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Relation of High Prices and Profits 



High prices are usually regarded by the business man, and es- 

 pecially by the lumberman, as a consummation devoutly to be wished. 

 A casual consideration of the average merchant's desire for higher- 

 selling values would lead us to believe that he is heading blindly 

 for that goal rather than allowing for other economic facts and 

 striving to maintain a logical balance between cost of production 

 and selling price, and thus insuring a fair profit, which is, of course, 

 the reason for his being in business. There is, however, as between 

 cost of production and selling price, a question of which is the cause 

 and which the effect. If a constant revolution of these factors, one 

 around the other tan lead to a generally higher cost of living, it is 

 logical to suppose that a revolution in the reverse direction will 

 have the opposite effect. 



In treating with present conditions, however, it might be reasoned, 

 without violation of logical rules, that when the price of lumber 

 goes up, it necessarily helps the sawmill man, who is regarded as 

 the houn' dawg of the trade, and as having worked harder and 

 made, less than anybody else in the business. It would seem, in 

 view of the narrow margin of profit on which he is operating, 

 that an advance in prices is his only salvation, and that every effort 

 should be made toward bringing about this condition. 



Assuming that all other factors in the equation retained their 

 former values, this would indeed be correct, but when selling prices 

 change, nothing else, generally speaking, remains in statu qno. (Saw- 

 mill operators often say that log prices move in only one direction — up- 

 ward — but this is the lone exception to the rule that all factors 

 contributing to the cost of production are affected by a change 

 in selling quotations.) Certainly when advances are made in lumber 

 prices the tendency is for other values to increase either in direct 

 proportion or to still greater degree. 



Ever since the trade began to get over the jianic of 1907-1908 

 there has been a gradual movement of prices iip the scale, and 

 hardwood lumber is now selling at levels which are below the 

 liigh mark of 1907, but are pretty nearly equal to the figures of 

 1906,, an unusually prosperous year. Questions directed to the 

 owners of sawmills and intended to determine whether or not 

 this restoration of normal values has helped theif condition, have 

 not developed a declaration of a marked improvement. On the 

 other hand, conditions are perhaps worse, as far as profits are 

 concerned, although it is more comfortable to do business at present 

 because the demand is better, the advanced prices being in most 

 oases merely a signal that consumption has increased and that 

 more lumber is being used. 



"As far as I am concerned," said the owner of a large mill in 

 the Ohio valley hardwood belt, "I would prefer to do business at 

 relatively low, instead of relatively high prices. When lumber 

 prices advance, the first man to profit is the log owner. He hears 

 about the improvement a little sooner than anybody else, apparently, 

 and does not pass by an opportunity to take advantage of his 

 information. "When prices are down, usually because of slow trade, 

 the demand for logs falls off, and it is usually possible to get them 

 under those conditions at something like a fair price. The change 

 in the situation is of course in response to the general law of 

 supply and demand, but illustrates the fact that when we get more 

 for our lumber it involves paying more for our raw material. 



"The high cost of living, which men in every line of business 

 are familiar with, is the universal result of the combined price 

 advances of all commodities, lumber included. It would certainly 

 be a great disadvantage to have to sell lumber cheap as long as 

 •everything else is quoted at high prices, but it would be a better 

 condition all around if commodity prices generally were lower. 



"The increased expenses of living become marked when commodity 

 values, including lumber, advance, and it is necessary to pay laborers 

 more money in order to enable them to subsist. Feed prices usually 

 go up; traveling expenses become higher with the increase in 

 quotations on food at hotels, livery hire, etc. It costs more to 

 buy lumber for these reasons, so that in the end the producer finds 



that though he may be handling more money, he is, if anything, 

 making less than he did before." 



In the rehandling branches of the lumber trade high prices are 

 no advantage except as they indicate improved business. And 

 active business, at average prices, is better than business carried on 

 at high prices. For one thing, it takes more money to engage in 

 and conduct a business when values are above normal than other- 

 wise. Since profits per thousand feet seldom advance greatly, the 

 result is that net earnings on the capital invested are likely to 

 fall during a period of high prices. 



Another thing in connection with this condition is that consumption 

 is likely to be reduced when prices go up. In the first place, 

 substitution of cheaper materials is at once suggested. Poplar just 

 now is reported to be a slow seller, particularly in the upper 

 grades. Poplar has been the victim of high prices to a considerable 

 extent. The automobile boom shoved the values up, and consumption 

 m that direction increased so enormously as to cause other materials 

 to be used in place of poplar in many lines. Now that the con- 

 sumption of poplar in the automobile industry has decreased to a 

 marked extent, substitutes are in general use, although recently 

 there is an apparent strengthening in the demand for panel poplar. 

 Take mahogany, which is an excellent example of the effect of 

 high prices. Just at present mahogany lumber is selling as high 

 as sixteen cents a foot at the mill, which is $160 a thousand. That 

 is about as high as even the manufacturers care to see it go. Yet 

 it was only a short time ago that an oflBcial of a large mahogany 

 manufacturing company admitted that the concern has a narrower 

 profit to work on now than it did when mahogany was selling around 

 $120 to $130 per thousand feet. 



"We are paying more for logs," he said. "There is a scarcity 

 of log supplies, which has meant a large increase in the initial 

 expense. In addition to this, freight rates for ocean hauls have 

 gone up rapidly, and we must now pay more for the transportation of 

 our logs than formerly. Thus when the material reaches the mill 

 it represents a much larger investment than it did before the 

 advance arrived. There is an exceptionally good demand from cer- 

 tain classes of trade, it is true, and this has helped to stimulate prices 

 and keep them up; but the advance is not merely the result of 

 increased demand, but is the composite effect of increased producing 

 cost coupled with broadening consumption. ' ' 



The rise in mahogany values is encouraging substitution, of 

 course, and the improvement in the condition of quartered oak is 

 believed by many to be partially due to the desire of consumers to 

 get a cheaper material than mahogany. The interior finish business 

 has been affected adversely, it has been said, by the mahogany 

 vogue, and it is reasonable to believe that if mahogany prices remain 

 as high as they are at present, quartered oak will have an excellent 

 chance to come back into more general use in the construction field. 

 Those who are interested in fighting the substitution of other 

 materials for wood should remember that when the cost of making 

 a mahogany filing cabinet, for instance, gets somewhere in the 

 neighborhood of the figure for producing one of steel, finished to 

 resemble mahogany, there is created a big selling force in favor 

 of the latter. 



If high prices merely signaled increased demand and more busi- 

 ness, they might be welcomed without reserve; but often 'the shoe is 

 on the other foot, and they are the result of decreased supply. The 

 effect is as Hkely to be produced by one cause as by the other. 

 The flood in southern sawmill sections this spring was a- big 

 factor in reducing the available supply of oak and other hardwood 

 lumber. The result was seen in a big advance on plain oak, which is 

 still selling at high prices as a result of this diminution of the 

 supply. But this didn 't help the lumber trade as a whole ; on the 

 other hand, many concerns who were unable to supply their cus- 

 tomers' requirements in this line at standard prices lost money 

 meeting their contracts in this connection. 



When high prices on lumber are posted in company with advances 



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