INDUSTRIAL SECURITIES 1. Industrial development.—The amount of capi tal invested in industrial securities in the United States is supposed to be about fifteen billion dollars. This total represents the practically complete conver sion of American business from the • partnership to the corporate form, as well as the progress which has been made by growth and combination from small to large units, and from closely held to widely distributed proprietorship interests.
2. Lack of dominant charac teristic of this great section of business is the variety of conditions in different lines and the fluctuations in prosperity from period to period. The clear and general recognition of what is appropriate in equip ment and physical processes, and what is sound in commercial, financial and general administration which prevails in the railway business and in each branch of public utilities is lacking in manufacturing and trading companies. The investor must, there fore, discriminate much more carefully between in dividual concerns, and trust much less to the general characteristics of the class or type of business. This makes it an important rule that the investor should not place his money in a line of business the funda mental conditions of which he is unfamiliar. If one invests in steel and in breweries and gathers in a mis cellaneous assortment of the securities of cotton mills and chain stores, automobile concerns and shipping combinations, his ignorance will certainly find him out.
3. its capacity as a carrier, the railway business is involved with every type of indus try, and so represents an average of conditions. The public utilities rest upon a monopoly of local supply of certain indispensable services. These are lines of business which, by their nature, are protected from extreme fluctuations. Industrial corporations are favored by no such protection. They are upon the high seas of trade, subject to storms from all points of the compass. If they venture in new directions, they may pay the toll of being untimely; if they ex ploit new inventions they are likely to share the usual fate of inventors. Their equipment rapidly becomes
obsolete; their locations frequently become out-of the-way in a decade. If they find a market they are subject to unrestrained competition. The calculation of productive power and consumer's demand cannot usually be made exact. Hence over-fixation of cap ital is a common mistake. Earnings are everywhere dependent largely upon external conditions and these conditions are complex and unstable. To illustrate: a natural cement industry grows up to be destroyed in a decade by a Portland cement industry. This in turn becomes overdeveloped. The cotton mills of New England are forced to divide the trade with southern mills. The southern mills develop an ori ental market, only to be cut off by Japanese competi tion. The bicycle industry grew to annual sales of twenty-five million dollars and a decade later fell to five million.
In addition to these changes which spring from the contest of industry with industry, and the reorganiza tion incident to economic progress, the industrial world is subject to the cycle of changes which marks the shifting relations of business to the money and the security market. Improvement is followed by activity, and activity by speculative excitement, only to end in a crisis and depression from which im provement starts again. The earnings of industrial corporations are subject to a shrinkage of from 20 to 60 per cent in a panic as compared with 10 to 20 per cent for the railway business.
A tabulation of the effect of the crisis year, 1908 will give an idea of the fluctuation of earnings to which industrials are subject.
These fluctuations show how little of a safeguard that intangible value called "good-will" is in protect ing earnings. Good-will serves to divide patronage between individual establishments when general con ditions create it, but it does not create patronage when conditions are unfavorable.