with the public and with the employees. The investor in railway bonds may justly concern himself with the financial management of a property, but he can now be confident that the security of his bonds will seldom be impaired by blunders in the operating or construction departments.

"The final consideration affecting the relative value of railway and industrial bonds, is what may be called the 'comprehensibility' of the two industries. The railroad is visible. The bond-buyer, it may be, rides daily over a portion of its lines. Its equipment and its operations are always in evidence. He can see the property and can understand its workings. This character of simplicity extends even to its reports. A properly kept railway report, to a man of average intelligence in such matters, is plain reading. The operations of a railway company consist in transporting a certain number of tons of freight and a certain number of passengers, for a certain amount of money. Its expenses are easily understood. Its equipment can be enumerated in detail. The investor can follow its history from one year to another, and is not obliged to employ an expert to explain its reports to him."

"But the manufacturing company has none of these advantages. Its plant is largely visible. A holder of United States Steel bonds might obtain permission to go through one of the plants, but he would run some risk in doing so. His clothing would be burned into holes by flying sparks. He would have to dodge locomotive engines running at top speed around corners. He would be almost deafened by the noise, and often scorched by the heat. Moreover, for all his pains, he would understand very little of what he saw, and he would not care to repeat the experience. The full report of such a company would be equally unintelligible to the initiated. What does he know about a universal plate mill, or a Wellman-Seaver charging machine, or a Jones mixer? Probably nothing. He has never seen these important appliances of a steel-mill, probably never will see them, and would understand little about them if he should see them. The technical jargon of an engineer's report would be equally unintelligible. An inventor who purchases industrial bonds buys into a company of whose equipment and operations he usually understands very little. I would not be understood to condemn the entire class of industrial bonds.

There are to be found bonds of manufacturing industries, especially those issued under the serial plan, where the principal is rapidly extinguished out of earnings which are reasonably secure. The high yield of these bonds is also attractive. There is no reason, however, why any one should buy an industrial bond to yield less than 6 per cent., even upon the soundest recommendations and after the most careful investigation; and six per cent. with much better security, can be obtained from a great variety of investments."

1 Quoted from the author's Trust Finance.

XIX

TIMBER BONDS

TEN years ago any first-class banking house in the United States would have immediately rejected a proposition to buy three or five million dollars of bonds secured by a first mortgage on standing timber. Such an undertaking would have been looked upon as too hazardous. The investor could not have been persuaded to put his money into such securities.

Of late years, however, with the steady advance in the cost of living, and the resulting insistent demand for a higher rate of return on investments, combined with the rapid development of financial technique in investigating opportunities for investment, and in formulating plans of capitalization and financial management, standing timber is becoming the basis of bonds which fully deserve the title of investment securities.

The basis of the security in timber bonds is the steadily diminishing timber supply of the United States. The consumption of lumber per capita in this country is rapidly increasing. From 1880 to

1900, the increase in population was 52 per cent. and the increase in the lumber cut was 94 per cent. In 1880, 18,000,000,000 feet of timber was cut in the United States; in 1907, 40,000,000,000 feet. The total amount of standing timber in the United States, including that which is held by the government as forest reserve, as reported by the Bureau of Forestry, is 2,500,000,000,000 feet. This supply is being exhausted at the rate of 100,000,000,000 feet a year, and the prices of all kinds of timber are steadily advancing. The average annual export price of lumber in 1896 reached its lowest figure at $14.56 per thousand feet; in 1911 the price of the same product was $21.55, an increase of 48 per cent. This rapid increase of price is an indication of the fact that at the present rate of cutting, the supply of timber in the United States will be exhausted in from 20 to 25 years. The holders of timber land in this country possess one of the strongest natural monopolies, a monopoly whose value is certain to increase even over the present extraordinary figure.

The successful efforts of the lumber interests to raise large amounts of capital by the sale of bonds have been prompted by the change in the