Evening star., 1927-10-29
BUSINESS VOLUME
AND STOCKS DROP
High Wage Scales and For
eign Competition Factors
in Trade Situation.
BY CHARLES F. SPEARE.

special Dispdtch 10 Inc star.
NEW YORK, October 29.-With on
striking eXception-that of the Gen
eral Motors Corporation-the state
ments published this week Of the earn
ings of American industries and rail
roads tell a very clear story of re
duced volume of business and declin
ing profits. This evidence has beer
used against the stock market. which
after an average decline Of Is point:
since early October. rallied 3h points
and then lost ground rapidly.
Two very significant trends may bt
observed in the weeks resume of bust
ness conditions during the Summer
months. The first is the difficulty Ol
the manufacturer to maintain his
business with profit. as prices decline
under the urge of domestic competi
ton for such business as is af1oat
while wages are maintained at the
same level as when volume was high
and there was no occasion for price
cutting in order to stimulate 1t.
The second and increasingly i'm
portant factor is one to which the
precident of the Bethlehem Steel Cor
poration referred on Thursday in eX-
planning the quarterly figures which
had just been released. Said Mr.
Grace: Business is being carried on
ment buying. II we nave to reduce
the purchasing power of the working,
man it will have serious conse-
Quences."
Wage Scale Stays High.
There is little doubt that the re-
markable prosperity enjoyed by this
country since 1924 and reflected in
the highest average price for indus
trial shares on record has been due
to our wage scale, which has re-
manned we'll above the cost of living
average and advanced slightly dur
/ ing the two years in which the latter
declined, American industry has been
stimulated by great new volume of
orders secured through easy credit
facilities. The high-wage schedule has
\ maintained industry at a swift pace
and it had taken the better part of
3 this year for the momentum of this
to slow down.
No one wishes to see wages reduced.
|. 1t is doubtful if they will within the
present generation return to anything
, like the level that existed before the
war. and especially in the latter part
of the last century. One of the adjust.
ments, however, that must be made
very soon is that of balancing produc-
tion costs and market prices. for the
. factor Of foreign competition will be
coming into play more and more as
time goes on. 1t is even now eXerting
an influence in numerous trades which
fear to raise their prices because of
the ability of European manufacturers
to put goods down in the American
market at advantageous terms to the
buyer. Meanwhile, the United States
is continuing to lend large sums to
Europe to foster industries that event
ually will be sharp competitors of
others in the United States.
Steel Shares Weak.
The position of the iron and steel
companies is more visibly unsatis-
factory than that of other industrials.
They have been fighting each other
for some time. What is now required
is some craftsmanship in the trade
z that will bring about stabilization of
prices. Neither the United States
Steel Corporation nor the indepen-
dents can live on present earnings.
The market group in the stock market
is that composed of iron and steel
shares, which are off all the way from
20 to nearly 80 points from a high of
a few weeks ago. However, there are
conditions in half dozen other i'm.
,portant lines Of business which re-
4fect either overproduction or the
distribution of goods at close-to-cost
prices and where the effects will shov
later on in smaller dividends
Turning to the field of transporta-
tion we find that gross earnings very
generally are under those of last year
and that due to this same high-wage
scale, the percentage of net profits is
running off more rapidly than that of
gross earnings. There is nothing
serious in this, however, for the rea-
son that the railroads have unques-
tionably put back a larger proportion
of earnings into maintenance Of equip
ment in recent years than was neces.
sary in order to keep their properties
in good standard condition. They have
much more fat to live on than have
the industrials.
i Public's Attitude Changes.
X Technically the stock market has
strengthened itself by the decline of
the past three weeks. Whether it is
vet adjusted to the obviously unfav.
sOrable facts of business is question.
Having refused to listen to evidence
that earnings were not good and that
therefore, the rise in stocks had not
been justified for some months, the
public is now shifting over to the
other side and becoming as bearish as
81 was bullish. There Is certainly not
much left on which to force prices up.
We wonder sometimes how stocks
could have been pushed as high as
they were. Then we read that 1t was
the surplus cash of one group OF
wealthy automobile manufacturers
that was placed in Baldwin Locomo-
tive as an outlet for this capital
When E. H. Hartman sold the Hill
<railroad stocks which the Union Pa
cific owned, he, too, was forced to re-
invest and in doing SO he bid up the
prices of many railroad shares to a
ieyel which they have never since ap
uroached. 1t is this writer's belief that
those who sold Baldwin Locomotive to
the gentlemen who had more money
than business judgment will be the
ones to profit most from this bargain
This Is not an isolated incident from
the stock market history OF the past
year and half. For this reason, and
In spite Of the improvement in inter.
nal market conditions, there may have
to be a considerably larger adjust
ment in market prices to actual values
Investment Trusts Are Factor.
? Another influence in the situation
which is quite new and cannot yet be
accurately diagnosed is that Of the in
yestment trusts. Many of them have
been formed in the past nine months
simply for the purpose of taking ad
vantage Of the public's interest in
stocks, and, under the guise of a
scientific distribution of risk, to sell
units of bankers shares The occa
sion for the sensational advances in
many instances and bank stocks, as
we'll as in high-priced industrial, rail
road and public utility shares which
look good in an investment list, has
been the reckless buying by some OF
these trusts which have built a
pyramid on a very narrow base. There
are bankers who feel that the cond
tions these trusts have created in the
market this year constitute its most