Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-01-27


have an important effect upon the Sc
curity markets. 1t will destroy the OPP
portunity to buy reasonably good
stocks at a yield of anywhere from z
to IL per cent in dividends.
Sees Lower Retail Prices.
''What viii happen to prices of COM
modities in such a year? Many people
believe that no revival is possible with
out rise in prices. Those who think
thus are bound to be disappointed. We
downward readjustment in the prices
Of raw materials. There is a whole
string of them, including copper, cot
ton, rubber, wool, sugar, raw silk, sill
yer, which are at prices lower than
cost Of production. In these lines the
price adjustment has been completed
and we may look for rise with re-
vivsl Of business. But by no means to
their old levels. Copper will stay far
under is cents a pound. But for I'm
ashed products. there will certainly be
q further decline in prices, even at
wholesale. Retail prices and the cost
Of living generally will also go lower.
This readjustment of prices down.
ward is always necessary TO a business
revival. A large part of it has already
been made, and the rest Of it will be
NOAiR4CbC0 IA lklCcG EdA4y ulOllAAlo. WI
II Is finished the income of the con-
Stunning public, reduced. as it is, will buy
q much larger volume Of goods than 1t
would have purchased 10 months pre-
vious.
1t should be noted in passing that the
money income Of the people has not fall
len as much as the index of production
or the payrolls of factories would indi-
cate. Dividends have declined hardly
all and dtfrir1n flNic ocf thew
amounted to s6.000,000,000. Interest
payments on bonds and mortgages have
actually risen The salaries of public
ofncials, including teachers in schools
and colleges are the same. While pro-
duction at the worst was 80 per cent
below the high, the money income of
the people as a whole was probably re-
duced by not more than IS per cent.
When prices and the cost of living have
fallen full Is per cent, it will obviously
be impossible TO meet the demand with
. production which is SO per cent below
the prosperity Level.
Larger Profits Forecast.
The average man will feel that while
we may have q revival of production
during the next year, we can hardly
have rising profits. To the man in the
street lower prices mean lower profits
In this he is mistaken. Profits depend
much more upon the volume Of output
than upon the price level, as long as
that level Is stable. Between 1919 and
1929 the prices of finished manufac-
tured goods fell 81 per cent, yet profits
were larger in the latter year than they
had been decade earlier This was true
despite the fact that money wag in
the manufacturing industry rose Is per
cent during this period. The answer to
the riddle is to be found in the volume
Of output. This grew by over 40 per
cent during the period. If one had
told business men in 1919 that they
would have q per cent decline in the
prices Of their products and IS per
cent rise m wages they would have been
Frustrated. Instead they had a very
prosperous year Such an increase in
production as has been here predicted
will give us higher profits in 1891 than
We had in 1880. The lower raw ma
tertal costs, the increased efficiency OF
labor and the reduction Of overhead
will bring that to pass.
Interest rates are bound to remain
low throughout the year DR. Friday
asserted. This will be true both
fer commercial loans by banks
and for the return which the investor
VIII be able to get on bonds. We have
had three great bond markets in this
country since the war. One began in
1921. another in 1924 and still another
in 1927 You could have foretold any
one of them by studying the condition
OF the Federal Reserve banks.
Lively Bond Market Predicted.
The condition of those institutions
today presages another bond market of
major proportions. We have a plethora
Of gold, and the volume of Federal Re-
serve credit in use Is practically certain
to drop to the lowest volume in the his
tory Of the system, since the war An
increase Of rs per cent in productive
activity will make some additional de-
{ mand for bank credit, but it will not be
suficient to tighten. either longtime
or Short-time credit. With the nervous
ness and hysteria over bank failures
out of the way. and with the return OF
settled pol tical condit ons abroad. in
vestors will return TO the BOND market
with confidence.
Banks will also go to that market IN
order to invest their surplus funds, al
their protestations to the contrary not
withstanding. When the bond market
has revived the country viii enjoy Q
thoroughgoing business revival Each
Of the three previous bond markets wa
Continued nm roiirfAnnkh PagAl