Business—And the Fatal Spiral

AGNES C. LAUT August 1 1916

Business—And the Fatal Spiral

AGNES C. LAUT August 1 1916

Business—And the Fatal Spiral



THE eyes of all men turn to the future—the days after peace has been declared — with varying degrees of hope, optimism, apprehension or positive fear. What Canada has to expect depends in no small degree on the conditions which develop in the United States; and, consequently, a new development in the American situation is fraught with deepest significance for Canadians.

In the midst of the greatest prosperity the United States has ever known in the country’s history, there has appeared a cloud on the horizon that is causing unspoken alarm among the most conservative thinkers. It is not the size of the cloud that causes alarm. It is the underground rumbling. It is the surcharged atmosphere. It is the swift pace of the weather vane.

There is not the slightest doubt but that Uncle Sam’s export total for 1916 will exceed five billions—or the equivalent of $50 for every soul in the country. There is not an idle factory in the United States to-day. There is not an unemployed employable in the United States to-day. Factories are running not only double time but three shifts a day. Railroads and terminals are jammed and blockaded with surplus freight. Prices for farm produce—with the exception of dairy products, which are artificially depressed—are the highest in years. Wages have risen automatically 10 per cent, for unskilled labor all over the country; and skilled labor is commanding prices that seem almost incredible. In some of the munition factories men are earning on piece work $30 to $40 a day.

That is — the workman is in many cases earning as much in a month as h e formerly earned i n a year. He i s earning as much in a month as a foreman, o r bookkeeper, or teacher, or preacher, earns

in a year. The country has witnessed such combinations and consolidations of big business as marked the old Morgan era of 1900. Various steel ventures have been bought up for from $15,000,000 to $20,000,000 cash, recapitalized at $50,000,000, loaded with some bonds or preferred stock for another $25,000,000, and then sold to such an eager public that the stock has pretty nearly doubled par. The same thing has happened in the metal trades, in the drug business, in motor factories, in a dozen other lines. Copper, brass, zinc, silver, are at prices unknown for a generation.

A few years ago the motor trade considered itself thriving, when a few hundred thousand cars were sold a year. Today, the sales are not in thousands. They are in millions—and that is for domestic use, not war, and in spite of the fact that gasoline is 300 per cent, higher than it was two years ago. When Morgan formed his great steel trust in the 1900’s, a yearly output of ten to twelve million tons was considered high water mark. Today, Schwab predicts a yearly output of forty million tons—five times greater than the yearly output of Germany or England in their most prosperous days.

UNCLE SAM is rioting in prosperity.

He is on a mad joy-ride. He is wallowing in a golden bath; and there isn’t any gold brick to it. Nor has he lost his

; head over it. The War slump

^ T brought him a lesson of thrift

that he will never forget. Thrift day has become a national institution in the United States ; and savings banks show the highest average of deposits ever known. Uncle Sam’s money vaults are literally bulging with gold; and now that a rural credits bill has gone through Congress, land loans will automatically fall to 5 per cent., though foreign nations have to pay Uncle Sam five and a half and 6 per cent, for credit

With all these prosperity flags waving, why the storm signals?

Why have the U. S. Steel and Bethlehem Steel and International Nickel and the National City Bank and a dozen other big concerns insisted on accumulating reserve funds of hundreds of millions against the day of evil to come?

DO they anticipate war with Germany?

Yes—frankly, they do; but speaking financially, they do not fear war with Germany. The declaration of war at worst would cause a sudden slump, followed by another fast and furious spurt of prosperity. Do they anticipate a sudden collapse from the end of the War? Not if we are to take the words of Schwab and Gary at their full value; and both men have a way of uttering only words that have full face values. Both men anticipate that the end of the War will mean the reconstruction of Europe with American capital; so they do not anticipate a collapse as the result of peace.

Why, then, do they insist on accumulating huge reserve funds against the day of evil that is coming?

A FRIEND of Charles Schwab was once asked the secret of Schwab’s success. Was it a

case of luck — like Teddy Roosevelt’s, when he became president? Schwab had an armor plate plant that cost $7,000,000 and had never paid 2 per cent. Bethlehem Steel had been skipping dividends till the War came; and then with its ready plant, it reaped a glorious harvest. How came it to be ready? The same of ship building. Ship owning and ship building have been deadly losses in the United States for forty years. Yet Schwab bought a Delaware plant, and to that added a plant on the Pacific Coast, and another in Massachusetts and another at Sparrow Point till he has become the dominating factor in ship building in the United States. At the time Schwab bought all these plants— except the Sparrow Point—men thought him mad to saddle himself with a lot of white elephants. Now comes the great ship building boom, and some of those plants have paid profits in one year equal to the capital cost. How came Schwab to be ready for the thing that was coming straight to him? Was it luck or foresight? I asked one of Schwab’s closest intimates that question. He answered: “It wasn’t either luck or foresight. Schwab believes in always being ready and forehanded with everything he is doing. Then, when an opportunity comes, he is ready to seize it, where other men have to prepare to be ready.”

That being the case, I go back to the question—why do big men like Schwab, men whose foresight and grasp of affairs is almost uncanny—why do they insist on accumulating a big reserve fund against the day of evil they see coming? Why can’t the rest of us see it? Why is it that these things, which are so very vital, seem always to be the things that the big men can’t tell?

1V/TR. HILL, with that foresight, which has marked and created his own career, states the case in an allegory; but unfortunately, the allegory is so veiled that the most of us do not grasp the thing in terms of every day fact. He says it is a case of a “fatal spiral,” that we are going up and up and up a spiral staircase, and that, when we are far enough up, we’ll be seized of vertigo and topple over. I asked the financial editor of one of the big Wall Street organs what he thought Hill meant by that; and the answer was: “Inflated industry, and when we inflate a little more, we’ll

Hill’s protest was called forth by the

simultaneous demand of a 5 per cent, increase of rates by some railroads and a 10 per cent, increase in wages among railroad workers. “If we have to pay the increased wages,” he said, “we’ll have to have an increased freight; and if we get an increased freight, the public, which pays the freight, will have to have an increased rate for whatever it sells; and where is the fatal spiral to end?”

When the war stops, though Europe has to be rebuilt, there will be a sudden dislocation of all industry. Thousands of industrial plants will suddenly close. These plants will be able to afford to close and scrap all machinery; for they are putting aside a safety fund; but the plants that don’t scrap and have to go on in general manufactures will inherit this war scale of inflated wages. It is easy in prosperous times to raise wages; but you can’t reduce them without a riot. It is cheaper to shut up shop, than pay damages for a riot. That means not only dislocation of industry. It means a stoppage—sharp and sudden as a train thrown off the track. Therefore—danger signals out! Slow up the mad speed! Have your exhaust valves ready! Have ready, in case you need it, a cyclone cellar!

'T'HESE are not Mr. Hill’s exact words, -*■ but they are a rough and ready, mixed metaphor paraphrase of his words, and of the words of warning uttered by the wisest business heads of the United States. Now when you consider that the National City Bank, U. S. Steel, Bethlehem Steel, Great Northern — are to the modern world what Hanseatic leagues and court councils were to the old world, it is worth weighing the warning.

Are the big men of the United States raving Cassandras of disaster ; or do they really know what they are talking about?

’ I ' HE first warnings were uttered about the time the “war babies” and “war Drides” of Wall Street began to bump the bumps, and with various rubber ball bounces and contortions, came down and stayed down. That was about New Year’s of 1916. What do we find midsummer of 1916?

American exports exceeding wildest prophecies. Yes, but a labor unrest also that is ominous in its demands — Hill’s “fatal spiral” beginning to topple.

At time of writing, the anthracite workers have demanded and received increased

wages. We all wish that labor could receive $100 a day; but can it? Can you and I afford to pay it and have anything left to live on, ourselves? The increase will mean $18,000,000 to 1916’s fuel bill in Eastern American cities. When I came to the United States first, coal cost $5.60 to $6 a ton. It now costs $7.75. Do I pay that bill; or do the socalled “coal barons”? Does that increase bear heaviest on Upper Fifth Avenue and Riverside Drive and Madison Avenue, or on the East side, where tenement workers earn $1.75 a day? I do not answer these questions; but I can see Hill’s “fatal spiral” all right.

A T time of writing, there are strikes among the longshoremen and tug workers of the Atlantic, among the telegraph operators and signalmen from Chicago to New York, among the munition workers, 50,000 garment workers, among the steel workers, among International Harvester men, among carpenters, masons, contractors, among ship builders, teamsters, electric workers; and there is a strike threatened among the general railroad men.

Now every trade specified has received 10 to 15 per cent, advance over 1915’s scale. Tug workers are receiving $145 a month. Many of the shop chairmen of the garment workers are paid $25 a week, and demand $100 extra to call off strikes. I know of one factory that lost an order for sixty-five suits because the shop chairman was teaching the “boss” his place; in other words because the foreman refused to see the “boss” for five days out of sheer cussedness to “show him labor’s power.” It was a rush order, and the owner lost it. The builders’ strikes are for 55 cents an hour for an eight hour day. Now 55 cents an hour for an eight hour day for a carpenter and $8 a day for a mason—render house building absolutely impossible for the man of moderate means. Only the capitalist can afford to build a house; and the pressure is greatest, not on the rich man but, on the man of moderate means. It is greatest on you and me. We have the conditions repeated that prevailed in Canada during the height of the recent boom—men idle because they would not work under a certain high figure and people living in tents because they could not afford to build houses at such wages. The sequel to that story is always the same—a gradual exodus of the idle workers, then possibly empty houses because of people leaving. Natural laws have a way of purging all excesses; and Canada saw this purging process for a year before the War. Uncle Sam is just at the beginning of the process now. The ship builders and railroad men are fighting for an eight hour day and extra pay for extra hours.

T_TOW I wish anyone, who wants an -*■ eight hour day, could have it. Housekeepers don’t have it. Farmers can’t have it, never have had it and never will. Cows and wheat and cabbages don’t run on an eight hour schedule. I doubt if any man ever succeeded and rang up hard on his job and did things who stood with his watch in his hand waiting

for the eight hour limit. The soldiers in the trenches would sell our freedom to the powers of hell on an eight hour schedule. Schwab and Farrell and Vanderlip and Grace and Ford didn’t keep an eight hour schedule when they were on the climb. Neither does Edison to this day. The greatest benefactors of humanity were not short hour men ; but if any man wants an eight hour day, let him have it!

The point is—we are so redundantly prosperous just now, the eight hour day has become a riotous demand; and the men are going to get it. Nobody is going to be a martyr over it. Eight hours it shall be universally; but I begin to see what the “fatal spiral” means.

When the topple comes, what will happen to the high wages on the eight hour day? You can’t reduce wages and lengthen hours without riots. What happened in 1914 when the war broke out? Employers could not take the risk of reduced wages. They laid off crews completely and put a remnant of men on half time. Which pinched the harder? That, or lower wages? The question needs no answer, though it is a question no agitator ever answers.

* I 'HAT is what the big meneare afraid A of. That is the cloud on the horizon. That is the unvoiced fear. There is no use groaning over it and arguing. We are all going to see within a very few years exactly how it all works out. The high cost of living, or the cost of high living, always falls heaviest on the poorest.

It is almost comical, and it is altogether ghastly that the beginning of the general inflation was in War Orders; for there are reasons why no one tells the real inside truth about the profits on War Orders.

First of all, if the truth were known, what would ever become of the combinations and consolidations and permutations that are unloading watered stock on the public? So on with the dance and go it blind, till you fall with vertigo !

Well, here are a few ugly inside truths about war orders!

Understand these truths do not bear on the big wise fellows, who are laying up store against the day of evil. They were the men, who foresaw what was coming and were ready. They are the men, who now foresee what is coming, and are ready. But those truths do apply to nine out of ten of the flash buster “war order” whooping fakers.

There are now half a million men receiving high wages on “war orders” in the factories of the United States; but for one factory that is filling orders with profit, a dozen are failing miserably owing to rejections, and floundering deeper and deeper in debt every day they try. These factories are paying the fancy wages and emitting the prosperity tune to which Wall Street has been dancing so madly.

Recall the Wall Street editor’s words— “Over-inflation and when we inflate a little more, we are going to bust.”

Raw materials for “war orders” have increased in price from 300 to 1,000

per cent. First attempts to fill the orders have been dismal failures.

Extensions of time have been extensions of liability; for the wages and materials have gone skyward; and the companies have been unable to repudiate the contracts and tell the truth for fear of a smash; but the smash is due and will hit the harder for being deferred.

One concern with $50,000,000 of contracts is now on the rocks. Another with $25,000,000 of contracts has failed.

A third with $27,000,)00 of contracts has been unable to deliver a dollar’s worth of the firearms undertaken.

What with scarce material, high wages and impossible gauges, it is in a hole. Against these examples, you may set if you like the case of a young commission firm that began in 1914 with a capital of $1,000 and now has a reserve fund of almost $20,000,000; but there is an inside story to this firm, that may some day assume the proportions of a scandal. It was at first secretly financed by the banks that financed the belligerents; and there are rumors of split commissions. The firm catered to both Allies and Teutons.

Some munition workers are earning $30 to $40 a day on piece work at high speed; but those wages will leave no profit for the company. The “blood money profits,” of which the pacifists have raved, will in many cases be paid in the pound of flesh from the heart of the foolish stock holders, who rushed in and bought at the top of the boom, while those inside “on the know” unloaded.

Munition making is such technical work, that the successful shop must make not only enough to pay high wages, exorbitant cost of raw material and high profits, but enough to scrap all its machinery at the end of the war. Probably not a dozen concerns are succeeding in doing

One of the largest concerns, which has hundreds of thousands of pieces under way and which has paid dividends because the Allies advanced money heavily ^has not yet succeeded in delivering a single assembled product at the front. Those on the inside know this and are scuttling the sinking ship.

If you will multiply these facts by the thousands of shops that have war orders and then don’t see the smash coming—it is because you have padded nerves. pRECISELY the same inflated conditions prevail in Great Britain, in Germany, in France; and what foresighted men are asking is this—When the stop

comes, and the sudden jar comes, and the high priced men are thrown out of the factories, and the remnants of men come back from the trenches — what? In Germany, 600,000 more women are working in factories than before the war; and with families to support and heads of families dead, they will continue working in factories. No use revamping the old foolish argument of women in industry taking the bread from the mouths of men ! If women had not thrust themselves in the gap, families would have starved!

Who can foresee the end?

German economists bluntly predict low wages, riots, revolu-

Ford says — high wages, high speed, and profits shared; but the majority of workers are incapable of high speed and cannot earn high wages; and the present agitators demand wages high enough to eliminate all profits.

Lord Shaughnessy’s remedy is one of the wisest — back to the land for the men and leave the women in the gap they have filled. If the men go to the land, so will the women ; but it behooves us all to imitate the big wise ones—get off “the fatal spiral” and lay by store for the day of wrath that is coming.


is one of intense interest to Canadians. In the September issue Agnes C. Laut deals with the steps which are being taken to promote shipping interests in Canada. It is a forceful and practical article—one of the best that Miss Laut has written for MacLean s.