OUR FINANCIAL RECOVERY HAS BEEN SLOWER THAN IN U. S., BUT APPEARS SOUNDER
BUSINESS & INVESTMENTS
GILBERT E. JACKSON
"PROSPERITY is just around the corner," said a slogan of 1922. Emblazoned on a thousand sign-boards it struck a note of optimism in a world that was sick of hope deferred. To-day, however, though 1923 is scarcely half advanced, it seems that at last we have really turned the corner. We may be thankful that so far the recovery has been comparatively slow-that there has been no headlong development. For though the change in conditions is un doubted, we have not yet reached a position in which business men, either manufacturers or merchants, can launch out with unquestioning confidence in the future.
The tide has turned. Let it be confessed, however, that this is due to no special wisdom on our part. In this twentieth century we can no more control, as yet, the tides of depression and prosperity, than could King Canute control the tides of ocean when he sat on his throne by the sea-shore a thousand years ago. We have done comparatively little to produce the change, despite the flood of talk about our financial troubles which has been going on ever since 1920, and has come to a head in the discussions of the Banking and Agriculture Committees at Ottawa.
The fact that the newspapers have found the discussions of the Banking Committee to be good copy, and have been making front page “stories” of the views of Messrs. Bevington and Douglas, no less than of those expressed by bank presidents, shows that there is a growing interest in the technical problems of finance in this country.
Even that rare bird, the man who • “would neither a borrower nor a lender be,” has been able to get a good deal of amusement out of the passages of arms between that adroit parliamentary ecclesiastic. Mr. Irvine, of Calgary,1 and some of the bluff bankers who decline to follow him into the realms of financial theory. But talk never shortened' an industrial depression, and in spite of the champions of that immortal will-o’-the-wisp, fiat money we may conclude pretty safely that it will not—at least for many years to come.
While the talkers—of whom the present scribe is one—have been talking a gradual change has come over the face of business on this continent. Alike in Canada and the United States there has been a considerable revival of industrial activities, and in some localities a great outburst of building construction. As is not unusual at the close of a trade depression, the United States has led the way. But though she lagged behind in the first few months of recovery, and in spite of the late spring, Canada has recently been making up a good deal of lost ground.
Contrasting Canada and U. S.
EVEN now, however, there is a broad contrast between the two countries. As long ago as last September, prophecies of an impending labor shortage began to be heard in the United States. Recently they have multiplied. Two wage increases have been announced by the United States Steel Corporation, which does not as a rule raise wages for sentimental reasons. Smaller employers in many parts of the country have commonly been compelled to do the same thing to retain their workmen. It appears that in the Chicago district, as long ago as the last four months of last year, wages were already rising at the rate of 30 per cent, per annum.
This rapid increase to capacity in the working force of -American industry has of course meant also exceedingly rapid increase in output. Conspicuous among the leaders in the recovery have been the pig-iron, automobile, and cotton manufacturing groups; but the movement— if we except the American farmer, who is still a poor man—has been pretty general.' Canada has felt the repercussion twice over; firstly, in a tremendous stimulus to the Canadian lumber industry, which has enjoyed an excellent market in the United States, secondly, (and this is not a development on which one dwells with satisfaction), in the exodus , across our southern border of numbers of skilled artisans who are or will soon be badly wanted in Canada. The most conspicuous sufferers from this tide of emigration are probably the building trades and the printing industry.
So rapid, indeed, has been the transformation from “Stormy” to “Set Fair,” in the American industrial barometer that, it has caused considerable misgiving among some men who are well qualified to assess its meaning. Not that the situation is at present top heavy: there is no present uneasiness on that score. Business conditions, says an American writer in The Annalist, are better at present even than the conditions engendered during the war by the demand for munitions. The only danger to be feared—and it is real, though not immediate—is that with so rapid a revival things might get out of hand.
Bank after bank in the big American financial centres could be quoted as warning its clients against the dangers of too rapid expansion; one expert after another has called on the Federal Reserve Board to apply the brake in the form of higher discount rates. There is no “blue ruin” school developing; but there is an unmistakable atmosphere of caution.
“The outlook for business at this time,” says the National City Bank of New York, “is very good. If industrial costs and the general level of prices could be held where they are, there is every reason to believe that this pace might be maintained at least through the present year, perhaps longer.” Adding, however, “The temporary character of these periods of expanding demand has been demonstrated over and over again. The trouble arises from the impatient efforts of the public to drive the industrial organization beyond its capacity. There is good reason for believing that the level of costs in this coutry is already fully as high as can be sustained, without a general revival of industry and competition over the world.” Since that revival is not yet in sight, it is evident that the risk of over-expansion is one that must be faced.
Hinging on Wages
‘“T'HE most important offsetting fac-
A tor,” says the National Bank of Commerce, discussing the trade revival, “is the wage situation. The manufacturer faces on the one hand rising labor costs, and on the other the probability that the consumers will stand out against price advances. There is no question that a considerable proportion of the industrial output of recent months has been absorbed in replacing stocks of consumers, retailers, and jobbers. The point has been reached where future output must be absorbed increasingly by current demand. It seems therefore not unlikely that production is now at peak and may recede somewhat.”
Owing chiefly to the effects of the Dillingham Law, which are by no means altogether offset by emigration from Canada to the United States, the labor supply and so, beyond a certain point, the production capacity of the United States also, are comparatively inelastic just at present. Though the present wave of expansion is not yet eighteen months old, it seems that the limit has nearly been reached already; that a further rise in prices will quite possibly fail to fulfil its usual function and produce a further all round increase in production. If such a failure should occur, then American industry might easily return with a bound to the dangerous condition in which we were all of us living in the spring of 1920—when it will be remembered, the industrial machine was already working to the limit, and a rapid rise in the cost of living was steadily transferring real wealth from the people with fixed or comparatively fixed incomes to that bogey-man of the reconstruction period, the profiteer. There could be only one way of escape from another vicious circle of that kind—a repetition of the hardships and anxieties of 1921. Too rapid a recovery might in this way be the harbinger of fresh misfortunes.
Already there are signs of a reaction— whether small or serious, one cannot say. The demand of the American West for British Columbian lumber fails to keep pace with the demand of the Atlantic States for the lumber of Eastern Canada. A conscious “strike” of sugar consumers is making itself felt in the speculative sugar market. At the moment of writing, the bears are having their own way on the New York Stock Exchange, and shrewd financial gossip in New York— rightly or wrongly—predicts a real reaction in the stock markets about August, as a result of the pressure by the banks on the call loan market, which is already beginning to be felt.
What of Effect on Canada?
HOW does the recovery which Canada has experienced differ from this? And what are the dangers, if any, to be looked for here? The relative slowness of the upward swing in this country is obviously due partly to geographical and climatic conditions. On these points little need be said. In must also be confessed that the revival of prosperity has been by no means general—it is not necessary to wade through the discussions of the House of Commons Committee on Agriculture to discover wide exceptions. In the last two years of depression, said R. P. Sparks, of Hull, to that committee, 25 per cent, of the clothiers, have gone bankrupt; and many of those that remain are in a precarious position. Thousands of agriculturists are in little better case: “You talk of booming
trade,” said a disillusioned farmer recently, “Let me tell you that there is no trade boom in Mariposa.”
It is this one-sidedness of the trade revival which is its chief characteristic; and the reason for it is not very difficult to find. Both in the United States and Canada—more especially, however, in the former country—such signs of an industrial boom as may be found already are primarily the result of “easy money.” We are in what the late Lord Goschen used to describe as the “two per cent.” stage of the trade cycle; the period which inevitably comes towards the close of a trade depression when there are funds looking for investment in amounts more than adequate to take care of the demands for credit on the part of sound enterprise. A Canadian banker was rebutting, in conversation not long ago, the charge made before the Banking Committee by Major Douglas, that the supplies of money which are available do not suffice to keep our machinery of production in full use, and that unemployment is the necessary consequence. “The trouble at present is not,” he said, “that we are short of money. The exact opposite is true. We have too much money lying idle just now. We have more money than we can find work for.”.
Under such circumstances it is the construction industries, operating on long lines of credit for a market which is comparatively distant in point of time, that first feel the stimulus. They can and do revive in advance of the return to normal of the consumer’s purchasing power. Some of the work that is done is on a “shoestring” basis; most of it is solid. Thus the American railways are
in the market for supplies of equipment, to be delivered in the current year, whose cost is variously estimated at from $600,000,000 to $1,000,000,000; and in this country, where our trouble is rather that we have too much, than that we have too little railway equipment, a good deal of our overdue building construction promises to be made up on 1923—in Ontario especially.
Generally speaking, the Canadian manufacturer of goods for immediate consumption has not kept pace with these activities. The fact remains, and it can hardly be repeated too often, that his industrial health depends in large part on the financial condition of the farmer. The difficulties which hamper his attempts to sell in foreign markets inevitably tie his fortunes to those of Canadian agriculture, by compelling him to sell his goods at home either to farmers, or to other men who depend on the farmer for a living.
Must Wait on Agriculture
THE solid recovery for which the country waits will be based—when it comes—on a revival of agricultural prosperity. Till the farmer is once more reasonably prosperous—and reasonably free from debt—we cannot be sure that we are yet altogether out of the wood. He is the flywheel, and our stability depends on him.
Since our flywheel is inactive, it is not wholly to be regretted that so far we have failed in this country to keep pace with the rapid expansion of business in the United States. “More haste, less speed,” says the old proverb. There is little prospect in the near future of costs and prices in Canada getting out of hand, and as industry revives, it will probably be found that there is ample credit available. Meanwhile, the growth in the country’s payroll, retarded as it has been by the late coming of Spring, should strengthen the buying power of the public and make for a quicker turnover.
It is never safe to make prophecies, but at piesent it seems that the sky is fairly clear. True, things could not be much worse in Europe than they have been since the New Year: The Ruhr
adventure may well end in the ruin both of France and Germany—but the end is not yet. The present position is a sort of temporary stalemate, and it affects us from day to day principally by delaying the re-establishment of reasonable grain and meat prices. So far as the near future is concerned, it may be said with some assurance that our immediate concern is rather with the United States; and in these days of rapid ups and downs it is no less advisable for the man with the small business than for the man with the large business to look afield for the signs of a change in the industrial weather. If prices and wages in the American markets remain fairly stable we shall have every ground for confidence; but if by chance a headlong upward movement should pave the way for another period of liquidation, we could no more escape the consequences than could our American customers.
For this reason the advice of a recent visitor to this country, Benjamin Anderson, of the Chase National Bank, is wise and timely;
“The policy of the sound and prudent business man will be to go ahead and take advantage of existing markets. The business man will be well advised, however, to operate with an unusually large margin of working capital and to be unusually cautious both in the giving and the taking of credits. He will operate on the principle of quick turnover, even though quick turnover means moderate profits. He will avoid long-time commitments. Above all, he will avoid plant expansion. He will watch collections closely. Finally, he will be very conservative in paying out dividends, or in taking profits out of the business.”