The Birmingham age-herald., 1924-01-06

, cure the evil of unemployment 1t
 was necessary to so back to the causes and remove them. What were
 the cases of booms and sltnps How | could they be preventedf
 Analysis of past booms and siumps
 in business, the committed held. shows certain common tendencies. 1 The approach of a boom is fndi-
 cated by increased volume of manu-
 featuring. rising stock exchange
 prices. then by business expansion. and increased demand for credit from | both business men and speculators.
 As a result of the advance of conn modity prices money rates etirien and credit becomes gradually stretn-
 ed. These conditions may be accom-. for speculative purposes. Some
 where along about this point the tide is likely to turn in the opposite d.
 rection. Stock exchange prices begin to fall. Transportation facilities
 are likely to become overburoened Dy ?, speculative buying and duplication or orders by merchants. The whole sit uation is tense, feverish. Some in- cident shakes public confidence. Mer-
 chants, fearing the slump, hurry to cancel their orders. Prices begin to
 tumble. Production is curtaiied; ns un.
 
 are hard There had been & boom and a slump.
 Proving The value of The Theory. Here was a high tide transaction ! in the boom of 1920. In DeceWper, 1919, two manufacturers of silk went to their bank. One as a result Of ms study of business conditions had de-
 cided that prosperity was beginnlns | to assume the aspect of an unsaIe,
 boom. He told his bank he did not propose to stock up. but would aI.
 tempt to sell his goods with as rapla | a turnover as possible. Ine on1' an | orders had been coming from nis customers larger than those or aM | previous season, trade papers w emphasizing the scarcity or raw siIh. traffic congestion made It seem m.
 perative to increase his lnventoIies, .
 expand in order to maintain his re- ! lative position in his trade.
 The bank gave him the loan oe- 1 cause all the customary tests, sucn
 as the "two-to-one ratio" of quick
 assets to liabilities, usually rehee
 upon to justify such an extension
 credit, were met. Almost immediately the tide of prosperity turned in the silk industry, as the first manufac- turer had predicted, and there came A severe drop in prices of both the raw material and finished proouct' The second manufacturer round ms
 factories stocked with hlgn-prlceo duced in the belief that good times and high prices would continue. Tne reduced value of his inventories maoe him unable to liquidate his loan anu his business virtually was bankrupt
 Q Q O s r,..
 The first of two manufacturers or shoes. we'll along in the period or expansion, received more than normal | orders from his customers. He knew the-industry was overexpanoeo' put he lacked any basis for judging no" to handle his business at this time. Supplies of leather apparently were very small: congested railroad con- ditions made 1t imperative to nave his raw material shipped to him sev- | eral weeks before 1t usually was necessary: prices of leather were ris- ing rapidly. The men in the industry | did not question the price at "hicn leather could be purchased. put
 seemed willing to pay any price 1oa
 raw material laid down at the fac
 torv. Under these conditions the
 manufacturer followed what must have seemed to him a conservative policy by purchasing raw material enough to cover his orders. Ihen came the break in leather prices,
 unable to liquidate and experiences an enormous loss on his Inventory
 of raw material.
 Another manufacturer, under the same market conditions ana at tne | same stage of the business cycle, convinced himself through study CT conditions that his orders were in- Hated and, that 1t would be unwise to cover with raw material. He cut | his orders to 25 per cent of his re- 1 ouirements. Other executives In his plant, and particularly his sales or
 ganization, opposed this policy. They prophesied not only that he wouio
 have to cover at high prices, out tnas he probably would not De aole to secure raw material at all, and con seuuently his relativs position Tn the industry would be destroyed. Alter the break this shoe manufacturer was able to purchase raw materla1 10 III his requirements at much reouceo prjces. and he was able to send his sales organization into the field with A line of shoes produced at low cost in competition with his competitors who were attempting to l1quldate high h-priced investories.
 O O O
 Rooms And Slumps Analysed.
 The department of commerce mas chart which gives a picture of the slump Of 1921. During the first half of 1920 production is shown to be away above the normal. fulfilled orders are shown to be above even this production. Stocks on hand, on the contrary, were far below nor
 nal. These are conditions that can be known at any time. They are outstanding symptoms of boom Times. They indicate the coming of a crash. An appreciation of the sit
 nation and a wise handling of it can' however, bring such times back to normal, The crash actually was pre- cipitated by a cancellation of orders There fas a stampede to cancel. The line of thrilled orders in the depart ment's chart. declined precipitately.
 The line of stocks on hand went up even more precipitately. Production fell. which meant unemployment. By tbe middle of 1921 some of the, sur"
 plus stocks had been used up. orders
 began to come in again. Manufactur- ing resumed. There was steady
 improvement. By the middle of l9Zs
 conditions were back nearly to nor
 nal They continued to grow more
 active until March, 1922. By that
 time stocks had gone below normal.
 Production was even greater than Tn
 the boom times of 1920. Orders were coming in rapidly. All the symp. toms of a boom were present. Un-