufacturers of railway material, equipment and supplies, at the Waldorf-Astoria Hotel, New York, Thursday Morning, December 11, 1913 * What is the matter with general business ? What can be done to restore activity? There are conclusive grounds for believing that the largest single factor in the present interruption and rapidly approaching business depres- sion was and is the enforced and con- tinued curtailment of railway pur- chases. No factor which could now be introduced into the situation would do more to stimulate general business out of its present and impending con- dition than a vigorous resumption of railway expenditures. This conclu- sion, while applying to the state of affairs at this moment, is based upon a careful study and comparison cover- ing many years, showing the relation between railway purchases and gen- eral business. .. j$ STIMULATING EFFECT OF RATE ADVANCE The results of this careful and de- tailed analysis are presented at this time in the hope that the painful ex- perience with which the country is afflicted and further threatened may yield us at least the dividend of know- ledge upon which to base future national policies. Indeed, it has an immediate and urgent bearing upon a policy which the government is at this moment engaged in formally con- sidering. If the conclusions drawn from past experience are correct, and if even the small advance in freight rates now asked for by the Eastern railroads would enable and encourage them and other roads to make con- siderable outlays at once, such an out- come would directly result in a decided restoration of general business ac- tivity. REMOVE ARTIFICIAL RESTRICTION It is not for a moment proposed that railways shall be permitted advances in rates in order that unnecessary purchases may temporarily benefit the railway supply industries or even the whole country. Waste never perma- nently benefits anybody. It is not unnecessary purchases which are under discussion. Railway facilities are in- sufficient to meet any considerable in- crease in tonnage. The proposition is not to over-stimulate but to remove an artificial restriction, in the shape of rates too low. The greatest danger at this moment is delay. It is well recognized that it requires a greater force to start from inertia than to continue a mo- mentum already established. The sooner the Commission can issue a favorable decree the more certainly will the influencing power of railway purchases be effective in the restora- tion of general business. RAILWAY PROSPERITY MEANS GENERAL PROSPERITY Not many years ago, comparatively few business men, aside from those directly selling to the railways, realized that railway prosperity meant general business prosperity. The past few years, however, have witnessed a steadily growing recogni- tion of this fact on the part of busi- ness men generally, until to-day it is substantially an accepted doctrine. There is wide-spread confusion, however, as to what constitutes "rail- way prosperity," often the result of the popular error of accepting the in- creased earnings of some particular railway, or the naturally growing gross earnings of railways generally as pro- claimed by the public press, as being indicative of "railway prosperity." Much is now being written regarding decreased net earnings and the many other evidences that the railways gen- erally are by no means prosperous in the true sense of the word, or as determined by the true tests applicable to all business enterprises. RAILWAY PURCHASES "MEASURE" PROSPERITY It is believed that the watch-word "Railway Prosperity Means General Business Prosperity" should be changed to read: "Railway Purchases Measure General Business Pros- perity." Inasmuch as the railways of this country constitute its greatest industry next to that of agriculture; with but one thing to sell — transportation: the ultimate consumers of everything they \ buy: their purchases extending sub- stantially throughout almost every de- partment of business: many of them on n tremendous scale, — it must be obvious how potent a factor they are in general business conditions. As the iron and steel industry has long been recognized as being the truest index of general business con- ditions, and as the statement has been reliably made that the railways con- sume, directly and indirectly, between 40% and 50% of the iron and steel production of the country, it is mani- fest that the expansion or restriction of railway consumption must vitally affect this barometer. The ramifications of railway pur- chases make it impossible to classify them in the aggregate. But few of the more important items, such as rails for example, are made the subject of public information and statistical com- • pilation. However, the conditions under which rail purchases are made are not believed to be such as to reflect the railways' prosperity, or their pur- chasing ability in a broad sense. EQUIPMENT PURCHASES AN INDEX Many years of observation have led to the belief that of those items officially compiled, tabulated and made public, perhaps no one so clearly and typically reflects the railways' general purchasing ability as that of new - equipment. When the railways are buying freely of new equipment, they are generally likewise buying freely ,* of all other articles essential to main- * tenance and operation. Within the past few years the purchasing of new equipment has had a greater influence upon the iron and steel industry be- cause of the transition from wooden to steel construction. One branch of the speaker's business being that of making and supplying a necessary article used on railway car equipment, he has been led to make a close study of the effect of railway purchases of new equipment upon general business, and long since be- t came more than convinced that there was no one more important factor in the development of general business activity than that of the active pur- chasing of new equipment by the rail- ways. He further fully believes that railway equipment purchases, with naturally attendant influence upon the great volume of other railway pur- chases, not only initiate general busi- ness prosperity, but are necessary to sustain such prosperity. RAILWAY REVIVAL ANTICIPATES GENERAL It has been observed for many years past that the railway supply industry has been the first to recognize, and to participate in, a revival of general business; likewise the first to detect the signs and feel the effects of its impending decline. It is well known in many quarters that since 1907 railway purchases have been affected (and in large measure curtailed) by causes other than those which influenced them in preceding years, — chief among these being gov- ernmental control and restrictions. It has, however, become quite ap- parent that since the year 1907 "rail- way purchases" as a factor in general business conditions have been evi- denced with increasing clearness, and brought into more prominent notice by these who attempt to follow the trend of general business. » Reviewed by years, and since what is known as the "money panic" of 1907, we find the following con- ditions : 1908 LEAN YEAR 1908: The year 1908 was notably the leanest of business years, notwith- standing bountiful crops and plentiful money. It was likewise the year in which the smallest number of cars were ordered, namely, 62,999, and the minimum of railway purchases made for many years. BEGINNING OF REVIVAL J pop: The conditions of 1908 were continued well into 1909, but the last half of the year witnesses a substan- tial buying movement by the railways, the total cars ordered for the year aggregating 193,874, nearly 70% of which, however, were ordered within the last four months, with particularly heavy orders in November and De- cember. This gave a fairly good business year, with a heavy "carry over" to 1910. UP AND THEN DOWN AGAIN ipio: General business promptly followed, and with the heavy "carry over" business from 1909 referred to, coupled with fairly good buying on the part of the railways during the first six months, made the year 1910 a still better year than 1909, although the total of car purchases was only 145,085. The falling off in car orders after the middle of the year was duly reflected in the decline of business until at the end of 1910 the proba- bilities of 191 1 were clearly fore- shadowed. DEPRESSION IN ABSENCE OF BUYING ion: The decline in general busi- ness, together with the falling off of railway purchases continued through- out almost the entire year; but at its close a buying movement on the part of the railways set in. The total num- ber of cars ordered for the year were !35»740, nearly 30% of which were placed at the very end of the year, and necessarily carried forward into 1912. PURCHASES OFFSET UNCERTAINTIES 1912: We reached a high point in railway purchases about May, 1912, continuing with normal purchases for most of the remainder of the year, again reaching a high point at the very end of the last quarter, the total car purchases being 238,400, the largest number in any year since 1906. It is here significant to note that the fore- going conditions in railway purchases were followed by a phenomenal re- vival of general business during the last half of 1912 ; this too in the face of a national election fraught with more uncertainties as to its outcome than any we have had for years. Business seemed to ignore these con- ditions, however, while the heavy pur- chases made by the railways filled the steel mills of the country with orders toward the close of the year, so over- taxing their capacity as to compel buyers to anticipate deliveries by orders placed four, six and even nine months in advance of shipping dates, — a condition heretofore unprece- dented, while general business as- sumed almost the aspect of a boom. PURCHASES DECLINE, PROSPERITY THREATENED ipi 3: The heavy purchases of new equipment continued during the first three months, but sharply declined at the beginning of the second half of the year; almost immediately sinking to the lowest level reached these several years. It was here that the "danger signal" was set by this ba- rometer; but naturally general busi- ness did not immediately feel this fall- ing off of railway purchases at the time (because of the accumulations), nor in fact until quite recently, being sustained by the "unfilled orders" on hand, or what may properly be termed the "unspent momentum." The conditions clearly foreshadowed at the middle of the year, and ac- centuated every month since, are now ^ upon us, and what have we to look forward to after January 1, 1914 ? If the railways do not resume purchas- ing on a fairly liberal scale, we are 4 certainly facing a very depressed busi- ness situation. It is believed that the great major- ity of business men have failed to recognize the real situation, and that the now noticeable decline in business is being attributed to other causes. IMMEDIATE ADVANCE MIGHT HAVE AVERTED DEPRESSION Had the railways been granted the 5% advance in freight rates which they sought last June, it would not only have restored great confidence in railway credit, but would undoubt- edly have been followed by a buying movement which, if on but an average scale and within the limitations of money conditions, would have so far reinforced the large volume of "un- filled tonnage" as to have obscured the several now existing uncertain elements, just as these same elements (when in prospect) were practically ignored during the latter part of the year 1912 and the early part of 1913. The illustrations given above are believed to be sufficiently significant, if not conclusive. They may be car- ried back over any number of years, and with the same result shown. Is it merely coincidence, or is it cause and effect? PULSE OF BUSINESS While financial or money conditions • are essentially fundamental to "rail- * way purchases" as well as to every business enterprise, nevertheless, any- thing which affects "railway pur- chases," be it lack of money, inability to secure it on favorable terms, or unwillingness to use it, must work to the same common result. If the iron and steel industry, here- tofore broadly recognized as the great barometer of general business condi- tions, and as basic to them, is depend- ent upon "railway purchases" to the extent of the absorption of 40% to 50% of its production, how much more really basic are "railway pur- chases" as the initial force in starting and sustaining the circulation of gen- eral business? Are they not mani- festly the pulse of general business? RAILWAY BUYING POWER AFFECTS EVERYBODY It is confidently believed that the sooner this country, as a whole, recog- nizes this basic relation of "Railway Purchases," the sooner we will deal intelligently with this controlling factor. In conclusion one prominent thought is urged, namely: that it is not the railway supply industry alone that is so vitally affected by "railway pur- chases," as is generally supposed. From its nature, the railway supply industry is logically the first to feel their effects, but every business in- terest, every business man, large and small, and all those dependent upon them, are each in turn affected, favor- ably or unfavorably, by the relation undoubtedly existing between "railway purchases" and "general business prosperity." REQUESTS FOR COPIES of this pamphlet will be welcome from all those desiring to place it in the hands of their representatives or friends. Copies fur- nished or sent direct to lists upon application to Frank W. Noxon, Sec'y. Railway Business Association, 30 Church Street, New York. Form B133 0112 062003667