TO HB 3743. JS""*" """^'^Ity Library ,.,^'J industrial crises, 3 7^ 5" IJZ Six Industrial Crises BY CHARLES C. JACKSON JUNE 1913 2fcuj lark ^tatc afoUcgc of Agticttlturc Tit OJotncU ainitierBittg jrtliata, N. 1- ffiihraca Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013707231 SIX INDUSTRIAL CRISES BT CHARLES C. JACKSON ASSISTED BT ALBERT B. COOK JUNE 1913 BOSTON [EO. B 1913 PRESS OF GEO. H. ELLIS CO. i ' CopjTight, 1918, by CHARLES C. JACKSON Boston, Mass. INTRODUCTION The necessity of maintaining proper bank reserves has been recognized for a long time. We recognize that it is necessary, not merely in order to prevent runs on banks and bank panics, but also to ensure that the banks shall always give to active business men the proper loans. If these sup- plies of cash are not to be had by business men, business halts, and production and consumption suffer. Reserves of two other things are just as necessary to main- tain as bank reserves : namely, reserves of consumable com- modities — that is, of food, fuel, clothing and materials for shelter; and reserves of investing power — that is, of the power to buy and put away securities. If the reserves of these two things fall too low, prices of commodities become absurdly high, owing to their scarcity; and soon the buying of them is restricted and business is deranged, and "bad times" set in. The need of maintaining these latter two reserves is apparently not recognized, except by the "bears." * Of course therefore, the indications, at the times when these * Just now, as I am writing, June 17, 1913, the public is being greatly encouraged to hope that our economic difficulties are mainly over, simply because the New York banks have greatly increased their reserves. ,No comment is made on the fact that the prices of commodities are falling violently, that business failures are 25 per cent, greater than they were last year, and that the prices of best bonds are now lower than they have been at this time of year in any year since 1893, except in a time of absolute panic. This shows how greatly underrated by the public is the importance of the changes in the prices of commodities and in the investing power of the community, and how entirely their observation is confined to changes in the cash reserves of the banks. reserves are not properly maintained, are not heeded. There were perfectly definite indications of this last autumn, and also exactly the same indications in each of the other autumns which preceded a business crisis in the past twenty years. Moreover there were indications, very nearly the same, in the autumn which immediately preceded each of the three previous crises, those of 1857, 1873 and 1884. If proper precautions had been taken, when these indica- tions were first given, the severity of the subsequent bad times could probably have been greatly mitigated. The fundamental error, in reasoning about economic matters, lies in a confusion as to the meaning of the word "money." Last autumn business men were rendered some- what cautious by observing that "money was tight" both for mercantile purposes and for investment; but because the prices of consumable commodities continued to advance, and consumption was large, business men felt that general business must be in a healthy condition. Now they always say "money must be raised" in order to build a railroad or other piece of permanent property. But they do not remember that, while gold and paper dollars and bank checks are important instruments, the materials with which to build the property and the things needed to feed and clothe the industrial army that really builds the property, are "consumable commodities." If they remembered these facts, they would see that the word "money," as meaning what is really needed for the building process, should include consumable commodities. If business men had included consumable commodities in their conception of the meaning of the word "money," they would have felt very apprehensive last autumn because of the obvious indications that there was a great and grow- ing scarcity of consumable commodities as well as of cash. These obvious indications were the rise in the prices of these articles in the face of tight money and of a lessening of investing power, and the frequent trade statements about the pressure on manufacturers for deliveries. There is a curious fallacy, which impedes the proper inter- pretation of the occurrences preceding each industrial crisis : namely, that high prices of merchandise, even when the rise is pushed very far, are always encouraging and are a sign of business health. In fact they are frequently, as they were last autumn, one of the signs of an exhaustion of purchasing power. See Chart No. 1. They mean simply that we have been consuming merchandise too fast, so fast that the demand outruns the supply. Of course a great rise in merchandise prices gives pleasure to active people, and creates optimism, because it greatly helps the profits of merchants and manufacturers who always own many commodities. Therefore, although an excessive rise is always followed by a derangement of business and "bad times," such a rise comes to be associated in the public mind with "good times." Most people remember only that, during the prolonged bad times, prices of commodities were low, and therefore they think that "overproduction" does all the harm. A little study must convince any think- ing man that overconsumption is what generally deranges business, and that "overproduction" is the result of the subsequent underconsumption. There is also a curious blunder, which people make, in regard to the order of events in industrial crises. The charts show that a serious decline in the stock market, and a serious decline in the prices of commodities, and a decided increase in the volume of failures, have always preceded the very striking event which people remember as coming at the beginning of each depression. It is generally said, even by the most intelligent people, that the beginning of a revulsion usually comes with a financial failure. This is certainly not the case. For instance, in the 1907 period prices of commodities were at their highest in March 1907, and stocks had declined steadily since 1906; but the strik- ing failure, which people remember, was in November 1907, the failure of the Knickerbocker Trust Company. Again, whoever takes the trouble to compare the date of the strik- ing event in 1873, the failure of J. Cook & Co., with the records of prices, etc., as they appear in these charts, will see that this striking failure occurred long after the re- action had begun. In order to learn how to avert industrial crises, or even how to mitigate their severity, we must first understand how crises grow and how they result, and what "good times" means. Then we must fully appreciate that "bad times" means real and absolute poverty, caused by a paralysis of producing capacity; and that this paralysis comes, not because of any failure in our producing ability, but because of serious derangement in the process of dis- tribution. And thirdly, we must understand what is the proximate cause of "bad times." When we fully understand these things, we shall, I believe, be convinced 1. That a crisis and a reversion to "bad times" usually arise .chiefly from exhaustion of supplies of consumable commodities, and from exhaustion of purchasing power. 2. That these exhaustions can be foreseen and acted on, and lessened and palliated, by intelligent and controlling men earlier and to better purpose than they are now. They are nowadays first dimly perceived and first checked by ordinary consumers and investors. 3. That, in order to bring about this earlier and in- telligent recognition and effective action, intelligent men must be led to see that quick capital can be, and in the six crisis periods of the last forty years has been, exhausted; that "money" includes consumable commodities as well as cash and credit; that a rise in the prices of consum- able commodities is sometimes a proof of an exhaustion of supplies, instead of being a proof of health in business; and that a decline in the prices of the best bonds is a proof of an exhaustion of the purchasing power of investors. 4. That intelligent men must be compelled to observe 6 these signals, as well as to understand their meaning when observed. 5. That we must therefore ask ourselves how this obser- vation of intelligent leaders can be compelled, and whether it can be compelled by Government publication, as the observation of bank reserves and of crop conditions and of meteorological conditions is practically compelled. I suppose that the two principal causes of an ordinary culmination of prosperity and reversion to adversity are: First, a widespread optimism which is generated by good business, long continued. This optimism leads everybody to consume food, fuel, clothing and materials for shelter more freely, and to be more careless as to what he pays for his living; and also leads very many people foolishly to extend their business undertakings, and foolishly to increase their debts. Second, a widespread and passionate desire to construct permanent property. This desire is felt and yielded to by the managers of great undertakings, like Harriman, Hill and Mellen; and their efforts are seconded by dealers in securities, and by lenders on them, who get profits in raising new capital, and by manufacturers of steel, cement, lumber, etc. These two things are the chief causes of expansion of all kinds, and of extravagance and recklessness, and of ex- haustion of our purchasing power, and of the high prices of commodities. Subsequent to these latter come timidity, and restriction of consumption of commodities; and busi- ness failures, and excessive suspicion and weakening of credit; and perhaps panic, and long continued business de- pression and paralysis. Of course the construction of streets and buildings by public authorities, and the waste by incidents like the Balkan war, and the unsettlement due to radical changes in import duties, are at times contributive causes; but they are of far less importance than optimism and love of construction. PART I Here we are on this planet, surrounded by uncertainties. Every man is bound to help to dispel these uncertainties so far as he can. The uncertainties as to when industrial crises will occur, and as to what causes them, are among the most serious uncertainties which we have. Everybody must wish that we could clear up these uncertainties, and must hope that we shall eventually find some means of averting the crises. Careful observation and comparison of the occurrences, which have preceded each of the six crises which we have met since 1872, may help us. The accompanying charts have been made to facilitate this study, because the magnitude of the changes in the various departments of economic activity, and the similarities of these changes at different periods, are more obvious on charts than in figures. Since we all remember the events, which preceded the present "bad times," very clearly, we had best see what deductions we can draw from a study of the present crisis, and from a comparison of it with the other five. Chart No. 1 shows that certain things occurred simul- taneously last autumn; and a study of the other charts, showing the simultaneous occurrence of similar events at other crises, leads to the belief that every concurrence of these events is a danger signal. These simultaneous occur- rences were a great increase in the consumption of iron; a great increase in the prices of consumable commodities; 9 a great increase in bank loans, and in the rates of return on the best bonds at their market prices; very high rates of discount for commercial paper; a great decline in the reserves of all the national banks of the country; and a striking decline in the stock market. Here were seven striking incidents. One would not expect these incidents to be absolutely simultaneous at four peculiar periods, and very nearly simultaneous at three other similar periods, unless some one, strong, underlying cause has existed at each of these periods. In the 1873 and 1884 periods prices of commodities culmi- nated and began to decline two years before the year of crisis. As we have not monthly prices for those periods, but only prices on January 1st of each year, we cannot tell whether a rise came in the autumn of 1872 and of 1883, as it did in the autumn of 1892 and in the autumns of 1902, 1906 and 1912. For the period covered by Chart No. 1, the rates of return on best bonds, and the rates of discount for commer- cial paper, are given only in figures, instead of in lines on the chart, for the sake of greater clearness. Of course the first question is what has happened, since last autumn, to change business from "good" to "bad"; to send prices of commodities down and the volume of failures up; to turn strong optimism into pessimism of a black hue.'' The colored lines on Chart No. 1 show that we were confident last autumn for, if we had not been, we surely should not have kept on increasing our consumption of iron, and increasing our bank loans. The particular thing, which we can see most clearly as 10 a cause of this change from "good" to "bad" times, is a sharp lessening of the consumption of consumable commod- ities, and a decline in their prices.* Of course this decline in prices has increased failures among the merchants and manufacturers who deal in the commodities, because these dealers are suffering a steady loss on the materials and products which they must always have on hand. The next question is what brought about this lessening of the consumption of consumable commodities. The chief reason for this lessening of consumption un- doubtedly was the rise in the prices of commodities. This rise, taken with the threatening look of the money market, disgusted and worried consumers. Could this rise in prices have been checked earlier in the day.'' The rise was in fact checked by the timidity and caution of the great mass of consumers; but it was not checked until it had gone very far, and had created a very unstable situation.! * There seems to be no other conceivable cause for the drop in prices, which began last December, than a lessening in consumption. And as showing that last December this lessening of consumption did occur at the time when merchandise prices were at their highest, there then began to come stories of a falling off in sales of merchandise here and there. These stories have increased as time has gone on, and now we hear that many mills have stopped or have curtailed pro- duction; and the sales of steel are said to be at a rate only half as great as the rate of production of steel. t Our country is showing great economic strength by its excess of exports over imports, and everything seems favorable for the coming crops. Moreover the crops of the world in general are looking better than usual. But the locking up of quick capital, which comes in this country mainly through excessive construc- tion, and apparently comes an Europe mainly through sending capital out of the country and taking securities in place of it — this locking up of quick capital seems to be very serious among all the civilized nations. There seems to be some reason for looking upon the present situation as the beginning of a reaction after a business boom which has lasted since 1897. The checks of 1903 and 1907 seem to have been comparatively unimportant. Dur- ing this sixteen years of boom the increase in debts and the increase in the rate 11 Now it seems worth while to ask whether we, business men — we Httle ones as well as the leaders of the business world, the great constructors like Hill and Mellen, and the many less known, but very efficient, initiators of con- struction in the way of city buildings and of water powers, and the bankers who are closely associated with these initiators — it is important to discover whether we all could have foreseen nearly eight months ago that the economic situation was becoming too dangerous. Surely we could have prevented the situation from becoming quite so bad as it is today, if eight months ago we all had taken the pre- cautions which are so vehemently urged now; had at that time lessened our construction activities and so had as- sisted the producers of consumable commodities to obtain the services of more laborers; and had also, by discharging some construction laborers, slightly checked the consump- tion of consumable commodities at the same time that we of expenditures have been far more than most people recognize. For instance, in 1898 the annual expenses of New York City, including the whole of the pres- ent city limits, were about $77,000,000.; today they are about $192,000,000. The situation in England and Germany is as bad as it is here, if not worse, and the coming business paralysis and depression seem likely to pervade the whole civilized world. It is an interesting fact that the per capita consumption of the five articles of food, wheat, corn, sugar, tea and coffee, increased greatly from the year 1896 up to the six years, 1902 to 1907 inclusive, the consumption of one culminating in one of these years, and the consumption of others in others of these years. But since those six years the per capita consumption of each of these articles has de- cidedly decreased, showing pretty clearly that those six years were the most pros- perous for the average citizen. To judge from common report, we must believe that those years were also the most prosperous for merchants and manufacturers, and that the later years have seen a decline in prosperity, which we have been too excited and too foolish to mark. One word as to our labor troubles. The fear, which capitalists have, of the day-laborers, is fooUsh because their present great power comes only from the excessive demand for their services by capitalists. This excessive demand has lasted during our seventeen years' boom, but will now cease. The poor, ignorant laborers will soon fail to find sufficient employment, and will become objects of our pity and our charity. 12 helped to increase the supply of them. This change would have prevented the last sharp rise in the prices of commod- ities, and likewise would have lessened the subsequent sharp decline in their prices, which is making so much trouble now. It was apparent last autumn, if one had only looked at the figures, that there was an excessive scarcity of consum- able commodities in the community. If there had not been this scarcity, the prices of commodities could not have gone on rising sharply. There was certainly a great and increasing scarcity of money last autumn, and the purchasing power of investors was certainly decreasing, else the prices of the best bonds, and the general level of the stock market, would not have declined as they did. All securities declined in price last autumn because of the scarcity of money; but. the prices of commodities went up. Certainly this proves that there was then a greater scarcity of commodities than of money, and a very great scarcity. We ought to have seen last autumn that, for practical purposes and without regard to theories, the community was becoming too much impoverished; that, although the railroad and electrical facilities of the country were being rapidly improved, the supplies of things, which people eat and drink and wear, were becoming too far exhausted; and also that the community's power to take securities and to furnish quick capital was becoming too far exhausted. Instead of letting the exhausting process continue until it would be checked by the thoughtless consumer, acting on instinct, it would have been wiser for the intelligent initiators and bankers to have themselves checked the ex- hausting process six or eight months ago. 13 One mistake, which is of some serious importance, is the apparent belief of our leaders that the amount of quick capital in a community is inexhaustible. It has often been said of late that, if the railroads were only allowed to make their securities attractive by raising their rates of trans- portation, the public would supply them with all the quick capital they desired. But, as the low prices of the best securities and the low reserves of the banks show, the de- sired quick capital does not exist, and it therefore would make little difference how attractive the securities might be made. We are all to blame in this matter. We ought all to have remembered last autumn that the great and increasing consumption of iron was mainly caused by the great and excessive construction of permanent property, and that this excessive construction was every day diverting a larger and larger proportion of the workers of the country from the production of consumable commodities; and also that this diversion had already brought about a scarcity of con- sumable commodities. We ought to have noted that this scarcity of consumable commodities was the reason for the great rise in the prices of these commodities; and we ought to have noted that this conversion of so much quick capital into permanent forms had dangerously reduced the pur- chasing power of the community and had brought about the very low prices of first-class bonds and the very high rates for money, which we saw. We ought to have seen too that it was this reduction in the purchasing power of the com- munity that produced the great decline in the stock market; for the earnings of the corporations, whose securities were dealt in in the stock market, were still very good and busi- ness in general was still very prosperous, and the public 14 was optimistic. We ought to have then reflected too that a spirit of caution would inevitably soon impel consumers, because of the lessening of their purchasing power and because of the high prices of commodities, and because of the threatening appearance of the money market, to restrict their purchases of commodities; and that, through this restriction of purchases, a decline in the prices of commod- ities would soon be brought about. As a matter of fact, this decline in the prices of commodities did begin last December, and it has continued ever since. In studying these charts, three things should be kept in mind: 1. The chief harmful element of every crisis, and the main cause of the business depression and paralysis which follow it, and of the consequently enforced and long pro- tracted idleness and poverty, is merely the very serious derangement of our business system which then occurs, and is not any decrease in our producing ability. To explain, let me call attention to these facts — (a) Every day each producer must find a buyer for all his products; else he must curtail his production, and then must perforce, in his turn, curtail his consumption. As soon as a lessening of consumption begins at one point, it spreads and spreads all through the market from one pro- ducer to every other; and then prices of all commodities decline and mercantile failures necessarily increase. (6) With our minute division and subdivision of labor, and with our constant exchanges of innumerable products between innumerable producers and consumers, the con- tinuity of the requisite harmony of intercourse between 15 producers and consumers is very easily broken, and is very difficult to reconstruct. 2. Excessive expansion in the size of producing, or mer- cantile, establishments, or in the incurring of debt, or in the lending of depositors' money, makes the equilibrium of business affairs unstable; and then a disturbance of this equilibrium comes very easily, and this disturbance seriously deranges the relations between consumers and producers. 3. Another most powerful cause of unstable equilib- rium of business affairs, and the most common cause of a restriction of consumption and of derangement of the relations between consumers and producers, is too great exhaustion of the community's supply of consumable com- modities. But the occurrence of this exhaustion of sup- plies (which is in fact serious poverty of the community for the time being), and the effect of this exhaustion, have been overlooked by both economists and business men. Such exhaustions must be studied and averted in the future, if we are to escape industrial crises. To recapitulate: 1. "Bad times" arise from a derangement of business and a fall in the prices of consumable commodities. 2. Derangement of business and falling prices of con- sumable commodities arise from restriction of consumption at some point in the market, so that some producers fail to find buyers for their products, and therefore in their turn restrict their own consumption; and this restriction spreads through the market. 3. Restriction of consumption has arisen at each of the six crises, those of 1873, 1884, 1893, 1903, 1907 and 1913, through the natural caution and timidity engendered among 16 consumers by the concurrence of a great rise in the prices of commodities and a great increase in the scarcity of money both for investment and for mercantile uses. 4. In this country the chief cause of this concurrence is a long continued course of excessive construction, which creates an excessive diversion of labor from the production of consumable commodities, and is also attended by the locking up of commercial money in securities or in loans on them. Doubtless excessive expansion in all business, and excessive extravagance in private and public expendi- tures, are contributive causes. 5. We had this concurrence last autumn, and it ought to have been heeded by constructors, and by dealers in and lenders on securities, as well as by consumers of commod- ities. As a matter of fact, constructors and dealers and lenders neglected these danger signals and kept on locking up quick capital in permanent forms till consumers took fright and started the decline in prices of commodities, and thereby started the increase in commercial failures, which we are now witnessing. Referring to Chart No. J, the striking fact is shown that prices of commodities rose last autumn, while bank re- serves and stock prices were declining, while bank loans were rising, and the returns to be got from the best bonds at their market prices, and the rates of discount for com- mercial paper, were rising. One would of course expect prices of merchandise to decline at such a time, because of the lessening of buying power and the increased scarcity of money. But prices of merchandise went up at this time, and therefore it is clear that there must have been a still greater scarcity of consumable commodities than there was of money. If now we look at the line showing the changes 17 in consumption of iron — which of course are caused mainly by the changes in the amount of construction of permanent property — and if we remember that the increase in con- struction causes a corresponding increase in the diversion of laborers from the production of consumable commodities to the production of permanent property, the cause of the scarcity of consumable commodities becomes perfectly ob- vious.* Such a chart, as this Chart No. 1, could be made for each of the autumns before the several periods of industrial crises, and would show pretty much the same changes as this one does. One can satisfy himself as to this by study- ing these other charts. In each period preceding an indus- trial crisis, back through 1892, all these changes, shown on the different charts, went together; and immediately after *The total cost of an office building, built of steel, apart from the land on which it is placed, is something like fourteen times the cost of the steel used. The steel would cost, say at least $30. per ton, making the total cost, going along with each ton of steel put into an office building, say $420. There would be a little iron also in this building, which would reduce the total cost going with each ton of steel and iron. In many other constructions the total cost, going with each ton of steel used, would be much less than this; but on the other hand much construction is of stone and bricks and wood, without any iron; and in the case of water powers, dams and canals, earth and stone and cement are almost the only materials. The amount of building of this non-iron character doubtless increases as rapidly in construc- tion eras as does the building of steel. It seems safe to guess that not more than one-third of the steel used goes into crowbars, shovels and hoes, etc., which have little cost beyond that of the steel itself. If then we say that the present rate of consumption of iron, namely 33,500,000 tons per ygar, necessitates an expen- diture of $100. for each ton, or $3,350,000,000. per year, we shall be well within the truth. The workers, making these constructions, are paid on the average some- where about $800. per year. Therefore this $3,350,000,000. cash paid out almost entirely for wages and salaries, means the diverting of 4,187,500 men from the production of consumable commodities to the production of permanent property. In the meantime these 4,187,500 men are all eating and drinking and wearing out clothing faster than they would if not so vigorously employed, and they are not producing any of these consumable commodities. Evidently a, small pro- portionate increase in the number of these diverted workmen makes a great change in the demand for consumable commodities and in the supply of them. Each investigator can figure these things out to satisfy himself. 18 them came a decline in the prices of commodities and a great increase in mercantile failures. Then of course there arose suspicion of and discrimination among borrowers by the money lenders, and great financial distress. It is difficult to prove an absolute chain of cause and effect in all these matters. It is highly probable, however, that the rise in prices of commodities, in each of these autumns, was caused by extreme scarcity of consumable commodi- ties; and this scarcity seems certain to have existed and been the cause in the autumn of 1892, when a rise in mer- chandise prices (which immediately preceded the decline going with the ensuing bad times) came, notwithstanding a previous drift downward in these prices which had con- tinued from January 1889. It seems certain too that the decline in prices of commodities, during the months follow- ing each of these autumns, was to a great degree the cause of the increase in commercial failures in those months, because the decline in the things, which merchants and pro- ducers dealt in, of course rendered them poorer from day to day. The decline in these prices must have been caused in each case by a decrease of consumption, which was due of course to timidity and a spirit of caution among consumers; and these feelings were aroused by the threatening indica- tions, by the high prices, and by the scarcity of money. Therefore it is clear that, because of the constitution of human nature, excessive construction, at each of these periods, has been the chief cause of a derangement of busi- ness and of an increase of business failures, by first causing an excessive scarcity of consumable commodities, and an excessive rise in the prices of them, and an excessive ex- haustion of the purchasing power of the community. The lines, showing the rise in bank loans, in Chart No. 5, 19 and the decline in bank reserves, in Chart No. 6, indicate the great growth in recklessness of all business men at each of these periods — of producers, merchants and bank- ers alike. Doubtless this recklessness is generated by the optimism which grows up during a long period of business success, such as we have recently had, with only slight inter- ruption, continuously since 1896. And this optimism has certainly, as we all know, in this present period, at all events, generated bad habits as to private and public expenditures, and a great many false ideas. Each of the other charts shows what occurred for the few years before and after each of the other crises, in some one of the following departments: Chart No. 2 shows the changes in the Annual Consump- tion of Pig Iron in the United States for the years 1871 to 1905 inclusive, and the changes in the Annual Production for the years 1906 to 1913 inclusive, as reported in the Annual Statistical Reports of the American Iron & Steel Association. The compilation of consumption figures was discontinued after 1905; but the following figures of both production and consumption for corresponding years show that the production about equals the consumption of iron from year to year, and therefore it seems fair to regard the production figures as equivalent to consumption figures for the purposes of this chart. Year 1900 1901 . 1902 1903 1904 1905 Production Consumption Tom Tons 13,789,209 13,177,409 15,878,354 16,232,446 17,821,307 18,436,870 18,009,252 18,039,909 16,497,033 16,679,555 22,992,380 23,146,112 20 In April, 1913, the production of pig iron had risen to the rate of 33,500,000 tons per year. The figures, showing the changes in the consumption of pig iron, doubtless indicate more nearly the changes in the amount of construction of permanent property than any other figures which are available. Of course, however, the percentage of iron and steel in buildings is much higher today than it was in 1872; so that the rise in the consump- tion of iron from 2,810,000 tons in 1872 to 33,500,000 tons now, may not mean that we are now spending twelve times as much for building as we did in 1872. Chart No. 3 shows the monthly changes in the Average Price of Commodities, compiled by Bradstreet's; the arti- cles being carefully selected and weighted according to their importance. Chart No. 4 shows the changes in the Average Price (in gold and weighted according to importance) of Commodi- ties on January 1st of each year, compiled by the order, in 1891, of the United States Senate for a report on whole- sale prices and wages in the United States from 1840 to 1891 inclusive. It was not possible to get monthly prices for these earlier periods. Chart No. 5 shows the Total Loans outstanding of the National Banks of the United States, as reported at the call of the Comptroller of the Currency nearest to April 1st of each year. Chart No. 6 shows the Ratio of Reserves to net deposits of the National Banks of the United States, as reported at the call of the Comptroller of the Currency nearest to April 1st of each year. 21 Chart No. 7 shows the Rate of Return yielded by a se- lected list of Best Railroad Bonds at their market values on April 1st of each year. Best-Bond Yields, compiled by Jackson & Curtis. Chart No. 8 shows the Rate of Discount on Prime Com- mercial Paper on April 1st of each year. Discount Rates, compiled by The Commercial & Financial Chronicle. Chart No. 9 shows, for each quarter of the year, the amount of Business Failures in dollars for each $1,000. of bank exchanges. Ratios of Failure Liabilities to bank exchanges, compiled by R. G. Dun & Co. Chart No. 10 shows the Rate of Increase or Decrease of each year's total Railroad Earnings, compared with the total earnings of the preceding year. Railroad-Earning changes, compiled by The Commercial & Financial Chronicle. Chart No. 11 shows the Average Price of representative Stocks of the New York Stock Market in its larger fluctua- tions. For the years 1871 to 1873 inclusive, the average price at the middle of each month is shown. An Extension of this chart, on a supplementary sheet, shows the average price for additional years, in order to make the record continuous. Average Prices, compiled by Jackson & Curtis. It has not seemed best to put the base or zero hne in some of the charts. In such a case, the mere distance of a curve from the bottom of the chart does not indicate the relative size of the element represented by the curve; but the num- bers in the margin do indicate accurately the height of the curve from the base line. 23 PART II If now the concurrence of these harmful incidents once became associated in the minds of business men with serious danger, as soon as the business men observed this concurrence, they would take at once the precautions as to restriction of construction, etc., which are being so ve- hemently urged at present. That is to say, they would, in this present crisis, have begun to safeguard the situation at least six months earlier, before the times had become "bad," instead of waiting until now when we seem to be in the midst of serious trouble. It is to be hoped that the need of maintaining proper reserves of consumable commodities, and proper reserves of investing power, will come to be as well understood as the need of maintaining proper bank reserves. If some well established financial paper would publish, in one group each month, the status of each of the seven things, which I have shown on Chart No. 1, attention would gradually be drawn to the importance of the changes, and something would be done toward averting the many industrial crises which are unnecessary and are of our own making. u J3 f1 3 o y. Cli 34 32 30 28 26 ii Chart No. 1 OH c o ad 24 82 9 & ^3 97 94 91 > . m 63 61 22.5 69 21.5 57 SJl.O 55 20.5 63 20.0 79 51 ' 19.5 DANGER SIGNi the period covered by Chart No. 1, the Average Income Yields of Best Bom of in plotted lines on this chart, for the sake of greater clearness. LS IN THE AUTUMN OF 1912 I and the Rates of Discount on Commercial Paper are shown in figures.on a supplementary sheet, instead Chart No. 1 Supplement AVERAGE INCOME YIELD OF BEST RAILROAD BONDS AT THEIR MARKET VALUES ON NOVEMBER 1st OF EACH YEAR: and on November 1st 1910 4.005% 1911 4.065% 1912 4.147% April 1st 1913 4.260% RATE OF DISCOUNT ON PRIME COMMERCIAL PAPER ON THE FIRST DAY OF EACH QUARTER OF THE YEAR: 1910 1911 1912 1913 Jan. 1 4f% 41% 4i% 6% Apr. 1 4|% 3i% 4i% 6|% Jul. 1 51% 4% 4f% Oct. 1 51% 4f% 5f% ,..\'^^''"'< Mi , Chart No. 2 ANNUAL CONSUMPTION OF PIG Millions o! Tons Year Year Year Year Year Year Year 35- I9l2i 30- 1910 ^ / 1906 25- \l91i^ 1905 20- 1901/ 1902 / 15- / 1898/ / 1899 / ^ ^I900/ 10- 1886^ ■■„/ 1897 1887 ^1888/' 1889^ 1890 1881 ^I89l_^ I88i ■^1892 rt 1879^ 1880^ ^ \87l ^ 1883 '^'787? For 1913 the annual consumption at the April rate is shown. IRON IN THE UNITED STATES Chart No. 3 BRADSTREET'S MONTHLY A Index Number 100 95 90 85 80 75 70 65 60 55 Year Year Year Year Year ^'S/O 1 0)1 Oil \\ N V^f Rv^ / •^ V 1^ •-^i 5?7 -/ \ ; ^ N/^ V V For the years, 1892 to 1898 inclusive, the Average Price on the 1st day of each quarte it's MONTHlY AVERAGE PRICES OF COMMODITIES . iprtff''year is given; and for the subsequent years, the Average Price on the 1st day of each month. Chart No. 4 UNITED STATES GOVERNMENT'S AVERAGE 1st of Index Number The dotted line shows the course of Commodity Prices in the Civil War period. 6E PRICES (in gold) OF COMMODITIES ON JANUARY OP EACH YEAR CRISIS Year Year Year Year Year Year Year Year Year / / / / / 1 t *^ ^ / / ^^ \ \ 1 ^^ \ ^ ^> / / / / / \ \ \ / VVp I 5?/ / ^ ^ \ / AN / / / — 1 1885 N f \ / / f „-- — 1/5 O U a xi >> r & 1 >^ 1 } =k i( f-4 \ \ 1 ^\ 1 1 1.^ ^^•^-^ 1 >H ie national banks of the united states at :all nearest to april ist of each year Year CRISIS Year Year Year Year Year Year 1897 / i ' crV 1876 622^'' ^1^78 / »' i */ // X /% i! \% (of Oil 1 » 1 r^ \ n ^^'> \ '2 V 4 !v > / \ /l908\ \ 1 /<)/)•> / 1 i Vl875 :::%■■ F^ 1904 /sdeV; tion and deposits; and Point 31.90%, at the same date, shows the Ratio of Reserve to deposits only. L not 34.5% as shown. Chart No. 7 AVERAGE INCOME YIELD OF BEST RA] APRIL Ig The dotted-line peaks show the heights to which Best-Bond Yields rose in the midst iAiLROAD BONDS AT THEIR MARKET PRICES ON l8T OF EACH YEAR SI CRISIS Year Year Year Year Year Year Year Year \ / / / 1 I 1 ' ;;=i^2^ \ \ V Y&76^ 1877 ,\ 1 \ 1 \ \ \ / :\ Js^ U89A, 2 •^1687 ■^ / -^. *vi^ ^Tses "^ / yjg? ^v ^ / '^ ^ \l899^ ,^ • Jit of the panics. ^s.];>i: Chart No. 8 RATE OF DISCOUNT ON PRIME COMMEB Per Cent. Year Year Year Year Year Year Year CRISIS "Year Year Year Year Year Year Year I 13 - 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 12 1 1 J \ / \ / \ 9 > / s^ / 7 s J \^ s_ tz ^ \ y "V. N s/ 1879 1880 1881 1882 1883 1884 885 1886 'V 'V, y \ > k / 4. 3 -i 8 - 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 7 6 J \ 5 J f '" x / '^ \ h \ / \ 4 / N y \ \ W r \ 3^ r V 2_ CIAL PAPER ON APRIL 1st OF EACH YEAR ;r Cent. Year Year Year Year Year Year Year CRISIS Year Year Year Year Year Year Year Q 1896 1897 1898 1899 1900 1901 1902 1903 1904 a 5 \ / \ ^y^ ^. \ J > ^ 'N ^ /^ \ ^ 1904 1905 1906 1907 1908 6 - 'S^ 5 J / S \ V. y \ 9 Q 1908 1909 1910 1911 1912 1913 1 \ / f 5" \ \y 'N / *l — v ^^' Chart No. 9 BUSINESS FAILURES— DOLLARS OF DEFAULTED LIABILITIES FOR EACH $1,000 BANK EXCHANGES FOR EACH QUARTER OF THE YEAR ED LIABILITIES «R EA.CH Year B The scale of drawing B is one-half of that of drawing A. Chart No. 10 RATE OF INCREASE OR DECREASE OF EACH CA] THE UNITED STATES, COMPARED WITH THI Per Cent. 15 For 1913 the rate of increase in March is shown. ^f EACH CALENDAR YEAR'S TOTAL RAILROAD EARNINGS OF "^HTHE total earnings of the PREVIOUS YEAR "H f Hl/r y: Chart No. 11 AVERAGE PRICES OF REPRESENTATIVE SKK See Chart No. 11 Extension. TATIHE STOCKS OF THE NEW YORK STOCK MARKET Chart No. 11 Extension Dollars 70 60 50 40 30 20 10 Year 1 Quarters: 12 3 4 Que 1 2 A \' K f u \ 1/ ^> !l f V V ^O'lllxtsisi loa SUPPLEMENT TO CHARTS A, B, C, D, AND E AVERAGE INCOME YIELD OF BEST RAILROAD BONDS AT THEIR MARKET PRICES ON APRIL 1 OF EACH YEAR: April 1 % A 1889 4.23 1890 4.20 1891 4.54 1892 4.34 1893 4.28 1894 4.38 B 1895 4.42 1896 4.28 1897 4.10 1898 3.95 C 1899 3.58 1900 3.55 1901 3.50 1902 3.50 1903 3.76 1904 3.81 D 1905 3.66 1906 3.77 1907 4.03 1908 4.08 E 1909 3.84 1910 4.03 1911 4.05 1912 4.08 1913 Apr. 1 4.26 July 18 (high) 4.37 Sept. 15 4.27 Nov. 15 4.35 RATE OF DISCOUNT ON PRIME COMMERCIAL PAPER ON THE FIRST DAY OF EACH QUARTER OF THE YEAR: I'll / v Jan. 1 Apr. 1 July 1 Oct. 1 % % % % A 1889 5i ^ 4 6 1890 6| 5f 51 6i 1891 7 5f 5| H 1892 41 4| ■ 31 5i 1893 51 7 10 6f 1894 4 3J 5 3f 31 3f B 1895 3* 5i 1896 6i 6 5 94 1897 4i n 3i 4f 1898 3f 6 31 4 C 1899 3^ 41 4 5! 1900 6 5 4i 54 1901 5 H 44 5 1902 5i 5 4f 6 1903 5h 5i 54 6i 1904 5| 4i 41 4i 31 4 41 '' ^ 1905 3 1906 5i 54 5i 64 v^ \ ' 1907 Qi 6i 6 7 1908 8 54 31 SI 3| 4i E 1909 4 5i 1910 4i 41 5| 51 1911 4| 3| 4 4f 1912 4i 4i 4f 51 1913 6 6| 51 54 1914 O »H a ■-4-I O OH 18 16 14 12 10 a a o -^^ M 85 82 79 76 73 70 67 04 3g oo Chart A 39 26 23 20 17 U 11 For the period covered by this cliart, the Average Income Yields of Best Bonds a The points In the Bank Reserve curve, which are outside the limits of this chart, J. F. Crisis 18 M. A, M. J. Year 93 J. A. s. 0. N. D. 1894 J. F. M. A. M. J. J. A. S. 0. N. D. 1 \ \ \ V / , \ \ / \ \ \ \^ J ' - \ » V \ \ 1 » 1 \ f \ 1 t J \ - ' / \ ^ \ i \ \ \ r - r N \ N h / \ ^ \ J ] T \ \ \ \ / / \ \ / / \ ^^ ■ — — . / / in this chart, for the sake of greater clearness. a-i 3.^ o 20 18 16 14 12 10 a a o ■ n 76 73 70 67 64 61 55 Chart B ►3s 32 33 66 29 34 58 33 50 23 32 42 20 31 34 17 30 20 14 18 10 For the period covered by this chart, the Average Income Yields of Best Bonds on this chart, for the sake of greater clearness. ^ARS 1895-1898 0. N. D. J. F. M. A. M. IS J. 97 J. A. S. 0. N. D. J. F. M, A. M. IS J. «8 J. A. S. 0. N. D. — 1 ^ L I 1 \ V -1 A 1 / r \ \ y / / \ \ \ \ A / / ^ / \ -7 h >i ^ \ y 1 ^ ) t / / / / J ■/ -^ —J / t / ^ 1/ \ h 1 \ I / / f L ^ \^ A. i / ^ V Za \ / \ \ / 1 f~- Kates of Discount on Commercial Paper are sliown in figures on a supplementary sheet, instead of in plotted lines Chart C For the period covered by this chart, the Average Income Yields of Best Bond; On account of the great drop in the Bank Reserve curve, from 27.90% on Feb side of the chart. D. Crisis Year 1903 J. I F. I M. I A. M. J. I J. A. i S. I 0. 1 N. D 1904 J. I F. 1 M. A. I M.l J. I J. I A. I S. I O. I N, i D. lines on this chart, tor the sake of greater clearness. bruary 25, 1902, has been raised six points, to bring it within the limits of this chart. See scale on the left a. d a. 2 a^ o o o o" ll 3 c Ihai 1 o 26 94 54 26 116 24 91 51 25 108 22 88 48 24 100 20 85 45 23 92 18 82 42 22 84 16 79 39 21 76 U 76 3fi 2U 68 12 73 33 19 60 DANGER For the period covered by this chart, the Average Income Yields ot Best Bonds this cbtirt, for the sake of greater clearness. SR the autumn of 1906 ■u. J. F. M. C A. M. risis 19 J. Year 07 J. A. S. 0. N. D. J. 1908 F. M. A. M. J. J. A. S. 0. N. D. V V 'ft \ / A \ ^^ y / \ \ ^ V y' i / '\ I y y " " N \ \ 1 \ i y y A ^ \ < 1 I \ y y 1 f/ \ i \ i \ \^ ^ K \ / \ 1 i \ / f / \ "1 1 / f ^ \ V \ / \ A \ 1 I \ V y \ / / 1 \ 1 V / \ \ \ / \ 1 \ / / f jlKiCount on Commercial Paper are shown in figures on a supplementary sheet, instead of in plotted lines on Chart E For the period covered by this chart, tlie Average Income Yields of Best Bonds _ N. D. Crisis Year 1913 J. F. M. A. M. J. J. A. S. |0. N. D. 1914 J. F. M. A, M. J. J. A. S. 0. N. D. tf /_ > < \ - — - - \ ^ \ ^ \ \ S. V \ \ \ \ / / / li h / s ■s^ / / \ \ / / ^^ ^ ^ ted lines on this chart, for the sake of greater clearness.