New-York tribune., 1918-10-01
City Bank Says
Imitation May Not
Influence Stocks
Holds That DeAation May
Come Before Market
Has Big Rise

The National City Bank in its Oc-
tober review of economic conditions
points out that while the effects of in
fiation have been visible for some time
IN wages and the prices of commodi-
ties, so far imitation has not made itself
felt in the market for securities and
may never do so. The bank applies
the term imitation to the undue expan-
sion of bank loans and deposits. as
well as to expansion of paper currency
circulation.
Inc primary cause OF the rise in
wages and prices is the war, which, as
'he bank observes, has given an alb
normal value TO everything that can
DC made scrviccablc for war purposes
or that supplies immediate needs.
There Is trenuous effort to expand
the production Of these necessary sup
Plies, and in the endeavor to accom-
pllsh this expansion along certain lines
imitation of credit occurs. This expan-
sion of CT ,Gjt, the bank SAYS. is closely
confined TO these lines and results in
part from efforts to transfer capital
from other lines. Owners MORTGAGE or
sell out fixed investments in other
kinds of property at sacrifice in or
der to con5crt their capital to war
uses. They sell municipal bonds, rail
way bonds, real estate, etc, in order
to buy government offerings or to sup
ply capital to the war industries.
Future Uncertain
Attention is called to the fact that
few stocks have gained in market
value because the financial condition
of tho companies has improved, but as
rule market gains do not equal the
gains in assets. One reason given in
explanation CT this is the uncertainty
that hangs over the prospect for busi-
ness after The war. The bank con-
tinues:
"How long will this condition ex-
lst? When may a tendency to equal
lze the effects Of imitation be expected
TO develop?
"The answer is that there is no
certainty that the effects of imitation
will reach stocks. That is to say,
general defation may come before
the effects Of imitation reach stocks.
1t depends upon conditions after the
war.
"When the war comes to an end
and offerings OF government bonds
cease. undoubtedly the situation will
c1on
occur that it is not safe to predict
what the result will be.
"lf industrial activity and earnings
continue rs at present after the
Treasury d.ops out of the market as
a borrower it Is safe to predict that
capital will flow into the general in
vestment market and stocks, bonds,
securities ard real estate will receive
their normal share of attention and
benefit accordingly, but this is as
suming the very conditions about
which there is uncertainty.
Inasmuch as stocks represent propric
tary intere,t ,ts in companies whose as
sets consist OF land, buildings, machin-
cry, tools, goods, etc, it is stated that
II labor costs were established on the
present level to stay it would be i'm.
possible to duplicate these properties
except with a much higher capitaliza-
ton than they have, and this fact
would naturally raise their capital
value and thus bring about higher
prices for the certificates of owner
ship. In this connection the. bank
says:
Labor May BE Cheaper
"This is the method by which logi-
cally the effects Of imitation would
spread to stocks. But labor costs
probably will decline after the war
and it is also to be considered that in
many lines large increase Of capacity
has been developed during the war and
costs written off out of war profits.
1t is not probable, therefore, that the
high costs of duplicating existing
plants will be q present influence after
the war.
"'To sum up The status Of stocks. So
curities, real estate, and such other
forms Of property as have not shown
the influence of credit imitation, the
explanation is that credit imitation
acts upon prices only as il increases de-
mand, and i'll the instances named the
demand has not been increased. On
the contrary, the expansion of credit is
itself a symptom of general effort to
convert. pledge or subordinate other
forms Of property to the forms which
are more Immediately selviceable in
the war emergency. The war influ-
ence dominates, depressing some
values and enhancing others"