, 1921-12-30
NEXT YEARS BUSINESS.

close ANALYSIS Of business for the past year and
n careful Representation for the coming year war
rants the belief that 1922 on the whole VIII presen'
. sat;sfactory conditions than the year just clos
ing. The forecast is that profits Will depend mo,e On
economy Of operation than on expansion +. voiu
with the many favorable factors now operating DUST
:. mon should not fear to make plans for the new
wear, but they should plan with care and conservatsm'
and with constant effort toward reduction Oh Costs
Financial Improvement continues Progress mas
been made in reduction OF excess stocks OF manuiac-
tured goods. Accommodations of raw materials haVe
been reduced. The rate OF producslon IN n .
Industries has shown little change during the closing
weeks of the year. Losses in some lines have peeh
Offset by gains in others, the net result beng tnat tne
gains over the low level of the earlier months OF 1871
have been held.
The last twelve months have witnessed great prog
ress toward stable financial conditions in business
Combined gold reserves of the twelve federal reserye
banks have increased by more than 40 per cent whne
discounts for member banks have dropped 90 per cent
and federal reserve notes in actual circulation nave
declined % per cent. The federal reserve system
once more nroves to be a system designed to care for
increases and decreases in the volume OF credit with
the requisite elasticity to do this easily. The better
ment in the position of member banks, whiie not SO
striking, is nevertheless satisfactory.
Notwithstanding the consistent Improvement IN II
nancial conditions, recovery in manufacture and trade
has been slow. Unemployment in the chief countries
shows little decline from the high point reached early
in the year, and it may well reach new high fgures
during January and February, when normally there Is
an increase in the number of those out OF WORK IN
North America and Europe. Manufactured goods con-
tinue to move slowly and uncertainty into the cnan-
nels of consumption.
In last ANALYSIS, the business Of the world rests on
n physical. not a financial foundation. Failure of bal
ance between worldwide supply of and effective de-
mand for physical goods forced the violent read1ust-
ment of the last two years; a readlustment whicn win
not be complete until this physical balance has again
been established.
The wool situation illustrates particularly well the
various factors which have prevented a return to nor
NAL conditions. 1t has continued to accumulate, part
" because central Europe has not been able to pur-
chase in the expected amounts, partly because an i'm,
portant part of the wool supply is a oy-product, ana
partly because the building up OF Hooks . SO SLOW a
process that fock-masters reduce them only when they
have given up hope of profits.
With curtailment of production and increased de-
mand, copper stocks are showing reduction. The short
American and Egyptian cotton crops have served to
bring the worlds cotton supply approximately to a
prcwar normal. Stocks of hides and skins are large
in many countries but are moving more freely into
consumption. The prices of rubber and sugar are still
below the cost of production. Ssal stocks carried over
from last year now constitute nearly two-thirds of a
normal years supply. The worlds wheat production
is in a satisfactory state of balance in that there is an
adequate supply and a sustained demand. The Amer
lean farmer, in the face of a new corn crop OF $780,
100000 bushels, is carrying over 2s1,oo0,0o5 lush
els from the record crop of 1920. There is also an
accumulation in other less well known commodities.
This accumulation of physical goods is not a mis-
fortune. 1t assures to the world a supply of cheap
food and clothing, and real prosperity has never rested
on any other basis. But producers of raw materials
constitute much more than half of the buying power
of the world, and the conclusion is inevitable that the
entire economic structure will gradually adjust itself
to the raw material market.
The essential step toward recovery is removal Of
the burden of expenditures for war. The countries
which are wasting their money and effort on arma-
ments are those whose markets must absorb the
worlds excess of raw materials, and pay for it with
manufactures.
The terrific burden of war debts and preparation
for war is clearly shown by data recently prepared
by the Federal Reserve board. The board states that
in 1920, of a total net public expenditure by Great
Britain of s1,145, e2s, 900, 30.5 per cent were for pub
lie debt charges and 25.5 per cent were for national
defense; by France, of a total of Elsa, PIT, 900
francs, 22.7 per cent were for public debt charges,
and 5o.7 per cent were for national defense. In 1919,
Italy's total public expenditures were 80, $50, 100, 900
lire, of which "a per cent were for public debt
charges, and $50 per cent for national defense. Ger
man expenditures in 1920 were 61,470,s70.o0o marks,
Jas per cent being for public debt charges, and 6o.2
per cent for national defense.
Expenditures for the payment Of interest and prin-
cipal of the public debt do not curtail current pur-
chasing power. They merely transfer it. That cur
tsilment occurred when in the first place the debts
were incurred for military and naval purposes. But
current expenditures for national defense constitute
a direct levy on the present purchasing powers Of a
people Labor expended to make guns and subua-