JAMES R. BANCROFT PREDICTS FINANCIAL DEPRESSION

The United States faces a gloomy financial future for the next few years at least, according to Mr. James R. Bancroft, the President of the American Institute of Finance, an organization for the compilation and study of business statistics, which acts as adviser to many large corporations. Recently Mr. Bancroft and some of his assistants have been engaged in making a study of present business conditions, with the intention of making a forecast for the next few years. In a recent interview for the CRIMSON, Mr. Bancroft laid emphasis on the fact that the normal business cycle has been so distorted by the war that the period of depression which business is about to enter will be one of the worst ever experienced by this country.

"Conditions today", he said, "are entirely different from any that have faced the business men of the present generation, and there is a great deal of uncertainty about what is going to happen next. The last few years have seen a lot of prosperity with the consequent extravagance attendant upon it. This has brought the expected reaction during the last few months, when we have had a period of depression. During this period business has been conducted chiefly on hearsay, and there has been a great deal of seatteration of authority, of 'passing the buck' when it came to making a decision of business policy. The great cry today is to do away with this, and to get back to normal. But what are our prospects of getting back to normal.

Present Conditions Distorted

"Since the beginning of the war we have been selling goods to Europe, and paying for them with our own money on an inflated currency. All of our excess production, and the surplus we had stored up before the war, has been used up, either in this country or in Europe. The railroads, upon which all industry depends, are ten years behind their industrial requirements; This means that present conditions are greatly distorted, and that it will be several years before we get back to a solid basis."

When asked through what stages we would pass before business would be back on a firm foundation, Mr. Bancroft replied, "At present we are about 15 to 20 per cent below normal. This condition will last about six months longer, to be followed by a period of flash prosperity, not more than a year in length. This will be due partly to a return of confidence, and partly to a return of inflated currency.

The last few months have been a period of deflation, but I believe that this has gone as far as is can at present, and that re-inflation will soon set in. But after this flash prosperity there is going to be a long period of business depression, covering about three years, which will be one of the worst this country has ever experienced. There will be a disastrous panic, during which a large number of business houses which are now firmly situated will go under. Not until the end of this period will business be back to its pre-was basis.

"There are several things, both at home and abroad, which will have a great deal of influence on the severity of this period. The European situation will have more effect in the long run than it will have immediately. Europe has brought a great deal from us in the past few years, and paid for it with money borrowed from us. This debt has got to be paid, for political reasons, and it can be paid only in the form of goods, which will be dumped on our market in about two years, when Europe will again be producing. From a business view-point this will be bad for both Europe and America. The present action of Germany and the Allien seems to me to make possible the repudiation of all debts, and such a move would not surprise me in the least. Personally, I think this would be a good thing for everyone concerned.

Advises Against High Tariff

"The action of the new administration with regard to internal revenue, and tariff, will also have a material effect on business conditions. If a high protective tariff is adopted, it may stimulate business temporarily, but in the long run it will react unfavorably. To adopt such a tariff would be a mistake both economically and politically. We have nothing to fear from foreign competition, for it will be a long time before any European country will be in a position to rival us. On the other hand, Europe's debt to us must be paid in goods, and to have these come in under a high tariff would have a much worse effect than to have them come in free. The big question in the internal revenue problem just now is the adoption of the sales tax. My personal opinion is that this will be a good thing."

In reply to the question as to what he thought were the chances for lower prices, Mr. Bancroft said, "It is a mistake for us to feel that prices are going to get back within a few months to a level which it took over twelve years to reach after the Civil War. Some people think that prices will never go back to this level, but I believe they are mistaken. However, it will take a long time for them to get there. Another point which might be made here is that this talk about the return of business activity being dependent upon the fall of prices is ridiculous. We will have a resumption of business activity long before the general price level returns to normal."