Evening star., 1931-12-27
1881 FINANCE, BUSINESS
AND INDUSTRY REVIEWED
Rigid Discipline of American People i'm Meeting
Economic Problems Seen as Most Encouraging
Prospect for New Year-SIump Equal to 1873.


term. There must be a scaling down
CT all debts. This has been done on
paper in substantial degree The
average low price in December OF IS
different issues of German dollar bonds
was 22l2. compared with a high price
OF the year Of 88.
So far there have been no German
defaults. On the other hand. there
have been numerous failures to pay the
maturing interest and sinking fund Of
South and Central American dollar
bonds. A list Of 20 Latin American
issues that sold at an average of SO
II months ago touched low average
this Autumn Of l6 The encouraged
borrowing Of foreign countries in the
period from 1924 to 1929 out of the
overfoWing treasures of American
banks and their internal loans has
created mass of debt under which
their taxpayers are struggling and re-
Voting. These debts must be reduced
materially before the nations involved
get back on sound basis. In this
process American investors will have to
accommodate themselves to a read
Justment that probably will be much
less violent in the end than present
prices for both German and South and
Central American bond issues suggest.
Railroad Credit Collapse.
The collapse in the credit Of Ameri-
can railroads this year, and especially
In the past six months, has done more
than any other domestic incident to
unSettle the minds of investors. Rail-
road securities have for years been the
backing Of private fortunes. and have
occupied conspicuous place in port
folios of national and State banks and
tlduclary institutions Reduced to terms
OF depreciation, the market value of
listed railroad stocks and bonds since
January ! has shrunk nearly $1,000
100000, or nearly 80 per cent of the
total property investment in the rail-
read industry.
Several dozen railroads have passed
or reduced their dividends, which means
that the new year is being entered with
their shareholders receiving payments
approximately 5000 0O0 900 less than in
1880. Roads of traditionally high
credit. such as the Chicago g. North
western. Illinois Central and New York
Cntral. have suspended dividends after
an uninterrupted record for payments
running back so or more years De-
faults, fortunately, have been few and
have involved only about 5000 miles of
line. The shadow Of receivership. how
ever, hovers nearby some prope les
ttAo0 AldNC uldLuIllISS bEQ
weak balance sheets.
Rail Income Reduced.
Last year the total income Of class /
railways in the United States. available
for fixed charges and dividends. de-
creased s384,000, 900. or about 25 per
cent. The drop in 1881 from 1880. ac-
cordlng to preliminary figures, promises
to be between 35 and 40 per cent 1t
has been impossible to readjust operat-
ing expenses to the perpendicular de-
cline that has occurred in gross rev.
enues With no adequate advance per-
mitted in freight rates and with the
wages of organized labor remaining on
the same basis as in 1929. the problem
Of conducting transportation eConomi-
cally is still unSolved. Meanwhile. all
Of the competitive agencies have been
taking away business on a scale rela-
lively higher than in good times, which
has not only affected car loadings but
has created a situation of diminishing
return on the business offered to the
carriers.
1t is not good judgment, however, to
become too pessimistic over the OUTLOOK
for railroad stocks and bonds There
undoubtedly must be further dividen1
adjustments downward, because any
advantages that may be in the making
to help railroad credit cannot be trans
lated into either rising gross revenues
or expanding operating income fol-
some months to come. On the othel
hand there Is nothing in sight to sug-
geSt another 1898 or 1873 in the rail-
road situation. which at its worst may
not even parallel conditions that in
yolved most of the Southwestern roads
Is years ago.
Competition Must Be Met.
II there were any strong political de-
mand for Government ownership of the
railroads. it would have put in its ap-
pearance by this time and capital would
be made of the critical condition of the
carriers. Even though it is slow in get
ting under way, there is an effort to
preserve their individuality and their
private management. Those in charge
of them Of necessity must be more
awake than they have been to the
competition for their business and TO
the necessity of consolidation-by
eliminating wasteful services and by a
more confident and more optimistic
outlook toward their own induStry-to
combat the influences that have brought
them to such low state of credit this
year.
The railroad executives have been be-
wailing their situation since 1920, al
though in 1928 and 1929 their stocks
paid more in dividends thar ever be-
fore. The public has remembered some
Of the predictions made in the past
about rail securities. Railroad public
ity has been a liability rather than an
asset. Railroad presidents have fought
with each other rather than worked in
harmony in critical situations and have
competed for control Of properties to
their great embarrassment today. They
still have at their command the finest
transportation machine in the world
and one that may yet be co-ordinated
on a profitable basis with competitive
agencies that for the past year have
been sapping its strength.
Banking Position.
Obviously, there could not be such a
depreciation in securities, such a loss
OF confidence on the part Of the public
as has been witnessed in 1881. without
affecting the solvency of numerous
banks. In 1880 the number of bank
suspensions in this country was 1,345.
This year it Appropriated 1000 The
total amount of deposits involved In
the bank inSolvencies of the last IL
months were twice those of 1880, when
they aggregated S8G5 100000
IN the last three years, which covers
the period of the decline in business
and in securities. there have been over
1000 bank suspensions; in the last dec
ade there has been reduction in the
number OF banks operating of nearly 30
per cent. While this is evidence of too
many banks in the United States and
of too high a percentage of banks of
small capital it also betrays a weakness
In banking structure and in the MN
agement of banks that must be cor
rected If these institutions are to main
tain the confidence of their depositors.
Causes Of Bank Failures
The primary causes for the heavy
toll taken of banks in 1880 and in 1891
were the depreciation in real estate.
both In agricultural districts and in
cities; the decline in nearly all kinds of
aQrinllltilral x,a.rd,intr