THE COTTON TRADE BOOM: A WARNING.
[TO THE EDITOR or THE " SPECTATOR.")
SIR,—I have received from friends in various parts of the country cuttings of an advertisement from newspapers which is being inserted with a view to persuading people to invest in cotton mill shares, and this advertisement is headed by a quotation from an interview which, by request, I gave recently to a representative of a widely read journal. The words quoted are as follows: " To the general public Lancashire to-day is a modern El Dorado where thousands of people of lowly position are daily reaching a condition of affluence as a result of the great cotton trade boom." I have made a strong protest against my name being used in this way, and against a short quotation being taken from its context in an interview which contained a great deal of information about the present position of the cotton trade, information which was specially designed to give to the reader the means of correcting some of the false impres- sions that are current about the " boom " in the industry. That interview made clear what is the existing state of things, and showed what is necessary for the maintenance of the prosperity of the industry. I cannot but regret that many of the leading journals of the country are, probably through the ignorance of contributors, constantly giving incorrect news concerning the true nature of the seeming profits of the industry.
So many factors are to be taken into account when considering this question of profits that it behoves the Press to be exceedingly careful in presenting their reports to the public. Cotton trade finance methods are not those followed in other industries, and consequently they require to be treated in a special way. One has often pointed out that in giving the profits of limited companies in the cotton trade the whole amount of capital employed in the businesses should be clearly set out—that is, the whole of the loan capital as well as the share capital. Much of what has been written about enormous profits is due to the fact that this practice has not been followed. To take a case, an extreme but not an entirely improbable case. If a concern has, say, only one-eighth of its capital in shares and the other seven-eighths is in the form of loan capital, at a time like the present, when there has been a great increase in the value of assets, there does arise an enormous profit to . the people holding the one-eighth. But it must be remembered that the holders of seven-eighths of the capital get nothing of this big increment of values, and that the only fair way of calculating the profits is to include the seven-eighths, thus spreading them over the full amount of capital employed.
Owing to the large increase in the valuations of mills brought about by the new conditions, it has appeared that enormous profits have come to the industry as a whole, when in reality only a moderate profit has been obtained on the whole of the capital employed. At the same time, as I have said elsewhere, the position and the prospects of the trade are good, and I am pleased to hear that operatives, who with prudence have hitherto mostly invested their savings in loans, are now taking a more direct interest by becoming shareholders in the mills. They will thus share in the present prosperity of the trade, and realize what is necessary to maintain that prosperity. This is the best way of nationalizing industry.
I would suggest that intending investors in cotton mills should satisfy themselves: (1).that a concern has been taken ' over at a fair valuation considering the immense enhancement in the cost of mill buildings and machinery; (2) as to the. amount of share capital in proportion to the loan capital
employed; (3) the extent of the unpaid liability on the shares.—
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