Scarcity Scrapped

Rubbers are not romantic. Neither are auto tires, nursing nipples, hot water bags or rubber boots. But last week rubber-romance kindled in the quiet, Gothic depths of the House of Commons. There Prime Minister Stanley Baldwin pronounced a few matter-of-fact words which altered the destiny of Britain's wide-flung rubber plantations in Malaya. Straits Settlements and Ceylon. To U. S. motorists the pronouncement meant that raw rubber suitable for tire-making will probably be stabilized in price at a figure less than half of what was paid last year.

Briefly, the Prime Minister announced that on Nov. 1, 1928, the Empire will abandon its six-year-old program of attempting to force up the world price of rubber by curtailing the supply. This program, the so-called Stevenson Plan, went into effect in 1922, when crude rubber stood at 17-c- a pound, and bounced the price up within three years to $1.21. That meant bonanza profits for British plantations. Why then is the Stevenson Plan about to be scrapped?

Rubber men answered that question in detail, last week; but not until they had done some furious trading. As the Baldwin announcement flashed over the cables to Manhattan, bedlam broke loose in the red-brick building which houses the New York Rubber Exchange. At the close of a day of pandemoniac selling all records for volume of turnover had been shattered by transactions totaling 8,985 long tons and exceeding $5,000,000 in value. The average price, chalked up again and again with fractional variations by perspiring board boys, was 21-c- per pound.

At the London Rubber Exchange in Mincing Lane (near the Tower of London) trading was quiet among disgruntled British rubber men. They established a price which hung close to 10 1/4 pence per pound, virtually the equivalent of the U. S. average price of 21 cents (since one pence equals two cents). Londoners, therefore, had ample time to ponder and explain why the Stevenson Plan will be scrapped on Nov. 1, 1928.

The plain fact is that the plan has progressively failed of its purpose. True it sent rubber up to $1.21 in 1925; but in January 1928 the price had declined to 41-c-. Why?

To understand, one must examine the original assumption on which the Plan was based in 1922, namely that, since Britain then produced five-sevenths of the World's rubber, she might, by curtailing her own production, create a scarcity of rubber such that the price would rise. In the year 1925, as has been said, this assumption was temporarily justified. So high a price, however, encouraged rival Dutch producers to extend their plantations. Moreover U. S. rubber manufacturers, urged by Secretary of Commerce Herbert Hoover, proceeded to circumvent partially the artificially high price of new rubber by turning to the use of reclaimed rubber and other substitutes. As a result the scarcity artificially created by Great Britain has progressively ceased to exist and the price of rubber has accordingly and progressively fallen.

This movement was accelerated recently when Prime Minister Baldwin made known that he had appointed a Commission to decide whether the Stevenson Plan should remain in effect (TiitfE, March 19). The hint thus given that the Plan was cracking caused the price of rubber to bound down and brought a heavy slump in the shares of British rubber companies. Therefore the pronouncement of Prime Minister Baldwin, last week, was expected, and merely served final notice that his committee has decided that the Stevenson Plan is unworkable and must be scrapped.

A feature of the Prime Minister's latest declaration was that he was careful to utter it while both the London and New York rubber exchanges were in session. Thus he avoided a repetition of the scandal caused when he made his previous rubber announcement, last month, at an hour when the London exchange was closed but the Manhattan exchange was open. The result of the blunder was, of course, to enable U. S. brokers to make a heavy killing before the London exchange re-opened next day.

Authoritative Wall Street comment, last week, envisioned future rubber trends as follows:

1) Amalgamation of British plantations to meet the world competition which must now be squarely faced; 2) Continued low prices of crude rubber; 3) Development of the system of co-operative buying among U. S. consumers which has proved effective in battering down rubber prices.*

Commented President Francis R. Henderson of the New York Rubber Exchange: "Baldwin has made a bold move. But in my opinion he has made a move that will, in the long run, be a good thing for the industry as a whole. Lower prices for rubber will encourage its increased use, and increasing consumption will take care of the entire output of the Far East."

Lest U. S. motorists should begin to clamor prematurely for cheaper tires, Rubberman Henderson added hastily:

"The [tire] manufacturers of the United States unfortunately cannot pass on the economies which may be effected in the future through the cheaper raw material, until the stocks purchased at higher prices have been converted into goods and marketed. If there is no upswing in rubber prices by the middle of the summer, tire prices should be cheaper by that time."

Of all U. S. tire tycoons the most vigorous in fighting Britain's price raising scheme has been famed Harvey S. Firestone, who has established his own rubber plantations in Liberia (TIME, Dec. 20, 1926). Said he, last week: "Britain no longer controls the world rubber supply. . . . This means that the motorists will eventually save millions."

*The question of whether co-operative buying may become an evil partaking of the nature of a "trust" is now a live issue before the U. S. House of Representatives. Representative Walter H. Newton of Minnesota recently introduced a bill to authorize and encourage pooled buying of raw materials abroad, but the House voted down the bill last week 181 to 120.