CONTINUOUS FOREST PRODUCTION 21 



is almost iimnediately followed by price cutting. The first results of 

 a period of price cutting are of course a gradual narrowing of profits. 

 Since some plants are always in a state of barely making profits, they 

 are soon forced into a losing position. Still further price reductions 

 will bring all but the most efficient to this condition. 



Its effect may not be extremely serious until a point is reached where 

 sales are made at less than cost of production, not at all a rare condition 

 when depreciation is taken into account as a cost. This is the point 

 where the investor's capital not only fails to give returns but actually 

 begins to slip from his grasp. The physical deterioration of his plant 

 goes on whether he operates or not. It goes on, in fact, at all times 

 both in prosperity and depression, but in low-price periods, if he operates, 

 a sufficient return does not come back from the sale of product to re- 

 place this lost capital. This means that his capital is gradually being 

 transferred to the purchaser of lumber without compensation. If he 

 does not operate physical deterioration goes on just the same without 

 being reflected in creation of product, which means that his capital is 

 lost not only to himself but to the world. That is the destiny of the 

 $60,000,000 or more annual cost of competition. It is only a portion 

 of the losses to the investor. Whenever prices get below cost of pro- 

 duction, including depreciation and interest, there is no escape from 

 loss either in operating or lying idle. 



Price cutting, then, if carried far enough, results either in transferring 

 capital from the investor to the consumer of forest products or in the 

 absolute destruction of capital. Where this is going on the industry 

 is obviously in a depressed condition, and investors are no longer 

 attracted to it. As a consequence the invested capital gradually 

 shrinks in amount. Physical evidence of this is seen in the deteriora- 

 tion of many plants till some are no longer susceptible of profitable 

 repair. This shrinkage of the capital invested tends to restore normal 

 conditions as to output and remove the reason for price cutting, so that 

 in time prices begin to recover. Since investors are apt still to be wary 

 of such investments, this recovery may proceed so far as to bring about 

 abnormally high prices, but in the limiber industry the overload of 

 investment in the timber which cannot be cut for years to come results 

 in building mills not called for by market conditions and, hence, in 

 delayed recovery of the market. Moreover, such periods of prosperity 

 as may come may be expected to be short on account of this overload 

 of stiimpage investment. 



However, though recovery may be delayed it is inevitable eventually, 



