Evening Star Newspaper, July 14, 1929, Page 69

CREDIT INFLATION DENIED BY FRIDAY Economist Declares Two Years Have Been Period of Deflation. BY EDWARD C. STONE. David Friday, well known Washington economist, declares that the eountry months, the violence of the discussion over the banking situation durmg the past year having obseured this fact, His views are ex: ngly interesting and are directly opposite to recent state- ments along the same line by the Na- tional City Bank. Mr. Friday does not believe the measure of bank credit is! bank loans and investments, but rather that it is bank deposits. In the July issue of the Bankers' Magazine he explains: “The bank credit outstanding at any time is represented by deposits. As a recent writer has succinetly put it. | ‘When the bank credits a given cus- tomer's account, bank credit comes into being, Federal Reserve Board weekly | statements show that during the 13 months which elapsed between May 2, 1928, and May 29, 1929, the net demand plus time deposits of reporting member banks decreased $1,188,000,000. They are down almost to the point at which they stood in August. 1927, when the rediscount rates of most of the Federal Reserve Banks were lowered from 4 per cent to 3!, per cent. “Since the deposits outstanding are the basis upon which the reserve re- quirements of these banks are calcu- | lated, the latter have likewise declined. ‘The following table gives deposits and the reserve carried with the Federal Reserve Banks: Net Reserve demand plus with Fede: time deposits. Reserve Bank. 1000.000° omitte 5 Date. une 15, ) 2 1927 1927 28 x A N Industrial Production Up. “As against these figures of credit outstanding, the index numbers of in- dustrial production compiled by the Federal Reserve Board show that the volume of output stood at 107 in Au- gust, 1927: at 109 throughout the Spring of 1928, and at 120 in May of this cur- yent year. If ‘the test of normalcy in the rate of credit expansion is the re- lationship which it bears to the rate of growth of industry and trade.’ then we | are confronted, not with inflation, but | with its exact bpposite—defiation. “This has been true both during the last 13 months and during the last two | years. Since the Summer of 1927 there has been an increase in industrial pro- duction amounting to 11 per cent, while the credit outstanding has expanded less | than 1 per cent “Tf the test of credit expansion as compared with industrial production is applied over a longer period, the evi- dence is likewise against *iflation. In the post-war deflation of 1920-21 all Teporting member bank reached the low point for deposits in Auzust, 1921, when they fell to $12.827.%00,000. The index of production stood 2t 67. “It may be noted in passing that this was likewise the averzge of production for 1921. Between that date and May, 1928. the high poin* oi deposits. bank credit increased 62 per cent and pro- duction 63 per cent. By May, 1929, bank credit outstanding was 53 per cent higher than in August, 1921, while pro- duction stood 76 per cent above the earlier level, - Why Call Tt Inflation? “How, then, does any one arrive at the conclusion that the condition of credit today is one of inflation? It is based upon the assumption that the measure of credit outstanding is to be found in the loans and investment hold- ings of the banks, rather than in their deposits. The loans and the securities owned by the banks show no such de- | cline in volume during the last 13 months. They are down only $161,000.- 000. Instead of being lower than they were in_August, 1927, they are $1,656, 000,000 higher. “Not only are these items taken as the measure of credit expansion, instead of deposits, but loans to brokers for the account of others are sometimes added to the bank loans. In this manner one arrives at a great expansion in bank credit outstanding during the last two years. This is an improper procedure with respect to both items. “The Federal Reserve act itself fur- nishes the most conclusive evidence that credit expansion is represented by deposits and not by loans and invest- ments. It requires every member bank to keep a_legal reserve with the Federal Feserve Bank. This reserve is com- puted on its deposits, not on its loans. This reserve acts as a check upon the | expansion of bank credit. Net Demand Deposits Lower. “During the last 13 months the re- gerve deposits of the member banks have declined more than $150,000.000. This decline iz a measure of the deflation which has taken place. Some writers have been inclined to attribute it to a £hift, from demand deposits to time deposits. This 5 not the explanation, as time deposits have not expanded but have actually declined slightly during that period. The lower requirements are due primarily to a shrinkage of over $1,000,000,000 in net demand de- posits. “We have now deflated the eredit gtructure to the point where we are using $200,000,000 less reserve ecredit than a year ago, and the reserve ratio has increased from 70 per cent to 75 per cent. It is probably the first time in financial history that credit has actually been deflated in the boom phase of the business cycle. Usually, that operation is left for the depression which follows the boom. This time it Last I NEW WORLD BANK |in LUTHER E. SCHREINER, Manager of the Dupont Circle branch of the Merchants' Bank & Trust Co. has been appointed chairman of the information committee of the District Bankers' Association. He has already served on many other important com- mittees. TOAIDU. 5. TRADE IBoth American Exports and Domestic Business Face Greater Expansion. Special Dispatch to The Star. NEW YORK, July 13.—Wider mar- kets for American goods should result from the new reparations p-n and {from the investment functions of the|gn Bank for International Settlements, ac- cording to a review published by Frazier Jelke & Co. “This larger market will be found in a more stable Europe as a whole and particularly in Germany, facing a new era of progress: it may also be found those Tegions outside of Europe where the Bank for International Set- tlements may invest fts funds in order to stimulate industry. The result should be helpful to American export trade and hence to American domestic business; and the United States has another reason for confidence in the economic success of the year 1929, Bank Granted Broad Powers. “A non-political institution, the bank is to be granted broad powers in the field of international banking' which seem destined to give it a new and unigue position among central banks of issue; it can apparently assume nearly all the functions associated of deposits on the part of individuals and the handling of individual trans- actions, “The functions of the bank which are of greatest significance are those concerned with its_investments. In its loan, discount and investment opera- tions, it may deal directly with central banks or-through central hanks acting as its agent, or with banks or individual bankers of any country. The bank is thus given certain possibilities of profit- making _associated with commercial banks and becomes an instrument of potential importance in opening up new flelds of commerce, “It has been pointed out that the bank might invest funds from time to time in the industrial development of certain countries. The funds which the bank might invest in the industries, for example, of Russia or Latin America or Africa would make a very vital con- tribution to industrial progress in those regions and might be followed by a marked increase in world trade. The activities of the bank in this direction would, however, be limited by its com- parative lack of funds and by the fact that the central banks themselves might be opposed to any too great development along lines that might interfere with their own operations. Functions Carefully Safeguarded. “The investment functions of the bank are, indeed, carefully safeguarded by the provision that the bank may not conduct transactions in any money mar- ket except with the consent of the cen- tral bank of that country. “The bank will also act as an agency to ald in the co-ordination of the cen- tral banks of issue. Heretofore this co- ordination has largely been based upcn personal relationships, with the heads of one or two of the central banks act- ing as leaders. Now, however, a definite and permanent medium fo ordination is established. As such the bank adds a new fundamental stability to the structure of our civilization. “The reparations settlement as a whole should mean an economic revival in Germany. It opens to Germany two new sources for the capital funds which its industry has so urgently needed. First of all, the new annuity reduces Germany's payments by about $103.000,- 000 as an average every year without considering payments which might have been required under the operation of the index of prosperity. Second, the final signing of the agreement and the elimination of the question of priority has been dorie in anticipation of busi- ness recession, and it should exert an important effect upon the future course of industry and finance.” Distinguished Banker Coming Here, ‘The impending visit to Washington of Sir Montagu Norman, governor of the Bank of England, to discuss world finances with United States Govern- ment officials, recalls a similar con- ference in New York two years ago in which he partieipated with the leading financers of two continents when the growing gold reserves of this country were upsetting the monetary equilibrium of the world. While the object of Sir Montagu's visit has not been revealed, it is as sumed that the gold situation is bring- ing him here again. Pays Initial Dividend. ‘The Investment Corporation of North America has just paid its initial divi- dend on the outstanding class A stock to shareholders of record June 30. This payment was made on the basis of $3.50 per share per annum, or at the rate of 7 per cent on the offering price of the stock. ‘This corporation will be remembered as a local investment trust, of which former Secretary of Agriculture Wil- liam M. Jardine is chairman and Rolfe E. Bolling is president. New Bank Clearings Record. The largest volume of exchanges ever cleared by an individual bank in the history of the New York Clearing House was recorded by the Chase National Bank in New York on July 2 with & turnover of $815,352,462.60. ‘This tremendous volume of clearings reflects the magnitude of the opera- tions carried out in connection with midyear settlements by the country's leading banks, of which the Chase Na- tional Bank is one of the three largest. American capital in rallways, ofl, zowcr and gas companies of Argentina said 10 be . will make it possible for Germany to borrow new capital in increased amount's, principally in the United States, but also in other countries. Increase in Investments. “It is probable that there will be an increase in American investment in German industrial and municipal secur- ities. This will not only result in the expansion of German industry, but will make it possible for that country to pro- ceed with construction projects which have been for some time deferred. While this may make Germany a stronger competitor of the United States, it will, to an even félul’ extent, enlarge the German market for American goods.” UTMOST CARE URGED IN STOCK PURCHASES In the current Barron's Financial ‘Weekly, the Trader insists that though the flare-up in the stock market is not surprising, “the two fundamental in- fluences that govern its trend, viz., money and earnings, cannot be alto- gether ignored by those whose concern is for the long pull rather than for short-term commitments.” The long sustained activity of business at a high level may make for a severe instead a mild business readjustment; and, ‘already a few industrial leaders of the Middle West are making their plans Xt;r' uleter business in the final quarter of e = It is not unlikely, Barron’s believes, that “the market will continue to broaden and that the ferment now working in the highest E:ldl issues to inferior s ." Though will 3, a market that has advaneed so strongly is not likely to collapse suddenly, yet “the gel situation calls for the ut- most_conservatism by long-pull opera- tors and more than the usual discrim- ination and ecaution by short-pull traders. Uprushes from now on may represent Wmmu distribution and not caplf sccumulation.” with regular banking except the receipt, | WEALTHY BUYERS N STOCK MARKE | Viotent Upward Movement Is Stimulated by Huge Deals. Small Traders Few. BY CHARLES F. SPEARE. Special Dispatch to Trs Star. NEW YORK, Juiy 13.—If the cu tomers' accounts of New York Stock Exchange houses could be exposed for examination, it would be found that in the markets of the past six weeks, or since the May decline in prices, it has been the individual with large means, the banking corporation and the inve ment trust, rather than the small spec. ulator or the professional operator, who have becn the important buyers of securities. The testimony of managers of many | Wall Str-et firms confirms this and j1t is obvicus from a study of the type of stocks that have been in the van of the upward movement. It requires capital on a large seale to trade in shares priced from $100 to $300 and to finance transactions jof the s'ze that have been daily eon- spicuous in the public utility and in- dustrial groups. One hears little now of the Meehans, the Durants and the Smiths who headed various $100,000,000 tracing pools last year, and had no oth~* thought than to sell out quickly to another pool, or of smaller profes- sional; stayed their markets and whn since have endeavored to re- coup their losses by playing the short side of the account. Profit-Taking Period Near. While the leadership of the market s improved, ¢ is as difficult to adjust ~ mind to current prices as it was vh=1 stocks were advancing under nt auspices. The fact is that continue to ri-e and to get fur- away from th~ ba: > on which val- ore reckenerl, pre “iously. Many of th'n are in a e area that repre- sanis an extra® claim to future earnings and to tieir worth for con- solidation purposes, The intensity of the movement up- ward at the end of the week, both in listed and in unlisted shares, and the breadth of the trading in them, sug- gests the approach of another heavy profit-taking and liquidating period similar to those in December, March and May. It s of interest to note that in the rst three of the four years of the present bull market. stocks advanced | primarily on the improvement in credit conditions. on the steady inere in net earnings. on the recognized value of certain new inventions and methods | of merchandising and on an inflowing into the share market of ecapiial that | formerly had resided almost entirely in bonds and notes. Along with this, as a natural accompaniment, were high- ler cash dividends and numerous stock | dividends to give increased income and to justify a second cycle of rising prices. Merger Comes Inte Play. Just when the effects of this eombi- nation seemed to be wearing off and the high rates for money appeared to be discouraging further speculative or in- | vestment purchases, the element of cor- | poration mergers came into play. In the short time that it has been promi- nent this factor has created in the pub- lic utility field additional market values of colossal size. It is also working in the world of industry and banking and {In that of merchandising, all the time building a pyramid of prices on a nar- row base. Whatever its future eco- nomic and social consequences may be it has #n intoxicating effect on the pul lic that buys and sells securities, and one that will not soon wear off. Of the three new factors that have had a part in stimulating stocks since the May decline—namely, the successful conclusion of the Paris debt conference, the United States Supreme Court deci- | sion in the St. Louis & O'Fallon Rail- road case and the recovery in the price of wheat—none has carried the weight of the spectacular purchases in the pub- lie utility field by the United Corpor- iation., These have led to a revieion | of public utility dtock values on the part of their holders, although these |values had already reached a level where few could comprehend them. Utllities Stir Imaginations. As the youngest of America’s major industries, the largest employer of new jcapital and the one with the best rec- {ord for sustained earnings, the public | utility has captivated the mind of the | modern investor. He, on the one hand, sees manufacturing capacity in excess of requirements and industry stru constantly disturbed by un- friendly forces without and within and little new territory or traffic to develop; on the other hand, the power, light |and communication companies wnrk{ng closely together, increasing their net | profits while reducing their rates and with scarcely more than half of their territory developed. It may not be amiss (o recall that 25 ears ago enother generation was | equally enthusiastic over the future of | the steam carriers and disregarded prices and income return. On the aver- age it still has a heavy loss on the securities it then lpught. Business Continues Healthy, ‘The state of business is healthier than most had expected it would be with the approach of Midsummer. An analysis this week indicates that no fewer than 25 major industries reached their highest peaks of production in the six months ending June 30. The statements presently available for the half vear or for the June quarter will Justify the confidence with which secur- ities have been bought in spite of the cost of earrying them. ¥ For the first time employment in the early Summer has been greater than in the late Spring, which tends to freshen and augment the reservoirs of surplus capital and to maintain the countrys purchasing power at a higl point. The slump in the estimates of wheat yield this season has had no serious effect as in other years, as it represents the most natural means of offsetting conditions caused by too much old wheat. Call Money at High Point. ‘With the exception of the month of March, the average rate of call ioan renewals so far in July has been the highest of the year—about 94 per cent. The reduction this week in brokers’ loans was too small to define a trend. It lenves the total at a level too high t9 permit of relaxed policy by t leral Reserve over credit conditions. It also further postpones the period of improved bond prices, Last week’s threat of an increase in the Bank of England's rate of redis- count has over, as the reserve ratio of that institution has moved out of the danger zone. .European bank:rs, however, will be compelled to watch their reserves so long as the New York market puts the present premium on its call Joans. This it has been able to do more effectively since the era of | I ne- | - THE SUNDAY STAR, Special Dispatch 1o The Star. NEW YORK, July 13, 1929. Stocks (average of 50 lssues).... Bonds (average of 40 issues)....... Foreign bonds (average of 10 issues) umber . Liabilities . Revenue car loadings: All eommodities. Graimn and grain produc Coal and eoke. Forest products. grucnnnnemu products. e WASHINGTON, Commercial failures (R. G. Dun & Co. npor"n: ,897 $41,220,000 Week of June 20, 1920. Previ D. C, JULY 14, ‘This Week. Last Week. h. Low. m;n. Low. . 278.58 273.68 27219 268,70 ‘This Week, Last Week. 86.58 8 il 10489 104.80 ‘This Week. Last Week. Year Ago \ Federal Reserve Tatio.........cocoevveiennsss 730 129 67.9 Money rates in New York: This week. Last week. Call ... .1 tod Tto 15 Time veees T% to T% Month of Month of Month of May, 1929, April, 1920, May, 1928 Unfilled steel orders. 4,304,187 4,427,763 ,416,822 Pig iron production. 125,745 122,087 Building permits: Number of cities. . 591 . 590 591 Amount. . $307,908,668 $538,446,781 $381,786,960 2,021 2,008 $35,260,702 $36,116,990 jous week. Year ago. 1] 1,003,699 . 1,085,724 1,069,041 . 51,946 45, . 177,734 168,907 . 69,457 70,872 436,348 426,001 76,857 15,433 22.967 323,347 24,213 TOBACCO INDUSTRY AIDS SUGAR GROWERS BY J. C. ROYLE. Special Dispatch to The Star NEW YORK, July 13.—When Calvin Coolidge gave Henry Ford a Vermont | sap bucket, he was not presenting him with a relic of a bygone era. The maple sugar industry is fast bepoming “big business” and seems on the way today toward systematic expansion and en- largement. The thing which has done the most | to revive the maple sugar industry from | the list of casual occupations, strange as it may seem, is the increased popularity of the cigarette. | ‘The tobacco trade absorbs fully one- | third of the entire maple sugar output of the Nation and the derhand for pur- es of curing and flavoring tobacco | s growing constantly. As a result the , the olinas, Ken- New England in general .than at any | time since before the Civil War. | This_country mow is producing be- tween 24.500,000 and 25,000,000 pounds of maple sugar a year. Canada 18 turn- ing out about 15.000,000 pounds. The | American yield this year was not as| good as usual, probably owing to weath- | er conditions, but it is expected to vield | the farmers $1.49 a gallon for sap. { The cigarette industry is the second | heaviest individual consumer, ‘taking | around 6,000.000 pounds & year. Sinc the production of cigarettes is growin at a rate in excess of 10 per cent a year, it is reasonable to suppose the sales of maple sugar to tobacco manufacturers will show a corresponding increase. About 3.000.000 pounds go into the manufacture of candy. Sugar for the blending of drug store and soda foun- | tain sirups account for about 10,000,000 pounds. The demand for this purpose also is advancing rapidly. The re- mainder is sold in the form of cakes or strip for domestic consumption. The yield within the United States all comes from native growth trees. New York and Vermont together produce sbout 17.000.000 pounds, Ohio 3,500,000, Penn- sylvania about 1,000,000, Maine 1,500~ 000, New Hampshire 1,500,000, with scattering amounts coming from Wis- consin, Indiana and Iowa. NEEDLES DISCUSSES | NORFOLK & WESTERN]‘ President Expects Business ta Hold Up Unusually Well During Summer. Railroad earnings for 1920 show every | prospect of being unusually good, stated | A. C. Needles, president of the Norfolk | & Western Railway, prior to his de- Emure on the 8. B. Aquitania for a rief vacation abroad. “In regards to| the Norfolk & Western.” he said, “the yolume of trafic has shown little sign of recession ordinarily oeccurring dur-| ing the Summer months and the out- look for the remainder of the year is| highly encouraging, Both gross earn-| ings and net income of the Norfolk & Western are running ahead of 1928.| ‘The property is in excellent physical | condition and operating effciency has reached a high level. the month of May showing the lowest transportation cost in our history. Coal loadings are somewhat above normal at this time and should continue to hold up well, as bituminous coal stocks throughout the country are still low.” Mr. Needles stated that in his opinion the recent O'Fallon decision of the Bupreme Court should prove a con- structive factor in eclarifying the ques- tion of rail valuation. “As to earnings of the Norfolk & Western for the cur- rent year.'' he said, “they should at| least equal and may even exceed the ‘results obtained in 1928. MONEY PINCH FORECAST DURING FALL SEASON | Bpecial Dispatch to The Star. NEW YORK, July 13.—The widely heralded ease in stock market money rates during June may prove to have been tantalizing illusion, encouraged by a temporary relaxation in banking policy with regard to market loans, in the opinion of the J. Henry Schroder Banking Corporation expressed in its July review of finance ‘and trade. With the coming of the Fall demand for credit to move the crops the pres- ent money situation may be expected to break down, the review says, and follows with the suggestion ti barring unexpected gold movements to this country, the credit situation might vefy well be similar to that existing last February. DIVIDENDS RISE FASTER THAN PRICES OF STOCKS Special Dispatch to The Star. NEW YORK, July 13.—The average yield of industrial common stocl around the 1st of July was 4.9 per cent, against 4.7 per cent the first of the year, according to a compilation by the Standard Statistics Co. of New York, reflecting the higher dividend rates in effect recently and the fact | that these dividend rates had increased | at a relatively faster rate than stock prices. Price-earning ratios for the first of this month average 14.9, against 15.3 the first of the year. great bank combinations than before | representing a side of these mergers that me; comg in for some investiga- tion later on. A LS s BUILDING ACTIVITY. By the Associated Press. Building activity turned the sec- ond half of the current with a marked incresse in pace. The Census Bureau, calculating on the daily aver- age of building contracts let in the United States east of the Rocky Moun- today reports the week ending as indicating h =~ her building volume than in either 'fhp precedi week or the same period last year. Fig- ures are: Week ending July 6 Preceding week, $23,91 Same year, tains, July 6 The greatest diversity is shown in both ylelds and price-earning ratios different industries. In the case of the current average is 4.9 per cent, the yields range from 1.7 per cent for aircraft stocks to 7.3 per cent for cotton . The current price- ral average 14.9, while the e is from 11.2 for apparel to 26.1 Tang for automobile tire stocks. B S R STEEL MILLS ACTIVE. NEW YORK, July 13 (#.—Reports from the Youngstown steel district state that for the third week of the month iron and steel companies will continue Mmltummu&mtolw- eapacity, although there is a per- leration in new business for shipments, TRADING IS QUIET AT D. C. MARKET Saturday 'Hall Holiday Canses Drop in Activity—Aids Retail Trade. Saturday half-holiday in_ the Gov- ernment departments having its effect upon business in the wholesale district S8aturday mornings, and all-day closing of numerous stores proves bane- ficial to the retail business. Retailers found meat prices yesterday as high as they had been the past several weeks. There was & slight easing of poultry prices and cheaper prices of commodities in Municipal Pish Market were reported. Butter and eggs were fairly heavy receipts, prices continuing about the same as prices prevailing the While business was not gnmcuhrly brisk at any time during the week, it is stated, most wholesalers yesterday afternoon expressed themselves as satis- fied with the week’'s business. Largely increased receipts of green corn, string beans and squash proved an interesting feature of the vegetable market, an- other featurs of interest being & creased receipts of homegrown toma- 5 | past week or more. toes. In the fruit market, dealers displayed much interest in lighter receipts of watermelons and increased receipts of cantaloupes, honeydews and honeyballs, prices of the three fruits dropping far below what they were a week ago. It 1is generally believed that most varieties of homegrown vegetables will become s0° plentiful the coming week that the market will be glutted and lower prices rule. 'PRAISE IS ACCORDED TO.RESERVE BOARD Policy Held to Be Preservation of Ample Funds for All Busi- ness Needs, Indiscriminating against borrowings for security transactions, the Federal Reserve authorities have kept in mind the true funetion of the central bank reserves and have been aware of their respon- sibilities to the fundamental business interest of the country, is the opinion of A. G. Becker & Co., expressed in | their current investment bulletin eov- ering the third quarter of 1929, The bulletin says: “The theory of a reserve institution is that at times there occurs a great rise in the money volume of business and a demand for credit much larger than the normal demand. The reserve institution is designed to take care of that abnormal demand. But when this peak comes it is temporary in character .and the increase in ioans necessary to handle it liquidates through repayments and increased deposits which flow through the banks into the Federal Reserve and restore the nor- mal reserve. The reserve is for flood tides and not for a more or less perma- nent rise in the level of bank credit in use. If it were employed for more or less permanent use, it would cease to be a reserve. ““The situation is not dangerous or threatening to business. Whenever a rising demand for credit comes from trade, the release of a few hundred millions of the reserve resources through rediscounts, or by the purchase by the Federal Reserve banks of bills or se- curities will make money easy. The reserve ratio will fall and with it the interest rate. In other words, the point of the Federal Reserve Board's policy is presumably that we still have a reserve. A.T. & T. INCOME GAINS ON INCREASED SHARES By the Associated Press. NEW YORK, July 13.—The American Telephone & Telegraph Co. reports net income for the first six months of the year at $80,202,006, equal to $6.18 a share, against $63.671,769, or $6.17 a share, on about 2,000,000 fewer shares in the corresponding period of 19: Net income for the quarter ended June 30 was $39,555,017, or $3.03 share, against $40,647,079, or $3.15 a share, in the first quarter. The income account for the half year just concluded showed surplus of $23,217,408, against $18,642,816 on June 30, 1028. President Walter 8. Gifford said that further progress had been made in transoceanic telephony by the construc- tion of a short wave directional radio telephone transmitting station at Law- renceville, N. J. “To provide for future growth,” he continued, “an additional circuit to Eu- rope and one channel to Argentina are now in process of construction. The radio telephone channels to Europe will, 1t is expected, be continued as supple- mentary to the telephone transoceanic cal lle which the company is preparing to lay. — .- & INVESTORS’' UNION. BALTIMORE, July 13 (Special). — Organization of Investors' Union Cor- ration as the first in a chain of vestment trusts has been announced g the Financial Research Association, c. ‘The new- &ust, anized under the laws of Maryland, with head office in New York, will have an suthorized capital ‘of 1,000,000 shares of no-par- value common stock, divided into two classes of equal shares of Class A and Class B. Investors’ Union, Inc., will start business with assets of $5,000,000, the eeds of the underwril of all gm Ulass B shares by mun‘wmt trust. Foundry Company Expands. NEW YORK, July 13 (#).—Stockhold- ers of, the Campbell, Wyant & Cannon Foundry Co. of Chicago have approved the acquisition of the National Moters Castings Co. by the issuance of 33,000 shares of Cempbell-Wyant stock for the ding stock of National 1929—-PART 5. WAYS OF CHECKING | BANK FRAUDS TOLD Prize Essay Winner Tells of Methods Used in Detect- ing Crooks. BY'L A. FLEMING. “Methods by Which a Bank May Best Protect Itself Against Praud” was the subject assigned to bank employes | by the D. B. A. for competitive es- | says, the three having the highest marks entitling the writers to attend the recent convention at Montauk { Point, L. I, as guests and to read their essays and to have them published in i the records of the association. Certainly there eould be no more in- teresting problem offered, as the banks need protection continuously to com- bat. the ecrooks and hold-up artists who are constantly trying to get the better of banks. The American Bankers' Association engages one of the leading detective bureaus continually to follow on the trail of crime against banks from the inside and the outside also. Fach jmonth the record is made publie, giv- ing the number of various crimes com- mitted, the number of arrests, number convicted, released and vaiting trial, together with pictures of crooks, res leased, time served and, in so as | possible, photographs of those badly wanted and facsimiles of signatures, Must Trust Seme One. It is necessary that banks trust some employes. and these are generally chosen for the most important posi- tions having to do with the control of cash and securities. All banks, for their further protection, carry blanket mortgages, insuring the banks against losses, and special policles against em- ployes holding the more responsible positions, Every little while the Hfhlnln' strikes from out of a clear, cloudless sky, and the story is told of a trusted employe gone wrong, causing surprise and not a little consternation, usually resulting in the bank's making plans to prevent future delinquencles along the line of operations pursued by the latest unfaithful one. E A bank’s chief source of income is from interest on its loans. Most banks have perfected a system whereby they get every cent of interest money paid over the counter. Today bankers dread | new methods of getting away with the jlong green, usually finding their as- surance in the blanket bond—which is recognized as worth all it costs. At least one large bank makes a point of gathering deposit slips every little while from receiving tellers, so that when the day is ended the money must balance with the slips and a record is kept in duplicate of checks deposited. A rtecord of loans is made, of the interest pavable. of the date due and the final disposition of it. No chance for any crookery there. The note teller does not keep this record. Bot to the Winning Essay. Miss Catherine B. Krieg, one of the secretaries and employes of long stand- ing in the Riggs National Bank. won the contest, and with the second and third prize winners had the pleasure of being guests of the association and of reading their papers before the con- vention. Miss Krieg has held many important positions in the bank, and, being obeervant, made her views prac- tical and instructive. She recommends first a campaign of eternal vigilance by the personnel of the banks: second, closer eo-operation between national. State and local pro- | tective associations, and third, educating | the customer in fraud prevention. Checking accounts are characterized as an_ “open sesame” to swindlers. “It. behooves the banker to move cautiously in initiating transactions | with a prospective client and an actual | relationship #hould be established only after identification either through a good customer or by a satisfactory bank or credit reference. In opening corporation accounts an authentic ex- tract of by-laws and certified copy of the minutes of the meeting authorizing | the officials signing against checks on the account to act in the ecapacity designated should be requested. In case of trustees the bank should require a certified copy of the court order under seal and for executor and ad- ministrator relationships, letters testa- mentary and letters of administration, respectively.” How J. B. Forgan Does It. ‘The leading national bank of Chicago, | over which the Iate J. B. Forgan pre- | sided for many vears. arranged that an application for checking account priv- ileges should be made to one of the | executive's secretaries and that before approval applicants that passed secre- tarial inspection were accorded a few minutes’ interview with the president himself. Following an affirmative reply. '::n the applicant. left the bank he wag trailed for a time and the slightect inaccuracy ~between statements and trafler's reports would lead to elimi- nation of the checking account. When the bank reached its latter-day size this method might become obsolete. Miss Krieg urged extreme caution in the department of information regard- ing accounts and balances and in dis- tributing bank books and checks. In- quirers about balances and ecanceled checks should be required to sign ap- plication, while the application is sent to the proper department for identi- fication, Check books should be fur- nished on receipt of the customer and the proper identification of his sig- nature, Monthly Account Statements. Not all banks have this very bother- some problem offered to them, for the reason that many do not iender re- counts through the mail. but prefer to have customers leave deposit books at the bank for balancing and return of duplicate checks. The modus operandi of the crook in this instance is for the crook to remove the envelope containing the canceled checks from the raail box, trace the sig- nature from the canceled check and at the same time obtain the information as to the balance carried by the cus- tomer. Vouchers and statement are re- placed in the en the mail box an idea of the tampering. dered by lock boxes and boxes at post offices, The essayist advises that statements and canceled checks be forwardsd in separate heavy envelopes, addressed by the addressing machine rather than by the window type of envelope, nor should it contain “return to” with the bank’s name, but rather the Iock box humber of the bank on the reversc. A fine 1ec- :m.n'undnwn that would Lother ihe Cashing checks for a stranger, sc- cording to Miss Krieg's opinion, should be absolutely certain of identity, and an officer authorizing payment should also be'sure and put safeguards against worthless paper. Consistent dep 'sit and withdrawal of identical anwounts by depositor should suggest to the bool keeper to trace Lhe origin of the entries iu such an account to detect possible kiting—using the bank's .:ash through the interchanging of checks irom day to day. The foliow-up also prevents raising an “O0.K.d” check. Officlals giving “OX.” to a check should ac- company the individual to the teller's cage. This the essayist believes will be & sure check inst the crook who gets the O.K. and uses it for frequent opera- tions in check cashing. Sot of | | Makers of checks frequently, on rmo( & recipient. give the “sig. in is OK.” Miss Krieg )ccom- mends that the makey of the -heck be immediately communicated Where there is the slightest doubt of 8 on | 30 per cent below last year. but main |® rtheless. FINANCIAL l Fights Fraud | T ! JOSHUA EVANS, JR, Vice president of the District National Bank, who has just been re-elected chairman of the board of the Better Business Bureau. The local banker has rendered long and valuable serviee to this protec anization. NEW RECORDS MADE IN 25 INDUSTRIES Bankers’ Journal Considers ! Mainstays of Prosperity | in Fine Condition. The composite balance sheet. of Amer- ican business at the close of the first | half year reveals a strength and liquid- ity of position surpassing anything ever | achieved in the past, says the Ameri- | can Bankers' Association Journal in its current issue. The review says: “All three of the mainstays of the present. era of prosperity continue to give a good account of themselves, with the steel industry operating at the rate of 57,000.000 tons annually, and the automobile industry aiming at an out- put of over 6000000 vehicles. Build- ing eonstruction has fallen only 12 per cent behind last year in spite of the | scarcity of mortgage money. A score of other industries of scarcely less im- portance have established new high-pro- duction records in the period. and ecn- cern is even expressed that output may overrun demand in certain lines. nota- bly the textiles. Distribution of com- modities, however, is holding to a high level and the belated hot weather has resulted in & brisk movement of lighter weight apparel and other seasonable goods. Individusl merchants who fol- low the style trend and operate along sclentific methods need have mo erounds for complaint, even against the eompetition of the chain store or- ganizations. New Marks in 25 Industries. “The surprisingly high rate of ac-| tivity in manufacturing this year is now showing up in the statistics that are | available covering the first five months, with June estimated. and it is found that in no less th: 5 major indus- tries there were apparently established mew high records in the half year just passed. These include pig iron and steel, automobiles and wrucks. airplanes, Motor boats, tires, erude petroleum and gasoline, farm implements, machine tools, electrical apparatus. eopper, plate | glass, sulphurie acid, silk and rayon, eotton goods. clothing. newsprint. flour, bakery and dairy products, confection- ery and cigarettes. “Of the three industries that have for =0 long been the backbone of the | present era of prosperitv. the steel in-| dustry is still running full blast with| an output of ingots 14 per cent ahead of last vear and at the rate of 57.000.000 | tons annuall Automobile and truck | production records point to an output | for the full vear in exeess of 6,000 000 vehieles, or one-third more than 1928. which was the previous Bbst year.| Bullding construction is hampered by | the scareity of mortgage money at rea-| sonable rates and is down from 10 t tains an enormous volume neve: Too Much Speed Noted. | “Some industries. in fact, are running at a higher rate than is good for them. and uniess production schedules are ad- justed to conform fairly closely with | orders and shipments, then a surplus o!' product results with its attendant price | cutting and elimination of profit- | margins. Textile authorities are warn- | ing the cotton goods mills that the pres- | ent record-breaking operations are un- warranted and that unless the situation | is corrected by a curtailment before long a depression in that particular branch of the textile industry is in- evitable. | “A cheerful and possibly surprising development is the renewal of activity in American shipyards, which have been | practically idle since the war, but are | now enjoying a revival in construction | as a result of the Jones-White law passed in 1928, which grants extr: compensation for carrying mails, also loans at low interest rates. in accord- ance with which a program of building mare than a score of large ocean-going vessels ls gradually getting under way.” CITY WANTS RAILWAY IN TRUNK LINE SYSTEM| Special Dispatch to The Star. BALTIMORE, July 13.—Inclusion of the Western Marvland Railway in the trunk line system proposed by the Wabash Railroad wouid realize the very plans the city of Baltimore had in mind when it sold the Western Maryland road 27 years ago to a syndicate, Winslow §. Pierce, representing the Wabash, declared. Pierce, a member of the syndicate which purchased the Western Mary- land from the city in 1902 for $8.509,819, made the declaration at a meeting here yesterday, called to determine the city's position regarding the merger proposed by the Wabash. Other members of the purchasing syndicate were the late Myron T. Her- rick, who was American Ambassador to Prance, and Edward L. Fuller. Mayor Broening, who was present at the hearing, pointed out that the rea- son the city sold the Western Maryland in 1902 to a syndicate from which it received about $1,000,000 less than could have been obtained from other uschasers was in anticipation of the fact that a new railway syster would be developed and the Western Mary- land accordingly would not be strangled by _competing roads. Plerce declared that the purpose of the Wabash in the merger plan, ap- plication for the realization of which is pending before the Interstate Com- merce Commission, calls for the estab- lishment of “an independent system of railroads—five, six and seven—in eastern trunk line territory.” i e b T T Organizes Six Trusts. NEW YORKJ July 13 (#).—The Guardian Investment Trust of Hart- ford, Conn., has organized six more trusts, making s total of eight now un- der its mannagement. The new ones are Guardian Aeronautical, Guardian Chain Stores, Guardian Insurance Shares, Guardian Bank Shares, Guard- fan Industrial and Guardian Foreign Securities. They will specialice in curities as indicated | business 5o~ by their respective | PIONEER OF AUTO INDUSTRY RETIRES | John N. Willys Has Been Out- standing Leader and Executive Genius. BY JOHN F. SINCLAIR. Special Dispatch to The Star NEW YORK, July 13.—With the ree tirement of John N. Willys, the auto- mobile industry loses one of its out- standing leaders. ‘The recent sale of his common stock interest in the Willys-Overland Co. to Toledo and Chicago capitalists, headed by C. O. Miniger of Toledo and Mar- shall Field and Charles Glore of Chi- cago, gives John Willys, now 56, a chance to retire and follow through some of the things which, in the press of an active business life, he has found it impossible to do. Mr. Willys at one time had eontrol of the Curtis Aeroplane & Moter Co, the Moline Plow Co. and was a leading factor in Fisk Rubber Co. and Electric Auto Lite Co. Biggest Achievement. “What was the biggest thing you ever did?" Mr. illys was esked by way of introduction. “To make a million dollars on $50,- 000 capital.” came the quick reply. “But that really doesn't sound quite right. Success is at the bottom overcoming obstacles. After the difficulties are overcome, then the piling up of more money in an easy way doesn’t eon- stitute success. It's the beginning and the suecess which greets one's early ef- forts that has in it the real merit af suceem.” This, | truth, represents the nature of Mr. Willys exactly. From early boy- hood bhe has been wide-awake, alert and unusually energetic. He has never Iet_grass grow under his feet. When a mere boy he showed marked ability in his little business deals with his companions. He always had something in his pockets for sale. ‘The first real initiative he showed was when, noticing how horses’ reins were always falling down among horses’ feet, he procured a dozen little elamps for ‘holding the reins. With the pro- ceeds from the sale of the first dozen he bought two dezen more and dis- posed of them all, Early Success. At 12, he made a contract with his father to work in his brick tile factory for 25 cents a Saturday, with exira pay for afternoons after school. He made a success of all he tackled— with one exception. The retums he received from the sale of a “Life of Garfleld” did not satisfy him. Al these ventures were carried on when he was at the age at which the average boy leaves the nursery. His first “big" business venture was when he bought a laundry—much against his parents’ wishes, at Seneca Falls, N. Y., 30 miles from his home. His first check for $6 for the laundry work he had difficulty in cashing be- cause no one there knew him. At the end of the year, he and his partner sold out with a net profit of $100 He was getting along nicely, but wanted more education. So he went home with the intention of working his way through college, to be a lawyer. He did well in his studies both in school and in a law office, but when his father died suddenly all his dreams had to be given up. Thus thrown on his own resources, the lad took the $100 that he had saved from the laundry business and bought a sample bicycle. This “New Mail,” for which he became local agent, sold well among his friends. He induced a num- ber of them to invest in the new “safeties” and by 13 he had organized a sales company and repair shop. His bicycle business, entered into at 20 early an age, is excellent evidence |of his bent toward mechanics and organization. Automobile. Pioneer. In 1904 an obscure little man eame from Elmira, N. Y., to astonish the world with his genius for organization and pioneering in the automobile in- (dustry. ‘Ten years later he was head of allied interests representing a combined annual business of nearly $100.000,000, the second largest manufacturers in the world of autos. He loves to tell about his early experi- nees. 1 surely was going on high gear,” he sald, speaking of his youthful bicycle venture. “But I made the mistake of thinking everybody was honest like myself. It is one thing to sell, another to collect. The free silver rumpus of 1896 bowled me over. It taught me a 1 n and put some sense in my head.” ow did you make that million dol- Iars on only $50,000 capital?” he was asked. “Oh. by sheer nerve and a lot of con- fidence in my own ability, I guess,” smiled in reply “I saw the tremendous possibilities in the automobile business, even if I did get laughed at,” Mr. Willys continued. “Automobiles in those days were eon- y ight' concerns, and no ank would grant credit willingly. “I found out that the best policy is always to tell your banker the truth nd make him believe in you. If you do not regard yourself as the best col- Jateral in the world, you haven't enough confidence in yourself to warrant bor- rowing money. “Soon after T had taken over the Overland company I had a draft sent me, which the bank refused to honor immediately. They had put up a sign. ‘Drafts for collection only,” which put me in a bad fix, for I had to get money somewhere. Drafts Paid Promptly. “I begged and pleaced with the bank, but ‘No' was the answer. But I went out end telegraphed to a friend of mine to honor the drafts when they became due. And the bank was surprised that they were paid so promptly. “In seven months after I had taken over the Overland company my books showed a net profit of $58,000. “Everybody had said I would fail. But I did not. It was a big thing, and it was done only by keeping on the jump ali the time ™ These words illustrate as noghing else can the type of man Mr. iy8 5. When he became president of the Over- land Co. on January 9, 1008, it %as so hard up that the firm could not raise $350 to pay wages, But after he took eharge business picked up from the start. Cash began to flow in and the increased demand for cars made it easy sailing. In spite of the tremendous success that he has attained, Mr. Willys is the, same democratic, unaffected person that he was when he struggled to cash the $6 laundry check. There is nothing “put-on” about him. “To what do you owe the greater part of your achievements?” Mr, Willys was asked. “To good hard work,” he answered quick as a flash. It was not a boast— just a matter-of-fact statement of a successful executive. “I have found that you can get un- believable results if you let your men understand that you work harder than they do,” he added. “If you expect real work done, why, be there yourself.” His next big job? Perhaps United States Ambagsador (o & most progres- sive nation—Turkey: (Copyright, 1929, by the North American Newspaper Allianee.) WESTERN ELECTRIC SALES. NEW YORK, July 13 (#).—Sales of estern Electric Co. for the six months just ending June 29, amounted to $194,- £94,000, an increase of $64,186,000 over the first half of 1928,