Knowledge that Transforms

T HE first quarter of I92I was marked by continued liquidation which brought, week after week, new evidences of trade depression which attained a scope and reached a depth well calculated to produce dismay and profound pessimism. Industries which had been slightly affected until the turn of the year began to encounter a slackening of demand. The prices of a few basic products, already depressed, fell to levels lower than those obtaining in I9I4, and the trend of wholesale prices continued to be sharply downward. The European outlook remained dark; the trade of the world seemed dislocated beyond the hope of immediate remedy; and, in this country, the financial embarrassments of our railroads forced themselves sharply into the foreground at a most inconvenient juncture. Upon the surface the developments of the quarter brought little reassurance and impressed upon many persons the conviction that a long period of hard times lies ahead of the entire world. Yet it is probable that, in spite of all the discouraging developments, the first three months of I92I saw, in the United States at least, the first evidences of a turn in the tide. Liquidation never proceeds with even step in all industries, and the first signs of industrial revival always come when the tide seems to be running strongly outward. Retail trade, which had suffered less than might have been expected, began to register a definite improvement with the first of the year and continued to move in a volume which was bound to lead presently to an increased, though conservative, demand for manufactured goods. Basic materials continued to feel the depression which has gripped the world markets upon which they depend, but various lines of manufacture, notably textiles, which had adjusted themselves to the inevitable, began to recover from the profound depression of last December. 'The improvement in such lines was gradual and halting. January showed an increased demand which indicated that the previous deadlock had been broken; February brought hesitation and a fear that the improvement of the previous month was a mere flash in the pan. In March the trend was again upward but with renewed signs of hesitation at the end of the month which again produced gloomy forebodings. April has shown that these forebodings were not justified, and has brought definite evidence of improvement in the automobile and some other industries so that, at the time of writing, there is ground for believing that in lines of business that depend chiefly upon domestic demand the tide has definitely turned. General conditions, of course, are still decidedly spotty. Bank clearings outside New York City registered a considerable increase in March, but freight tonnage has not yet begun to improve. Unemployment has perhaps passed the peak, but many industries are still operating at a small percentage of their capacity. Such increases as have occurred in the volume of business have frequently been made at the expense of profits. But movement had to come first; and if it continues, profits will presently follow. Business is still depressed, but there have been encouraging developments since the first of the year which indicate that the end of the present movement of liquidation is in sight. The most uinsatisfactory conditions are found in industries which are largely dependent upon foreign demand and those in which liquidation, either through choice or necessity, has been deferred. Staple agricultural products and such metals as copper are probably in the worst case, and it is hard to see how improvement can occur until there is a considerable increase of foreign demand. In these lines production had been stimulated during the war, and the decline of export trade has had most serious consequences.Better provisions for financing foreign trade will, undoubtedly, help the situation, but readjustment cannot be complete until political and economic stability are restored in Europe and the trade of the world returns to a normal basis. Deferred liquidation accounts largely for the unsatisfactory conditions prevailing in the iron and steel and the construction industries. The recent revisions of the Steel Corporation's prices, if they are adequate to the requirements of the situation, will presently bring an increase of activity; but they seem to leave prices somewhat out of line with the levels reached in other lines of manufacture and create the expectation that further reductions accompanied by cuts in wages are still to come. In the construction industry prices of some materials have receded slowly; and while labor has become more efficient, labor costs still remain high. The level of construction costs is probably too high to encourage operations that can be deferred, so that this industry cannot be said to have readjusted itself to the conditions that will have to be met. Since the first of April there have been further recessions in the prices of certain materials and the liquidation of labor has made some headway, so that the present outlook is more encouraging than at any time since it became evident that capital will not take further risks with the high construction costs that resulted from the war. Retail prices continue to recede, but at a slower rate than wholesale. This has led to complaint in various quarters and to the suspicion that what is called profiteering still continues. It has to be borne in mind, however, that the war has increased the cost of retail distribution. Rents are higher, and wages and salaries will probably remain upon a higher level than prevailed in 1914. Readjustment of retail prices is under way, [83]J

T HE census of manufactures of the United States classifies manufacturing industries into fourteen groups.' Of these groups and steel and their leads all others, whether the groups be ranked according to capital investment, amount of wages paid, or value added to materials by the manufacturing process.2 Moreover, the industrial importance of the iron and steel group is not fully revealed by the figures for that group considered by themselves. Among the other thirteen groups there are two, vehicles for land transportation and railroad repair shops, which are so intimately connected with iron and steel that the three might well be classified together, while the remaining eleven manufacturing groups are all dependent upon the iron and steel industry for tools, machinery and structural steel. Furthermore, the non-manufacturing activities, agriculture, mining, building, and transportation, are large consumers of iron and steel products. The manufacture of iron and steel, therefore, is not only important because of its magnitude but because it is more intimately related to every phase of our industrial life than is any other branch of manufacturing activity. Because of its importance and its unique interlocking with every branch of the modern industrial organization, the manufacture of iron and steel has been generally recognized to reflect the business situation as a whole. Direct evidence that this industry actually does offer good indices of business conditions may be found in various data published by the Harvard University Committee on Economic Research. We may remind the reader that in our original study, Indices of General Business Conditions, we found the monthly volume of production for I903-I4 to fluctuate concurrently with bank clearings outside New York City and general commodity prices. Consequently, production was one of the series selected for our curve B representing general business conditions.3 Comparison of the annual volume of production with indices of the output of manufacture as a whole led Professor Day to the conclusion that pig-iron production appears to give an amazingly accurate picture of the year-to-year fluctuation of physical production in manufacture. 4 Prices of iron and steel, as well as production, reflect the general business situation. The prices of pig iron and bar iron are included in our commodity price index of business cycles.5 Finally, the price indices of iron and steel stocks fluctuate in a manner very similar to that of the indices of other industrial stocks.6 It is the object of this article to bring together the significant material showing the fluctuations of the iron and steel industry during periods of business prosperity and depression. Prices. Chart I shows the monthly prices, I898I92I, in dollars per gross ton, of four iron and steel products in various stages of manufacture, namely, Bessemer pig iron, Bessemer billets, steel bars, and black steel sheets.7 The chart is constructed on the logarithmic scale, so that the equal vertical distances represent equal percentage changes. The important thing brought out by the chart is the manner in which fluctuations in the prices of pig iron are reflected in the prices of the semi-manufactured and manufactured products. During certain periods like I902-03, I90507 and I9I0, however, the prices of bars and sheets reveal a high degree of stability while pig iron and billets fluctuate considerably. That fluctuations in the prices of iron and steel products during periods of business prosperity and depression are representative of fluctuations in prices of other important commodities is shown by Chart II. The curves on this chart represent the prices (B) of pig iron and (C) bar iron compared with (A) our tencommodity price index of business cycles, based upon the prices of mess pork, cottonseed oil, hides, print cloths, sheetings, spelter, worsted yarns, and coke as well as pig iron and bar iron. This chart shows that the prices of pig iron and bar iron have similar cyclical movements to those of the ten-commodity index. The thr e curves have been adjusted for their respective long-time movements 8during the period of comparison, i898-i914, in order that the different long-time movem nts of the various price series might not interfere

Figures for various classes of security issues have been derived from several different sources. The Journal of Commerce and Commercial Bulletin, in the first issue of each year, reports the issues during the preceding twelve months of (a) railroad bonds, notes, and stocks, including traction bonds, notes, and stocks, and (b) industrial bonds, notes, and stocks, consisting of public utility, manufacturing, and miscellaneous securities. These are the figures shown in columns i and 2 of Table I. The Journal of Commerce publishes no details