Chapter 7

FORESTRY AND THE LUMBERMAN

THE UNDERLYING PRINCIPLES

The lumber industry is undergoing a process of reorganization which reaches to its very foundations. It is so deep-seated as to be almost imperceptible from outward evidence, but is of profound significance to the owner of timber land and to the public.

Hitherto lumbering in the United States has consisted chiefly of manufacturing and selling. The raw material has occupied no consistent place in the equation. The value it has had in fixing the price of the finished product has been merely in its relation to transportation. Intrinsically it has been accorded no value. This situation continued just as long as there was practically free Government timber to be had by opening it up.

It continues now only relatively, however. Transportation must always remain a great factor; the timber owner is still obliged temporarily to meet his obligations by means determined under the old basis. Nevertheless, the moment it became impossible to get timber to manufacture without assuming the costs of producing, such as fire protection, taxation and interest, began an era of inevitable natural regulation. From that time on timber began to assume a value which, although affected by transportation facilities, must eventually be fixed chiefly by the cost of growing other timber to compete with it.

TIMBER IS WORTH THE COST OF GROWING IT

In other words, the value of anything is what it costs to produce it, whether it is a tree or a box of apples. That we found our timber orchard growing when we came to this country does not change this law. It was suspended temporarily while any individual could profit by the growth produced without cost, but began to operate again when he could no longer do so. We are now in a transition period of adjustment. The important thing to remember is that this will not continue until the entire output has actually borne the full cost of production, for before then investments in standing timber will have been regulated by the same influence.

It is true that at present the cost of lumber to the consumer is not fixed absolutely even by the cost of manufacturing and selling it, and that on the contrary it fluctuates greatly with the willingness of the consumer to buy. But this, except within limits, is not a sound working out of the law of supply and demand. It is an incident to the unsound basis of production which still prevails. So long as a very large portion of our standing timber has not cost the owner much in either price, protection, taxes and interest, some of it will be put on the market at a low price in order to carry a milling business through a depressed period, to realize money, or for other exigency reasons. So may a wheat grower lose money on one or two years' crops. But if in the long run the world refuses to pay for wheat what it costs to grow it, wheat will not be grown. The real question is whether or not the world needs forests enough to pay for them.

DEMAND WILL CONTINUE

It is evident, from the history of older countries, that it does. While consumption per capita will undoubtedly decrease, population is growing. Substitution will be necessary, but will not supplant wood for a multitude of purposes. Much has been said about the use of steel, concrete and like materials in building. The building trades only use 60 per cent of our lumber today, without considering fuel. It is unlikely that the reduction of this percentage will very much more than offset the growth in volume of the reduced percentage due to increased population. Fifty years ago there was scarcely a lumber user west of the Mississippi river. We know the settlements, mines, railroads and cities that have developed since to use lumber. It is a poor Westerner who doubts that the next fifty years will see a far greater development. _And the Panama Canal is coming, with the certain result of making our fast-producing forests able to compete successfully with Eastern and European forest crops grown with less natural advantage._

Moreover, we now use three and a half times as much wood a year as our forests produce. _Consequently the demand might even fall off three and a half times and still consume the product._ And the forest producing area diminishes constantly. Little as we now consider the possibilities of food famine, history shows that nations rapidly increase to the limit of their agricultural production or beyond, and we must reckon not only on our own increase but also upon immigration from, and export to, nations whose pressure upon their production exceeds ours. It is certain that land now considered too remote, rough and poor for agriculture will be put to that use. We know that other countries do not to any considerable extent devote land to forest that will grow food crops at all well.

ADJUSTMENT ONLY QUESTION OF TIME

Consequently it is safe to assume that within reasonable limits the consumer will be glad to pay the cost of growing timber when he is obliged to do so. It is also to be expected that the community will desire to maintain a resource which employs labor, pays taxes, and conserves stream flow. Therefore, the price of lumber will be governed, as the price of every staple commodity is governed, by a cost of production including reasonable profit by those engaged in the several stages of the process. That it will include the growing of new timber on a sound, profitable basis is proved by the history of other countries which have undergone the same regulation. This, after all, is the strongest argument with which to answer the skeptic who, on premises and judgment of his own, doubts the above conclusions. We need not claim greater prophetic ability, but have only to make the undeniable assertion that hindsight is better than foresight. Nothing demonstrates economic laws so irrefutably as experience.

Less than 29 per cent of the land area of the United States is occupied by forests today, including swamps, burns and much land which will be devoted to agriculture. Germany, where great economy of material is practiced, where wooden buildings are far fewer, where, indeed, the per capita consumption is only a seventh of ours, keeps _26 per cent_ of her land area under the most expensive forest management _and finds the profit constantly increasing_. She is increasing her production and importing heavily from countries where lumber is cheap, like the United States, yet the net returns per acre from the forests of Baden rose from $2.38 in 1880 to $5.08 in 1902. This was due hugely, of course, to improvement of management. In France lands which only fifty years ago could not be sold for $4 an acre now bring an annual revenue of $3. In 1903 the town forest of Winterthur, Switzerland, brought net receipts of $11.69 an acre. These are fair examples in countries where the influence tending toward less use of wood have been working for a very long time. They show such influences do not result in refusal to pay the cost of growing all the wood that can be grown. Wood consumption in European countries is increasing at a rate of from 1-1/2 to 2 per cent a year. In other words, the consumers are actually willing to pay for more wood than they have found necessary, and are warranting the growers in adopting still more expensive methods to increase the output. Nor has forest growing proved to be possible only by the State or Government. In Germany 46.5 per cent of the forest area is owned privately, in Austria 61 per cent, in France 65 per cent, in Norway 70 per cent. While it is true that the European private owner has better tax and fire conditions, it must also be remembered that the value of the land on which he makes the growing crop yield a good dividend is about ten times as high as it now is in the United States.

The prospective grower of new timber in the American West can expect equal profit here at some time. His chief concern is whether its foreshadowing influences are sufficiently strong at present. To determine this he must consider the probable attitude of the public and of the lumbermen themselves.

WHAT IT MEANS TO THE CONSUMER

To the consumer the principles previously outlined mean that the price of lumber will rise somewhat. Indeed, he must expect that, regardless of the production factor, for the timber owner cannot pay taxes, prevent fire, and keep his money tied up, all for a considerable period, and still sell the material as cheap as he could before these expenses accrued. It also means that if the consumer fails to recognize and concede these principles it will be at his own sacrifice. Too low prices now merely mean too high prices in the early future, for they will not permit protection, economy or reforestation. He must eventually, and not far hence, pay the total cost of production. It is urgently to his interest not to add to this by preventing production and thus permitting the owner of the timber already produced to speculate on the approaching shortage.

The danger of this can be illustrated by a comparison. Suppose three-quarters of the apple growers of the country, either through ignorance of the principles of their industry or through shortage of money with which to pay their debts, should be forced for a considerable period to accept a price for their crop so low that after paying current bills they were obliged to neglect their orchards absolutely, without plowing, fencing or spraying. Suppose further that the public should also destroy a large portion of the orchards, as the forests are by fire, and also overtax the land so as to complete the discouragement. Clearly apples would immediately go up. A few growers would doubtless escape absolute destruction and these, as long as their orchards lasted, would demand a price overbalancing many times the saving the consumer made temporarily while he was destroying the industry. Everyone concerned would be worse off than if prices had remained just high enough to maintain an adequate supply.

It is improbable, however, that the consumer will ever voluntarily pay more than he has to, even if it is to his ultimate advantage. The most that can be hoped is that as the public at large comes to understand the situation, it will not support him in the claim that injustice is being done by the rises he is forced to meet as conditions adjust themselves. His reluctance will retard, but not stop, the progress of good forest management.

STATES WILL TAKE A HAND

On the other hand, it is reasonable to suppose that the people of the timber-producing states will gradually come to see that their interest, as well as that of the lumberman, is to be furthered by placing the industry on a sound basis. Selling more lumber than they consume, they will not rejoice over low prices any more than a wheat state does over the fall of wheat because it uses some flour, but they will be equally unable to exert much stiffening influence on the price. Consequently they will probably attempt to sustain the industry by increasing production. But in this attempt they will consider immediate community advantage first, future community advantage next, and the lumberman's advantage only as it is incidental. And such measures as they endorse they are likely to enforce by law.

We see, then, that two forces are making for the better handling of our forest resources; the economic necessity of the public and the business advantage of the owner. Both demand the maximum production. Obviously, since their aims are identical, each has to gain from earnest coöperation. Neither can succeed alone, for the owner cannot go far against hostile laws or sentiment, and the public cannot accomplish half as much by compulsion as by encouraging the owner. But the great danger to each lies in mutual distrust, which defers the establishment of effective coöperation.

LUMBERMAN MUST SHOW GOOD FAITH

The primary and all-important moral which all this points out to the lumberman is that his position under coming conditions will be largely what he makes it by his own attitude. With the rapidity with which he gets into a position where his voice is listened to as unselfish and authoritative on the conservation subject, will his influence on the new conditions be measured. Therefore, he must study the subject. He must be able to support good laws and oppose bad laws with facts and arguments which will stand scrutiny. Above all, he must show faith by practicing what he preaches so far as he is able. He must show conclusively the injustice of the public suspicion from which he suffers.

Conservative forest management has three essentials: Protection, utilization and reproduction. The last particularly depends on the first. The timber owner cannot protect adequately alone. Before he can expect much public help, however, he must show his willingness to do his share, for the state will not assume the whole burden. The progressive members of the industry have shown it already, and the result is evident in the commencement of the states to help. Their help will increase in the proportion that private effort spreads.

Presumably it will be the same with reforestation. With the fire hazard lessened there will remain the obstacle of overtaxation on property returning no income with which to meet it. The public will doubtless soon see that this is bad for the community, but will hesitate to forego present revenue in order to reap greater future revenue until convinced that the owner will actually reforest if given the chance. Even if no actual desire to take advantage is ascribed, there may be fear that he will make no active effort to start and protect the second crop, but will merely continue the course of least expense in the hope that a new forest will establish itself, with little to lose if it fails. Before he will receive the encouragement he deserves, he must prove his good faith. The surest way to do this is to begin actual work now, where he can without certainty of failure. Unfortunately, this is often impossible, but he can at least study and experiment so he can argue convincingly that mutual success will follow reasonable encouragement.

CIRCUMSTANCES DETERMINE PROFIT

Let us assume, then, that it is best for the lumberman to start the practice of forestry for the purpose of strengthening his position and getting the most favorable conditions possible for its general adoption and continuance. How much does he depend upon success in this? Obviously, early public favor will hasten and add to the security of forest growing as a business, but is it absolutely essential? Do existing conditions and inevitable future conditions, regardless of public intelligence, furnish premises upon which we can calculate certain profit in some degree?

This depends upon the circumstances of the individual investor. Without an expectation of more favorable fire and tax influences, reforestation cannot be universally recommended as a business proposition. Many timber owners are not warranted in undertaking it. Not enough are warranted in doing so to insure the future timber supply upon which public welfare depends. Nevertheless, there are conditions under which it is a good investment. It is even probable that for those who are well situated, the very obstacles which deter others will be advantageous through reducing competition. _This fact is of peculiar significance to the public, for if the latter fails to stimulate reforestation generally it will play directly into the hands of the few who are independent of encouragement_.

It is customary, in speculating upon the profits of a second timber crop, to attempt to reduce it to a financial calculation based upon estimated yield, estimated future values and estimated carrying charges. These considerations are important, but their importance is largely in proportion to the financial weakness of the prospective timber grower. We revert again to the practical certainty that unless reforestation is general, the exhaustion of virgin timber will be followed by a shortage, and that the man who has a second crop at that time can obtain a price which will reimburse his carrying charges be they high or low. The cost of overcoming present obstacles will be shifted to the consumer. The possibility of such an investment is determined largely by ability to maintain a protective system with economy and to bear the expense of this and of heavy taxation during the period of no return.

In short, the weakness of the ordinary financial calculation upon existing conditions is that it attempts to estimate future stumpage values without knowledge of the true factor which will determine them. This factor is not the probable rise of existing stumpage while it continues to exist, but is the extent of the new-grown supply which will follow it provided existing conditions remain unchanged. It is inconsistent to figure the cost upon almost prohibitive present conditions without also recognizing that such conditions, if continued, will completely change the influences which now determine the market.

WHO CAN AFFORD TO REFOREST NOW

On the other hand, timber owners have by no means equal opportunity to take advantage of this fact. The productive capacity of their land varies, their taxes vary, the extent and location of their holdings affects the expense of protection against fire, and they have not the same facilities for financing a long term investment. It is the balance of these factors that determine their opportunity. Assuming rate of timber growth to be equal, present fire and tax conditions classify them in relative advantage about as follows:

1. Owners of large holdings of virgin timber who can meet carrying charges by occasional sales at a profit over their purchase price, but will not sell much more than is necessary because all they can afford to hold is advancing in value. Such owners have more or less land deforested by fire or their own milling operations, and will incline to sell only stumpage without land. This land is not easily realized upon at present, and for the speculative reason stated, they will continue in business long enough to grow a new crop on it. The larger their holdings, the greater the certainty of this and the cheaper, relatively, the cost of protection. Moreover, concerns dealing with large and long term investments can consider a lower interest rate.

2. Owners with less facility for making an actual profit through growing timber, but desiring to maintain a milling business. Even if the cost of growing approaches or equals the value of the crop, they will be able to count on continued manufacturing profit.

(Both of the above classes face a possibility of so heavy a tax on their virgin timber in some instances that they will be obliged to cut it and go out of business. This is unlikely to occur generally, however, for tax reform is almost inevitable, and it would have a compensatory effect of enhancing the value of the second crop.)

3. Owners whose holdings are not large enough to keep them in business until a second crop matures but are advantageously located. Second growth need not be mature to have a value. As the present supply diminishes, available coming supply will gain a high expectation value which can be realized upon. The profit it offers will be largely determined by its proximity to market and especially by its proximity to established mills which see their own supply running short and have failed, through inability or lack of foresight, to engage in reforestation themselves. It will also be affected by tax and fire charges, and the latter, especially, will be largely a matter of location.

4. The owner with no peculiar advantages, who can only set the general certainty of a market for second growth against his ability to carry a costly and uncertain investment for an indeterminate time.

Of course a first consideration in most cases is the comparative profits of other possible investments or, in other words, the exact interest demanded as satisfactory. Individuals are in by no means the same position in this respect by either inclination, opportunity or talent. Where one might be safer with his money in timber, another could make more by manufacturing. Generally speaking, however, conservative judgment leads to the conclusion that the present attitude of the public warrants the first of the above four classes of owners in undertaking inexpensive reforestation where the land has little sale value for other purposes and where the growth and fire factors are reasonably favorable. The second class can also undertake it to advantage on much the same basis, but having less capacity for meeting the carrying charge, requires still more favorable conditions. The third class must have the maximum advantage of every kind. It must calculate closely on the factors of cost and profit indicated by present conditions. In most cases the risk will be too great for prudence, and in nearly all financial ability will be lacking. The fourth class cannot even consider it until the public's attitude changes.

BETTER DAY FOR ALL IS NEAR

On the other hand, it is reasonable to suppose that publicly-imposed obstacles will decrease. It will become apparent that their persistence is bad economy. Fires will grow fewer and the state will aid in patrol. Reforestation in itself is a method of fire prevention when it places a green young growth on a fire-inviting tract of sun-dried litter and weeds. Taxation will be deferred. As the country develops interest rates will fall; making it easier to carry forest investments and harder to gain more through other investments. The state itself will engage more and more in forestry, with the result of making its principles understood and endorsed. Stumpage values will increase. Immature timber will have a sale value, lessening the term of investment. Gradually the business will get on a sound production basis, better for the consumer, better for the state supported by a forest income, and more profitable for the grower. Instead of capitalizing bad management and the sacrifice of the consumer, which in effect it does now by forcing the prospective grower to calculate on covering unnecessary cost in the price received, it will capitalize the earning power of forest land.

While final adjustment on this basis is still in the future, it is by no means entirely dependent upon popular foresight. The process is going on constantly, whether we know it or not. The sun is still behind the horizon, but the day is sure. Many Western timber owners are still in too dim a light to make their footsteps certain; others have a high vantage ground where dawn already lights the path.