THE OKGAXTZAIION OF FINANCE IN l-OKEST INDUSTIO" 237 



ing to report of the Department of Commerce and Labor/ private in- 

 vestment in timber in this country amounts to not less than six bilHon 

 dollars before the war. No doubt capitalization has increased with 

 rising prices. The value of logging camps and sawmills adds about 

 one billion dollars more to the capital investment in the lumber indus- 

 try, making a total of about seven billion dollars, without counting 

 capital used in distribution of lumber. It is no discredit to the industry 

 that a large amount of this capital is borrowed. On the contrary, so 

 long as our present system of industry is continued, it is of paramount 

 importance that active managers of industry l^nrrow the capital of those 

 no longer able to manage industry, including that of the "widow arid 

 orphan." Borrowing in any sound industry should probably amount to 

 40 or 50 per cent of all the capital used. This permits a shrinkage of 

 50 to 60 per cent in the assets of the industry without jeopardizing the 

 lender's investment, providing the credit instruments have been prop- 

 erly framed and the borrowing properly organized. The assets of 

 forest industry are of such stable and permanent character that there is 

 no possibility of a 50 per cent shrinkage. There is indeed little or no 

 possibility of a shrinkage of even 25 per cent in the assets of this indus- 

 try, but it is inadvisable, both from the standpoint of the borrower and 

 lender, to finance as much as 75 per cent of the assets on borrowed 

 capital with long-time loans, because temporary interruptions of income, 

 as in time of depression, may interfere with interest payments and dis- 

 rupt the necessary relations of confidence between borrower and lender. 

 Moreover, it is economically unsound for the enterpriser to be relieved 

 of the necessity of employing considerable of his own capital in his own 

 enterprise, or at least to be under immediate supervision of those who 

 advance capital (the stockholders). To do so relieves him oi a large 

 part of the incentive to conservation and close attention to business 

 detail necessary for the best results. The sound business should be 

 able to command short-term credit to cover the ups and downs of busi- 

 ness to the extent at times of perhaps 25 per cent more of tlie capital 

 employed, but this credit should probably come through ordinary liank- 

 ing cliannels. as at present. 



ANForX'l" OF CAPITAL l!()RR( )WEI) AND SWIXCS I'A' ORC.A X iZ A'lH tXS 



oF CREDIT 



This discussion concerns itself with the 40 to 50 per cent of capital 

 wliich is being or should he secured througli long-term loans. With an 

 investment of seven billiim dollars, borrowings of this percentage wctild 



The Lumlier Industry, Part 1, p. la. 



