Vol. XXV

T

Number Five

THE course of recent military and political events in Europe remove all doubt as to the supreme, decisive role which the United States must sustain in the war drama and in shaping the destiny of the civilized world. The cries of "Vive l'Amerique" with which the valiant French "poilus" greet our soldiers in France and the cheers of stolid Britons, as our emblem is borne through the streets of London, testify more eloquently than the words of officialdom as to the increasing reliance of our allies upon the invincibility of American arms, ingenuity and economic resistance. This grave responsibility is now brought home to us by the internecine strife and collapse of Russia; by the severe blow inflicted upon the Italian defense and by the palpable need of greater inter-Allied unity and coordinated military strategy, if the Teutonic war machine is to be permanently put out of busi

ness.

The American people cannot-will notflinch from the grave task of delivering the world from the menace of military autocracy. They have pledged their hearts and treasure irrevocably as shown by the gigantic scale upon which the government has drawn its master designs of military, naval and aircraft efficiency; by the latest popular subscription of nearly $5,000,000,000 from nearly 10,000,000 subscribers to the Second Liberty Loan; by the tremendous activity in shipyards and the patriotic willingness with which industrial, financial, transportation and kindred facilities are being mobilized. They have manifested it by their

ready assent to the undemocratic doctrine of conscription which renders nine million of our youth liable to service. No one in his calm senses-not even the proud, scornful Prussian Junker-can doubt that when this nation attains the zenith of its war might in the trenches and upon the seas, that the tide of battle will be surely turned and Kaiserthum must yield to this virile young giant of the New World.

The manner in which recent advices from Europe were received on this side, the depression in security and investment markets and the extraordinary flood of liquidation, however, suggest that the American people still have much to learn as to the psychological factors in modern warfare. Only those who breathe the grimy atmosphere of war, who have witnessed its savagery and ghastliness, know that the final result depends even more upon the "will to win," the temper of the soldiers at the front and of the people at home, than upon preponderance of man-power or material. This great truth of modern warfare has not yet soaked into the consciousness of the rank and file of the American people, because the scene of hostility is curtained by the big ocean, because our dear ones, our firesides, and individual liberties have not yet been threatened by actual invasion. To France, spending its life-blood, it is a daily, cruel reality. To the Briton, who once upon a time regarded his "castle" and "tight little island" as inviolable from foreign foes, death is hurled from the air almost nightly upon helpless women and children. To Italy, with Teu

tonic hordes battering at its gates and threatening its historic heritages, the hideous mien of war is made more repulsive by want of food and supplies.

Now the veil of distance is gradually being lifted also upon this side as casualty lists grow with daily regularity, as the deep claims more American lives and ships and as the cordon of transports silently traverse the zone of hostile submarines. We are beginning to realize what it will mean to American freedom and security if our allies should fail to check the bloody march of the Prussian juggernaut. What a feast this land of wealth, of "unlimited resources" would provide for those hordes in field gray with appetites whetted for world conquest and hearts dead to every humane appeal. It is well that every American should be confronted with this picture in all its unvarnished, somber colors and that the "camouflage" of indifference and the sense of false security should fall like "scales from his eyes."

GOVERNMENT AND CORPORA

TION FINANCE

THE brilliant Haig "drives" into the Hindenburg redoubts go far toward discounting the Russian débâcle and the Italian situation as market factors. While European developments naturally exert a strong sentimental influence upon the course of the security market they are not, however, the determining reasons for the recent heavy liquidation and declines reflected on the New York Stock Exchange. The experiences of the past month simply teach the lesson that, regardless of fluctuating battle lines, there is every warrant for firm faith in the ultimate victory of the allied cause and in the fundamental soundness of the American business and financial situation. The action of the Governing Committee of the Stock Exchange in curbing short sales and professional bear attacks, upon the market was therefore in line with wise policy and common sense. The effect of the requirement that members report daily all stocks borrowed for "short sales" and extending this control to all short selling on the board room floor, had the apparent effect of greatly reducing the volume of trading. Responsible brokers and financiers hold to the view, however, that this restriction on "short selling" should operate only against pernicious professional activity and not against the principle of "short sales"

which is a valuable equalizing factor in preventing undue fluctuations.

The strongest pressure upon the security market and depreciation in investment values was doubtless caused by uncertainty as to the result of war taxation and levies upon "excess profits" as well as by the readjustments attending the recent big Second Liberty Loan operation. The rate of interest on Government issues is also doubtless a big factor. Many stocks and bonds are now on an unwarranted low basis, far below their intrinsic or cash worth, even allowing for the heavy toll of taxation. Traders and investors are evidently blind to the fact that heavy taxation upon corporations is but an evidence of heavy earnings. It was because of the realization that security and investment values are being unreasonably sacrificed that the Comptroller issued his instructions to national bank examiners relating to the charging off of bank investments of high grade securities for depreciation. Similar action has been taken by the Bank Superintendent of Ohio and an effort is being made to induce the State banking departments generally to subscribe to that policy. Many conservative banks and trust companies, however, will continue to observe the rule of charging off.

The conservation of security and investment values is a subject which demands enlightened attention. The Investment Bankers' Association at their recent Baltimore convention approved the recommendation that Government financial requirements receive priority consideration and that corporation borrowing be limited to necessities where it relates to war construction. The delegates also approved the suggestion that the governors of the various states be asked to issue proclamations calling upon all State and municipal authorities to restrict the issue of State and municipal as well as public improvement bonds. The most important requisites, however, in sustaining and restoring security as well as high grade investment values is to take a new grip on confidence and to realize that the enormous expenditure of Government not only is returned to circulation but means sustained activity in all branches of industry and business under high pressure. The extent to which liquidation has affected prices may be gathered from the fact that the present 65.40, average of fifty stocks, listed on the Exchange, represents a decline of 25 points as compared with last January and the average of forty standard bonds at 77.06 on November 21st represented a decline of over 11 points since September.