New-York tribune., 1920-12-13
Two Billions
Lost to Trade
In Price Slump
Bank Economist Estimates
This Figure as the Cost to
American Business; Nor
NAL Profits Heavily Cut
Discusses Credit System
Most Large Industrial Con.
Germs in a Strong Finan.
cial Position. He Saws

,
Losses sustained by American busi-
ness and industry in the last twelve
months as result of the drastic fall
IN commidity prices are placed at
S2,oo0,00o,000 BY B. NJ. Anderson jr,
economist Of the Chase National Bank,
IN an exhaustive discussion of the
ability Of the credit system OF the
United States to meet the shock in
vowed in the general process Of eco
nomlc and financial readjustment. The
failure of business to make normal
prohts during the same period is esti-
mated at 81 ,0oo,oo0,0o0. The shrinkase
in the values Of stocks Of goods on
hand may amount to as much as
s3,ooo,ooo, 900, according to the same
authority, the aggregate value Of such
stocks dropping from $50, 600 900 900 on
February l to $50 900 900 900 on Decem-
Der /.
The position of most large busi-
nesses is exceedingly strong" declares
Mr. Anderson. Continuing. he saws:
They have 'ploughed under a very
h'gh percentage of the abnormal profits
OF the last five years. Additions to
corporate surpluses made out Of profits
have been incredible. On the face Of
the record, over sic, 900 900 900 has heen
added to corporate surpluses in tha
united states from 1914 to the end of
1919. and this has been on the basis
ot exceedingly conservative bookkeen-
ing onlncorporated businesses have
aoded very much more, but the fig
cannot be given. The most conserva-
elyc M oookHeeplng policies have been
ioiiowed; plant and other fixed assets
nave neen generally estimated at pre-
"a1 values, while betterments. aud even
addlt'ons to plaut, have often been
/ charged TO cost rather than entered
INTO capital account. The volume Of
qo1cK assets OF most large businesses
vas very great when the price decline
began and the Surplus of quick assets
over quick liabilities was very great
Markets Now Stronger
The active organized speculative
markets, like the New York Stock Ex-
change and the Chicago BOARD ~
! trade, are IN general in a stronger NO.
slton than they were before thu nrica
decline began. Bankers have larrcr
| margins from brokers and brokers
nave larger margins from customers.
losses IN these markets have been so
amused that no problem is presented
nv then. these markets. morenver
have absorbed the losses which 1nanv
other businesses would otherwise have
incurred, through the facilities whjcl,
tney have afforded to millers. cotton
splnners and others of "hed,in.-"
against declines in their Inventories bv
means OF short sales in the specuIativo
marHets. The active markets in for
elgH eXchaNge, moreover. have afforded
hedging facilities to exporters and i'm
por!erF winch have enabled them t.
avoid many of the risks connected
with fluctuations in the exchange rates.
The existence Of large short Interest
IN all the organized exchanges const,-
tutes a factor Of safety of high i'm.
portance. In the Short interest there
exists large potential demand, which
leaves these markets much steadier
than they otherwise could be. Prices
in these markets may go lower. bu.
bottom.
"Analagous 10 the short interests in
the speculative markets is the large
body of shrewd business men who sold
out their businesses or reduced their
operations when prices were at the
peak, and who now have large cash re-
sources which they are ready to en-
ploy when they Judge that conditions
are right.
The decline in prices and the pros
pective decline in WAGES mean q great
decline in costs Those industries
whose selling prices are fixed, con-
sequently. find tnoir position very
creatly improved by period OF falling
prices. Notably among these are the
railroads. other public utilities and
gold mines. all Of when Will find their
margins OF profit greatly increased
aad their credit correspondinglv i'm
be saved from bankruptcy BY the de-
| cline in prices, and not Il few now in
the hands OF the receiver VIII be re-
! leased from recsivership.
"Pressure will also be renewed by
! Tie decline in prices from that large
body Of people wi-h fixed incomes,
widows and orphans and other bene-
! :iciaries OF trust funds. boudholders
in general. university professors and
/ others, who have Suffered more as
prices have risen.
Deferred Construction
"An immense volume OF deferred con-
Vitolly needed improvements in public
utilities and the like, is waiting to
start up when the tension in the
capital market is relaxed and when
costs Of construction reach reasonable
levels. The improved credit condition
Of the railroads ana public utilities
/ makes this all the more in portant
! For perhans the first time in our his-
tory. our railroads will be in good
credit at time when prices arc at
| bottom"
The opinion is held by Mr Anderson
! that the Federal Reserve system. with
! its courageous and intelligent policies
and with it's Two billion dollars Of
gold. IS in itself guarantee that no
banking or currency panic is poss b..
/ Moreover. the situation is declared to
h.. made safer by the sDlendjd team