120 



COMMERCE (INTERNAL) OF THE UNITED STATES. 



of profits that have prevailed for several years, 

 and which are likely still to prevail, they could 

 not expect to discharge or support, and that 

 they would thus avail themselves of the privi- 

 lege of bankruptcy to liquidate or compromise 

 their engagements before they were deprived 

 of that last resort for embarrassed traders. _ It 

 is a most gratifying and convincing indication 

 of the general sound condition of the mercan- 

 tile houses of the country that the increase 

 of failures in the first nine months of 1878, 

 among nearly 700,000 trading houses inscribed 

 in Messrs. Dun & Barlow's records, was only 

 about 2,000 over the same period in the pre- 

 ceding year, in spite of this powerful induce- 

 ment to take advantage of the expiring bank- 

 rupt law. The average of liabilities, except in 

 the State of California, was about the same as 

 in previous years. The number of failures in 

 1878 was no doubt swelled to no inconsidera- 

 ble extent by fraudulent bankrupts who were 

 able to compromise their obligations at less 

 than their face, though possessing the means 

 of fairly coping with them ; in the last sixty 

 days prior to September 1st there were 1,000 

 more assignments and compromises than in the 

 "third quarter of 1877. Of the different por- 

 tions of the country, the Western States fur- 

 nish a smaller proportion of loss by bankruptcy 

 than the Eastern, but the Southern and Mid- 

 dle States about the same as the Eastern States. 

 The declension in the market values of cor- 

 poration stocks and bonds is a trustworthy 

 measure for the entire nominal loss of capital 

 in the United States, or for the whole shrink- 

 age of values. Indeed, it is not far from in- 

 cluding the aggregate loss, since, by the pecu- 

 liar arrangements of American industry, nearly 

 the whole productive capital of the country, 

 except that employed in agriculture, wellnigh 

 all the mining and transportation, and the 

 greatest part of the manufacturing works, are 

 managed by incorporated companies ; while the 

 agricultural and merchandising interests them- 

 selves are entirely dependent upon the bank- 

 ing and railroad corporations. The settlement 

 of this vast aggregate of associated capital to 

 a basis of value which corresponds to the al- 

 tered commercial conditions is most essential 

 to the healthful development of business ; but 

 this process is necessarily slower than it would 

 be were the capital controlled by a greater 

 number of individuals. Those who have the 

 greatest interest in and the chief management 

 of the companies have it in their power and are 

 prompted to keep up the valuation of this capi- 

 tal to correspond to the original investment or 

 former scale of profits; diminished business 

 or smaller earnings do not affect the prices of 

 shares as long as the dividends are paid, but 

 the payment of the dividends enhances them; 

 even passed dividends do not have their full 

 natural effect in depreciating stocks, as long as 

 the stocks are kept out of the market by com- 

 binations, and hopes are held out of the same 

 old rates of profit upon the revival of business. 



The whole body of share- and bond-holders feel 

 the keenest interest in keeping up the value of 

 these capitals. The hopes of all the holders, 

 great and small, supplement the efforts of the 

 leading managers. The great bulk of accumu- 

 lated capital is held under this system, and they 

 could not turn it over to another body of hold- 

 ers if they would. There is a great disquiet 

 and mistrust among the investors. It is plain 

 to many that the greater part of these works 

 were built, extended, or recapitalized on such 

 a scale of cost and prices that they can never 

 return the ordinary profits and interest on the 

 invested capital, and that many of them can 

 scarcely pay the interest on their debts. There 

 is additional doubt and insecurity caused by 

 the secret manner in which the financial inter- 

 ests of the companies are conducted, and not a 

 little disquietude from the numerous malversa- 

 tions and defalcations committed by officers 

 of corporations, which have been computed at 

 an aggregate of $30,000,000 within four years. 

 One effect of the mistrust of corporate securi- 

 ties has been the successful placing of Govern- 

 ment bonds bearing a low interest. Another 

 has been the excessive demand for real-estate 

 securities, which has served to keep up inflated 

 values of real estate, great quantities of which 

 have changed hands by the foreclosure of mort- 

 gages ; the natural effect of this must be a re- 

 action which will tend to keep up the prices of 

 corporate securities. The great mass of in- 

 vestors can not cut loose from the capital in 

 the hands of corporations. The decline of share 

 prices is steadily progressing; in many cases 

 no doubt the fall is much too great already, 

 owing to the temporary arrest of affairs ; yet 

 the average depreciation can not yet have 

 reached its lowest mark, nor the standard about 

 which the values must oscillate for the future, 

 unless there is an increase in the currency of 

 the country and a general rise of prices. It is 

 doubtful whether the country would again ab- 

 sorb a large access of paper currency, and the 

 metal currency can only increase very slowly, 

 unless silver is shut out from the European 

 mints and coined free or in large quantities by 

 the United 'States Government. Disturbance 

 in business and in vested interests must follow 

 upon a sudden increment of either paper or 

 silver currency, and can not be wished by the 

 present holders of property. The great actual 

 depreciation in the values of corporate shares 

 may be illustrated by the fall in the prices of 

 the following list of twenty stocks in the New 

 York Stock Exchange during five years, from 

 January 1, 1873, to December 31, 1877; they 

 are active stocks, which are constantly on the 

 market and frequently change hands, and thus 

 best reveal the real shrinkage of values : Cen- 

 tral New Jersey, quoted January I,1873,atl05, 

 fell to 14J, a decline of 91J per cent., repre- 

 senting a depreciation of over 1 8| millions in 

 its capital stock, whose par value is $20,600,000; 

 Chicago & Alton Railroad, capital stock $24,- 

 999,700, fell from 115 to 78, or 36, a depre- 



