THE INDUSTRIAL AND FINANCIAL FUTURE OF

THE UNITED STATES.

BY FRANK A. VANDERLIP.

[Frank A. Vanderlip, banker; born Aurora, Ill., Nov. 17, 1864; educated in public schools, University of Illinois and Chicago; began his business career as a reporter on the Chicago Tribune, of which he later became financial editor; associate editor of the Economist, 1894-7; became private secretary to Secretary of the Treasury Gage, 1897, and later in the same year. assistant secretary of the treasury; became vice-president of the National City bank, 1901. Author of many articles on economic topics.]

It has seemed to me fitting to attempt to review, in the briefest manner, a few of the figures illustrative of our material progress and to try to draw some deductions from them. In order to get a setting for our comparisons, let us for a moment glance back at conditions during the years when we were just emerging from the depression of the panic year of 1893, and when we were facing a great political and economic conflict over the silver issues. The whole world was filled with distrust in regard to the future of our standard of value and the chilling shadow of that distrust was falling heavily on our commerce and finances.

Then came the definite verdict of the people, declaring for a sound currency, and following that began an unexampled era of prosperity such as no other country, in any age, has ever known. The expansion went beyond all the experiences of men of affairs. We had learned lessons of economy, of careful management and of cheap production in the depression whch followed the panic of 1893, and now we suddenly waked to the fact that we had obtained a grasp on the markets of the world. Our exports of manufactures ran up from $183,000,000 to $433,000,000 in half a dozen years, and this increase of $250,000,000 in the annual average of our exports of manufactured products made Europe stand aghast at what was denominated the American commercial invasion. Our general foreign trade balance assumed such totals as to cause economists seriously to consider what was to happen to the rest of the industrial world if this march of progress went on.

In half a dozen years we piled up against other countries a trade balance in our favor of more than $2,600,000,000, a trade balance far larger than the net trade balance had been from the beginning of our government down to the time when this remarkable expansion started.

And then we made mistakes. We were in the midst of a prosperity so great that it went beyond the experience of the most experienced. With the flood tide of this prosperity covering all of the old landmarks, it was small wonder that there were blunders made in steering the craft of business. We ran into excesses, extravagances and miscalculations. Capital made mistakes of over-capitalization; labor made mistakes of arbitrary and unwise demands; every body made mistakes of extravagance. Producers made errors in estimating the demand and made miscalculations in the multiplication of their productive capacity. Those errors of estimate were almost unavoidable. There was a surplus demand above our productive capacity, and that demand went knocking at the door of first one factory, then another and another, producing the impression on the mind of each individual manufacturer that the demand legitimately pressing upon him warranted him in doubling his plant; and when every one started to double his productive capacity, capacity soon ran ahead of demand.

The railroads were caught in much the same situation. They made huge engagements for expenditures which they felt were necessary in order to handle the traffic that was pressing on them. For the time being, far too great a portion of liquid capital was absorbed into fixed forms of investment. Directly and indirectly, bank credits which were payable on demand were, in a dangerous proportion, converted into new manufacturing plants and into new railroad tracks, equipment and terminals. Bank reserves fell until they were a danger signal pointing with certainty to the need for more conservative administration. Banks applied the financial brakes of higher interest rates. Stock market values, unduly inflated by the spirit of optimism which was all pervading, began to melt.

In 1902 this turn came. The decline which followed cut a billion dollars off the value of securities in a few months.