CHAPTER IV

THE DISSEMINATION OF BASIC BUSINESS FACTS

THE trade association is to-day the greatest single private agency engaged in gathering and broad-casting facts as they affect industry. An investigation by the Federal Trade Commission shows 474 associations, or more than thirty per cent of the associations reporting to the Commission to be compiling and distributing trade statistics.1 Individual efforts to secure comprehensive facts as to total production of an industry, total sales, and price trends as shown by the consummated sales of many sellers are futile. Only the largest companies can maintain the special statistical department and wide-spread organizations which give them a reasonably accurate gauge on market conditions. The great majority of concerns are compelled to do business without reliable information of this kind. Only organized effort, either by associations or by the government, can secure accurate, comprehensive information from the original sources upon which a business man may safely rely.

Every business man rightly wants to know the basic, economic conditions in his industry, which should determine his present policy and inevitably must affect his future business. While the powerful political influence of agricultural interests has resulted in the creation of government agencies for the publication of trade data as it affects the farmer, there has been an almost complete lack of accurate, comprehensive statistics in all our industries until the past few years. The war stimulated the efforts made by our trade associations to collect and distribute the facts. Recurrent periods of overproduction and underproduction, with their resulting violent fluctuations in price, spotty markets, speculation and other injuries to industry and to the public are, to a considerable extent, due to the blind conditions under which business men have been compelled to

1922.

1 Letter, P. J. Yoder, Secretary, Federal Trade Commission, Jan. 23,

work in the absence of some agency to inform them as to the facts. The law does not deprive business men of the right to secure the fullest possible data from every source. The law demands only that supply and demand shall not be subject to any artificial restrictions or control. Some of the most serious indictments of the competitive system spring from the fact that buyer and seller have been working in utter ignorance of the true conditions of supply and demand. A knowledge by all business men of the facts relating to their industry works for the maintenance and strengthening of the competitive system in industry. There has been a great need for years for fact-gathering agencies, which could compile four groups of business facts. First, there ought to be published periodically, if it is possible to secure reliable data, figures showing the productive capacity of each industry. Second, there should be a constant compilation of facts, showing current conditions of supply and demand. Third, there should be a means provided for the interchange of facts, regarding prices, costs, wages, waste, inventories and so on. Fourth, the facts with reference to the basic factors affecting the trend of the American industry generally will be of value. Substituting facts for rumors, misrepresentations and even fraud, should stabilize and strengthen business. It will create a sound economic foundation for the free, unrestricted operation of the law of supply and demand which the laws of the land endeavor to secure.

Value of Facts on Productive Capacity.-An accurate and widespread knowledge as to the productive capacity in each industry is desirable from every standpoint. It would tend to prevent excess overproduction and the investment of capital in industries, in which the supply has already outrun demand.2 Few groups of business men will invest their money in new plants if the facts clearly show the physical capacity of the industry is already much greater than the demand. Thus, not only will the industry be protected from the evils of overproduction, with its great economic loss and tendency toward monopoly, but the investing public will also have reliable facts, which will

2 Will H. Parry, Commissioner, Federal Trade Commission, Proceedings, First Annual Meeting, Southern Pine Association, p. 127.

tend to prevent it from diverting capital into non-productive fields. Banks would likewise have facts on which to decide upon limits of credit; and both risk and interest rates could in consequence be reduced.

Value of Facts on Supply and Demand.-Economists have long recognized that continuous information as to the conditions of supply and demand is necessary to the orderly conduct of trade and the protection of the interests of the public. More than a decade ago Jevons, in his Theory of Political Economy stated this fact in these words:

"It is of the very essence of trade to have wide and constant information. A market then, is theoretically perfect only when all traders have perfect knowledge of the conditions of supply and demand, . . .

"So essential is a knowledge of the real state of supply and demand to the smooth procedure of trade and the real good of the community, that I conceive it would be quite legitimate to compel the publication of any requisite statistics. Secrecy can only conduce to the profit of speculators who gain from great fluctuations of prices." Pp. 87-88.

Because of the lack of governmental assistance, or the inability themselves to coöperate in securing the facts, business men of most industries have been compelled to grope, by means of their own organizations, special investigators, trade journals, and other limited agencies, amidst a maze of inaccurate and sometimes fraudulent information, in an effort to secure an approximate knowledge of the conditions of supply and demand. In seasonal industries, where the raw material must be purchased and the commodity sold in a limited period, misrepresentation of the facts is particularly rife. The small business man has been especially handicapped because his facilities for securing information are very limited. He does not have a sales force scattered throughout the country making daily reports nor can he afford to maintain a statistical organization to gather facts 3 A. G. Kahn, Interstate Cottonseed Crushers' Assn., Official Summary, Conference of Trade Assn. Representatives, Washington, D. C., April 12, 1922, p. 39.

4 Testimony William O. Goodrich, President, William O. Goodrich Co., Transcript, United States vs American Linseed Oil Co. et al., p. 295.

from every available source. There is no conceivable reason why every business man in the country is not entitled to know the facts of his industry. In the absence of governmental action, there is no reason why an association should not gather such statistics so long as the facts are not misused to restrict competition. A number of associations are endeavoring to place the industries that they represent on a sound economic basis, by gathering and distributing information showing current production, stocks on hand, current shipments, current orders and unfilled orders.5 These facts when secured from a considerable portion of the concerns in the industry, give a fairly accurate picture of current conditions of supply and demand upon which each member may base his own individual business policy. Data of this character is invaluable.

It enables the business man to make an exact comparison of his business with general conditions in the industry." If the total production of his industry is increasing while his production is standing still, he has notice of the necessity for drastic action, or the condition of his unshipped order file as contrasted with the general condition in the industry, may afford a reliable warning. If on the other hand, the total production of the in

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5 Among the associations which gather statistics of this character are -The Southern Pine Assn., Container Club, Prepared Roofing Assn., United States Sugar Mfrs'. Assn., National Assn. of Finishers of Cotton Fabrics, Associated Batting Mfrs., West Coast Lumbermen's Assn., Western Pine Mfrs.' Assn., California Pine Mfrs.' Assn., California Redwood Assn., North Carolina Pine Assn., Northern Hemlock & Hardwood Mfrs.' Assn., National Lumber Mfrs.' Assn., National Paint Oil & Varnish Mfrs.' Assn., Shellac Importers' Assn., National Implement Mfrs.' Assn., Tanners' Council, Knit Goods Mfrs.' of America, Newsprint Mfrs.' Assn.

For an interesting article dealing with the organization and methods of associations exchanging such information, and also prices, see "Open Price Associations," by H. R. Tosdal, American Economic Review, June, 1917, p. 331.

6 TIPPER: "The New Business," p. 162; E. J. Cornish, Chairman Statistical Committee, National Paint Oil & Varnish Assn., Official Summary, Conference of Trade Assn. Representatives, Washington, D. C., April 12, 1922, pp. 21-23; F. L. Lamson, Treasurer, Norwalk Tire & Rubber Co., New York Evening Post, Oct. 22, 1921.

7 A. C. Brown, Secretary, National Alliance Case Goods Mfrs., Annual Meeting, 1918, p. 7.

dustry is falling off, because of irresistible economic conditions, he may properly be more conservative in his price policy. In such a situation he is protected also against his own salesmen, who in reporting their inability to get the business are confident competitors are getting it at lower prices. Figures showing a general decline in production in an industry might warn a manufacturer against undue expansion of his plant capacity, even though his volume of sales was increasing." A business man might easily believe that he was falling behind his competitors, when possession of the facts would show his relative position was even better. A manufacturer selling without knowledge of the facts, will sometimes find himself receiving a heavy volume of orders, which will indicate he is strengthening his position in the industry, when as a matter of fact he is only the victim of a wave of speculative buying in no way representing consumers' demand. At the end of a few months, the trade is overbought, demand has vanished, cancellations pour in and the manufacturer is caught with a heavy inventory of finished goods on hand, resulting from his misjudgment of the facts. As a result he is forced to curtail his production and reduce his force, with a resulting loss of efficiency and positive harm to labor. Had he possessed information as to the situation faced by his competitors, he would have instantly recognized the demand as abnormal and speculative, and could have planned his business policy accordingly.10 A heavy predominance of small orders gives warning of a possible oversupply and a tendency of the trade to buy closely. Complete data on current orders for the entire industry enables a manufacturer to check with his old orders and thus accurately measure the

8 Harry J. Thayer, Treasurer, Tanners' Council, Oil Paint & Drug Reporter, Dec. 9, 1918, p. 13; Testimony, William O. Goodrich, President, William O. Goodrich Co.; Transcript, United States vs American Linseed Oil Co. et al., p. 294; Testimony Federick K. Quine, Sales Manager, American Linseed Oil Co., ibid., p. 423; Frederick A. Kessinger, Proceedings, American Envelope Mfrs'. Assn., 1917, p. 46.

"The Open Price Plan," Roy A. Cheney, Secretary, Knit Goods Mfrs. of America, Textile World, May 7, 1921, p. 81.

10 Frederick A. Kessinger, Proceedings, American Envelope Mfrs'. Assn., 1917, p. 50.