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MEMOIRS
OF THE

UNIVERSITY OF CALIFORNIA

Volume 3

BUSINESS CYCLES




BY

WESLEY CLAIR MITCHELL

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SEPTEMBER, 1913

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COPYRIGHT

1913,

BY

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1913

MITCHELL




BUSINESS CYCLES




BUSINESS CYCLES




BY

WESLEY GLAIR MITCHELL

UNIVERSITY OF CALIFORNIA PRESS
BERKELEY

1913




COPYRIGHT,

1913,

BY
WESLEY

CLAIR

MITCHELL







PREFACE
This book offers an analytic description of the complicated processes by which seasons of
business prosperity, crisis, depression, and revival come about in the modern world.

The

materials used consist chiefly of market reports and statistics concerning the business cycles
which have run their course since 1890 in the United States, England, Germany, and France.
I am the sorrier for the bulkiness of the volume because I have written for the man of
business as well as for the professional economist.

Doubtless a skillful expositor might have

presented the same results in fewer pages; but most of the bulk is due to my conviction that the
quickest way to attain reliable results is to take great care in measuring the phenomena exhibited
by business cycles.

Readers who look over the first chapter will find that many diverse theories

about the causes of crises seem plausible when considered in the light of common knowledge.
To determine which of these explanations are really valid, it is necessary to find out the regularity
with which each alleged stress recurs, the scope which each attains, the elements which enter into
each, and the consequences with which each is associated.

To make progress toward the solution

of these problems requires the collection and analysis of elaborate records of business experience
in quantitative form.

Men seriously interested in the workings of the money economy will share

my regret that the statistical materials are not more complete, rather than complain that too
many tables are offered.
*4Suggestions

And if any who lack time or patience for study take up the book, the

to Readers" will show them where to find the gist of the conclusions.

One of the chief difficulties in the investigation has been to get quantitative data for the four
countries dealt with which can fairly be compared.

Official documents and business journals

present many tables with such scanty explanations that one cannot make out precisely what
the statistics include.

I have ventured rather boldly in setting such figures side by side, and have

doubtless made some blunders which those with better opportunities of knowing the work of
statistical bureaus may point out.

In almost all cases, however, the comparisons are made, not

between actual amounts in different countries, but between the relative fluctuations which actual
amounts undergo in the course of business cycles.

For such comparisons it is indeed desirable,

but it is not indispensable, to have statistics of precisely the same scope.
Pains have been taken to put the data derived from different countries and different branches
«

of business into comparable form by reduction to common units and by computing relative figures
upon a common basis—averages for the decade 1890-99.

In order to facilitate comparison still

further, numbers of not more than three or four digits have been used in most of the tables.
Many small discrepancies occur between totals and the items which enter into them, because I
have not indulged in the common statistical practice of forcing figures in order to secure formal
consistency even at the cost of accuracy.
The quarto format was chosen in order that the charts might be printed directly on the page
without the use of folding ' 4 inserts.''




All charts showing relative quantities were originally
[vii]

drawn to the same scale. But in reproducing the drawings for publication it was found necessary
to reduce the size of some much more than of others.

Of course the constant relation between the

horizontal units of time and the vertical units of relative quantity was not disturbed by this
process.

Inequalities of outside measurement matter little, because the slope of the curves is

the important thing, and the eye notes similarities or differences of slope about equally well in
charts of the same and of different sizes.
Several friends have assisted me by reading and criticizing parts of the manuscript—Mrs.
Warren Gregory, Mr. John Graham Brooks, Professor Walter Morris Hart, Professor Jessica
B. Peixotto, and Professor Henry Rand Hatfield. The editors of the Journal of Political

Economy

have courteously permitted the use of certain statistical materials first published in their columns.
My thanks are also due to Mr. J. C. Rowell of the University of California Library, to Dr. C. C.
Williamson of the New York Public Library, and to the authorities of the Royal Statistical
Society's Library, London.

But, more than all others, my wife has shared in making this book.

W E S L E Y CLAIR MITCHELL.

37 West Tenth Street,
New York City.




[ viii ]




SUGGESTIONS

TO

READERS

Those who desire to get quickly the gist of the conclusions reached concerning the causes of
business cycles are advised to begin with the last chapter.

Points which they find obscure in

the summary there presented, or points in which they have especial interest, may be looked up
in Chapters X - X I I I by aid of the table of contents.
Economic theorists will find the viewpoint from which the investigation has been made set
forth in Chapter II, in the

4

' Framework'' of Parts II and III, and in the final section of

Chapter X I V .
Readers concerned with recent business history, may find whatever materials the book presents
for their purposes by using the table of contents under Chapters I I I - I X , and X I I .
Those looking for statistical materials and those interested in statistical methods should consult
the table of contents under Part II.
Discussions of monetary and banking problems occur not only in Chapters VI and VII, but
also in Chapters X I , iii; X I I , ii and v ; X I I I , i, 2, D, and X I V , iii, 3.




PLAN OF THE

BOOK

PART I
T H E PROBLEM AND ITS SETTING

A Preliminary Review of Current Theories concerning Business Cycles.

Chapter I.
Chapter II.

The Economic Organization of Today.

Chapter III.

The Annals of Business, 1890-1911.

PART II
STATISTICAL

DATA

CONCERNING

THE BUSINESS

CYCLES

OF 1 8 9 0 - 1 9 1 1

ENGLAND, FRANCE, AND GERMANY

The Framework of Part II.
Chapter IV.

The Fluctuations of Prices since 1890.

Chapter V.

The Volume of Business.

Chapter VI.

The Currency.

Chapter V I I .

The Condition of the Banks.

Chapter V I I I .

Saving, Investment, Enterprise, and Speculation.

Chapter I X .

Profits and Bankruptcies.

PART ILL
T H E R H Y T H M OF BUSINESS ACTIVITY

The Framework of Part III.
Chapter X .

The Cumulation of Prosperity.

Chapter X I .

How Prosperity Breeds a Crisis.

Chapter XII.

Crises.

Chapter

Business Depression.

XIII.

Chapter XIV.

The Wider Aspects of Business Cycles.




[ x i ]

IN THE UNITED

STATES,

CONTENTS
PART

I

THE PROBLEM AND ITS SETTING
PAGE
CHAPTER I .

A PRELIMINARY REVIEW OF CURRENT THEORIES CONCERNING BUSINESS CYCLES.

I. Types of the Early Theories of Crises

3

II. Current Theories of Business Cycles.
1. Two points of agreement
5
2. Beveridge's 11 competition theory"
6
3. May's theory of the discrepancy between wages and productivity
7
4. Hobson's theory of over-saving
?
5. Aftalion's theory of diminishing utilities
®
6. Bouniatian's theory of over-capitalization
®
7. Spiethoff's theory of the ill-balanced production of industrial equipment and
complementary goods
10
8. Hull's theory of the changing costs of construction
11
9. Lescure's theory of variations in prospective profits
13"
10. Veblen's theory of the discrepancy between prospective profits and current
capitalization
14
11. Sombart's theory of the uneven expansion in the production of organic and
inorganic goods
16
12. Carver's theory of the dissimilar price fluctuations of producers' and consumers'
goods
16
13. Fisher's theory of the lagging adjustment of interest
1?
14. Johannsen's theory of 4 ' impair savings"
18
III. The Method of Investigation
CHAPTER I I .

19

T H E ECONOMIC ORGANIZATION OF TODAY.

I. Money Economy

21

II. The Business Enterprise.
1. Uneven development of business enterprises in various fields
2. The interdependence of business enterprises
3. Pecuniary versus industrial factors in business prosperity
4. Factors affecting pecuniary profits
III.

The System of Prices.
1. The prices of consumers' commodities
2. The prices of producers' goods in relation to the prices of consumers' commodities




[xu]

22
23
24
26'
27
27

3.
4.
5.
6.
7.

The
The
The
The
The

prices of producers' goods in relation to antecedent prices
prices of business enterprises
prices of services to persons
interrelations between prices
role of prices in economic life

28
29
29
30
31

IV. The Guidance of Economic Activity.
1.
2.
3.
4.
5.

The
The
The
The
The

role played by technical experts
role played by enterprisers
role played by lenders
role played by government
alleged "planlessness" of production

32
32
34
36
37

V. International Differences in Economic Organization.
1.
2.
3.
4.
5.

The fundamental similarity of organization
The relative importance of different industries
Thrift and enterprise
Banking systems and monetary habits
,
The government's share in directing economic activity

CHAPTER I I I .

40
40
41
42
43

THE ANNALS OF BUSINESS, 1 8 9 0 - 1 9 1 1 .

I. The Business Cycles of 1873 to 1889.
1. The Crisis of 1873
2. The later seventies and early eighties
3. Business expansion in the later eighties and the French crisis of 1889

44
45
46

II. The Crisis of 1890 and the European Depression of 1891-94.
1. The crisis of 1890
2. The depression of 1891-94 in Europe

48
49

III. The Panic of 1893 and the Depression of 1894-96 in the United States.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

The business years 1891 and 1892
Contemporary explanations of the panic of 1893
The influence of the Sherman silver-purchase act
The decline of the gold reserve
Business conditions and the panic
The events of the panic
The struggle to maintain the gold reserve after the panic
Business depression in 1894
The brief revival of 1895
The stringency of 1896
The return of depression

51
51
52
53
54
56
56
58
59
59
59

IV. Business Prosperity of 1895-99 and the Crisis of 1900 in Europe.
1. England
2. Germany
3. France




-

[ xiii 1

60
61
62

V. Business Prosperity of 1897-1902 and the Crisis of 1903-04 in the United States.
1. The prosperous years 1897-99
2. The pause of activity in 1900
3. The stock-market mania of 1901 and the Northern Pacific " C o r n e r "
4. The prosperity of general business in 1901-02
5. 44 The Rich Man's Panic" of 1903-04
6. " T h e American invasion of Europe"
VI. Business Depression in Europe, 1901-04.
1. England
2. Germany
3. France

63
64
65
65
67
68
70
72

VII. The Prosperous Times of 1905-06 in Europe and America.
1. England
2. Germany
3. France
4. The United States
VIII. The Crisis of 1907.
1. England
2. Germany
3. France
4. The United States

73
73
74
74
75
76
76
77

I X . The Depression of 1908-09 and the Revival of 1909-11 in England and Germany.
1. England
2. Germany
X. The Depression of 1908, the Revival of 1909, and the Reaction of 1910-11 in France
and the United States.
1. France
2. The United States

78
80

81
82

X I . Summary

86
PART

II

STATISTICAL DATA CONCERNING THE BUSINESS CYCLES OF 1 8 9 0 - 1 9 1 1 IN THE UNITED STATES,
ENGLAND, FRANCE, AND GERMANY

The Framework of Part II
CHAPTER I V .

1. The
1.
2.
3.
4.
5.
6.
7.
8.
9.

91

T H E FLUCTUATIONS OF PRICES SINCE 1 8 9 0 .

Prices of Commodities.
The available data and the methods of analysis
The prices of consumers' goods at retail
The prices of consumers' goods at wholesale
The prices of producers' goods
The prices of manufactured goods and of raw materials
The prices of organic and inorganic goods
The dispersion of price fluctuations
The representative character of index numbers
The fluctuations of prices in the United States, England, France, and Germany....




[xiv]

93
94
96
98
99
104
109
112
118

II. The
1.
2.
3.

Prices of Labor—Wages.
The American data
The prices of labor in American manufacturing industries
The prices of labor in England

130
132
136

Prices of Loans—Interest.
The tables of interest rates
Rates of interest yielded by investments in bonds
Rates of interest upon short-time loans
International comparisons

140
156
160
163

IV. The Prices of Shares in Business Enterprises.
2. Tables of the relative prices of American common stocks
3. The course of the New York stock market in 1890-1911
3. The course of the New York stock market in 1890-1911
4. The diversity of fluctuations in the prices of common stocks
5. The prices of preferred stocks
6. The prices of stocks, bonds, and commodities
7. International comparisons

172
189
189
191
194
201
219

III. The
1.
2.
3.
4.

CHAPTER V .

I.
II.
III.
IV.
V.
VI.
VII.
VIII.

The Physical and the Pecuniary Volume of Business
The Movement of the Population
The Volume of Goods Produced
The Volume of Domestic Trade
The Volume of Foreign Commerce
The Volume of Goods Consumed
Unemployment
Per Capita Indices of the Volume of Business

CHAPTER V I .

I.
II.
III.
IV.
V.
VI.

TIIE VOLUME OF BUSINESS.

The
The
The
The
The
The

:

223
224
230
242
252
264
268
271

T H E CURRENCY.

Production of Gold
278
Quantity of Gold Currency
279
Quantity of Silver and of Paper Money
288
Distribution of the Monetary Stock among the Banks, the Public, and the Treasury 295
Volume of Deposit Currency
300
Velocity of Circulation
306

Notes:
A Revised Estimate of the Amount of Money held by the Banks of the United States
in 1890-1911
:
311
The Volume of Deposit Currency in the United States, 1890-1911
318
CHAPTER V I I .

I.
II.
III.
IV.
V.

T H E CONDITION OF THE BANKS.

The Clearing-House Banks of New York
The National Banks
The National Banks in Reserve Cities and in Rural Districts
The Joint-Stock Banks of England and Wales
The Central Banks of England, France, and Germany




[XV]

323
333
356
371
377

CHAPTER V I I I .

SAVING, INVESTMENT, ENTERPRISE, AND SPECULATION.

I. Saving
387
II. Investment, Enterprise, and Speculation.
1. Savings-bank deposits
390
2. Purchases of bonds and of stocks
393
3. Applications for investment loans
398
4. The establishment of joint-stock companies
410
5 The savings and investments made by business enterprises out of current income.... 414
6. Investments in railway construction and in the erection of buildings
418
CHAPTER I X .

PROFITS AND BANKRUPTCIES.

I. Profits.
1. American railways
2. The national banks
3. German corporations
II. Bankruptcies.
1. The United States
2. England, France, and Germany

422
427
431
438
444

PART

III

T H E RHYTHM OF BUSINESS ACTIVITY

The Framework of Part I I I
CHAPTER X .

449

T H E CUMULATION OF PROSPERITY.

I. The Beginnings of Revivals in Business Activity
II. The Diffusion of Business Activity.
1. The increase in the demand for commodities
2. The development of business optimism
3. The laggards in business revivals
4. The statistical signs of business revivals
III. The Rise of Prices.
1. The prices of commodities.
A. Why prices rise
B. How the rise of prices reacts upon the demand for commodities
C. How the rise of prices spreads and cumulates
D. Why different groups of commodity prices rise in dissimilar degrees
2. The prices of labor
3. The prices of loans
IV. The Increase of Profits.
1. Why profits increase
2. The rise in the prices of stocks
V. The Volume of Investments
VI. The Business Equilibrium
-




[XVI]

452
453
455
456
456

457
459
460
461
464
466
468
469
471
472

CHAPTER X I .

H o w PROSPERITY BREEDS A CRISIS.

I. The Increasing Costs of Doing Business.
1. Supplementary costs
2. The prime costs of weak enterprises
3. The cost of labor
4. The cost of materials
5. The cost of bank loans
6. The declining economy of business management
TI. Industrial
1. The
2. The
3. The
4. The

Equipment and the Investment Market.
consequences of increasing the industrial equipment
development of stringency in the investment markets
decline of investment borrowing
check upon orders for new construction

III. The Tension in the Money Market.
1. The demand for short-term loans
2. The supply of short-term loans
3. The development of stringency
4. The inter-relations between prosperity and the quantity of money in circulation....
IV. The Decline of Prospective Profits.
1. The problem of defending profits against the encroachments of costs
2. Hindrances to the continued advance of selling prices.
A. Public regulation, contracts, and custom
B. The increase of capacity for producing goods
C. The advance in interest rates
D. Under-consumption
3. The critical point
V. The Undermining of Business Credit.
1. The relations between credit and profits
2. The effect of prosperity upon the volume of credits
3. The effect upon outstanding credits of the decline in prospective profits

CHAPTER X I I .

475
476
476
481
482
483
483
485
486
487
489
490
491
492
494
496
497
499
499
502
503
505
506

CRISES.

I. The Beginning of Liquidation

512

II. A Typical Panic—The United States, 1907.
1.
2.
3.
4.

The
The
The
The

III. A Typical
1. The
2. The
3. The

beginning of the panic of 1907
scramble for money
A
demoralization of the markets for loans and investments
reaction of monetary stringency upon general business

515
516
522
530

Crisis—England, 1907.
beginning of reaction
effect of foreign crises
crisis in industry and commerce

538
539
543

IV. The Close of Crises

548

V. The Prevention of Panics




550
f XVII ]

CHAPTER X I I I .

BUSINESS DEPRESSION.

I. How Crises Breed Depressions.
1. Abortive revivals of activity
2. The cumulation of depression.
A. The volume of business
B. The fall of prices
C. Savings and investments
D. The currency and the banks
II. How
1.
2.
3.
4.

554
,

*

Depression Breeds Prosperity.
The re-adjustment of prime costs
The re-adjustment of supplementary costs
The increase in the physical volume of business
The end of liquidation

CHAPTER X I V .

556
558
559
560
562
564
565
568

T H E WIDER ASPECTS OP BUSINESS CYCLES.

I. Summary of the Preceding Theory of Business Cycles.
,
1. The cumulation of prosperity
571
2. How prosperity breeds a crisis
573
3. Crises
576
4. Depression
577
NOTE.—The relation of the preceding theory of business cycles to the theories
reviewed in Chapter I
579
II. Diversities Among Business Cycles and their Causes.
1. The diversities
2. Their causes

581
582

III. Business Cycles in Economic History.
1. The genesis of business cycles
2. Man's mastery over the workings of the money economy
3. Proposals for controlling business cycles
IV. The Forecasting of Business Conditions.
1. The exceptional opportunities of certain
2. The business barometers available to the public
3. Suggestions for bettering business barometers.
A. New barometers needed
B. The improvement of old barometers
C. Difficulties in the way
V. The

44 Money




Surface of Things" and What Goes on Beneath
[ XVIII ]

583
585
586
financiers

588
591
593
594
595
596

PART I

THE PROBLEM AND ITS SETTING







CHAPTER

I

A PRELIMINARY REVIEW OF CURRENT THEORIES CONCERNING
BUSINESS CYCLES
I . TYPES OF THE EARLY THEORIES OF CRISES

Serious efforts to frame a theory of business cycles began with the contemporary discussions of the economic crisis of 1825.1 Differences of opinion
promptly appeared regarding the cause of this widespread dislocation of trade
—differences which multiplied as the crises of later years brought new materials and new men into the discussion. Presently crises became one of the
accredited topics of economic theory, and systematic writers began to develop
explanations based upon their doctrines of production, distribution, and
exchange. Before the end of the nineteenth century there had accumulated a
body of observations and speculations sufficient to justify the compilation of
histories of the theories of crises.2
Inevitably, the early efforts to account for the exceedingly complex phenomena of crises were crude and superficial. But the problem commanded
so much attention that the character of the treatment rapidly improved. Each
recurring crisis, indeed, produced a fresh crop of ill-considered explanations;
but meanwhile other writers were steadily using and bettering the work of
their predecessors. In this process of elaboration, however, the early differences of opinion did not disappear. Instead, they became standardized into
several distinct types of theory, each represented in the growing literature by
a number of variants.
First may be put the view that crises are "abnormal" phenomena, produced
by some disturbing event such as the introduction of revolutionary inventions,
the development of new means of transportation which alter old trade-routes,
wars, the revision of tariffs, fluctuating monetary standards, crop failures, the
unexpected bankruptcy of some conspicuous business enterprise, changes in
fashion, and the like. Such explanations proceed upon the assumption that
1 E. von Bergmann, Geschichtc der nationaldkonomischcn Kriscnthcoricn (Stuttgart, 1895). As usual, research
has discovered a number of fragmentary discussions by earlier writers. See the opening pages of von Bergmann's successive chapters.
2 Von Bergmann's book, cited in the preceding note, is the most elaborate. The best histories in English
and French are E. D. Jones's Economic Crises (New York, 1900), and J. Lescure's Dcs criscs gentralcs ct p6riodiqucs dc surproduction (Paris, 1907), pp. 433-522.




[3]

4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

the equilibrium of economic activities has become so delicate that it may be
disturbed by untoward conjunctures of the most dissimilar kinds, and point
to the conclusion that each crisis has its own special cause which must be sought
among the events of the immediately preceding years.3
Next in formal simplicity is the type of theory which ascribes crises to
"inflation." An increase in coin, in irredeemable paper money issued by the
government, in bank-notes, or in deposit currency produces an advance of
prices. The latter stimulates business to great activity, which runs to extremes
in reckless investments and feverish speculation, and ends in a crash of credit
and widespread bankruptcy.
The "over-production" and "under-consumption" theories contend that,
owing to the efficiency of modern machinery, the power of society to produce
has outstripped its power to consume. Hence the periodical occurrence of
"general gluts"—paradoxical situations in which superabundance causes want.
Unable to sell their increasing output of goods at remunerative prices,
employers are forced to close their factories and turn away their hands—a
remedy which aggravates the disease by reducing yet more the community's
power to purchase for consumption.
To the classical economists the theory of general over-production was a
heresy, wrhich they perseveringly sought to extirpate by demonstrating that
the supply of goods of one sort necessarily constitutes demand for goods of
other sorts. But maladjusted production they allowed to be possible, and
their theories of crises usually sought to show how maladjustment comes about
through the sinking of capital in unremunerative investments. Such lockingup of capital was often held to be one result of "the tendency of profits to a
minimum." When this tendency has reduced the current rate of profits to an
unaccustomed level, the less sagacious capitalists become dissatisfied and embark
in ill-considered schemes. There results the production of goods for which
no market can be found, business failures, and the loss of confidence—in short,
a crisis which extends over all lines of trade.
Another group of economists, among whom Schaffie was prominent, accepted
ill-adjusted production as the cause of crises; but accounted for it by the c6mplexity of modern economic organization. Not only are manufacturers compelled to produce goods months in advance for a market whose changes they
cannot forecast, but investors are compelled years in advance to put.their funds
into enterprises the need of which is uncertain. A close coordination between
supply and demand is not possible. The mistakes which are made should be
ascribed less to avoidable errors of judgment than to the painlessness of capitalistic production.
s Jones gives a good analysis of this type of theories in his second chapter.
known representative.




Roscher is perhaps the best

MITCHELL: BUSINESS CYCLES

5

But the most vigorous attempt to prove that crises are a chronic disease of
capitalism is that made by Rodbertus, Marx, and their followers. The gist of
the socialist contention is usually that the laborer receives as wages much less
than the real value of his product. Hence the demand for consumers' goods,
which must depend largely upon the great mass of wage-earners, fails to keep
pace with the increase of the output. Meanwhile, the capitalist-employers are
investing their current savings in new productive enterprises, which presently
begin to add their quotas to the market supply. This process runs cumulatively until the time comes when the patent impossibility of selling goods at
a profit brings 011 a crisis.
So bald a statement as the preceding falls far short of doing justice to
the nineteenth century writers upon crises; but it suffices to indicate the
foundations upon which our contemporaries have built their more elaborate
explanations. The latter conserve all of permanent value which the earlier
economists achieved, and contain in addition certain fresh contributions to the
subject. Accordingly, a review of the leading discussions which have been published since 1900 will afford an adequate introduction to the problem as it stands
today.
II.

CURRENT THEORIES OF BUSINESS CYCLES

1. Two Points of Agreement
Wide divergences of opinion continue to exist among competent writers
upon crises; but in recent years substantial agreement has been reached upon
two points of fundamental importance.
Crises are no longer treated as sudden catastrophes which interrupt the
"normal" course of business, as episodes which can be understood without
investigation of the intervening years. On the contrary, the crisis is regarded
as but the most dramatic and the briefest of the three phases of a business cycle
—prosperity, crisis, and depression.4 Modern discussions endeavor to show
why a crisis is followed by depression, and depression by prosperity, quite as
much as to show why prosperity is followed by a crisis. In a wrord, the theory
of crises has grown into the theory of business cycles.5
This wider grasp of the problem has discredited the view that crises are
due to abnormal conditions which tempt industry and trade to forsake their
beaten paths and temporarily befog the judgment of business men and investors,
4 The not infrequent statement that prosperity sometimes merges into depression without the intervention
of a crisis means simply that the writers understand by crisis a violent disturbance of business conditions.
It is in closer accord with everyday usage to call such occurrences " p a n i c s , 1 1 and to apply the term l t c r i s i s "
to the transition from prosperity to depression even when accomplished quietly. On closer inspection, a business cycle is often found to be complicated by minor changes, such as the interruption of depression by
a premature resumption of activity, the occurrence of a pause or even a slight crisis in the midst of prosperity, and the like. But for the present it is wise to confine attention to the broadest features of the cycle.
0 Compare W. Sombart, "Versuch einer Systematik dor Wirtschaftskrisen," Archiv fiir Sozialwissenschaft,
1904, pp. 1-21.




MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

6

or to misguided legislation, unsound business practices, imperfect banking
organization, and the like.0 As business cycles have continued to run their
round decade after decade in all nations of highly developed business organization, the idea that each crisis may be accounted for by some special cause
has become less tenable. On the contrary, the explanations in favor today
ascribe the recurrence of crises after periods of prosperity to some inherent
characteristic of economic organization or activity. The complex processes
which make up business life are analyzed to discover why they inevitably work
out a change from good times to bad and from bad times to good. The
influence of special conditions is admitted, of course, but rather as a factor
which complicates the process than as the leading cause of crises.
2. Beveridge's "Competition

Theory "

Among these theories which seek to account not for crises but for the
cyclical fluctuations of economic activity, the "competition theory" tentatively
advanced by Beveridge is one of the simplest.
In most instances, he begins, production is carried on by several or many
establishments, each acting independently, and each seeking to do as large a
share of the business as possible. Whenever the demand for their wares
increases, each competitor tries to engross a larger portion of the market.
"Inevitably, therefore, all the producers together tend to overshoot the demand
and to glut the market for a time. This is a result not of wrild speculation
nor of miscalculation of the total demand; it must be a normal incident wherever competition has a place at all." Such activity among producers constitutes the period of prosperity. But sooner or later the glutting of the market
becomes apparent, and then the crisis comes, because the goods cannot all be
sold at a profit. Prices fall, production is checked, and a period of depression
ensues. Gradually, however, the slackened rate of production allows the accumulated stocks to be cleared, perhaps below cost price, perhaps by waiting until
demand grows up to supply. When this excess of demand over supply has
once again become patent business recovers. Depression yields to prosperity,
competitors again vie with each other to increase their shares in the output,
after a few years the market is glutted again, and a new crisis comes, to be
followed once more by depression. Thus business cycles are due in the last
resort to "the simple and well nigh universal fact of industrial competition."7
o The first type of theories mentioned in the preceding section.
7 W. H. Beveridge, Unemployment, ed. 3 (London, 1912), chapter iv.




MITCHELL: BUSINESS CYCLES

7

3. May's Theory of the Discrepancy between Wages and Productivity
Like Beveridge, May conceives crises to result immediately from the glutting of markets for industrial products. But May offers a quite different
analysis of the cause of gluts. The continually growing productivity of
industry makes necessary a corresponding growth of the market, if disaster
is to be avoided. But to enable producers to sell their growing output promptly
prices must be reduced and wages must be raised in proportion as the supply
of goods increases. For it is only by combining an increase in the money
income of the mass of the population with a decrease in the cost of commodities
that a country's home markets can be kept expanding with the progress of
industrial methods. Periods of prosperity attended by rising prices necessarily
violate this condition of business hygiene and inevitably end by glutting markets. Then come crises, which restore the body politic to health by forcing
down prices to the point where consumers can purchase the supplies which are
offered. The germ of the trouble, then, is the tendency of prices to rise during
periods of increasing productivity. Accordingly, May urges as remedy a legal
limitation of the rate of profits, in ordei that producers may be forced to reduce
prices as they increase output.8
4. llobson's Theory of Oversaving
A third explanation of how markets come to be glutted periodically is offered
by Hobson's theory of over-saving. Hobson holds that at any given time
"there is an exact proportion of the current income which, in accordance with
existing arts of production and existing foresight, is required to set up new
capital so as to make provision for the maximum consumption throughout the
near future." Now, if in a period of prosperity the rate of consumption should
rise pari passu with the rate of production, there is no inherent reason why
the prosperity might not continue indefinitely. But in modern societies, a
considerable portion of the wealth produced belongs to a small class. In active
times their incomes rise more rapidly than their consumption and the surplus
income is perforce saved. There results for the community as a whole a slight
deficiency of spending and a corresponding excess of saving. The wealthy
class seeks to invest its new savings in productive enterprises—thereby increasing the supply of goods and also increasing the incomes from which further
savings will be made. This process runs cumulatively during the years of
prosperity until finally the markets become congested with goods which cannot
be sold at a profit. Then prices fall, liquidation ensues, capital is written down,
and the incomes of the wealthy class are so reduced that savings fall below7 the
proper proportion to spending. During this period of depression the glut of
s R. E. May, Das Grundgcsetz dcr Wirtschaftskriscn




(Berlin, 1902).

8

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

goods weighing upon the market is gradually worked off, and the prospect of
profitable investment slowly returns. Saving rises again to the right proportion to spending and good times prevail for a season. But after a while
the chronic impulse towards over-saving becomes fully operative once more,
and soon or late begets another congestion of the markets and this congestion
begets another depression. Proximately, then, the cause of alternating prosperity and depression is the tendency toward over-saving; ultimately it is the
existence of the surplus incomes which lead to over-saving.9
5. Aftcilion's Theory of Diminishing Utilities
The possibility of a general over-production of goods has often been denied
on the ground that human desire is insatiable. Recently Aftalion has sought
to show that this objection may be set aside by the laws of marginal utility.
He ascribes the fall of prices which characterizes a crisis to the effect of general
over-production in diminishing the social use-values of the whole mass of commodities offered for sale. While admitting that there can be no general fall
of values in exchange, he contends that there can be such a fall of values in
use. Human wants are not all met; but the wants for the concrete goods in
the market are gratified to such a degree that their marginal utilities decline.
There follows a general fall of prices—often to points below the costs of production. Similarly, the rise of prices in prosperity results from a rise of
marginal utilities caused by a relative scarcity of goods in proportion to the
community's needs—that is, from under-production.
But whence come these alternations of over-production and under-production? Aftalion sees them as consequences of the "round about" method of
production characteristic of capitalism. When there is a promising market
for consumers' goods we set about building new factories and ordering new
machines. A considerable time is required to provide such new equipment.
During this interval prices rise because goods are scarce, and prosperity reigns.
But when at last the new factories are completed and the new machines
installed, they begin to turn out consumers' goods in great masses. Presently
the market is overstocked, values in use decline, prices fall, and a crisis comes.
After the crisis, depression rules for a season because the excessive equipment
provided during the period of prosperity is itself durable, and goes on flooding
the market with its products. Therefore values in use and prices continue to
fall, despite the redundant supply of money. Under such discouraging circumstances, producers do not increase the size of their plants; they do not
even replace all the equipment which is worn out. Consequently, productive
capacity slowly diminishes. Since wants do not shrink, but rather expand,
» I have followed Mr. Hobson's latest exposition, The Industrial System (London, 1909), chapters iii and
xviii.




MITCHELL: BUSINESS CYCLES

9

the day finally dawns when the current supply of consumers' goods and the
stocks of materials are found to be inadequate. Then the social value of goods
of all kinds rises, prices advance, prosperity returns, and the whole cycle
begins anew.10
6. Bouniatian's Theory of Over-capitalization
Bouniatian's theory of over-capitalization is much like Hobson's theory of
over-saving. Any one among many causes may so affect supply and demand
as to cause the prices of some important group of commodities to rise. This
advance tends to propagate itself by raising the prices of all related commodities. At the same time it concentrates purchasing power in the hands of those
who own the goods which have advanced in price. This concentration of purchasing power enhances the accumulation of capital; for (1) the desire for
increased consumption does not expand so quickly as income has risen, and
(2) the spirit of enterprise is excited by increased profits received. The larger
supply of capital leads to a greater demand for the means of production, and
raises their price—now concentrating purchasing power in the hands of those
who own or produce the means of production. This new concentration enhances
once more the accumulation of capital. Thus the process, initiated by a casual
rise of prices in any part of the industrial field, soon reaches the industries
which turn out industrial equipment and runs cumulatively for a time.
But ultimately the process works its own reversal. For the centralization
of purchasing power in the hands of a small class is at the expense of the
purchasing power of the masses. Absolutely consumption grows, but its
growth is slower than that of the supply of goods turned out by the increasing
industrial equipment. In the last resort the prices of these means of production are dependent on the prices of the consumers' goods which they help
directly or indirectly to produce. In the end, therefore, the failure of consumption to expand at the same pace as the accumulation of capital and the
means of production in which the capital is invested inevitably causes consumers' and producers' goods to fall in price.
Then the process is reversed. Purchasing power, instead of being concen- .
trated in the hands of the owners of goods, is dispersed. The fall of prices
propagates itself and goes on cumulatively as the rise had done. Much of
the industrial equipment stands idle and deteriorates, not only from lack of
repair but also from the invention of improved processes and machinery. Thus
an approximate equality between the community's power of consumption and
its equipment for production is brought about. Meanwhile the large supply
of idle capital in the form of loanable funds drives down the rate of interest.
Ultimately the time comes when the supply of goods is no longer superabundio A. Aftalion, Essai d'une theorie des crises gtntralcs et ptriodiques (Paris, 1909).
criticisms by Gide and Lescure in Revue d'tconomie politique, April, 1910.




See also his replies to

10

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

ant, and fresli ventures may be undertaken at a low rate of interest with good
hope of success. Then in some line prices receive a fillip, and the whole process
begins once more with concentration of purchasing power, increased savings
and lively demand for goods.
Thus prosperity and depression are two unlike results of the same cause—
over-capitalization. That is, the ceaseless striving of productive energy to
keep profitably employed causes production to expand more rapidly than
consumption, and infallibly produces a maladjustment with alternating periods
of expansion and contraction. The roots of the difficulty lie deep in the capitalistic organization of society, which separates the individual's activity in
production from his activity in consumption, and so favors inequality in the
distribution of wealth—a condition which is both cause and consequence of
over-capitalization.11
7. Spiethoff's Theory of the Ill-balaneed Production of Industrial Equipment
and Complementary Goods
While Hobson ascribes crises to over-saving and Bouniatian to overcapitalization, Spiethoff ascribes them primarily to ill-balanced production of
industrial equipment and complementary goods. A revival of prosperity leads
first to the full utilization of the existing industrial equipment, and then to
a rush to produce new equipment. The latter movement results from a heavy
investment of capital by men who hope to share in the high profits which prosperity promises. After a time the new equipment begins turning out goods
which seek a market—partly goods to satisfy personal wants, partly goods to
be used in producing other goods. Over-production inevitably results after
a time in those industries which make industrial equipment. For the demand
for this type of goods is capable of being substantially satisfied by a few years
of activity. That is, the community finds itself provided with enough industrial equipment to produce all the goods which can find a profitable market
and then the demand for further machinery, etc., drops off, leaving short of
orders the foundries, machine shops, etc., which have been rapidly extended.
Meantime the capital which had accumulated in superabundant volume during
the preceding depression has been absorbed, and further business expansion
is checked by the inadequacy of current savings to supply the needs of business
borrowers. This slackening demand for new industrial equipment, combined
with the scantiness of loan-capital, brings the period of prosperity to a close.
Unemployment among workmen and losses among capitalists, beginning in the
industries which make industrial equipment, cause a decline in consumers'
demand and react upon all industries which make goods for personal needs.
11 M. Bouniatian, Studien zur Theorie und Gescliichte der Wirtschaftskrisen




(Munich, 1908), vol. I.

MITCHELL: BUSINESS CYCLES

11

Then an over-production of consumers' goods becomes apparent and the circle
of the unemployed and of the losing capitalists widens. So matters go from
bad to worse in a vicious circle and the depression deepens for a time.
But, like prosperity, depression works its own end. The weakest producers
are forced out of business, new needs develop, the fall of prices, wages, and
interest cuts down the cost of production, and the capital value of plants is
reduced by foreclosure sales, agreements with bondholders and the like. At
last the time comes when production at a profit seems possible again. For a
while business conditions are relatively stable; but presently activity becomes
more marked, demand for industrial equipment grows animated, and the cycle
of prosperity, crisis, and depression is repeated.
Over-production of goods for producing other goods and the increasing
scarcity of loan-capital, then, are the results of prosperity which cause crises
and depressions. But, Spiethoff asks, exactly what do these phrases mean?
Over-production means that there are more machines, etc., than can be sold
at a profitable price, for the reason that possible purchasers cannot get enough
capital to pay for and to operate them. This scarcity of capital means proximately that the loan funds in the investment markets have been depleted by
the heavy borrowings of prosperous years. But this lack of capital in the
shape of money for lending conceals the real difficulty—a lack of the capital
goods which the would-be borrowers need for carrying on the process of extending their enterprises. To increase the supply of money would work no real
cure; for the money transferred from lender to borrower is useless unless it
can be converted by purchase into those goods which are required for operating the industrial equipment that threatens to fall idle. These goods are
primarily labor and the goods which laborers consume. The root of the evil
is, therefore, ill-proportioned production—over-production of industrial equipment and such durable consumption goods as dwellings, and a concomitant
under-production of the goods necessary to employ the equipment.12
8. Hull's Theory of the Changing Costs of Construction
An American business man, George H. Hull, has recently drawn from his
experience of practical affairs conclusions which resemble those drawn by
Professor Spiethoff from his theoretical analysis of economic records. High
prices of construction, runs his thesis, is the hitherto "unknown cause of the
mysterious depressions" from which the industrial nations suffer.
In demonstrating this thesis, Hull contends that agriculture, commerce, and
finance fluctuate within relatively narrow7 limits. Agriculture provides the
necessities of life, commerce distributes them, and finance adjusts the bills.
12 Spiethoff has published his analysis in a series of articles in Sclimoller's Jalirbuch fiir
1902, pp. 721-759; 1903, pp. 679-708; 1909, pp. 445-467 927-951, 1417-1437.




Gcsctsgebung,

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

12

The volume of all this business is fairly constant, because the demand for
necessities is incapable of sudden expansion or contraction. Industry, on the
contrary, may expand or contract indefinitely—especially that part of industry
devoted to construction work. For the sources of "booms" and depressions,
therefore, we must look to the enterprises which build and equip houses, stores,
factories, railways, docks, and the like.
Of the huge total of construction, which Hull believes to make over threequarters of all industrial operations, at least two-thirds, even in the busiest of
years, consists of repairs, replacements, and such extensions as are required
by the growth' of population. This portion of construction is necessary and
must be executed every year. But the remaining portion is " optional construction," and is undertaken or not according as investors see a liberal or a
meager profit in providing new equipment.
Now, when the costs of construction fall low enough to arouse "the bargaincounter instinct," many of "the far-seeing ones who hold the purse-strings of
the country" let heavy contracts, and their example is followed by the less
shrewd. The addition of the resulting new business to the regular volume of
"necessity construction" plus the provision of ordinary consumers' goods
creates a "boom." But, after a year or two, contractors discover that their
order books call for more work than they can get labor and materials to finish
on contract time. When this oversold condition of the contracting trades is
realized, the prices of labor and of raw materials rise rapidly. The estimated
cost of construction on new contracts then becomes excessive. Shrewd investors
therefore begin to defer the execution of their plans for extending permanent
equipment, and the letting of fresh contracts declines apace. As they gradually complete work on their old contracts, all the enterprises making iron,
steel, lumber, cement, brick, stone, etc., then face a serious shrinkage of business. Just as the execution of the large contracts for "optional construction,"
let in the low-price period, brought on prosperity, so the smallness of such
contracts, let in the high-price period, now brings on depression. Then the
prices of construction fall until they arouse "the bargain-counter instinct" of
investors once more, and the cycle begins afresh.
While Hull grants that panics are often caused by strictly financial disorders, he holds that all industrial depressions are caused by high prices of
construction, and foreshadowed by high prices of iron. Consequently he
believes that depressions could be prevented from occurring if the government
would collect and publish monthly "all pertinent information in relation to
the existing volume of construction under contract for future months, and all
pertinent information in relation to the capacity of the country to produce
construction materials to meet the demand thus indicated."13
is George H. Hull, Industrial Depressions




(New York, 1911),, p. 218.

MITCHELL: BUSINESS CYCLES

13

9. Lescure's Theory of Variations in Prospective Profits
Lescure agrees with Spiethoff that business cycles arise from irregular
activity in producing producers' goods, and that the latter in turn is connected
with the alternating ebb and flow of the capital invested in industry and trade.
But lie explains the periodical expansion and contraction of these investments
in a fashion different from Spiethoff. To him changes in the prospective rate
of profits are the important factor. By profits he means the margin between
selling prices and cost of production.
A period of prosperity inevitably comes to an end because cost ultimately
creeps up on selling prices so far as to reduce the margin of profits and hence
to discourage further investments. This increase in cost is due to high prices
for raw material, high rates of interest, high wages, and heavy expenses in
establishing new enterprises and extending old ones. Selling prices cannot
be indefinitely raised to preserve the margin of profit from these encroachments
by costs, because there comes a time when the ever-increasing supplies offered
on the market have satisfied the more pressing wants, and people will not buy
the yet larger quantities of goods at yet higher prices. When the prospective
profits of fresh enterprises have been thus rendered doubtful, investors hesitate
to make business loans on the grand scale which is necessary to sustain the
movement of expansion. Instead they begin to prefer the lesser risks of government bonds and similar conservative securities. The inability of business
enterprises to borrow freely checks the execution of their plans for extensions,
and hence reduces the demand for producers' goods. Then the enterprises
turning out these goods find themselves in difficulties, and the weakest are
presently forced to the wall. One disaster leads to another, owing to the close
interrelationship which exists between different establishments and different
trades. A wave of depression sweeps over the business world, and for a time
the prospects of profits become darker and darker.
But depression, like prosperity, has its own limits. Demand cannot shrink
indefinitely, for consumers must be fed, clothed, and housed. All the elements
in cost decline—raw materials, wages, interest, expenses of getting established.
Further, the depression stimulates efforts to improve methods of production.
Thus ultimately costs are readjusted on a lower level, the prospective margin
of profit first ceases to shrink, and later begins to expand. The spirit of business enterprise is once more aroused, investors turn back to business loans,
and prosperity returns for its brief day.14
Jean Lescure, Dcs crises gtntrales




et pcriodiqucs dc surproduction

(Paris, 1907), pp. 496-522.

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

14

10. Veblen's Theory of the Discrepancy between Prospective Profits and
Current Capitalization
The chief merit of Lescure's discussion is its realistic air, its effort to look
at business cycles from the standpoint of the man of business. In this effort,
however, the French economist has been anticipated by an American. Yeblen
.begins his discussion of "the theory of modern welfare" by pointing out that
prosperity, crisis, and depression "are primarily phenomena of business; they
are, in their origin and primary incidence, phenomena of price disturbance,
either of decline or of advance
They affect industry [only] because
industry is managed on a business footing, in terms of price and for the sake
of profits."
A period of prosperity is ushered in by a rise of prices, caused, for example,
by an increased supply of gold, or by heavy government purchases. This rise
affects first some one industry or line of industries, which responds with a
burst of activity and increased investments by business men anxious to exploit
the profitable field. Partly by actual increase of demand, partly by lively
anticipation of future increases, aggressive business enterprise extends its
ventures and pushes up prices in remoter branches of trade. Thus the rise
of prices is carried over into one branch of business after another.
Now the growing demand and enhanced prices increase the prospective
profits of the business enterprises in each trade as they reach it. Larger prospective profits lead to higher market capitalization of the business enterprises,
and, of course, higher market capitalization means an increased value of the
properties as collateral security. Thus the way is paved for the marked
extension of credit on which the active trade is largely dependent.
This sequence of growing demand, rising prices, increasing expectations
of profit, swelling capitalization of business enterprises, and expanding credit
runs on cumulatively so long as its basis continues—an anticipated increase
in demand or selling prices greater than the anticipated increase in costs.
But eventually the process undermines its own basis. For costs rise with
the increasing cost of labor, and with the gradual extension of the advance
in prices to all the commodities which business enterprises buy. In the end
these costs gain so much upon prospective selling prices as to cut down the
anticipated margin of profit. Then the enhanced market capitalization of the
business enterprises begins to seem excessive. Consequently, the collateral
security for loans shrinks in the estimation of the business community and
ceases to be regarded as an adequate guarantee of the credits which have been
granted. The confident tone of business expectations which characterized the
period of prosperity yields to nervousness. To bring on a general crisis it
needs but that some considerable creditor. should conclude that the present
earning capacity of his debtor no longer warrants the capitalization upon which




MITCHELL: BUSINESS CYCLES

15

his collateral is appraised. When this happens liquidation begins, extending
from one industry to another and converting prosperity into depression.
Veblen differs from most writers in holding that, once begun, business
depression tends to maintain and perpetuate itself, instead of tending to produce
a resumption of activity. Business men commonly ascribe their troubles to
over-production; but what they mean is that not enough of their products can
be sold for satisfactory prices to warrant the running of mills at full capacity,
or near enough capacity to yield a fair profit. " F a i r " profit means to the
business men a satisfactory return on what they regard as the capital value
of their enterprises. Reductions in this capital value are assented to with
extreme reluctance, and usually lag behind the decline which has taken place in
earning capacity. But such reductions are gradually forced during depression
by the bankruptcy of the weakest enterprises and their reorganization with
reduced fixed charges. This process of reorganization turns the weakest competitors into the most dangerous. Yet more important is the unceasing advance
in technical perfection which characterizes modern machine industry, and
which enables the new plants which are built from time to time to start with
a marked initial advantage in equipment over their partially antiquated predecessors. The difficulty of earning a fair profit without submitting to a
reduction of capitalization is made chronic by these conditions. "Hence
depression is normal to the industrial situation under the consummate regime
of the machine, so long as competition is unchecked and no dens ex machinn
interposes." The only abiding refuge from such chronic depression is thoroughgoing coalition in all those lines of business in which coalition is feasible.
It is, to be sure, only in the last generation that the march of technical progress
has become steady and rapid enough to establish this condition of chronic
depression; but it promises to become more and more pronounced in the future.
Periods of prosperity are taking on the character of episodes, initiated by some
extraordinary increase in the demand for goods, and running out presently
into the normal state of depression through the sequence of events which has
been recited.
To Veblen, then, the important factor in determining the character of a
business period is the discrepancy between current capitalization and anticipated earning capacity. When the latter rises, business has a season of prosperity, during which capitalization expands rapidly. But rising costs always
undermine the basis for anticipating high profits and then capitalization is
left higher than anticipated profits warrant. The latter situation characterizes
depression.15
15 T. B. Veblen, Theory of Business Enterprise (New York, 1904), ch. vii. Trofessor E. R. A. Seligman
has worked out a theory of crises which resembles Veblen's in the run of ideas and in phraseology. See his
introduction to The Currency Problem and the Present Financial Situation. A series of addresses delivered at
Columbia University, 1907-08.




16

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

11. Sombart's Theory of the Uneven Expansion in the Production of Organic
and Inorganic Goods
Sombart, like many of the recent German writers, finds ill-proportioned
production the chief cause of crises; but he thinks it inaccurate to say that the
over-production is in industrial equipment. For during the German " b o o m "
which collapsed in 1900-01, over-production was quite as marked in industries
making equipment for electric lighting systems, telephone plants, street railways, dwellings, bicycles, etc., as in industries making machines. The real
lack of proportion he sees in the unlike degree of expansion in industries using
organic and inorganic materials. The inorganic industries, typified by steel,
can expand to an enormous extent within a brief period without being seriously
hampered by scarcity of raw materials. The organic industries, typified by
cotton-spinning, on the contrary, are always in precarious dependence upon
the year's harvests. In the organic industries, one may say, the condition of
business is determined by the harvests; in the inorganic industries the condition of business determines the production of raw materials. The modern
crisis, then, following upon a period of prosperity, is substantially the result
of the different rhythm of production in the organic and inorganic realms.
The organic industries dependent upon harvests cannot keep pace with the
inorganic when the latter are being rapidly extended by heavy investments
of capital.16
12. Carver's Theory of the Dissimilar Price Fluctuations of Producers' and
Consumers' Goods
Carver has suggested a way of accounting for business cycles by applying
the laws of value which govern producers' goods. He points out that a comparatively small change in a factory's selling prices will cause a much greater
change in its profits, if volume of output and expenses remain the same.
Since the value of the factory as a going concern is the capitalized value of
its prospective profits, a large increase of profits will cause a large increase
of the factory's value, provided the high profits are expected to continue long.
Hence the law that "the value of producers' goods tends to fluctuate more
violently than the value of consumers' goods." It follows that:
" A slight rise in the price of consumers' goods will so increase the value of the producers'
goods which enter into their production as to lead to larger investments in producers' goods.
The resulting larger market for producers' goods again stimulates the production of such goods,
and withdraws productive energy from the creation of consumers' goods. This for the time tends
16 W. Sombart, " D i e Storungen im deutschen Wirtschaftsleben,'' Schriften
vol. 113, pp. 130-133.




des Vereins fur

Socialpolitik,

MITCHELL: BUSINESS CYCLES

17

to raise the price of consumers' goods still higher, and this again to stimulate still further the
creation of producers' goods. There is no check to this tendency until the new stock of producers'
goods begin to pour upon the market an increased flow of consumers' goods. This tends to produce
a fall in their value, which in turn produces a still greater fall in the value of producers' goods,
and so the process goes."

Thus, once more, prosperity breeds crisis and depression; but this time the
reason is found in the dissimilar fluctuations which the laws of value establish
for the goods which people use and the equipment with which they are made.17
13. Fisher's Theory of the Lagging Adjustment of Interest
Another interesting suggestion comes from Irving Fisher. By statistics
he has shown that when for any reason prices begin to rise, interest rates
advance, but not fast enough to offset the decline in the purchasing power of
the principal caused by the rise of prices. During such periods, accordingly,
borrowers on the whole get the better of lenders and make high profits. Since
the borrowers consist largely of active business men, precisely the class of
greatest foresight, they grasp the situation more quickly than lenders. As a
result of their desire to profit by their opportunity, loans are rapidly extended.
This extension is effected largely by the lending of bank credits, that is, by
the increasing of deposit currency. The greater volume of the currency combines with more rapid circulation of money and checks to increase prices again,
and so to start the whole process anew on a higher level. "There is thus set
up a vicious circle, which will continue just as long as the rate of interest fails
to make a proper adjustment to put on the brakes and prevent over-borrowing."
" B u t the rise in interest, though belated, is progressive, and, as soon as it
overtakes the rate of rise in prices, the whole situation is changed." Borrowers can no longer hope to make great profits, and the demand for loans
ceases to expand. Further, the higher rate of interest reduces the price of
many of the securities used as collateral for loans. Business men "who have
counted on renewing their loans at the former rates and for the former amounts
are unable to do so. It follows that some of them are destined to fail." There
follow suspicions regarding the solvency of the banks, runs for cash, forced
curtailment of loans, and exceedingly high rates of interest—in short, the
phenomena of crisis.
The contraction of loans is accompanied by a reduction of deposit currency
and a slower circulation both of money and of checks. Hence prices decline.
Again the rate of interest follows; but just as it was slow to rise so now it is
slow to fall. Then the business men who borrow find that the sluggish adjust17 T. N. Carver, " A Suggestion for a Theory of Industrial Depressions," Quarterly Journal of
May, 1903, pp. 497-500.




Economics,

18

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

ment of interest reduces their profits. Therefore loans, and the deposits based
on loans, contract again. But the shrinking volume of deposit currency causes
a further fall of prices, and once more interest lags behind and renews the
process. Thus the phase of depressions runs cumulatively until at last the
progressive reduction of interest has overtaken the fall of prices. At this
point business men find their profits rising to the normal level. Borrowing
becomes freer, the volume of deposit currency swells, prices start upward, and
the cycle begins afresh.18

14. Johannsen's Theory of "Impair

Savings"

The Neglected Point in Connection with Crises10 which N. Johannsen has
developed is really a point in connection with depressions. Saving, he reminds
us, always threatens to produce " a minus of demand." In periods of prosperity this minus is cancelled by a plus, because the savings are promptly
invested in new construction. But, when a crisis comes, the volume of construction work shrinks. The business men engaged in all branches of " contracting" begin to run behind, and their employees are thrown out of work.
The industries which supply brick, lumber, structural steel, rails, cement, etc.,
promptly suffer a decline in the demand for their products and so also do the
industries which cater to the personal needs of the men dependent upon the
stagnant industries.
What, then, becomes of the current savings which, if times were good, wTould
be invested in construction? Johannsen answers that they are spent largely
in lending upon or in buying property which the men in the stagnant industries
are compelled to mortgage or to sell. Now, when savings are invested in this
fashion, they do not give rise to any plus of demand for fresh products to
cancel the minus of demand which the act of saving creates. In other words,
the savings made in times of depression are largely "impair savings." They
increase the wealth of the savers, but diminish the wealth of the community.
For the act of saving, when unaccompanied by investments which create
demand for goods currently produced, disturbs the equilibrium of production
and consumption and throws the whole business system out of gear.
. . .
if people could be compelled to expend for luxuries such part of their surplus
income as could not find investment [of the demand-producing kind], the
is Irving Fisher, The Purchasing Power of Money (New York, 1911), chapter iv, and chapter xi, §§ 15, 16,
17. Compare the same writer's summary statement of his theory in Moody's Magazine, February, 1909, pp.
110-114, and H. G. Brown's paper " T y p i c a l Commercial Crises versus A Money P a n i c / ' Yale Review, August,
1910.
lo New York, 1908.




MITCHELL: BUSINESS CYCLES

19

depression would at once be brought to an end. There would not then be an
excess of working forces, since they would be absorbed in the production of
luxuries, so far as not employed in new constructions, or for purposes of
replacement."20
III.

T H E METHOD OF INVESTIGATION

Beveridge ascribes crises to industrial competition, May to the disproportion between the increase in wages and in productivity, Hobson to over-saving,
Aftalion to the diminishing marginal utility of an increasing supply of commodities, Bouniatian to over-capitalization, Spiethoff to over-production of
industrial equipment and under-production of complementary goods, Hull to
high costs of construction, Lescure to declining prospects of profits, Veblen to
a discrepancy between anticipated profits and current capitalization, Sombart
to the unlike rhythm of production in the organic and inorganic realms, Carver
to the dissimilar price fluctuations of producers' and consumers' goods, Fisher
to the slowness with which interest rates are adjusted to changes in the price
level.
One seeking to understand the recurrent ebb and flow of economic activity
characteristic of the present day finds these numerous explanations both suggestive and perplexing. All are plausible, but which is valid? None necessarily excludes all the others, but which is the most important? Each may
account for certain phenomena; does any one account for all the phenomena?
Or can these rival explanations be combined in such a fashion as to make a
consistent theory which is wholly adequate?
There is slight hope of getting answers to these questions by a logical process
of proving and criticizing the theories. For whatever merits of ingenuity and
consistency they may possess, these theories have slight value except as they
give keener insight into the phenomena of business cycles. It is by study of
the facts which they purport to interpret that the theories must be tested.
20 I>. 82.

NOTE.—In order to bring out the salient points which differentiate the several theories reviewed above, I
have been obliged to omit much effective detail and all corroborating evidence. In particular most writers
show how the operation of the factors upon which they lay stress is reinforced and quickened by speculation.
Two contributions to this important aspect of the subject deserve especial mention—Petrazycki's book on
speculation and joint-stock companies, and Edward D. Jones's chapter upon the psychology of crises. L. von
Petrazycki, Aktienwcscn und Spckulation, Berlin, 1906; E. D. .Tones, Economic Crises (New York, 1900), ch. ix.
1 have omitted Pohle's interesting attempt to base a theory of crises upon the steady growth of population on the one hand, and the unsteady growth of investment on the other hand, because ho has recently
shifted his emphasis. In 1902 he held that in order to have proper equipment ready for the regular number
of new recruits who are ever joining the industrial ^rmy, it is necessary to produce machines, raw material,
etc.. in larger quantities than the force of old soldiers can use. But the irregularity with which savings are
invested prevents this desideratum from being realized every year. In 1910 he agrees substantially with
Spiethoff, holding that the chief cause of crises is the inequality in the formation of fixed and circulating
capital, adding simply that the economic and social consequences of crises are aggravated by the regularity
with which population increases even in times of depression. Ludwig Pohle, Bcvolkerungsbewcgung,
Kapitalbildung, und pcriodische Wirtschaftskrisen (Gi)ttingen, 1902); 44 Konjunkturschwankungen und Konjunkturberichterstattung," Zcitschrift fur Socialwisscnschaft, Jan., 1910. Neither have I thought it necessary to include
the superficial form of the under consumption theory elaborated by Pierre Vialles in La consommation ct les
crises dconomiqucs (Paris, 1903). Finally, Mr. H. S. Jevons's ingenious attempt to revivify his father's " s u n spot theory'' scarcely affords a convincing explanation of the business cycles with which this book is chiefly
concerned. ( " T r a d e Fluctuations and Solar A c t i v i t y , " Contemporary Review, August, 1909.)




20

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

But the perspective of the invesigation would be distorted if we set out to
test each theory in turn by collecting evidence to confirm or to refute it. For
the point of interest is not the validity of any writer's views, but clear comprehension of the facts. To observe, analyze, and systematize the phenomena
of prosperity, crisis, and depression is the chief task. And there is better
prospect of rendering service if we attack this task directly, than if we take
the round about way of considering the phenomena with reference to the
theories.
This plan of attacking the facts directly by no means precludes free use
of the results achieved by others. On the contrary, their conclusions suggest
certain facts to be looked for, certain analyses to be made, certain arrangements to be tried. Indeed, the whole investigation would be crude and superficial if we did not seek help from all quarters. But the help wanted is help
in making a fresh examination into the facts.
It is not feasible to make a study of all the crises listed in the monographs.
Not only is the field too extensive to cover thoroughly, but the recorded information is also too vague, too much confined to the dramatic events of the crises,
and too scanty concerning the intervening phases of depression and prosperity.
Whatever chance there may be of bettering the work already done lies in
securing data more full and more precise than the data heretofore employed.
The minute examination of a few business cycles therefore promises better
results than a general survey of many. Hence attention will be concentrated
upon those cycles concerning which the fullest and most exact knowledge is
available—the cycles of the last two decades. By including England, Germany,
and France, as well as the United States, a sufficient number of cases can be
had to warrant generalizations.
The materials most important for such an investigation are the current
reports of business periodicals and the statistical records of business activities.
Most stress must be laid upon the latter; for the problems to be dealt with are
largely problems of the relative importance of different factors, or of the
general trend of diverse fluctuations. Quantitative analysis of the phenomena
is needed quite as much as qualitative analysis. Since in his efforts to make
accurate measurements the economic investigator cannot devise experiments,
he must do the best he can with the cruder gauges afforded by statistics.
At best, the study of statistical tables is a tedious task. In the present case
the task is also long, because there are so many phases of economic activity
to be looked into. But the figures may possess some measure of interest and
meaning from the outset, if they appear as details of a larger system. Accordingly, the statistical chapters are prefaced by a sketch of the modern form of
economic organization and of the rhythmical alternations of expansion and
contraction which have run their course in the world of business since 1890.




C H A P T E R II

TIIE ECONOMIC ORGANIZATION OF TODAY
I . MONEY ECONOMY

Money economy is one of the ancient institutions which after a checkered
history has attained its fullest development in our own day under the influence
of machine production and railway transportation. The essential feature of
this institution is not the use of money as a medium of exchange; but the fact
that economic activity takes the form of making and spending money incomes.
Instead of producing the goods their families require, men "make money,"
and with their money incomes buy for their own use goods made by unknown
hands. The exceptions to this rule presented by the domestic labors of housewives, by the raising of vegetables in kitchen gardens, by agricultural leases
for shares in the crops, etc., are the last survivals of an earlier economic order
in which villagers relied chiefly upon goods produced by their own efforts, and
themselves consumed most of what they made.
The economic comfort or misery of a modern family, accordingly, depends
not upon its efficiency in making useful goods and its skill in husbanding supplies, but upon its ability to command an adequate money income and upon
its pecuniary thrift. Even in years when crops are short and mills are idle,
the family with money need not go cold or hungry. But the family without
money leads a wretched life even in years of abundance. To the single family,
then, prosperity and depression appear not as problems of the adequacy of the
goods produced, but as problems of the adequacy of money income.
To the nation the making of money is important in a fashion quite different.
Comfort and misery do not depend upon the aggregate of money incomes
received by its citizens; they do depend upon the abundance of useful goods.
Efficiency in producing useful goods is important to an individual chiefly
because it enhances his ability to make money; money-making is important to
a nation chiefly because it enhances the efficiency of production. Natural
resources, mechanical equipment, and industrial skill are factors of fundamental importance under any form of economic organization. But where
money economy dominates, natural resources are not developed, mechanical
equipment is not provided, industrial skill is not exercised, unless conditions
I




[21]

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

22

are such as to promise a money profit to those who direct production. The
elaborate cooperative process by which a nation's myriad workers provide for
the meeting of each other's needs is thus brought into precarious dependence
upon factors which have but a remote connection with the material conditions
of well-being—factors which determine the prospects of making money.
II.

T H E BUSINESS

ENTERPRISE

For purposes of making money men have gradually developed the modern
business enterprise—an organization which seeks to realize pecuniary profits
upon an investment of capital, by a series of contracts for the purchase and
sale of goods in terms of money.1 These goods usually belong to one of three
classes: commodities; services, such as labor and transportation; or rights, such
as bank credits, securities, and insurance.
1. Uneven Development of Business Enterprise in Various Fields
Business enterprises of the full-fledged type have come to occupy almost
the whole field in finance, wholesale trade, railway and marine transportation.
They dominate mining, lumbering and manufacturing. In retail trade they
play an important role, and in agriculture they have secured a foothold—for
example, in sugar, coffee, and rubber plantations, in market gardens, nurseries,
dairies, and the like. One may even regard the independent craftsman in his
repair shop, the small retailer, and the farmer as conducting business enterprises; for all these classes are learning to apply business methods, and to
think of themselves as making a profit rather than as earning a livelihood.
The professions also are being invaded by the spirit of business enterprise.
Many newspapers seem to be managed with an eye single to profit; not a few
legal, dental, and medical offices rest under a like suspicion. But, despite this
wide extension of business aims and methods, there still remain broad differences of degree between the enterprises typical of the several fields of effort.
In size, in complexity of organization, in dependence on the money market, in
singleness of business aim, the typical farm, small retail store, handicraft shop,
and professional office are not equal to the typical corporate enterprises of
wholesale trade, transportation, manufacturing, lumbering, mining, and finance.
The highly organized enterprises of the latter fields constitute the world of
business par excellence.
In the study of business cycles this uneven development of business organization in different fields is highly important. For it is within the circles of
full-fledged business enterprise that the alternations of prosperity and depression appear most clearly, and produce their most striking effects. Practically
i Compare W. Sombart, Der moderne Kapitalismus, vol. I, p. 195.




MITCHELL: BUSINESS CYCLES

23

all of the writers whose theories of crises have been reviewed agree tacitly
or explicitly upon this point. They deal primarily with what goes on in the
centers of commerce, industry, and finance. Branches of production and trade
which are not organized in elaborate business enterprises are much less
susceptible both to the stimulus of prosperity and the inhibition of depression.
In country districts, for example, the pace of activity is subject to seasonal
but not to cyclical changes such as occur in factory towns. The far/ners are
never thrown out of work, except by bad weather, and they are never overrushed except by seed-time and harvest. In other words, the scope and the
intensity of prosperity and depression appear to depend upon the extent and
the perfection of business organization. The condition of the inner world of
business, indeed, affects powerfully, and is powerfully affected by, what goes
on among the outside masses of producers and distributors; but the inner world
always remains the focus of interest.
2. The Interdependence of Business Enterprises
Not less important for the study of business cycles is the thoroughgoing
interdependence of business enterprises. For the accountant's purpose each
enterprise may be treated as a separate unit; but for the economist's purpose
all enterprises are so bound to each other by industrial, commercial, and financial ties that none can prosper and none can suffer without affecting others.
As a plant concerned with the handling of commodities, the typical enterprise is one cog in a great machine. Our industries are carried on by sets of
nominally independent plants which pass on goods to each other in serial
succession. For example, one series embraces wheat-growers, grain-carrying
railways, elevators, Hour mills, wholesale dealers in provisions, bakeries, and
retail distributing agencies. Each set of members in such a series is dependent upon the preceding set for its chief supplies and upon the succeeding
set for its chief vent. The wheat, the flour, and the loaves flow through the
successive sets of enterprises in a ceaseless river, though the volume of the flow
is not steady. Further, no industrial series is self-sufficing, even as a whole.
Each set of enterprises in our example, from the farms to the retail agencies,
is industrially dependent on other industrial series which equip it with
buildings, machines, fuel, office supplies, etc. A peculiar degree of mutual
dependence exists between the whole mass of industries on the one hand, and
the railways on the other hand. Coal mining and the steel trade also touch
practically every industrial establishment in one way or another. So far has
the process of industrial differentiation and integration been carried that "the
whole concert of industrial operations is to be taken as a machine process,
made up of interlocking detailed processes, rather than as a multiplicity of
mechanical appliances each doing its particular work in severalty."2
2 VebleD, Theory of Business Enterprise, p. 7.




MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

24

Since the continuous flow of goods through the successive sets of enterprises
which form interlocking series, and the transfers of goods between enterprises
belonging to different industries, are maintained by contracts of purchase and
sale, there is no need to enlarge upon the commercial aspect of the interrelations. Each enterprise is affected by the fortunes of its customers, its
competitors, and the purveyors of its supplies.
Financial interdependence is also in part but another aspect of the industrial and commercial bonds. Complicated relationships of debtor and creditor
arise from the purchase and sale of goods upon credit, and make the disaster
of one enterprise a menace to many. On this financial side the banks bear a
relation to all other enterprises like that which the railways bear on the industrial side; for all enterprises buy bank credit much as they buy transportation.
As a serious congestion of traffic applies the brake to industrial operations,
so the inability of banks to lend applies the brake to business dealings. But
there is a less obvious type of financial relationship which is rapidly assuming
importance. The corporate form of organization makes easy the acquisition
of a common ownership in enterprises nominally independent of each other.
The same capitalist or coterie of capitalists often owns a large or even a controlling interest in companies doing different kinds of business, or the same
kind in different places. Thus the selling agent may acquire an interest in
the factory whose output he handles; the manufacturer may manage his own
retail stores or check competition by buying stock in a rival company, or secure
his own raw materials by taking over a mine; the great capitalist may invest
in steel and real estate, in railways and banks, in newspapers and hotels. Thus
also we have our "chain" shops, "chain" banks, "chain" newspapers, "chain"
theatres, "chain" lumber-yards, and the like. Often the alliance is made closer
yet by one corporation buying stock in rival or tributary companies. The
scale which such relations have assumed is shown by the Interstate Commerce
Commission's report upon the intercorporate relationships of American railways. On June 30, 1906, the par value of railway stocks outstanding was
8,884 million dollars, of wrhich the railways themselves held 4,115 millions. In
addition, they held 323 millions of stock in other than railway enterprises.3
3. Pecuniary versus Industrial Factors in Business

Prosperity

A business enterprise may participate directly or indirectly in the work
of providing the nation with useful goods, or it may not. For there are divers
ways of making money which contribute nothing toward the nation's welfare,
and divers ways which are positively detrimental to future welfare. But,
for the understanding of prosperity and depression, it is more important to
observe that even the enterprises which are most indubitably making useful
3 Intercorporate
9 and 48.




Relationships of Railways in the United States as of June 30, 1906. Special Report no. 1, pp.

MITCHELL: BUSINESS CYCLES

25

goods do so only so far as the operation is expected to serve the primary business end of making profits. Any other attitude, indeed, is impracticable under
the system of money economy. Only government and philanthropy can afford
to make public welfare their first consideration. For the man who allowed
his humanitarian interests to control his business policy would soon be forced
out of business. From the business standpoint the useful goods produced or
helpful services rendered are merely by-products of the process of earning
dividends. It follows that a theory of modern prosperity must deal primarily
with business conditions—with the pecuniary aspect of economic activity.
The practice has long prevailed among economists of neglecting this aspect
on the ground that money is merely a symbol, the use of which makes no
difference, save one of convenience, so long as the monetary system is not out
of order. The economists have looked beneath "the money surface of things"
to the labor and goods, or the sacrifices and utilities, which they assumed to
be the matters of real concern.4 When applied to the theory of crises, this
practice has diverted attention from the difficulties of business to the difficulties
of industry, as if the latter were the fundamental source of economic ills. Thus
"over-production" has sometimes been represented as if it were a chronic disorder of the factory system as such, which periodically infects the business
world and causes an epidemic of bankruptcies.
Such a view confuses the investigation of crises because it obscures the
relations between industry, commerce, and business. The industrial process of
providing and transporting goods, the commercial process of collecting and
redistributing them, and the business process of making money are measurably
distinct, although they run side by side and are largely concerned with the same
commodities. For the well-being of the community, efficient industry and
commerce are vastly more important than successful money-making. A business panic which did not interrupt the making and distributing of wares desired
by the community would be no great disaster. But the wliip-hand among these
three processes belongs none the less to business, since the very men who as
manufacturers and merchants provide for the common welfare base their
operations on the prospect of money profits. In practice, industry and commerce are thoroughly subordinated to business.
To be sure, business prospects are constantly influenced by changes in
industry and commerce. A new invention may have important economic consequences ; but not unless it reduces costs, alters selling prices, or in some other
way affects the pecuniary calculations of business men. Likewise a change
of commercial centers or methods may stimulate or depress business in a given
district. Such technical changes, indeed, are among the important factors
which business men, take into consideration in laying plans. In so far forth
they become important factors for the student of crises. It is not the disturb* Compare Wesley C. Mitchell, " T h e Rationality of
March, 1910, pp. 205-215.




Economic A c t i v i t y / ' Journal of Political

Economy,

26

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

ances which they produce directly in the production and distribution of goods,
however, which gives them weight as causes of prosperity or depression, but
the indirect influence which they exercise upon business.
In fine, business cycles get their economic interest from the changes which
they produce in the material well-being of the community. This well-being
depends upon the production and distribution of useful goods. But the industrial and commercial processes by which goods are furnished are conducted
by business men in quest of profits. Thus the changes which affect the community's well-being come, not from the processes which directly minister to it,
but from the process of making money. So thoroughly is this the case that
changes in the technique of industry and commerce affect the community primarily by stimulating or retarding business activity and then working back
to alter the volume of goods provided for social consumption. Accordingly,
the conclusion holds that an investigation into the ebb and flow of contemporary
economic activity must concern itself primarily with the phenomena of business
traffic—that is, of money-making.5
4. Factors Affecting Pecuniary

Profits

Business prosperity, in its turn, depends upon the factors which control
present and prospective profits, together with present and prospective ability
to meet financial obligations. Profits are made by connected series of purchases and sales—whether in commerce or manufacture, farming or mining.
Accordingly the margins between the prices at which goods can be bought and
sold are the fundamental condition of business prosperity. Closely connected
with, and in large measure dependent upon, price-margins is the other great
factor—the volume of transactions effected.
Just as the ever recurring changes within the system of prices affect business prosperity and through it national welfare, so do changes in national
welfare and business prosperity react upon prices. A period of business
expansion causes an interminable series of readjustments in the prices of
various goods. These readjustments in their turn alter the pecuniary prospects
of the business enterprises which buy or sell the commodities affected, and
thereby start new changes in business prosperity. With the latter changes the
process begins anew. Prices once more undergo an uneven readjustment, prospects of profit become brighter or darker, business prosperity waxes or wanes,
prices feel the reflex influence of the new business situation,—and so on without end.
s Practically all the recent theories rest tacitly upon this basis., Veblen is explicit upon the point:
of Business Enterprise, pp. 177-182.




Theory

MITCHELL: BUSINESS CYCLES

27

I I I . T H E SYSTEM OF PRICES

The prices ruling at any given time for the infinite variety of commodities,
services, and rights which are being bought and sold constitute a system. That
is, these prices are so related to each other as to make a regular and connected
whole.
1. The Prices of Consumers' Commodities
The prices which retail merchants charge for consumers' commodities
afford the best starting-point for a survey of this system. These prices are
loosely connected with each other; for an advance in the price of any commodity usually creates an increased demand for other commodities which can
be bought as substitutes in certain if not all of its uses, and thus creates business
conditions which favor an advance in the prices of these substitutes.
But retail prices are more closely related to the prices for the same goods
which shop-keepers pay to wholesale merchants, and the latter to manufacturers. Of course, this series of prices for consumers' commodities often has
more or less than three members, because of the intervention of more than one
wholesale or jobbing house or of an importer in the regular traffic, or because
of direct selling by manufacturers to retail merchants or even to consumers.
There is wide diversity also in the margins between the successive prices in
the series. These margins are usually wider in retail than in wholesale trade;
wider on goods limited in sale, perishable, requiring a large assortment for
selection, subject to changes in fashion or in season, than on durable staples;
wider when the manufacturer sells directly to the consumer than when wholesale and retail merchants intervene; wider when a monopolist can fix prices
in his own favor than under conditions of keen competition, etc. But these
diversities are themselves measurably regular, so that the margins between the
successive prices in the series for each kind of commodities forms a tolerable
business basis for making profits out of the process of supplying the community with the goods it habitually uses.
2. The Prices of Producers' Goods in Relation to the Prices of Consumers'
Commodities
The business men engaged in squeezing money profits out of these pricemargins are seldom able to keep the whole difference between selling and buying
prices. From retailers back to manufacturers they require various commodities, services, and rights for the efficient conduct of their operations. For
such producers' goods they have to pay out prices which eat into the profit-




28

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

margins on the consumers' goods in which they deal. The most important
classes of these producers' goods are commodities such as raw materials and
current supplies, buildings with proper machinery or other equipment, manual
and mental labor, loans, leases, transportation, insurance, and advertising.
To merchants, the prices paid for all these producers' goods are important
factors in fixing the margins between the buying and selling prices of the consumers' goods in which they deal. But, save in the case of transportation and
certain kinds of labor, it is difficult to connect directly the prices which figure
as costs with the margins upon which particular commodities change hands.
For the cost prices of the other producers' goods are usually paid for the
pecuniary advantage of the enterprise as a wrhole, and the accruing benefits
extend to many transactions and often cover a long time. The like is true of
manufacturers, with this modification, that they often regard the margins
between the prices of their chief raw materials and their leading products
much as merchants regard the margins between the buying and selling prices
of their staple wares. That is, manufacturers often think of the difference
between these particular prices as the margin on which they deal, and from
wThich the costs of their other producers' goods must be deducted in figuring
net profits.

3. The Prices of Producers' Goods in Relation to Antecedent

Prices

With the exception of labor, producers' goods are provided, like consumers'
goods, chiefly by business enterprises operating on the basis of margins between
buying and selling prices. Hence the price for any given producers' good is
related not only to the prices of the consumers' goods in the manufacture or
distribution of which it is used, but also to the prices of the various other
producers' goods employed in its own manufacture and distribution. Thus
the prices of producers' goods do not form the ends of the series of price
relationships, but the beginnings of new series of relationships which run backward with countless ramifications and never reach definite stopping points.
Even the prices of raw materials in the hands of the ultimate producers are
related intimately to the prices of the labor, current supplies, machinery,
buildings, land, loans, leases, etc., which the farmers, miners, lumbermen, etc.,
employ.
Concerning the prices of such producers' goods as consist of material commodities no more need be said. And most of the less tangible services—loans,
transportation, insurance—require but a word. They are the subjects of an
organized business traffic in which price margins are computed on the same
general principles as prevail in the buying and selling of commodities. Therefore, the prices charged by the bank, the railway, and the insurance company




MITCHELL: BUSINESS CYCLES

29

are systematically related both to the prices which these enterprises must pay
for their own producers' goods and to the prices of the wares dealt in by the
enterprises which borrow money, ship goods, and carry insurance.
The price of labor may seem to bring the series to a definite stop at least at
one point. For, in most cases, the laborer or his union deals directly with
the employer or his association, and the laborer does not have a business attitude toward the production of his own energy. But the price which the laborer
can command is indubitably connected with the prices of the consumers' goods
which established habit has made into a standard of living. At this point,
therefore, analysis of the interrelations between prices brings us not to a full
stop, but back to our starting-point,—the prices of consumers' commodities.

4. The Priccs of Business Enterprises
Besides the prices of consumers' commodities, of raw materials, and of
other producers' goods, we must take account of the prices of business enterprises themselves. Occasionally established business enterprises are sold outright as running concerns. Promoters are also constantly offering new business schemes, or reorganizations of old enterprises for sale. But the most
important transactions of this class are stock-exchange dealings in the shares
of joint-stock companies. That the prices of whole business enterprises or of
shares in them are intimately related to the prices which have been discussed
is clear; for these prices depend primarily upon present and prospective profits,
and profits depend primarily upon price-margins and the volume of business
transacted.

5. The Prices of Services to Persons
There remains one other division of the system of prices—a division which
has much in common with the prices of consumers' goods on the one hand and
with the prices of labor as a business adjunct on the other hand. It consists
of the prices of the heterogeneous services rendered to persons as such—not
to business enterprises. Here belong the prices of domestic service, medical
attendance, much instruction, many forms of amusement, etc. The furnishing
of such services presents a certain contrast to the business traffic in consumers'
goods, materials, machinery, loans, transportation, etc. For systematic organization has not been developed to so high a point, business motives do not have
such unrestricted scope, and the wares are not standardized in equal measure.




30

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

Moreover, the prices which people are willing to pay for such services are
based on personal needs and personal income, rather than on closely calculated
chances of profit. The prices of these services therefore form the most loosely
organized and irregular division of the system of prices.8
6. The Interrelations between Prices
The value of this classification of prices is that it assists in seeing the
relations which bind all prices together and make of them a system. The close
relations between the prices of consumers' commodities, materials, business
adjuncts of all kinds, and of business enterprises are sufficiently clear, and
enough has been said about the looser bonds which unite the prices of services
to persons with the larger field of business traffic. But several other lines of
relationship should be indicated more definitely.
(1) On the side of demand almost every producers' or consumers' good has
its possible substitutes in certain or in all uses. Through the continual shifting
of demand, changes in the price of one commodity are often communicated to
the prices of its substitutes, from the latter to the prices of their substitutes,
and so on. An initial change, however, usually becomes smaller as it spreads
out in these widening circles.
(2) Similarly, on the side of supply, almost every good has genetic relationships with other goods, made of the same materials, or supplied by the
same set of enterprises. Along these lines also price-changes may spread over
a wide field. Particularly important because particularly wide are the genetic
relationships based upon the use of the same producers' goods in many lines
of trade. Floating capital most of all, in somewhat less degree transportation
and certain general forms of labor, current supplies, machinery and plant, not
to mention the less important insurance and advertising, enter into the cost of
s A tabular survey may assist in getting a general view of the system of prices:
Prices of consumers' commodities charged b y : Eetail dealers
Wholesale dealers
Manufacturers
Prices of producers' goods: Raw materials
Current supplies
Machinery
Buildings, etc.
Leases
Labor
Bank loans
Investment loans
Transportation
Insurance
Advertising
Prices of business enterprises.
Prices of services to persons.
Behind the prices of each group entered in this classification stands an equally complex array of antecedent
prices, and between the several groups exist interrelations too intricate to be set forth in tabular form. •




MITCHELL: BUSINESS CYCLES

31

most commodities. Accordingly, a changed price established for one of these
common producers' goods in any important use may extend to a great diversity
of other uses, and produce further price disturbances without assignable limits.
(3) Closely connected with this genetic relationship through common producers' goods is the relationship through business competition, both actual and
potential. Insofar as effective competition exists, a state of price-margins
which makes any one trade decidedly more or less profitable than other trades
in the same market area cannot long maintain itself. For sooner or later the
influx or efflux of capital so changes the supply of the commodities concerned
as to restore a balance on the basis of cost prices.
(4) Present prices are affected by prices of the recent past and the anticipated prices of the near future. Indeed, present prices are largely determined
by past bargains, which established time contracts. Thus the price system has
no definable limits in time. No analysis can get back to the ultimate term in
the endless series of bargains which helped to make the prices of the present.
(5) Nor has the system of prices any logical beginning or end. At whatever point analysis may start to follow the interlocking links, to that point will
analysis come again if it proceeds far enough. The above analysis, for example,
began with the prices of consumers' goods at retail. These prices are paid
out of personal incomes. But these incomes are themselves aggregates of prices
received for labor, for the use of loan funds, or for the use of rented property;
or they are aggregates of the net price-margins which yield profits. Thus the
system of prices is an endless chain.

7. The Role of Prices in Economic Life
Prices, then, form a system—a highly complex system of many parts connected with each other in diverse ways, a system infinitely flexible in detail
yet stable in the essential balance of its interrelations, a system like a living
organism in its ability to recover from the serious disorders into which it
periodically falls.
The most significant fact about the system of prices, however, is the function
it performs in the economic life of nations. It serves as a social mechanism
for carrying on the process of providing goods. For prices are the means
which make possible the elaborate exchanges, and the consequent specialization,
which characterize the modern world. They are the source from which family
income is derived, and the means by which goods are obtained for family consumption; for both income and cost of living—the two jaws of the vice in
which the modern family is squeezed—are aggregates of prices. Prices also
render possible the rational direction of economic activity by accounting, for
accounting is based upon the principle of representing all the heterogeneous




32

MEMOIRS

OF

THE UNIVERSITY

OF

CALIFORNIA

commodities, services, and rights with which a business enterprise is concerned
in terms of money price. Most important of all, the margins between different
prices within the system hold out that hope of pecuniary profit, which is the
motive power that drives our business world.
IV.

T H E G U I D A N C E OF E C O N O M I C

ACTIVITY

1. The Role Played by Technical Experts
The making and distributing of goods by the elaborate modern methods
requires highly skilled direction. On the technical side the work is planned
by and executed under the supervision of civil, mechanical, mining, and electrical engineers, designers, industrial chemists, "efficiency experts," etc. These
are the men who know how to extract raw materials, refine and manufacture
them, devise and operate machinery, organize working forces,—in short, the
men who know how to secure the physical efficiency of economic effort. By
applying the results and the methods of science to the every day work of the
world, they have led the rapid advance in the technique of production of which
we feel so proud.
2. The Role Played by Enterprisers9
But in no country in the world are these technical experts allowed free
scope in directing the work of providing material goods. Higher authority
is assigned by the money economy to another class of experts, business men
who are skilled not in making goods, but in making money. As an employee
of the business man, the engineer must subordinate his interest in mechanical
efficiency to his superior's interest in profitable investment. The chief role in
directing what use shall be made of the country's natural resources, machinery,
and labor is therefore played by its enterprisers.
But who and what are these enterprisers ? The classical economists assumed
that there stood at the head of the typical business enterprise a capitalistemployer, who provided a large part of the capital invested, assumed the
pecuniary risk, performed the "work of superintendence," and pocketed the
profits. Many enterprisers of this versatile type remain today; but the extraordinary growth in size and influence of the joint-stock company has given
greater prominence to another form of business management.
The large corporation, dominant in the business of today, is owned by a
miscellaneous and shifting body of stockholders. The funds required for fixed
investment are usually provided in some measure by these owners, but in larger
o Among the various aliases under which the old "capitalist-employer" and his successors pass today,
" e n t e r p r i s e r " seems the least objectionable. It is an old English word, recently brought back into use at
almost the same time by F. A. Fetter, Principles of Economics (New York, 1904), and by H. Stanley Jevons,
Essays on Economics (London, 1905).




MITCHELL: BUSINESS CYCLES

33

part by bondholders, who may or may not own shares as well as bonds. The
chief pecuniary risks are borne by the shareholders, but ordinarily under provisions which limit their liability to the sums which they have put into their
shares. The work of management is largely dissociated from ownership and
risk. The stockholders delegate the supervision of the corporation's affairs
to a committee—the directors—and the directors turn over the task of administration to a set of general officers. The latter are commonly paid fixed
salaries, though they may receive in addition a percentage of the profits, or
hold stock in their own right.
In such an organization it is difficult to find anyone who corresponds closely
to the capitalist-employer. Certainly the typical stockholder, who takes 110
part in managing the corporation beyond sending in his proxies to be voted at
the annual meeting, does not fill the bill. Neither does the typical director,
who confines such attention as he may give the corporation's affairs to passing on questions of general policy, selecting officers, criticizing or approving
their reports, and the like. Finally, the general officers, dependent on the
directors, remunerated largely if not wholly by salaries, and practicing among
themselves an elaborate division of labor, have no such discretion and carry
no such risk as the capitalist-employer. The latter, in fine, has been replaced
by a "management," which includes several active directors and high officials,
and often certain financial advisers, legal counsel, and large stockholders who
are neither directors nor officials. It is this group which decides what shall
be done with the corporation's property.
I11 other cases, however, a single enterpriser dominates the corporation, and
wields full authority. The stockholders elect his candidates to office, the
directors defer to his judgment, the officials act as his agents. His position
may be firmly entrenched by outright ownership of a majority of the voting
shares, 01* may rest upon personal influence over the owners of voting shares
sufficient to carry elections. In these "one-man" corporations the theoretical
division of authority and function becomes a legal fiction. Practically, the
dominating head of affairs, who may not be an officer or even a director, corresponds to the old capitalist-employer, except for the fact that he furnishes
a far smaller proportion of the capital, carries a far smaller proportion of the
pecuniary risk, and performs a far smaller proportion of the detailed labor
of superintendence. These limitations do not restrict, but 011 the contrary
enhance his power, because they mean that the individual who "owns the
control," or dominates those who own it, can determine the use of a mass of
property and labor vastly greater than his own means would permit.
Thus, while the corporate form of organization has made a theoretical
division of the leadership of business enterprises among several parties at
interest, it has also made possible in practice a centralization of power. The
great captains of finance and industry wield an authority swollen by the capital




34

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

which their prestige attracts from thousands of investors, and often augmented
still further by working alliances among themselves. Among the enterprisers
of the whole country, this small coterie exercises an influence out of proportion
not only to their numbers but also to their wealth. The men at the head of
smaller enterprises, while legally free to do as they will with their own, find
their field of initiative limited by the operations of these magnates.
Another result of the rise of large corporations controlled by one or by a
few individuals is that the latter have an opportunity to make money for themselves at the expense of the enterprise itself, or at the expense of the other
parties at interest. By giving lucrative contracts to construction or repair
companies in which they are interested, by utilizing their advance information
of the corporation's affairs for speculation in the prices of its shares, by rigging
its accounts for the same purpose, by making loans or granting secret rebates
to other enterprises in which they are interested, and by other shifts, it is often
possible for an inner ring to make profits out of wrecking the corporation or
defrauding the outside holders of stock and bonds. Of course such temptations
are resisted in the great majority of cases, but scandals of this kind occur
with sufficient frequency to invalidate the easy assumption that every business
enterprise is managed to make money for the whole body of its owners.
Within the class of enterprisers there has gradually been differentiated a
special set, which plays an exceptionally active role in guiding economic activity
—promoters. The promoter's special province is to find and bring to the attention of investors new opportunities for making money: new natural resources
to be exploited, new processes to be developed, new products to be manufactured, new organizations of existing business enterprises to be arranged, etc.
But the promoter is seldom more than an explorer who points out the way for
fresh advances of the army of industry. When an enterprise of his imagination has been organized and begun operations, the promoter does not often
retain the leadership for long. As permanent officers men of more cautious
temper and more systematic habits commonly take command.
3. The Hole Played by Lenders
The enterprisers, indeed, do not have unlimited discretion in deciding what
use shall be made of the available resources, equipment, and labor. In matters
of importance their decisions are subject to review by a higher court. For
most business projects require the use of funds borrowed from banks, large
capitalists, or from the investing public, and this fact gives the lenders an
effective veto power over proposals which do not meet their approbation.
Whenever an enterpriser applies to an individual capitalist to take an
interest in some project, to a bank to discount his notes, or to the investing
public to buy bonds, he must satisfy the lenders of his ability to keep up the



MITCHELL: BUSINESS CYCLES

35

interest and to repay the principal. Even when the applicant can provide
collateral security for the loan, and obviously when lie cannot, the lender's
decision depends largely upon his own judgment regarding the business prospects of the intended venture. To aid their officers in forming intelligent
decisions, banks are coming to require applicants for loans to make on standard forms systematic statements of their financial standing and projects. In
addition, the banks and the houses which grant mercantile credits subscribe
to commercial agencies and maintain credit departments of their own for the
purpose of collecting and classifying information about the business standing
and prospects of their customers. Similarly, corporations which offer bonds
or stocks for sale find it advisable to publish advertisements and circulars
setting forth their financial condition, the purposes for which money is being
raised, and the anticipated profitableness of the extensions in view. Affidavits
from certified public accountants, legal counsel, and consulting engineers are
often appended to lend these statements greater force.
The review of the projects of enterprisers by lenders, then, is 110 perfunctory
affair. Nor is its practical influence upon the guidance of economic activity
negligible. There are always being launched more schemes than can be financed
with the available funds. I11 rejecting some and accepting others of these
schemes, the men of money are taking a very influential though not a very
conspicuous part in determining how labor shall be employed, what products
shall be made, and what localities built up.
Not all lenders, however, are able to make intelligent decisions. The great
mass of small investors and not a few of the large lack the experience or the
ability to discriminate wisely between profitable and unprofitable schemes.
Many such folk put their money into savings banks, rely upon the advice of
friends who are better equipped, consult with their bankers, take counsel from
the financial press, or follow what they suppose to be the lead of some conspicuous figure in high finance. Not being able to obtain from impartial sources
or personal examination the data necessary for forming an independent judgment, they cannot work out their problems along strictly rational lines. Hence
they are peculiarly subject to the influence of feeling in matters where feeling
is a dangerous guide. The alternating waves of overconfidence and unreasoning timidity which sweep over the investment market are among the most
characteristic phenomena of business cycles. Even those who are looked to
for advice are not wholly immune from the contagion of emotional aberration.
It follows that the guidance of economic activity by the investing class is not
strictly comparable with the intelligent review of plans by competent experts.
A more vigorous and more intelligent leadership is exercised by the larger
capitalists. They excel the investing public not only in means of securing
information and in business sagacity, but also in ability to control conditions.
The greatest lenders become perforce much more than lenders. Over the




36

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

enterprises in which they embark large sums they must keep watchful eyes.
They support the prices of their securities on the stock market, seek to maintain
profitable connections with customers and financial institutions, keep informed
concerning the business of competitors, arrange consolidations, plan dividend
disbursements, and the like—in short, care for all the varied financial interests
of the enterprises in which their fortunes and their prestige are at stake. On
the highest levels of business success, indeed, the functions of the investor and
the enterpriser merge into each other. The great capitalist becomes a great
promoter. He not only vetoes schemes, but forms them and sees that they are
carried out.

4. The Role Played by Government
A fundamental difference of principle sets off the role played by government in guiding economic activity from that played by business enterprises.
While business enterprises aim at making money, government aims at securing
public welfare.
Notoriously, this broad difference of principle is sadly blurred in practice.
Even in the most democratic countries, public welfare is not always the ruling
passion of the men elected to office. Besides, public welfare remains so vague
a concept as to leave wide room for differences of opinion about the relative
value of rival policies proposed for its promotion. Moreover, among the
citizens of a money economy the habit of applying pecuniary tests and accepting
pecuniary standards gives a strong commercial flavor to their very statesmanship. Finally, government is forced to pursue its social ends largely by business methods. It must count the cost even when it cannot count the gains of
what it does in dollars, and by some shift it must raise a money revenue to
defray its money outgo. But, after all the necessary qualifications have been
made, it still holds true that in dealing with economic problems government
keeps closer to fundamental issues than is feasible for business men. Government can consider what needs it is important to satisfy, while business men
must consider what market demand it is profitable to supply or profitable to
create.
Were this difference of aim the sole difference between the public and
private guiding of economic activity, society would probably be organized on
the basis of state socialism instead of on the basis of money economy. But
there is this further difference, that government is far less efficient in pursuing
its aim of social welfare than business enterprise in pursuing its aim of making
money. The scope actually accorded to government in managing industry has
been affected no less by apprehension of this shortcoming than by appreciation
of government's function as the guardian of common interests.



MITCHELL: BUSINESS CYCLES

37

The few services which are almost everywhere performed by government
are services in which management for profit is deemed quite incompatible with
public welfare. Schools run for profit would not teach the children of the very
poor; sanitary bureaus run for profit could not force their services upon communities which need attention, etc. The longer list of services which in some
places are assumed by government and in others left to business enterprise fall
mainly into four classes: undertakings like water supply, street cars, and railways which are most economically managed as monopolies and therefore open
to the suspicion of practicing extortion; undertakings like the management of
forests in which the community is interested in conserving sources of supply
over a longer period than competing business enterprises think it profitable to
regard; undertakings like the improvements of rivers and harbors, the reclamation of waste lands, and the building of canals in which the prospects of
profit are not sufficiently bright to attract the requisite amount of private
capital; and undertakings like the salt, tobacco, mining, and lottery monopolies
of Europe which are frankly exploited by government for the sake of raising
revenue.
Over a far wider field, government affects the guidance of economic activity
by trying to prevent the pursuit of private profit from clashing with public
welfare. Factories are required to adopt expensive safeguards for the benefit
of their employees or patrons; they are forbidden to employ the cheap labor
of young children, to keep women at work more than eight hours a day, etc.
Most of these regulations are negative in character; but government also
attempts to direct business enterprise into undertakings which are claimed to
be socially advantageous though unprofitable without assistance from the state.
Protective tariffs upon imports, bounties upon the production of sugar, and
ship subsidies are examples in point.
Still more in general, the whole plan of raising public revenues and deciding
public expenditures, the methods of providing for the public defense and maintaining domestic order, the monetary system and even the form of political
institutions, in short, everything government is and does, influences the direction
of economic activity. For the money economy is so flexible a form of organization that the prospects of profits and therefore the direction of economic
activity by private initiative are affected by a thusand acts of government done
for other than economic ends.
5. The Alleged "Planlessness"

of Production

With technical experts to guide the making of goods, business experts to
guide the making of money, lenders to review all plans requiring large investments, and government to care for the public welfare, it may seem as if the
money economy provides a staff and a procedure adequate to the task of
directing economic activity, vast and difficult as that task may be. This




38

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

impression is strengthened by observing that each class of business leaders is
spurred to efficiency and deterred from recklessness by danger of pecuniary
loss. The engineer who blunders is discharged, the enterpriser who blunders
goes into bankruptcy, the lender who blunders loses his money. Thus the
guides who misdirect the industrial army are always being eliminated from
the number of those who lead. On the other hand, those who succeed are always
being promoted to posts of wider power. The successful engineer is trusted
with larger commissions, the successful enterpriser uses his profits to extend
his business, the successful investor has more money to lend.
With this powerful stimulation of individual efficiency, the money economy
unites an opportunity for cooperation on a grand scale. By paying money
prices, the leaders can enlist the aid of laborers who contribute work of all
kinds, of expert advisers who contribute special knowledge, of landlords who
contribute the uses of their property, and of investors who contribute the uses
of their funds. And all these classes can be made to work in disciplined order
toward the execution of a single plan.
This union between encouragement of individual efficiency and opportunity
for wide cooperation is the great merit of the money economy. It provides a
basis for what is unquestionably the best system of directing economic activity
which men have yet practiced. Nevertheless, the system has serious limitations.
1. The money economy provides for effective coordination of effort within
each business enterprise, but not for effective coordination of effort among
independent enterprises.
The two schemes of coordination differ in almost all respects. Coordination within an enterprise is the result of careful planning by experts; coordination among independent enterprises cannot be said to be planned at all;
rather is it the unplanned result of natural selection in a struggle for business
survival. Coordination writhin an enterprise has a definite aim—the making
of profits; coordination among independent enterprises has no definite aim,
aside from the conflicting aims of the several units. Coordination within an
enterprise is maintained by a single authority possessed of power to carry its
plans into effect; coordination among independent enterprises depends on many
different authorities contending with each other, and without power to enforce
a common programme except so far as one can persuade or coerce others. As
a result of these conditions, coordination within an enterprise is characterized
by economy of effort; coordination among independent enterprises by waste.
In detail, then, economic activity is planned and directed with skill; but
in the large there is neither general plan nor central direction. The charge
that "capitalistic production is planless" therefore contains both an important
element of truth and a large element of error. Civilized nations have not yet
developed sufficient intelligence to make systematic plans for the sustenance
of their populations; they continue to rely on the badly coordinated efforts of



MITCHELL: BUSINESS CYCLES

39

private initiative. Marked progress has been made, however, in the skill with
which the latter efforts are directed, and also in the scale on which they are
organized. The growth in the size of business enterprises controlled by a single
management is a gain, because it increases the portion of the field in which
close coordination of effort is feasible.
2. But, as pointed out above, the managerial skill of business enterprises
is devoted to making money. If the test of efficiency in the direction of
economic activity be that of determining what needs are most important for
the common welfare and then satisfying them in the most economical manner,
the present system is subject to a further criticism. For, in nations where a
few have incomes sufficient to gratify trifling whims and where many cannot
buy things required to maintain their own efficiency or to give proper training
to their children, it can hardly be argued that the goods which pay best are
the goods most needed. It is no fault of the individual business leaders that
they take prospective profits as their own guide. On the contrary, they are
compelled to do so; for the men who mix too much philanthropy with business
soon cease to be leaders. But a system of economic organization which forces
men to accept so artificial an aim as pecuniary profit cannot guide their efforts
with certainty toward their own ideals of public welfare. The business management of single enterprises may be admirably systematic in detail; but it is
controlled by no large human purpose.
3. Even from the point of view of business, prospective profit is an uncertain, flickering light. For it has already been shown that profits depend upon
two variables—on margins between selling and buying prices and on the volume
of trade,—related to each other in unstable fashion, and each subject to perturbations from a multitude of unpredictable causes. That the system of prices
has its own order is clear; but it is not less clear that this order fails to afford
certainty of business success. Men of long experience and proved sagacity
often find their calculations of profit upset by conjunctures which they could
not anticipate. Thus the money economy confuses the guidance of economic
activity by interjecting a large element of chance into every business venture.
4. The hazards to be assumed grow greater with the extent of the market
and with the time which elapses between the initiation and the fruition of an
enterprise. But the progress of industrial technic is steadily widening markets,
and requiring heavier investments of capital for future production. Hence
the share in economic leadership which falls to lenders, that of reviewing the
various chances offered them for investment, presents increasing difficulties.
And, as has been shown, a large proportion of these lenders, particularly of
the lenders on long time, lack the capacity and the training for the succesful
performance of such work.
These defects in the system of guiding economic activity and the bewildering
complexity of the task itself allow the processes of economic life to fall into




40

MEMOIRS OF T H E UNIVERSITY OF CALIFORNIA

those recurrent disorders which constitute crises and depressions. Much
patient analysis, however, is required to discover just how these disorders arise,
and why, instead of becoming chronic, they lead after a time to the return of
prosperity.

Y.

INTERNATIONAL DIFFERENCES IN ECONOMIC ORGANIZATION

1. The Fundamental Similarity of Organization
In its broader features, the economic organization of the United States,
England, France, and Germany is substantially the same. Money economy
prevails in all four countries. In each the business enterprise is the dominant
form of organization for making money, and in each the business enterprises
engaged in wholesale trade, manufactures, mining, lumbering, transportation,
and finance show a higher degree of development than the business enterprises
engaged in handicraft, petty trade, farming, and the professions. Everywhere
the business enterprises, though nominally independent, are so bound together
by industrial, commercial, and financial bonds that "the injury of one is the
concern of all." Everywhere the making of goods is subordinated to the
making of money, so that economic welfare depends on the prosperity of business. Everywhere economic activity is directed by technical experts, enterprisers, investors, and governments, and everywhere there exists the same
combination of careful planning within each business enterprise and lack of a
general plan for the guidance of all enterprises. Finally, the organization of
the system of prices and its role in the business world, the influence on profits
exercised by the volume of trade and the factors which condition it, the
character of the means of payment in use, and the dependence of business upon
savings and investment are much the same in Western Europe as in North
America. The framework of economic culture, in short, belongs to no one
country.
But this substantial uniformity of general scheme does not preclude a
myriad of differences in detail. Those of chief moment for the theory of
business cycles appear to be the following.
2. The Relative Importance of Different

Industries

A larger proportion of the English population is engaged in manufacturing
industries than in any of the other countries, and conversely a smaller proportion is engaged in agriculture. Hence the business prosperity of England
depends less on the prosperity of her farmers than is the case in France,



MITCHELL: BUSINESS CYCLES

41

Germany, or the United States.10 On the other hand, foreign commerce is
greater both relatively and absolutely in England than in our other countries,
and consequently English business cycles are affected in exceptional degree by
the state of foreign markets.
3. Thrift and Enterprise
The French have decidely less of the spirit of business enterprise than the
Americans, English, or Germans. Their railways could not be built without
a state guarantee of dividends; their merchant marine relies on bounties; their
great credit companies, founded largely for the establishment of new enterprises, have gone over to the less hazardous business of accepting deposits and
handling investments for customers; their private banks are concerned mainly
with transactions in foreign exchange and short-time credits. The Frenchman
has less liking than the men of the other countries for the game of business.
He aims to secure a competency by thrifty conduct of business along familiar
lines, and then to retire and invest his accumulations in rentes. Hence French
business does not exhibit striking alternations of prosperity and depression,
and French crises are not severe.11
On the other hand, the French surpass the people of the three other nations
in thrift. In recent years France has displaced England as the world's great
lender. For the relative lack of business enterprise, combined with the enormous aggregate of small savings, provides each year hundreds of millions of
francs which seek investment in foreign securities. And the French exhibit
their characteristic business conservatism in the selection of investments.
Occasionally they may buy freely of speculative stocks, like "Kaffirs"; but
the bulk of their savings goes into public securities, high grade railway and
industrial bonds, or into the stocks which are most firmly established as dividend payers.12
10 The Statistisclics Jahrbuch fiir das Deutsche Reich, 1909, p. 14,* gives a classification of breadwinners
in different countries from which the following figures are taken:

Date

Agriculture, forestry and
Manufactures and mining
Trade and transportation
Other occupations

of census

fishing

United
States
1900

35.9%
24.1
16.3
23.7

100.0

England
and Wales
1901

8.8%
48.0
23.0
20.2

100.0

Franco
1901

41.8%
35.5
9.5
13.2

100.0

German
Empiro
1907

35.2%
40.0
12.4
12.4

100.0

Differences in the methods of classifying occupations adopted in the several censuses make this comparison trustworthy only for the most general conclusions. The American figures for " o t h e r occupations,'' for
example, are unduly large because of the great number of "laborers, not specified"; the French figures for
"Manufactures and mining 11 are swollen and the figures for " T r a d e and transportation' 1 diminished by putting persons engaged in transportation under the former caption, etc.
11 Compare K. Wiedenfeld, " D a s Personliche im inodernen Unternehmertuin, 99 Schmoller's Jahrbuch fiir
Gesetzgebung, 1910, pp. 229-233.
12 Compare, for example, A. Neyinarck, " F r e n c h Savings and their Influence," Publications of the National Monetary Commission (Senate Document, no. 494 61st Congress, 2d Session), pp. 163-181.




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MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

4. Banking Systems and Monetary Habits
Again, the United States has a banking system unlike that of the other
countries. England, France, and Germany each has a great central bank,
sustaining peculiar relations to the public treasury on the one hand and to
the money market on the other hand. Among the other banks a network of
branches has been rapidly developed, partly by amalgamation of independent
institutions, partly by the establishment of new offices. The branches as a rule
depend for their reserves upon the head offices—wrhich are mainly in London,
Paris, and Berlin—and the head offices in their turn carry a large part of their
reserves in the central bank. The latter institution, therefore, bears a heavy
load of responsibility and exercises a corresponding influence upon the policy
of the other banks with reference to discount rates, extension or contraction
of loans, and the like. In this country, on the contrary, there are about 29,000
banks, legally independent of each other, of small average size, and carrying
a much larger percentage of reserves in ready money in their own vaults than
is customary elsewhere. The banks in a country district redeposit a part of
their reserve funds with the larger institutions of their local metropolis, and
the banks of the latter towns in turn make similar redeposits in Chicago, St.
Louis, and particularly in New York. But the business bonds thus established
between the country banks and those of our foremost financial centers still
leave the organization of the banking system as a whole far looser than that
of the three other countries. Moreover, there is no central bank in New York
or elsewhere to play the role of the Bank of England, the Bank of France, or.
the Reichsbank.
With respect to the issue of notes, also, our banking system is peculiar.
The central bank has a monopoly of issue in France, and a position of unquestioned primacy among all the banks of issue in England and Germany. Here
the national banks are secured monopoly by a prohibitive federal tax on the
notes of other banks. But there are several thousands of these national banks,
each deciding its own policy with reference to issue.
The legal requirement of depositing United States bonds as security with
the federal treasurer interposes a most effective check upon elasticity of circulation. It is still uncertain whether the attempt to provide " emergency circulation" by means of the Aldrich-Vreeland act would afford adequate relief in
a crisis, but that act certainly gives no help in ordinary times. France and
Germany, on the contrary, have bank-note systems w7hich make it easy to
increase or diminish the issues in accordance with the changing activity of
business. The Bank of England, however, is confined within limits even more
rigid than those imposed upon the national banks of America. Save in the
case of the most severe panics, increase of circulation in England requires an
increase in the gold holdings of the bank.




MITCHELL: BUSINESS CYCLES

43

But both in England and the United States, the relative inelasticity of the
bank-note circulation makes less trouble than it would make in France or
Germany. For the people of the two Anglo-Saxon nations are accustomed
to make much freer use of bank checks in their business dealings. In corresponding measure, they make less use of bank-notes than do the French and
Germans.
5. The Government's Share in Directing Economic Activity
Finally, there are considerable differences among our four countries in the
extent to which both central and local governments participate in the direction
of economic activity.
Partly because of the limitations placed by constitutional law upon the
powers of government, partly because of a temperamental restiveness under
control, Americans have not made such bold or successful experiments in municipal ownership of public utilities or in state ownership of railways, telegraphs,
telephones, mines, and the like as have the Germans, French, or British. At
the present moment, however, this difference promises to grow narrower,
because of the efforts to regulate business enterprise by public commission,
and even to extend public undertakings into fields hitherto sacred to private
enterprise.
While the sequel shows that these differences of economic organization and
habit possess some significance, still they are far less important than the more
fundamental points of agreement. For present purposes the chief result of
this similarity of organization is that business cycles run a similar course in all
four countries. The next task is to sketch these cycles in the period since 1890.




CHAPTER III

THE ANNALS OF BUSINESS, 1890-1911
Annals are of necessity dull; for in a year by year record of events it is
impossible to develop clearly the interrelations which by binding events into
coherent clusters make them significant and interesting. Nevertheless, in order
to interpret the elaborate tables of statistics which follow, it is necessary to
know the business conditions prevailing in each of our four countries in each
year since 1890. Readers willing to accept conclusions without a scrutiny of
the evidence, however, may content themselves with the chronological summary
of events given in the final section of this chapter. And readers familiar with
recent business history may skip the whole chapter; for it offers little more than
a digest of what leading financial journals have reported every year concerning
the state of trade in America, England, France, and Germany.
I . T H E BUSINESS CYCLES OF 1 8 7 3 TO 1 8 8 9

The crisis of 1890, the first event of the period selected for detailed examination, is best explained by a brief preface concerning the business cycles of
the two preceding decades.
1. The Crisis of 1873
The crisis of 1873 began in May with a panic in Vienna, wrhere the great
Austrian " b o o m " had been increasing its headway since the later sixties.
Germany had entered enthusiastically upon a similar course of business expansion almost before its victorious war with France was over. Accordingly, the
crash in Vienna caused a serious strain in Leipzig, Frankfurt, Hamburg, and
Berlin. But the summer passed without disaster and confidence was returning
when news came in September that panic had broken out in New York. In
America rapid railway building had been the chief feature of the preceding
years of activity, and the receiverships of railways and embarrassments of their
financial backers were conspicuous features of the panic. The business fabric
of Germany, weakened by domestic speculation, and strained by losses in
Austria, was unable to withstand this new shock. A crisis followed, though
it was less severe than the panics in Austria and America.




[44]

M I T C H E L L : BUSINESS CYCLES

45

England, like Germany, was involved in the disasters of American railways,
and London suffered a severe strain in the autumn. But the domestic business
of England was in more solid condition than that of Germany—largely because
the acute crisis of 1866, when the great banking house of Overend-Gurney
failed, had prevented the English from joining heartily in the " b o o m " of
1870-72. But though England had no panic in 1873, her best customers were
crippled, and in 1875 a severe depression began.
Of all the great nations, France was least affected by the crisis of 1873.
She bought her immunity from business disaster, however, at a great price—
the military reverses and civil disorders of 1870-71, which prevented her people
from cultivating a " b o o m " of their own, and from participating heavily in
foreign speculation.1
2. The Later Seventies and Early Eighties
The period of business depression which followed the crisis lasted in the
United States until the summer of 1879. Then harvest failures in Europe and
a favorable season at home enabled our farmers to export unprecedented quantities of breadstuffs at high prices. Prosperity among the farmers and the
grain-carrying railways promptly increased the demand for commodities of
many kinds, and made business brisk for merchants, manufacturers, and producers of raw materials. This tide of prosperity rose through 1880 and 1881
to its culmination in 1882, when a recession in business activity began. 1883
was a year of declining volume of business; but it wras not until May, 1884, that
the crisis became acute. While severe in the financial circles of New York, and
accompanied by heavy bankruptcies, this crisis was less general in its scope and
less disastrous in its after effects than that of 1873.2
The harvests of 1879, which brought back prosperity to the United States,
intensified the business depression in Europe. But presently American prosperity increased the demand for many European exports. England seems to
have felt the effects of this stimulating factor most sensibly; but even there
the expansion of business was confined chiefly to the iron, steel, and shipping
trades. Before activity had become general, the turn of the tide in the United
States checked the movement, and business relapsed again into dullness.3
In Germany, the depression which followed 1873 continued in a mild form
until the end of the eighties.4 But France, where the check had come in 1870,
began to show signs of business activity as early as 1876. The recovery was
attended by active company promotion and widespreading speculation on the
1 Max Wirth, Geschichte der Eandelskrisen (ed. 3, 1883), pp. 450-614.
2 A. D. Noye< Forty Years of American Finance, pp 53-61, 96-101.
3 Final Report of the Royal Commission to inquire into the Depression of Trade and Industry.
ber, 1886.
4 Sombart, Die deutsche Volkswirtschaft
im Neunzehnten Jahrhundcrt (ed. 2, 1909), p. 91.




Decem-

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MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

stock exchanges, and ended in the crisis of January, 1882. Paris, Lyons, and*
Vienna were the centers most affected; but the reaction in Prance doubtless
helped to check the forward movement in England and the United States.5
3. Business Expansion in the Later Eighties and the French Crisis of 1889
The period of depression in America after the crisis of 1884 was remarkably brief, probably because the crisis had been preceded by more than a year
of moderate liquidation. Statistical indices of the volume of business make
1885 the dullest year of the decade; but the recovery was so prompt that the
Commercial and Financial Chronicle declared 1886 to be the best business year
since 1880. Rapid railway building was the chief feature of the revival.
According to Poor, the annual increase in railway mileage rose from 2,975
miles in 1885 to 12,876 in 1887. Thereafter it declined to an average of 5,830
miles in 1888-90. But business continued to prosper during these closing years
of the decade, despite troubles in the speculative markets, rate wars among
the railways, and extensive strikes.
General prosperity and the negotiation of large blocks of railway securities
abroad produced enormous importations of merchandise. In their turn, the
large imports yielded the federal government a surplus revenue exceeding 100
millions in each of the fiscal years 1887 to 1890. The independent-treasury
system made an artificial problem out of this excess of receipts over expenditures ; for, in spite of purchases of government bonds at high premiums, prepayment of interest on the public debt, and large deposits in national banks,
the money market suffered from the locking-up of funds in the government
vaults. As a solution, the Democrats proposed a reduction of the tariff, the
Republicans a further substitution of protectionist for revenue principles, and
an increase of pensions. In the presidential election of 1888 Harrison defeated
Cleveland, and the victorious Republicans in 1890 passed the McKinley tariff
and the Sherman silver-purchase act. The first measure raised the average
rates of duty to the highest pitch yet attained, put sugar on the free list, and
provided a bounty to American sugar interests. The second measure was
expected nearly to double the quantity of silver bought by the treasury.
Combined with lavish expenditures upon pensions, etc., these two laws made a
great reduction in the surplus revenue.6 They also produced effects upon
business which their authors did not foresee.
Meanwhile the long depression in England had ended in 1886 or 1887.
Again, American prosperity gave a strong impetus to revival, particularly in
the coal, iron, and shipping trades which were stimulated by the enormous
railway building of 1886 and 1887. But this time prosperity spread to other
s Juglar, Des crises commerciales
« Noyes, op. cit., chs. v and vi.




(ed. 2, 1889), pp. 435-443.

MITCHELL: BUSINESS CYCLES

47

trades and England entered upon a period of active business expansion.
Accumulations of capital, which according to the Royal Commission upon the
Depression of Trade and Industry had continued to be made even during the
hard times, came forward freely for investment. Promoters took advantage
of the increasing confidence and the moderate rates of interest to launch a long
series of new companies. Beginning with the conversion of private British
enterprises—particularly breweries—into joint-stock companies, they presently
undertook similar operations in Germany, Austria, and the United States.
Mines of all sorts in all quarters of the world, Chilean nitrate deposits, and
railways in North and South America came into favor. Presently "trust and
investment companies" were floated to promote, underwrite, and speculate in
the stocks of other companies. But most important of all were the speculative
investments in Argentina, where a land " b o o m " and a mania for internal
improvements, financed by foreign capital, were in full swing.
German business experienced a similar but more moderate uplift at the
close of the eighties. For a while the Germans bought "Argentines" freely,
but presently they became uneasy, resold most of their holdings, and turned
to speculation in the shares of domestic enterprises. As a consequence of the
eager demand for such securities, the capital of the joint-stock companies
organized in Germany rose from $13,000,000 in 1885 to $101,000,000 in 1889.
After her crisis in 1882, France did not enter upon a new period of business
expansion until about 1887. The most spectacular episode of the next three
years was the rise and fall of the "copper ring." The Societe des Metaux made
contracts with the chief copper producers in various countries to take their
output for three years at £70 per ton, planning to hold the selling price at £80.
It estimated the annual output at about 150,000 tons per annum, so that the
cost price would reach about £10,500,000. One of the great French banks, the
Comptoir d'Escompte, undertook to make the necessary advances upon the
security of the metal bought. But experience showed that the selling price of
£80 caused a large decline in the consumption of copper. Meanwhile, the high
buying price stimulated production. In order to retain control of the market,
the ring was compelled to buy the output of mines which had not entered into
contracts with it, and was further embarrassed by the unexpectedly large
quantity of scrap copper which was offered. By March, 1889, the Societe des
Metaux found itself with an unsold stock of 160,000 tons of copper, which at
£70 per ton had cost £11,200,000. The Comptoir d'Escompte was involved by
its enormous advances in the ill fate of the Societe. The end came when the
Russian government in March, 1889, tried to withdraw its deposits from the
Comptoir. To prevent a disastrous panic, the Bank of France undertook the
liquidation of the Comptoir, and the Societe des Metaux went into bankruptcy.
Meanwhile the Panama Canal Company, which had absorbed many millions




8G

MEMOIRS

OF

THE

UNIVERSITY

OF

CALIFORNIA

of French capital, suspended operations. These two disasters checked French
speculation early in 1889. Business returned to a highly conservative basis, and
the Bank of France began the accumulation of the immense reserves which
enabled it to assist the Bank of England so effectually in 1890.7
II.

T H E C R I S I S OF 1 8 9 0 A N D T H E E U R O P E A N D E P R E S S I O N OF

1891-948

1. The Crisis of 1890
The financial crisis of 1890 brought this period of business expansion to a
close in England, Germany, and the United States. Indeed, before 1889 was
out the English and German money markets had become stringent. In both
countries the central banks raised their discount rates to 5 per cent in the
autumn, and on December 30th the Bank of England made a further advance
to 6 per cent. These high rates were recognized as danger signals; men began
to wonder whether a crisis was at hand, and in a measure checked speculation.
But the winter and spring passed without disaster; the bank rates fell again
to 4 per cent in Berlin and 3 per cent in London, and the speculative spirit was
reviving, when news came of political unrest in Argentina. British investors
became uneasy about their "Argentines," and the financial houses which had
unsold issues on their hands, or had committed themselves to new flotations,
found increasing difficulty in marketing their holdings. These complications
led to fresh advances in the discount rates, to the unloading of high class securities by houses which lacked funds, to sharp declines in stock prices, and to
growing distrust. The climax came in England when on the 15tli of November
the failure was announced of Baring Brothers and Company, one of the
greatest private banking houses of London, which had become involved through
over-heavy commitments in Argentina. A serious panic might have followed
had not the announcement of the failure been coupled with the announcement
that the Bank of England, supported by a huge fund subscribed by other
financial enterprises, would guarantee the payment of Baring's liabilities. As
a further precaution, the bank borrowed £3,000,000 from the Bank of France
and £1,500,000 from the Russian treasury. These preparations proved ample
to control the situation: a panic was averted, but business liquidation began.
The collapse in Argentina had little direct importance for Germany; but
the German money and stock markets sympathized with the summer troubles
of the English. When the Barings failed the situation became more tense.
In Berlin as in London a panic was averted; but the incipient business depression spread and became deeper.
7 One of the best accounts of these developments in England, France, and Germany is that published by
Max Wirth in the Journal of Political Economy, March, 1893.
s This and the following sections are based mainly upon the Financial Review (New York), the Economist
(London), and Raffalovich's annual Le Marche Financier (Paris). When other sources are drawn upon references are given.




MITCHELL: BUSINESS CYCLES

49

Much the same was true of New York. Americans were not heavy investors
in Argentina, but they were heavy borrowers of European funds. It is probable that some hint of the embarrassment of the Barings was received by certain
New York houses as early as August,0 and that foreign investors sold large
blocks of American stocks to protect their other holdings. It is certain that
gold exports were heavy, that the New York banks held less than the legal
25 per cent reserves in eleven out of the twenty weeks from the middle of
August to the end of the year, that call loan rates rose frequently to 6 per cent
per annum plus one-half per cent a day, that commercial loans became exceedingly difficult to negotiate, and that clearing-house loan certificates were issued.
But New York succeeded, like London and Berlin, in avoiding a panic.
France came off better from the financial troubles of 1890 than the other
three countries. The great Parisian failures of March, 1889, had effectually
checked speculation, and business had been conducted upon a basis so conservative that it could withstand even the strain of the Baring failure.
Despite the financial crisis, general business prospered in 1890. The
Financial Review said concerning the United States: "The year . . . . was
one of great activity in the various departments of trade and transportation,
with a volume of transactions never before equalled."10
The London Economist was a little less emphatic about English business:
" A year of great financial disturbance, but nevertheless, so far as this country
is concerned, of moderate commercial prosperity—such, in brief, is the record
of 1890.' m
Study of the various statistical indices of volume of business shows that
the situation in Germany and France was like that in England.
2. The Depression of 1891-94 in Europe
But in the years which followed business of all kinds was overtaken by
depression. The year 1891 was a year of financial prostration in England. In
Germany there was much complaint at the small demand for goods of all kinds.
Though France was less affected by the crisis, she suffered with the others
from the wretched harvests, which intensified the depression in Europe.
In 1892 both foreign and domestic trade fell off in England, the farmers
had poor crops and low prices, and wage-earners suffered from reductions in
pay and from unemployment. Germany was perhaps worse off than England,
and while France continued to be least affected, even her commerce and
industry were reported as stagnant and the year as ending in gloom and
lassitude.
o 11 The Crisis of 1890," Economic Journal, March, 1891, pp. 192-196.
10 P. 1.
11 "Commercial History and R e v i e w , " February 21, 1891.




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

The Economist pronounced 1893 to be a bad year all around. Great strikes
in the cotton and coal trades, heavy losses in the Australian and American
panics, the financial embarrassments of several governments whose securities
were widely held in Britain, another season of short crops and low prices for
the farmers, severe suffering among wage-earners, and a marked increase in
pauperism made a black record. Germany fared better than England this
year because her crops were larger; but, save for the first quarter when false
hopes were built upon monetary reforms in Austria, the business public was
in a mood of deep discouragement. The French, too, complained of mediocre
business and languid security markets; but their harvests were fair, and
French investors were less involved than British and German in the extraEuropean panics.
The year 1894 opened in hope, but closed in fresh disappointment. The
poor English farmers had another wretched season; yields were abundant, but
a rainy harvest left the cereals in bad condition, and prices were almost
unprecedently low. The physical volume of trade increased, but prices continued to fall, and business was done on such a narrow margin of profit that
the feeling of depression was not relieved. Fuller employment, however, lessened the distress among wage-earners in a measure. The one hopeful spot in
the business world was the stock market, where a " b o o m " in South African
gold mines developed in the closing months, and a general increase of investment demand began to appear. German reports upon 1894 show less hesitation
in recognizing improvement over 1893. Large subscriptions to government
loans were followed by a demand for industrial stocks, particularly shares in
electrical and chemical enterprises. But commerce and manufactures could
be called better only in comparison with 1893; they wrere not good. France
presents a similar picture. The capital which found no employment in
ordinary business channels because of the depression flowed toward the bourse.
Meanwhile the refunding of billions of public securities at lower rates of
interest tempted investors to dally with more lucrative stocks. The African
gold mines became the mania of the day; though Spanish, Italian, and Portuguese securities also enjoyed high favor. But while the bourse was highly
prosperous, commerce recuperated slowly. The volume of trade was held to
be greater than in 1893, but smaller than in 1892.
This period of liquidation, which began in France in March, 1889, in Germany and England toward the end of that year and more definitely in 1890,
came to a close in 1895. The lowest point seems to have been touched in 1893.
The incipient and partial improvement of 1894, decided only in the investment
markets, developed next year into a general business revival, strong enough
to resist several serious shocks. But before dealing with the new period of
business prosperity which began in 1895, it is necessary to describe the business
events of 1891-97 in the United States.



MITCHELL: BUSINESS CYCLES

III.

51

T H E P A N I C OF 1 8 9 3 AND THE DEPRESSION OF 1 8 9 4 - 9 6 IN THE U N I T E D STATES

1. The Business Years 1891 and 1892
The first seven months of 1891 in America was a period of liquidation after
the crisis of 1890, similar in character to the same period in England. But
midsummer brought a dramatic change in the business situation. As in 1879,
the country was suddenly lifted from depression to prosperity by the concurrence of bad harvests in Europe and abundant harvests in America. The first
beneficiaries of this stroke of fortune, the farmers and railways, bought goods
with freedom, stimulating trade, manufacturing, mining, etc., in almost all
lines. The impetus thus given to business activity by the harvest situation of
1891 distorted the parallelism of business history in this country and in Europe.
While liquidation was proceeding unchecked in England, Prance, and Germany,
the Financial Review reported that in the United States the volume of business
transactions in 1892 was greater than ever before.12
But this contrast did not last long. The crops were smaller and agricultural prices were lower in 1892, and much concern was caused by the enormous
outflow of gold in the second half-year. Uneasiness increased in the early
months of 1893. The net gold exports were 11 millions in December, 12 in
January, 13 in February, 2 in March, 18 in April, and 15 in May—a total of
71 million dollars in six months. Meanwhile heavy failures occurred, particularly the Philadelphia and Reading Railway on February 20, and the
National Cordage Company on May 4. The collapse of practically all the banks
in Australia intensified distrust and increased the difficulty of securing financial
help from London. In May one of the most violent panics in the country's
history broke out.
2. Contemporary Explanations of the Panic of 1893
Several explanations of this panic were given by contemporaries. Republicans, like Speaker Reed, assigned as cause the fear of tariff reductions aroused
by the sweeping Democratic victories in the autumn of 1892.13 Democrats,
like Governor Russell of Massachusetts, retorted that Republican legislation
and extravagance were responsible.14 Others classified the panic of 1893 as an
economic crisis of the common sort produced by speculation, over-production,
or under-consumption.15 But the prevalent view was that the panic had been
brought about by doubt concerning the maintenance of the gold standard.16
12 1893, p. 1.
13 North American Review, September, 1893.
14 Ibid., December, 1893.
is For example: Gibson, Forum, June, 1893; unsigned article in Forum, November, 1894; Irwell, Cliautauquan,
December, 1893.
io Taussig, Economic Journal, December, 1893; Carnegie, North American Review, September, 1893; Smith,
Wilson, and Bloss, ibid., October, 1893. On the contrary, free-silver advocates often charged the panic to a conspiracy on the part of the " g o l d r i n g , , : Stewart, North American Review, November, 1893; Knapp, American
Journal of Politics, June, 1894; Schuckers, The New York National Bank Presidents1 Conspiracy.




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

3. The Influence of the Sherman Silver-purchase Act
The Sherman Act of July 12, 1890, required the secretary of the treasury
to purchase 4,500,000 ounces of silver each month, and to issue legal-tender
treasury notes in payment. This act produced fresh issues of paper money,
amounting to 24 millions in 1890, 53 in 1891, 47 in 1892, and 24 in the first half
of 1893.
From the beginning the London Economist declared that the whole tendency
of this measure was towards constituting silver the basis of our currency, and
that the monthly additions of paper money to the circulation, irrespective of
the changing business requirements, would result in the expulsion of gold
whenever times should become dull.17 Foreign capitalists, made timid by their
recent losses in Argentina, were in a mood to listen to such warnings. Continued agitation of the silver question in Congress, where the Senate passed a
free-coinage measure in July, 1892, intensified their fear of a relapse from
the gold to a silver basis. Hence foreigners not only stopped buying American
securities, but also endeavored 'to unload their old holdings upon the New York
market. This process accelerated the expulsion of gold which the Economist
had prophesied.
From February to July, 1891, the exports of gold exceeded imports by
nearly 74 millions. The crop situation of the autumn, however, gave the
United States so huge a balance on merchandise account as to reverse the flow
of gold, and by January, 1892, the country had regained some 39 millions. But,
once the extraordinary European purchases of breadstuffs declined, the outflow began again, and from February to September the net losses of gold were
52 millions. This year the autumnal exports of agricultural produce were less
than usual, and sufficed to give the country an excess of gold imports for but
two months, October and November, when the gain was only 4 millions.
Meanwhile the imports of foreign merchandise had increased. In December,
1892, the outflow of gold began again, and by the end of June 73 millions more
had been lost. Putting these figures together, we have net exports of gold from
February, 1891, to June, 1893, aggregating about 155 million dollars. Meanwhile, however, American gold mines had been adding to the supply, so that
the net decline in the monetary stock of gold was from 648 millions on January
1, 1891, to 532 millions on June 30, 1893—a loss of about 116 millions—over
one-sixth of the whole.18
IT December 20, 1890, p. 1596; December 26, 1891, p. 1648; July 9, 1892, p. 881.
is The figures embody the corrections in the estimates of the gold stock made by the Director of the Mint
in his report for 1907, pp. 66-87. See the tables of the monetary stock of gold in chapter vi, below.




MITCHELL: BUSINESS CYCLES

53

4. The Decline of the Gold Reserve
This loss of gold was the more serious because it threatened a suspension
of gold redemptions by the treasury, and hence a depreciation in the gold value
of the dollar. Before the passage of the Gold Standard Act of 1900, the gold
reserve consisted simply of the unexpended balance of gold in the treasury.
No law had fixed the amount to be held, or provided specifically for obtaining
more gold when the reserve ran low. But public sentiment, based upon
treasury practice and certain incidental clauses of monetary statutes, had fixed
upon the round sum of .100 millions as the minimum balance consistent with
safety.
At the end of February, 1891, the treasury held almost 150 millions.
Certain domestic conditions combined with the export of gold to reduce this
fund. A decline in public revenues and a heavy increase in public expenditures
cut down the surplus revenue from 94 millions in 1890 to a deficit of 39 millions
in 1893.19 Of course this change reduced the treasury's ability to carry a large
balance of unexpended money. More serious was the spread of distrust in
financial circles at home regarding the government's ability to maintain
redemptions of the paper money. As early as January, 1891, the Bankers'
Magazine noted that fear of free coinage of silver made people in possession
of gold slow to part with it. In the following months banks and other lenders
began inserting in notes and mortgages clauses requiring payment in gold coin
or its equivalent.20 Another result of the same distrust was that the banks
began to supply depositors who withdrew funds for the payment of customs
duties with paper money instead of with gold. This procedure cut off the most
important source from which the treasury received gold for its reserve. In
self-defense the treasury began to substitute legal-tender notes for gold in the
payment of its debit balances at the New York clearing house. Then international bankers, able to obtain nothing but legal tenders through clearinghouse settlements, began to get gold for export directly from the treasury by
presenting notes for redemption.
The cumulative effect of these interrelated processes was to diminish the
government's gold reserve. From the 150 millions of February 28, 1891, it
sank to 118 millions on June 30. Then a respite was given by the great exports
of wheat and the imports of gold. Moreover, the activity of internal business
caused a lively demand for the small legal-tender notes and prevented them
from accumulating in the banks, whence they could be sent back to the treasury
through the customs houses. Hence the gold reserve rose to nearly 133 millions,
and still stood at 131 millions on the last day of 1891. During 1892 the treasury
had to face an increasing demand for redemptions. By the end of July it held
10 "Calendar Year Statements, 11 Summary of Commerce and Finance, December, 1898, p. 1458.
to Bankers' Magazine, N. Y., vol. 25, pp. 497, 636, 675, 798.




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

only 110 millions of gold. But the demand for money to move the crops in the
autumn again carried the legal tenders westward into general circulation and
relieved the strain, so that the treasury was able to report a reserve of 121
millions on December 31. The relief was but temporary. With the beginning
of 1893 the demand for redemptions assumed the proportions of a " r u n " for
gold. In five months the treasury paid out 67 millions. Nothing but the voluntary exchange of gold for notes by the New York banks in February, March,
and April kept the reserve above the 100 million mark during the winter and
spring. But such aid effected no more than a postponement of the result. On
the 15th of April the secretary of the treasury gave public notice that the
reserve had been reduced to what public opinion regarded as the danger-point,
by announcing that the issue of gold certificates was suspended in accordance
with the law which required such action whenever the gold in the treasury
"reserved for the redemption of United States notes falls below $100,000,000."21
By this act the distrust long felt by foreign investors and American
financiers wras converted into a general alarm among all classes. The grave
doubt about the treasury's ability to maintain the parity between different
kinds of money combined with distrust engendered by such business events as
the failure of the Philadelphia and Reading and National Cordage to destroy
business confidence.22
5. Business Conditions and the Panic
The panic of 1893, however, cannot be accounted for solely by the monetary
situation. Certain unsound elements in business contributed to the smash.
The crisis of 1890 wras primarily financial in its origin and effects. On this
side of the Atlantic, it was most severe in New York, and the liquidation of
the first half of 1891 was most pronounced there. The interior sections of the
country were drawn into the movement; but before liquidation had progressed
far it was checked by the sudden return of prosperity among the farmers. As
a result, many weak enterprises, which must soon have retrenched radically
or gone out of business, were tided over and allowed to continue their expansion.
In short, the check given to the rising tide of prosperity was too brief to enforce
a thorough revision of credits.
Superficially, the business situation in 1892 bore the impress of prosperity.
The volume of business was greater than in 1891, or even in 1890. Such is
the testimony of coal production, gross receipts of the railways, value of mer21 So serious was the alarm that the administration issued an announcement on April 24 that 11 the President and his cabinet are absolutely harmonious in the determination to exercise every power conferred upon
them . . . . to preserve the parity between gold and silver and between all financial obligations of the Government. "
22 The various factors which cooperated to reduce the gold reserve can be followed month by month in the
figures published by the Treasury. See, for example, Finance Report, 1902, pp. 241, 239, 247, 245, 185, 237,
99, 100, 235. For interpretations see Taussig, Economic Journal, June, 1892, pp. 362-369; Noyes, Forty Years
of American Finance, chapters vii and viii; Lauck, Causes of the Panic of 1893, chapters vi-viii.




MITCHELL: BUSINESS CYCLES 75

chandise imported, and volume of clearings outside of New York. Bank loans
were expanded, but without a serious reduction in the ratio of reserves to
deposits. In New York the money market was "easy," with average rates
less than in the two preceding years. The prices of bonds and stocks recovered
from the decline they had suffered during the crisis of 1890, and the volume of
sales was large.
All this indicated an active but not a feverish state of trade. On the other
hand, commodity prices were steadily declining—a most unusual accompaniment for business prosperity; and one which tended to restrain rather than to
excite rash investment and wild speculation. Nevertheless, reports of speculation in farm lands and town lots came from many sections of the interior.
New York's share in the movement was a lively interest in the stocks of new
"industrials." The combination of independent manufacturing enterprises
into enormous "trusts" had begun in the later eighties and continued on an
increasing scale through 1892. Several of the most conspicuous among these
combinations proved in the sequel to have been financed in a highly reckless
manner. A few railway deals of like character were made. But the most
dangerous element in the situation was probably the doubtful character of many
bank loans. Had the liquidation begun late in 1890 been carried through, the
banks would doubtless have written down or written off a considerable portion
of the sums due them from embarrassed houses. The quick return of prosperity
saved them from having to acknowledge these losses, but did not enable all the
weak debtors to recuperate their strength. On the contrary, the banks seem
to have thrown not a little good money after the bad. When the hour of need
came they found it impossible to realize upon a considerable proportion of their
nominal loans. On paper they were reasonably strong; in reality many banks
were very weak.
The business situation was further undermined bv the harvests of 1892.
Except for cotton, the yields of the most important crops were fairly large—
not so great a^the "bumper" yields of 1891, but equal to or greater than the
average. Low prices for agricultural products, however, made the year rather
unprofitable for the farmers. Thus the stimulus which had turned depression
into prosperity a year before was lacking in the autumn of 1892. The demand
for goods from the agricultural sections began to decline; railways, merchants,
and manufacturers bought with less freedom, and all the disquieting elements
in the situation from the decline of the gold reserve to the financial difficulties
of the new industrial combinations and the doubtful character of bank loans
had an unobstructed chance to work out their results.23
23 The comparisons in this section which imply the use of statistics are all based upon tables in the following chapters. On the condition of the banks in 1890-93 see O. M. W. Sprague, History of Crises under
the National Banking System, pp. 153-162. (Publications of the National Monetary Commission.
Senate
Document no. 538, 61st Congress, 2d session.)




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

6. The Events of the Panic
The panic broke out early in May, 1893. The appointment of receivers for
the National Cordage Company on the fourth may be called the beginning.
There speedily followed a crash of prices on the stock exchange, the failure of
several large brokerage houses, extremely high rates for loans, bank failures in
the wrest, further exports of gold accompanied by a further decline of the
treasury's reserve, and two railway receiverships.
President Cleveland was among the men who held the business panic to be
an indirect result of the Silver-purchase Act of 1890. Even before his inauguration he had sounded the congressional leaders among the Democrats as to
the possibility of securing a repeal. At the time he concluded that the majority
of his own party stood against him. But sentiment changed after the panic
began, and on June 30 he summoned Congress to meet in extra session on the
seventh of August. The House of Representatives promptly acquiesced with
Cleveland's wishes; but men from the silver-mining states obstructed action
in the Senate for nearly three months, so that it wras the first of November
before the repealing act was signed.
Meanwhile the panic had been running its course. The banks, despite an
unprecedentedly general issue of clearing-house loan certificates, generally limited or suspended payments. Money commanded a premium for many weeks,
and illegal substitutes for cash were freely put into circulation.24 Business
failures were more numerous and liabilities larger even than in 1873. Over
three hundred banks closed their doors, and 29,340 miles of railway went into
the hands of receivers.25 Stocks fell heavily in price; interest rates on commercial paper were quoted as high as 12 to 18 per cent, and for a time in June
loans could hardly be procured at all. The lack of money for pay-rolls, difficulty of collections, and fear lest customers would be unable to meet their
contracts caused widespread limitation or cessation of production. Unemployment assumed vast proportions, and reacted in a most depressing fashion upon
the demand for goods at retail and wholesale.20
7. The Struggle to Maintain the Gold Reserve after the Panic
The business depression which followed upon the panic of 1893 was complicated by the continuing uncertainty about the monetary standard.
Though Congress had yielded to the intense pressure of public opinion wrhile
the panic was still on and repealed the silver-purchase law, it stubbornly refused
to enact the measures which President Cleveland recommended to entrench the
24 See Warner, " T h e Currency Famine of 1893,'' Sound Currency, 1896, A Compendium, pp. 337-356.
25 Table from the Railway Age, reprinted in Statistical Abstract, 1904, p. 406.
20 See A. C. Stevens, " A n a l y s i s of the Phenomena of the Panic . . .
Quarterly Journal of Economics,
January, 1894; C. C. Closson, " T h e Unemployed in American C i t i e s , " ibid., January and July, 1894.




MITCHELL: BUSINESS CYCLES

57

gold reserve after the panic was over. Consequently the treasury's stock of
gold remained subject to the influences which had depleted it between 1890 and
1893, save that the automatic injection of legal-tender notes into the currency
each month by buying silver was stopped. On the other hand, the deficit in
the government's revenues became chronic—39 millions in 1893, 59 in 1894, 30
in 1895, and 49 in 1896—and of course a deficit made it impossible to maintain
a working balance in any kind of funds without borrowing. Moreover, the
depression of business which prevailed most of the time prevented the legaltender notes already outstanding from being absorbed into active circulation.
Meanwhile, the losses of gold by excess of exports continued—81 millions in
1894, 71 in 1895, and 28 in the first seven months of 1896. The sums of legaltender notes which the treasury was forced to redeem in gold were even larger
—142 millions in 1894, 131 in 1895, and 100 in the first seven months of 1896.27
In all this time practically no gold was received through the customs house,
and practically none was paid out through the clearing house. Against these
adverse conditions the administration had to contend in its efforts to prevent
the gold reserve from complete exhaustion.
December 31, 1893, the reserve was but 81 millions. Unable to secure new
legislation from Congress, the administration resorted to the issue of bonds
redeemable in coin, not necessarily gold, under a provision of the law passed
in 1875 to provide for the resumption of specie payments. In January, 1894,
Secretary Carlisle sold $50,000,000 of 5 per cent ten-year bonds for $58,700,000.
Despite the fact that much of the gold paid for these bonds was obtained from
the treasury itself, through the presentation of legal-tender notes for redemption, the proceeds temporarily raised the reserve above 100 millions.
But the processes of depletion ran on unchecked, and by July 31 the reserve
was lower than ever—55 millions. The usual autumnal importations of gold
allowed the reserve to gain 6 millions net between July and the end of October;
but in November a second 50-million bond issue became necessary. Again the
proceeds—$58,500,000—carried the reserve above 100 millions for a little time;
but again the outflow rapidly exhausted the new supplies, so that by January
31, 1895, the balance stood at 45 millions.
In February President Cleveland contracted with a syndicate of bankers
to take about $62,400,000 of 4 per cent thirty-year bonds in return for
$65,100,000 of gold. The syndicate undertook to obtain at least half of the
gold in Europe, and.to protect the treasury so far as possible from withdrawals
of gold for export. Monthly deliveries upon this contract brought the reserve
up to 108 millions by the end of June. But at this point the efforts of the
syndicate to check the outflow of gold by satisfying the export demand with
drafts upon London broke down, and once more the treasury began to lose
ground. In December President Cleveland's belligerent message regarding
27 All of these figures are for calendar years.




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MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

British intervention in Venezuela intensified the difficulty by causing an extraordinary return of American securities from London. By the end of January,
1896, the reserve was reduced to 50 millions once more.
But President Cleveland had already acted, by calling early in the month
for popular subscriptions to a loan of $100,000,000 on 4 per cent bonds. The
proceeds were 111 millions of gold. While about 40 millions of this sum had
been obtained by subscribers from the treasury itself, the reserve was raised
to the highest point since December, 1891—129 millions on March 31. Moreover, the large subscriptions to this loan did much to restore confidence and
the possession of the enormous sum which the proceeds brought in enabled the
treasury to impound over 100 millions of legal-tender notes.
For a time all wras well; but Mr. Bryan's success in persuading the
Democratic convention to adopt a free-silver plank, combined with the vigorous
campaign which he conducted, caused fresh uneasiness. On July 23 the reserve
was below 90 millions. This time the banks came promptly to the aid of the
treasury, agreeing to turn over some $25,000,000 of gold in return for legaltenders, and cooperating to supply the export demand with bills.28 By the end
of July the reserve had been restored to 111 millions. Again at the end of
August it was perilously close to the 100-million mark, but that was the last
moment of anxiety. In the end, Mr. Bryan contributed more than any Democrat save Mr. Cleveland to the restoration of full confidence in the country's
monetary standard. For by forcing the free-coinage issue and getting himself
decisively beaten, he brought out the people's verdict in favor of the gold
standard. With the harassing doubt about this question set at rest, all difficulty
in maintaining the reserve vanished. By the end of 1896 the treasury held 137
millions of gold, and the sum mounted steadily to more than 250 millions in the
autumn of 1899.
8. Business Depression in 1894
The importance of this struggle to maintain the gold reserve appears when
we follow the varying fortunes of business from 1894 to 1896.
Depression in the year following the panic wras extreme; for other factors
cooperated with business liquidation and the doubtful outlook regarding the
standard to nip in the bud every incipient revival of activity. The so-called
Wilson tariff act was pending in Congress and kept business men in uncertainty until August, wrhen President Cleveland in disgust allowed it to become
law without his signature. Coxey's " a r m y " made its march to Washington
in April and May, a sign of hard times both ludicrous and pathetic. From
April to June over 150,000 bituminous coal miners were on strike, causing a
serious shortage of fuel. Another strike tied up the Great Northern railway
28 The Financial Review, 1897, p. 8.




MITCHELL: BUSINESS CYCLES

59

for nearly three weeks in April and May. Finally the American Railway
Union strike in July caused such disorder that federal troops were ordered
to Chicago. Worst of all in its effect upon business was the failure of the corn
crop, particularly in Nebraska, Iowa, and Kansas. The wheat crop was fair,
but brought low prices, and the cotton crop, while very large, sold at even
lower rates.
9. The Brief Revival of 1895
The February contract with the Morgan-Belmont syndicate was followed
by a lively revival of business in the spring of 1895. Confidence in the state
of the gold reserve enabled financial houses to place several large security issues
abroad, and foreigners bought stocks and bonds freely in Wall Street. For
a time the stock market was buoyant, commodity prices rose, the iron and steel
trade had a surprising "boom," and imports became heavy. But the revival did
not last through November; for the syndicate's plan of preventing the exportation of gold broke down, the gold reserve grew gradually less, and European
anxiety over the Ottoman problem and over the collapse of the speculation in
South African gold mines caused foreign selling of American securities. In
December President Cleveland's message about the boundary dispute between
England and Venezuela brought on an extraordinarily violent stock-market
panic attended by heavy failures.
10. The Stringency of 1896
The English war cloud vanished early in 1896, but congressional resolutions
threatened hostilities with Spain over Cuba. Such dangers were presently
overshadowed by the success of the free-silver party in capturing Democratic
state conventions, followed in July by Mr. Bryan's spectacular triumph in
the national convention. Until after election day the presidential campaign
kept the financial centers in a condition of intense strain. Interest rates were
high, loans were hard to negotiate, stocks declined, money was locked up in
safe-deposit boxes, and failures for the year were almost as numerous as in
1893. But critical as the situation was, no panic occurred.
11. The Return of Depression
The day after election this strain suddenly relaxed. But the great industrial and business revival which the Republicans had promised and which their
newspapers advertised failed to materialize. The situation improved greatly
in contrast with that of July to October, but prosperity deferred its return in
a most tantalizing fashion.




8G

MEMOIRS OF T H E U N I V E R S I T Y OF CALIFORNIA

Uncertainty about the new tariff promised by the Republicans, now restored
to power, contributed to the dullness of the first half of 1897. It was not until
July 24 that the Dingley Bill became law. Meanwhile the South suffered first
from floods in the Mississippi Valley, then from an epidemic of yellow fever,
and finally from the low price of cotton. In March the decision of the Supreme
Court that the Trans-Missouri Freight Association was illegal threatened to
plunge the railways into rate wars. Next month the war between Greece and
Turkey caused another fall of stocks. It was not, in fact, until July that
business received a strong impetus. By that time it had become certain that
the wheat supply from France, the Danubian provinces, Australia, India, and
Argentina would run far below normal. Meanwhile the outlook for the American crops improved rapidly. In short, such another year as 1879 or 1891
was promised. Then the long deferred revival of business prosperity began
in earnest.
IV.

BUSINESS PROSPERITY OF 1 8 9 5 - 9 9 AND THE CRISIS OF 1 9 0 0 IN EUROPE

How European business passed through a crisis in 1890 and suffered depression in 1891-94 has been told. How it revived in 1895, prospered exceedingly
in 1898-99, and developed another crisis in 1900 must now7 be sketched.
1. England
It was in the second half of 1895 that the Economist marked the first strong
revival of activity in English business after the crisis of 1890. This movement
possessed sufficient vitality to withstand the depressing effects of bad harvests
combined with low prices in the autumn, and of President Cleveland's message
applying the Monroe Doctrine to the British in Venezuela. In 1896 progress
continued, still in the face of discouraging events. Exports to the United
States fell off, the Rand gold-mining industry was in a state of stagnation
following the Jameson raid, and Europe was unsettled by prospects of entanglement over the eastern question. 1897 brought a more decided improvement
in English industry and domestic trade; but exports declined, primarily because
of diminished purchasing power among important customers. India suffered
from famine and plague, Australia from drought, South Africa from rinderpest and depression in the mining districts, Central and South America from
poor harvests and political unrest.
It was not until 1898 that the improvement in business which had been
under way since 1895 gained sufficient impetus to constitute full prosperity.
Next year the war with the Transvaal began; but the Economist wras able to
say in summary: "Seldom has this country enjoyed a year of such all-round
industrial activity and prosperity as it did in 1899." The war was a depressing
factor on the w7hole, but it stimulated powerfully certain trades, particularly



MITCHELL: BUSINESS CYCLES

61

iron, coal, and shipping. Foreign trade increased, larger clearings and railway
receipts testified to the activity of domestic business, unemployment diminished
and wages rose, consumption of staple supplies was larger, and concentration
of industrial enterprises was conspicuous.
Business activity and government war loans, however, carried rates of
interest to so high a point in the autumn that even British municipalities had
difficulty in securing loans save on onerous terms. This tide of prosperity
reached its highest point in the earlier months of 1900 and then began quietly
to recede. High taxation and dear coal—both due to the war—were held
largely responsible. Exports declined heavily after June, unemployment
increased again, the money market was unsettled, borrowings save by the government were small, the public stayed out of the stock market. But the crisis
was accompanied by no spectacular failures and no breakdown of credit; it
was no more than the fading of the bright prospects of 1899 into the dull outlook of 1901.
2. Germany
While English business improved slowly from 1895 to 1897, reached full
prosperity in 1898, had a single year of marked buoyancy in 1899, and then
gradually relapsed into dullness, German business enjoyed a far more intense
phase of prosperity and met with a more dramatic check. Not since the first
years of the empire, when Germans, intoxicated by their military triumph over
France, plunged enthusiastically into a campaign for industrial supremacy,
had their business hopes been so high and their business pace so fast.
The improvement in 1895 was decidedly greater in Germany than in England. By 1896 almost all branches of industry were reported to be very active,
and the investing public was showing a marked predilection for shares in
industrial enterprises and credit companies. The reports for 1897 speak of
a " b o o m " of increasing intensity; 1898 was declared one of the most brilliant
years Germany had ever known, and 1899 became known as the annus mirabilis.
Perhaps the electro-technical industries made the greatest advances as a
whole, but remarkable gains were scored also in mining and metallurgy, and
in the chemical trades. Emigration fell to a low point, and immigration from
bordering nations became large. The cities increased in population at a rate
wrhich would have been rapid even in America, and the Germans showed a
marked aptitude in devising new methods of business organization as well as
new industrial processes.20
But the second half of 1900 brought a check. High rates of interest and
high prices for coal handicapped industrial enterprises. Threatened American
competition in iron and steel became a formidable bogey, and prices fell. The
20 The fullest account of this period of German prosperity is given in Die Storungen im dcutschen Wirtschaftsleben wahrcnd der Jahre 1900
published by the Verein fur Socialpolitik, Leipzig, 1903, 8 volumes.




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MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

public began to grow suspicious of industrial stocks and turned again to the
less lucrative but more conservative government securities, imperial, provincial,
and municipal. The punitive expedition to Kiau-chow, a great coal strike, a
check to building because of difficulties in borrowing, a sharp fall in stocks
which became extreme in June and July, were all unfavorable.
Presently, the failure of four large mortgage banks, followed by the arrest
and criminal prosecution of certain of their directors, in the closing months
of 1900 caused great alarm. Banks of this class had placed over $1,500,000,000
of securities among German investors, and the fear that criminal mismanagement like that revealed in the notorious cases overtaken by catastrophe had
been common, precipitated a rush to unload. The liquidation was presently
intensified by the collapse of two great credit banks in Saxony, the Dresdener
Kreditanstalt (capital $5,000,000) and the Leipziger Bank (capital $12,000,000). The latter institution, which suspended payments July 25, 1901, had
lent $21,000,000 to a single corporation, which turned out to be a barefaced
swindle. These disasters made the crisis in Germany far more acute in 1901
than in the preceding year.
3. France
French reports indicate that the business expansion from 1895 to 1899 was
more moderate than even the English. The revival of activity in 1895 was
marred by a speculative mania for gold-mine shares wThich ended in heavy
losses, even before Dr. Jameson made his raid. But commerce and industry
were not deeply affected by the troubles of the Paris bourse, and in 1896 continued to gain ground. Even the bad harvests of 1897 did not prevent the
volume of business from expanding further, as shown by banking transactions,
railway receipts, and foreign commerce. Public interest in industrial securities became marked in 1898, but business wTas disturbed by the Dreyfus affair,
by anxiety over investments in Spain, then at war with the United States, by
alternate abundance and scarcity of capital, and by a decline of exports. But
1899 was a year of relatively great activity in trade and industry, and of buoyancy in the security markets. Much importance wras attached to the stimulating effect upon business of the preparations for the world's exposition to
be opened the next year in Paris. And next year the losses of many of the
joint-stock companies created to exploit the concessions connected with the
exposition was one of the leading features in the reaction. But as the preceding expansion had been mild, so also wTas the crisis. France, like England,
and unlike Germany, passed from business activity to business liquidation w7ith
no great wrench.




MITCHELL:

V.

BUSINESS

CYCLES

63

B U S I N E S S P R O S P E R I T Y OF 1 8 9 7 - 1 9 0 2 A N D T H E C R I S I S OF 1 9 0 3 - 0 4 I N
UNITED

THE

STATES

We have seen that American business was subjected to changes of fortune
both remarkably quick and remarkably sharp in 1890-97;—crisis in 1890,
depression in the first half of 1891, sudden revival in the autumn followed by
prosperity in" 1892; violent panic in 1893, deep depression in 1894, short-lived
buoyancy in 1895, return of severe strain in 1896, another relapse into depression after the presidential election, and finally a vigorous revival in midsummer,
1897. To all this the years we have now to review present a marked contrast.
For the period of prosperity which began in 1897 ran a long and even course,
resisting both the pressure of the European crisis in 1900-01 and the excesses
of domestic speculation. Indeed, it was not until after some six years of
abounding prosperity that general business, as opposed to financial operations,
received a serious setback.
1. The Prosperous Years 1897-99
The revival of business ushered in by the profitable harvests of 1897 made
rapid progress in 1898. There were two brief pauses, one in the spring just
before war broke out with Spain, and one in the autumn, just before the congressional elections. But the quick victory in war and the gains by the soundmoney party at the polls promptly restored confidence. The last month of
the year was also the best; even the cotton, woolen, and leather industries, which
had been in unsatisfactory condition, showed decided improvement.
In 1899 there appeared a marked contrast between conditions in the financial
markets proper and in general business, mercantile, industrial, railway, agricultural, etc. Increasing prosperity marked the latter in almost every branch;
indeed general business had not been so buoyant since the great revival of
1879-81. But a reaction developed upon the stock exchange. One of the most
conspicuous features of 1898 had been the resumption of that movement toward
consolidation of industrial enterprises which the panic of 1893 had interrupted.
The investing public showed a keen appetite for new securities, an appetite
which promoters proceeded to gratify by taking options on independent mills
and factories at the fancy prices asked by proprietors in flush times, combining
them into single corporations capitalized at rates to cover buying prices plus
large margins for promoters' profits, and offering the new crop of securities
for sale. In 1898 twenty such consolidations were effected with a nominal
capital of nearly 709 millions.30 So profitable did these ventures prove to
promoters and underwriters that a much larger number were under way or
under consideration at the beginning of 1899. But in May the industrial shares
so L. Conant, Jr., "Industrial Consolidations in the United S t a t e s / ' Publications
tical Association, March, 1901.




of the American

Statis-

8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

already listed on the stock exchange broke heavily on the sudden death of
ex-Governor Flower, who had been a leading figure in the market. Prices
recovered slowly from this shock until in September the wrhole loss had been
regained. Thereafter the market was fairly steady for three months, but in
December another crash came in "industrials," and on the eighteenth prices
dropped far below the lowest point of May. A trust company failed in New
York and several financial concerns collapsed in Boston because of the shrinkage in copper stocks. To relieve the panicky condition a money pool was
formed to lend 10 millions on the stock exchange. Meanwhile stringency in
the money market had become pronounced at several times, the outbreak of
the Boer war had caused some uneasiness, and railway stocks had sympathized
in a measure with the fluctuations of industrials. Under these circumstances,
many intended consolidations were abandoned at the last moment; but nevertheless the record for the year went far beyond the high mark of 1898. Not
less than 87 such companies wrere launched, with a capital of 2,244 millions.31
The most striking feature of the year, however, wras that the troubles of the
stock market created hardly a ripple of disturbance in general trade.
2. The Pause of Activity in 1900
In Europe we have seen that 1900 brought a crisis—moderate in England
and France, severe in Germany. In the United States this crisis was represented by nothing more than a brief pause in a period of exceptional prosperity.
Industrial consolidations, to be sure, wrere far less numerous than in 1899—
42 companies with a capitalization of 831 millions. Sales on the stock exchange,
also, were a third less for the first nine months. Even commodity prices
declined, new orders fell off, the iron and steel trade gave signs of overproduction, and from July to October clearings outside New York were less
than the year before. But the volume of general business still remained
immense; for the first time our bankers floated large loans for the central governments of England, Germany, Sweden, and for many foreign cities; and our
foreign commerce established new high records.
This pause in business expansion during the summer was followed by a
remarkable outburst of activity after the presidential election in November.
Mr. McKinley defeated Mr. Bryan, who ran for a second time on a free-silver
platform. So slight had been the reaction and so vigorous was the revival that
most statistical indices of the volume of business make 1900 as a whole even a
better year than 1899.
3i Conant, as above.




MITCHELL: BUSINESS CYCLES

65

3. The Stock-Market Mania of 1901 and the Northern Pacific "Corner99
The most notable feature of the post-election period was the outburst of
stock speculation. Supported by the prosperity of trade, the large popular
majority for sound money, and the establishment of "community of interests"
between competing railways, the promoters and underwriters ventured even
more daringly than in 1898 and the early part of 1899. After Mr. Morgan had
dazzled the public by launching the "billion-dollar steel trust" in February
and March, 1901, there seemed for a time no limit to what the public would
buy or the prices they would pay. But this frenzy of speculation came to a
sudden end on the ninth of May, as the result of a corner in Northern Pacific
stock. Two groups of great capitalists, one led by Morgan and Hill, the other
by Harriman and the Standard Oil magnates, had been trying to buy a controlling interest in the stock of this railway for some time. Their bidding
ran up the price to so high a point that brokers "sold short," expecting to profit
when the price dropped. But on May 9 it was discovered that more shares
had been sold than were in existence, so that the purchasers were in a position
to extort any price they chose in settlement of the contracts. This discovery
was followed both by wild bidding for Northern Pacific—bidding so wild that
its cash price reached $1000 per share—and by sacrifice sales of other securities. The collapse in prices which resulted from the latter was declared by the
Financial Review to have been the worst ever known.32 To save the situation,
a syndicate of bankers was formed for making loans on the stock exchange,
and the two groups of contestants for the control of Northern Pacific agreed
to settle all contracts for the stock at $150 per share. Despite the violence of
the panic, no stock-exchange house failed. The market was irregular for some
time, but toward the end of May a sustained advance began. For the rest of
the year prices were fairly well maintained at a level between the high and the
low points of the panic month. The important result was that the public had
been badly scared, though not seriously hurt, and remained out of the market.
4. The Prosperity of General Business in 1901-02
This stock-market panic was by no means the only unfavorable feature of
the year. Severe droughts cut down the yield of oats and made the corn crop
smaller than in any year since the disastrous season of .1894. But the wheat
crop was harvested too early to be seriously affected and proved exceptionally
abundant. The steel trade suffered from a great strike by the Amalgamated
Steel, Iron and Tin Workers against the new United States Steel Corporation.
President McKinley was shot September 6 and died on the fourteenth. Stocks
suffered a sharp break on the day following his assassination and again on the
32 1902, p. 13.
I have followed the account of the " c o r n e r ' ' given by A. D. Noyes, Forty Years of
can Finance, chapter xii.




Ameri-

8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

day before his death. The attempt of the Amalgamated Copper Company to
keep their basic price at 17 cents per pound broke down in December, and was
followed by a fall to 13 cents. The cotton-goods trade wras not satisfactory
and production was curtailed by agreement in the spring. Corn exports were
reduced by the short crop, iron and steel exports by the depression in Europe,
and copper exports by the depression and by high prices.
So strong was the business situation, however, that none of these depressing
influences had more than momentary effect. Clearings outside of New York
ran ahead of the record of 1900 every month in the year. The railroads proved
unable to handle promptly the enormous traffic tendered them, so that an
unparalleled car shortage developed in the autumn.
This contrast between abounding prosperity in general business and troubled financial markets continued through 1902. Again the volume of trade was
declared to be greater than ever before, and again the railways were offered
more freight than they could move in the autumn. Such lines as the Pennsylvania, New York Central, Baltimore and Ohio, and Illinois Central sold
enormous security issues to provide larger traffic facilities. In June the Steel
Corporation and in November the Pennsylvania Railroad made voluntary
increases of 10 per cent in wages—an example which wras widely copied before
the close of 1902 or early in 1903. The farmers had most brilliant harvests.
Even the high price of meat which followed from the deficient stock of corn
and the great anthracite coal strike of May to October did not stem the rising
tide. But financial reports betrayed signs of increasing strain. The public
continued to stay out of the stock market, and the number of shares sold in
New York was nearly a third less than in 1901, though greater than in 1900
or 1899. Heavy traffic, indeed, helped the prices of railway shares to rise in
the summer and autumn when the large harvests became assured. But the
more speculative industrials did not recover much of the ground lost in 1901,
despite one or two periods of apparent activity under clever manipulation by
pools. Meanwhile the money market in the autumn, when the demand for
funds to move the crops wras at its height, became more stringent than at any
time since 1896. Mr. Shaw, the secretary of the treasury, adopted extraordinary measures of relief—increasing government deposits in the national
banks, stimulating larger issues of banknotes by giving the deposits to institutions wrhich agreed to increase their circulation, and finally by accepting other
than federal bonds as security for deposits on condition that the bonds released
be made the basis of new note issues. But these efforts did not prevent a return
of stringency in November and December, a return accompanied by heavy
liquidation in the stock market. Railway and industrial shares alike fell in
price.




MITCHELL: BUSINESS CYCLES

67

5. "The Rich Man's Panic" of 1903-04.
The liquidation in stocks which began in November and December, 1902,
continued with hardly a check until November and December, 1903. So pronounced and so long a decline of security prices had scarcely occurred before.
The explanations offered made this liquidation in 1903 the aftermath of the
speculation of November, 1900, to May, 1901. When the investing public was
suddenly scared out of the market on the ninth of May by the gyrations of
Northern Pacific and the crash of other shares, the great banks and capitalists
interested in underwriting syndicates had to take over large blocks of industrial
securities which they had hoped to unload promptly at a profit. The men
concerned were strong enough to defend their holdings in the panic month,
and to keep prices fairly level through 1901 and most of 1902. In this effort
they were greatly aided by the prevalence of prosperity. But they could not
work off the bulk of their holdings, for the investing public resolutely kept
out of the market for industrials. This strained situation might have continued
even longer had it not been for European intervention. The post-election
speculation of 1900, with which the trouble began, had been financed largely
with funds borrowed from foreign banks. Favored by the business dullness
abroad, the borrowers were able to retain a large part of these loans until
towards the end of 1902. Then the Europeans began to recall their funds. To
meet such demands American banks had to insist upon repayment of loans by
their own borrowers. There remained nothing for the latter but to dispose
of their investments. Hence the great outpouring of securities which began
in November, 1902, and ran for at least a year.
The public felicitously dubbed this liquidation "the rich man's panic."
But no panic in our technical sense occurred. A few of the new industrial
corporations failed outright, the United States Shipbuilding Company was
stillborn, and a number of financial houses became bankrupt. Even the best
railways and municipalities found it difficult to borrow on their accustomed
terms, and had to raise the rate of interest on their bonds, or resort to the issue
of short-time notes. Still, the number of disasters was small in view of the
severity of the decline on the stock exchange, apparently because the losses fell
largely upon men of great wealth.
In 1903 the reaction in the financial markets at last began to be felt outside.
Difficulties in borrowing on the part of the railways reacted upon the demand
for goods, particularly for iron and steel. In this industry the second half
of 1903 accordingly brought a period of depression and restricted production.
Manufacturers in many other branches complained of smaller orders, of
increased expenses, of extortionate demands by trade-unions, etc. The railways very generally reported gains in net earnings which were small in comparison with the gains in gross earnings, and accounted for the difference by



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MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

pointing to the higher cost of everything they bought. The cotton trade
suffered especially from the high price of the raw material, in wThich a gigantic
speculation was carried on under the leadership of Daniel J. Sully. But the
farmers had a satisfactory year; for, while crops were smaller than in 1902,
they brought higher prices. And clearings outside of New York showed moderate gains in every month save May and July.
The slight and doubtful gains of general business in 1903 turned into moderate losses in the first seven or eight months of 1904. Clearings both in New
York and outside ran behind the corresponding records of the year before from
January to July—with negligable exceptions—and the gain of August was
trifling. Substantially the same testimony is borne by railway receipts, by the
accumulation of idle money in the banks, by very low rates of interest, by the
arrest of the advance in wages, and the defeat of the men in most of the labor
contests. Extremely severe weather from January to May, hampering traffic
and threatening the early crops, the conflagration in Baltimore resulting in
losses put at 100 millions, and the fears excited by the war in the Orient, were
secondary factors, reinforcing the brake upon business activity. On the other
hand, the investing public developed an insatiable appetite for high-class bonds,
so that both corporations and municipalities were able to satisfy their capital
requirements, and provide funds for new developments. In the stock market
the lowest points were touched in March. Contrary to expectations, the success
of the government in the Northern Securities case in that month was followed
by a rise in prices, which ran on slowly until July and then quickened its
pace. Judge Parker's action as candidate for the presidency in committing
the Democratic party to an explicit acceptance of the gold standard prevented
the autumn campaign from exercising the disturbing influence noted in 1896
and 1900. Finally, towards autumn the assurance of abundant harvests, save
of wheat, encouraged the business public. Amid these favoring circumstances,
the reaction was terminated in a remarkably brief time. The rate of progress
in general business had not slackened notably until 1903, the actual losses were
confined mainly to the months of January to July or August, 1904, and a
vigorous revival began in September.
6. "The American Invasion of

Europe"

The points of similarity and contrast between the course of business conditions in America and Europe during the years 1897 to 1904 may be brought
out in developing a topic concerning which little has been said—the growth of
foreign commerce.
The official record, which made a deep impression on men's minds both here
and abroad, is summarized in the following figures. Fiscal years are taken,
because they happen to correspond more closely than calendar years with the
changes in business conditions.



MITCHELL: BUSINESS CYCLES

69

MERCHANDISE EXPORTS AND IMPORTS OF THE UNITED STATES IN MILLIONS OF DOLLARS
Exports

July
July
July
July
July
July
July
July

1,
1,
1,
1,
1,
1,
1,
1,

1896,
1897,
1898,
1899,
1900,
1901,
1902,
3903,

to
to
to
to
to
to
to
to

June
June
June
June
June
June
June
June

30,
30,
30,
30,
30,
30,
30,
30,

Imports

Excess of
exports

1897

1,051

765

286

1898

1,231

616

615

1899

1,227

697

530

1900

1,394

850

544

1901

1,488

823

665

1902

1,382

903

478

1903

1,420

1,026

394

1904

1,461

991

470

To understand the pride which these figures aroused in America and the
alarm they excited in Europe it is but necessary to note how far they surpassed
all previous records. Never but once before had American exports exceeded
a billion dollars, and that record (1,030 millions) had been made by the extraordinary harvest conditions of 1891. The previous high record for excess of
exports over imports—265 millions—had been made as long ago as 1878-79.
The average excess of exports for the decade July 1, 1886, to June 30, 1896, had
been 70 millions.
Current opinion in the United States hailed the extraordinary gain of
exports and the still more extraordinary balance in our favor as a sign that
this country was conquering the markets of the world. It was prophesied that
after paying off all its own debts the United States would presently become
the leading "creditor nation" of the world, and that New York would displace
London as the foremost center of finance. Abroad, Mr. Chamberlain's protectionist propaganda was supported by pointing to Britain's danger from
American competition in neutral markets, and an Austrian minister of finance
suggested a European tariff alliance against the United States. So lively was
popular interest in the subject that the illustrated magazines took up the
"romance" of commercial expansion. In 1900 McClure's published a series
of articles by Mr. R. S. Baker entitled "Our New Prosperity," and in 1902
Scribner's brought out Mr. F. A. Vanderlint's "American Invasion of Europe."
But in 1901 it began to appear that the patriotic boasts had been premature.
Competent critics demonstrated that the treasury's figures for the balance of
trade did not show the balance of payments. Not only was there reason to
believe that the customs-house values of many imports were too low, and of
certain exports too high; but it wTas also necessary to take account of other
items than the commerce in merchandise,—such as the expenditures of Americans traveling abroad, the freight paid to foreign shipping companies, the
foreign remittances of immigrants, the interest and dividends on investments
by foreigners, the foreign profits made by buying our securities in times of
depression and selling them back at higher levels, etc.33 Again, as prosperity
33 See N. T. Bacon, " American International Indebtedness, 1 9 Yale Review, November, 1900; Final Report
of the Industrial Commission, 1902, pp. 34-41; II. Dietzel, " D i e 'enorme Ueberbilanz' der Vereinigten Staaten,"
Jahrbiicher fur Nationalokonomie, August and November, 1905.




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MEMOIRS OF T H E U N I V E R S I T Y OF CALIFORNIA

grew in the United States imports rose rapidly, and thus cut down the credit
balance. On the other hand, when the European " b o o m " of 1897 to 1899 passed
through the crisis of 1900 into the depression of 1901 to 1904, our exports fell
off. For the relaxation of domestic demands for their products allowed foreign
producers to compete more vigorously for the trade of neutral markets. Not
only could they quote lower prices than at the height of their owrn " b o o m , " but
they could also promise quicker deliveries. In the world of finance, American
subscriptions to European loans, of which so much was made in 1900, fell to
much lower figures in later years, and the credit balance in favor of our bankers,
put at $200,000,000 at the close of 1900, was presently exhausted and replaced
by a debit balance of similar dimensions. To finance the great industrial consolidations of 1901 and the heavy trade of 1902, American bankers had been
obliged to negotiate finance bills on an enormous scale in London, Paris, and
Berlin. Finally, the stock liquidation of November, 1902, to November, 1903,
forced by the demand for repayment of foreign loans, proved that the American
money market had not yet emancipated itself from European domination.
VI.

BUSINESS DEPRESSION IN EUROPE, 1 9 0 1 - 0 4

The annals of European business were dropped on the outbreak of the crisis
in 1900 in order to sketch the long period of American prosperity which led
up to the "rich man's panic" of 1903-04. What is next to be recounted is the
gradual ebbing of the business tide in England, Germany, and France after the
crisis of 1900 had passed.
1. England
The ebb in English business which began after the middle of 1900 continued
through 1901. Wholesale prices, wages, and stocks all fell; unemployment
increased; railway earnings and provincial clearings both indicated a decline
in trade; foreign commerce was slightly smaller in money value, though slightly
greater in physical volume. The depression, however, wTas moderate, and the
Economist thought the volume of business above the average, though less than
in 1899.
The Boer War ended in 1902, but the hoped-for revival of business did not
come. Foreign trade wras a trifle larger both in volume and in value, stimulated by American prosperity and retarded by German depression. Domestic
trade made some progress, but less than foreign trade. Prices and wages
sagged a little further, and unemployment increased. The public was apathetic
with reference to stock speculation and even investment; nevertheless stock
prices advanced a trifle. The farmers fared better than in 1901. On the wrhole,
the year was characterized as neither good nor bad.



MITCHELL: BUSINESS CYCLES

71

Again in 1903 disappointment was felt. The year, though "not downright
bad," was poorer than 1902. Disturbances in Macedonia and the prospect of
war between Russia and Japan interfered with foreign commerce, which nevertheless registered slight gains. The great cotton industry was disturbed by
the wild fluctuations in the price of the raw material—fluctuations for which
American speculators were blamed. The farmers fared miserably from a wet
harvest. Wage-earners suffered from less pay and less employment. Domestic
trade also fell off, particularly in the last six months. The Economist believed
Mr. Chamberlain's protectionist propaganda to be a disturbing factor. In
financial centers there appeared to be very little capital for investment; the
stock exchange was dull and prices fell.
This financial and industrial depression still weighed upon the country
throughout the greater part of 1904. Foreign trade continued to gain slowly,
and proved the mainstay of the manufacturing industries. Domestic trade,
on the contrary, was further restricted. Wage-earners once more found their
condition grow worse from a slight decline in wages and a larger decrease in
employment. The farmers, however, had an average year—decidedly better
than 1903. And the stock exchange, perhaps the most sensitive barometer of
the business world, gave signs of revival, though in a hesitating fashion. By
the close of the year there came no marked activity, but a more hopeful feeling,
which 1905 abundantly justified.
2. Germany
During these years German business pursued a similar course, save that
the depression was more severe, and that the revival began somewhat sooner.
With its bank failures, disclosures of fraud, low wages, short hours, unemployment, mediocre harvests, internal dissentions within syndicates, struggles
between producers of raw materials and manufacturers over prices, pessimism
among investors, and crisis on the bourse, 1901 wTas a bad year indeed.
Although 1902 brought no fresh disasters, it brought little alleviation from
hard times. The harvests were far from good. But the distrust caused by
the great bank failures gradually lessened as th6 months passed, and investors
began to buy government securities with freedom.
Next year the strain was held to have ended and a slight improvement to
have begun. The coal, iron, electrical, and shipbuilding industries fared better;
farmers had satisfactory crops, both imports and exports increased, unemployment diminished, and in general there seemed ground to hope for genuine
prosperity in 1904.
How far this hope had been realized was a matter on which opinion still
differed at the end of the next year. The bourse had a bad panic on February
8 and 9 when news of the war between Japan and Russia surprised the German




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MEMOIRS OF T H E U N I V E R S I T Y OF CALIFORNIA

market. Semi-official reports had established the expectation in Berlin that
no rupture would occur and the "bulls" were caught in the midst of a campaign
for the rise. However, aid was lent by the great banks, and despite heavy
failures general business was not seriously shaken. The year was marked by
numerous combinations of capital, comparable in extent with those of 18981901 in America. In industry, electrical and textile establishments did better
than in 1903; coal, iron and steel enterprises not so well. The farmers had
excellent crops of cereals, but poor crops of fodder and potatoes. All in all,
the statistical record indicated a gain over 1903, but one limited in extent.
3. France
As often before, so in 1900, France felt the depressing effects of the crisis
less than her neighbors. The liquidation continued through 1901, which was
marked by slack business and a fall in industrial shares. Moreover, the staple
crops, excepting rye, were less than the year before. The one sign of lively
business was a " b o o m " in gold mining shares in December, based upon reports
that operations would be resumed shortly in South Africa.
No resumption of activity came in 1902; on the contrary, industrial and
commercial operations were further restricted in many lines. The speculation
in gold mines came to grief because everyone tried to sell at a profit when peace
was signed. But the farmers, except those producing wine grapes and sugar
beets, had a better season.
A slight improvement in conditions led the commentators to say that the
depression had come to an end in 1903. And in 1901 they declared that the
upward trend had continued, though buoyancy was far from being attained.
The most striking feature of this year was the calmness with which the French
investors, who held many millions of Russian bonds, viewed the Japanese victories. On February 8 news that war had begun caused a sharp break on the
bourse, and on the twentieth there was a serious decline, in which other stocks
suffered more than the "Russians." But the great banks in conference with
the minister of finance came to the aid of the market, and a prompt recovery was
effected. In later months there were several periods of advancing prices, and
in the intervals between them wrhat gains had been made were firmly held.
Thus, as in England, the stock market of 1904 heralded the better times of 1905.
VII.

T H E PROSPEROUS T I M E S OF 1 9 0 5 - 0 6 IN EUROPE AND A M E R I C A

The forward movement, which began upon the great stock exchanges in the
latter part of 1904, developed into a wTorld-wide march of prosperity in 1905
and 1906, and ended in the world-wide crisis of 1907. Betwreen the four countries whose business history we have been following the differences to be noted
in these years are differences only of degree.



MITCHELL: BUSINESS CYCLES

73

1. England
In England the impetus to business prosperity seemed to come from abroad.
In 1905 the export demand for British goods was nearly 10 per cent larger
than in 1904, and the consequent activity of the export trades reacted upon
domestic business. By the end of the year industrial prosperity had become
general.
Similar conditions prevailed in 1906. Exports gained nearly 14 per cent
over the large totals of 1905, and all departments of foreign trade made new
high records. For the first time the trade totals ran beyond a billion pounds
sterling. Good crops among the most important customers for British goods,
and the heavy domestic demands upon American and German manufacturers
which lessened their competition in neutral markets, were among the most
important causes of the immense exports. Domestic trade expanded under
these conditions, though in less measure.
On the stock exchange alone 1906 was disappointing. The aggregate prices
of 325 representative securities actually fell in this year—"one of the most
active and prosperous" that England "ever experienced."34 In explanation
of this anomaly, the Economist pointed out that the interest rates allowed by
bankers on deposits had risen above the rates on the best securities, and that
business men would continue to put their large profits back into their own
enterprises so long as the "boom" lasted. The high interest rates became more
marked as the year progressed, until finally in October the Bank of England
raised its discount charge to 6 per cent, a rate seldom attained except when a
crisis is feared. Such an extraordinary charge for discounts, in the midst of
prosperity, was taken to be a measure of defense against the enormous withdrawals of gold by Americans. To support a great stock-market campaign
in Wall Street during the season when the demand for money to move the crops
was at its highest point, American capitalists had negotiated immense "sums of
finance bills in London and employed the proceeds for importing gold. Successive advances of the bank rate from
to 5 per cent having failed to check
this process, the Bank adopted the decisive measure of a 6 per cent rate.
Within a week the withdrawals of gold for New York ceased; but the money
market continued so stringent to the close of the year that a 7 per cent rate
was feared. To prevent such a disturbing measure the Bank of France went
to the aid of London, by discounting a large amount of English bills.
2. Germany
German business differed from English in 1905 and 1906 chiefly in that the
impetus to prosperity came from domestic sources, and that the " b o o m " was
more intense. The trade revival made such rapid progress in 1905 that the
34 This index number of stocks is kept by the Bankers9 Magazine of London. The aggregate values are
given for December 18, 1905 and 1906, as £3,078,000,000 and £3,021,000,000—a fall of 1.95 per cent.




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

second semester suggested comparison with the wonderful times of 1898 and
1899. The enormous demands for capital caused a rapid rise of interest rates,
so that the year ended with 6 per cent as the official minimum of the Reichsbank.
In 1906 the volume of business increased still further; prices rose; employers
complained of a scarcity of labor, of coal, of raw materials, and of capital.
But amidst this intense activity of trade and industry, the stock exchange was
dull in Germany as in England. The highest level of security prices had been
touched in 1905. The public deserted such conservative issues as the government 3 per cents, in favor of industrial stocks. But even in the case of the
latter, prices sagged. "Dear money" was the current explanation. The volume
of business had outgrown the capital resources of the country, so that loans,
whether on short or long time, wrere difficult to secure at all, and impossible to
secure except on onerous terms. High as the Bank of England rates were in
1906, the Reichsbank rates were higher still—6 per cent on January 1, presently
reduced to 5 per cent, and in May to 41/*, but advanced again to 5 per cent in
September, 6 per cent in October, and 7 per cent in December.'
3. France
In France, also, 1905 and 1906 were years of expanding trade at home and
abroad, and of widely diffused prosperity. But with their customary prudence
in business matters, the French advanced less rapidly than the Germans or the
English. Moreover, the internal difficulties which the Russian government had
to face after its military defeat, and the Morocco affair, were more serious
dangers to French than to other investors.
This prudence had its reward even in 1906. While London was facing a
6 per cent and Berlin a 7 per cent bank rate, Paris kept 3 per cent throughout
the year, and the Bank of France was able to help the British market as well
as to serve its own. Even the open-market rates in Paris advanced but slightly
over the average for 1905, and remained far lower than the corresponding
rates in London and Berlin. Hence the Paris bourse did not have to carry the
incubus of "dear money." The reports speak of great activity even in the
usually dull season of summer. A large number of new industrial securities,
many foreign, were offered to French investors and bought with enthusiasm.
Securities with fixed yield, however, declined in price.
4. The United States
Finally, the business history of America in 1905 and 1906 is much like that
of Germany. The volume of both domestic and foreign trade and of industrial
production expanded month after month, prices and wages rose rapidly, the
railways were taxed beyond their capacity by the freight tendered, and the
farmers wrere favored with abundant crops. On the whole, business prosperity



MITCHELL: BUSINESS CYCLES

75

seemed even more general and more intense than in 1899 or 1901. Not even
such a disaster as the San Francisco fire caused more than a momentary pause
in the activity.
But, as in England and Germany, this expansion of business overtaxed the
resources of the money market. Periods of increasingly severe stringency
recurred at ever briefer intervals, particularly in the autumn when the crops
were being harvested and sent to market. Resort wras had to foreign borrowings upon finance bills on a grand scale; but, even so, interest rates kept rising,
and both commercial paper and bonds grew harder and harder to sell.
For a time it seemed as if "dear money" could not repress the buoyancy
of the stock market. The upward rush of stocks which began in 1904 went on
unchecked until March, 1905. A slight decline in April was followed in May
by a decided break in prices. But next month a new speculation for the rise
began, which was carried on writh few checks to a culmination in January,
1906—and that in the face of call-loan rates which averaged over 9 per cent
from October to January.
The stock-exchange record of 1906 was far less brilliant—again as in England and Germany. The general course was downward from the culmination
in January to a much lower level in May. In June and Julv the market seemed
to hesitate; but in August announcements of increased dividends on the Harriman railways, and the resumption of dividends on the common stock of the
United States Steel Corporation led to another great outburst of speculation
and an upward rush of prices. For the rest of the year the market wavered
around the high level established in August, never getting quite back to the
January climax and gradually weakening toward the end of the year.
VIII.

T H E CRISIS OF 1 9 0 7

The international crisis which terminated this period of business expansion
came in 1907. The American panic of October and November was but its most
violent manifestation.
1. England
English statistical indices of the volume of business in 1907 almost all show
increases above the high records of 1906. But in the former year the tide was
rising; in 1907 it was receding. The upward movement of prices culminated
as early as May, and after midsummer trade activity began to slacken. However, the large amount of orders already on hand kept production on a high
level until the close of the year. The high rates of interest, which continued
from 1906 both in England and elsewhere, handicapped business by discouraging the attempt to raise new capital. On the stock exchange both speculators
and professional dealers suffered heavy losses. During the first semester the



8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

activity of general business left but a small surplus of funds for investment
and speculation; during the second semester discouragement was felt over the
curtailed business expansion. The English crisis, however, bade fair to be as
quiet and uneventful as the crisis of 1900. But the collapse of credit in
America in October and November led to an enormous outflow of gold, threatened British investors with heavy losses, and compelled the Bank of England
to advance its rate to 7 per cent. Elastic as the financial organization of England is, the strain of this foreign panic was severely felt, and business fell off
at a more rapid rate.34
2. Germany
Germany, also, had clearly passed the climax of her " b o o m " some months
before the American panic occurred. Prices had turned downward, the peculiarly sensitive iron and steel markets had begun to weaken, industries which
depended upon current borrowings—like the building trades, and shipbuilding
—were less active, the labor market showed an increase in the number of men
seeking jobs as early as July, investors were apparently losing confidence in
industrial shares, interest rates continued to rise, the course of quotations on
the bourse was downward, and complaints multiplied about the high cost of
living, the heavy expenses of doing business, and the decline of net profits.
But the recession of activity which had begun wras very gradual until October.
Then the bad news from New York greatly intensified the stringency of money,
and led the Reichsbank to raise its rate to 7 ^ per cent. At once the slow
decline of activity became rapid. One bank failed, two conspicuous speculators wrent bankrupt, and credit received a severe shock. But cooperation
among the great financial institutions tided over the difficult months, and Germany had no panic.
3. France
France once again came off with little loss. The Bank did not raise its
discount rate above 4 per cent, and was able to render liberal assistance to the
money market of London and hence indirectly to all money markets. Even
on the bourse the American panic was but slightly felt; only a few of the
securities fell in price, and these few were mainly American railways. General business was not seriously hampered by dear money, manufactures maintained the course of moderate prosperity which had characterized 1905 and
1906, and railways had a considerable increase of traffic. Never, in short, was
the strong side of French conservatism more conspicuous by contrast with the
weak side of American and German enterprise than in 1907.
s-t A fuller account of this crisis is given below in chapter xii.




MITCHELL: BUSINESS CYCLES

77

4. The United States
The course of events in the United States was in general like that in England and Germany, save that our credit and banking system broke down under
the strain. The crisis—that is, the recession of business activity—antedated
the panic by several months. It is true that the volume of general business
and the rate of industrial production gave few signs of waning before the bank
failures of November. But prices of raw materials had begun to recede in
the spring or early summer, new orders were lighter in the iron and steel trades,
the copper market was oppressed by the accumulation of unsold stocks, and
three large industrial enterprises—Milliken Brothers, a steel firm, the Pope
Manufacturing Company, makers of automobiles, etc., and several of the Westingliouse companies, manufacturers of electrical equipment—were forced into
the hands of receivers in June, August and October. Meanwhile the investment
market for loans was becoming more and more stringent. Even the strongest
railways were giving up the effort to sell long-time bonds, and substituting
two- or three-year notes to meet their most pressing capital requirements. New
York City, after three unsuccessful attempts to float 4 per cent bonds, finally
yielded to necessity and on August 26th offered $40,000,000 at 4y 2 per cent.
On the stock exchange the difficulty of maintaining the level of quotations
which characterized the later months of 1906 became an impossibility in 1907.
A rapid fall in January and February developed in March into a crash of
prices, in which all the gains of the post-election " b o o m " of 1904 and the " b u l l "
campaigns of 1905 and 1906 were lost. April brought a partial recovery; but in
May and June prices sagged again. Another upward turn in July was followed by a second crash in August, when the low prices of March were eclipsed.
Early in September the market showed a little strength, but presently prices
began to decline once more, and the bank embarrassments which started the
panic in October came on a falling market.
Acute trouble began with the suspicion which fell upon certain New York
banks, controlled by a group of financiers who were believed to have suffered
heavy losses through the decline in the prices of copper stocks. To forestall
a general loss of confidence, the clearing house examined the affairs of those
among the threatened institutions which belonged to the association, and agreed
to give them such assistance as they might need. The publication of this news
in the morning papers of October 21 did much to allay distrust. A panic might
have been averted had not the clearing agent of one of the largest trust companies in the city announced late on the same day that after October 22 it would
refuse to be responsible for checks against this client. Next morning the trust
company opened its doors to a run and after paying out $8,000,000 to clamorous
depositors suspended payments.




8G

MEMOIRS OF T H E UNIVERSITY OF CALIFORNIA

The panic which followed exhibited all the usual phenomena: runs upon
banks and trust companies, hoarding of money, a premium upon currency,
restriction of payments by the banks, call-loan rates above 100 per cent, unsalability of commercial paper, a severe decline of prices on the stock exchange,
heavy bankruptcies, the interruption of general business from inability to get
money for pay-rolls, difficulty in making collections, and demoralization of
the domestic exchanges. From New7 York as a center these conditions spread
rapidly over the whole country. By way of remedy, money pools for lending
on the stock exchange w7ere formed; clearing-house loan certificates were issued
both for settlement of bank balances and for general circulation; legal holidays
were declared by the governors of Nevada, Oregon, and California; national
banks increased their note issues as rapidly as possible; the secretary of the
treasury enlarged the government deposits in banks by some $35,000,000 and
offered new government securities for sale; and over $100,000,000 of gold was
imported from Europe in November and December. By the end of the year
the panic was under control and business passed into the phase of depression.35
IX.

T H E DEPRESSION OF 1 9 0 8 - 0 9 AND THE REVIVAL OF 1 9 0 9 - 1 1 IN ENGLAND AND
GERMANY

The crises of 1890 and 1900 had both been followed by about four years of
depression in all three of our European countries. But not more than a year
or a year and a half of dullness followed the crisis of 1907. In reviving again
business was repeating its history; in reviving so quickly it was repeating its
history with a difference. A further difference presently appeared. In 1910,
for the first time in twenty years, business cycles took opposite directions in
different European countries. Conservative France went off with enterprising
America upon the path of decline, leaving England and Germany together upon
the highway of prosperity. The closing years of our period are therefore not
without points of novelty.
1. England
W e have seen that signs of an approaching crisis appeared in England
early in the summer of 1907. The outbreak of panic in America aggravated
the difficulties arising from local conditions by causing an extreme advance in
discount rates. Although no panic occurred in England, business received a
severe check. As the orders already booked by merchants and manufacturers
were filled, the activity of trade began to slacken.
Soon after the beginning of 1908 this decline in the volume of business
became rapid. Export trade suffered not only from depression in America,
but also from a falling off of oriental demand. Heavy bankruptcies which
35 A fuller account of this panic is given in chapter xii, below.




MITCHELL: BUSINESS CYCLES

79

had occurred among Chinese and Japanese merchants affected the market for
cotton goods. Harvest failure and commercial depression in India crippled
England's most important customer. Under these unfavorable conditions the
aggregate value of exports fell over 11 per cent behind the record of 1907.
That domestic business likewise suffered was shown by a decline in railway
receipts and in the profits of joint-stock companies, by a decrease in employment, reductions of wages, and numerous bankruptcies. Probably the farmers
fared best. While the crops did not quite equal those of 1907, still they were
well above the ten-year averages.
As usual in times of depression, money became cheap and abundant. From
the crisis figure of 7 per cent, the bank rate was gradually reduced to 21//o per
cent by the twenty-eighth of May, at which figure it remained for the rest of
the year. Corporations, both domestic and foreign, hastened to avail themselves of these low rates. Many loan applications which had been deferred
because of the unfavorable market for bonds in 1906-07 were now brought forward, and other companies which had sold one- or two-year notes to meet their
most pressing requirements now sought to fund these floating debts. Consequently, while general business was declining in volume, the volume of investment business broke all records.
Just how long this depression lasted it is difficult to say. Unemployment
was greatest in October, 1908; wholesale prices were lowest in February, 1909 ;36
the import trade did not begin to recover until April and the export trade not
until June, 1909; wages did not show an increase until the last quarter of the
year. But it is certain that a turn for the better occurred late in 1908 or early
in 1909. While the first months of the latter year found industry still inactive,
the later months brought a vigorous revival. In few departments of business
were the high records of 1907 equalled, the Lancashire cotton trade was slow
in recovering from the slump in Indian purchases, and the high cost of living
caused bitter complaint; but by the close of the year prosperity was fairly
re-established. Railway receipts, corporation profits, security prices, clearings,
and interest rates were all higher. The farmers were troubled by wet weather
in harvest, but had a fairly successful year. The number of business failures
was the lowest for a decade. But, owing both to the higher rates of interest
and to the satisfaction of deferred demands for capital, the volume of recorded
investments was somewhat smaller than in 1908.
The revival of 1909 made rapid progress in 1910. Indeed, England was
distinctly the most prosperous among the great nations of the world in this
year. Her imports, exports, re-exports, bank clearings, and capital investments all surpassed the previous high records. Business failures were even
fewer than in 1909, unemployment shrank again, wages increased, and wholesale
prices continued to rise. The farmers did not share fully in the general prosao Sauerbeck.




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

perity; but despite another wet season did fairly well. A " b o o m " in rubber
and oil stocks attested the buoyant optimism of investors. Even the occurrence
of two general elections in a single year could not check the rising tide. And
the year closed writh bright prospects of a further increase in the volume of
trade during 1911.
This promise was measurably fulfilled. The wroolen, shipbuilding, iron,
steel, shoe, and cotton trades were highly prosperous; exports increased 5.6
per cent; railway receipts were larger; the percentage of unemployed members
among trade-unions wras less than in any year since 1900; wages were materially
increased; the farmers had a profitable season, for though yields were reduced
by drought the quality of the crops was excellent and prices wrere high. But
several untoward developments marred the record. Building was not active;
the tin-plate trade suffered a decline of orders from America; all the trades
using sugar as an important raw material were injured by its high cost; the
coal trade was kept in uncertainty by the prospect of labor troubles; the railways had a great strike to contend with; the high cost of living augmented the
unrest among wage-earners in many other trades; and financial affairs were
disturbed by a fear of war writh Germany. One savings institution assigned,
and a second had to be taken over by a group of banks. The applications for
fresh capital, while large, were less than in 1910. The stock exchange was
dull in the second half-year, and the prices of securities sagged. As a consequence town clearings fell off, while country clearings, both in London and in
the provinces, increased. The Economist's table of the profits of upwards of
two hundred industrial companies showred an average gain of 8.6 per cent over
1909-10; but the gains were slight in the last three months, suggesting that the
boom was passing.
2. Germany
The course of business in Germany from 1907 to 1911 differed only in degree
from that in England.
A panic was avoided in 1907, but 1908 brought a severe depression. The
cartels, which have recently come to play so large a role in Germany, endeavored to meet the situation by preventing the cutting of prices. In this policy
they achieved measurable success, but at the expense of a severe restriction in
production, and much friction with their customers. A few of the weaker
cartels broke up under the strain, and the process of forming new organizations
of this type was temporarily checked. Meanwhile foreign commerce fell off,
unemployment increased, and the urban demand for consumers' goods shrank.
The farmers, however, had good harvests, and their enlarged purchases made
up in a measure for the slack demand from other quarters.
A revival of activity came in 1909, but it seems to have begun a few months
later than in England. The stock market developed animation in the second




MITCHELL:

BUSINESS

CYCLES

81

third of the year, but it was not until after midsummer that a change for the
better was distinctly marked. Excellent harvests, combined with high prices
for farm products, supported the movement. Heavy applications for longtime loans showed that the industrial companies anticipated an increase of
orders and wished to extend their facilities. That the investing public had
confidence was shown by the readiness with which it turned from investments
in bonds bearing a fixed interest to investments in stocks bearing variable
dividends.
The good promises of 1909 were amply fulfilled by 1910. Prosperity
extended steadily in almost all branches of trade. Both the foreign and the
domestic demand for German products increased, and unemployment diminished. Interest rates rose again, and the volume of new security issues declined
somewhat. But, satisfactory as the year was for German business, it did not
attain the pitch of activity prevailing in England.
Poor harvests caused by drought diminished the further expansion of
trade in 1911. The prices of food rose to an extraordinary level, while the
prices of raw mineral products were moderate. Nevertheless, the coal, iron
and steel trades were extremely active. Railroad receipts, unemployment
returns, and statistics of exports and imports all testified that the volume of
business was greater than in 1910. As in England, however, the financial
markets had a different story to tell. The threat of war with England and
France caused the recall of French funds invested in German bills, also the
withdrawal of large sums from the banks by local depositors. Prices fell
heavily on the stock exchange, new security issues were checked, interest rates
were uncertain and high. The banks were able to borrow heavily from New
York, however, and the tension relaxed when the warcloud blew over. On
the whole the year was one of marked prosperity; but not prosperity of such
intensity as that of 1899 or 1906.37
X .

T H E D E P R E S S I O N OF 1 9 0 8 , T H E R E V I V A L OF 1 9 0 9 , A N D T H E R E A C T I O N OF
1 9 1 0 - 1 1 IN F R A N C E AND T H E U N I T E D

STATES

1. France
France did not remain immune from the depression of 1908, but she was
affected less than England or Germany. Industrial activity declined somewhat in comparison with 1907, but was not much below what the French commentators considered normal. Business men set their affairs in order with
little difficulty, and by the end of the year were ready for a revival of activity
when the first favorable impetus should come.
37 For business conditions in Germany in 1910 and 1911 I have relied upon L. Pohle's reviews published
in the February numbers of the Zeitschrift fiir Socialwissenschaft, 1911 and 1912.




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

As in the case of her neighbors, so in that of France, a distinct revival began
in 1909. Both in domestic industry and trade and in foreign commerce there
was greater activity. The shares of industrial companies and of banks, as well
as government securities, rose in price. Aside from wine-growers, the farmers
fared well. The great coal, iron, and steel producers had a busy season, and
the year ended with prospects of greater prosperity in 1910.
Unfortunately, these promises were not fulfilled in France, as they were
in England and in Germany. Extraordinary floods interfered with spring
planting and heavy rains interfered with harvests. Both the wine and the
grain growrers had a wretched season. In a country where agriculture is so
important in comparison with manufacturing, serious loss to the farmers means
a poor year for general business. Extensive strikes added to the trouble.
Increase in foreign commerce and activity in financial circles were slight
compensations for agricultural depression. Hence the parallelism between the
course of business in England, Germany, and France was notably broken in
1910. While the former countries enjoyed heightened prosperity, France
relapsed into depression.
In 1911 the harvests once more suffered, this time from drought; but the
shortage was not so great as in 1910. Industry and commerce appear to have
rallied from depression, but they did not attain high prosperity. The strained
relations with Germany arising from the Moroccan situation caused heavy
withdrawals from the banks, and compelled the latter to restrict their advances
to merchants, manufacturers, and dealers in securities. At one time the strange
spectacle was presented of New York lending money to Paris on a large scale.
Importations were increased beyond all precedent: but the huge total resulted
less from prosperity than from the short crops harvested in 1910. Riots
ascribed to the high cost of living caused much sensation. On the whole, the
year was one of unrest and uncertainty, but not one of serious depression.
2. The United States
In America the panic of 1907 wras followed by what the Financial Review
declared to be the worst industrial paralysis in the country's history.38 During
the first half of 1908 the production of pig-iron was barely more than 50 per
cent of the production in the first half of 1907. Other trades making producers' goods suffered almost as severely. Of course, the total volume of trade
did not shrink in so extreme a degree, because purchases of food, clothing, and
the like cannot be stopped or postponed like the purchase of pig-iron. But
from January to August railway gross earnings showed losses of from 12 to
20 per cent each month, and clearings outside New York losses of from 12 to
17 per cent in comparison writh the corresponding months of the preceding year.
38 The Financial Review, 1909, p. 11.




MITCHELL: BUSINESS CYCLES

83

Unemployment assumed extraordinary proportions in the industrial centers,
and emigration ran far beyond immigration.
In sharp contrast with this industrial and commercial depression was the
buoyancy which presently developed in the financial markets. After February
the prices of stocks began to rise and this movement continued without a serious
check to the end of the year. By January, 1909, the railway shares had
regained all the losses of the panic year, standing substantially where they had
stood in January, 1907. No doubt this movement was greatly facilitated by
the exceedingly low rates for mone}^ which came within two or three months
after the close of the panic. With call loans to be had for less than 2 per cent,
it was profitable to borrow money and buy securities which yielded interest or
dividends of 4 per cent or over:30 But the heavy purchases of stocks and bonds
were also proof of reviving confidence; for men will not risk the purchase of
securities with borrowed funds for the sake of a small margin of gain in interest,
unless they think that the securities are more likely to rise than to fall on their
hands.
In the autumn the hopeful tone began to extend from financial to commercial
and industrial circles. Despite the slow rate of consumption, stocks of goods
on the shelves of merchants and in the yards and warehouses of manufacturers
had run so low that increased purchases became necessary. The second half
of the year, accordingly, and still more the last quarter, brought a distinct
increase in the volume of production and of general business. Good crops
and high prices for agricultural products provided a firm foundation for the
incipient revival.
During the winter and spring months of 1909 business was conducted in a
rather cautious manner. The steel trade was disturbed in February by wild
cutting of prices. Throughout 1908 the United States Steel Corporation had
held stubbornly to the policy of maintaining the selling prices of its products.
But, concluding that its competitors were secretly selling at reduced rates, the
corporation finally changed its policy and announced that it would " protect
its customers." The active canvass for orders which followed soon bore fruit
and in the second half of 1909 the output of pig-iron broke all records. Meanwhile such indices of the volume of general business as railway gross receipts
and clearings outside of New York showed steady gains and in the latter part
of the year ran ahead not only of* the figures for 1908 but also of the higher
figures for 1907. Seemingly the improvement in business conditions began at
least as early in America as in Europe and proceeded at a more rapid pace.
It is certain at least that wholesale prices rose more rapidly during 1909 in
the United States than in England, France, or Germany.40 And once again
so See the monthly statistics of security prices and interest rates in chapter iv, section iv, below.
4 0 See the table of relative prices of identical commodities in the United States and England, the United
States and France, and the United States and Germany, in chapter iv, section i.




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

good crops (except of cotton), selling at high prices, added their powerful
influence to the factors which made for prosperity.
We have seen that the revival of 1909 made rapid progress in both England
and Germany during 1910, and that it was checked in France by an extremely
bad season for the farmers. For once the course of affairs in the United States
resembled that in France more closely than that in the other two countries.
But the recession of activity in America wras not due to agricultural disasters.
On the contrary, the American crops were bounteous, wTith the exceptions of
spring wheat and cotton, and, though prices were lowrer than in 1909, the
farmers as a whole had a profitable season.
As is often the case, the first signs of the coming reaction were given by the
stock exchange. The rise of transportation shares which had begun in March,
1908, ran on through 1909 with no serious check, and by December eclipsed
even the highest record of 1906. Early in 1910 a reverse movement set in,
which soon developed into a severe fall of prices. June brought the lowest
quotations for a majority of the stocks, but there was no marked advance in
the later months of the year. A decline of net earnings, caused by the necessity
of paying higher wages, and the opposition of the Interstate Commerce Commission to an advance of freight rates, were the explanations commonly given
of the pessimistic feeling of the market. Other matters of complaint were federal prosecutions of corporations, the prospect of further extension of federal
control over railway charges, and the growing popularity of radical policies in
politics—all tending, it wras alleged, to shake the confidence of business men
and investors. The money market gave no evidences of serious strain; but the
railways and other large corporations had increasing difficulty in selling bonds.
And since they could not raise money on favorable terms these enterprises
reduced their purchases of rolling stock, rails, etc., thus passing on the depression to other industries.
As in 1908 the rise of railway stocks foreshadowed an expansion of business,
so in 1910 the fall of railway stocks foreshadowed a contraction. The diminishing purchases of stocks and bonds, and the smaller issues of new securities
brought wTith them in April a decline in the bank clearings of New York. The
same month saw the beginning of a long decline in pig-iron production. From
the centers of finance and industry the reaction spread slowly to other parts
of the country. Outside of New York, clearings continued month by month
to exceed those of the year before, but by ever narrower margins. Finally,
in December the figures for 1910 fell below those for 1909. For the year as a
whole, the volume of production in most lines was a trifle greater than that
of the preceding year. But there was this significant difference—in 1909 the
tide was rising; it was ebbing in 1910. Toward the end of the year, however,
it was currently believed that the liquidation had nearly spent its force, and
that another expansion of business might be expected in 1911.



MITCHELL: BUSINESS CYCLES

85

The first month or two of the new year seemed to justify this belief; but
the later months rudely dispelled it. On February 23, the Interstate Commerce Commission announced its refusal to sanction the increases in rates which
both eastern and western railways declared were necessary. In consequence,
the railways adopted a policy of retrenchment, reduced their orders for new
equipment, and postponed when possible their plans for extensions. In many
other industries the leading enterprises adopted a similar policy because of
numerous "trust prosecutions." Apprehension was allayed in a measure by
the decisions of the Supreme Court in the Standard Oil and American Tobacco
cases. While the court ordered both combinations to be dissolved, it applied
the "rule of reason" in construing the "Sherman anti-trust act," and approved
plans by which the companies might be reorganized without heavy loss to the
shareholders. Fresh alarm, however, was caused in October by the bringing
of a federal suit against the United States Steel Corporation. Throughout
the year, in fact, enterprise on the part of large capitalists was materially
checked by uncertainty regarding the legal position of business combinations.
Hence all the trades that depend upon the volume of new construction put
under contract found 1911 a dull year.
Finance, of course, reflected this dullness in exaggerated fashion. Stock
prices sagged downward to a low point in September, and the volume of transactions was smaller than in any year since 1898. Money was such a drug
upon the market that New York banks found better rates for loans in Berlin
and Paris than at home. New York clearings, affected by these conditions,
fell 5 per cent below the moderate totals of 1910. Outside of New York, commerce and industry were depressed, indeed, but moderately. Clearings indicated a gain, but one less than the average—1.2 per cent. Poor crops probably
had as large a share in this result as financial uncertainty. An unprecedented
period of hot weather cut short the yields of grains. The hay crop was estimated to be the smallest since 1895, and the yield of potatoes was deficient.
Alone among the great staples, cotton did well—indeed, better than well, for
the crop was by far the largest on record. As a result of the short yield of
breadstuffs here and abroad the cost of food advanced; but other prices were
not well maintained.
Towards the end of the year depression relaxed somewhat. But in view
of the coming presidential election, the business prophets generally refused to
make optimistic forecasts for 1912.




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

XI.

SUMMARY

One who turns from reading economic theory to reading business history
is forcibly impressed by the artificiality of all assumptions of a "static'' or
even a 66 normal" condition in economic affairs. For, despite all efforts to
give technical meanings to these ambiguous terms, they suggest the idea of an
unchanging order, or of an order which economic principles are always tending
to re-establish after every aberration. But a review of business annals never
discloses the existence of a "static" or a "normal" state in either of these
senses. On the contrary, in the real world of business, affairs are always undergoing a cumulative change, always passing through some phase of a business
cycle into some other phase. Prosperity is relapsing into depression, or becoming more intense, or breeding a crisis; a crisis is degenerating into a panic, or
subsiding into depression; depression is becoming deeper, or merging into a
revival of prosperity. In fact, if not in theory, a state of change in business
conditions is the only "normal" state.
In recent years these changes have run a broadly similar course in different
countries. But the similarity is less close and less regular than is often implied
by writers who are celebrating the Weltwirtschaft.
The business cycles of
1889-1911 synchronise better for England, France, and Germany than for any
of these European countries and America. France had a crisis in 1889, some
eighteen months before the Baring crisis occurred in England. German business revived in 1894, some time earlier than did French or English business.
Again, in 1904 depression continued for several months in England after distinct signs of revival had appeared in Germany and France. Finally, in 1910,
France suffered a recession of activity while England and Germany were
enjoying an increase in prosperity. But, save the last, these are all minor
differences, and there is no grave inaccuracy in assigning similar dates for the
beginning and end of each phase of the successive business cycles: crisis in
1889-90, depression until 1894, revival in 1894-95 running up to a flood tide
of prosperity in 1899, crisis in 1900, depression until 1903-04, revival followed
by great prosperity culminating in 1906, crisis in 1907, depression in 1908, and
revival once more in 1909.
These periods do not fit the United States. First the crop situation of 1891
destroyed the parallelism of events, making 1892 a good year in America while
it was a bad year abroad. Then the panic of 1893 was not accompanied by a
crisis in Europe. Again, revival after this panic wras delayed in the United
States until the summer of 1897, while European business had begun to improve
at least as early as 1895. The European crisis of 1900 was scarcely felt in
America and general business continued to expand in the face of European




MITCHELL: BUSINESS CYCLES

87

depression until 1903-04. The latter years were years of crisis here and years
of depression abroad. On the contrary, the revival in the autumn of 1904, the
prosperity of 1905-06, the crisis of 1907, the depression of 1908, and the revival
of 1909 were nearly contemporaneous with similar developments in European
business. At the very end of the period, however, another discrepancy
appeared. In 1910 business activity declined in America, while it rose in England and Germany.
With these differences in dates are joined differences in the intensity of
prosperity, crisis, and depression. French business pursues by far the most
even course. At the opposite extreme stands the United States, followed in
order by Germany and England. The most striking evidence of the extremes
to which American business runs is afforded by the peculiar violence of its
transitions from prosperity to depression. Since 1889, England, Germany,
and France have each had three crises; the United States alone has had panics.
The next step in the investigation is to examine in detail the various business
phenomena which have characterized the periods of prosperity, crisis, and
depression sketched in the present chapter. To appreciate the full significance
of the statistical tables which form our chief reliance it is necessary to keep in
mind the business character of each year in each of the four countries. Since
this task imposes a considerable burden on the memory, a tabular summary of
the business annals of 1889-1911 is appended in convenient form for reference.




8G

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE

1

S U M M A R Y OF B U S I N E S S C O N D I T I O N S IN T H E U N I T E D S T A T E S , E N G L A N D , G E R M A N Y A N D F R A N C E , FROM 1 8 8 9 TO

Years

United

England

States

High tide of prosperity1889

1890

1891

1892

1893
1894
1895

1896

1897

1898

1899

1900

1901

1902
1903

1904

1905
1906
1907
1908

1909
1910

1911

M o n e y market stringent in
summer; mild crisis in
autumn
Liquidation 1st half-year;
revival 2d half-year on
crop - situation
General business prosperous; heavy gold exports
P a n i c ; acute in M a y to
October
Deep depression
Revival in summer,
lowed b y relapse

fol-

Return of depression; pani c k y conditions in financial markets
1st half dull; 2d half great
improyement on crop situation
Prosperity rising rapidly
High tide of prosperity in
general business; difficulties on stock exchange
Slight pause in activity,
followed b y outburst of
speculation in autumn
Prosperity in general business; panic on stock exchange M a y 9
Prosperity continued
Financial liquidation; ' 'rich
man's p a n i c " ;
general
business still active
Mild industrial depression;
financial liquidation ended; great stock-market
speculation in autumn
Rapid gain in prosperity
High tide of prosperity;
money market stringent
Crisis, and severe panic in
October to December
Deep depression in trade
and industry; revival in
finance
Recuperation, marked in 2d
half-year
Return of depression in 2d
half-year
Mild depression




High tide of prosperity;
stringent money market in
autumn
Severe crisis in autumn—
failure of Barings
Financial prostration; no reduction of trade; poor
harvests
Shrinkage of trade; poor
crops and low prices
Deep depression
Depression continued; price
of consols rose
Strong revival 2d half-year

Germany

1911

France

Prosperity; stringent money
market in autumn

Crisis in M a r c h ;
liquidation

Crisis in autumn

Mild depression

Liquidation; bad harvests

Mild depression;
vests

Depression deeper

Diminishing activity

Deep depression

Business languishing or stag"
nant
Revival on bourse; inertia
elsewhere
Revival of commerce and
dustry; minor crisis o D
bourse
Moderate activity

Improvement toward close
Revival continued

prosperity

bad hat*

Trade revival maintained

Industrial
creased

Domestic business expanded;
foreign trade stationary

Prosperity
tensity

Improvement more rapid;
real prosperity
High tide of prosperity;
money market stringent in
autumn
Crisis; mild recession of activity

Brilliant year

Mediocre year

' ' Annus m ^ b i l i s ' * ; money
market stringent in autumn
Crisis; bank failures in autumn

Marked activity of trade and
industry

Ebbing of activity continued

Crisis more acute

Further slackening of business

Slight improvement

Depression

Disappointing year; business
recovery very slow

Slight improvement in latter
part of year

Little change; mild depression
Distinct improvement

Depression continued
till
near end of year; more
sanguine tone at close

Improvement continued, but
conditions uneven

Revival continued

Revival made rapid progress
High tide of
prosperity;
money market stringent
Crisis, intensified by American panic
Depression, especially in foreign trade; enormous o f ferings of new securities
Revival of activity

Revival made rapid progress
High tide of prosperity;
money market stringent
Crisis, intensified by American panic
Marked depression, deeper in
2d half of year

Further progress
Full prosperity

Revival of activity

Revival of activity

High tide of prosperity

Prosperity increasing

Reaction; disastrous
f o r farmers

Continued prosperity

Continued prosperity

Partial recovery

of

increased

in-

moderate

in-

Greater a c t i v i t y ; bad haf*
vests

Crisis; activity checked

Prosperity continued; crisi®
lightly f e l t
Check to activity

ye*r

PART II

STATISTICAL DATA CONCERNING THE
BUSINESS CYCLES OF 1890-1911 IN THE
UNITED STATES, ENGLAND,
FRANCE AND GERMANY







T H E F R A M E W O R K OF P A R T I I
In their several ways the three chapters of Part I state the problem to be
dealt with, and mark out the line of attack to be followed in Parts I I and I I I .
Chapter I shows how many different processes of current life are capable of
being made into plausible explanations of business cycles. By tracing the
broad outlines of the economic organization which has developed on the basis
of money economy, Chapter I I shows which among these processes is of controlling importance, and how the subordinate processes find their unity in it.
Finally, Chapter I I I , looking at the problem from the historical viewpoint,
sketches the rhythmical expansions and contractions which business activity has
undergone in recent years. Thus the actual courses followed by business cycles,
the controlling factors in business activity, and the latest theories about the
causes of prosperity, crisis, and depression are all before us.
But to understand business cycles we need more definite and more systematic
knowledge of the phenomena than has yet been provided. So much Chapter I
makes clear. Are crises due to under-consumption ?—or to high costs of constructions—or to the dissimilar price fluctuations of organic and inorganic
materials?—or to the lagging adjustment of interest rates to changes in the
Price level ? To test such theories adequately we must know the facts. Does
the demand for consumers' goods actually grow more slowly than the supply in
the years preceding a crisis?—do the costs of constructing new industrial equipment actually rise so fast as to discourage investment ?—do the prices of farm
products actually fluctuate in a different fashion from the prices of coal, iron,
and copper?—do interest rates actually lag behind prices on the rise and fall?
One and all, these crucial questions emphasize the need of comprehensive
statistics. We are not, indeed, planning to center the investigation about the
testing of the theories reviewed in Chapter I ; but for an investigation upon
any lines we must provide such statistical data as these theories show to be
required.
To meet this requirement as well as may be is the task of Part II. Business
statistics, however, are exceedingly voluminous, and some clear principle is
needed as a guide no less in rejecting what is irrelevant than in selecting what
is illuminating. Chapter I suggests the general rule that all data are pertinent
which bear upon any of the causes assigned for business cycles by our numerous
theorists. Chapter I I I shows what kinds of data are regarded as important
b y the empirical editors of business periodicals. Chapter I I provides a definite




[91]

92

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

framework within which all the ideas suggested by Chapters I and I I I may
find their proper places. For this chapter shows that the money economy
subordinates the industrial process of making goods and the commercial process
of distributing them to the business process of making money. Accordingly,
the ebb and flow of economic activity is brought into dependence upon the
profits of business enterprises. Upon this basic fact the whole investigation
rests. Profits, in their turn, depend upon the margins between buying and
selling prices, and upon the volume of transactions. First, then, we must seek
for data to measure variations in prices and variations in the volume of trade.
And Chapter I I makes it clear that the prices of importance in gauging profits
are not merely the prices of commodities, but also the prices of labor, of loans,
and of business enterprises themselves.
But these statistics of prices and the volume of trade, presented in Chapters
I V and V, are far from covering the field. Business cannot be carried on
without the use of currency and of bank accommodation. Accordingly Chapters
V I and V I I are devoted to the mechanism of exchange and to those changes
in the condition of the banks which relate especially to their powers of lending.
Chapter I I also shows that the business men in control of enterprises are not
the ultimate authorities in guiding economic activity; for their larger plans at
any rate require the support of investors. Hence an attempt must be made
to measure the fluctuations in the sums saved and put into business enterprises
—whether as stable investments or as speculative ventures. Chapter V I I I
has this aim. Finally, Chapter I X assembles the best of the materials which
purport to show directly the changes in profits, and presents also the cognate
statistics of bankruptcies.
While each of the chapters which follow begins abruptly, ends abruptly,
and stands in a measure alone, still the reader will appreciate that this collection
of statistical data has been made on a definite plan. Every chapter bears upon
the crucial problem of business profits, either by dealing with factors which
determine profits, like prices and the volume of trade; or by dealing with necessary conditions for the successful quest of profits, like the currency, banking,
and investment; or by offering direct gauges of business success and failure,
like the statistics of profits themselves and of bankruptcies.




CHAPTER

T H E

F L U C T U A T I O N S

I.

O F

IV

P R I C E S

S I N C E

1890

T H E P R I C E S OF C O M M O D I T I E S

1. The Available Data and the Methods of Analysis
For his or iginal data concerning the prices of commodities a private investigator must depend upon the materials published by governmental bureaus
and by business periodicals. The books of business enterprises are not open
to his inspection, and if they were his resources would be unequal to the heavy
task of sifting out from the masses of useless entries the data fitted for statistical elaboration.
,,
J
Despite the growing interest felt in price movements, the published data
still leave much to be desired. Out of the thousands of commodities bought
and sold, the most extensive tables quote less than three hundred.1 The selection depends less on the information which is desired than on the information
which happens to be available. Goods which change substantially in quality
from year to year must be rejected, and for goods which are usually the subject
of private bargains it is difficult to secure quotations. For the most part, only
those commodities are included which are dealt in on public exchanges and
those for which dealers post their buying or selling prices. Hence it happens
that the various parts of the system of prices are most unevenly covered.
Relatively abundant quotations can be had for the staple raw materials, while
the data concerning manufactured goods, whether used by producers or consumers, are relatively scanty. Moreover, the market reports and list prices
given to the public cannot always be trusted, because many transactions are
made on the basis of concessions from or additions to the standard rates
Particularly in times of crisis, when the markets become demoralized,
and in times of intense activity, when premiums are paid for quick deliveries,
the published tables probably understate the real fall and rise of prices.
Finally, a considerable part of the business transacted at any given time is
done on the basis of prices fixed by earlier contracts, and these contract prices
often differ notably from the current quotations.
i~The~compilers of Dun's index nnmber professed to include some 350 commodities; but they did not publish the actual prices.




[93]

94

#

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

With all its defects, however, the available material can be made to yield
much information under systematic examination. If some conclusions go awry
because of errors or omissions in the data, the blunders may prove the most
effective stimulus toward securing better data for the future. For the importance of full records of prices to communities where making and spending
money is the road to welfare can be made most clear by boldly developing the
full significance of the scanty present records.
On examination, the recorded prices of different commodities at successive
dates show a bewildering diversity of fluctuations. Some remain unchanged,
some rise, some fall; the rates of advance and decline vary widely. Under
these circumstances the primary aim of analysis is to ascertain merely the
general trend of the movements—the average variations. The first step in the
method employed for this purpose is to turn the actual prices of each commodity into a series of relative prices, computed as percentages of the actual
prices at some stated period. Wherever possible in the following tables, the
average actual prices of the decade 1890-99 are taken as the basis; that is, they
represent 100 in the scale of relative prices. The second step is to add together
the relative prices of the different commodities in each year, and divide the
total by the number of commodities. The resulting arithmetic means of the
relative prices may not be the most perfect measurements of average variation
in prices; but they are sufficiently accurate for present purposes, and in addition are easy to compute and easy to understand. To expend much labor in
refined elaboration of data subject to a broad margin of error is pedantic.
Occasion will presently arise to discuss the representative character of these
index numbers, and to show how wide a field is covered by deviations from
the average.2 Meanwhile the method just described is applied to measure the
average fluctuations characteristic of different parts of the system of prices.
The presentation corresponds as closely as may be to the analysis of that system
made in Chapter II.
2. The Prices of Consumers9 Goods at Retail
The only systematic collection of American prices at retail since 1890 is a
table compiled by the United States Bureau of Labor, showing the prices of
thirty staple foods. The data are collected by agents of the bureau from
upwards of a thousand retail dealers in towns dotted all over the country.3 The
results of this investigation in their most general form are given in Table 2.4
2 See subdivisions 7 and 8 of the present section.
3 For a full description of the character and scope of the data see Eighteenth Annual Report of the Commissioner of Labor, pp. 635-661, and Bulletin of the Bureau of Labor, July, 1908, pp. 181-214.
4 Here, and in most of the subsequent tables, I have dropped the decimal places. Decimals make comparisons between different figures somewhat less easy, and the appearance of greater accuracy which they give
to index numbers is delusive. The margin of error in the original data makes vain the pretension to accuracy within one-tenth of one per cent. For the original figures see Bulletin of the Bureau of Labor, July, 1908,
p. 185.




MITCHELL: BUSINESS CYCLES

95

TABLE 2
RELATIVE R E T A I L PRICES OF T H I R T Y STAPLE FOODS IN THE U N I T E D STATES.

Arithmetic means.

B Y YEARS,

1890-1907

Average actual prices in 1890-99 = 100

189 0

102

1899

189 1

103

1900

100

189 2

102

1901

105

189 3

104

1902

Ill

189 4

100

1903

Ill

189 5

98

1904

112

^

102

189 6

9G

1905

113

189 7

96

1906

116

189 8

98

1907

121

These figures indicate a certain correspondence between retail prices and
business conditions. In 1893, indeed, the thirty foods rose slightly instead of
falling; but they declined during the dull years which followed the panic, and
rose again when prosperity returned. This rise was slow until 1900-02; it
became slow again in 1902-04; but rapid in 1905-07. The panic of 1907 came
too late in the autumn to exercise much influence upon the average retail price
level of that year. On the whole, this series reflects the course of business
cycles more faithfully than might have been expected. For the supply of
vegetable and animal foods varies in an arbitrary fashion determined by the
weather, and the demand for staple foods is less affected by prosperity and
depression than that for more dispensible commodities.5
5 Since this chapter was written the Bureau of Labor has begun to publish a new index number of food
prices at retail. Unfortunately, this new series is not fairly comparable with the old one, because (1) the
number of commodities has been reduced from 30 to 15, (2) the description and presumably the quality of
several of the commodities included by both series has been changed, and (3) the data for the new series are
collected from a new and smaller list of towns.
The results of the two series agree closely in 1890-1900, but in 1901-07 the new series shows a distinctly
higher level of fluctuations. As between the two, the older and more comprehensive series appears to be
the more trustworthy. The sole advantage of the new series is that it covers the years since the last great
crisis. In the bad year 1908 food prices rose; they lose further during the business revival of 1909, and
further still during the reaction of 1910, but finally subsided a little in the dull times of 1911. The simple
averages of the two series are as follows:

Old series
New series
30 commodities 15 commodities

Old series
New series
30 commodities 15 commodities

189 0
189 1
189 2
189 3
189 4
189 5
189 6
189 7
189 8
189 9
190 0

102.1
103.4
101.8
104.1
100.3
98.2
95.8
96.3
98.5
99.6
101.5

102.0
103.6
101.7
104.6
99.5
97.2
94.9
96.4
99.4
100.6
102.9

190 1
190 2
190 3
190 4
190 5
190 6
190 7
190 8
190 9
191 0
191 1

105.5
110.9
110.9
111.6
112.5
116.2
120.7

109.5
116.8
116.9
118.3
118.3
122.4
128.0
132.5
140.3
148.5
146.9

See Bulletin of the Bureau of Labor, no. 105, Part I, *' Retail Prices and Cost of Living Series."
23, 1912.




August

96

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

3. The Prices of Consumers' Goods at Wholesale
Three index numbers of wholesale prices in the United States are currently
published, one by the federal Bureau of Labor, one by Bradstreets', and one
by Thomas Gibson in continuation of the Dun series which was suspended in
May, 1907.° None of these index numbers in its published form suffices for
the purposes of the present investigation, because in none of them are prices
grouped in such fashion as to correspond to the divisions of the system of prices
outlined in Chapter II, or in such fashion as to admit of testing certain theories
of business cycles summarized in Chapter I. It is therefore necessary to work
out new results from the published materials. For this purpose, the Bureau
of Labor tables afford the best source. The prices of single commodities
included in Dun's series have never been published, while Bradstreets' data
in their present form do not begin before 1892 and cover only 106 articles. The
following tables have been made, accordingly, by regrouping and averaging
the series of relative prices found in the Bulletin of the Bureau of Labor.1
Of the 145 series of relative prices derived from this source, 55 are for
commodities bought almost exclusively for family consumption.8 To gauge
the correspondence between the fluctuations of consumers' goods at wholesale
and retail, however, it is best to use data for substantially similar commodities.
Twenty-five of the thirty foods included in Table 2 are also included in the
wholesale price data. Accordingly it is possible to present a comparison
between prices at wholesale and retail which is not vitiated by the presence of
dissimilar commodities in the two lists.0
« See Bulletin of the Bureau of Labor, March issue of each year since 1902; Bradstreetspassim;
J. P. Norton, Quarterly Journal of Economics, August, 1910, pp. 750-759.
7 A convenient summary of the American and foreign index numbers f o r varying periods of years is given
in the Report of the Massachusetts Commission on the Cost of Living, Boston, 1910. See also subdivisions 8 and
9 of the present section.
s The bureau's tables include about 250-260 commodities; but many are nearly identical articles; f o r example, 10 varieties of cotton sheetings. In dealing with such groups I have preferred to use only the average
relative prices of all the series included within them. The bureau's method obviously allows the commodities represented b y several varieties to exercise undue weight upon the results. It is this process of grouping which reduces the number of series f r o m over 250 to 145. The new results, however, differ little f r o m
the old—a fresh confirmation of the often noted f a c t that systems of weighting make comparatively slight
differences in a large index number. See Table 9, below.
o Such is the case with the Bureau of L a b o r ' s comparison between the relative prices of 30 f o o d s at retail
and 54 f o o d s at wholesale (Bulletin, July, 1908, pp. 195, 196). In order to make the comparison still closer,
I have not used relative retail prices f o r the whole country, as in Table 2, but f o r the North Atlantic states
when the wholesale prices are from New York, and f o r the North Central states when the wholesale prices
are from Chicago. The list of foods included is as follows: Apples (evaporated), beans, beef (fresh), beef (salt),
bread, butter, cheese, coffee, cornmeal, eggs, fish ( s a l t ) , flour ( w h e a t ) , lard, milk, molasses, mutton, bacon,
pickled pork, hams, potatoes, prunes, rice, sugar, tea, vinegar.




97

MITCHELL: BUSINESS CYCLES

TABLE

3

RELATIVE PRICES OF T W E N T Y - F I V E STAPLE FOODS AT RETAIL AND W H O L E S A L E IN THE UNITED STATES
B Y YEARS,
Arithmetic means.
At
retail

Year

1890-1907

A v e r a g e actual prices in 1 8 9 0 - 9 9 =

At
wholesale

100
At
wholesale

At
retail

Year

1890

102

109

1899

99

96

1891

104

113

1900

101

101

1892

102

105

1901

105

104

110

113
107

1893

105

115

1902

1894

100

103

1903

110

1895

98

96

1904

110

106

1896

95

84

1905

111

107

1897

96

86

1906

114

113

1898

98.

93

1907

119

117

CHART
RELATIVE.

PRICES
AT

1.

OF T W E N T Y - FIVE

WHOLESALE

AND

1890 -

STAPLE

FOODS

1907.

—

—

—

RETAIL..

AT

RETAIL.

AT

WHOLESALE.
120

120

4
MO

y
R —

\

/

\
\

\

\f

/

/

i

\
\

\\

/
\

Y

\
\

100

t

/•
.
\

^

«««

/
/

110

•
•

>

\
•O —

100

•
f

\
I
\

^

\
\

90

\
\
\

/

/

/

/

/
90

80

60

I8<90

'9 I




'9;i

'9:5

' 94

'95

'96

'97

'98

'99

1900

'01

'02

'03

'04

'05

'06

'07

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

98

While these two series agree closely in the general trend of fluctuations,
the retail prices are much more stable. They lag behind wholesale prices both
on the rise and on the fall, but more on the fall than on the rise. It is primarily
because retail prices yielded scarcely at all to the depression of 1903-04, while
wholesale prices fell several points, that the retail level stood higher in 1907.9a
4. The Prices of Producers' Goods
As consumers' goods at retail are more stable in price than the same goods
at wholesale, so consumers' goods, even at wholesale, are more stable in price
than producers' goods. The next table establishes this fact by comparing the
relative prices of 55 commodities bought almost wholly for family use and
of 73 commodities bought almost wholly for business use. The availability of
data by months for recent years makes it possible to carry out this comparison
in detail for the period including the latest crisis, depression, and revival of
business activity.
TABLE 4
R E L A T I V E P R I C E S OF C O N S U M E R S ' A N D P R O D U C E R S '

Arithmetic means.

GOODS

AT

WHOLESALE

IN

THE

UNITED

STATES

Average actual prices in 1890-99 — 100
BY

YEARS,

Year

Consumers'
goods

Producers'
goods

1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901

115
111
105
108
99
94
89
90
94
97
107
107

1890-1910

115
113
106
102
92
92
89
88
94
109
117
113

Consumers'
goods

Year

Producers'
goods

107
106
107
107
112
119
115
118
123

1902
1903
1904
1905
1906
1907
1908
1909
1910
Averages

1890-99
1900-09

119
120
120
124
132
140
125
131
140

100
111

100
124

t a The new retail-price index number mentioned in note 5 makes it possible to extend this comparison
>
through 1911, albeit with only 11 instead of 25 commodities, namely, bacon, beef, butter, corn meal, eggs,
granulated sugar, hams, lard, milk, potatoes, and wheat flour.
At
retail

190 7
190 8
190 9
191 0
191 1

At
wholesale

127
132
139
147
145

124
130
144
146
133

The lagging adjustment of retail to wholesale price fluctuations is strongly marked in these figures.




M I T C H E L L : BUSINESS CYCLES

TABLE

4—

B Y MONTHS,
Year

1907 January
February
March
April
May
June
July
August
September
October
November
December
,1908 January
February
March
April
May
June
July
August
September
October
November
December

Consumers'
goods

Producers'
goods

116

140

117

142

117

143

115

143

116

144

116

144

117

142

120

141

122

141

125

138

125

134

123

130

120

128

118

128

118

127

117

127

115

123

114

123

115

124

114

124

113

123

113

124

113

125

115

126

99

{Concluded)
1907-1910

Year

1909 January
February
March
April
May
June
July
August
September
October
November
December
1910 January
February
March
April
May
June
July
August
September
October
November
December

Consumers'
goods

Producers'
goods

116

127

116

127

116

127

117

128

117

130

116

130

117

129

116

130

118

132

120

135

123

137

124

139

125

141

124

141

124

142

122

141

121

140

120

138

120

139

122

140

124

139 '

124

138

124

138

125

138

The comparison by months shows that producers' goods reached their highest
point earlier in 1907 than consumers' goods, and were on the down grade several
months before the panic broke out. Their decline in 1908 was also greater in
degree, their recovery began sooner, and proceeded at a faster pace. In brief,
within short periods as within long, the prices of producers' goods appear to
be decidedly more sensitive than the prices of consumers' goods to alterations
in business conditions.
5. The Prices of Manufactured Goods and of Raw Materials
It is next in order to examine the relation between the prices of finished
products and the raw materials from which they are made, whether the products are bought chiefly by families or by business enterprises. The available
material offers twenty pairs of materials and their products, and five triplets
of materials, partially manufactured, and finished goods. Table 5 gives the
averages of both sets of data by years for 1890-1910, and by months since 1907.10
10 The twenty pairs are barley and malt, corn and cornmeal, flaxseed and linseed oil, rye and rye flour,
wheat and wheat flour, cotton and cotton textiles, wool and woolen textiles, cattle and beef, hogs and pork,
sheep and mutton, hides and leather, milk and cheese, coke and pig-iron, copper ingots and copper wire, lead
pig and lead pipe, petroleum (crude and refined), spelter and zinc, steel billets and tools, pine boards and
pine doors, window glass and glassware.
The five triplets are steel billets, steel rails, and tools; wheat, wheat flour, and bread; cotton, cotton yarns,
and cotton textiles; wool, worsted yams, and woolen textiles; hides, leather, and shoes.
The Bureau of Labor's comparison between the relative prices of raw materials and manufactured goods
includes many more commodities than the present one; but many of the materials in one list are not represented by products in the other list, and vice versa. The method employed here seems more reliable. Compare
Bulletin of the Bureau of Labor, March, 1910, pp. 392-394 and 398-399.




MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

100

Chart

2.
150

Relative: P r i c e s or T w e n t y R a w M a t e r i a l s
a n d their M a n u f a c t u r e d Products.
1690-1910.

140
MANUFACTURED

PRODUCTS.

130
/

/

/

/

/

\
\

\

•S

110

\
\

/

\

100

/

// //j

/

/

N

\

/

/

/

\

?

/

/

/

4

4
•

120

t•

1 10

/

100

r /
/
/

V \

\ N
\ \

\

\ \
\ \
\ V

\\

90

Js /

90

80

80
1090 '91

'92

'93 '94 '95 '96

'97

'98

'99

1900 01

chart

02

03

04

05

'06 '07

'08

09 1910

3
150

R e l a t i v e Prices o r Five Commodities in their R a w ,
B^rtially M a n u f a c t u r e d , a n d Finished S t a t e .
1890 -1310.

140

1
— —

130

120

110

130

\••

*

120

/

\

\\

-

PARTIALLY
MANUFACTURED
FINISHED
ARTICLES .

PRODUCTS

130

i —

\\ \
\ \
—a \
, 'x-k
A

100

'

N \\

\

/

f/ //

V

f/

, \\
V
\

\

\

/

/

\ \
N

\
\

/

"A

/

/

/

/

/

/

/ \\

/

4
/

120

NV / i
w\ J - >/

no

i
/r
/
I /.••
A

100

•f

\ \
\ \

90

/

/

/

"f"
i

/

f

. •

90

80

80
1890 91




'92

'93

'94

'95

96

97

'98

39 1900 01

'02

03

'04

'05

'06

07

'08

'09

1910

MITCHELL: BUSINESS CYCLES

TABLE
KELATIVE

WHOLESALE

P R I C E S OF R A W

Arithmetic means.

101

5

M A T E R I A L S AND T H E I R P R O D U C T S IN T H E U N I T E D

STATES

Average actual prices in 1890-99 = 100
B Y YEARS,

1890-1910

Twenty pairs

Five triplets

\

Year

Raw

Mfd.

Raw

Partly mfd.

1890

113

Ill

127

115

1891

114

114

117

115

108
107

1892

104

106

104

110

106

1893

99

104

95

103

105

1894

90

94

78

89

98

1895

94

95

88

90

95

Finished

1896

86

89

86

92

94

1897

89

90

93

90

94

1898

99

93

99

94

95

1899

113

104

113

100

98

1900

119

112

116

112

105

1901

120

112

109

101

102

1902

127

120

120

103

103

1903

124

115

123

109

106

1904

123

113

127

115

109

1905

128

119

130

114

114

1906

135

123

132

115

121

1907

145

133

137

120

121

1908

133

124

130

114

116

1909

142

128

146

124

117

1910

148

133

148

123

120

1890-99

100

100

100

100

100

1900-09

JBO

120

127

113

111

Averages

TWENTY

P A I R S BY M O N T H S ,

1907
Month

r

1907-1910

1908

1909
r

1910

Raw

Mfd.

Raw

129

138

122

155

136

128

137

123

156

137

Raw

Mfd. A

Raw

Mfd.

J anuary

144

130

136

February

147

131

131

Mfd.

March

147

133

134

127

138

125

157

140

April

146

134

133

127

139

126

153

136

May

149

135

132

125

144

129

148

135

129

146

133

June

148

136

129

123

143

July

146

135

131

122

142

129

144

132

August

144

132

135

121

138

129

147

132

September

148

134

135

122

142

128

145

131

October

148

134

133

121

145

129

143

129

November

139

133

134

121

149

131

143

127

136

123

152

133

144

127

December




135

129

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

102

TABLE

5—

(Concluded)

F I V E TRIPLETS BY M O N T H S ,
1908

1907
A

r

1907-1910
1910

1909

A

A

A

A

Partly

A

f

A

Raw

Partly
mfd.

Finished

Month

Raw

Partly
mfd.

January

134

117

119

130

120

119

135

116

116

159

129

120

February

136

117

119

126

117

118

137

118

115

156

128

120

March

133

117

120

123

117

117

135

120

115

151

126

120
121

Partly

Finished

Raw

mfd.

Finished

Raw

mfd.

Finished

April

133

117

120

123

113

116

139

122

115

150

125

May

139

120

120

130

113

116

147

125

118

151

123

120

June

143

122

121

131

111

114

150

129

117

148

121

120

July

143

123

122

132

111

114

150

128

118

147

122

120

August

141

123

122

133

113

114

146

126

119

150

122

119

113

114

147

124

119

142

120

119

143

120

119

September

142

123

122

131

October

139

124

122

131

115

115

154

127

119

November

133

121

121

133

114

116

158

129

119

140

119

119

December

132

121

121

134

116

116

160

128

120

139

120

119

The table shows that, whether the comparison be by months or years, the
prices of raw materials respond more promptly and in larger measure to
changes in business conditions than do the prices of their products. Since the
five partly manufactured products pursue a course intermediate between their
raw materials and finished goods, it seems that the more manufacturing costs
have been bestowed upon materials the steadier do their prices become.
This result suggests that the greater stability in the prices of consumers'
goods.in comparison with producers' goods noted above may result simply from
the fact that the consumers' goods are chiefly finished products, while the producers' goods are largely raw materials. This suggestion may be tested by
excluding the raw materials from both classes and confining the comparison
to manufactured articles bought for family and for business use. These exclusions reduce the numbers of commodities in the two lists to 47 and 28 respectively. A similar comparison between the relative prices of raw materials
bought by families and business enterprises is hardly feasible; for there are few
consumers' goods in the list which, like onions, can fairly be regarded as raw.
But it is permissible to introduce the 45 raw producers' goods for the additional
evidence they bear to the greater stability of manufactured articles.




103

MITCHELL: BUSINESS CYCLES

TABLE 6
R E L A T I V E W H O L E S A L E P R I C E S OF M A N U F A C T U R E D C O N S U M E R S ' GOODS AND OF R A W
P R O D U C E R S ' GOODS IN T H E U N I T E D S T A T E S .

Arithmetic means.
Manufactured articles
Number of
A
28
commodit ies
47
Producers'
Consumers'
goods
goods
Year

YEARS,

MANUFACTURED

1890-1910

Average actual prices in 1890-99 = 100

R a w materials

r

BY

AND

45
Producers'
goods

\

Manufactured articles
A
Number of
28
47
commodil ties
Producers'
Consumers'
goods
goods
Year
114
108
1902

Raw materials
A

• 45
Producers'
goods
123

1890

112

115

115

1891

109

111

114

1903

108

114

123

106

1904

108

114

123

1905

109

117

128

124

138

1892
1893

105
107

107
102

101

1894

99

92

92

1906

113

1895

94

91

92

1907

122

132

145

1896

92

93

87

1908

115

118

130

1897

90

89

88

1909

119

117

139

1898

94

93

94

1910

121

125

149

Averages

1899

98

107

110

1900

109

117

117

1890-99

100

100

100

114

1900-09

112

118

128

1901




107

113

104

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

On the whole, the manufactured goods used by producers show the wider
oscillations. They stood higher in 1890, fell slightly lower in the depression
following 1893, rose more rapidly from 1897 to 1900, and again from 1904 to
1907, and finally fell further from 1907 to 1908. The raw producers' goods,
to be sure, exhibited still wider oscillations; but the evidence, so far as it
extends, supports the contention that the relative demand for and supply of
producers' goods is more sensitive to alterations of business conditions than the
relative demand for and supply of consumers' goods. This table may therefore be regarded as affording a statistical foundation for the theory of business
cycles which Carver has suggested.11
6. The Prices of Organic and Inorganic Goods
Sombart's theory that business cycles are caused by the different rhythms
of production in the organic and inorganic realms suggests another arrangement of the price data. The inorganic goods in the list comprise 41 mineral
products. The much larger number of organic goods may advantageously be
subdivided into 19 forest, 41 animal, and 58 farm products. Both mineral and
forest products are turned out in the United States under conditions which
permit a quick adjustment of the supply to alterations in demand. Animal *
products, on the other hand, require a year or two for growth, while the supply
of vegetable products raised on the farm depends quite as much on the weather
as on the efforts of farmers to adapt their production to market conditions.
Table 7 gives the relative prices of these four groups of commodities in three
arrangements: manufactured goods and raw materials together, and then each
separately. The basis of comparison in the separate tables is rather slender;
but without such a division it might be suspected that the differences between
the several groups are caused primarily by the unlike proportions of raw
materials and manufactured goods constituting them.12
11 See Chapter I, ii, 12.
12 There is a slight discrepancy between the monthly and the annual figures for farm products, both raw
and manufactured, in 1908. It is due to the omission by the Bureau of Labor of quotations for five months
in making up the average of prices of onions and buckwheat flour for the year. See Bulletin of the Bureau
of Labor, March, 1909, pp. 303, 306.




105

|

MITCHELL: BUSINESS CYCLES

1

/I

C H A R T
RELATIVE:
F O R E S T

P R I C F S

. A N I M A L

5 .

/

O F R A W

//

M I N E R A L .

FARM

A N D

PRODUCTS.

/

1890-1910.

//

/
FOREST
.

PRODUCTS
PRODUCTS

O

FARM

f

<

•/
••
•

/

/

/

O

//

\

O
O
—

\

>
<

R
N

V
V

\

\\

C
O

X -

\

r

£

- - -

O

V

/Y

• /V

R

160

I

/

//'/

/

/

150

/

/

140

R

/

V

V

i

/
//
//

130

\ I

•

120

A

/;

1 10

V

I

100

/

>k

90

X

\\
W

O
O

/

J

/

/

1 /

V \

H
\ 1-

O

O
O

\

// r

Y\
\

/

/

A
/ — / V:>
R
\ \I

/

•

/

\
>/

/

i

/

//

/

\
\
\
\
\
\

180

170

/
/

/

/|
/

/

•

y

/

/

•

/

/
•

PRODUCTS

ANIHAL

—

/

/

80

»
*

J

\

O

70

1890 '91 '92 9S '94 95 96 97 98 99 1900 01 02 'oj '04 05 06 07 'OS '09




1910

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

106

TABLE

7

R E L A T I V E W H O L E S A L E P R I C E S OP M I N E R A L , F O R E S T , A N I M A L , AND F A R M P R O D U C T S IN T H E U N I T E D

Arithmetic means.

Average actual prices in 1890-99 = 100
BY

Both raw and manufactured goods
Number of
commodities
Year

111

1890-1910

R a w materials
K
>
10
9
18
18
Mineral Forest
Animal
Farm
products products products products

27
58
41
19
Farm
Mineral Forest Animal
products products products products
117

YEARS,

r

f

1890

STATES

Manufactured goods
r

23
9
18
40
Mineral Forest
Animal
Farm
products products products producl

106

117

119

107

104

119

116

116

107

116
113

1891

112

107

109

117

111

105

109

125

112

109

109

1892

105

103

108

107

105

99

109

108

105

107

108

106

1893

101

101

112

106

98

98

116

104

103

104

110

107

1894

91

95

97

98

86

95

95

98

94

96

98

98

1895

91

96

93

93

90

96

95

92

91

96

92

.94

1896

93

95

87

85

92

94

82

76

94

96

89

89

1897

88

92

91

87

88

95

88

85

88

89

92

88

1898

92

94

96

93

92

99

97

96

92

89

95

92

1899

111

105

100

97

119

112

105

97

105

98

98

97

1900

116

117

110

107

119

121

111

111

114

111

109

105

1901

112

111

109

108

113

113

115

121

111

109

106

102

1902

113

117

119

111

120

123

131

122

108

110

112

106

1903

116

125

115

108

126

138

118

118

108

111

113

104

1904

110

129

112

113

115

142

108

115

124

106

115

111

1905

114

135

119

109

124

149

124

116

107

120

117

106

1906

122

145

125

114

137

163

131

119

110

125

122

112

1907

125

152

128

126

139

169

136

133

115

134

124

123

1908

111

137

124

121

119

151

129

131

105

121

121

116

1909

112

143

135

122

121

164

149

138

105

120

129

114

1910

114

159

142

128

121

182

158

145

109

134

133

120

1890-99

100

100

100

100

100

100

100

100

100

100

100

100

1900-09

115

131

120

114

123

143

126

123

109

118

116

110

Averages

BY

MONTHS,

1907-1910

Both raw and manufactured goods
Number of
commodities

R a w materials

Manufactured goods

41
19
27
58
Mineral Forest
Animal
Farm
products products products products

18
10
9
18
Mineral Forest
Animal
Farm
products products products products

23
9
18
40
Mineral Forest
Animal
Farm
products products products products

January

128

151

131

117

146

170

145

124

115

130

125

114

February

129

153

132

119

148

171

145

127

115

134

125

115

March

129

156

129

121

146

174

136

131

115

136

125

116

April

128

158

128

120

143

177

133

127

116

137

126

117

May

128

157

126

123

144

174

131

134

116

139

124

118

June

128

155

124

127

143

171

130

138

116

138

122

122

July

127

154

125

127

141

170

131

134

116

136

122

125

August

124

155

126

129

137

170

135

131

114

137

122

127

September

123

153

128

131

* 134

168

137

135

115

136

124

129

October

120

150

131

134

131

164

142

141

112

135

126

131

130

128

162

136

135

112

131

124

128

128

122

153

130

135

112

124

124

126

November

119

148

128

December

117

139

126




MITCHELL: BUSINESS CYCLES

TABLE
Number of
commodities
Month

1908 January
February

107

7—(Concluded)

Both raw and manufactured goods

R a w materials

41
19
27
58 A
Mineral Forest
Animal
Farm
products products products products

18
18
10
9
Mineral Forest
Animal
Farm
products products products products

r

Manufactured goods

A

A

23
9
18
40
^
Mineral Forest
Animal
F'arm
products products products products

113

139

124

127

120

151

125

136

108

125

124

123

112

143

122

125

119

153

120

134

107

131

123

121

March

112

139

123

125

120

151

120

136

106

126

124

119

April

111

141

123

123

119

154

122

134

106

126

124

118

May

110

139

121

123

118

153

119

136

103

123

122

117

June

109

134

120

121

116

148

121

136

103

118

120

115

July

109

134

122

122

116

148

128

137

103

119

119

116

August

110

133

123

121

118

146

131

135

104

117

119

115

September

110

132

125

119

117

146

136

129

105

116

119

114

October

111

134

127

118

118

151

140

130

105

116

120

116

105

115

120

112
112

November

112

135

128

117

120

153

144

128

December
1909 January

113

139

130

117

121

157

147

129

106

119

122

113

139

130

117

122

156

145

129

106

120

122

111

February

112

138

129

119

120

155

144

134

106

119

122

112

March

110

137

131

120

117

155

139

139

105

117

127

111

April

110

138

131

122

108

156

137

143

103

118

128

112

May

109

138

132

124

119

157

141

149

102

118

128

113

June

109

139

132

124

118

159

141

148

103

118

128

114

104

116

129

113

July

110

140

134

123

117

162

144

144

August

110

145

135

119

118

169

146

131

104

119

130

114

September

112

149

138

119

121

174

153

131

106

121

131

114
116

October

114

152

141

122

126

175

158

134

106

125

132

November

116

151

144

125

127

173

167

138

106

126

133

119

December
1910 January

116

150

146

127

129

173

168

142

107

126

135

121

117

151

147

130

129

173

168

147

108

127

136

122

February

117

154

146

129

127

176

165

147

109

129

136

121

March

116

156

150

128

126

179

169

144

109

131

140

121

April

115

160

149

124

123

187

165

137

110

130

141

119
119

May

114

160

143

126

120

188

156

141

109

128

136

June

113

159

140

123

119

186

152

137

109

128

135

116

July

113

162

136

127

118

188

147

144

109

134

131

119

August

114

164

137

129

117

187

150

149

108

139

130

120

September

113

164

139

129

118

185.

158

148

109

139

130

121

181

159

145

109

141

129

123

October

113

162

139

130

118

November

113

160

137

128

119

180

156

146

109

138

128

120

December

114

160

136

129

119

181

154

146

110

138

127

121

The first section of Table 7, in which raw material and finishedI
are lumped together, seems rather inconclusive, f /
, r t T e r 4 t o contrary
in general conformity with business conditions, and all exhibit rertam conteary
movements. More significant results appear, however, a s ^ n as
—
and finished goods are segregated. In each of the four g ^ ^ P ^ f , ^
greater stability in price of manufactured goods, brought out b} Table 5,




108

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

shown once more. So far, indeed, have manufactured goods lagged behind
raw materials on the rise that their prices in 1909 stood lower than in 1890 in
the case of mineral and farm products, and but slightly higher in the case of
forest products, despite an increase in the cost of materials. If the figures
are representative, there has been a reduction in manufacturing costs which
nearly offsets or more than offsets the increased cost of materials, save in the
case of animal products. These fluctuations in the prices of finished goods,
however, are but a pale reflection of the changes in the markets for raw produce.
It is, then, in the sensitive prices of the latter that we must seek a statistical
basis for Sombart's theory.
The prices of raw mineral and raw farm products present the most effective
contrast. While both accord broadly with the course of business cycles, the
farm products show more frequent and more striking movements of a contrary
sort. In the dull year 1891 farm products rose in price while mineral products
fell; farm products did not rise in price during the temporary revival of activity
in 1895, as mineral products did; farm products rose in 1901 while mineral
products fell; farm products rose in the face of business depression in 1904
while mineral products fell; finally, farm products declined but two points
while mineral products declined twenty points in the depression of 1908. Such
evidence goes to support Sombart's contention of a dissonance between the
movements of prices in the organic and inorganic realms.
But a dissonance hardly less striking appears between the movements of
prices in the two remaining groups—forest and animal products—both belonging to the organic realm. Animal products rose in the dull year 1891 and
the crisis year 1893, while forest products fell; animal products did not rise
when business revived in 1895, while forest products did, though slightly;
animal products alternately rose and fell from 1901 to 1907, while forest products advanced each year. In brief, the prices of animal products corresponded
less accurately than the prices of forest products to changing business conditions from 1890-99 and more accurately from 1900-09. In both decades the
dissonance is marked.
Of the four series, the inorganic mineral products reflect the business cycles
with least distortion for the whole period; but their superiority as a "trade
barometer" over the organic forest products is due chiefly to the steady rise
of the latter from 1901-07. This rise, unbroken even in 1904, is doubtless due
to a gradual reduction in the supplies of lumber within easy reach of the great
eastern markets from which the quotations come and to a closer organization
among the lumber interests. In every year since 1902 the forest products have
cost relatively more in comparison with their average prices in 1890-99 than
any of the other groups. That is, a depletion of natural resources more rapid
in the case of the forests than of the mines seems to have occurred in the last
decade. But the opposite may well happen in some future decade, and prevent




MITCHELL: BUSINESS CYCLES

109

the supply of mineral products from being adjusted to demand with greater
facility than in the case of forest products. In the case of animal and farm
products, however, where dependence is not upon natural deposits of minerals
and forests which have grown through decades, but upon the fruits of human
labor during one or two seasons, frequent contradictions between the movements of prices on the one hand and changes in business conditions on the other
hand, seem likely to continue for an indefinite time to come. Sombart's
theory, in other words, might be more accurately formulated in terms of contrast between goods the supply of which within short periods depends largely
upon the weather, and goods the supply of which within short periods depends
almost entirely upon the activity of enterprise. While at present the inorganic
mineral products seem to excel the forest products as well as animal and farm
products in this respect, it is but recently that they have come to do so in the
United States, and the time may come again when they will lose this position.
The monthly figures for 1907 and 1910 confirm the conclusions suggested by
the yearly figures. In each of the four groups the crisis of 1907, the depression
of 1908, and the revival of 1909, affected the prices of raw materials earlier
and more seriously than they affected the prices of manufactured goods. And
as between the various classes of raw materials, mineral products record the
changes in business conditions more faithfully than any of the other groups.
7. The Dispersion of Price

Fluctuations

While the arithmetic means so far presented show that different parts of
the system of prices have distinct types of variation, they fall far short of
doing justice to the wide diversity of price fluctuations. This diversity deserves
more attention than it has commonly received; for it is not only one of the
most constant and most characteristic features of contemporary economic life,
but it also has an important bearing upon business cycles.
For exhibiting the range covered by price fluctuations the best contrivance
is the table of decils. Decils are points which divide a series of numbers, like
the relative prices of different commodities on the same date, into ten equal
groups. They correspond in character to the more familiar medians and
quartils—indeed, the fifth decil is the median.
All of the 145 series of relative prices derived from the Bureau of Labor
are included in Table 8. In 1909, for example, one commodity had a relative
price as low as 48, and another had a relative price as high as 243. Thus the
arithmetic mean for that year, 121 represents relative prices which are scattered over a range of almost 200 points. But three-fifths of the 145 commodities had relative prices falling within a much narrower range—44 points, the
difference between the second and eighth decils—and one-fifth fell within limits
of ten points—the difference between the fourth and sixth decils.




MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

110

This range of dispersion differs greatly from year to year, shrinking when
prices fall and expanding when they rise. For the whole period covered by
the table it averages 142 points; but it drops to 72 points in 1897, and rises to
315 points in 1910. Conversely, concentration around the median becomes
denser when prices fall and less dense when they rise. The average margins
between the decils run as follows for the twenty years 1890-1909:
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Every year exhibits this tendency toward concentration, but in ever varying
degree. For example, the margin between the fourth and sixth decils, which
enclose the central fifth of the 145 relative prices, starts at eight points in 1890,
drops to four points during the years of depression, and rises again to eleven
points during the later years of prosperity. Relative prices are squeezed
together by the pressure of business depression, and spring apart when the
pressure is relaxed by returning activity.
Every one of the decils, from the first to the ninth, reflects the connection
between prices and business conditions, falling when times are hard, rising
when times are good. There is much the same regularity and order in the
seemingly erratic fluctuations of those decils which are far from the average
as in the movements of the arithmetic mean itself. The very divergences in
the ups and downs of the decils are significant. The seventh, eighth, and
ninth in 1909 stand high above their levels in 1890, while the first, second,
and third show losses or trifling gains. This result is precisely what should
come about within twenty years from reduction in the cost of manufacturing
processes, from the growing scarcity of certain materials, and from the varying measure in which these two factors affect the prices of different finished
products.
Tables of decils are clearly more adequate representatives of price fluctuations than tables of arithmetic means; for they show more of the facts than
can any single series of averages, however constructed. But it is equally clear
that tables of decils are too cumbersome for comparing the price fluctuations
of different groups of commodities,- or of different countries. A concentrated
extract of all the figures is needed. Accordingly, for the international comparisons about to be made, we return to the use of arithmetic means, which give
such an extract.







M I T C H E L L : B U S I N E S S C Y C L E S 131

CHART

6.

RANGE COVERED BY THE FLUCTUATIONS
IN THE RELATIVE WHOLESALE PRICES
OF 145 COMMODITIES.
1890-1910.

HIGHEST RELATIVE
9*

I
J

PRICE.

DECIL.

8 , h DECIL
7 * DECIL.
6 * DECIL.
MEDIAN
4 * DECIL
DECIL.
2 * DECIL.
r
l * DECIL.

K LOWEST RELATIVE PRICE-

M

11

1!

I

L

1890 91 92 '93 94 '95 '96 '97 '98 99 1900 01 02 05 04 05 '06 '07 '00 09 19)0

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

112

TABLE

8

D E C I L S OF R E L A T I V E P R I C E S A T W H O L E S A L E IN T H E U N I T E D
B Y YEARS,

Year

Lowest
relative
price

1890

86

1891

74

1892

61

92

9th
decil

Highest
relative
price

126

133

160

122

132

158

111

114

118

141

4th
decil

Median

6th
decil

7th
decil

8th
decil

105

108

112

116

119

105

109

111

113

116

99

101

104

107

108

2d
decil

3d
decil

97

101

99

101

1st
decil

STATES

1890-1910

1893

70

90

96

100

102

104

106

109

111

119

158

1894

46

79

85

91

94

96

99

101

103

111

129

1895

53

79

86

88

91

94

95

98

100

105

149

1896

39

71

79

85

88

90

92

95

98

100

142

1897

56

71

78

85

88

91

93

95

98

102

128

1898

48

77

84

87

91

94

96

99

101

108

155

1899

46

86

89

94

97

100

103

108

112

129

149

1900

59

90

98

102

106

109

113

118

123

136

192

1901

49

90

97

101

104

107

111

115

120

133

222

1902

45

91

98

102

107

110

114

119

134

145

194

1903

43

90

98

104

108

111

114

121

129

143

192

1904

60

91

98

103

106

112

117

120

130

143

197

1905

59

85

97

104

110

114

120

126

131

149

238

1906

62

89

100

108

114

119

124

131

137

159

279

1907

42

95

104

112

121

129

132

139

147

171

304
228

1908

45

89

102

107

113

119

124

130

139

156

1909

48

89

102

111

117

121

127

135

146

172

243

1910

48

86

103

112

118

124

132

144

154

187

363

Averages
1890-99

58

84

90

94

97

100

102

105

109

116

147

1900-09

51

90

99

105

111

115

120

125

134

151

229

8. The Representative Character of Index Numbers
Before launching upon international comparisons, we must face the problem
whether the available index numbers are trustworthy representatives of the
average price variations in the several countries.
The best known American, English, French, and German series differ widely
in the number and character of the commodities included and in the basis of
computation. That unlike lists of commodities may be expected to yield unlike
results follows from the preceding demonstration that there are specific differences of variations between the prices of consumers' and producers' goods, of
raw materials and manufactured articles, and of mineral, forest, animal, and
farm products. May not the divergences found between series for the several
countries be due chiefly to the varying proportions in which these categories
of commodities are represented? Other doubts are suggested by the table of
decils. If relative prices are dispersed over a range averaging more than 100
points, what warrant have we for trusting the foreign index numbers computed
from data for less than fifty commodities?




MITCHELL: BUSINESS CYCLES

113

The best method of answering these questions is to compare different index
numbers which purport to show the trend of wholesale prices in the same
country. If they agree substantially, despite dissimilarities in lists of commodities and methods of computation, then the results of comparisons between
index numbers for different countries may be accepted as showing real agreements or disagreements in the movements of the price levels.
There are five American index numbers which may be submitted to this
test. All are made from quotations from the great wholesale markets of the
northeastern and north central states, but they are strikingly unlike in other
respects.
Dun's index number is not an average of relative prices, but a sum of actual
prices in dollars and cents. It purports to give "the cost of a year's supplies
of all the necessaries of l i f e " for a single individual. Three hundred and fifty
articles are said to be included, and the price of each is said to be multiplied
" b y the quantity annually consumed by each inhabitant, as nearly as may be
ascertained by statistical records." How far the results may be trusted is
uncertain, because the compilers never disclosed their list of commodities, their
sources for quotations, or their methods of estimating per capita consumption.
After May, 1907, Dun's Review ceased to publish this index number; but the
Gibson Publishing Company have undertaken a continuation. The Gibson
index differs from Dun's in reducing the number of commodities from 350 to
50, and in substituting averages of relative prices for sums of actual prices.
It resembles Dun's index in allowing foods a weight of 50 per cent, textiles
18 per cent, and minerals and miscellaneous goods 16 per cent each. Computation of the Gibson index for 1890 to 1906 shows that it agrees less well with
the Dun figures for these years than with the figures of the other series presently to be described. On the whole, the Dun-Gibson index commands less
confidence than its rivals.13
Bradstreet's index is also a sum of actual prices. It shows "the totals of
the prices per pound of 96 articles," on the first day of each quarter from 1892
to 1898, and on the first day of each month from 1899 to date. The figures
listed in the table are averages for the years.14
Neither Dun's nor Bradstreet's series in its original form can be compared
properly with the series compiled by the Bureau of Labor. For sums of actual
prices are not comparable with averages of relative prices. It is therefore
necessary to convert these two series into relative figures on the basis used by
the Bureau—average actual prices in 1890-99 equal 100. This conversion may
be effected approximately by dividing the original figures by numbers which
>3 For a description of Dun's index see the Bulletin of the Department of Labor March, 1902 pp 211 212;
for the results see Statistical Abstract of the V. S., 1907, p. 569; for the method of cont.nua ion by the Gibson
index see J. P. Norton, Quarterly Journal of Economics, August, 1910, pp. 750-758; for a criticism of the whole
series see W. C. Mitchell, ibid., November, 1910, pp. 161-170.
" T h e full table for 1892 to date is currently published by Bradstreet's in the second weekly issue for each
month.




114

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

show the ratio of their sums for 1890-99 and 1892-99 respectively to the corresponding sums of the Bureau of Labor's figures—namely, 1,000 for 1890-99 and
775.4 for 1892-99.15
These two revised series are followed by three made from materials published in the Bulletin of the Bureau of Labor. One gives the arithmetic means
of the relative prices of the fifty commodities included in Gibson's index; a
second the Bureau's own average for "all commodities," about 250 in number;
a third gives the arithmetic means of the 145 series of relative prices which
have been used in the preceding tables.16
When these five series are put side by side, as in Table 9, they are found to
agree substantially regarding the broader movements of the price level. All
show a heavy decline from 1890 to 1896 or 1897, a rise from these dates to 1900,
a hesitating course from 1900 to .1904, an extremely rapid rise from 1904 to
1907, a sharp drop in 1908, and a recovery in 1909. But in detail there are
numerous differences. One indicates that prices rose in 1890-91, two that prices
fell slightly, one that they remained constant. One makes 1897 and two make
1896 the year of lowest prices, while two make both years the same. The fall
from 1893 to 1896 varies between 16 and 23 points, and the rise from 1896 to
1900 varies between 20 and 28 points. While all agree that the net changes
between 1900 and 1904 were small, they disagree concerning the course from
year to year. The extent of the rise from 1904 to 1907 is nearly the same in all
series—14 points in one, 15 in a second, and 16 in three; but the extent of the
fall in 1908 varies between 5 and 12 points, and the extent of the reaction in
1909 between 3 and 8 points.
A more systematic comparison can be made by computing for each year the
differences between some one series and the other four. The results of this
operation, with the revised Bureau of Labor series as the standard of comparison, are shown in the second part of Table 9. The original series of the bureau
is found to differ from the standard series by a trifle less than one point on the
average, and in no year by more than three points. Next in closeness of agreement comes the improved Gibson series, then Bradstreet's, and last Bun's.
In judging the importance of these differences, it is helpful to examine the
corresponding differences between the various groups of relative prices which
have been contrasted in the preceding tables. A list of the maximum differences in any one year and the average differences for the whole period covered
will suffice for the purpose (see Table 10).
15 Dun's sum for 1890-99 is 842.9, which divided by 1,000 gives .843. Bradstreet's sum for 1892-99 is
54.23, which divided by 775.4 gives .06994. These quotients are the divisors used in the next table. To
secure greater accuracy, the computations have been based on Dun's and Bradstreet's figures expressed in three
digits, instead of in two as shown in the table.
16 For Gibson's list of commodities see Norton's note cited above; for the Bureau of Labor's figures see
Bulletin for March, 1910, p. 385; for the method of reducing the bureau's list of 250 commodities to 145 see
footnote 8, above.




115

MITCHELL: BUSINESS CYCLES

TABLE

9

C O M P A R I S O N OF V A R I O U S A M E R I C A N I N D E X N U M B E R S OF W H O L E S A L E P R I C E S .
Number of
commodities
Year

350-50
DunGibson
Original

96
Bradstreet's
Original

350-50
DunGibson
.843

96
Bradstreet's
.06994

50

BY

YEARS,

145
250
Bureau of Labor

Gibson
Improved

Original

Revised
114

A

^

1890

92

109

114

113

1891

96

114

114

112

113

1892

90

7.8

107

111

105

106

106

1893

91

7.5

107

108

105

106

105

1894

83

6.7

99

96

94

96

96

1895

82

6.4

97

92

94

94

93

74

5.9

88

85

87

90

89

88

89

90

89

94

95

93

93

103

103

102

103
111

1896

•

1897

73

6.1

86

1898

78

6.6

92

1899

7.2

101

91

7.9

108

113

112

110

1901
•

85

1900

92

7.6

109

108

109

108

110

102

7.9

121

113

116

113

114

100

7.9

118

114

115

114

114

113

116

113

114

1902
1903
1904

97

7.9

115

1905

98

8.1

117

116

118

116

116

1906

105

8.4

125

120

123

123

122

1907

110

8.9

130

127

132

129

130

1908

106

8.0

125

115

125

123

121

1909

112

8.5

133

122

132

127

124

129

135

132

131

125

1910

115

9.0

137

1911

109

8.7

130

7.0*

100

Averages
1890-99

84

1900-09

101

* Average of 1 8 9 2 - 9 9 .




8.1

120

97*
116

129

100

100

100

120

118

118

1890-1911

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

116

TABLE

9—(Concluded)

D I F F E R E N C E S B E T W E E N T H E R E V I S E D B U R E A U OF L A B O R S E R I E S AND O T H E R I N D E X
Number
commodities
Year

350-50
DunGibson
.843

1890

—5

0

—1

+1

—1

+5

+ 1
—1

+1

1891

96
Bradstreet's
-r- . 0 6 9 9 4

Gibson
Improved

50

NUMBERS

250
Bureau
of Labor,
Original

1892

+1

1893

+2

+3

0

1894

+3

0

—2

0

1895

+4

—1

+ 1

+1

0

1896

—1

—4

—2

+1

1897

—3

—1

0

+1

1898

—1

+1

+ 2

0

1899

—2

0

0

—1

1900

—3

+ 1

—1

1901

—1

+2
2

—1

—2
—1

1902

—7

—1

+2

1903

+4

0

+ 1

0

1904

+ 1

—1

+2

—1

1905

+ 1
+3

0

+ 2

0

1906

—2

+1

+1

1907

0

—3

+2

—1

1908

+4

—6

+4

+2

1909

+9

—2

+8

+3

1910

+6

—2

+4

+1

Sums*
Maxima*
Averages*

56
9
2.8

34
6
1.9

33
8
1.7

19
3
1.0

* 1890-1909.

T A B L E
MAXIMUM

10

A N D A V E R A G E A N N U A L D I F F E R E N C E S B E T W E E N T H E S E R I E S OF R E L A T I V E P R I C E S S H O W N

Character of relative prices compared

Maximum
differences

Table 3.

Foods at Retail and Wholesale

11

4.5

Table 4.

Consumers1 and Producers' Goods

21

8.4

Table 5.

Twenty Raw Materials and their Products

14

6.0

Table 6.

Manufactured Consumers' and Producers' Goods ....

11

5.0
13.1

Table 7.

Raw Mineral and Forest Products

43

Table 7.

Raw Mineral and Animal Products

28

7.9

Table 7.

Raw Mineral and Farm Products

22

8.9

Table 7.

Raw Forest and Animal Products

35

12.9

Table 7.

Raw Forest and Farm Products

44

15.8

Table 7.

Raw Animal and Farm Products

16

6.4




IN T A B L E S

Average
differences

3-7

MITCHELL: BUSINESS CYCLES

117

The differences shown by this schedule are all larger, many much larger,
than any of those shown by Table 9. In other words, while general index
numbers, when compiled from widely varying lists of commodities and made
bv unlike methods, differ somewhat from each other, their differences are much
less than those which mark off the various parts of the system of prices.
Further, the differences between the several index numbers are not arbitrary. Most of them may be accounted for when the constitution of the series
is known. For example, the differences between Dun's index for 1890-1906
and the standard series are partly due to the fact that the former gives prices
on July 1 while the latter gives averages for the twelve months of the year.
Accordingly, the extent of these differences is no ground for misgiving. Again,
the larger proportion of raw materials and the smaller proportion of finished
products explains the slightly greater sensitiveness of the revised in comparison with the original Bureau of Labor series. Similarly, the still greater
sensitiveness of the improved Gibson series is due to its still greater proportion
of raw materials. If we knew precisely what commodities entered into Bradstreet's index, we could probably account for its idiosyncrasies, in some similar
fashion.17
The net result of this examination into the representative character of index
numbers is reassuring. The table of decils shows that in every year the relative
prices of commodities are dispersed over a wide range; but it also shows that
this dispersion is itself orderly and regular even in its changes. The comparison of five American index numbers shows that no two run exactly parallel;
but it also shows that all agree regarding the general trend of fluctuations.
Further, the differences of detail from year to year are found to be decidedly
smaller than those between the various species into which prices have been
divided in earlier sections. Finally, these relatively small differences are
capable of explanation by differences in the material entering into the several
index numbers, so far as that material is known.
In comparing the index numbers for the United States, England, France,
and Germany, then, average differences which exceed two or three points may
be considered a safe indication of real divergencies in the course of prices.
But in any single year wider deviations may be caused by technical differences
in the method of making the several series. It is therefore desirable to supplement the comparisons between the standard series, by other comparisons
between new index numbers made from the American, English, French, and
German prices of identical lists of commodities.18
~ « Bradstreet's publishes regularly the prices of 106 commodities, but includes only 96 in its index number,
without stating which 10 are omitted. Nor does it explain the system by which quotations by the yard,
quart, gallon, square foot, thousand of brick, etc., are reduced to prices per pound.
» S i n c e this chapter was written, Mr. B. H. Hooker has published a paper comparing English French
German, and American index numbers. " T h e Course of Prices at Home and Abroad, 1890-1910,
Journal of
the Royal Statistical Society, December, 1911.




MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

118

9. The Fluctuations of Prices in the United States, England, France, and
Germany
Twd excellent index numbers are currently published in England. The best
known is that compiled by Mr. Augustus Sauerbeck, and for many years published in the March issue of the Journal of the Royal Statistical Society. It
includes 45 commodities, mostly raw materials and slightly manufactured products. The averages are arithmetic means of relative prices computed on the
basis of average actual prices in 1867-77. No attempt is made to weight the
several commodities in accordance with their importance beyond including two
varieties for such articles as wheat, iron, and coal. For purposes of comparison with the American index numbers, Sauerbeck's figures have been recomputed on the basis average actual prices in 1890-99 = 100.19
The second English series was begun by the Board of Trade in 1903, and
has been continued in the Board of Trade Labour Gazette.20 Like Sauerbeck,
the Board of Trade includes 45 articles, but it selects an even larger proportion
of raw materials in comparison with manufactured goods. Most of its actual
prices are based on "import and export average values." The relative prices
are computed on the basis of actual prices in 1900, and in making up the arithmetic means the relative prices of each commodity are weighted in accordance
with its estimated consumption.21 In shifting this series to the American basis
(average actual prices in 1890-99 = 100) I have contented myself with the rough
and easy method of dividing the original results for each year by their average
for 1890-99.22
For France, also, we have two valuable series. The first, designed by M.
Lucien March, Chef de la Statistique Generale de la France, is based upon the
prices set on 43 staple imports by the Commission des valeurs en douane. This
list of commodities corresponds closely to Sauerbeck's list of 45. Originally
the relative prices were computed on the basis of average actual prices in
1867-77 ;23 but as now published in the Annuaire statistique de France the series
has been shifted to the basis of prices in 1891-1900.24
10 In order to maintain strict continuity in the figures, I have not used the series which Sauerbeck drops
or begins within this period, namely, the Cleveland quotations for pig-iron, English tough-cake copper, average import prices of hides and leather, and St. Petersburg tallow. In other respects the present figures are
computed precisely like Sauerbeck's, save for the change of base. The disuse of these series does not alter
the number of commodities included; for pig-iron, copper, hides, leather, and tallow are all represented by
other continuous quotations in Sauerbeck's table.
20 See Report on Wholesale and Retail Prices in the United Kingdom in 1902, with Comparative Statistical
Tables for a Series of Years (London, 1903).
21 See, for example, Twelfth Abstract of Labour Statistics of the United Kingdom, pp. 80-89.
22 No use is made of the London Economist's index number, because this pioneer effort to maintain a running measure of price variations is distinctly inferior to its later rivals. Only 22 commodities are included,
and of these an unduly large proportion show the fluctuations of cotton, in raw or manufactured form. Recognition of these long-standing defects has at last induced the Economist to revise its list. See the issue
for February 4, 1911, p. 206.
23 Compare Bulletin de statistique et de legislation comparee, March, 1908, p. 340.
24 Annuaire statistique, 1908, p. 201*. For the list of articles included see ibid., pp. 84*-87*.




MITCHELL: BUSINESS CYCLES

119

M. Jules Domergue is credited with planning the second French series,
maintained by La reforme economique. The quotations are taken from interior
markets, and include 48 commodities, of which 34 correspond to commodities
in the lists of March and Sauerbeck. The relative prices are based upon actual
prices in the single year 1890.
In preparing these French series for comparison with the American series,
I have applied the summary method of division to March's results; but recomputed Domergue's table in full on the basis of average actual prices in 1890-99.
This discrimination in favor of Domergue's series is justified by its superior
claims as a representative of the French price level. The prices of foreign
articles imported into a country are less significant for purposes of international comparison than the prices of both foreign and domestic articles obtained
from interior markets.25
The German material is less satisfactory than the English and French.
Soetbeer's celebrated series has been allowred to lapse. The series based on the
import values of 42 commodities at Hamburg, published in the Annuaire statistique de Franceis
open not only to the general objection against tables which
quote none but imported articles, but also to a special suspicion. It represents
prices as rising between 1900 and 1901, in the face of a serious business crisis,
and at a time when the two series next described show a fall. Much superior
is the index number computed by Otto Schmitz from the data for 29 commodities published by the Imperial Statistical Office. Schmitz's book, Beivegung
der Waarenpreise in Dentschland, closes with 1902, but his series is now continued in the statistical Beilage zur Zeitsclirift fiir Social wissenschaft. Since
the actual prices which Schmitz uses are not available for recent years, howTever, the best way to secure an index number for Germany is to start afresh
with the price data given by the Statistische Jahrbucher fiir das Deutsche Reich.
Thirty commodities are regularly quoted here for the years 1890-1909, and the
index numbers made from their prices bear a close relation to Schmitz's series
for 29 commodities.27 Of course, the new computations have been based upon
average actual prices in 1890-99.
The various foreign index numbers which have been described are assembled
in Table 11, together with the best two American series. It wrill be seen from
the second part of the table that the two French series agree almost as closely
25 By using all the commodities for which La reforme economique publishes complete series of actual prices
since 1890, I have raised the number of articles in Domergue's index number from 48 to 64. The chief object of this change is to include all the articles for which we have prices both in America and France. The
enlarging of the list makes little difference in the results.
M. A. de Foville has prepared a third index number for France by comparing the value set by the Douane
frangaise on imports and exports, first at the prices of the preceding, and later at the prices of the current
year. Valuable as his results are, they serve the present purpose less well than the other French series, which
are made by methods more nearly like those employed in computing the American and English index numbers. For de Foville 's results see the Bulletin de statistique et de legislation compare, March, 1908, pp. 340, 341.
20 1908, p. 201*.
27 The commodities in the new index number include tne 28 articles listed below, in connection with the
table comparing the relative prices of identical commodities in the United States and Germany, and in addition rape-seed oil (Danzig quotations) and hemp (Liibeck quotations).




120

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

as the American pair. But the Board of Trade's figures for English prices
show a decidedly smaller rise in the second decade than do Sauerbeck's figures.
Manipulation of the material entering into the averages shows that a small
part of the difference can be accounted for by dissimilarity in the lists of commodities and in methods of weighting.28 But most of the difference is due to
a dissimilar run of quotations for what purport to be the same commodities.
Superficially, discrepancies traceable to the original data look suspicious. It
must be remembered, however, that the Board of Trade takes most of its data
from "import and export average values," while Sauerbeck takes most of his
from market reports. Now, even with such staples as cotton and pig-iron, the
imports and exports consist of several or many different grades, and the relative
proportion of the high-priced and low-priced grades are subject to variation
from year to year. Hence, while the average import and export prices may
show accurately what prices England has paid for cotton per pound and
received for pig-iron per ton, they do not show the prices of strictly uniform
commodities. For some purposes the information concerning price fluctuations conveyed by the Board of Trade's figures is doubtless more useful than
that conveyed by Sauerbeck's figures. But for comparison with index numbers
for other countries made from market quotations, Sauerbeck's figures are
certainly preferable. Consequently, the latter series is used in the following
discussion.29
As between the two French and the two American series, it makes little
difference which is used. But reasons have already been suggested for preferring Domergue's to March's figures, and, since the improved Gibson series
resembles the foreign index numbers rather closely, it may be preferred to the
revised Bureau of Labor series for purposes of international comparison.
In view of the demonstration that American index numbers compiled by
different agencies from dissimilar materials yield substantially similar results,
international comparisons based upon Gibson's, Sauerbeck's, Domergue's, and
the new German series command no little confidence. Even the disagreement
between the Sauerbeck and Board of Trade series is not seriously disconcerting, when its cause is known. But part of the differences shown in the second
28 For example, the Board of Trade makes the price level higher in 1890 than in 1900, while Sauerbeck
makes it lower. (1) To determine what part of the difference is due to dissimilarity in the lists of commodities, I have computed several averages for the 30 commodities included in both lists, f o r the 15 included
by the Board of Trade and not by Sauerbeck, and for the 15 included by Sauerbeck and not by the Board
of Trade. The results show that neither series would be altered more than one point by omitting the commodities not included in the other. Such an omission would raise Sauerbeck's results a trifle and reduce
the Board of Trade's, thus bringing the two averages for 1890 a little closer together. (2) To determine the
effects of weighting on the Board of Trade's averages, I have computed a simple arithmetic mean of its 45
relative prices f o r 1890, and obtained 102.3 in place of 104.0. But after both of these changes have been
made the Board of Trade's figures still show a higher range of prices in 1890 than in 1900, and Sauerbeck's
figures still show a lower range.
29 There may be other reasons for the peculiarities of the British Board of Trade series which one familiar
with the precise method of computing " i m p o r t and export average values" could point out. The close agreement
between the French import figures and Domergue's market prices shows that in some cases the two sources
of data give substantially similar results.




121

MITCHELL: BUSINESS CYCLES

CHART
RELATIVE

PRICES

AT

ENGLAND

UNITED

WHOLESALE
,

FRANCE.,

FRANCE GERMANY-

IN

AND

1890 - 1310.

STATES -

ENGLAND -

8.

GIBSON

THE

UNITED

S T A T E S ,

GERMANY.

IMPROVED.

SAUERBECK
DOMERGUE
NEW

SERIES

19 9 '92 '93 '94 '95 '36 '97 '98 '99 10 0 0 '03 '04 '05 0 '07
80 ' 1
90 ' 1 2
6
T A B L E
COMPARISON

IN

DEX N U M B E R S

English

American

Year
1890

114

r

=

French

>

German

March

64
Domergue,
revised

30
New
series
113

43

Sauerbeck

114

109

108

111

109

112

109

108

1891

113

114

109

1892

106

105

103

106

106

102

111
102

1893

105

105

103

104

104

105

99

1894

96

94

95

98

96

97

91

1895

93

94

94

94

94

94

92

92

91

91

92

1896

89

87

92

1897

89

89

93

94

92

91

94

97

95

97

100

1898

93

95

97

1899

103

103

104

96

103

106

106

1900

111

112

115

104

110

114

113

110

109

107

101

105

107

108

1902

114

116

106

100

103

106

106

1903

114

115

106

101

104

107

106

116
118

108
111

102

103

106

105

101

109

107

113

123

119

104

116

117

121

123

110

119

126

129

114

112

121

1901

1904

114

1905

116
122

1906
1907

130

132

1908

121

125

112

107

108

113

119

122

122

1909

124

132

114

1910

131

135

120

113*

100
118

100
120

100
112

100

Averages
1890-99
1900-09

r Provisional, subject


to revision.

AT

100

45
Board
of Trade

145
50
Bureau of
Gibson,
Labor, revised improved

45

OF P R I C E S

1890-1910

Average actual prices in 1890- 9 9
Number of
commodities

'OS

1310

11

OF A M E R I C A N , E N G L I S H , F R E N C H , A N D G E R M A N
B Y YEARS,

'08

104

100

100

100

112

114

WHOLESALE.

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

122

TABLE

11—

(Concuded)

D I F F E R E N C E S A M O N G T H E SEVERAL

Fear

1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910

Differences between the
^—
^
Two
Two
Two
American
French
English
series
series
series

S m*
u s
Maxima*
Averages*

0
— 1
+1
0
+2
— 1
+2
0
— 2
0
—1
+1
—2
— 1
—2
—2
—1
—2
—4
— 8
—4

33
8
1.7

+1
—3
—3
— 1
—3
0
0
— 1
0
+8
+ 11
+6
+6
+5
+6
+10
+ 15
+1
3
+5
+6
+7

103
15
5.2

—2
— 1
—4
+1
+1
0
0
— 1
+2
+3
+4
+2
+3
+3
+3
— 2
+1
+7
—2

42
7
2.2

SERIES

Differences between Gibson's
improved series for America and
K

f

Sauerbeck's
English
series

+5
+5
+2
+2
— 1
0
—5
—4
—2
— 1
—3
+2
+1
0
+9
+8
+7
+4
+9
+ 13
+1
8
+15

110
1
8
5.5

Domergue's
French
series

+5
+ 6.
+3
0
—3
0
—4
—2
—2
—3
— 2
+2
+1
0
+8
+10
+ 11
+6
+6
+1
3
+ 19
+1
3
115
1
9
5.8

N

New
German
series

+1
+3
+3
+6
+3
+2
— 5
—5
—5
— 3
— 1
+1
+1
0
+9
+ 11
+5
+2
+3
+4
+1
3
+13
95
13
4.8

Differences between
Sauerbeck's series for
England and
,
*
N
Domergue's
New
French
German
series
series

0
+1
+1
—
2
—
2
0
+1
+2
0
—2
+1
0
0
—1
+2
+4
+2
—
3
0
+1
—2

25
4
1.3

—
4
—
2
+1
+4
+4
+2
0
—1
—
3
—
2
+2
—1
0
0
+3
—
2
—2

—
6
—
9
—5
—2
53
9
2.7

Differences
between
Domergue's
French series
and New
German series

—
4
—
3
0
+6
+6
+2
—1
—
3
—
3
0
+1
—1
0
+1
+1
—
6
—
4
—
3
—9
—
6
0

60
9
3.0

* 1890-1909.

part of Table 11 between the figures chosen to represent the United States,
England, France, and Germany must be ascribed to dissimilarity in the several
lists of commodities. The comparisons will therefore be still more satisfactory
if this source of disagreement can be reduced to negligible proportions. Fortunately, Sauerbeck gives the actual prices of 34 commodities which are also
quoted by the Bureau of Labor. Similarly, La reforme economique reports the
prices of 43, and the Statistische Jahrbucher f ur das Deutsche Reich report the
prices of 28 articles for which the Bureau of Labor provides American data.




MITCHELL: BUSINESS CYCLES

123

From this material Table 12 has been made, to show the average relative prices
of substantially identical commodities in the United States, on the one hand,
and on the other hand, in the three European countries.30
In all four countries, the movements of prices at wholesale have been the
same in their larger phases. The decline from 1890 to 1894-96, the rise from
the latter years to 1900, the reaction in 1901, the comparative stability in 190204, the renewed advance in 1904-07, and the sharp fall in 1908, are found alike
in the United States and England, in France and in Germany.
30 The commodities included in the three lists are as follows. The descriptions are intended only to enable
anyone who so desires to i d e n t i f y the precise materials selected f r o m each source.
1 . T H E U N I T E D S T A T E S AND E N G L A N D

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
lo.
16.
17.
18.
19.

English
Commodities
W h e a t : American.
Flour: Town-made white.
Barley: English Gazette.
Oats: English Gazette.
Maize: American mixed.
Potatoes: Good English.
Rice: Rangoon cargoes to arrive.
B e e f : Prime, b y the carcass.
B e e f : Middling b y the carcass.
M u t t o n : Prime b y the carcass.
Mutton: Middling by the carcass.
P o r k : Large and small, average, b y the carcass.
Bacon: Waterford.
Butter: Friesland, fine to finest.
Sugar: British West Indian refinery.
Coffee: Rio, Good Channel.
T e a : Congon, Common.
Iron: Scotch pig.
Iron: Bars, common.

20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.

Copper: Chile, bars.
T i n : Straits.
L e a d : English pig.
Coal: Average export price.
Cotton: Middling American.
Jute: Good medium.
W o o l : English, Lincoln Half Hogs.
Silk: Tratlee.
Hides: River Plate, Salted.
Leather: Crop hides.
Tallow: Town.
Oil: Linseed.
Seeds: Linseeds.
Petroleum: Refined.
Soda: Crystals.

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

French
Commodities
W h e a t : Ble cote officiell.
Flour: Farine fleur.
Bread: Pain, Taxe official a Paris.
Barley: Orge, marche libre.
Oats: Avoine, cote officiell.
Corn: Mais, mixed d'Amerique.
R y e : Seigle, cote officiell.
R i c e : Riz, rangoon.
Starch: Fecules.
H a y : Foin.
B e e f : Boeuf, Halles central.
M u t t o n : Mouton, Halles central.
P o r k : Pore, Halles central.
Lard: Saindoux, Americain.
Butter: Beurre, moyen.

American
Commodities
Contract: contract grades, cash. "
A v . " s p r i n g p a t e n t s " and " w i n t e r s t r a i g h t s . "
i 1 By sample.''
"Oats: cash."
" C o r n : No. 2, c a s h . "
"Burbank."
"Domestic, choice."
Cattle steers, choice to extra.
" F r e s h native s i d e s . "
Sheep wethers, plain to choice.
" M u t t o n , dressed."
H o g s : average.
Av. of " s h o r t clear s i d e s " and " s h o r t rib s i d e s . "
" C r e a m e r y , extra, N. Y. m a r k e t . "
" 8 9 ° fair r e f i n i n g . "
" Rio, no. 7 . "
"Formosa,
fine."
" P i g - i r o n . " " F o u n d r y , no. 1 . "
" B a r iron: best r e f i n e d . " A v . " F r o m M i l l " and
" F r o m Store."
"Ingot, lake."
"Tin: pig."
"Lead: pig."
" B i t u m i n o u s . " A v . of 3 series.
"Upland, middling."
"Raw."
" O h i o , medium
fleece."
" R a w : Japan
filatures."
" H i d e s : green salted; heavy native s t e e r s . "
"Harness, o a k . "
"Tallow."
" L i n s e e d oil, r a w . "
" F l a x s e e d , no. 1 . "
"Refined for export."
"Bicarbonate of, American."
1

2 . T H E U N I T E D S T A T E S AND F R A N C E




American
Commodities
Wheat, cash.
Flour, wheat, average.
Bread, loaf, average.
Barley, b y sample.
Oats, cash.
Corn, cash.
Rye, no. 2 cash.
Rice, domestic choice.
Starch, pure corn.
Hay, timothy no. 1.
Beef, fresh native sides N. Y.
Mutton dressed.
Hogs, average.
Lard, prime contract.
Butter, average.

124

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

But in degree and occasionally in direction of movement numerous differences appear. The closest agreement is that between England and France.
Indeed, both Sauerbeck's and Domergue's series in Table 11 and the English
and French series in Table 12 accord more perfectly than do the two American,
two English, or two French series. The wider discrepancy between the English
and French series which appeared in 1910 was probably caused by the bad
French harvests in that year.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.

Sugar: toucre, buit, Roux.
Sugar: Sucre raffing Ire qualite.
Coffee: Cates santos.
Iron: Fers marchands.
Copper: Cuivre (ling) et plaques de laminage.
Copper: Cuivre (Barres) ordinaire.
Tin: Etain banka.
Lead: Plomb (m. ord.) livrable a Paris.
Zinc: Zinc de Selesie.
Steel: Acier, rails.
Coal: Charbon du nord, TV 20 a 25% sur bateau.
Cotton: Coton tres ord. au Havre.
Cotton: Av. of 4 'Coton chaine 28 o r d . " and " C o t o n
trame 37 o r d . "
Cotton: Coton, tissu 90 cm. 68 port. 20 fils.
Jute: Jute.
Wool: Laine peignee, typel, Roub. Tour.
W o o l : Av. of " F i l s de laine peignee chaine 40-56
mm. and " F i l s de laine, trame 60 c. 50/84 m m . "
Linen: Fil de lin no. 20.
Silk: Soie greges, Italie 2e ord 10/12.
Hides: Boeuf, cuirs bruts.
Rubber: Caoutchouc, marche d'Anvers.
Tallow: Suifs, Paris.
Oil: Huile, lin.
Alcohol: Alcool, 3 / 6 nord.
Glycerin: Glycerine brut, 28°.
Chemicals: Produits chemiques: sulfurique acide 66°.
Petroleum: Petrole americain.
Lime: Produits chemiques: chlorure de chaux

Sugar, 89° fair refining.
Sugar, granulated.
Coffee, Rio no. 7.
Bar iron, from store, Philadelphia market.
Copper sheet, hot-rolled (base sizes).
Copper, ingot.
Tin pig.
Lead pig.
Spelter western.
Steel rails.
Coal, bituminous Pittsburg.
Cotton, upland middling.
Cotton yarns, average.
Sheetings, average.
Jute, raw.
Wool, average.
Worsted yarns, average.
Linen shoe thread 105, Barbour.
Silk, raw Italian classical.
Hides, green salted, packers' heavy native steers.
Rubber, Para Island.
Tallow.
Linseed oil, raw.
Alcohol, grain.
Glycerin, refined.
Sulphuric acid, 66°.
Petroleum refined for export.
Lime, common.

105/110.
3 . T H E U N I T E D S T A T E S AND G E R M A N Y

German Commodities
1. Weizen, Miinchen.
2. Weizenmehl, Danzig.
3. Roggen, Miinchen.
4. Roggenmehl, Danzig.
5. Gerste, Miinchen.
6. Hafer, Miinchen.
7. Reis, Bremen.
8. Rohzucker, Magdeburg.
9. Raffinade, Magdeburg.
10. Kaffee, Bremen.
11. Kartoffelspiritus, Hamburg.
12. Rohtabak (Kentucky), Bremen.
13. Rindvieh, Berlin.
14. Hammel, Berlin.
15. Schweine, Berlin.
16. Schmalz, Bremen.
17. Heringe (Norweg.), Stettin.
18. Roheisen (Giesserei-), Breslau.
19. Kupfer, Frankfurt a. M.
20. Blei, Berlin.
21. Zinn, Hamburg.
22. Zink, Breslau.
23. Steinkohlen (niederschles.), Breslau.
24. Steinkohlen (Puddel-), Dortmund.
25. Petroleum, Hamburg.
26. Baumwolle, Hamburg.
27. Wolle, Berlin.
28. Rohseide (Organs.) Krefeld.




American Commodities
Wheat, cash.
Flour, wheat, average.
Rye, no. 2, cash.
Flour, rye.
Barley.
Oats, cash.
Rice.
Sugar, 89° fair refining.
Sugar, granulated.
Coffee.
Proof spirits.
Tobacco, plug.
Cattle, average.
Sheep, average.
Hogs, average.
Lard, prime contract.
Fish, herring.
Pig-iron, foundry, no. 2.
Copper, ingot.
Lead, pig.
Tin, pig.
Zinc, sheet.
Coal, bituminous, Georges Creek, f. o. b., N. Y .
Coal, bituminous, Pittsburg.
Petroleum, refined, for export.
Cotton.
Wool, average.
Silk, raw, Italian classical.

125

MITCHELL: BUSINESS CYCLES

CHART
RELATIVE:

PRICES
IN T H E

AT

9.
o r

WHOLESALE

UNITED

STATES

1690 -1910.

AND

3 4

ENGLAND

/
:/

120
i

/

t

,
// Y
\

\

\

\
\ \

/
f

\

/'
/

/

/ r
/
/

\
\
\

/

//

•V
\

V

s

/

'

/

/

K
\
\
>
\
\
\
\
\

f

V

S
f

9
0

s
/

S

4
f

10
3
//

! /
1 /

;
•
k - ""
—"

/

10
1

/

/OO

/
/

1
/

9
0

80

80

1
1
1

18910

3
9 '92 9
1




X

'95

%

97

120

i

/

f

.

y

/i

\\ \
\
\\
\\

100

1
i /

1

UNITED STATES

1 10

10
4

COMMODITIES

ENGLAND.

98

99

1900

01

'02

'03

'04-

05

'OS

'07

'08

09

1310

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

126

CHART
RELATIVE

PRICES
IN THE

AT

II

WHOLESALE

UNITED S T A T E S

OR

AND

AS

COMMODITIES

140

GERMANY.

I89O-I9I0
130

GERMANY

/ /

/ /\
\
/ / \ y
f/
\
\
/
\

t . —

120

/

V \

\

N \
\\

I/O

\\
\\

V
>
x

TO
O

\

/

^
>

i

/

•

>

120

r

NO

- - /

r•

/

tl
it

\ ^ \

\\
\\
\\
\V

/

/

/

100

/
,
/

90

90

80

80

1890

'91

92

'93

'94

'35

'96

'97

'98

'99

1900

'01

02

'03

'04

'05

'06

07

'08

'09

1910

T A B L E 12
I N D E X N U M B E R S FOR IDENTICAL L I S T S OF COMMODITIES AT W H O L E S A L E IN THE U N I T E D S T A T E S AND E N G L A N D , THE
U N I T E D S T A T E S AND F R A N C E , AND THE U N I T E D S T A T E S AND G E R M A N Y .

BY

YEARS,

Average actual prices in 1890-99 = 100
United States
and
No. of
,
commodities 34
United
Year
States

United States
and
France
A

A

34

43
United
States

43

United States
and
Germany
A

28
United
States

28

1890

115

England
109

114

France
110

114

Germany
113

1891

116

110

114

108

117

112

1892

106

104

107

102

105

103

1893

106

102

104

104

104

99

1894

96

94

94

96

92

91

1895

94

94

93

93

92

91

1896

83

92

87

91

86

91

1897

87

93

88

93

88

93

1898

94

97

94

97

95

99

1899

103

105

105

106

106

106
112

1900

111

117

111

113

112

1901

111

108

110

106

110

107

1902

119

106

113

104

116

106

1903

113

106

113

107

117

106

1904

112

107

114

106

117

105

1905

114

111

117

109

120

113

1906

121

119

122

119

124

122

1907

128

124

130

126

134

128

1908

122

113

122

113

126

120

1909

129

114

129

116

131

119

1910

135

121

136

127

133

122.

Averages
1900-09

118

113

118

100

100

100

100

100

100

112

121

114

1890-99



1890-1910

MITCHELL: BUSINESS CYCLES

127

T A B L E 12— (Concluded)
D I F F E R E N C E S A M O N G T H E SEVERAL

SERIES

Differences between the

1st

Year

and 2d
American
series

1st

and 3d
American
series

2d
and 3d
American
series

English
and
French
series

English
and
German
series

FYench
and
German
series

American
and
English
series

American
and
French
series

American
and
German
series

1890

+

1

+

1

0

— 1

— 4

— 3

+

6

+

4

1891

+

1

+

2

— 1

— 3

+

2

— 2

— 4

+

6

+

6

+

5

1892

— 1

+

1

+

2

+

2

+

— 1

+

2

+

5

+

2

1893

+

2

+

2

0

— 2

+

3

+

5

+

4

0

+

5

1894

+

2

+

4

+

2

— 2

+

3

+

5

2

— 2

+

1-

1895

+

+

1

+

2

+

1

+

1

+

3

2

0

0

+

1

1896

+

— 4

— 3

+

1

+

1

+

1

0

— 9

— 4

— 5

1

1897

— 1

— 1

0

0

0

0

— 6

— 5

— 5

1898

0

— 1

— 1

0

— 2

— 2

— 3

— 3

— 4

1899

— 2

— 3

— 1

— 1

— 1

0

— 2

— 1

0

1900

0

— 1

— 1

1

— 6

— 2

0

+

4

+

5

1901

+

+

1

+

1

0

+

2

+

1

— 1

1902

+

3

+

4

+

+

6

+

3

— 3

+

2

0

— 2

+13

9

+10

1903

+

0

— 4

— 4

— 1

0

+

1

+

7

+

6

1904

+ 11

— 2

— 5

— 3

+

1

2

+

1

+

5

+

8

+12*

+

2

2

+

3

1905

— 3

— 6

— 3

— 4

+

3

+

8

1906

— 1

— 3

— 2

0

— 3

— 3

+

2

+

3

+

2

1907

— 2

— 6

— 4

— 2

— 4

— 2

+

4

+

4

+

6

9

+

9

+

6

•

+

7

1908

0

— 4

— 4

0

— 7

— 7

+

1909

0

— 2

— 2

— 2

— 5

— 3

+15

+13

+12

1910

— 1

+

+

3

— 6

— 1

+

5

+14

+

+11

Sums*

2

9

31

54

37

28

49

47

107

96

98

Maxima*

6

6

4

4

7

7

15

13

12

Averages*

1.6

2.7

1.9

1.4

2.5

2.4

5.4

4.8

4.9

* 1890-1909.

Between Germany on the one hand and England and France on the other
hand, somewhat wider differences appear in both tables. (1) Prices fell faster
in Germany from 1890 to 1894 than in its neighbors, but arrested their decline
somewhat earlier. (2) From 1894 to 1896 the German price level was substantially stable, while the English and French levels continued to sag. (3) The
advance in 1904-07 was distinctly greater in Germany, and (4) the fall in 190708 was distinctly less, but (5) it continued in 1908-09 when both French and
English prices turned upward. On the whole, during this period of twenty
years, the German price level has fluctuated through a slightly wider range than
the English or French.
Much more marked are the differences between price fluctuations in the
three European countries and in the United States. The improved Gibson
series differs from Sauerbeck's, Domergue's and the new German series by
nearly twice the margins found between any of the last three. Even more




128

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

striking is the evidence afforded by Table 12. Here the three American index
numbers, of dissimilar constitution, show almost exactly the same total, maximum, and average differences among themselves as do the three European
index numbers, also of dissimilar constitution. But when comparison is made
between the three pairs of similarly constituted index numbers for the United
States and the European countries, the total, maximum, and average differences
are found to be more than twice as great as in the former cases.
These results concerning the fluctuations of prices at wholesale accord
perfectly with the results reached in the chapter upon the annals of business.
There it was found that while business cycles have pursued broadly similar
courses in America and Europe, the differences between their courses in the
United States and in the three European countries have been much wider than
the corresponding differences among their courses in England, France, and
Germany. Now it appears that the broad agreement and the differences in
detail between the courses of business cycles have been accompanied by strikingly similar agreements and differences in the movements of wholesale prices.
The United States again is found to be less closely tied by economic bonds to
Europe than the three European countries are tied to each other.
In 1890 the wholesale price level stood relatively higher in America than
in Europe, and this position it maintained until 1893. But the severe crisis
of that year in America was felt only as an aggravation of the depression ruling
in Europe. Accordingly, American prices fell far more rapidly than European
prices in 1893-96, and reached a relatively lower level. The tardiness with
which America recuperated from depression prevented American prices from
catching up with the European level until after 3900. But since the crisis of
that year was much less severe on this than on the other side of the Atlantic,
the fall of American prices in 1900-01 lagged behind the European fall. Moreover, the prompt return of prosperity in America, wThile Europe continued to
suffer business depression, brought with it a rise of prices in America while
prices continued to sag in Europe. Thus the American price level became
relatively higher than the European—a position which it has held ever sinca
America's lead was cut down by the more rapid rise of European prices in
1904-06, and increased again by the more rapid rise of American prices in
1906-07. Finally, the fall of prices after the crisis of 1907 was slighter in
America and the rise in 1909 was much more marked. At the end of the period,
therefore, the difference between the American and European price levels was
greater than at any previous time covered by the tables. The fact that the
United States had become relatively the worst country in which to buy and
relatively the best country in which to sell may have had something to do with
making 1910 a year of contraction in American business, while it was a year
of rapid expansion in the business of England and Germany. But consideration of such questions belongs to a later stage of the investigation.




129

MITCHELL: BUSINESS CYCLES

The materials for an international comparison of retail price movements
are less satisfactory. The British Board of Trade publishes a weighted index
number of the retail prices of 23 foods in London which now covers the years
1895-1910.31 This service can be pieced back to 1890 by the aid of an experimental series compiled by Mr. George H. Wood.32 With this rather dubious
retail index number may be compared Sauerbeck's figures for the relative prices
of 19 foods at wholesale. For France, M. Lucien March has recently published
a table showing the retail prices charged by a railway economat in Paris.
Among the 52 commodities in his list there are 36 articles of food for which
actual prices are given in every year from 1890 to 1910.33 A wholesale series
for food prices in France can be made from data for the 23 articles of food
T A B L E

13

R E L A T I V E P R I C E S OF F O O D S A T R E T A I L AND W H O L E S A L E IN T H E U N I T E D S T A T E S , E N G L A N D , AND
B Y YEARS,

FRANCE.

1890-1910

Average actual prices in 1890-99 = 100
Number of
commodities 3 0
United
Year
States

1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910

23

36

t

United

A

States

England

France

A

30
At
retail

54
At
wholesale

23
At
retail

19
At
wholesale

36
At
retail

23
At
wholesale

England

France

102
103
102
104
100
98
96
96
98

104
105
105
101
99
95
93
98
102
98
101
103
103
105
106
105
105
107
110
110
112

103
105
104
107
102
99
97
91
95
96
95
96
95
95
96
97
101
103
105
100
102

102
103
102
104
100
98
96
96
98
100
102
105
111
111
112
113
116
121

112
116
104
110
100
95
84
88
94
98
104
106
111
107
107
109
113
118
121
125
129

104
105
105
101
99
95
93
98
102
98
101
103
103
105
106
105
105
107
110
110
112

107
112
107
105
96
93
91
95
99
95
101
98
98
96
99
101
101
105
105
107
111

103
105
104
107
102
99
97
91
95
96
95
96
95
95
96
97
101
103
105
100
102

106
112
105
107
101
94
87
91
100
97
98
96
97
99
97
97
99
109
101
101
107

100

100
106

100
98

100

100
112

100
106

100
101

100
98

100
99

Averages

1890-99
1900-09

At retail

31 Board of Trade Labour Gazette, January, 1911, p. 4.
^ 32 " R e a l Wages and the Standard of Comfort since 1850,' Journal - of - the- Boyal- Statistical .Society, f March,
— - - - .
..
.
909, especially pp. 94, 95, and 103. W o o d ' s figures for 1890-94 have been shifted
f
r
o
m
W
"
1850 to the Board of Trade's basis of prices in 1900; and then the combined series has been shifted to
the basis of average prices in 1890-99.
.
i a 1
33 " I n f l u e n c e des variations des prix sur le mouvement des dSpenses mtaagtres a P a n s
J^maldeui
o
Societe de Statistique de Paris, April; 1910, pp. 162-163. In computing the index number in Table 16, the
average of the relative prices of three kinds of sugar was used.




130

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

quoted by La reforme economique.34 No systematic German material of sufficient extent to justify the computation of an index number is available.35 Since
the commodities included in the above retail and wholesale lists for England
and France differ, the American series selected for comparison are the Bureau
of Labor's simple averages for 30 foods at retail and 54 foods at wholesale.36
A minute comparison of series so lacking in uniformity as the foregoing
would be out of place. But certain broad conclusions suggested by the table
may be trusted. (1) Retail prices in all three countries have held a more even
course than wholesale prices, rising less during prosperity, and falling still less
during depression. But even the wholesale prices of foods do not reflect the
course of business cycles with accuracy, because they consist almost wholly of
organic goods.37 (2) In the United States and England relative prices at retail
were lower than relative prices at wholesale in 1890, and higher in 1907-10.
This change has come about gradually because the lagging of retail prices
behind wholesale is more pronounced upon the fall than upon the rise. (3) The
advance of food prices during the second decade was distinctly greater in the
United States than in England or France.
I I . T H E PRICES OF LABOR—WAGES

1. The American Data
For measuring changes from year to year in the prices paid for labor, the
largest collection of data is that published by the United States Bureau of
Labor in its Bulletins of July, 1904-08.38 The returns for 1907, for example,
show the wages per hour received by 351,000 persons, following 333 occupations
in 4,169 establishments. But extensive as this material is, it still falls far short
of representing the prices of all important kinds of labor. Practically all the
establishments from which pay-rolls are obtained are engaged in some line of
manufacturing. But such great branches of employment as farming, railroading, mining, lumbering, general contracting, salesmanship, and clerical work
are not covered. Thus the information concerning the prices of labor, like that
concerning the prices of commodities, consists of samples, drawn from a limited
field, and offered as representatives of a vastly larger number of prices. For
present purposes, however, it is fortunate that manufacturing is the field best
covered; for, as has been pointed out, industrial centers exhibit the phenomena
of business cycles in pronounced degree.39
34 Starch, butter, coffee, cocoa, soda, pork, beef, mutton, veal, oats, barley, rye, rice, corn, wheat, flour, bread,
lard, tallow, sugar (raw and refined), syrup, wine.
35 The Statistisches Jahrbuch fiir das Deutsche Reich gives the ' 1 market p r i c e s ' ' for five or six staples.
36 Bulletin of the Bureau of Labor, July, 1908, p. 195.
37 Compare section 6, above.
38 See also the Bureau's Nineteenth
30 See Chapter II, ii, 1.




Annual

Report.

MITCHELL: BUSINESS CYCLES

131

But, even as a representative of wages in manufacturing industries, the
Bureau of Labor's results have been questioned. For they have seemed to
disagree with the results of an investigation into wages in 1890 and 1900 made
by the Census Office. While the Bureau of Labor found that relative wages
per hour advanced from 100.3 in 1890 to 105.5 in 1900, Professor Davis R.
Dewey's census report on Employees and Wages indicated that the cases in
which wages had been reduced between these two years were not less numerous
than the cases in which wages had been raised. The rather vague impression
of a discrepancy left by Professor Dewey's textual summaries was rendered
definite in 1907 by Professor Henry L. Moore's paper on "The Variability of
Wages." 40 Basing his work on Dewey's data, Moore computed the average
rate of wages in thirty selected industries in 1890 and 1900, and found that
relative wages had declined from 100.0 to 99.6. While neither of these careful
investigators called attention to the variance of their results from those of the
Bureau of Labor, or sought to criticize the latter, others were less cautious.
For three or four years it was generally thought that the bureau's figures
exaggerate the rise of wages by several points.
Close comparison between Professor Moore's and the bureau's tables, however, shows that the apparent discrepancy is due almost wholly to differences
in scope and method of construction.41 When these differences are eliminated
and the bureau's data are worked up by Moore's methods, they yield relative
wages of 100.0 in 1890, and 100.3 in 1900—figures which are almost the same
as Moore's relative wages of 100.0 and 99.6. Clearly, therefore, there is no
ground for distrusting the bureau's original data. Their trustworthiness is
confirmed, not discredited, by proper comparison with the data gathered by
Professor Dewey for the Census Office.
But the question remains whether the bureau's methods of computing index
numbers—methods which show a considerable advance in wages between 1890
and 1900,—or Moore's methods, which reduce this advance almost to zero, are
to be preferred. Professor Moore's primary object was to measure the variability of wages at two different dates, and he adapted his methods to this end.
The bureau, on the contrary, aimed to measure the average change of wages
from one vear to the next, and chose its means accordingly. Each set of
methods, therefore, has its justification. But the bureau's set is preferable
for the present purpose, because this purpose is substantially that which the
40

Political

Science

Quarterly,

March, 1907, pp. 61-73.

In detail these differences are as follows: Moore took wages per week, the bureau wages per _hour;
Moore excluded females, the bureau included them; Moore covered 30 industries, » « b u r e a u (in rt. IM*<tenth
Annual Report)
covered 56; Moore weighted his figures by actual numbers employed,
^
height its figures for different occupations in striking averages for each industry, but did weight its fibres
for different Industries in striking grand averages; finally, M o o r e c o m p u t e d averages .n one way, t h b u r e a u
>n another
Moore beean bv tabulating the number of men receiving $2-3 a week, $3-4, $4-5, and so on.
Then he multiplied t h f m e a S wage in §aeh of these groups ($2.50, $3.50 $4.50) by- the
ber of employees. To find the average actual wages, he divided the sums ot theseproducts bythe total number
of men represented, and then turned the average actual wages ' ^ percentages
T ^
hand, turned its aetual wages per hour into percentages at the outset and then.nade ' " ^ m e t * i ^ V ™ " 1
these percentages by the curious combination of simple and weighted averaging which has been stated.
41




MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

132

bureau had in view. That is, we need a measure of the average change in the
prices of labor comparable with the preceding measures of average change in
the prices of commodities.
In one respect, however, the bureau's methods of analysis may be improved.
Each occupation should be weighted by the number of persons engaged in following it, instead of being treated as having the same importance as other
occupations followed by many less or many more people.42 In practice this
change proves to make little difference in the results; but it has been adopted
in constructing such of the following tables as are new. The numbers used in
weighting each series are obtained by first giving every industry a weight
proportionate to the number of wage-earners engaged in it according to the
manufacturing census of 1900, and, second, dividing the weight for every
industry among its several occupations in accordance with the average number
of persons reported by the Bureau of Labor as employed in the decade 1890-99.43

2. The Prices of Labor in American Manufacturing

Industries

The bureau's grand average and its results for eleven industries employing
over 100,000 persons according to the census of 1900 are reproduced in the next
table.44 The figures indicate that the prices of labor are influenced by changes
in business conditions, but in less measure than the prices of commodities, even
at retail. The general average declines after the panic of 1893, recovers in
1896, advances in 1898-1903, makes very little gain in the dull year 1904, and
then rises rapidly again in 1904-07. But the degree of rise and fall is considerably less than that of commodities at wholesale, and just about the same as
that of foods at retail (see Chart 13).
On examining the figures for separate industries, one finds that there is
less variety of fluctuation than in commodity markets. But still considerable
differences appear between, say, cotton mills and foundries, or building trades
and shoe factories. However, no industry escaped a reduction of wages after
1893, and none failed to register a large advance between 1894 and 1907.
In making Table 15, the series have been classified, not by industries, but
by sex and rates of pay in 1890-99. The new system of weighting, spoken
of above, has been introduced into this compilation; but the final results do
not differ from those of the Bureau of Labor by more than one point in any
year. Female wage-earners are shown to have received a greater relative
increase of pay than any group of men represented by the table. This result
may be due to the fact that nearly a quarter of the women represented by the
data were employed in the cotton industry, where, according to Table 14, the
42 For the bureau's method of weighting its series see the preceding footnote.
43 The topic of this section is discussed at greater length in " T h e Trustworthiness of the Bureau of Labor's
Index Number oi W a g e s , " Quarterly Journal of Economics, May, 1911, pp. 613-620.
44 Compiled from Bulletin of the Bureau of Labor, July, 1908, Table III, pp. 126-132.




133

MITCHELL: BUSINESS CYCLES
TABLE

14

R E L A T I V E W A G E S PER H O U R IN SELECTED M A N U F A C T U R I N G
BY

Arithmetic means.
Thous. of
employees 3 8 1 3

Year

143

374

Average
Building
of 4 1
Boots
trades
industries and shoes

YEARS,

I N D U S T R I E S OF T H E U N I T E D

Average actual wages per hour in 1890-99 — 100

191
218
Car
Clothing,
building,
factory
steam
product
railroad

303
Cotton
goods

100
350
Foundry
and
machine
Furniture
shop

109

102

101

99

106

102

100

100

101

102

102

100

102

99

93

98

99

97

95

97

97

97
101

103

99

1891

100

96

98

102

100

99

1892

101

98

100

102

100

100

103

1893

101

101

100

104

100

104

102

1895
1896

98
100

101
101

1897

100

103

1898

100

102

1899
1900
1901
1902
1903
1904
1905
1906
1907

102
106
108
112
116
117

102
105
105
109
116
117

98

100

105

101

98

97

97

101

98

100

101

100

100

93

97

102

100

103

98

102

97

99

99

93

99

101

103

103

97

99

103

103

102

101

104

103

109

102

103

111

104

101

110

110

105

110

114

107

113

111

122

110

110

114

128

113

117

115

119

116

121

118

100

100

105

101

110

107

102

115
121

106

103

116

108

117

127

112

106

123

112

118

116

132

124

120

140

110

120

114

120

117

114

115

130

118

124

97

99

97

99

119

129

99

97

99

98

98

98

102

100

97

100

103

103

98

Tobacco,
cigars

126
Woolen
and
worsted
goods

100

97

98

Iron
and steel* Lumber

103

103

98

100

283

109

100

98

222

99

1890

1894

STATES.

1890-1907

111

126

114

122

121

118

115

124

145

140

118

126

128

124

131

116

119

124

158

121

127

131

128

132

132

* Mean of Bar iron, Bessemer converting, and Blast furnaces.

advance of wages has been especially rapid; or the rapid advance of wages in
the cotton industry may be due to the fact that higher rates have been demanded
by women and girls. Among men, the highest priced workers have secured the
most rapid increase in pay, and the lowest priced the least rapid. Pferhaps
these differences are connected with differences in the scope and efficiency of
trade-union organization among wage-earners on the higher and lower planes.
Finally, the scope and distribution of divergences from the general trend
of wage changes are set forth in Table 16. That the range covered by the
relative prices of labor is narrower and the degree of concentration around the
median is greater than with wholesale commodity prices, appears on comparing
these decils with those of Table 8. The average margins between the decils run
as follows in number of points:
C
ill
og-S

2
5"
-=
51
a,

"
=,
s<T
?
•vx,

£a
31

Wages

23.1

2.3

1.4

.8

Wholesale prices .

32 5

7.6

5.2

4.2

25




Zm

»8
-Cg
Si

"
J
Sj9
*I
if

s:

"J
S
si
»

7 £
3
C•
* t
£
T fu*3
Z*
X

©

if
a
o

u*

525
©

1 1

1 4

3.6

3.9

4.4

3.0

41.4

12.2

1 1

54.7

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

134

This table shows also that the very deviations from the general trend of
fluctuations are regular and orderty in the case of prices of labor as in the case
of prices of commodities. For each one of the decils undergoes changes strikingly similar in character to the changes undergone by the median, or by the
arithmetic mean of Table 15. Finally, the decreased margins between the decils
in 1894-96 and the increased margins in later years show that relative wages,
like relative prices, are squeezed together by the pressure of business depression
and spring apart when this pressure is relaxed by the return of prosperity.45
T A B L E 15
R E L A T I V E W A G E S PER H O U R OF E M P L O Y E E S IN F O R T Y - O N E M A N U F A C T U R I N G
S E X A N D A V E R A G E A C T U A L W A G E S PER H O U R IN 1 8 9 0 - 9 9 .

I N D U S T R I E S , C L A S S I F I E D ACCORDING
BY

YEARS,

Arithmetic means, weighted by numbers employed in each occupation and each industry.
wages per hour in 1890-99 = 100
Females
A

Proportionate
numbers
1895
Nearly all
less than 2 0 c
Year
per hour

A

3305
Less
than 20c
per hour

20-34.99c
per hour

3902

Average actual

Both sexes

Males
r

TO

1890-1907

A

898
35c
per hour
upward

10,000

8105
All
rates of
pay

New
results

Bureau of
Labor

1890

99

102

100

100

101

101

100

1891

100

102

100

101

101

101

100

1892

100

102

101

101

101

101

101

1893

102

102

101

101

101

101

101

1894

99

97

98

98

98

98

98

1895

98

98

99

97

98

98

98

1896

102

99

99

99

99

100

100

1897

100

98

100

100

99

99

100

1898

101

99

100

100

100

100

100

1899

100

102

102

104

102

102

102
106

1900

104

105

105

106

105

105

1901

107

107

107

110

108

108

108

1902

111

111

111

114

111

111

112

115

116

1903

114

114

116

118

115

1904

115

113

117

120

116

116

117

1905

119

115

118

122

117

118

119

1906

127

120

123

126

122

123

124

1907

136

126

127

130

127

129

129

45 Of course, these figures for relative rates of pay per hour cannot safely be accepted as indices of changes
in cost of labor to employers, or in money incomes to wage-earners. The latter topics receive attention in
Chapter X I , i, 3, and Chapter X I I I , ii, 1.




MITCHELL: BUSINESS CYCLES

CHART 13.
RELATIVE
AT

PRICES

RETAIL A N D

or

LABOR

WHOLESALE

ANO

IN T H E

OF

COMMODITIES

UNITED

STATES.

1890 - 1907.
L A B O R - RELATIVE

PRICES PER HR. IN

COMMODITIES A T

RETAIL

COMMODITIES A T

WHOLESALE -


13 9
80 1


-

30

STAPLE
GIBSON

MFG. INDUSTRIES
FOODS
INDEX

NOS., IMPROVED. -

92 '93 '34 '35 36 9 '98 '33 1 0 '01 '02 'o3 '04 '05 '06 '07
1
90

135

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

136

T A B L E 16
D E C I L S OF R E L A T I V E W A G E S PER H O U R IN F O R T Y - O N E M A N U F A C T U R I N G I N D U S T R I E S OF T H E U N I T E D
W E I G H T E D BY N U M B E R OF E M P L O Y E E S IN E A C H O C C U P A T I O N AND I N D U S T R Y .

BY

YEARS,

STATES.

1890-1907

Average actual wages per hour in 1890-99 = 100
Year

Lowest
relative
wage

1st
decil

2d
decil

3d
decil

4th
decil

1890

82

97

98

99

99

100

101

102

103

105

126

1891

84

97

98

99

99

100

101

102

103

105

123
120

Median

6th
decil

7th
decil

8th
decil

9th
decil

Highest
relative
wage

1892

84

98

99

99

100

101

101

102

103

105

1893

79

98

99

100

100

101

102

102

104

106

117

1894

85

94

96

97

98

98

99

99

100

101

114

1895

74

95

97

97

98

98

99

99

100

101

128

1896

80

97

98

99

99

100

100

100

101

103

127

1897

78

95

97

99

99

100

100

101

101

102

121

1898

80

96

98

98

99

100

101

101

102

105

116

1899

75

97

99

100

101

102

103

104

105

106

127

1900

72

99

101

103

103

105

106

107

110

110

134

1901

77

102

103

104

106

107

108

110

112

114

138

1902

74

103

106

109

110

111

112

114

115

120

165

1903

73

107

110

112

113

113

115

117

120

125

186

1904

75

108

110

113

113

114

116

119

121

127

171

1905

75

108

112

114

115

117

118

121

125

130

200

1906

76

111

115

118

120

122

124

127

131

137

276

1907

76

113

120

122

125

127

129

134

137

145

304

3. The Prices of Labor in England
England alone among our foreign countries possesses comprehensive
statistics of wages for the period since 1890.46 Table 17 reproduces the index
number of wages compiled by the Board of Trade, and indicates sufficiently
the scope of the data. While agriculture and coal mining are included, the
manufacturing industries are by no means so well represented as in the
American material.
English wages pursue a course far more even than do prices at wholesale.
But when compared with the Board of Trade's series for the retail prices of
food the difference is less marked. Wages fell less than the cost of food in
1890-95, but rose more rapidly in 1896-1900. On the other hand, wages fell in
1900-03 while the retail prices of food were rising slowly. In 1905-07 workingmen regained part of this lost ground; for wages went up much faster than
food prices. But after the crisis they suffered doubly—wages fell slightly and
the prices of food advanced (see Chart 15).
4ti The best German material is that compiled by Dr. R. Kuczynski, Die Entwiclclung der gewerblichen Lohne
seit der Begriindung des Deutschen Reiches, Berlin, 1909. But Kuczynski does not consider his data full enough
to justify the compilation of averages for large groups ot industries. A few French series are published in
the Annuairt statistique de France.







137

MITCHELL: BUSINESS CYCLES

CHART 14.
RANGE C V R D BY THE FLUCTUATIONS
OEE
IN THE RELATIVE PRICES OF LABOR
PER H U IN 41 M N F C U I G INDUSTRIES
OR
A U A T RN
2BO

1 9 -1907
80

2O
S
A
B
C
D
E
F
G
H
I
J
K

HIGHEST RELATIVE WAGE
9 th DECIL
8 * DECIL
7 * DECIL.
6,fc DECIL
MEDIAN.
4 * OECIL
3 * DECIL
2nd DECIL
I " DECIL

240

220

LOWEST RELATIVE VvAGE
200

19 9 9 9 9 9 X 9 M 9 10 0 0 0 0 0
80 1 ' ? ' 3 4 ' 5 ' 1
9 90 1 2 3 4 5

<X

0
7

OS

09

|i
9
O

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

138

T A B L E 17
GENERAL COURSE OF W A G E S IN THE U N I T E D K I N G D O M
B Y YEARS,

1890-1910

Agriculture: ordinary
laborers.
Mean of
115 rates
^

Engineering: fitters,
turners, iron founders,
and pattern makers.
Mean of 36 rates

_ Textile: cotton spinners
o and weavers, linen and
° jute operatives

1890

to
-<«

0
>

Coal mining: hewers.
2 Weighted percentage
to changes in principal
districts

•

Building trades: bricklayers, carpenters,
joiners, and masons.
Mean of 74 rates

Average rates in 1890-99 = 100

Unweighted means
of preceding groups
of trades

r

K

V

u
bfi p
"-3S

B'u
O U>

0
>

h,
tip
SG

B'z

W *
99

£ 5)
W 63
100

1891

95

110

98

102

100

101

101

1892

97

100

98

100

100

99

99

1893

98

102

97

99

99

99

99

1894

99

97

97

99

99

98

98

1895

100

92

98

99

99

98

98

1896

10X

91

102

99

99

99

99

1897

103

92

103

99

100

100

100

1898

106

100

104

99

102

102

102

1899

107

106

105

103

103

105

105

XJOO

109

127

105

105

107

110

111

1901

109

119

105

105

108

109

109

1902

109

111

105

105

108

107

107

1903

109

108

105

105

108

107

106

1904

109

105

105

105

108

106

106

1905

109

103

105

107

109

107

106

1906

109

106

106

111

108

108

108

1907

109

122

107

114

108

112

113

1908

109

119

107

114

109

111

112

1909

109

113

106

112

109

110

110

1910

109

114

107

112

109

110

110

Averages
1890-99

100

100

100

100

100

100

100

1900-09

109

113

106

108

108

109

108

Computed from the Twelfth
Abstract
of Labour
1 9 0 0 = 100 to average rates in 1 8 9 0 - 9 9 = 100.




Statistics

of the

United

Kingdom,

p. 54, by shifting the base from rates in

MITCHELL: BUSINESS CYCLES

139

Finally, when the English and American index numbers of wages are compared, they are found to reflect the differences in the course of business cycles
which have twice been emphasized. In the depression of 1901-04 the English
wage-earners lost much of the gains they had scored in the prosperous years
1896-1900. American wages, on the contrary, received no setback in the shortlived depression of 1903-04. It is for this reason that in 1907 the American
table shows much heavier gains than the English table over the level of 1890.
But when only the first decade is examined, the comparison comes out the other
way. Depression was more severe on this side of the Atlantic, and the relative
prices of labor in 1900 were materially lower here than in England.

CHART
RELATIVE

PRICES

o r

AND

LABOR

15

AND

OF

WHOLESALE

COMMODITIES

IN

AT

RETAIL

ENGLAND

1 8 9 0 - 1 9 1 0

LABOR
COMMODITIES A T RETAIL
COMMODITIES A T WHOLESALE.
130

130

120

i
n o

/

\

1

\

j
\

y

y

\

100

i
I

N

V

X

•

R.

S o

J•
/ i
1

1

\

V

/
90

1
|

*

£

CVI

cn

£
oo




9I;

'%

10

100

1

1

1 2 0

91

'9 IJ

'9^J

1900

01

'02

'03

'04

*05

'06

'07

'08

'OS

1910

140

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

III.

T H E PRICES OF LOANS—INTEREST

1. The Tables of Interest Rates
The American statistics of interest, available for the years 1890-1911, come
from a single money market. But this one market—New York—is by far the
most important in the country. Moreover, it has such close connections with
all the lesser financial centers that its rates both affect and are affected by
changes occurring elsewhere. Loan funds are so fluid a commodity that outside banks and capitalists can lend, and outside business enterprises of large
size can borrow in New York. The objections to relying upon statistics from
this one market as indicative of fluctuations in the rates of interest are therefore less serious than would be the objections to a similar procedure with
reference to retail prices or wages. It is true that the farmers and most business men of the interior have practically no access to the metropolitan market.
Such borrowers must pay the rates of interest charged by local banks and
capitalists, and these rates are usually higher than those current in New York.
But these interior rates, particularly in the larger towns of the northeastern
and north central states, probably rise and fall in rough conformity with rates
in New York, and our interest is in the fluctuations rather than in the actual
magnitude of the rates. Moreover, the reminder is again pertinent that business cycles develop their most distinctive phenomena among the larger business
enterprises in the centers of industry, commerce, and finance.
In modern business the distinction between loans on long time and short
time is clearly drawn and highly important. Short loans, negotiated to meet
temporary capital requirements such as the purchase of supplies, the payment
of labor, etc., are made chiefly by commercial banks, and by business enterprises
which sell their goods on credit. Long loans, negotiated to meet permanent
capital requirements such as the purchasing of land, buildings, machinery, franchises, etc., are made chiefly by individual investors, savings banks, insurance
companies, and endowed institutions.47
For long-time loans no market rates of interest are regularly quoted. A
good substitute for such quotations, however, is afforded by the net rates of
interest realized by investors who lend money to governments or business
enterprises by purchasing bonds.
The number of bonds for which net yields can be computed by months since
1890 is small. The whole class of state and municipal bonds is barred out by
lack of satisfactory quotations. National bonds, while quoted every month, are
prevented from reflecting accurately general market conditions by the require47 The remainder of this section consists chiefly of a revised version of the article on 11 Rates of Interest
and the Prices of Investment Securities, 1 8 9 0 - 1 9 0 9 / ' published in the Journal of Political Economy, April,
1911.




MITCHELL: BUSINESS CYCLES

141

ments of the National Banking Act. Moreover, there is no single type of
United States bonds which has been upon the market during the whole period
since 1890. It is only by treating the " 4 per cents of 1925" as a continuation
of the " 4 per cents of 1907" that a continuous series can be approximated.
Some arbitrary assumption is involved in grafting one of these series upon the
other. The device used is to multiply the net yields of the 4s of 1907 in 1890-95
by 1.026—the ratio between the yields of the two issues of 4s in 1896, which
is the first full year that both were upon the market. This shift is more simple
than accurate, and the composite series which it gives cannot be highly commended.48 Fortunately, there remains one class of bonds for which better
quotations are available.
The railway bonds now listed on the New York Stock Exchange number
over 600: but of these few date back to 1890 and have substantially complete
quotations for every month since then. To be available, bonds must also have
several years to run after 1911; for otherwise they are not now trustworthy
indices of the interest rates which investors require on long loans. Indeed,
only the ten securities described in Table 18 meet all requirements passably,
and of these not all have been above suspicion as conservative investments
during the whole period covered.
The lowest and highest prices of these bonds in each month of 1890-1911
were obtained from the Financial Review. The means between these extreme
quotations were struck, after accrued interest, as of the middle of the month,
had been deducted. Then net yields were computed for each month from these
mean quotations by the aid of bond tables.40 Finally, net yields by quarters
and by years were computed by averaging the monthly figures.50 To show the
variations in interest rates more clearly, columns of relative rates, computed
on the basis average actual net yields in 1890-99 = 100, were added to the
tables.51 Table 19 presents the results by years. The bonds are arranged in
the order of their average net yields in 1890-99. The figures for quarters and
months are given in Tables 21 and 22. Since the latter tables would be made
unduly bulky by printing the full figures for all the securities only two bond
series are included, namely, the general average and the series for one issue
which merits especial attention. (See p. 157.)
48 See Table 20. The net yields for different issues of United States bonds from 1878 to 1909 are given
in A. Piatt Andrew's Statistics for the United States (National Monetary Commission; Senate Document, no.
570, 61st Congress, 2d session), p. 281.
The computing was done by Donald English, sometime Assistant in Economics in the University of
California. When a bond lacked a quotation for some month, its net yield was interpolated by supposing
that this yield varied from the net yield of the preceding or following month in the same proportion that the
average net yields of the remaining bonds varied. Interpolations were necessary, however, in less than 2 per
cent of the cases.
so Frequent discrepancies of one point may be found between the average net yields by quarters and by
years. They are due to the carrying of fractions of .5 or more and the dropping of smaller fractions. Statistical offices often arbitrarily change averages so as to be formally consistent with the figures from which
they are struck; but this practice is less accurate in substance, though more accurate in form, than the one
followed here.
si The average relative yields are computed on the index number plan from the relative figures for each
of the ten bonds—not from the average actual yields of all the bonds.




MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

142

T A B L E

18

D E S C R I P T I O N OF T H E R A I L W A Y B O N D S I N C L U D E D IN T H E F O L L O W I N G

TABLES

Amount of issue
in millions of dollars

General Consolidated
and first mortgage
First mortgage

Chicago and Eastern
Illinois
Missouri, Kansas and
Texas
Wabash
Chesapeake and Ohio

Outstanding

Dates of
Issue

r

Maturity Authorized 1 8 9 0

1909

Rate
of interest

%

Moody's
rating in
1909*

1887

1937

30

4

20

5

A

a

Gold
Gold

1890
1889

1990
1939

40
34

39
23

40
34

4
5

A
A

a
a a

Gold

1889

1939

30

22

28

5

A

a

1880

1930

30

13

16

6

A

a a

1887

1927

t

25

23

4

A

a a

Gold

1887

1987

50

35

45

5

A

a a

Gold

1889

1989

150

9

49

4

A

a a

Gold

1887

1937

20

20

19

4

A

a a

1885

First mortgage
First consolidated
mortgage
Consolidated mortgage

Chicago, St. Paul, Minneapolis and Omaha
Chicago, Burlington
and Quincy

2361

50

50

50

A

a a

Nebraska Extension
bonds, secured by
deposit of first
mortgage bonds of
Nebraska branch roads
General mortgage

Central Railroad of
New Jersey
Chicago, Milwaukee
and St. Paul
New York, Chicago
and St. Louis
West Shore Railroad

* From Moody's
are the highest.

Medium
payment

Name of bonds

Name of railway

General mortgage,
"Series A "
First mortgage
First mortgage,
guaranteed by the
New York Central

Analysis of Railroad

Investments

( N e w York, 1 9 0 9 ) .

Moody recognizes 14 classes of securities, of which A a a and A o

t $ 2 0 , 0 0 0 per mile.
T A B L E

19

A C T U A L A N D R E L A T I V E R A T E S OF I N T E R E S T Y I E L D E D BY I N V E S T M E N T S
*EARS,

w
6
%
1890

5.24

E
H
<8

o

s

£

%
5.20

1890-1911:

«

%

%

4.99

5.09

4.96

TEN

«
£.

w
©

©

%

%

AMERICAN

RAILWAY

BONDS

RATES
PH
L

a
P
M

Q
%

ACTUAL

IN

.J
. -Q
C
%

Averages

«
ti
GO
£

%

%

%

<
%

4.53

4.55

4.39

4.38

3.88

5.10

4.35

4.72

4.79

4.42

3.96

5.15

4.54

4.85

1891

5.28

5.25

5.06

5.11

5.06

4.92

4.61

1892

5.03

5.04

4.81

4.85

4.84

4.73

4.53

4.49

4.18

3.90

4.91

4.37

4.64

1893

5.16

5.17

4.95

5.00

4.97

4.94

4.60

4.42

4.30

4.02

5.05

4.46

4.75

1894

5.14

5.04

4.83

4.75

4.63

4.72

4.40

4.46

4.04

3.87

4.88

4.30

4.59

4.59

4.56

4.64

4.36

4.38

3.87

3.82

4.74

4.21

4.48

1895

5.07

4.76

4.72

1896

5.12

4.92

4.80

4.72

4.65

4.80

4.34

4.28

3.89

3.85

4.84

4.23

4.54

1897

5.02

4.78

4.76

4.48

4.28

4.51

4.47

3.96

3.78

3.72

4.66

4.09

4.38

1898

4.71

4.57

4.54

4.29

4.12

4.07

4.46

3.83

3.80

3.69

4.45

3.97

4.21

1899

4.32

4.34

4.26

4.12

3.97

3.47

4.23

3.59

3.71

3.56

4.20

3.71

3,96

1900

4.27

4.40

4.20

4.12

4.09

3.42

4.0.7

3.61

3.71

3.57

4.22

3.68

3.95

1901

3.90

4.11

4.08

4.00

3.83

3.40

3.81

3.59

3.66

3.54

3.98

3.60

3.79

1902

3.84

4.05

4.07

4.01

3.81

3.50

3.63

3.51

3.73

3.55

3.96

3.58

3.77

3.70

3.89

3.76

3.96

1903

4.15

4.13

4.24

4.19

4.09

3.69

3.84

3.70

4.16

1904

4.10

4.06

4.15

4.12

4.03

3.72

3.78

3.68

3.83

3.72

4.09

3.75

3.92

1905

3.95

3.97

4.08

4.04

3.79

3.61

3.69

3.59

3.79

3.70

3.97

3.68

3.82




BY

143

MITCHELL: BUSINESS CYCLES
TABLE

19—

(Concluded)

A C T U A L AND RELATIVE R A T E S OF INTEREST YIELDED BY INVESTMENTS IN T E N AMERICAN R A I L W A Y BONDS BY
YEARS, 1 8 9 0 - 1 9 1 1 :

M
w
d

es

£
1906

M

£

S

%
4.03

4.44

1908

0
9
C
S
e
s

&

%
4.06

1907

A

EH

4.24
4.15

4.33

%
4.24
4.60
4.63

<y

o

P'
H

d

d*

d

%

%
4.10
4.45
4.32

«

ACTUAL

o
«.

RATES

(U

«

w

P
S

f

O
Q

A'

a
>
s
e

A ea e
vr gs
>

V
>

c
c

d*
3.89

%
3.71

%

3.97

%
3.78

%

d

3.82

%
3.80

%
4.08

<
M
%
3.80

<
%
3.94

4.27

4.08

4.11

3.95

4.07

3.97

4.40

4.04

4.22

4.04

4.04

3.93

4.04

3.95

4.32

4.00

4.16

3.89

4.09

3.91

4.00

4.18

£

1909

4.14

4.01

4.24

4.13

3.95

3.94

3.89

3.87

3.94

1910

4.33

4.08

4.42

4.25

4.14

4.08

4.02

4.03

4.04

3.96

4.24

4.03

4.14

1911

4.35

4.12

4.50

4.26

4.13

4.11

4.06

4.05

4.03

3.97

4.27

4.04

4.16

Averages
1890-99

5.01

4.91

4.77

4.70

4.60

4.53

4.46

4.26

4.04

3.83

4.80

4.22

4.51

1900-09

4.12

4.12

4.25

4.15

4.00

3.72

3.88

3.71

3.85

3.74

4.13

3.78

3.95

RELATIVE R A T E S
A v e r a g e a c t u a l y i e l d s in 1 8 9 0 - 9 9 =

E
H

W

Av .-

actual

£

<
8

<8

M

ja
0
0
•
rO
0
3
£

P
K

4.91

4.77

O
4.70

1890

d
5.01
105

106

105

108

1891

105

107

106

109

1892

100

yields, 1 9 - 9
8 09

A

103

101

103

O
4.60

108
110
105

or

W
<3

6
4.53

4.46

d
4.26

4.04

3.83

100

102

103

108

101

106

103

105

109

103

112

109

103

107

107

107

104

102

105

104

102

103

103

103

103

104

107

105

105

106

105

99

105

100

101

102

102

102

100

99

100

99

1893

103

105

104

106

108

1894

103

103

101

101

101

104

w

A-

£

<

102

98

103

106

97

100

96

101

101

100

100

99

100

93

94

97

97

97

97

89

90

100

90

94

96

92

94

93

95

84

92

93

87

88

88

101

97

99

98

1896

102

100

101

100

101

1897

100

97

100

95

93

95

91

93

Averages

P
S

96

1895

94

P
S

«.

<3
«

109

1898

100

99

1899

86

88

89

88

86

77

1900

85

90

88

88

89

75

91

85

92

93

88

87

88

91

93

83

86

85

92

93

83

85

84

97

87

89

88
87
85

1901

78

84

86

85

83

75

86

84

1902

77

83

85

85

83

77

81

82

1903

83

1904

82

1905

79

1906

81

84
83
81
82

89
87
86
89

89

88
86
87

89

81

86

88

82

85

86

95

97

86

82

80

83

84

94

97

83

88

86

83

87

87

95

99

85

90

88

93

101

104

92

96

94

92

100

103

90

95

93

91

98

102

86

93

89

96

92

1907

89

86

96

95

93

90

1908

86

85

97

92

91

89

91

83

82

89

88

96

89

92

1909

87

86

87

87

1910

86

83

93

90

90

90

90

95

100

103

88

1911

87

84

94

91

90

91

91

95

100

104

89

96

93

1890-99

100

100

100

100

100

100 100

100

100

100

1900-09

82

84

89

88

87

86

90

88

Averages




100 100 100
82

87

87

95

98

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

144

The best records of short-time interest rates in New York are likewise
published in the Financial Review. These tables show by weeks the rates (1)
for call loans at the stock exchange and at the banks and trust companies,
(2) for seven kinds of time loans, ranging from 30 days to 7 months, and (3)
for three descriptions of commercial paper. Of call rates, those quoted at the
stock exchange are both the most important and the most regularly recorded.
The record for commercial paper is not quite complete; for during the height
of crises there are sometimes weeks in which no rate is quoted, or in which the
quoted rates are said to be merely nominal. But the figures for time loans
present even more gaps. Accordingly, the data selected are (1) the average
rates for call loans at the stock exchange, (2) the rates for choice double-name
commercial paper running 60 to 90 days, and (3) the rates for good singlename commercial paper running 4 to 6 months.

16

CHART
RELATIVE
AMERICAN

or

RATES
RAILWAY

INTELREST

BONDS

AND

IN

YIELDED
UNITED

1890-1910

BY

INVESTMENTS

STATES

o r

4'S

IN T E N

1301 A N D

1925.

120

\

\

/
\

s

UNITED S T A T E S

—

/
1 10

4'S

or

1901 AND

1925.

1
10

\

10
0

10
0
90

/

/

N T V
\
< \
\ \
^ V\

\

V

80

\
\

7
0
10 SO

'SI




'92 '93 '94

'35

'96 '97

'3S '99

S

*

*

\

•/
/

/

/

*

/

*

/

*

9
0
8
0

\

\

_

10 0 '02 '03 '04 O 0 0 0
90 1
' S 6 '7 8

7
0
OS IS 10

145

MITCHELL: BUSINESS CYCLES

C A T 17.
HR
RELATIVE R T S O I T R S O BONDS.
AE F NE E T N
i
C M E C L P P R A O C L L A S I NW Y R .i
O M R A A E . N AL O N N E O K
I
1880 - 1910.
ji

20
2

20
0

T

AE A E O T N R L A B N S
I
VR G F E AW Y O D C M E C L P P R 60-90 D Y
O MR A A E
I
AS
C L L A S A SO K EC A G
AL O N T T C X H N E
10
8

10
8

G
IO

10
6

i

10
0

i

1

i
i
i
i

ii
b
i

|

|

10
2

1

j

10
4

i
i

—

i
i

i
i
i

i!

\\ 7 1 ^
f
VI

i

\

•

h-

1

V
i

60

-4

i :
i /
s/

40

10
4

i
i
1
i
i ®

/

—f—
i
/

i
i

10
2
ir
10
0

n

TV f

i *7
4 !

i
i

i;

80

i
i
i
i
i
i
i
i

^

! !
!/
i
i

i

i
1
13 9 9 ' 4 'St 6' 7 9 ' 9 10 0 0 ' 3 ' 4 ' 5 "6 0 0 0 11 'II
80 1 2 9 5 ' 9 5 9 90 ' 1 2 0 0 0 0 7 8 9 90
9




80

60

40

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

146

TABLE

20

A C T U A L AND RELATIVE R A T E S OP INTEREST ON B O N D S , COMMERCIAL P A P E R , AND C A L L L O A N S IN N E W Y O R K BY
YEARS,

1890-1911
Relative rates of interest
Average actual rates 1890-99 =

Actual rates of interest

r

Commercial paper

Bonds
A

Av. of
10 R. R.
bonds

West
Shore
R. R.

A

Call loans U . S. 4s
West
at Stock of 1907
Shore
Exchange and 1925 R. R.

100
A

Commercial paper

Bonds

Av. of
10 R. R.
4-6
bonds
months

A

60-90
days

Call loans
at Stock
Exchange

Year

U. S. 4s
of 1907
and 1925

1890

2.43%

3.88%

4.72%

6.89%

5.64%

5.81%

88

101

105

115

123

176

1891

2.65

3.96

4.85

6.50

5.41

3.42

96

103

107

109

118

104

1892

2.80

3.90

4.64

5.38

4.04

3.03

101

102

103

90

88

92

1893

3.04

4.02

4.75

7.62

6.86

4.58

110

105

105

127

150

139

1894

2.79

3.87

4.59

5.22

3.04

1.06

101

101

102

87

66

32

1895

2.89

3.82

4.48

5.73

3.64

1.85

105

100

99

96

79

56

1896

3.14

3.85

4.54

7.02

5.76

4.21

114

101

100

117

126

128

1897

2.73

3.72

4.38

4.72

3.57

1.77

99

97

97

79

78

54

1898

2.69

3.69

4.21

5.31

3.82

2.16

97

96

93

89

83

66

1899

2.47

3.56

3.96.

5.48

4.05

5.04

89

93

88

92

88

153

1900

2.18

3.57

3.95

5.71

4.38

2.93

79

93

88

95

96

89

1901

1.97

3.54

3.79

5.41

4.24

3.98

71

93

85

90

93

121

1902

1.98

3.55

3.77

5.75

4.88

5.22

72

93

84

96

106

159

1903

1.99

3.70

3.96

6.21

5.43

3.79

72

97

88

104

118

115

1904

2.09

3.72

3.92

5.13

4.24

1.78

76

97

87

86

93

54

1905

2.00

3.70

3.82

5.17

4.35

4.39

72

97

85

86

95

133

1906

2.04

3.80

3.94

6.24

5.68

6.44

74

99

88

104

124

196

1907

2.18

3.97

4.22

6.55

6.27

7.27

79

104

94

109

137

221

1908

2.44

3.95

4.16

4.95

4.42

1.97

88

103

93

83

96

60

1909

2.52

3.89

4.00

4.67

3.86

2.70

91

102

89

78

84

82

1910

2.74*

3.96

4.14

5.72

5.01

2.97

99*

103

92

96

109

90

1911

2.68*

3.97

4.16

4.71

4.02

2.57

97*

104

93

79

88

78

1890-99

2.76

3.83

4.51

5.99

4.58

3.29

100

100

100

100

100

100

•1900-- 0 9

2.14

3.74

3.95

5.61

4.78

4.05

77

98

88

93

104

123

'

4-6
months

60-90
days

Averages

* Average yields of January, April, July, and October.




Report

of the Comptroller

of the Currency,

1911, p. 823.

MITCHELL: BUSINESS CYCLES

TABLE

21

R A T E S OF I N T E R E S T ON B O N D S , COMMERCIAL P A P E R , A N D C A L L L O A N S

Actual rates of interest
A

f

Bonds
West
Shore
R. R.

1890—1 st quarter

Av. of
10 R. R.
bonds

^

f

IN N E W

60-90
days

Bonds
Call loans
at Stock
Exchange

Y O R K BY Q U A R T E R S ,

Relative rates of interest
Average actual rates 1 8 9 0 - 9 9 =
A

Commercial paper
4-6
months

147

West
Shore
R. R.

1890-1911

100

Commercial paper

Av. of
3 0 R. R.
4-6
bonds
months

60-90
days

Call loans
at Stock
Exchange

169

3.83%

4.65%

6.44%

5.30%

5.58%

100

103

108

116

2d quarter

3.84

4.64

6.45

5.07

4.62

100

103

108

111

140

3d quarter

3.87

4.72

6.48

5.47

7.42

101

105

108

119

225

4th quarter

3.98

4.87

8.17

6.98

5.62

104

108

136

152

171

1891—1st quarter

3.93

4.83

6.76

5.41

3.27

103

107

113

118

99

2d quarter

3.96

4.88

6.40

5.26

3.62

103

108

107

115

110

3d quarter

3.99

4.89

6.64

5.72

3.00

104

108

111

125

91

4th quarter

3.97

4.78

6.14

5.18

3.85

104

106

103

113

117

1892—1st quarter

3.90

4.65

5.27

3.97

2.14

102

103

88

87

65

2d quarter

3.88

4.60

4.58

3.14

1.62

101.

102

77

69

49

3d quarter

3.90

4.64

5.45

3.99

2.63

102

103

91

87

80

4th quarter

3.92

4.67

6.26

5.19

5.81

102

103

105

113

176

1893—1st quarter

3.95

4.62

6.33

5.84

5.31

103

103

106

127

161

2d quarter

4.03

4.71

8.10

7.02

5.62

105

105

135

153

171

3d quarter

4.15

4.97

9.84

9.33

5.65

108

110

164

204

172

4th quarter

3.96

4.71

6.29

4.68

1.74

103

104

105

102

53

1894—1st quarter

3.91

4.64

5.17

3.30

1.04

102

103

86

72

32

3.87

4.57

4.83

2.96

1.08

101

101

81

65

33

2d quarter
3d quarter

3.87

4.59

5.13

3.15

1.00

101

102

86

69

30

4th quarter

3.83

4.55

5.75

2.80

1.14

100

101

96

61

35

1895—1st quarter

3.84

4.62

6.35

3.41

1.67

100

102

106

74

51

2d quarter

3.83

4.49

5.12

3.03

1.56

100

100

86

66

47

3d quarter

3.79

4.37

5.37

3.56

1.34

99

97

90

78

41

6.33

4.51

2.85

100

98

106

98

87
127

4th quarter
1896—1st quarter

3.81

4.43

3.81

4.48

7.69

5.57

4.17

100

99

128

122

2d quarter

3.82

4.45

5.94

4.72

2.54

100

99

99

103

77

3d quarter

3.92

4.67

7.89

7.05

4.02

102

103

132

154

122

4th quarter

3.85

4.54

6.50

5.79

6.10

101

100

109

126

185

1897—1st quarter

3.77
3.72

4.43
4.43

4.56
4.54

3.26
3.39

1.67
1.36

99

98
98

76
76

71
74

51
41

2d quarter

97

3d quarter

3.70

4.34

4.83

3.79

1.61

97

96

81

83

49

4th quarter

3.68

4.31

4.96

3.74

2.45

96

95

83

82

74

1898—1st quarter

3.68

4.23

5.17

3.93

2.15

96

94

86

86

65

2.05

99

95

102

94

62

2.20

96

93

87

83

67

92

80

71

68

2d quarter

3.78

4.30

6.11

4.29

3d quarter

3.68

4.18

5.23

3.81

4th quarter




3.64

4.13

4.79

3.27

2.24

95

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

148

T A B L E 21— (Continued)
R A T E S OF I N T E R E S T ON B O N D S , C O M M E R C I A L P A P E R , AND C A L L L O A N S

A

a

A

Av. of
10 R. R.
bonds

Bonds

4-6
months

60-90
days

Commercial paper

A

Call loans
at Stock
Exchange

West
Shore
R. R.

1890-1911

100

A

Commercial paper

*

West
Shore
R. R.

Y O R K BY Q U A R T E R S ,

Relative rates of interest
Average actual rates 1 8 9 0 - 9 9 =

Actual rates of interest
Bonds

IN N E W

X

r

Av. of
1 0 R. R.
4-6
bonds
months

A

60-90
days

Call loans
at Stock
Exchange

3.58%

4.00%

4.77%

3.25%

3.17%

94

89

80

71

96

2d quarter

3.53

3.92

4.85

3.53

3.74

92

87

81

77

114

3d quarter

3.53

3.91

5.66

4.24

4.60

92

87

95

93

140

4th quarter

3.59

4.00

6.86

5.41

8.65

94

89

115

118

263

1900—1st quarter

1899—1st quarter

3.56

3.97

6.27

4.71

3.50

93

88

105

103

106

2d quarter

3.56

3.94

5.31

3.83

2.23

93

87

89

84

68

3d quarter

3.59

3.97

5.48

4.20

1.47

94

88

92

92

45

4th quarter

3.56

3.91

5.77

4.75

4.51

93

87

96

104

137

1901—1st quarter

3.49

3.79

5.14

3.88

2.52

91

84

86

85

77

2d quarter

3.54

3.78

5.40

3.95

5.10

93

84

90

86

155

3d quarter

3.56

3.81

5.62

4.52

3.74

93

85

94

99

114

4th quarter

3.57

3.79

5.44

4.73

4.58

93

84

91

103

139

1902—1st quarter

3.56

3.75

5.44

4.38

3.70

93

84

91

96

112

2d quarter

3.54

3.73

5.37

4.50

4.55

93

83

90

98

138

3d quarter

3.52

3.77

5.81

4.96

6.19

92

84

97

108

188

4th quarter

3.58

3.83

6.58

5.84

6.44

94

85

110

127

196

1903—1st quarter

3.63

3.87

5.81

5.25

5.02

95

86

97

115

152

2d quarter

3.69

3.95

5.79

5.00

3.21

96

88

97

109

97

3d quarter

3.72

4.05

6.54

5.73

2.29

97

90

109

125

70

4th quarter

3.76

3.99

6.54

5.83

4.54

98

89

109

127

138

1904—1st quarter

3.72

3.97

5.61

4.77

1.95

97

88

94

104

59

2d quarter

3.74

3.96

4.71

3.90

1.37

98

88

79

85

42

3d quarter

3.72

3.89

4.90

3.93

1.13

97

87

82

86

34

4th quarter

3.71

3.86

5.31

4.27

2.66

97

86

89

93

81

1905—1st quarter

3.69

3.82

4.73

3.91

2.60

96

85

79

85

79

2d quarter

3.71

3.82

4.75

3.91

2.70

97

85

79

85

82

3d quarter

3.69

3.81

5.06

4.34

2.60

96

85

85

95

79

4th quarter

3.72

3.84

6.17

5.44

9.67

97

85

103

119

294

3.74

3.87

5.81

5.13

6.25

98

86

97

3.79

112

190

2d quarter

3.93

5.82

5.34

5.52

99

88

97

168

3d quarter

3.82

117

3.97

6.52

5.97

5.39

100

88

109

164

4th quarter

3.84

3.99

130

6.77

6.27

8.59

100

89

113

137

261

1907—1st quarter

172

1906—1st quarter

3.88

4.05

6.70

6.10

5.67

101

90

112

133

2d quarter

3.91

4.15

6.14

5.67

2.58 '

102

92

103

124

78

3d quarter

3.98

4.22

6.70

6.24

3.92

104

94

112

119

4th quarter

4.13

4.45

136

7.33

7.46

16.20

108

99

122

163

492




149

MITCHELL: BUSINESS CYCLES
T A B L E 21—

(Concluded)

R A T E S OF INTEREST ON B O N D S , COMMERCIAL P A P E R , AND C A L L L O A N S IN N E W
Actual rates of interest
Bonds

1908—1st quarter

Av. of
West
10 R. R.
Shore
bonds
R. R.
3.99%
4.26%

2d quarter

3.98

3d quarter

3.92

60-90
davs

1890-1911

100

Commercial paper
>
Call loans
Av. of
at Stock
60-90
4-6
10 R. R.
days Exchange
months
bonds
87
125
104
95

Bonds

Commercial paper
4-6
months

Y O R K BY QUARTERS,

Relative rates of interest
Average actual rates 1890-99 =

Call loans
at Stock
Exchange

West
Shore
R. R.

6.25%

5.75%

2.87%

104

4.20

4.70

4.00

1.62

104

93

79

87

49

4.14

4.58

3.75

1.22

102

92

77

82

37

2.10

102

90

78

87

64

78

60
57

4th quarter

3.92

4.06

4.69

3.97

1909—1st quarter

3.86

3.97

4.28

3.56

1.96

101

89

71

3.89

3.98

4.25

3.38

1.88

102

89

71

74

3.91

4.00

4.41

3.86

2.30

102

89

74

84

70

5.07

4.66

102

90

97

111

141

2d quarter
3d quarter
4th quarter

3.90

4.05

5.81

1910—1st quarter

3.95

4.08

5.22

4.56

3.41

103

90

87

99

104

3.97

4.16

5.51

4.77

3.25

104

92

92

104

99

4.18

6.26

5.44

1.95

103

93

105

119

59

3.24

103

92

98

115

98

2d quarter
3d quarter

3.96

4th quarter

3.96

4.14

5.89

5.26

1911—1st quarter

3.96

4.14

4.64

3.98

2.62

103

92

78

87

80

3.97

4.15

4.40

3.66

2.33

104

92

74

80

71

4.16

4.96

4.15

2.32

104

93

83

91

71

4.93

4.30

2.98

104

93

83

94

91

2d quarter
3d quarter
4th quarter

3.98
3.98

4.19

In reducing the weekly rates given in the source to monthly averages, each
week was placed in that month in which fell the majority of its days. Both
the high and the low figures were included in making the averages.52 Relative
rates were computed on the same plan as the relative rates for bonds—that is,
on the basis of average actual rates in 1890-99 = 100. For convenience of
comparison, the results are presented in Tables 20, 21, and 22, side by side with
the net yields of bonds.53
^ T h e averages bv Quarters and by years were not computed from the monthly figures, but directly from
the original figufes b y T e k s
Of c o u r U t h i s is the more accurate method
*
discrepancies to appear between the quarterly or annual figures as entered in the tables, and the correspond
l n g figures which may be computed from the rates by months.
5 3 In his Rate of Interest,
Professor Irving Fisher gives the yearly a v e r a ^ ™ t e
»Pon - p r i m e two-name 6 0 - d a y " paper, computed from the Financial Review " b y
a
v
e
r
;
^
lowest weeklv r a t e s " ^DD 419 420)
There are numerous small discrepancies between his resu ts and those
of this investigation, f o T w h i c h it is difficult to account. The present figures have been checked by three
computers and should be arithmetically correct.




MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

150

TABLE

22

R A T E S OF I N T E R E S T ON B O N D S , C O M M E R C I A L P A P E R , AND C A L L L O A N S IN N E W Y O R K BY M O N T H S ,
Relative rates of interest
Average actual rates 1 8 9 0 - 9 9 =

Actual rates of interest
Bonds
West
Shore
R. R.

Av. of
10 R. R.
bonds

Commercial paper
K
f
A
4-6
months

60-90
days

Bonds
Call loans
at Stock
Exchange

West
Shore

R. R.

1890-1911

100

Commercial paper

Av. of
10 R. R.
4-6
bonds
months

60-90

Call loans
at Stock

3.83%

4.62%

6.45%

5.39%

7.70%

102

108

118

234

February

3.82

4.65

6.13

5.04

4.25

100

103

102

110

129

March

3.83

4.67

6.75

5.50

4.25

100

104

113

120

129

April

3.84

4.64

6.65

5.14

4.30

100

103

111

112

131

May

3.84

4.63

6.38

5.06

4.88

100

103

107

110

148

June

3.83

4.65

6.28

5.00

4.75

100

103

105

109

144

July

3.85

4.68

6.25

5.08

4.60

101

104

104

111

140

August

3.88

4.73

6.50

5.61

11.63

101

105

109

122

353

September

3.88

4.76

6.75

5.71

6.75

101

106

113

125

205

October

3.91

4.76

7.25

5.89

5.00

102

106

121

129

152

November

3.99

4.88

8.88

8.20

7.00

104

108

148

179

213

December

4.04

4.96

8.63

7.38

5.00

106

110

144

161

152

1890 January

100

3.94

4.83

7.28

5.83

3.90

103

107

122

127

118

February

3.92

4.81

6.38

5.00

2.88

102

106

107

109

87

March

3.94

4.86

6.50

5.25

2.88

103

108

109

115

87

April

3.94

4.84

6.25

5.09

3.30

103

107

104

111

100

May

3.96

4.87

6.50

5.33

4.38

103

108

109

116

133

June

3.99

4.93

6.50

5.50

3.25

104

109

109

99

July

4.01

120

4.93

6.60

* 5.63

2.20

105

109

110

4.00

123

4.89

67

August

6.75

5.75

2.13

105

109

125

65

September

3.95

113

4.84

6.60,

5.79

4.50

103

107

110

126

137

1891 January

October

3.99

4.82

6.41

5.60

4.25

104

* 107

November

3.98

107

122

129

4.80

6.25

5.10

4.38

104

106

104

December

3.95

133

4.73

111

5.75

4.85

2.94

103

105

96

106

89

3.90

4.66

5.45

4.17

2.40

102

103

91

February

91

3.89

4.64

73

4.94

3.69

2.00

102

103

March

3.90

83

4.65

80

61

5.35

3.96

2.00

102

103

April

3.90

89

4.63

86

61

4.81

3.45

2.00

102

103

May

3.87

4.59

80

75

61

4.56

3.18

1.50

101

102

3.86

4.59

76

June

69

46

4.40

2.94

1.40

101

102

4.62

64

July

3.89

74

43

5.13

3.43

1.88

102

102

August

3.89

4.63

86

5.28

75

57

4.00

2.05

102

103

September

3.92

88

4.67

62

6.07

87

4.75

4.13

102

103

3.93

4.65

101

October

6.44

104

123

5.11

5.63

103

103

November

3.90

108

4.66

111

6.00

171

5.11

5.15

102

104

December

3.92

4.69

100

6.38

111

156

5.50

6.81

102

104

107

120

207
121

1892 January

3.94

4.64

6.06

5.18

4.00

103

103

February

3.93

4.60

101

6.00

113

4.85

3.00

103

102

100

March

3.97

4.64

91

6.80

106

6.80

8.20

104

103

114

April

4.02

4.64

148

249

6.13

5.75

4.88

105

103

102

125

148

1893 January




MITCHELL: BUSINESS CYCLES

TABLE
R A T E S OF I N T E R E S T ON B O N D S , C O M M E R C I A L

22—(Continued)

P A P E R , AND C A L L L O A N S IN N E W Y O R K BY M O N T H S ,

A.

Commercial paper

Bonds

A

A

West
Shore
R. R.

Av. of
10 R. R.
bonds

4.03%

4.71%

8.35%

6.65%

3.60%

105

105

June

4.05

4.78

9.75

8.75

8.88

106

106

July

4.14

4.93

9.75

9.75

7.75

108

August

4.21

5.07

9.70

9.70

5.50

110

September

4.11

4.89

10.14

8.32

3.75

October

4.02

4.80

7.69

5.96

November

3.93

4.67

5.80

December

3.92

4.65

5.50

May

1894 January-

4-6
months

1890-1911

Relative rates of interest
Average actual rates 1 8 9 0 - 9 9 =: 1 0 0

Actual rates of interest
Bonds

151

Call loans
at Stock
Exchange

West
Shore
R. R.

Commercial paper
X

Av. of
10 R. R.
4-6
bonds
months

60 90
days

Call loans
at Stock
Exchange

139

145

109

163

190

270

109

163

213

235

112

162

212

167

107

108

169

182

114

2.38

105

106

128

130

72

4.47

1.70

103

104

97

98

52

3.67

1.16

102

103

92

80

35
31

60-90
days

3.94

4.68

5.35

3.50

1.02

103

104

89

76

February

3.90

4.64

5.19

3.25

1.00

102

103

87

71

30

March

3.88

4.59

4.94

3.00

1.09

101

102

83

65

33

April

3.84

4.55

4.81

3.15

May

3.88

4.56

4.75

2.91

June

3.88

4.59

4.94

2.89

July

3.88

4.62

4.94

3.00

1.13

August

3.87

4.60

4.98

3.09

September

3.86

4.57

5.50

3.28

October

3.84

4.55

5.75

2.72

1.10
1.00
1.00
1.00
1.00
1.00

100

101
101
101
101
101
100

101

80

69

34

101

79

63

33

102

83

63

30

103

83

65

30

102

83

67

30

101

92

72

30

101

96

59

30

November

3.82

4.53

5.75

2.81

1.03

100

100

96

61

31

December

3.83

4.56

5.75

2.88

1.44

100

101

96

63

44

3.83

4.58

5.89

3.00

1.35

100

101

98

65

41

1895 January
February

3.86

4.64

6.79

3.65

1.50

101

103

113

80

46

March

3.83

4.63

6.50

3.90

2.25

100

103

109

85

68

April

3.84

4.58

6.25

3.96

2.25

100

102

104

86

68

May

3.84

4.49

4.85

2.75

1.32

100

99

81

60

40

June

3.82

4.41

4.31

2.63

1.16

100

98

72

57

35

July

3.81

4.39

4.55

2.95

1.40

100

98

76

64

43

August

3.78

4.36

5.50

3.53

1.03

99

97

92

77

31

September

3.77

4.35

6.25

4.04

1.56

99

96

104

88

47

October

3.80

4.38

6.44

4.81

2.17

99

97

108

105

66

November

3.79

4.42

5.50

4.07

1.97

99

98

92

89

60

December

3.84

4.49

6.80

4.58

4.56

100

100

114

100

138

3.83

4.53

8.90

6.00

4.90

100

100

149

131

149
120
106

1896 January
February

3.80

4.46

7.31

5.70

3.94

99

99

122

124

March

3.81

4.46

6.56

5.18

3.50

100

99

110

113

April

3.81

4.46

6.31

5.31

3.02

100

99

105

116

92

May

3.83

4.44

5.75

4.53

2.53

100

98

96

99

77

June

3.82

4.45

5.75

4.25

1.94

100

99

96

93

59

4.59

6.40

5.13

2.07

102

102

107

112

63

July




3.89

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

152

T A B L E 22—

(Continued)

R A T E S OP I N T E R E S T ON B O N D S , C O M M E R C I A L P A P E R , AND C A L L L O A N S IN N E W Y O R K BY M O N T H S ,
Relative rates of interest
Average actual rates 1 8 9 0 - 9 9 =

Actual rates of interest
Bonds
West
Shore
R. R.

1896 August

Av. of
10 R. R.
bonds

Commercial paper
4-6
months

60-90
days

Bonds
Call loans
at Stock
Exchange

West
Shore
R. R.

1890-1911

100

Commercial paper

Av. of
10 R. R .
4-6
bonds
months

60-90
days

Call loans
at Stock
Exchange
142

3.97 %

4.75%

8.33%

7.75%

4.69%

104

105

139

September

169

3.91

4.67

9.10

8.44

5.45

102

104

152

October

184

166

3.90

4,65

8.56

8.56

11.13

102

103

November

143

187

338

3.86

4.50

6.19

5.25

6.25

101

December

100

103

115

190

3.80

4.46

5.10

3.75

1.95

99

99

85

82

59

3.78

4.44

4.69

3.36

1.78

99

98

78

73

54

February

3.75

4.42

4.50

3.00

1.63

98

98

75

65

50

March

3.78

4.43

4.50

3.33

1.62

99

98

75

73

49

April

3.73

4.45

4.63

3.55

1.50

97

98

77

77

46

May

3.73

4.44

4.75

3.54

1.41

97

98

79

77

43

1897 January

June

3.71

4.39

4.30

3.16

1.20

97

97

72

69

36

July

3.66

4.34

4.38

3.43

1.19

96

96

73

75

36

August

3.71

4.34

4.81

3.75

I.25

97

96

80

82

38

September

3.73

4.34

5.20

4.11

2.22

97

96

87

90

67

October

3.73

4.35

5.25

4.19

2.50

97

96

88

91

76

November

3.67

4.31

4.63

3.45

1.81

96

96

77

75

55

December

3.65

4.26

5.00

3.47

2.92

95

95

84

76

89

1898 January

3.67

4.20

4.63

3.35

2.50

96

93

77

73

76

February

3.66

4.18

4.56

3.13

1.78

96

93

76

54

March

68

3.71

4.30

6.10

4.69

2.17

97

95

102

April

102

66

3.84

4.40

7.58

5.75

2.97

100

98

127

125

90

May

3.78

4.29

6.10

4.63

1.95

99

95

June

102

101

59

3.72

4.21

5.00

3.22

1.25

97

93

July

84

70

38

3.69

4.18

5.00

3.63

1.25

96

93

August

84

79

38

3.67

4.16

5.20

3.64

1.70

96

92

87

79

52
115

September

3.68

4.18

5.50

4.14

3.78

96

October

93

92

90

3.67

4.17

4.94

3.39

2.25

96

November

92

83

74

68

3.64

4.13

4.75

3.31

2.10

95

December

92

79

72

64

3.61

4.09

4.69

3.05

2.41

94

91

78

67

73

3.59

4.02

4.50

2.88

2.72

94

89

75

February

63

83

3.58

3.99

4.50

2.95

2.47

94

89

75

March

64

75

3.56

3.99

5.20

3.79

4.10

93

89

April

87

83

125

3.54

3.95

5.25

3.71

5.13

92

88

88

81

156
107

1899 January

May

3.54

3.92

4.80

3.59

3.52

92

87

June

80

78

3.50

3.89

4.50

3.31

2.63

91

86

July

75

72

80

3.49

3.90

5.06

3.66

4.47

91

87

85

80

136

August

3.51

3.90

5.70

4.35

3.27

92

87

September

95

95

99

3.58

3.94

6.29

4.83

6.38

94

October

88

105

194

3.58

3.98

6.00

5.10

7.50

94

88

November

228

3.98

111

3.57

6.80

100

105

5.36

7.60

93

88

December

114

117

231

3.63

4.03

7.38

5.88

II.13

95

90

123

128

338




MITCHELL: BUSINESS CYCLES

TABLE
B A T E S OF I N T E R E S T ON B O N D S , C O M M E R C I A L

Bonds
West
Shore
R. R.

1900 January

22—(Continued)

P A P E R , AKD C A L L L O A N S IN N E W Y O R K BY M O N T H S ,

Actual rates of interest
K

t

Av. of
10 R. R.
bonds

153

\

Commercial paper
4-6
months

60-90
days

Call loans
at Stock
Exchange

r~

Relative rates of interest
Average actual rates 1 8 9 0 - 9 9
A

—

Bonds

West
Shore
R. R.

1890—1911

100

Commercial paper

Av. cf
10 R. R.
4-6
bonds
months

60-90
days

Call loans
at Stock
Exchange

126

3.58%

4.01%

6.60%

4.81%

4.15%

94

89

110

105

February

3.53

3.95

6.00

4.43

2.25

92

88

100

97

68

March

3.56

3.94

6.13

4.86

3.94

93

88

102

106

120

April

3.54

3.91

5.69

4.30

3.06

93

87

95

94

93

May

3.59

3.94

5.25

3.69

2.00

94

88

88

81

61

June

3.56

3.97

5.00

3.69

1.69

93

88

84

81

51

July

3.58

3.97

5.25

4.00

1.53

94

88

88

87

46

August

3.60

3.97

5.60

4.22

1.30

94

88

94

92

39

September

3.58

3.96

5.56

4.45

1.61

94

88

93

97

49

October

3.58

3.96

6.08

5.06

3.57

94

88

102

110

108

November

3.57

3.91

5.50

4.39

5.06

93

87

92

96

154

December

3.53

3.86

5.81

4.75

5.13

92

86

97

104

156

1901 January

3.51

3.83

5.44

4.08

3.07

92

85

91

89

93

February

3.49

3.79

5.00

.3.70

2.00

91

84

84

81

61

March

3.48

3.75

4.83

3.75

2.34

91

83

81

82

71

April

3.51

3.77

5.44

3.97

4.30

92

84

91

87

131

May

3.55

3.79

5.50

3.95

6.88

93

84

92

86

209

June

3.55

3.78

5.25

3.94

4.31

93

84

88

86

131

July

3.57

3.80

5.40

4.25

4.30

93

85

90

93

131

August

3.55

3.81

5.75

4.50

2.44

93

85

96

98

74

September

3.56

3.82

5.79

4.94

4.34

93

85

97

108

132

October

3.58

3.81

5.35

4.64

3.55

94

85

89

101

108

November

3.58

3.79

5.38

4.72

4.19

94

84

90

103

127

December

3.56

3.78

5.63

4.90

6.25

93

84

94

107

190

1902 January •

3.56

3.76

5.55

4.56

4.57

93

84

93

99

139

February

3.57

3.75

5.25

4.00

2.38

93

84

88

87

72

March

3.56

3.74

5.50

4.37

3.94

93

83

92

95

120

April

3.56

3.72

5.28

4.53

5.10

93

83

88

99

155

May

3.54

3.72

5.50

4.54

5.56

93

83

92

99

169

June

3.53

3.74

5.33

4.42

2.84

92

83

89

96

86

July

3.51

3.75

5.65

4.64

3.52

92

83

94

101

107

August

3.52

3.78

5.75

4.82

3.78

92

84

96

105

115

September

3.53

3.80

6.17*

5.58*

10.80

92

85

103*

122*

328

October

3.56

3.82

6.93*

5.90*

7.63

93

85

116*

129*

232

5.71

4.88-

94

85

105

125

148

6.81

94

86

109*

131*

207
175

November

3.58

3.82

6.29

December

3.61

3.85

6.50*

6.00*

3.63

3.84

5.71

5.22

5.75

95

86

95

114

4.90

2.88

95

86

94

107
121*

182

113

127

1903 January
February

3.62

3.85

5.60

March

3.64

3.91

6.08*

5.54*

6.00

95

87

102*

April

3.69

3.95

5.91

5.19

4.19

96

88

99

* Nominal part of the month.




>

87

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

154

T A B L E 22—

(Continued)

R A T E S OF I N T E R E S T ON B O N D S , C O M M E R C I A L P A P E R , AND C A L L L O A N S IN N E W Y O R K BY M O N T H S ,
Relative rates of interest
Average actual rates 1 8 9 0 - 9 9 =

Actual rates of interest
Bonds
West
Shore
R. R.

Commercial paper

Av. of
10 R. R.
bonds

4-6
months

60-90
days

Bonds
Call loans
at Stock
Exchange

West
Shore
R. R.

3.69%

3.93%

5.66%

4.75%

2.44%

96

87

June

3.69

3.98

5.81

5.16

3.05

96

89

July

3.72

4.01

6.00

5.43

2.50

97

89

August

3.72

4.07

6.75

5.94

2.03

97

90

September

3.72

4.06

6.75

6.00

2.32

97

October

3.77

4.00

6.50

5.79

2.69

3.77

3.98

6.57

5.95

December

3.74

3.98

6.55

January

3.72

3.96

February

3.70

3.97

March

3.73

3.99

5.55

4.68

1.75

97

April

3.75

3.96

4.75

4.13

1.38*

98

.

100

Commercial paper

Av. of
10 R. R.
4-6
bonds
months

May

November

1890-1911

95

60-90
days

Call loans
at Stock
Exchange

104

74

97

113

93

100

118

76

113

130

62

90

113

131

70

99

89

109

126

82

5.19

99

89

110

130

158

5.79

5.50

98

89

109

126

167

5.53

4.89

2.34

97

88

92

107

71

5.75

4.79

1.81

97

88

96

105

55

89

93

102

53

88

79

90

42

May

3.74

3.95

4.75

3.93

1.55

98

88

79

86

47

June

3.74

3.95

4.63

3.60

1.13

98

88

77

79

34

July

3.72

3.90-

4.63

3.55

1.03

97

87

77

77

31

August

S.72

3.89

4.75

3.84

.90

97

87

79

84

27

September

3.72

3.89

5.38

4.29

1.53

97

87

90

94

46

October

3.71

3.87

5.75

4.41

2.03

97

86

96

96

62

November

3.71

3.85

5.15

4.14

2.80

97

86

86

90

85

December

3.70

3.85

5.06

4.28

3.13

97

86

85

93

95

January

3.69

3.83

4.71

4.00

2.25

96

85

79

87

68

February

3.68

3.81

4.71

3.81

2.19

96

85

79

83

67

March

3.70

3.82

4.75

3.93

3.20

97

85

79

86

97

April

3.70

3.82

4.75

4.00

3.25

97

85

79

87

99

May

3.72

3.82

4.75

3.98

2.42

97

85

79

87

73

June

3.71

3.82

4.75

3.75

2.50

97

85

79

82

76

July

3.69

3.81

4.75

4.13

2.31

96

85

79

90

70

August

3.68

3.80

4.85

4.19

2.05

96

85

81

91

62

September

3.69

3.82

5.63

4.72

3.56

96

85

94

103

108

October

3.69

3.83

5.75

4.92

5.31

96

85

96

107

161

November

3.72

3.83

6.00

5.53

7.70

97

85

100

121

234

December

3.74

3.86

6.75

5.79

16.50

98

86

113

126

501

January

3.71

3.85

5.75

5.06

8.65

97

86

96

110

263

February

3.74

3.86

5.79

5.04

4.63

98

86

97

110

141

March

3.76

3.90

6.00

5.28

4.88

,98

87

100

115

148

April

3.78

3.92

5.92

5.44

9.50

99

87

99

119

289

May

3.80

3.93

5.81

5.33

4.15

99

88

97

116

126

June

3.79

3.94

5.75

5.25

3.25

99

88

96

115

99

July

3.80

3.95

5.93

5.48

2.97

99

88

99

120

90

August

3.83

3.98

6.50

6.00

4.44

100

88

109

131

135




MITCHELL: BUSINESS CYCLES

155

T A B L E 22— (Continued)

Actual rates of interest

A

•

Bonds

a

r

1906 September

West
Shore
R . R.

Av. of
10 R. R.
bonds

>

Commercial paper

Relative rates of interest
Average actual rates 1 8 9 0 - 9 9 =

_
I

A

Bonds

A

4-6
months

60-90
days

A

Call loans
at Stock
Exchange

West
Shore
R . R.

100

Commercial paper

A

Av. of
4-6
10 R. R. months
bonds

60-90
days

Call loans
at Stock
Exchange

285

3.84%

3.99%

7.21%

6.56%

9.38%

100

89

120

143

October

3.83

3.98

6.85

6.30

5.15

100

89

114

137

156

November

3.84

3.98

6.69

6.25

7.50

100

89

112

136

'228

December

3.84

4.00

6.75

6.25

14.00

100

89

113

136

425

1907 January
February

3.85

4.01

6.69

6.15

6.15

101

90

112

134

187

3.85

4.03

6.50

5.94

4.38

101

90

109

130

133

March

3.98

4.12

6.81

6.19

6.38

103

92

114

135

194

April

3.91

4.13

6.47

5.92

2.35

102

91

108

129

71

May

3.91

4.13

5.71

5.40

2.31

102

92

95

118

70

June

3.90

4.18

6.25

5.50

3.13

102

93

104

120

95

July

3.94

4.18

6.36

5.75

4.55

103

93

106

125

138

3.06

104

94

110

136

93

4.00

105

95

120

148

121

August

3.99

4.23

6.60

6.25

September

4.01

4.27

7.17

6.79

October

4.05

4.37

7.33*

7.10*

21.00

106

97

122*

155*

638

November

4.21

4.53

t

7.40*

12.25

110

101

t

161*

372

December

4.12

4.44

t

8.00*

14.60

108

99

t

175*

443
144

3.99

4.26

6.70

6.59

4.75

104

95

112

144

February

3.97

4.24

5.80

5.06

1.81

104

94

97

110

55

March

4.01

4,27

5.63

1.85

105

95

123

56

April

4.01

4.22

5.25

4.38

1.72

105

94

88

96

52

May

4.00

4.18

4.25

3.94

1.66

105

93

71

.86

50

June

3.93

4.19

4.64

3.69

1.52

103

93

78

81

46

July

3.92

4.19

4.58

3.75

1.22

102

93

77

82

37

August

3.92

4.13

4.43

3.61

1.06

102

92

74

79

32

September

3.92

4.11

4.75

3.89

1.35

102

92

79

85

41

f

4.10

1.44

103

91

t

89

44

t

4.04

1.75

103

90

t

88

53

1908 January

t

J.

f

October

3.93

4.09

November

3.93

4.05

December

3.91

4.02

4.69

3.85

2.90

102

90

78

84

88

3.87

3.99

4.40

3.68

1.81

101

89

74

80

55

2.25

101

88

70

77

68

1909 January
February

3.85

3.97

4.22

3.54

March

3.87

3.97

4.28

3.50

1.85

101

89

71

76

56

April

3.87

3.97

4.25

3.50

1.94

101

88

71

76

59

May

3.88

3.97

4.29

3.44

1.84

101

88

72

75

56

June

3.91

4.00

4.21

3.25

1.87

102

89

70

71

57

July

3.90

3.99

4.15

3.38

2.06

102

89

69

74

63

August

3.90

4.00

4.56

4.04

2.17

102

89

76

88

66

September

3.93

4.02

4.75

4^5

2.69

103

90

79

93

82

110

131

October

3.90

4.03

5.03

4.31

102

90

November

3.88

4.06

5.98

5.09

4.65

101.

90

100

111

141

December

3.92

4.05

5.59

5.09

5.03

102

90

93

111

153

* Nominal
t No business.




t

t

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

156

T A B L E 22— (Concluded)

Relative rates of interest
Average actual rates 1 8 9 0 - 9 9 =

Actual rates of interest

A

Bonds

Commercial paper

A

West
Shore
R. R.

A

Av. of
10 R. R .
bonds

Bonds

A

r

4-6
months

60-90
days

Commercial paper

A

Call loans
at Stock
Exchange

West
Shore
R. R.

100

A
.

>

Av. of
4-6
10 R . R . months
bonds

„

60-90
days

Call loans
at Stock
Exchange

3.94%

4.06%

5.28%

4.75%

4.72%

103

90

88

104

143

February

3.94

4.07

5.16

4.44

2.78

103

90

86

97

84

March

3.97

4.10

5.23

4.50

2.88

104

91

87

98

87

April

3.98

4.13

5.59

4.75

3.28

104

92

93

104

100

May

3.99

4.16

5.45

4.75

3.63

104

92

91

104

110

June

3.95

4.18

5.50

4.81

2.77

103

93

92

105

84

July

3.98

4.20

6.16

5.38

2.41

104

93

103

117

73

August

3.96

4.19

6.30

5.43

1.55

103

93

105

118

47

September

3.95

4.13

6.31

5.53

2.00

103

92

105

121

61

October

3.95

4.12

6.21

5.56

3.13

103

91

104

121

95

November

3.96

4.14

6.15

5.50

3.23

103

92

103

120

98

December

3.96

4.15

5.28

4.66

3.38

103

92

88

102

103

3.95

4.13

4.61

3.98

3.18

103

92

77

87

97

February

3.97

4.14

4.72

4.09

2.28

104

92

79

89

69

March

3.97

4.16

4.59

3.88

2.28

104

93

77

85

69

April

3.98

4.15

4.28

3.66

2.30

104

93

72

80

70

May

3.96

4.14

4.33

3.63

2.31

103

92

72

79

70

June

3.96

4.14

4.63

3.69

2.40

103

92

77

81

73

July

3.96

4.15

4.79

3.78

2.36

103

92

80

83

72

August

3.99

4.15

4.86

4.19

2.31

104

92

81

92

70

September

4.00

4.17

5.33

4.54

2.28

105

93

89

99

69

October

3.99

4.20

4.93

4.35

2.33

104

93

83

95

71

November

3.98

4.18

4.72

3.91

2.72

104

93

79

85

83

December

3.96

4.19

5.25

4.63

4.03

103

93

88

101

123

1910 January

1911 January

* Nominal,
t No business.

2. Rates of Interest Yielded by Investments in Bonds
The differences shown by Table 19 among the net yields of the ten bonds
may readily be accounted for by differences in the proportionate value of the
underlying properties, by the existence or non-existence of prior liens, by the
relative financial strength of the issuing or guaranteeing corporations!! etc.
Similarly, the frequent changes in rank among the bonds may be ascribed to
alterations in these particular conditions, which a well-advised investor considers in estimating the risks he runs in buying securities.
But there is one fact of more general interest about these differences in
yield. The margins between the higher and lower yields have grown narrower
in the course of twenty years. In 1890 the maximum difference was 5.24-3.88



MITCHELL: BUSINESS CYCLES

157

per cent = 1.36; in 1900 it was 4.40-3.42 per cent = 0.98; in 1909, 4.24-3.87 per
cent = 0.37. The chief cause of this narrowing of the margins has been an
improvement since the middle nineties in the credit of the lower grade issues
among investors. The risks imputed to the holding of bonds of such railways
as, for example, the Chicago and Eastern Illinois have diminished. With one
exception—the bonds of the West Shore Railroad—all the bonds gave lower
yields in 1911 than in 1890. The West Shore bonds, guaranteed principal and
interest by the New York Central and having over 400 years to run, were rated
decidedly higher by investors in 1890 than any other security in the present list.
But, since then, the improvement in the financial condition and prospects of
other railways has gradually brought their obligations closer to the high
standard of securities guaranteed by the New York Central. Indeed, in recent
years the bonds of the Burlington, the Milwaukee, and the Central of New
Jersey have frequently outranked the bonds of the West Shore.
Another factor in reducing the risk and therefore the net yields upon
investments in bonds was the adoption of the gold standard in 1900. But it
is clear that doubts about the dollar in which interest and principal would be
paid troubled the minds of investors in railway bonds less than doubts about
the financial condition of the issuing companies. For the bonds in highest
credit during the nineties were not expressly payable in gold, and certain of
the bonds in poorest credit were—for example, the securities of the Missouri,
Kansas and Texas. The danger of payment in a silver dollar had most influence
during Mr. Bryan's first campaign. In 1896 the average yield of the six gold
bonds rose 0.25 per cent between June and August, and declined 0.24 per cent
between August and December. Meanwhile the average yield of the four
currency bonds rose 0.37 and declined 0.36 per cent.
The average yield of all ten bonds is the best available gauge of the changes
in the rates which large American corporations have paid for new loans on
long time since 1890, and also the best gauge of the net returns which permanent
investors have received upon current purchases of bonds. But it is distinctly
not the best gauge of changing rates upon long loans of substantially uniform
security. For the latter purpose the yield of the West Shore bonds is preferable, since the financial credit of the guarantor was so firmly established in
1890 as to be little shaken by the years of depression and little strengthened
by the years of prosperity. In other words, the yields of this issue reflect the
changes in the supply of, and the demand for, loan capital for fixed investment
with less distortion by the factor of risk than do the yields of the nine other
bonds. But, since the yields of the other bonds are more typical of American
experience since 1890, the detailed tables have been arranged to show both the
net yields of the West Shore bonds, and the average net yields of all ten.




158

MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

The general course of the average yields has been as follows: Starting at
4.62 per cent in January, 1890, the rate rose with the business difficulties of
the summer and autumn to 4.96 per cent in December. During the reaction
which followed the figure fell to 4.81 in February, but rose again to 4.93 in
July. The extraordinary shortage in the European wheat harvest of 1891
combined with the abundant American crop to change the bond market, as it
did so many other features of the business situation. Yields declined with
scarcely a break to 4.59 per cent in June, 1892. Then, as financial difficulties
began to accumulate again, the rate went up to 4.69 per cent in December. A
brief relaxation of the strain caused a decline to 4.60 per cent in February,
1893: but when the panic broke out bonds fell in price like all other securities
and the average yield mounted to 5.07 per cent in August, the highest point
in the twenty-two years.
A prompt reduction in interest rates was one of the salient features of the
intense depression which followed. By April, 1894, the average yield upon
bonds was 4.55 per cent—decidedly less than before the panic began. With
• some interruptions, the fall continued to 4.35 per cent in September, 1895.
Next year the free-silver campaign caused a vigorous advance from 4.45 per
cent in June to 4.75 per cent in August; but rates fell again as Mr. Bryan's
prospects of victory w^ned and by July, 1897, the average rate was 4.34 per
cent—lower than in 1895.
During the years of business revival which followed the summer of 1897
bond yields continued to decline slowly, as they had done during the years of
business depression. The only notable interruptions of this fall occurred in
March and April, 1898, when the Spanish War began; in September-December,
1899, when the Boer War broke out and the " b o o m " in industrial stocks threatened to collapse; in May and June, 1900, when a business reaction began in
Europe and seemed imminent in America; and in the months following the
Northern Pacific corner of May, 1901. The lowest point was reached in April
and May, 1902—3.72 per cent.
The period of "undigested securities" or the "rich man's panic" turned
the tide, and bond yields rose rapidly to a maximum of 4.07 per cent in August,
1903. The gradual return of financial ease brought on a new decline which
ran through 1904 to its culmination in August, 1905. But the record of this
month—3.80 per cent—did not equal the low record of 1902.
A new phase of development began in September, 1905—business prosperity
accompanied by steadily rising rates of interest on bonds, whereas the prosperous years 1898-1902 had been accompanied by falling rates. With scarcely
a break, bond yields mounted month by month to a climax in November, 1907.
As early as March, 1907, the highest record of the "rich man's panic" had
been surpassed, and to find an equal to the record of the panic of November—
4.53 per cent—it is necessary to go back eleven years to the excited summer




MITCHELL: BUSINESS CYCLES

159

of 1896. But not all the ground gained in 1894-1902 was lost; for the panic
of 1907 did not drive bond yields very close to the 5.07 per cent attained in
1893.
In this respect the yield upon the West Shore bonds presents a marked
contrast to the average yield. This most stable of our securities had shared
in most of the short-period oscillations of the average; but its long-period
oscillations were different, because, as has been said, its credit was less improved
by the good times after 1897 than that of the other bonds. A year before the
breaking out of the crisis of 1893 the yield of the West Shore stood at 3.87
per cent; a year before the breaking out of the crisis of 1907 it stood at 3.83.
The corresponding figures for the average yields were 4.59 and 3.98 per cent.
The West Shore's maximum during the two crises was the same—4.21 per cent;
the maxima of the average were 5.07 per cent and 4.53 per cent. In both cases,
however, the increase in yields within the twelvemonth preceding the climax
of the crisis was greater in 1907 than in 1893.
The conclusion suggested by these facts—that the demand for loan capital
for fixed investment was greater in proportion to the supply in the later than
in the earlier crisis—is supported by the contrast between the yields during
the dull years which followed the two crises. In both cases yields declined
after the panic, but the decline was notably less in the later case. On the basis
of yields for the whole year, the ten-bonds fell 0.16 per cent in 1893-94, and
0.06 per cent in 1907-08, while the West Shore bonds fell 0.15 per cent in the
first case and 0.02 per cent in the second. In 1909, however, bond yields
declined more in comparison with 1908 than they did in 1895 in comparison
with 1894.
The rather unsatisfactory series for United States bonds (Table 20) pursues
a course somewhat different from that of the railway issues. The 4 per cents
both of 1907 and of 1925 are "currency" bonds, like the bonds of the West
Shore; but they appear to have been influenced much more by the difficulties
of the treasury in 1893-95 and by the free-silver campaign of 1896 than were
any of the railway securities. The chief anomaly which they present is in
giving higher yields in 1896 than in 1893. Thereafter for a time their course
paralleled that of the West Shore bonds. That is, their yields declined from
1896 to 1901, advanced until 1904, declined in 1905, and then rose until 1907.
But, instead of declining like the yields of railway bonds in 1908-09, they rose
in both vears, and stood at the close of the period well above their level of
twenty years before. These peculiar movements of 1908-09 were influenced
by the act of March 4, 1907, which legalized the practice begun by Secretary
Shaw of accepting other than United States bonds as security for government
deposits with the national banks, and also by the sale of Panama Canal bonds.
During all this time, of course, the actual yield upon "governments
remained much smaller than the yield upon any of the railway issues; but the




MEMOIRS OF TIJE UNIVERSITY OF CALIFORNIA

160

columns for relative rates show that the yield of no railway bond in the list
has undergone such violent changes. Instead of proving the stablest of
American securities from the investor's point of view, government bonds have
proved the least stable among the bonds for which yields have been computed.
3. Rates of Interest upon Short-time Loans
How average short-time rates of interest compare with average yields of
bonds is summarily shown by the little table which follows:54
TABLE

23

A V E R A G E R A T E S OF I N T E R E S T Y I E L D E D BY I N V E S T M E N T S IN B O N D S AND BY S H O R T - T I M E
Actual rates
A.

1890-1909

1890-99

LOANS

Relative rates
A

1900-09

1890-99

1900-09

2.45%

2.76%

2.14%

100

78

3.78

3.83

3.74

100

98

Average of 10 railway bonds

4.23

4.51

3.95

100

88

Commercial paper, 4 - 6 months . ....

5.78

5.99

5.58

100

93

Commercial paper, 60-90 days

....

4.68

4.58

4.78

100

104

Call loans

....

3.67

3.29

4.05

100

123

United States 4s
West Shore bonds

....

The twenty-year averages of the investment rates are all lower than the like
averages for commercial paper. But the call-loan rate averages less than the
yields of any investments except those in government bonds.
In comparing the two decades, it appears that the short-time rates have
either advanced to higher levels in 1900-09, or receded but little ;55 while all the
investment rates, except that on West Shore bonds, declined considerably.
The diminution of risks seems to have been a less important factor in the
market for short-time loans than in the market for investment securities.
Not less important than these differences in the long-period averages of
investment and short-time rates are the differences in stability. How much
wider is the range through which the short-time rates fluctuate appears from
a glance at the extreme variations.
54 The comparisons in this section are slightly inaccurate, because it is necessary to set discount rates on
commercial paper against interest rates on investments in bonds and on call loans.
55 If the quotations for commercial paper, 4 - 6 months, during the crisis of 1907 were more complete that
class of short-time loans would probably show scarcely any decline in the second decade.




MITCHELL: BUSINESS CYCLES

T A B L E
E X T R E M E V A R I A T I O N S IN T H E M O N T H L Y

161

24

R A T E S OF I N T E R E S T Y I E L D E D BY I N V E S T M E N T S
TIME LOANS,

IN B O N D S AND BY

Actual rates
Hiehest
nignest
f

N

Lowest
A

Date

West Shore bonds
Average of 10 railway bonds

J*?}}
Aug!', 1893

Commercial paper, 4 - 6 months
Commercial paper, 60-90 days

Sept., 1893
July, 1893

Call loans

Oct.,

1907

SHORT-

1890-1911

Rate

^

„
Relative rates
K
~~~

Differ

Dlffer

Highest Lowest

^
.

Rate

ence

Mar., 1901
}£g}

3.48%
3.72

.73%
1.35

110
112

91
83

19
29

10JJ
9J5

July, 1909
June, 1895

113
2J53

5.99
7.12

169
213

69
5_7

100
15&.

21.00

Aug., 1904

.90

20.10

638

27

611

4.21%
5.07

Date

r

ence

What holds of these extreme variations holds also of the variations from
one season of the year to the next. There is but a slight difference between
the summer and autumn yields of bonds, while the rates for commercial paper
and call loans undergo marked changes. Twenty-year averages for each month
show the general trend of the market. Starting from the lowest point of the
year in June, rates for commercial paper rise to their highest point in September or October, and then decline until February, when they stand little
above the lowest level of the summer. The opening of spring business causes
a temporary advance in March; but the tide quickly turns and rates decline
through April and May to the low starting-point of June. Call-loan rates
pursue a somewhat similar but more erratic course; for their monthly averages,
even over a period of twenty years, are disturbed by the extremely high rates
56
which occur during panics and periods of feverish speculation in stocks.5
T A B L E

25

A V E R A G E S E A S O N A L V A R I A T I O N S I N T H E B A T E S OF I N T E R E S T Y I E L D E D B Y I N V E S T M E N T S IN B O N D S A N D BY
TIME LOANS DURING T W E N T Y
W e s t Shore Average of
Railroad
10 railway
bonds
bonds

January
February
March
April
May
June
July
August
September
October
November
December

3.77%
3.76
3.77
3.78
3.79
3.77
3.78
3.80
3.79
3.80
3.80
3.79

4.23%
4.21
4.23
4.23
4.21
4.22
4.24
4.25
4.25
4.24
4.23
4.23

Commercial paper
,
—>
4 - 6 months 6 0 - 9 0 days

5.81%
5.55
5.74
5.62
5.41
5.37
5.54
5.91
6.33
6.40
6.01
6.02

SHORT-

YEARS

4.59%
4.27^
4.66
4.51
4.26^
4.20
4.50
4.93
5.24
5.23
5.02
4.99

Call loans

3.79%
2.55
3.41
3.36
2.85
2.64
2.69
2.87
4.06
5.02
4.75
6.01

frequent deviations f r o m the general seasonal trend may be f o l l o w e d in the monthly figures o f
" T h e ' t w e n t y . y e a r averages by years which may be computed from Table 25 do not ^ r e ^ M j i n
^ ^ e s
» » t h the corresponding figures o f Table 23. For an explanation see the s t a t e m e n t in f o o t n o t e 5 2 of t h . s c n a p
concerning the methods b y which the monthly, quarterly, and yearly averages f o r short-time rates were maae.
" e figures b y years are more accurate than the figures b y months.
,,
, Ca„itai
, „ the United
„ Professor E. W . K e m m e r e r ' s Seasonal Variations in the BelaUve
o f T h e changes in
? t( >tes (Senate Document, no. 588, 61st Congress, 2d session) provides detailed statistics o l tne
in%lose
•nterest rates f r o m one season o f the year to the next. The results o f the t w o investigations

agreement.




162

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

Table 26 shows the average rates of interest yielded by investments in bonds
and by short-time loans for the successive phases of each business cycle since
1890. Here the differences which have been commented upon reappear in
another form. The lower range of average bond yields in the second decade
is contrasted with the relative stability of the ten-vear levels for commercial
paper. On the other hand, in short periods bond yields are stable and shorttime loan rates are variable. But all the rates show the powerful influence of
changing business conditions.

T A B L E 26
R A T E S OP I N T E R E S T Y I E L D E D B Y I N V E S T M E N T S IN B O N D S A N D BY SHORT-TIMIT T
T,
O
B * DHORT- I I M E IJOANS IN S E A S O N S OP B U S I N E S S
CRISIS, AND DEPRESSION,

Actual ritoc
Actual rates of interest
,

103af

4ih

'

6r°

Jan., 1800-July, 1890-Prosperity

3^.%

4.65% T « %

Aug., 1890-Dec., 1 8 0 0 - M i n o r crisis

3.04

4.82

Jan., 1891-July, 1891

Depression

3.96

Aug., 1891-Aug., 1892

Prosperity

3.92
3.94

Sept., 1892-Apr., 1 8 9 3 - A p p r o a c h of crisis ....

Relative rates of interest
Average actual rates 1 8 9 0 - 9 9 =

^ Commercialpaper

fi?

PROSPERITY,

1890-1011

S i T S
"Sb'S

100

^ m e r c i a l paper

Vo

'4.6 " 60.90
T o T

H3

" " S T

107

127

143

215

103

108

110

117

99

102

104

9*

94

78

103

103

a04

U7

159

7.60

6.56

7.08

103

4.87

6.57

5.38

3.26

4.70

5.51

4.30

2.57

4.65

6.24

5.38

5.23

X f

'

May, 1893-Oct, 1 8 9 3 - M a j o r crisis

4.09

4.86

9.23

8.19

5.31

107

108

154

179

161

Nov., 1893-Mar., 1 8 9 5 - S e v e r e depression ....

3.87

4.60

5.48

3.25

1 "2

101

102

9"

-1

37

Apr., 1895-Sept., 1 8 9 5 - R e v i v a l

3.81

4.43

5.29

3.31

1.45

100

08

88

72

44

Oct., 1895-June, 1 8 9 6 - R e n e w e d depression..

3.81

4.45

6.59

4.94

3.17

100

90

no

108

96

July, 1896-Oct., 1896-Pree-siIver campaign..
Nov., 1896-June, 1897 Depression

3.92
3.77

4.67
4.44

8.10
4.83

7.47
3.62

5 84
2 17

102
99

104
q«

135
J

163
-n

177
66

3.69

4.29

4.81

3.61

2.02

96

95

80

79

61

3.78

4.35

6 84

^ 99

9

™

July, 1897-Feb., 1898

Revival

Mar., 1898-Apr., 1898—Spanish war impending

rC

May, 1898-Sept., 1899

Prosperity

3.61

4.05

5.12

3.65

3.02

94

90

Oct., 1899-Dec., 1899

Minor crisis

3.59

4.00

6.73

5.45

8.74

94

89

Jan., 1900-Sept., 1 9 0 0 - S l i g h t depression

3.57

3.96

5.68

4 27

o 39

9o

„

Oct., 1900-0ct., 1902

3.54

3.79

5.56

4.52

4 A 7

93

3.70
3.70

3.95
3.84

5.82
4.93

5.09
4.06

3 20
2^5

97
97

88
5

Sept., 1905-Sept., 1906—Prosperity

3 76

Oct., 1906-Sept. 1907—Approach of crisis ....

3.90

86

4.13

7
7.50

6.53
,
5.25

98

Oct., 1907-Dec., 1907-Ma.jor crisis

oqo
' 0
410
°
4 45

102

15.95

108

Jan., 1908-Sept., 1908

3.96

4.20

5.05

4.50

1 88

3.90
397
•5"97

4.01
4,,

4.61
, „„
5.22

3.99
,
4.52

0

92

U9

265

8

Nov., 1902-July, 1904 " R i c h man's p a n i c "
Aug., 1904-Aug., 1905 Revival

6
1

Prosperity

Severe depression ....

Oct., 1908-Dec., 1 9 0 9 - R e v i v a l
Jan., 1910-Dec., 1911—Reaction
'
* Nominal.




4 1 5

-

6'06
6'57

*7 31
1.66

"

9

,11

101

™
118

19*

91

no

112

159

99

*122

lfi4

484

103

93

1

o«

57

2^7

102

8

8

78

2.77

104

99

84

00
fi,7

•

5-42
6-06

"73
136

Si>

92

77

87

87

97
71

MITCHELL: BUSINESS CYCLES

163

In the periods of business depression which follow on crises rates of interest
on well-secured loans of all kinds fall.57 Call rates and discounts on 60-90 day
commercial paper reach their lowest points in such seasons (see Tables 24 and
22); but the rates on 4-6 months paper and on bonds usually continue their
decline through at least the earlier stages of the succeeding revival of activity.
When the tide of prosperity rises, however, all the short-time rates run up.
. Even the current yields upon bonds rise if the prosperity is long continued and
the demand for investment loans grows great, as in 1905-07. On the other
hand, bond yields may continue to decline throughout a prosperous season as
in 1897-1902, if the dwindling of imputed risks is notable. Finally, when the
crisis comes rates on all kinds of loans reach their highest points. The
available market quotations fail to show the full increase in the discount upon
commercial paper during panics, because many loans of this character can
scarcely be negotiated on any terms, and because the rates for such business
as is done are often above the nominal quotations. But when the pressure of
the panic relaxes rates to solvent borrowers fall off rapidly to the low points
characteristic of depression.
4. International Comparisons
For comparison with the American tables of net yields upon investments
in bonds no foreign material is readily available save with reference to government securities. Of course, British consols, French rentes, and imperial
German bonds are ultra-conservative investments, and yield exceptionally low
rates of interest. Moreover, both the supply of and the demand for these
securities are subject in a special degree to certain conditions not arising from
the business situation—such as prospects of war and peace, increase of government expenditures, purchases for government savings banks or sinking funds,
changes in the list of securities legally open to investment by trustees, actual
or prospective alterations in tax laws, and the like. These peculiar conditions
may cause changes in the yields upon government bonds which are not representative of the general trend of the investment market. But until some
student, with the full European material at his command, shall have provided
adequate tables of the net yields upon investments in the bonds of business
enterprises, changes in the 'yields of government securities will remain the
safest guide to alterations in the long-time rates of interest.58 They are cer" " B o r r o w e r s in doubtful credit, whether merchants selling c o m n i e r c i a l p a p e r or eorporations selling bonds
may find it difficult to secure loans at any price in such seasons, or may be forced to pay ^ r y nign raies
a n offset to the risks incurred b y lenders.
„ ;
.
.
1SQ~
5 8 Upon foreign rates o f interest see A. H
Gibson, The Fall in Consols and O ^
^
^
^
f
Z
n
(London, 1908); P. L. Newman, " A Review of the Investments of Offices in
en B e l g i q u e , ' '
Institute of Actuaries, X L 1 I , 294-320; F. Hawkar, « Note sur les variations du taux d e l
Proceeding's of the Fourth International Congress of Actuanes
( N e w Y o r k 1904), I, 345 3 5 0 ; £
^
variations du taux de Vintcret ( L y o n , 1902); E. V o y e , " U e b e r die Hohe der_ v e r s c m e a e n e n m
.
nationalokonomischer
und stltis'tischer AMandlungendes
f
^
^
^
Z
I " :
1 9 .02); N. E. Weill, Die Solidarity
der Geldmarkte ( F r a n k f u r t a. M „ 1 9 0 3 ) , H Albert
me.g
"ichelung des Zinsfusses in Deutschland von 1895 bis 1908 (Leipzig 1910). T h e w b o o k s
ta
heal information, but none in such form as to be strictly comparable with the American tao
i>
chapter.




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

164

tainly a safer guide than the corresponding American figures would be;59 for
during the period considered there has been no such doubt regarding the
medium in which the obligations of Great Britain, France, and Germany would
be discharged as was raised by the free-silver agitation of the nineties, and
removed by the Gold Standard Act of 1900. Moreover, the European markets
for government bonds are not dominated by any one erratic factor to the same
degree that the American market is dominated by the purchases and sales by
national banks. Indeed, so exceptional has been the course of government
bonds in this country that it is wiser to base the international comparisons upon
the net yields of the West Shore Railroad's securities than upon the net yields
of United States 4s.
The actual yields of European securities are taken from a table showing the
" real interest earned upon European . . . . government bonds at their average
market price," published in Andrew's Statistics for the United States.™ But

CHART
RELATIVE

RATES

RAILWAY

AND

OF INTEREST
OF

THE.

YIELDED

AMERICAN

18

BV INVESTMENTS

, BRITISH

IN

BONDS

, FRENCH , A N D

OF T H E

GERMAN

WFEST S H O R E

GOVERNMENTS.

1890-1909.

o

UNITED S T A T E S
4 S OF I9OI AND 1 9 2 5
WEST SHORE: RAILWAY.
ENGLISH CONSOLS
2 3U AND Z'/Z PER CENT.
FRENCH R E N T E S
3 PER CENT.
GERMAN
IMPERIAL 3 PER CENT.

o——o

120

120

110

/

/

>
/
s

—-V

100

Y
""

'

80

V
t

10

91

92

93

94

95

96

97

98

99

/

<<" v .

s'S
f'S
— •

\

1890

\

110

•/ >
/

7

\

90

f

•

/

T

N
X

s/

/ f/

'

\

/

100

—

90

80

\

1900

01

70

02

'03

'04

'05

06

'01

'08

'09

I9IO

so Albert op. cit., 42-52, shows that in Germany the fluctuations of interest upon mortgage loans follow
closely the fluctuations of net yields upon government bonds during the years 1895-1908.
60 One of the reports of the National Monetary Commission (Senate Document, no. 570, 61st Congress,
session, p. 281). In turn, Andrew took his foreign data from the Materialien zur Beurteilung der Zusammenhdnge 'zwischen dem off entlichen Schuldenwcsen und dem Kapitalmarkte (Berlin, 1908).




MITCHELL: BUSINESS CYCLES

165

the net yield of British consols in 1903, the year in which the rate of interest
was reduced from 2 % to 2i/2 per cent, is from A. H. Gibson's The Fall in
Consols.*1 The relative rates of interest have been computed by the methods
explained above. The average actual yields in 1890-99 are 2.763 per cent upon
United States 4s, 3.827 per cent upon West Shore bonds, 2.673 per cent upon
consols, 3.042 per cent upon rentes, and 3.281 per cent upon German 3s. These
are the rates which equal 100 in the columns for relative yields in Table 27.

T A B L E 27
A C T U A L AND RELATIVE R A T E S OP INTEREST YIELDED BY I N V E S T M E N T S IN B O N D S OF THE W E S T SHORE RAILROAD, AND
OP T H E A M E R I C A N , B R I T I S H , F R E N C H , AND G E R M A N

GOVERNMENTS

By years, 1890-1909
Actual rates

K

r
Year

U. S. 4s
of 1907
and 1925

1890

2.43%

West
Shore
R.R.

3.88%

English
consols
2% and
2% %

2.86%

Relative rates
Average actual rates 1 8 9 0 - 9 9 =

c
French
rentes
3 %

3.32%

German
3s

.

3.45%

U. S. 4s
of 1907
and 1925

88

West
Shore
R. R.

101

English
consols
2 % and

2K %
107

100

A
French
rentes
3 %

German
3s

109

105

1891

2.65

3.96

2.88

3.19

3.52

96

103

108

105

107

1892

2.80

3.90

2.85

3.09

3.48

101

102

- 107

102

106

1893

3.04

4.02

2.81

3.10

3.48

110

105

105

102

106

1894

2.79

3.87

2.73

3.01

3.31

101

101

102

99

101

1895

2.89

3.82

2.60

2.95

3.03

105

100

97

97

92

2.95

3.02

114

101

93

97

92

1896

3.14

3.85

2.49

1897

2.73

3.72

2.45

2.91

3.07

99

97

92

96

94

1898

2.69

3.69

2.49

2.93

3.14

97

96

93

96

96

1899

2.47

3.56

2.57

2.97

3.31

89

93

96

98

101

1900

2.18

3.57

2.77

2.99

3.46

79

93

104

98

105

1901

1.97

3:54

2.93

2.98

3.36

71

93

110

98

102

1902

1.98

3.55

2.92

2.99

3.25

72

93

109

98

99

1903

1.99

3.70

2.82

3.07

3.28

72

97

105

101

100

1904

2.09

3.72

2.84

3.09

3.33

76

97

106

102

101

72

97

104

100

101

74

99

106

101

104
109

1905

2.00

3.70

2.79

3.04

3.33

1906

2.04

3.80

2.84

3.08

3.42

2.98

3.18

3.57

79

104

111

105

3.95

2.91

3.13

3.62

88

103

109

103

110

2.52

3.89

2.98

3.09

3.54

91

102

111

102

108

1890-99

2.76

3.83

2.67

3.04

3.28

100

100

100

100

100

1900-09

2.14

3.74

2.88

3.06

3.42

77

98

108

101

104

1907

2.18

1908

2.44

1909

3.97

Averages

61

London, 1908; p. 54.




186

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

If the whole period of twenty years be taken, the United States bonds
give the lowest average yields. Then in order come the securities of Great
Britain, France, Germany, and the West Shore Railroad. The margin between
the government bonds which give the lowest and highest yields is the same in
1909 as in 3890. Between these two years the American, British, and German
bonds have lost ground, while French rentes have gained.
Fjuropean statistics of discount rates are distinctly more complete and more
authoritative than the corresponding American figures. It is sufficient to say
that the material used consists of the bank rates and market rates in London,
Paris, and Berlin. The bank rates are obtained from Palgrave's tables, as
published in the National Monetary Commission's Statistics for Great Britain,
Germany, and France.™ The market rates for London and Paris are annual
averages of the weekly rates given in the same document.03 The Berlin market
rates are compiled from the Statistiche Jahrbilcher fiir das Deutsche Reich.
The closest American counterpart to the foreign rates is afforded by the series
for double-name commercial paper, running 60-90 days.
T A B L E 28
A C T U A L AND R E L A T I V E D I S C O U N T R A T E S ON S H O R T - T I M E L O A N S IN N E W

Y O R K , LONDON, P A R I S , AND

BERLIN

B y years, 1890-1011
Actual
Year

New York
60-90
days

London
bank
rate

Paris
bank
rate

Rates

Berlin
bank
rate

New York
60-90
days

London
market
rate

Paris
market
rate

Berlin
market
rate

1890

5.64%

4.52%

3.00%

4.52%

5.64%

3.98%*

2.62%

3.78%

1891

5.41

3.26

3.00

3.79

5.41

2.44

2.53

3.02

1892

4.04

2.53

2.70

3.21

4.04

1.47

1.79

1.80

1893

6.86

3.05

2.50

4.07

6.86

2.13

2.22

3.17

1894

3.04

2.11

2.50

3.13

3.04

.97

1.78

1.74

1895

3.64

2.00

2.10

3.14

3.64

.80

1.63

2.01

1896

5.76

2.48

2.00

3.67

5.76

1.47

1.72

3.04

1897

3.57

2.63

2.00

3.81

3.57

1.81

1.81

3.09

1898

3.82

3.24

2.20

4.27

3.82

2.58

1.99

3.55

1899

4.05

3.75

3.06

5.04

4.05

3.24

2.83

4.45

1900

4.38

3.98

3.24

5.33

4.38

3.64

3.03

4.41

1901

4.24

3.72

3.00

4.10

4.24

3.19

2.41

3.06

1902

4.88

3.33

3.00

3.33

4.88

2.97

2.40

2.19

1903

5.43

3.75

3.00

3.84

5.43

3.38

2.70

3.01

1904

4.24

3.30

3.00

4.23

4.24

2.67

. 2.14

3.14

to end of the year—-33 weeks.

«2 Senate Document, no. 578, 61st Congress, 2d session, pp. 134, 137, 140.
c a p p . 44-62, 315, 316. Among the several London rates I have chosen that f o r 60-day bills. The London
rates f o r 1910 are computed from the weekly reports of the Economist;
the French and German rates f o r
the same year are from the Statistisches Jahrbuch fiir das deutsche Reich, 1911, p. 64.* These German tables
make the market rate in Paris a trifle higher than the tables published by the Monetary Commission f o r
1890-1908.




MITCHELL: BUSINESS CYCLES

TABLE

28—{Concluded)

ACTUAL AND RELATIVE DISCOUNT RATES ON SHORT-TIME LOANS IN N E W
B y years,

Year

London
bank
rate

Paris
bank
rate

YORK, LONDON, PARIS, AND BERLIN

1890-1911

Actual
New York
60-90
• days

167

Bates

Berlin
bank
rate

New Y o r k
60-90
days

London
market
rate

Paris
market
rate

Berlin
market
rate

1905

4.35%

3.00%

3.00%

3.81%

4.35%

2.64%

2.11%

2.85%

1906

5.68

4.26

3.00

5.15

5.68

4.06

2.69

4.04

1907

6.27

4.92

3.46

6.03

4.47

3.36

5.12

1908

4.42

3.02

3.05

4.78

4.42

2.24

2.13

3.52

1909

3.86

3.10

3.00

3.93

3.86

2.29

1.79

2.87

6.27

1910

5.01

3.72

3.00

4.35

5.01

3.16

2.44

3.54

1911

4.02

3.47

3.14

4.40

4.02

2.92

2.61

3.54

Averages
1890-99

4.58

2.96

2.51

3.87

4.58

2.09

2.09

2.97

1900-09

4.78

3.64

3.08

4.45

4.78

3.16

2.48

3.42

London
market
rate

Paris
market
rate

Berlin
market
rate

Relative

Rates

A v e r a g e a c t u a l r a t e s in 1 8 9 0 - 9 9 =

Year

New York
60-90
days

London
bank
rate

Paris
bank
rate

Berlin
bank
rate

New York
60-90
days

100

1890

123

153

120

117

123

191*

125

127

1891

118

110

120

98

118

117

121

102

3 892

88

86

108

83

88

70

86

61

1893

150

103

100

105

150

102

106

107
59

1894

66

71

100

81

66

46

85

1895

79

68

84

81

79

38

78

68

1896

126

84

80

95

126

70

82

103

1897

78

89

80

99

78

87

87

104

3898

83

110

88

110

83

124

95

120

1899

88

127

122

130

88

155

135

150

1900

96

135

129

138

96

174

145

149
103

1901

93

126

120

106

93

153

115

1902

106

113

120

86

106

142

115

74

1903

118

127

120

99

118

162

129

102

1904

93

112

120

109

93

128

102

106

120

99

95

126

101

96
136

1905

95

101

1906

124

144

120

133

124

194

129

1907

137

166

138

156

137

214

161

173

1908

96

102

122

124

96

107

102

119

1909

84

105

120

102

84

110

86

97

1910

109

126

120

112

109

151

117

119

1911

88

117

125

114

88

140

125

119

1890-99

100

100

100

100

100

100

100

100

1900-09

104

123

123

121

104

151

118

116

Averages

to end of the y e a r — 3 3 weeks.




168




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

MITCHELL: BUSINESS CYCLES 189

CHART 20.
RELATIVE: MARKET DISCOUNT RATES ON SHORT TIME LOANS




IN NEW YORK. LONDON , PARIS. AND BERLIN
1890 - I9I0.
NEW YORK 60-90 DAYS.
LONDON MARKET RATE.
PARIS MARKET RATE.
BERLIN MARKET RATE

170

MEMOIRS OF T H E UNIVERSITY OP CALIFORNIA

Comparisons between the actual rates are unsatisfactory because of the
uncertainty regarding the technical character of the paper discounted in the
several markets. But it may be pointed out (1) that the annual averages of
foreign bank rates are always higher than the corresponding market rates,
(2) that for the whole period both bank rates and market rates are lower in
Paris than in London, and lower in London than in Berlin, (3) that the advantage of Paris over London has become greater since 1898, (4) that the New
York rates are higher than even the bank rates in Europe, except in 1897-1900
and 1908-09, when they are exceeded by the rates in Berlin.
A comparison between the foreign rates on short-time loans and on government bonds shows that the latter average less than the bank rates and more
than the market rates, except in France, where the yields upon rentes are
higher even than the bank rates for the whole period, though not for the second
decade. But the difference in stability is more striking and more important
than the difference in average rates. The relative figures of Tables 27 and 28
show that market rates fluctuate much more than bank rates, and bank rates
much more than bond rates.
On the whole, however, the general trend of the fluctuations has been similar
in the money and the investment markets. The most important differences
are that short-time rates relaxed in 1891, while bond rates stiffened; that shorttime rates rose in 1893, while bond rates changed but little; and that short-time
rates rose more promptly after the years of depression and reached their highest
points earlier in the years of prosperity. All the European rates show a higher
level of fluctuation in 1900-09 than 1890-99—though the difference in the case
of French rentes is small.
IV.

T H E PRICES OF SHARES IN BUSINESS ENTERPRISES

1. The Significance of the Prices of Stocks
Business enterprises are not the subject of an organized business traffic,
and wre have no systematic data showing fluctuations in their prices as going
concerns from year to year. As a substitute, however, we have abundant data
concerning the prices of shares in joint-stock companies.
The stock quotations used here, like the interest quotations, all come from
a single market. But in the case of stocks this fact is not a serious objection.
For, compared with the NewT York Stock Exchange, other American markets
are insignificant in the number and importance of the securities dealt in, and
in the magnitude of their transactions.
More serious is the limitation of the available quotations to the prices of
shares in transportation companies—chiefly railways. The number of industrial stocks regularly bought and sold on the market in every year since 1890



MITCHELL: BUSINESS CYCLES

171

is too small to make significant averages. Further, none but large business
enterprises list their stocks in New York. As in all other cases of price data,
therefore, we are forced to use a comparatively small number of quotations as
representative of the general trend of the market. But once again the available
material comes from that part of the business field most affected by business
cycles.
Whether the market prices of stocks in 100-share lots may be interpreted as
showing accurately changes in the prices of the business enterprises concerned
is highly questionable. If 1,000 shares in a railway which has 100,000 shares
outstanding be sold at $80 per share on a given day, it does not necessarily follow
that the whole proprietary interest could be sold (or bought) for $8,000,000.
Indeed, it is seldom safe to infer the price for the total supply of any kind of
goods from the current market price per unit. This fact is not troublesome
in the case of commodities, labor, or loans because we are not interested in the
prices of the total supply. But in the case of stocks we should like to know
the changes in the prices at which enterprises as wholes could be bought outright.
And that cannot be known except in the rare cases when such sales are actually
made and the terms published. Hence we must content ourselves with taking
the figures for what they are—prices of shares in business enterprises.
The attitude of the stockholder toward the concern whose shares he has
purchased is generally different from the attitude of the typical merchant
or manufacturer toward the enterprise which he controls. Often the stockholder's attitude is hardly distinguishable from that of the bondholder. He
buys dividend-paying stocks as an income-producing investment, and knows
little or nothing about the management of the business. Often the stockholder
is a speculator pure and simple, who buys on margin with the intention of soon
selling again, and who thinks little of dividends in comparison with the anticipated change in the price of his shares. Often the stockholder combines these
two attitudes. He buys outright stocks which pay little or no income, and
holds them perhaps for years in the anticipation that the increase in their price
will ultimately make his speculative investment profitable. Sometimes the
stockholder, by himself or as a member of some coterie of capitalists, owns or
seeks the control of the enterprise. In that case he may have the attitude of
the entrepreneur of economic theory; that is, he may identify his business
interests with those of the enterprise, and manage the latter for the profit upon
operation. But his attitude may also be that of the promoter trying to sell out
on advantageous terms, or that of the business buccaneer seeking a profit for
himself at the expense of other parties at interest through stock-market manipulation, through contracts which are injurious to the enterprise but profitable
to himself, etc. Finallv, the stockholder is sometimes a man primarily interested in some related or competing line of business, who desires representation
upon the directorate in order to obtain early information of changes in policy
or special favors for his other enterprises.



172

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

But, despite this diversity of interests among the buyers and sellers of
stocks, the present and anticipated future profits of corporations are by far
the most important single factor in determining the prices of their shares.
Directly or indirectly, calculations dealing with these profits influence investors
and speculators, controlling magnates and promoters, even business buccaneers
and stockholders primarily interested in other lines of enterprise. Hence the
course of the stock market is significant of the business community's hopes
and fears for the future, as well as of its good or ill fortune in the present.
Even though the figures do not represent accurately the prices of business
enterprises as units, they are therefore of great value in the study of business
cycles.
2. Tables of the Relative Prices of American Common Stocks64
The prices of stocks published by the Wall Street Journal and Dun's
Review, while convenient records of daily and monthly fluctuations, are not
well adapted for comparison with our tables of prices of labor and of commodities at wholesale and retail. For these stock tables give average actual
prices, and the preceding tables give average relative prices. Moreover, since
some stocks have prices many times as high as other stocks, the objections
which have led to the disuse of average actual prices of commodities sold in
high-priced and low-priced units apply, though in less degree, to average actual
prices of stocks. On the other hand, the one true index number of American
stocks—computed by John R. Commons and N. I. Stone65—is based upon
average actual prices in 1879-89, gives results by fiscal years, and ends with
1900-01, while the preceding tables are based upon average actual prices in
1890-99, give results by calendar years, and extend at least to 1907. To determine the relations between the fluctuations in prices of different orders, it is
accordingly necessary to make a table showing the relative prices of stocks on
the basis of average actual prices in 1890-99.
The data for this table were obtained from " Prices of Stocks at the New
York Stock Exchange" published annually in the Financial Review. These
tables give the highest and lowest prices of each stock quoted each month—a
sufficient body of quotations to be representative. All the railroads were
included which had approximately complete and regular records for the twenty
years 1890 to 1909. Several important lines, such as the Burlington, Lake
Shore, Michigan Central, and Northern Pacific, were omitted because quotations were scanty or altogether lacking for several years. The Alton and the
04 Most of the material which follows was first published in the Journal of Political Economy,
1910, under the captions, " T h e Prices of A m e r i c a n Stocks, 1 8 9 0 - 1 9 0 9 / ' and " T h e Prices of
C o m m o n Stocks, 1 8 9 0 - 1 9 0 9 . "
05 Quarterly
in Final Report




Bulletin

of

the Bureau

oj the Industrial

of

Economic

Commission,

Research,

J u l y and October, 1900.

X I X , 29, 1 1 0 1 - 1 1 0 3 .

M a y and July,
P r e f e r r e d and

Reprinted in

summary

173

MITCHELL: BUSINESS CYCLES

Rock Island have undergone changes in organization which break the continuity
of their quotations. In the cases of the Pullman Company and the Adams
Express Company a similar break has resulted from stock dividends. Stock
dividends which did not force quotations suddenly to a lower level, and the
payment of assessments which did not raise quotations suddenly to a higher
level, have been disregarded. If all stocks affected by such changes since 1890
were excluded, the remaining list would be short indeed. In railways undergoing reorganization the prices of voting-trust certificates have been taken in
lieu of the prices of shares. Thirty-five railways stocks were found which met
requirements, and five express, steamship, and telegraph stocks were added to
bring the number of series up to forty.66
TABLE

29

L I S T OF STOCKS INCLUDED IN THE FOLLOWING TABLES, AND THEIR AVERAGE ACTUAL PRICES IN

1890-99

Average
price per share
in 1890-99
North Atlantic

railways—

N e w York, N e w H a v e n and Hartford

$207.90

N e w York, Ontario and Western
N e w Y o r k Central

17.50
-

Pennsylvania*

107.40
109.30

Erie

17.50

Anthracite Coal

railways—

Central of N e w Jersey
Delaware

and

108.30

Hudson

Delaware, Lackawanna

126.70
and Western

Reading

154.40
26.50

Middle Western

railways—

Cleveland, Cincinnati, Chicago and St. Louis

47.90

Wheeling and L a k e

16.50

Erie

N e w Y o r k , Chicago and St. Louis
Wabash

14.80
8.70

Pittsburg, Cincinnati, Chicago and St. Louis

24.90

Canada

52.70

Southern

Lake Erie and Western
Illinois

Central

Northwestern

railways—

Chicago, Milwaukee and St. Paul
Chicago

and Northwestern

Chicago, St. Paul, Minneapolis and Omaha
Duluth,
Iowa

South Shore and Atlantic

Central

Minneapolis
Wisconsin

18.30
100.80

79.20
114.60
51.40
5.80
9-20

and

St.

Central

Louis

19.60
10.10

* The P e n n s y l v a n i a R a i l r o a d is not quoted with regularity on the N e w Y o r k market until September, 1897.
Figures f o r earlier
years were accordingly made by taking double the price of $ 5 0 shares as quoted on the Philadelphia exchange.
66 The
w o r k of transcribing the quotations, casting the a v e r a g e actual prices in 1 8 9 0 - 9 9 and c o m p u t i n g
and averaging the relative prices was done mainly b y M r . and Mrs. Otto Tinnemann, of Berkeley.




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

174

TABLE

29—

(Concluded)

L I S T OF STOCKS INCLUDED IN THE FOLLOWING TABLES, AND THEIR AVERAGE ACTUAL PRICES IN

Southern

Average
price per share
in 1890-99

railways—

Chesapeake

1890-99

and Ohio

...

$20.80

N o r f o l k 'and W e s t e r n

...

12.10

Louisville

...

62.80

Missouri

and

Nashville

Pacific

...

41.40

Missouri, K a n s a s and Texas

...

13.10

Texas

...

12.30

Atchison, Topeka and Santa Fe

...

21.60

Denver and Rio Grande

...

14.90

Southern Pacific

...

26.20

Pacific

and

Pacific

railways—

Union

Pacific

Canadian

...

Express, steamship, and telegraph
American

29.30

...

Pacific

74.40

....

119.20

companies

Express Company

United States Express Company

....

51.60

Wells-Fargo

...

124.20

Express Company

Pacific M a i l Steamship C o m p a n y

....

30.40

Western Union Telegraph Company

...

86.90

Table 29 shows what stocks were used, and gives the prices which stand for
100. The list is a representative one, including railways in all parts of the
country; railways which underwent reorganization in the nineties and railways
which have suffered no financial disasters; railways whose stocks have long
been upon an investment basis, and railways whose stocks have been a football
of speculation; railways whose shares command high, medium, and low prices;
railways which belong to almost all the great systems of the day.
Tables 30, 31, and 32 present the arithmetic means of the relative prices of
this list of stocks by years, quarters, and months, respectively.07 In order to
make the record more useful, the monthly table has been supplied with certain
data which aid in accounting for the fluctuations. In marking the " turning
points" I have neglected minor movements, and paid attention to the mean
between the highest and lowest prices, rather than to either extreme. The
number of shares sold on the stock exchange is given as an indication of the
waxing and waning volume of speculation. The average interest upon call
67 M a n y d i s c r e p a n c i e s o f o n e p o i n t a p p e a r b e t w e e n t h e r e l a t i v e p r i c e s b y y e a r s a n d t h e a v e r a g e s o f t h e
r e l a t i v e p r i c e s b y q u a r t e r s ; or b e t w e e n t h e r e l a t i v e prices b y quarters a n d a v e r a g e s c o m p u t e d f r o m the figures
f o r the months included.
T h e y r e s u l t f r o m d r o p p i n g f r a c t i o n s less t h a n o n e - h a l f , or c a r r y i n g f r a t c i o n s o f oneh a l f or m o r e .
T h e t w o or t h r e e c a s e s o f w i d e r d i s c r e p a n c y — f o r e x a m p l e , in 1 8 9 0 — a r e c a u s e d b y t h e l a c k o f
quotations f o r some one stock f o r several months.
T h e a v e r a g e s f o r quarters a n d y e a r s , in other w o r d s , h a v e
been computed directly f r o m a v e r a g e actual p r i c e s — n o t f r o m the relative prices b y months.
T h e figures f o r " l o w " a n d " h i g h "
single stocks which showed the widest
In the tables b y quarters and years the
o n t h e h i g h e s t or l o w e s t q u o t a t i o n s f o r
t i o n s f o r a l l t h r e e , or all t w e l v e , o f t h e




in t h e t a b l e b y m o n t h s a r e n o t t h e e x t r e m e r e l a t i v e p r i c e s o f t h e
fluctuations;
b u t arithmetic m e a n s of these e x t r e m e s f o r f o r t y stocks.
" l o w " a n d " h i g h " figures a r e s i m i l a r a r i t h m e t i c m e a n s b a s e d n o t
a n y single month, b u t on a v e r a g e s of the highest a n d lowest quotamonths included.

175

MITCHELL: BUSINESS CYCLES

loans is computed from the average stock-exchange rates by weeks.08 The net
imports or exports of gold are taken from the Reports of the Treasurer of the
United StatesFinally,
the list of current events affecting the stock market
has been compiled from the monthly digest of business history published in the
Financial Review. Of course this list is necessarily incomplete, and the events
mentioned are stated with such brevity as to mean little in some cases to readers
who have not fresh in mind the business and political developments of the last
twenty years. The purpose is merely to suggest the causes of the many shortperiod oscillations, which are so striking a feature of the stock market.

TABLE

30

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.
A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =

100.

B Y YEARS,

Arithmetic

Year

Low

High

Spread

115

127

12

121

1891

107

119

12

113

1892

117

128

11

123

1893

87

100

13

93

1894

77

86

9

82

1895

80

91

11

85

1896

73

82

9

77

1897

79

88

9

84

1898

89

99

10

means

Average

1890

1890-1911

94

1899

121

136

15

128

1900

126

141

15

134

1901

196

225

29

211

1902

239

261

22

250

1903

189

212

23

201

1904

183

201

18

192

1905

239

260

21

250

1906

256

279

23

267

1907

192

216

24

204
201

1908

191

212

21

1909

266

288

22

277

1910

243

265

22

254

1911

241

256

15

248

Averages
1890-99

68

fell.

95

106

11

100

1900-09

208

230

22

219

I n m a k i n g t h i s c o m p u t a t i o n , e a c h w e e k w a s a s s i g n e d t o t h a t m o n t h in w h i c h
T h e source o f b o t h sets o f d a t a is the Financial
Review.

the majority of

its

days

0 0 S a v e f o r S e p t e m b e r , 1 9 0 5 , w h e n t h e Treasurer's
Report
g i v e s a w r o n g figure, a n d f o r O c t o b e r t o D e c e m ber, 1 9 0 9 .
D a t a f o r t h e s e m o n t h s a r e f r o m t h e Monthly
Summary
of Commerce
and Finance.
T h e figures e x c l u d e g o l d in t h e ore.




196 MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

TABLE

31

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.
A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =
First cjuarter
Year

r
Low

High

Second quarter
r

100.

B Y QUARTERS,
Arithmetic

means

T h i r d cjuarter

High

Low

High

126

138

123

Low

1890-1911

Fourth quarter
f

Low

High

133

96

113

1890

121

131

1891

102

112

103

114

104

121

117

130

1892

121

133

118

127

117

126

114

124

1893

108

120

90

103

70

85

79

92

1894

80

88

79

87

75

84

76

83

1895

70

77

81

92

90

100

79

92

1896

76

85

76

83

65

74

75

85

1897

74

81

71

77

85

98

88

97

101

94

106

1898

87

98

87

94

93

1899

115

131

117

131

126

140

124

141

1900

125

138

126

140

121

130

133

156

1901

167

193

194

237

204

234

219

238

1902

228

244

240

259

255

280

233

261

1903

235

254

197

221

162

192

163

179

164

174

182

200

213

239

249

244

262

253

273

261

282

1904

170

187

1905

235

257

225

1906

260

284

244

273

257

279

1907

224

256

199

219

193

212

153

179

1908

158

180

181

202

200

218

223

248
301

1909

245

268

267

287

274

292

278

1910

261

287

246

270

225

244

244

260

1911

245

261

250

263

237

256

235

248

1890-99

95

106

95

105

95

106

94

106

1900-09

205

226

204

226

209

230

213

236

Averages




MITCHELL: BUSINESS CYCLES

TABLE

32

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.

B Y MONTHS,

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =
Relative prices of stocks
Low

High Spread

points

Millions
of shares
sold

Average
call-loan

%

of dollars

125

134

9

6.4

7.70

4-

.6

February

121

131

10

5.2

4.25

+

.3

March
April

119

128

9

4.5

4.25

+

.2

121

133

12

5.1

4.30

—

.6

11.1

4.88

133

145

12

June

131

141

10

5.4

4.75

—

July

129

136

7

3.0

4.60

—10.7

August

125

135

10

4.1

11.63

—

.4

8ePtember

118

131

13

5.1

6.75

+

1.1

October

Max.*

1890-1911

100

Net imports
( - f ) or exports
( — ) of gold

J anuary

May

177

3.3

Current events affecting the stock market

R e a d i n g a n n o u n c e d i n a b i l i t y t o p a y interest on
p r e f e r r e d income b o n d s ; d i f f i c u l t i e s o f
Sixth
National Bank
R e d u c t i o n o f surplus reserve o f b a n k s ; rate-cutting by railways
I r r e g u l a r m a r k e t ; s m a l l corner in R e a d i n g
S i l v e r - p u r c h a s e law in p r o s p e c t ;
large railway
earnings
Speculative
interest
keen;
extra
dividends
by
P e n n s y l v a n i a and B i g F o u r
F o r e i g n b u y i n g d e c l i n e d ; m o n e y in L o n d o n
firmer;
f e a r o f g o l d - e x p o r t s ; speculative spirit d a m p ened
Silver-purchase
law
approved;
London
selling
A m e r i c a n rails
G o l d e x p o r t s ; t i g h t m o n e y ; L o n d o n selling A m e r ican rails
T r e a s u r y relief in m o n e y m a r k e t , b y purchase o f
bonds

109

123

14

7.2

5.00 .

+

2.2

November

C o n t i n u a t i o n o f selling on L o n d o n account

92

116

24

9.1

7.00

+

1.4

Baring

December

92

106

14

January

101

114

February

105

March
April
May
June
July
August

Min.

5.4

13

5.6

3.90

+

.7

113

8

3.3

2.88

—

3.4

101

108

7

3.6

2.88

—

4.5

104

117

13

7.2

3.30

—13.9

R e c o v e r y a i d e d b y r e l a x a t i o n o f strain in m o n e y
market
M a r k e t dull, w a i t i n g till d o u b t s a b o u t
financial
l e g i s l a t i o n should b e set at rest b y a d j o u r n m e n t
of Congress
F o r e i g n s i t u a t i o n u n f a v o r a b l e ; s t a t e legislation
hampering railways feared
F a v o r a b l e crop p r o s p e c t s

105

116

11

6.3

4.38

—30.4

Gold exports discouraging;

100

111

11

4.0

3.25

—15.5

M a r k e t v e r y dull on continued e x p o r t s o f

98

107

9

3.2

2.20

—

5.6

E n d o f g o l d e x p o r t s on the 2 5 t h

99

121

22

5.8

2.13

+

1.2

L a r g e harvests a t h o m e a s s u r e d ;

Max.

Min.

20

11.2

4.50

4-

October

119

131

12

6.7

4.25

+16.1

-November

113

125

12

5.3

4.38

4-

8.5

December

118

132

14

5.8

January

121

135

14

Feb]
>ruary

120

133

March

120

July

N.

+

134

June

f a i l u r e s in

5.00

114

May

financial

5.1

September

April

crisis in L o n d o n ;

Y . ; issue o f c l e a r i n g - h o u s e loan certificates
Improvement toward e n d ;
M o r g a n ' s 1* h a r m o n y
m e e t i n g " o f r a i l w a y p r e s i d e n t s ; s t r o n g report
o f Y a n d e r b i l t r o a d s ; b a n k surplus restored

7.1

no f o r e i g n b u y i n g

shortage

a b r o a d ; sharp a d v a n c e
B u o y a n c y continued until 2 4 t h ; then m a r k e t declined on p r o f i t - t a k i n g sales a n d reports t h a t the
G o u l d s o p p o s e d f u r t h e r rise
F i n a n c i a l troubles reported in P a r i s and B e r l i n ;
failure of
Maverick National B a n k ;
railway
earnings heavy
Decided improvement a f t e r middle o f m o n t h ; large
e a r n i n g s continued
Market awaiting developments

6.8

2.94

+

10.0

2.40

4-

.3

13

11.4

2.00

—

3.7

131

11

8.9

2.00

—

3.2

120

129

9

6.8

2.00

—

7.0

118

127

9

6.2

1.50

—

3.3

116

125

9

5.4

1.40

—16.6

Receivers a p p o i n t e d f o r R i c h m o n d

117

128

11

3.6

1.M

—J0.2

Free-coinage

Max.

serious

gold

Large
earnings
and
bright
prospects;
money
a b u n d a n t ; selling on f o r e i g n account
R e a d i n g lease o f L e h i g h V a l l e y a n d J e r s e y Central
railways
Market dull; rumors of combinations; merchandise
imports exceeding exports; House rejected freesilver bill
D u l l n e s s c o n t i n u e d ; no i m p o r t a n t c h a n g e , save the
increase in g o l d e x p o r t s
B u s i n e s s l a r g e l y in s p e c i a l t i e s ; h e a v y floods in
W e s t and South




Min.

House

bill

passed

by

Terminal

Senate,

defeated

in

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

178

TABLE

32—

(Continued)

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.

B Y MONTHS,

A v e r a g e actual prices in 1 8 9 0 - 9 9 =
Relative prices of stocks
f

Low
1892

August

High

Spread

120

130

10

Max.

Millions
of shares
sold

Average
call-loan
rates

%

1890-1911

100

Net imports
( + ) or exports
( — ) of gold
in millions
of dollars

Current events affecting the stock market

5.4

2.05

—

5.7

R e a d i n g lease a n n u l l e d ;

4.13

—

2.3

Cholera ' 4 s c a r e ' ' in N e w

industrials

buoyant

September

114

123

9

6.9

October

119

127

8

7.0

5.63

+

2.6

R e a d i n g acquired interest in B o s t o n a n d M a i n e am

November

114

125

11

5.8

5.15

+

1.4

Cleveland elected

December

111

120

9

8.4

6.81

—11.3

York

control o f N e w Y o r k a n d N e w

England

president

Death of J a y G o u l d ; stringent money

market

January

113

125

12

10.6

—12.2

A c t i v i t y in i n d u s t r i a l s

February

107

122

15

10.7

3.00

—13.0

Reading

March

102

113

11

7.4

8.20

—

April

103

115

12

6.3

4.88

—18.3

Money market stringent.
I n d u s t r i a l s suffered
G o l d reserve f e l l b e l o w $ 1 0 0 , 0 0 0 , 0 0 0 ; b a n k failures
in A u s t r a l i a
-n

May

87

103

16

9.0

3.60

—15.2

June

81

94

13

4.8

8.88

—

1.7

July

66

87

21

5.9

7.75

+

5.8

August

68

81

13

4.9

5.50

+ 40.6

September

76

88

12

4.7

3.75

+

5.2

October

78

93

15

6.3

2.38

+

1.1

November

1893

4.00

83

91

8

5.5

1.70

4-

4.1

1.16

—

1.9

1.5

N a t i o n a l C o r d a g e r e c e i v e r s h i p ; b a n k failures ^
western s t a t e s a n d in
Australia;
stock
e
change panic M a y 4 and 5
j.
n
P a n i c s p r e a d ; e x t r a s e s s i o n o f C o n g r e s s call® >
four minor railway receiverships
B a n k f a i l u r e s in W e s t ; E r i e receivership
P r e m i u m on c u r r e n c y ; H o u s e passed bill r e p e a l ^
silver-purchase a c t ; three r a i l w a y receiversmP »
including Northern Pacific
.

December

1894

76

91

15

4.9

January

77

87

10

4.5

1.02

—

.6

February

81

86

5

3.2

1.00

—

1.1

March

83

91

8

4.8

1.09

—

2.9

April

85

93

8

4.0

1.13

—

9.4

May

78

86

8

4.8

1.10

—23.1

June

74

81

7

3.4

1.00

—22.4

July

72

78

6

2.8

1.00

—12.8

August

74

88

14

5.0

1.00

—

1.9

September

80

88
•

8

4.1

1.00

+

.4

October

76

85

9

3.9

1.00

+

.5

November

76

85

9

4.5

1.03

+

1.5

December

75

81

6

4.1

1.44

—

9.4




receivership

Premium
disappeared;
money
market . e a S l g i l j
f o u r r a i l w a y receiverships, i n c l u d i n g W i s c o n s
Central
r
S e n a t e passed silver-purchase repeal l a w O c t o D
3 0 ; six r a i l w a y receiverships, i n c l u d i n g U n l
Pacific
*
f
M o n e y r e d u n d a n t in N e w Y o r k ; h e a v y d e m a n d A
h i g h - g r a d e b o n d s ; t w o r a i l w a y receiverships
F o u r r a i l w a y receiverships, i n c l u d i n g S a n t a F e »
N e w Y o r k and N e w England
Ejr i e r e o r g a n i z a t i o n p i a n
r n
plan

0

H o u s e passed tariff b i l l ; T r e a s u r y sold $ 5 0 , 0 0 0 , 0
b o n d s t o protect r e s e r v e ; one r a i l w a y r e c e i
ship
.j.
Cleveland vetoed s e i g n i o r a g e c o i n a g e b i l l ; two ra
w a y r e o r g a n i z a t i o n p l a n s ; g o l d reserve a D

$100,000,000

.ke.

C o x e y ' s a r m y ; coal s t r i k e ; G r e a t N o r t h e r n s t r i >
one r a i l w a y r e c e i v e r s h i p ; N e w Y o r k and
E n g l a n d r e o r g a n i z a t i o n plan
^e
G o l d reserve f e l l b e l o w $ 1 0 0 , 0 0 0 , 0 0 0 ; railway r a
w a r s ; floods; P u l l m a n strike
. -j^e
C o a l strike s e t t l e d ; A m e r i c a n R a i l w a y U n i o n str
b e g a n ; Santa F e reorganization p l a n ; S o u t n
Railway organized
ged
R a i l w a y strike riots in C h i c a g o ; S e n a t e V*s* .
tariff b i l l ; deadlock b e t w e e n t h e t w o h o u ^
g o l d reserve $ 5 5 , 0 0 0 , 0 0 0
T a r i f f bill b e c a m e l a w ; s h o r t a g e o f corn crop
.
t i c i p a t e d ; M i n n e a p o l i s a n d S t . L o u i s reorg
zation p l a n
R e a d i n g r e o r g a n i z a t i o n p l a n ; corn r e p o r t s s
w o r s e ; m o d e r a t e revival o f general business
L o w price o f coal reacted on a n t h r a c i t e railway '
D u l u t h and W i n n i p e g receivership
.
jd
T r e a s u r y sold $ 5 0 , 0 0 0 , 0 0 0 b o n d s t o recruit
g ^
reserve;
one
railway
receivership;
Popu
losses in C o n g r e s s i o n a l elections
^ 0f
C l e v e l a n d ' s m e s s a g e declared f o r m a i n t e n a n c e ^
g o l d p a y m e n t s ; l a r g e e x p o r t s o f g o l d cau
uneasiness

179

MITCHELL: BUSINESS CYCLES

TABLE

32—(Continued)

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.
A v e r a g e a c t u a l prices in
Relative prices of stocks
A

January

Low

H i g h Spread

1890-99 =

call-loan
rates

Current events affecting the stock market

%

( — ) of gol<
in millions
of dollars

1.35

—24.7

3.0

1.50

+

4.1

C o n g r e s s d e f e a t e d a d m i n i s t r a t i o n measures to def e n d gold reserve, w h i c h f e l l to $ 4 5 , 0 0 0 , 0 0 0
T r e a s u r y contract w i t h M o r g a n - B e l m o n t g o l d s y n d icate; N o r f o l k and W e s t e r n receivership;
anthracite coal t r a d e d e m o r a l i z e d
S y n d i c a t e loan r e s t o r i n g c o n f i d e n c e ; presidents of
a n t h r a c i t e roads m e t , seeking to control demora l i z a t i o n o f coal t r a d e
Business revival; Santa F e reorganization p l a n ;

February

70

76

6

March

69

78

9

5.1

2.25

+

4.1

75

85

10

5.0

2.25

+

2.0

80

95

15

8.9

1.32

+

3.3

86

96

10

6.0

1.16

+

2.0

89

97

8

5.8

1.40

—

3.3

August

90

100

10

5.3

1.03

—15.1

September

91

102

11

6.8

1.56

—16.7

October

88

98

10

5.3

2.17

—

•November

82

90

8

5.0

1.97

—13.5

December

66

89

23

6.9

4.56

—14.2

January

71

83

12

4.5

4.90

—

.2

February

79

87

8

5.2

3.94

+

9.4

77

84

7

4.6

3.50

+

.3

78

90

12

4.1

3.02

—

2.7

77

82

5

2.8

2.53

—18.5

75

84

9

4.4

1.94

—

66

76

10

5.6

2.07

—10.4

August

61

70

9

4.3

4.69

+

September

68

77

9

4.6

5.45

+34.1

October

70

80

10

4.9

11.13

+27.6

79

90

11

5.9

6.25

+

6.9

3.9

1.95

+

2.2

July

March
April
May

June
July

N °vember

December

84
 7 5


9

100

Millions
of shares
sold

8

June

1890-1911

3.2

Turning
points

78

May

MONTHS,

Net imports

70

April

BY

Min.

Max.

Min.

Max.

Min.

Max.

.

.1

6.1

2.1

b u y i n g on E u r o p e a n account
E x t e n s i v e E u r o p e a n b u y i n g ; c o n f l i c t i n g crop rep o r t s ; speculation in w h e a t
L e s s f o r e i g n b u y i n g ; business revival e x t e n d e d ;
" b o o m " in iron t r a d e ; b e t t e r c r o p p r o s p e c t s ;
s y n d i c a t e loan c o m p l e t e d
Gold exports resumed;
f a v o r a b l e business
and
crop c o n d i t i o n s ; a t t e m p t s to e f f e c t a g r e e m e n t
f o r m a i n t e n a n c e o f r a i l w a y rates
B r i g h t crop p r o s p e c t s a f f e c t g o l d e x p o r t s ;
Erie
r e o r g a n i z a t i o n p l a n s ; m a r k e d rise in c o m m o d i t y
prices
F a l l on the 1 3 t h , caused b y heavy g o l d e x p o r t , f o l lowed b y recovery on r e a s s u r i n g a n n o u n c e m e n t s
b y the g o l d s y n d i c a t e
C o t t o n crop s h o r t ; speculation f o r rise checked
e x p o r t s ; break in " K a f f i r s " in L o n d o n and
P a r i s ; E a s t e r n Q u e s t i o n caused selling on E u r o p e a n account
E u r o p e a n bourse p a n i c on the 9 t h ; h e a v y g o l d
e x p o r t s ; reaction in b u s i n e s s ; decline in comm o d i t y prices
C l e v e l a n d ' s V e n e z u e l a m e s s a g e on the 1 7 t h caused
p a n i c on the stock e x c h a n g e ; new b o n d issue f o r
g o l d reserve i m p e n d i n g
P o p u l a r l o a n f o r $ 1 0 0 , 0 0 0 , 0 0 0 a n n o u n c e d on 6 t h ;
V e n e z u e l a " w a r s c a r e " died o u t ;
anthracite
railway agreement
L o a n subscriptions $ 5 2 7 , 0 0 0 , 0 0 0 ;
B a l t i m o r e and
O h i o r e c e i v e r s h i p ; S e n a t e resolutions recognizing Cubans as belligerents
H o u s e a c c e p t e d these r e s o l u t i o n s ; heavy m e r c a n t i l e
f a i l u r e s ; severe s t o r m s
B u y i n g f o r E u r o p e a n a c c o u n t ; president took no
action upon C u b a n resolutions
Silver m e n c a p t u r e d m a n y D e m o c r a t i c s t a t e conv e n t i o n s ; business d e p r e s s e d ; S t . L o u i s t o r n a d o
on 2 7 t h
Silver m e n d e f e a t e d in R e p u b l i c a n c o n v e n t i o n ; continued g a i n s in D e m o c r a t i c s t a t e conventions
B r y a n ' s n o m i n a t i o n ; g o l d reserve reduced to less
t h a n 9 0 m i l l i o n s ; b a n k s a i d e d T r e a s u r y b y exc h a n g i n g g o l d f o r l e g a l tenders
L o w e s t p o i n t s reached b e t w e e n 7th a n d 1 1 t h ; advance a f t e r B r y a n ' s M a d i s o n S q u a r e m e e t i n g ;
g o l d i m p o r t s b e g a n l a t e in A u g u s t
Gold Democratic
convention;
large
Republican
pluralities in V e r m o n t and M a i n e ; rise in price
of wheat
I n c r e a s i n g confidence in B r y a n ' s d e f e a t ; s t r i n g e n t
m o n e y m a r k e t caused b y h o a r d i n g g o l d ; W e s t e r n
Freight Association formed
M c K i n l e y elected on 3 r d ; sharp a d v a n c e f o l l o w e d
b y reaction on p r o f i t - t a k i n g sales, s m a l l e a r n i n g s
o f s p r i n g - w h e a t roads, etc.
S e n a t e discussing resolution r e c o g n i z i n g i n d e p e n d ence o f C u b a ; h e a v y b a n k f a i l u r e s in the W e s t

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

180

TABLE

32—

(Continued)

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.

Relative prices of stocks
Low
1897

January

76

H i g h Spread
83

Turning
points

Millions
of shares
sold

Average
call-loan
rates
%

Net imports
( - f ) or exports
( — ) of gold
in millions
of dollars

3.4

7

1.78

+

.2

February

74

79

5

2.8
1.63

+

.2

March

72

81

9

5.0

1.62

+

.3

April

69

75

6

3.6

1.50

—

6.0

May

70

74

4

3.3

1.41

—

8.9

June

73

81

8

6.4

1.20

—

7.0

July

78

88

10

6.9

1.19

—

4.9

August

85

101

16

11.4

1.25

+

2.4

September

92

107

15

13.1

2.22

+

4.1

October

90

101

11

8.0

2.50

+

11.0

November

85

95

10

5.8

1.81

+

1.8

December

90

97

7

7.5

2.92

+

1.5

91

101

10

9.3

2.50

+

3.1

February

88

101

13

9.0

1.78

+

4.3

March

82

93

11

10.1

2.17

+29.6

April

83

89

6

6.0

2.97

+31.0

May

87

97

10

9.2

1.95

+ 13.0

June

94

101

7

Max.

9.2

1.25

+

2.8

July

92

98

6

Min.

4.8

1.25

+

1.0

August

93

104

11

Max.

12.1

1.70

+

13.1

94

101

7

9.4

3.78

+ 13.4

October

93

100

7

7.5

2.25

+ 15.0

November

92

103

11

11.0

2.10

+

3.8

December

100

118

18

15.3

2.41

+

6.9

; January

September




Min.

Max.

Min.

Max.

Min.

Min.

B Y MONTHS,

1890-99 =

A v e r a g e a c t u a l prices in

1890-1911

100

Current events affecting the stock market

R a i l w a y e a r n i n g s l o w ; a n t h r a c i t e a n d bituminous
coal carriers a f f e c t e d b y d e m o r a l i z a t i o n o f c
trade
. t
S t e e l - r a i l pool c o l l a p s e d ; l a r g e purchase ° f . P r l i n
c l o t h s ; renewed discussion o f C u b a n affairs
Senate
.
T r a n s - M i s s o u r i F r e i g h t A s s o c i a t i o n held
L a k e S h o r e r e f u n d e d 7 p e r cent b o n d s at
per c e n t ; e x t r a session o f C o n g r e s s f o r t a
legislation
.
.
G r a e c o - T u r k i s h w a r ; floods in M i s s i s s i p p i Valleyt
N . Y . Central refunded bonds
nverS e n a t e resolution r e c o g n i z i n g C u b a a s a b e l f t e
e n t ; S u p r e m e C o u r t denied r i g h t o f I n t e r s t a
C o m m e r c e C o m m i s s i o n t o fix rates
, ^y
M a r k e d i m p r o v e m e n t in c r o p s i t u a t i o n ,
s tri8e o f G r a n g e r s t o c k s ; C h i c a g o a n d Northwe
e m refunded bonds
«ke.
D i n g l e y tariff p a s s e d ;
b i t u m i n o u s coal s t n \
crops excellent a t h o m e , seriously short a b r o
>
K l o n d i k e g o l d rush
fioD
' 4 B o o m ' ' on stock e x c h a n g e , due t o crop s i t u a u
a n d revival o f business
kiDg
R e a c t i o n in l a t t e r p a r t o f m o n t h on profit-taK
s a l e s ; r u m o r s o f w a r with S p a i n ; y e l l o w f « v e
the S o u t h ; coal strike ended
,ar
f
Recession o f s p e c u l a t i o n ; renewed f e a r s or
with Spain
B r e a k on 5 t h c a u s e d b y f e a r s o f w a r w i t h Spa ^
recovery on g o o d r a i l w a y e a r n i n g s , a n d ena
yellow fever
M e e t i n g o f C o n g r e s s c a u s e d l i t t l e disturbance
M e r g e r o f L a k e S h o r e a n d M i c h i g a n Southern
N . Y . Central reported
0f
The " M a i n e "
sunk b y explosion in harbor
H a v a n a ; industrial c o n s o l i d a t i o n s
f
war
Market
fluctuating
on c o n f l i c t i n g r u m o r s o i
with S p a i n ; industrial c o n s o l i d a t i o n s
W a r b e g a n on 2 1 s t ; i n v e s t m e n t b u y i n g
ceased; more industrial consolidations
e%.
B a t t l e o f M a n i l a B a y on 1 s t ; c r o p prospects
cellent
Qbi0
L e i t e r w h e a t corner c o l l a p s e d ; B a l t i m o r e and
y
r e o r g a n i z a t i o n p l a n ; several increases o f rai
dividends
0n
B a t t l e o f S a n t i a g o B a y on 3 r d ; peace overtures
2 6 t h ; low price o f w h e a t ; g r a i n m o v e m e n t
&
P e a c e protocol s i g n e d on 1 2 t h ; g r a n g e r s t o c k ^ t i o 0
on w h e a t p r o s p e c t s ; coal shares f e l l on condi
of trade
.
0f
F e a r s o f m o n e t a r y s t r i n g e n c y ; b r e a k in P n ? e w j t b
industrials; Federal Steel Company formed
capital of 2 0 0 millions
F a s h o d a incident t h r e a t e n e d r u p t u r e b e t w e e n *
^
land and F r a n c e ;
coal, c o t t o n ,
woolen,
l e a t h e r trades unsatisfactory
.
. jeut
R e p u b l i c a n g a i n s in e l e c t i o n s ; F a s h o d a i n C 1 o 0 e s e t t l e d ; fepain a g r e e d t o cede P h i l i p p i n e s ; &
t a r y s t r i n g e n c y in B e r l i n
tt0H
P e a c e t r e a t y s i g n e d on 1 0 t h ; c o a l and co
t r a d e s i m p r o v e d ; r a i l w a y d i v i d e n d s increase

181

MITCHELL: BUSINESS CYCLES

TABLE

32—{Continued)

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.

B Y MONTHS,

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =

January

110

132

118

133

15

March

118

129

11

Max.

Average
call-loan
rates
%
2.72

+

4.1

16.1

2.47

+

4.3

17.7

22

February

Net imports
( + ) or exports
( — ) of gold
in millions
of dollars

Millions
of shares
sold
24.3

Relative prices of stocks
A
Turning
Low
H i g h Spread points

4.10

+

1.7

April

118

133

15

17.0

5.13

+

1.0

May

117

131

14

15.0

3.52

+

.6

June

115

129

14

10.9

2.63

—18.2

July

124

134

10

8.4

4.47

—

.2

August

128

144

16

13.0

3.27

+

.6

September

129

142

13

12.5

6.38

+

1.5

October

127

140

13

10.9

7.50

+

5.5

November

132

143

11

13.7

7.60

+'

.9

December

114

139

25

17.1

11.13

— 7.0

January

122

134

12

9.8

4.15

— 4.2

February

125

137

12

10.2

2.25

+

.1

March

127

144

17

14.4

3.94

+

.5

132

148

16

14.8

3.06

+

i.o

126

138

12

9.5

2.00

— 9.1

June

119

134

15

7.3

1.69

— 6.8

July

123

133

10

6.2

1.53

+

August

124

131

7

4.0

1.30

—15.6

September

117

127

10

5.2

1.61

+

2.7

October

123

140

17

10.9

3.57

+

8.8

November

133

154

21

22.6

5.06

+

9.5

December

144

175

31

23.4

5.13

+

2.5

April
May




Min.

Max.

Min.

Max.

Min.

2.2

1890-1911

100

Current events affecting the stock market

Great i i b o o m 1 '
on stock
exchange;
enormous
i n d u s t r i a l c o n s o l i d a t i o n s ; r a i l w a y rate s i t u a t i o n
i m p r o v e d ; d i v i d e n d increases
Speculation
subsided;
unfavorable
news
from
P h i l i p p i n e s ; severe s t o r m s
I n d u s t r i a l c o n s o l i d a t i o n s c o n t i n u e d ; g r e a t rise in
iron a n d steel p r i c e s ; speculation in i n d u s t r i a l s ;
d i s q u i e t i n g news f r o m S a m o a
B r e a k in industrials, f o l l o w e d b y rally
P a n i c in i n d u s t r i a l s a f t e r d e a t h o f F l o w e r on
1 2 t h ; $ 2 0 , 0 0 0 , 0 0 0 indemnity paid to Spain
I n d u s t r i a l s in d i s f a v o r ; r a i l w a y s g a i n e d a f t e r a
weak o p e n i n g on i m p r o v e d crop prospects am>
larger earnings
G a i n c o n t i n u e d on f a v o r a b l e reports o f e a r n i n g s
a n d c r o p s ; numerous strikes
E a s i e r m o n e y , declining f o r e i g n e x c h a n g e , active
trade, e x p a n d i n g e a r n i n g s , increasing d i v i d e n d s ,
assurance o f l a r g e corn c r o p
T i g h t m o n e y a n d prospect o f war b e t w e e n E n g l a n d
a n d the T r a n s v a a l a f f e c t e d the m a r k e t
B o e r w a r b e g a n ; B a n k o f E n g l a n d rate raised
f r o m 3 % to 5 per c e n t ; t i g h t m o n e y in N e w
Y o r k ; a d v a n c e s in r a i l w a y rates
E a r l y weakness because o f
tight money;
later
s t r e n g t h on T r e a s u r y purchases o f b o n d s ; B a n k
o f E n g l a n d rate 6 per cent
S t o c k e x c h a n g e p a n i c on 1 8 t h ; L o n d o n m a r k e t s
disturbed by military reverses;
financial
difficulties in B o s t o n f r o m decline in c o p p e r s t o c k s ;
f a i l u r e P r o d u c e E x c h a n g e T r u s t Co. in NewY o r k ; recovery a f t e r the 2 2 d

A c t i v i t y o f b u s i n e s s ; l a r g e r a i l w a y e a r n i n g s ; adv a n c e s in f r e i g h t r a t e s b y c h a n g e s in classification; larger dividends
E a r l y a d v a n c e on increased d i v i d e n d s ; later reaction on decline o f street r a i l w a y a n d industrial
stocks
Gold-standard act, followed by foreign b u y i n g ;
street r a i l w a y troubles e n d e d
A m e r i c a n S t e e l a n d W i r e Co. on 16th closed several
mills, because o f
failing demand;
confidence
undermined
U n c e r t a i n t y a b o u t course o f i n d u s t r y ; reaction in
trade more marked
U n f a v o r a b l e c r o p r e p o r t s ; continued reaction in
t r a d e ; B o x e r troubles in China
B e t t e r w r eather f o r the c r o p s ; B r y a n n o m i n a t e d
f o r presidency b y D e m o c r a t s
E x t r e m e dullness, because o f presidential c a m p a i g n
G a l v e s t o n d i s a s t e r ; a n t h r a c i t e coal s t r i k e ; uneasiness a b o u t c a m p a i g n
Settlement of
coal s t r i k e ;
m o r e confidence in
B r y a n ' s d e f e a t ; gold imports
M c K i n l e y ' s election f o l l o w e d b y a g r e a t o u t b u r s t
o f s p e c u l a t i o n ; increased dividends
' ' B o o m ' ' e x t e n d e d on M o r g a n ' s purchase o f P e n n s y l v a n i a C o a l Co. f o r E r i e , a n d r u m o r s o f " c o m munity o f i n t e r e s t " plans

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

182

TABLE

32—

(Continued)

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.
1890-99

A v e r a g e a c t u a l prices in
Relative prices of stocks
A
A
r
Turning
H i g h Spread points
Low

call-loan
rates

%

( — ) of gold
in millions
of dollars

January

157

181

24

30.3

3.07

—

4.7

167

188

21

21.9

2.00

+

1.0

March

175

210

35

27.1

2.34

+

1.2

April

196

229

33

May

169

239

41.7

4.30

—

3.4

70

Max. and
Min.

35.3

6.88

—

9.2

19.8

4.31

—

2.6

16.0

4.30

—

1.5

June

215

242

27

Max.

July

197

234

37

Min.

August

205

231

26

10.8

2.44

+

2.4

September

209

238

29

14.0

4.34

+

6.5

October

212

232

20

14.0

3.55

+

1.0

November

224

242

18

Max.

18.3

4.19

—11.3

December

1902

219

238

19

Min.

16.8

6.25

—

3.1

January

223

241

18

14.8

4.57

—

1.2

February

229

246

17

13.0

2.38

—

7.7

March

232

245

13

12.0

3.94

—

2.8

April

236

261

25

26.6

5.10

—

1.9

May

239

258

19

13.5

5.56

—

1.2

June

246

260

14

7.8

2.84

+

.4

July

249

268

19

16.4

3.52

—

7.0

August

259

284

25

14.3

3.78

—

1.4

September

258

289

31

21.0

10.80

+

2.0

October

245

273

28

16.4

7.63

+

7.2

November

232

261

29

17.1

4.88

+

2.3

December

222

252

30

15.7

6.81

—

1.5




Max.

Min.

MONTHS,

1890-1911

= 100

Net imports
Millions
of shares
sold

February

1901

BY

•

Current events affecting the stock market

S p e c u l a t i o n c u l m i n a t e d on M o r g a n ' s purchase of
Central of N e w Jersey f o r the R e a d i n g ;
e r a t e reaction a f t e r the 9 t h
.fic
U . S . Steel C o r p o r a t i o n l a u n c h e d ; U n i o n P a cm
b o u g h t control o f S o u t h e r n P a c i f i c
f
M a r k e d success o f steel " f l o t a t i o n " ; rumors
further combinations
H i g h tide o f s p e c u l a t i o n ; m a n y r u m o r s o f f u r
c o m b i n a t i o n s ; T e x a s oil f e v e r
g.
N o r t h e r n P a c i f i c panic on the 9 t h ; no failure >
recovery l a t e in m o n t h
t'onftl
E a r l y s t r e n g t h lost on suspension S e v e n t h N a t i o
B a n k ; failure H . Marquand & C o . ; bank
ures in G e r m a n y
,
P o o r b a n k s t a t e m e n t ; steel w o r k e r s ' s t r i k e ; da
a g e to crops b y d r o u g h t ; t h r e a t e n e d rate rea
tion b y S a n t a F e , etc.
.
C r o p prospects s o m e w h a t i m p r o v e d ; steel st
thought to be f a i l i n g
, rp
M c K i n l e y ' s a s s a s s i n a t i o n a n d death caused s D
j
d e c l i n e s ; recovery p r o m p t on s e t t l e m e n t o f s
strike, r u m o r s o f m e r g e r s , etc.
rg.
I n d u s t r i a l s f e l l , r a i l w a y s rose on r u m o r s o f m J j
ers, or c o m m u n i t i e s o f interest, a n d increa
dividends
1
E f f e c t o f f o r m a t i o n o f N o r t h e r n Securities C o ' . h t
set b y b r e a k in c o p p e r stocks a n d f e a r s o f
W
money
t0
A m a l g a m a t e d C o p p e r Co. g a v e over a t t e m p t
.
hold c o p p e r a t 17 c e n t s ; t i g h t m o n e y ; mar
s t r o n g e r l a t e in m o n t h

Several industrial c o m b i n a t i o n s in d i f f i c u l t y ; l a r g e
new stock a n d b o n d issues
r-ngfi
Severe s n o w s t o r m s ; g o v e r n m e n t b e g a n p r o c e e c l i &
a g a i n s t N o r t h e r n Securities C o .
. bor
M a r k e t continued t o hold its own despite
troubles a n d b a d w e a t h e r
.
Rampant
speculation
a n d clique
manipulatio'
public n o t p r o m i n e n t in t h e m a r k e t ; M o r g a
s t e a m s h i p c o m b i n a t i o n announced
ite
Collapse of " W e b b - M e y e r S e c u r i t i e s " ; anthrax
coal s t r i k e ; three stock e x c h a n g e firms f a i l e a
Railway dividend increases;
i n d u s t r i a l divid
r e d u c t i o n s ; peace in S o u t h A f r i c a
la0
C r o p i n d i c a t i o n s f a v o r a b l e ; R o c k I s l a n d Co. P ^
ill r e c e i v e d ; g o l d e x p o r t s d e p r e s s i n g a t e n d
month
and
E x c e l l e n t c r o p prospects o u t w e i g h e d coal s t r i k e
i n c r e a s i n g firmness o f m o n e y m a r k e t
. „
Severe b r e a k in prices a t end o f m o n t h ; l i q u l d f *Dg
induced b y h i g h m o n e y rates a n d c a l l i n g o f 1°
by banks
. A p p o i n t m e n t o f coal strike c o m m i s s i o n a n d
o f m o n e y m a r k e t c a u s e d r i s e ; l a t e r f a l l on
l a b o r troubles a n d f e a r s o f g o l d e x p o r t s
.
F o r c e d liquidation b y p o o l s ; b a n k accOmmodati
d i f f i c u l t to secure
ter
R e n e w e d l i q u i d a t i o n due to m o n e t a r y t e n s i o n ; l a
b u o y a n c y on f o r m a t i o n o f $50,000,000 mon .
pool

MITCHELL: BUSINESS CYCLES

TABLE

32—

(Continued)

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.

B Y MONTHS,

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =
Relative prices of stocks
A

( _ ) of gold
in millions
of dollars
+
-8

Low

High

Spread

Turning
points

243

260

17

Max.

16.0

5.75

February

241

258

17

10.9

2.88

—

.5

March

222

245

23

15.1

6.00

+

2.7

210

230

20

12.3

4.19

—

.9

199

227

28

12.5

2.44

—13.7

180

207

27

15.4

3.05

—10.5

April
May

June
July

%

168

201

33

14.9

2.50

—

6.7

August

159

191

32

14.4

2.03

+

3.2

September

159

184

25

10.8

2.32

+

1.6

October

158

175

17

12.9

2.69

+

1.9

November

161

175

14

10.7

5.19

+

7.7

December

171

187

16

15.2

5.50

+

14.6

January

176

192

16

12.3

2.34

+

6.7

February

166

184

18

8.8

1.81

+

3.2

March

163

179

16

11.4

1.75

+

5.0

168

177

9

8.2

1.38

—

9.9

161

170

9

5.3

1.55

—33.2

163

172

9

5.0

1.13

+

2.7

170

185

15

12.5

1.03

+

7.5

August

179

202

23

12.5

.90

—

3.8

September

195

211

16

18.8

1.53

+

1.1

October

205

230

25

32.6

2.03

+

3.7

November

216

243

27

32.0

2.80

—16.7

December

217

244

27

28.1

3.13

—10.9

April
May
June

July




Min.

Max.

Min.

1890-1911

100

Net imports
call-loan
rates

Millions
of shares
sold

3 January
*

183

Current events affecting the stock market

B u o y a n c y f o r t e n or t w e l v e d a y s , f o l l o w e d b y
r e a c t i o n ; m a r k e d i r r e g u l a r i t y in m o v e m e n t s o f
different stocks
" A n t i - t r u s t " legislation—Bureau of Corporations
e s t a b l i s h e d ; E l k i n s law, l a w e x p e d i t i n g h e a r i n g s
under S h e r m a n a n t i - t r u s t law, etc.
L i q u i d a t i o n — l a b o r troubles, increased
operating
expenses, f a i l u r e o f A l d r i c h financial bill, dissensions in l a r g e c o r p o r a t i o n s
P r i c e s broke on 13th on N o r t h e r n Securities decisi o n ; later rallied on winter w h e a t prospects, etc.
Liquidation renewed;
m a n y s t r i k e s ; iron t r a d e
depressed, cotton s p e c u l a t i o n ; stock panic in
Montreal
U . S . S h i p b u i l d i n g Co. r e c e i v e r s h i p ; l a r g e g o l d exp o r t s ; f a i l u r e s in C a n a d a ; flopds in S o u t h w e s t ;
d r o u g h t in N o r t h
S t o c k e x c h a n g e f a i l u r e s ; cotton corner
T w o m o r e f a i l u r e s on stock e x c h a n g e ; rally a f t e r
1 0 t h on s h i f t i n g o f h o l d i n g s t o s t r o n g e r h a n d s ;
corn a n d c o t t o n crops late
F u r t h e r l i q u i d a t i o n ; reports o f c r o p d a m a g e ; cuts
in iron a n d steel p r i c e s ; l a b o r t r o u b l e s ; i n d u s t r y
depressed
L o w prices t e m p t e d buyers, d e s p i t e b a n k troubles
in B a l t i m o r e , P i t t s b u r g , a n d S t . L o u i s ; depression in iron trade, etc.
A d v a n c e l a t t e r p a r t o f m o n t h ; l a r g e cotton shipments and engagements of
gold for import;
bond market improved
F u r t h e r l a r g e b o n d i s s u e s ; tone d i s t i n c t l y m o r e
hopeful
S t r o n g b o n d m a r k e t ; severe s t o r m s h a m p e r e d railw a y s ; w i l d speculation in c o t t o n a n d c o f f e e
Russo-Japanese w a r ;
Baltimore
fire;
break
in
cotton m a r k e t ; speculation in wheat
N o r t h e r n Securities decision b y S u p r e m e Court
followed by rise; disagreement of Hill and Harriman interests; Sully failed
Hill-Harriman litigation; backward spring, gold
e x p o r t s , poor r a i l w a y e a r n i n g s
United States paid f o r P a n a m a C a n a l ; uncertainty
r e g a r d i n g w r heat crop
R i s e l a t t e r p a r t o f m o n t h on b e t t e r crop p r o s p e c t s ;
s e t t l e m e n t o f strike on G r e a t L a k e s ; end o f
gold exports
P a r k e r n o m i n a t e d f o r president b y D e m o c r a t s ;
b e t t e r crop p r o s p e c t s ; strikes in p a c k i n g indust r y , b u i l d i n g trades, etc.
M a r k e t s t r o n g e r , despite c u t t i n g o f iron a n d steel
prices, reports o f d a m a g e t o wheat crop, rise o f
c o t t o n , etc.
I r o n d e m a n d revived on f u r t h e r price r e d u c t i o n s ;
several strikes e n d e d ; crop p r o s p e c t s u n c e r t a i n ;
industry reviving
I n d u s t r i a l revival e x t e n d e d ; g o o d crops a s s u r e d ;
m a r k e d b u o y a n c y on stock e x c h a n g e
" B o o m " in stocks f o l l o w e d R o o s e v e l t ' s e l e c t i o n ;
i n d u s t r i a l revival continued t o g a i n g r o u n d
M a r k e t b r o k e on 6 t h a n d 13th under a t t a c k s b y
L a w s o n a n d p r e s i d e n t ' s m e s s a g e ; p r o m p t reaction

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

184

TABLE

32—

(Continued)

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.
A v e r a g e a c t u a l prices in

Low

H i g h Spread
23
248

Net imports
( + ) or exports
( — ) of gold
in millions
of dollars

2.25

—15.7

10.6

2.19

—13.4

12.9

3.20

+

1.8

12.7

Turning
points

Average
call-loan
rates

11.8

Relative prices of stocks

3.25

+

.4

12.1

2.42

+

1.3

Millions
of shares
sold

January

225

February

238

257

19

March

243

264

21

April

229

261

32

May

220

241

21

June

223

242

19

10.8

2.50

—

2.7

July

237

250

13

10.9

2.31

+

2.9

August

244

268

24

10.9

2.05

+

2.1

September

252

266

14

10.9

3.56

+

3.0

Max.

Min.

B Y MONTHS,

1890-99 =

1890-1911

100

Current events affecting the stock market

R u m o r s o f a g r e e m e n t b e t w e e n Hill-Harrimani
terests, a n d o f c o m b i n a t i o n o f
Union r a
S t a n d a r d O i l , a n d V a n d e r b i l t interests
aC.
F u r t h e r rumors o f i m p e n d i n g combinations,
companied by heavy buying
• g to
R e a c t i o n on f a i l u r e o f r u m o r e d combination
^
m a t e r i a l i z e , a n d on d i s a p p o i n t m e n t o f hopes
peace between R u s s i a a n d J a p a n
, in
Symptoms of friction among railways; . b r e a k e e ;
wheat m a r k e t ; b a n k d e f a l c a t i o n s in M i l w a u
insurance s c a n d a l s
r
R e a c t i o n in iron t r a d e ; renewed a t t a c k s by
^
s o n ; f u r t h e r insurance s c a n d a l s ; PennsyW
b o n d subscriptions s m a l l
. 0f
I m p r o v e m e n t l a t t e r p a r t o f m o n t h on prospect
peace b e t w e e n R u s s i a a n d J a p a n ; R y a n 8 "
chase o f E q u i t a b l e s t o c k ; g o o d crop reports
M a r k e t rose on d i v i d e n d d i s b u r s e m e n t s an<a
g
fluctuated
on crop r e p o r t s ;
cotton
stati
scandal
buoT*
P e a c e b e t w e e n R u s s i a a n d J a p a n ; iron trade > ,
a n t ; m a r k e t broke on 3 0 t h a n d 3 1 s t under r
i z i n g sales a n d a t t a c k b y L a w s o n
, by
M a r k e t recovered a n d a d v a n c e d u n t i l checked
high rates f o r m o n e y t o w a r d close o f montn
Course o f m a r k e t i r r e g u l a r a n d uncertain
,

October

253

270

17

12.6

5.31

+

9.7

November

251

272

21

13.1

7.70

+

3.0

December

255

278

23

14.4

16.50

M a r k e t declined until 1 3 t h on dear m o n e y ; R u 9 ^ a r m u t i n i e s ; l a r g e H e a r s t vote in N . Y . ; later m
ket rose on increased d i v i d e n d s
afB u o y a n c y despite e x t r e m e tension in m o n e y » ^
k e t ; p a s s i n g o f d i v i d e n d on p r e f e r r e d stocK
Rock Island C o . ; failure of
W a l s h banKS
Chicago

January

265

294

29

38.5

8.65

—

4.4

February

260

283

23

21.7

4.63

—

7.7

March

255

274

19

19.5

4.88

—

1.6

April

246

276

30

24.3

9.50

+ 11.2

May

239

270

31

24.0

4.15

+ 27.9

June

247

271

24

20.3

3.25

—

1.8

July

243

263

20

16.3

2.97

+

7.0

August

258

286

28

31.8

4.44

+

6.2

September

270

287

17

26.0

9.38

+27.9

October

264

285

21

21.9

5.15

+

18.6

November

261

280
r

19

19.4

7.50

+

5.8

December

259

281

22

20.5

14.00

+

4.6

A s m o n e t a r y s t r i n g e n c y relaxed, m a r k e t r o s e ;
decline on p r o f i t - t a k i n g sales, a n d proposed
quiry into restraint o f t r a d e
oal
H o u s e passed H e p b u r n rate b i l l ; f e a r of
0
s t r i k e ; report o f A r m s t r o n g
Insurance
m i t t e e , etc.
F e a r o f m o n e t a r y s t r i n g e n c y ; f e a r o f coal s t n >
court decisions u n f a v o r a b l e to corporations
S a n F r a n c i s c o e a r t h q u a k e a n d fire; dear m o n J
coal s t r i k e ; sales o f securities b y fire i n s u r a
companies
, r(j
Coal strike e n d e d ; G a r f i e l d ' s r e p o r t on S t a n d *
O i l ; m o n e y easier
.
H e p b u r n rate bill b e c a m e l a w ; R e y n o l d s - N e i l i
p o r t on C h i c a g o s t o c k y a r d s ; b o n d m a r k e t du ^
C r o p outlook h i g h l y f a v o r a b l e ; m o n e y market
j
turned t o e a s e ; U . S . S t e e l announced divide
on c o m m o n stock J u l y 3 1
.
Union
P a c i f i c and
Southern
Pacific
divid^n
increased s e n s a t i o n a l l y on 1 7 t h ;
"boom'
l o w e d ; checked late in m o n t h
^
Market weak and strong b y t u r n s ;
moneta /
stringency returning
ce
I r r e g u l a r i t y c o n t i n u e d ; b r e a k on news o f
o f B a n k o f E n g l a n d rate to 6 per cent on
*
divld®0.
Increase
of
Pennsylvania
Railroad
s t r e n g t h e n e d m a r k e t early in m o n t h ; later
c e r t a i n t y on dear m o n e y
T i g h t m o n e y a n d a n n o u n c e m e n t o f l a r g e secur
issues o f f s e t e f f e c t «of increased dividends




Max.

Min.

Max.

185

MITCHELL: BUSINESS CYCLES

TABLE

32—(Continued)

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.

B Y MONTHS,

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =
Net imports

Relative prices of stocks

19°7

Janu;
iary

Low

High Spread

Turning
points

Millions
of shares
sold

call-loan
rates

%

( — ) of gold
in millions
of dollars
.2
—

April
May
June
July

August

Se Ptember

October

N o v ember

De<
member
1 % 8 Jam
uary

^bruary

March

April

June

270

27

22.7

6.15

234

252

18

16.5

4.38

+

1.3

193

243

50

Min.

32.2

6.38

+

2.0

208

225

17

Max.

19.2

2.35

+

1.5

194

219

25

Min.

15.8

2.31

—

2.9

197

213

16

9.7

3.13

—22.8

208

222

14

Max.

12.8

4.55

—

5.1

183

211

28

Min.

15.6

3.06

—

2.4

190

204

14

Max.

12.2

4.00

+

.2

151

192

41

17.3

21.00

—

.1

149

169

20

9.7

12.25

+ 61.7

158

176

18

12.6

14.60

+42.5

163

186

23

Max.

16.6

4.75

+

9.4

150

169

19

Min.

9.8

1.81

—

.1

158

182

24

15.9

1.85

+

1.1

171

191

20

11.6

1.72

—13.0

213

29

21.0

1.66

—24.4

192

207

15

9.7

1.52

—

6.2

196

March

243

184

February

216

20

13.9

1.22

—

2.7

204

219

15

18.9

1.06

—

3.1

202

223

21

17.6

1.35

208

226

18

14.3

1.44

+

.8

222

254

32

25.0

1.75

—

1.0

240

264

24

23.0

2.90

—

3.3

July

Au gust

Se Ptember

°ctober
N o v ember

^^ember




Min.

1890-1911

100

Current events affecting the stock market

F u r t h e r issues o f s e c u r i t i e s ; s u b s t i t u t i o n o f shortterm notes f o r b o n d s ; increased o p e r a t i n g exp e n s e s ; congestion o f t r a f f i c
F u r t h e r b o r r o w i n g on short-term n o t e s ; I n t e r s t a t e
Commerce
Commission's
investigation
of
the
H a r r i m a n lines
Severe liquidation on the 14th a n d 2 5 t h ; f a i l u r e o f
M o r g a n ' s a t t e m p t to a r r a n g e c o n f e r e n c e between
Roosevelt and r a i l w a y presidents
M o n e y m a r k e t r e l a x e d ; stock m a r k e t recovered in
a m e a s u r e ; u n f a v o r a b l e crop reports
U n s e a s o n a b l e cold m a d e crops b a c k w a r d ;
difficulty in financing c a p i t a l requirements continued
B o n d s y n d i c a t e s e x p i r i n g with l a r g e p o r t i o n o f
b o n d s u n s o l d ; crop prospects s o m e w h a t b r i g h t e r
F e d e r a l policy o f a s k i n g f o r receivers in prosecution o f trusts a n n o u n c e d ; i n t i m a t i o n s o f dividend
increases
S t a n d a r d O i l fine; n u m e r o u s p r o s e c u t i o n s o f corp o r a t i o n s ; s i g n s o f industrial r e a c t i o n ;
Pope
receivership
C o p p e r f e l l 2 2 - 1 5 V ^ cents per p o u n d ; extra divi
dend b y B u r l i n g t o n ; success o f N . Y . C i t y b o n d
sale a f t e r interest had been raised f r o m 4 to 4
per cent
Embarrassment of
Heinze, Morse, and Thomas
banks;
failure of
Knickerbocker
Trust
Co.;
panic
Panic continued; limitation of payments by b a n k s ;
b a r g a i n b u y i n g o f stocks in small lots
S t r a i n r e l a x e d ; decided g a i n on stock e x c h a n g e in
closing d a y s o f t h e m o n t h
R e t u r n o f ease in m o n e y m a r k e t ; revival o f confidence;
Seaboard A i r Line and Chicago Great
W e s t e r n receiverships
P r e s i d e n t ' s m e s s a g e a n d letter to I n t e r s t a t e C o m merce C o m m i s s i o n j u d g e d u n f a v o r a b l e to corp o r a t e i n t e r e s t s ; more r a i l w a y receiverships
P r e s i d e n t ' s m e s s a g e o f M a r c h 2 5 t h j u d g e d more
f a v o r a b l e ; suspended b a n k s r e o p e n i n g ; c o p p e r
prospects b r i g h t e r
Successful
financing
of
E r i e ' s capital
requirem e n t s ; r a i l w a y expenses reduced
C o n g r e s s a d j o u r n e d w i t h o u t p a s s i n g laws adverse
to c o r p o r a t e i n t e r e s t s ; G o u l d stocks weak
I n a c t i v i t y ; cut in steel p r i c e s ; dividend reductions
and suspensions; T a f t nominated
Bryan
nominated;
Court
of
Appeals
reversed
S t a n d a r d Oil fine d e c i s i o n ; e f f o r t s to increase
f r e i g h t rates
A d v a n c e o f stocks opposed b y " s h o r t s " ;
flagrant
m a n i p u l a t i o n f o l l o w e d b y suspension o f a l a r g e
b r o k e r a g e firm
U n e a s i n e s s over presidential c a m p a i g n ; suspension
o f dividends b y A m e r i c a n L o c o m o t i v e Co.
R e v i v a l in iron a n d c o p p e r t r a d e s ; net e a r n i n g s
increasing t h r o u g h s a v i n g o f expenses
B u o y a n c y f o l l o w e d T a f t ' s e l e c t i o n ; m o d e r a t e reaction on p r o f i t - t a k i n g sales, suit a g a i n s t 1 ' S u g a r
T r u s t , " etc.
M a r k e t i r r e g u l a r ; a d v a n c e s in f r e i g h t rates ann o u n c e d ; tariff hearings begun b y C o m m i t t e e
of W a y s and M e a n s

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

186

TABLE

32—

(Continued)

RELATIVE PRICES OF 4 0 TRANSPORTATION STOCKS.

B Y MONTHS,

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =
Relative prices of stocks

X

A
Turning
Spread points

Millions
of shares
sold

Average
call-loan
rates

%

Net imports
( + ) or exports
of dollars
( — ) of gold
in millions

1890-1911

100

Current events affecting the stock market

Low

High

January

247

271

24

Max.

17.3

1.81

—

5.5

February

240

266

26

Min.

12.3

2.25

—

6.4

March

248

267

19

13.7

1.85

—16.7

April

260

284

24

19.1

1.94

—

May

270

286

16

16.5

1.84

—10.1

June

273

294

21

Max.

20.3

1.87

—

July

274

288

14

Min.

12.8

2.06

—14.6

August

274

296

22

24.6

2.17

—

5.0

September

272

292

20

20.0

2.69

—

6.0

October

278

301

23

21.7

4.31

—

3.6

November

279

298

19

18.8

4.65

—13.1

December

284

307

23

17.6

5.03

—

9.4

January

262

298

36

24.5

4.72

—

4.0

T a f t ' s m e s s a g e r e c o m m e n d i n g i n c r e a s e in Pj^^fcof Interstate Commerce Commission, etc.; . ets}
i n g C o a l a n d Iron Co. in h a n d s o f T e C ftCtiV
f a l l o f cotton a n d g r a i n p r i c e s ; s l a c k e n i n g

February

252

275

23

Min.

16.0

2.78

+

.1

March

268

289

21

Max.

15.0

2.88

+

2.6

April

254

277

23

14.1

3.28

—34.2

May

252

272

20

11.9

3.63

+

2.4-

June

233

265

32

16.3

2.77

+

3.0

July

219

246

27

14.3

2.41

+

9.5

August

228

250

22

10.4

1.55

+

9.7

September

232

245

13

7.7

2.00

+

1.4

S i g n s o f declining a c t i v i t y in several indu
failure of Fisk & Robinson
mef 0 * 0
N . Y . Central d i v i d e n d rate i n c r e a s e d ;
strikes a n d w a g e a d v a n c e s
jnti'
B a d c r o p r e p o r t s ; g o l d e x p o r t s , dear mon
m a t i o n s o f f u r t h e r prosecutions o f corpo*
^
L a r g e f o r e i g n sales o f r a i l w a y securities;
prospects b e t t e r
.
I n j u n c t i o n a g a i n s t a d v a n c e o f r a i l w a y rate >^ ted
terstate Commerce
Commission
reduces
west o f Missouri
I n j u r y to s p r i n g w h e a t ; I n t e r s t a t e C o m m e r c e ^
mission secured p o s t p o n e m e n t o f
advan
freight
rates;
further
restriction
of
F a r q u h a r - P e a r s o n securities taken over by
L o e b & Co.
tioQ6'
Gains by 4 ' I n s u r g e n t s "
in s t a t e
conven
f u r t n e r restriction o f t r a d e
'wtf9'1
M i n n e s o t a r a t e decision f a v o r a b l e to r a l j for
D e m o c r a t s carried M a i n e ; revival o f dema

October

247

266

19

13.5

3.13

+

3.5

November

246

263

17

10.7

3.23

+

2.9

Max.

4.1

7.2

C o n s o l i d a t e d G a s decision, m a i n t a i n i n g k ^ ^ J j e d
8 0 - c e n t rate, c a u s e d d e c l i n e ; H a r r i m a n en
N . Y . Central b o a r d
^prof
Steel C o r p o r a t i o n a n n o u n c e d new policy o t
t e c t i n g their c u s t o m e r s ' ' on 1 9 t h ; heavy
dation f o l l o w e d
.
c 0 al,
C o n g r e s s in extra session on the t a r i f f ; i r o D '
a n d c o p p e r t r a d e s in d i f f i c u l t i e s
c b» s e S
I m p r o v e d industrial c o n d i t i o n s ; larger V n t
o f b o n d s ; increasing r a i l w a y e a r n i n g s
0f
S u p r e m e Court decision on C o m m o d i t i e s C , a ^ s i H e p b u r n act on 3 d caused r i s e ; expanding
ness a c t i v i t y
f
R e a c t i o n f o l l o w e d T a f t ' s recommendation 0 g t e e l
on c o r p o r a t i o n s ; hitch in plan f o r l i s t l I * £
shares in P a r i s ; poor s t a t e o f copper t r a d
DU
Tariff
nearing
completion;
increasing
a c t i v i t y ; h i g h e r d i v i d e n d o n S t e e l commo
^
T a r i f f a c t s i g n e d on 5 t h ; m a r k e t
fluctuat
^
c o n f l i c t i n g rumors o f H a r r i m a n ' s h e a l t h
prospects i m p a i r e d b y heat
catt^
H a r r i m a n died on 9 t h ; T a f t ' s speeches
decline in third week
^ a nd
E a r l y decline on dearer m o n e y in N e w
L o n d o n ; f o r e i g n s e l l i n g ; later extensive t . p g
Circuit C o u r t f o u n d S t a n d a r d Oil contra*
K
S h e r m a n A n t i - t r u s t L a w on 2 0 t h ; new
issues depressing
sP6®1*
N o d i s t u r b i n g f e a t u r e s in T a f t ' s m e s s a g e ;
lation e n c o u r a g e d b y rise o f
certain ®r
s t o c k s ; general list b u o y a n t a f t e r Christina*

ity in steel trade

Min.

bonds




Max.

#

str^'

sS

C r o p s b e t t e r than e x p e c t e d ; D e m o c r a t i c su<*c .^d
elections f o r e c a s t e d ; B a n k o f
England
r a t e t o 5 per cent
Democrats captured House of
Represent*
t jc
f e d e r a l suit a g a i n s t 4 ' S u g a r T r u s t ' ' ; p e ® 9 1 1 ^
trade forecasts

187

MITCHELL: BUSINESS CYCLES

TABLE

32—(Concluded)

RELATIVE PRICES OP 4 0 TRANSPORTATION STOCKS.
A v e r a g e a c t u a l prices in

T

1910

December

1911

January

L.ow
243

Net imports
( + ) or exports
( — ) of gold
in millions
of dollars
+
3.6

Millions
of shares
sold
9.8

3.18

+

8.6

10.2

2.28

+

5.4

6.8

2.28

+

3.6

5.6

2.30

+

3.0

11.1

Turning
H i g h Spread points
255
12
Min.

Average
call-loan
rates
%
3.38

10.4

Relative prices of stocks

2.31

—

1.8

10.5

2.40

+

1.7

246

262

16

250

267

17

251

265

14

249

260

11

249

263

14

259

271

12

255

265

10

5.5

2.36

+

.4

232

262

30

15.0

2.31

+

3.6

September

224

242

18

17.4

2.28

+

2.4

October

232

246

14

10.9

2.33

+

.1

238

253

15

14.9

2.72

—10.5

40

252

12

9.1

4.03

+

FebnU A R

Y

March

April
May

June

July

August

Max.

Min.

Max.

Min.

November

2

December




Max.

B Y MONTHS,

1890-9S =

3.7

1890-1911

100
Current events affecting the stock market

E n c o u r a g e m e n t received f r o m T a f t ' s m e s s a g e to
C o n g r e s s a n d decision in A n t h r a c i t e Coal c a s e s ;
f u r t h e r f e d e r a l suits a g a i n s t c o r p o r a t i o n s ; additional increases o f w a g e s b y r a i l w a y s ; continued
restrictions o f t r a d e
C a r n e g i e T r u s t Co. c l o s e d ; restriction o f production
in leather a n d cotton t r a d e s ; l a r g e loan flota
tions b y N e w Y o r k C i t y a n d by r a i l w a y s ; pros
pects o f steel t r a d e b e t t e r ; net e a r n i n g s o f rail
w a y s l a r g e r ; m o n e y m a r k e t easy
D e c l i n e in c o m m o d i t y p r i c e s ; several new railway
l o a n s ; f u r t h e r i m p r o v e m e n t in steel t r a d e ; plan
f o r double t r a c k i n g U n i o n a n d Southern Pacific
a n n o u n c e d ; m a r k e t b r o k e on 2 4 t h a f t e r announcement t h a t I n t e r s t a t e C o m m e r c e C o m m i s sion r e f u s e d to p e r m i t a d v a n c e o f r a i l w a y f r e i g h t
rates
N.

Y . C e n t r a l R a i l r o a d reduced d i v i d e n d ; railway
net e a r n i n g s l o w e r ; troops sent to M e x i c a n bord e r ; new orders in steel t r a d e s m a l l e r ; copper
stocks l a r g e r ; m o n e y m a r k e t dull
C o n g r e s s m e t in e x t r a s e s s i o n ; f u r t h e r s i g n s o f
reaction in g e n e r a l b u s i n e s s ; i n c r e a s i n g d e m a n d
f o r b o n d s ; rates f o r m o n e y very low
S u p r e m e Court decision in S t a n d a r d Oil case f o l lowed b y t e m p o r a r y revival o f s p e c u l a t i o n ; general cut in steel p r i c e s ; H o u s e o f R e p r e s e n t a t i v e s
began investigation of U . S. Steel Corporation
Sale of P a n a m a Canal bonds highly successful;
G o v e r n m e n t d e f e a t e d in suit to s e p a r a t e Southern Pacific f r o m U n i o n Pacific, b u t won suit
a g a i n s t " P o w d e r T r u s t " a n d b e g a n several new
prosecutions under S h e r m a n l a w ; crops i n j u r e d
b y d r y weather
F u r t h e r d a m a g e t o g r a i n crops, a n d wild speculation f o r a d v a n c e o f p r i c e s ; I n t e r s t a t e C o m m e r c e
C o m m i s s i o n ' s decision r e g a r d i n g Pacific C o a s t
rates deemed u n f a v o r a b l e to r a i l w a y s ; new trust
p r o s e c u t i o n s ; a n x i e t y over M o r o c c a n crisis
S u p p o r t i n g o f prices a p p a r e n t l y ceased on S t o c k
Exchange;
liquidation on E u r o p e a n
account;
threatened l a b o r difficulties f o r r a i l w a y s ; prices
o f steel p r o d u c t s w e a k e r ; new trust prosecutions
Speeches b y T a f t a n d W i c k e r s h a m threaten extensive prosecutions o f t r u s t s ; uneasiness in E u r o pean m a r k e t s ; loans b y N e w Y o r k to P a r i s and
B e r l i n ; T r i p o l i t a n w a r ; price c u t t i n g in s t e e l ;
W e s t e r n r a i l w a y strikes
F e d e r a l suit a g a i n s t U . S. Steel
Corporation;
W i c k e r s h a m a p p r o v e d plan o f 1 1 T o b a c c o T r u s t ' '
f o r r e o r g a n i z a t i o n ; steel e a r n i n g s l a r g e r ; revolution in C h i n a ; m o n e t a r y tension in E u r o p e
relaxed; N e w Y o r k bought $ 1 3 , 0 0 0 , 0 0 0 Prussian
treasury notes; money a drug
Circuit Court a p p r o v e d plan l o r d i s i n t e g r a t i o n o f
"Tobacco
Trust";
Commerce Court enjoined
order o f I n t e r s t a t e C o m m e r c e C o m m i s s i o n in
Pacific C o a s t rate c a s e s ; increased r a i l w a y orders
f o r steel p r o d u c t s ;
financial
conditions abroad
e a s i e r ; over $ 1 0 , 0 0 0 , 0 0 0 g o l d sent to C a n a d a ;
N e w Y o r k reserves b e l o w 2 5 per cent
H a d l e y C o m m i s s i o n ' s report on r a i l w a y securities
well r e c e i v e d ; i n c r e a s i n g orders f o r iron a n d
s t e e l ; f u r t h e r trust p r o s e c u t i o n s ; receivers a p
p o i n t e d ror W a b a s h ; rates f o r m o n e y s o m e w h a t
firmer




208 MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

MITCHELL: BUSINESS CYCLES

189

3. The Course of the New York Stock Market in 1890-1911
A sketch of the general trend of the market is
^
^
^
^
^
tables. Prom 133-145- in May of 1890 prices dechned to 92-106inDecembei
under European liquidation, stringent money, and the reflex influenceof the
Baring crisis in London. The first seven months of 1891 was a^ period^ of
liquidation in the United States and stocks did not
nnK-h o
e ^ los
ground; but after the scantiness of foreign wheat crops and tbe abundance of
the American crop liad become assured, prices advaced, ^achmg ^ W 3 5 m
January, 1892. For the rest of the year and the first four months o t h e
market sagged under the influence of gold exports, the d^' 11 ^^ 0 ^ ^
^ ^ !
gold reserve, foreign selling, and the financial e m b a r r a s s m e n t o f c e r t e i n ^
ways and industrial corporations. In the stock market the ^
^
^
with a sharp panic on May 4 and 5. The lowest level touched
summer was 68-81 in August. No material recovery occurre<i duringr the d u n
year 1894; but after President Cleveland made Ins
Belmont gold syndicate in February, 1895, stocks began to
r c c o v e r

91-102 in Sentember.

The resumption oi gold expoi

<

,

when the president's' Venezuelan message was published December 17. The
war scare which followed reduced stocks to as low a pomt ^ d u r i n g t h e worrt
of the panic of 1893. The recovery of the next spring was eh eked by the gains
of the free-silver party and Mr. Bryan's nomination In A > ^ t l896 wh e
'he issue of the presidential campaign seemed uncertain stocks fell to thenlowest point in the whole period of twenty-two years, M-rtl.
The defeat of the free-silver policy paved^the way for a ratanM>f busmess
Prosperity. Bnt this immediate advance did no outlastNovember, and or
'he next eight months stocks were lower than in the week of e eetiom FinaUy
midsummer, 1897, the development of a crop situation h b f t r t r f l M
caused a sudden advance to 92-107 in September But feai of wa with Spam
bought on a relapse, and when lighting began in ^ e next April the market
stood at 83-89—substantially the level of November, 18% JDmwg
^
~
trend of stock prices was upward, and peace was
^
^
^
^
which carried prices to 118-133 in February 1899. The >.ext^e
was a time of many vicissitudes upon the s t o c k market n
^hares p.ayed the leading roles. But
^ter ex-Governor Flower's death in May, 1899, scorea a
R u m m e r ; suffered a heavy drop in the panic
high record in April, and finished in September, 1900, lower than in February,
1899.
show the arithmetic means of the lowest and highest relative priees for the month.




190

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

It is notable that in these years of business revival after the depression of
1893-96 stock prices did not equal the high record of May, 1890, until April,
1900. But the great outburst of speculation which followed President McKinley's second election turned the moderate rate of advance into a furious
rush, and established what for twelve years has appeared to be a permanently
higher level of fluctuations. From 117-127 in September, 1900, stocks rose
with hardly a check to 239 in May. But May 9 brought the Northern Pacific
corner and the market dropped to 169. The difference between these figures
is 70 points—the widest spread exhibited by any month* in the two decades.
This extraordinary fall had but a transient effect upon the general level of
prices. In June the high level of May was actually surpassed, and the general
trend continued upward until September, 1902, when the figures stood 258-289.
The period of severe liquidation, known as "the rich man's panic," began
in October or November, 1902. Under heavy but steady selling the market
receded month by month until most of the great gains of 1901 had been lost.
The lowest points were 158^175 in October, 1903, and 161-170 in May, 1904.
Another forward movement began while the presidential campaign was in
progress, and, as in 1900, the election was followed by an outburst of speculation. This campaign culminated in March, 1905, with prices of 243-264. A
decline was followed by a second great "bull" movement which established a
record of 265-294 in January, 1906. Once more the spring brought a reaction,
and once more the autumn saw an advance. On July 31 the Steel Corporation
announced the resumption of dividends upon its common stock, and on August
17 the Union Pacific raised its dividend from 6 to 10 per cent, and the Southern
Pacific began paying dividends on its common stock at the rate of 5 per cent.
The market responded with an upward rush to 270-287 in September. Thereafter for many months a contest seems to have been waged between two
powerful cliques. The efforts to carry prices higher were unavailing. Instead,
the level of fluctuations gradually declined until March, 1907, when the market
broke disastrously on the 14th and 25th. The range for that month was 193-243.
Summer brought no great recovery, and in August another relapse resulted
in prices lower than those for March. Recuperation in September was followed
by the outbreak of panic in October. Next month the market fell to 149-169—
lower than during the troubles of 1903-04, and lower than at any time since
1900; but still above the highest record of 1890-99.
After the crisis of 1893, recovery was slow, and a fresh decline in 1896
reduced prices to a still lower level. After the crisis of 1907, on the contrary,
recovery was rather prompt. By January, 1909, the level was higher than in
January, 1907. During the rest of the year the trend was upward, and by
December the highest previous record—that for January, 1906—had been
eclipsed.




MITCHELL: BUSINESS CYCLES

191

In January, 1910, the tide turned once more, and stock prices e n t e r e d upon
another serious decline. Except for a temporary revival m March, the.fell
continued until July, bv which time all the gains scored since OctoberNovember, 1908, had been wiped out. The autumn months
recovery; but the year ended with prices not far from the lowest quotations of
1909. The downward trend was interrupted in 1911 by upward — e n t s m
January-February and again in May-June; but tlie gams were less than the
subsequent losses, which culminated in September with prices at aboutthe
same level as in July, 1910, but higher than in the spring and summer £1907.
The general level of prices during these successive periods has been as
foliclows:
Average
price
J a n u a r y , 1 8 9 0 - A p r i l , 1 8 9 3 — B e f o r e the crisis of 1893
M a y , 1 8 9 3 - J u n e , 1 8 9 7 — C r i s i s and depression
July, 1 8 9 7 - S e p t e m b e r , 1 9 0 0 — R e v i v a l of business a c t i v i t y

119
81
113

October, 1 9 0 0 - 0 c t o b e r , 1 9 0 2 — F l o o d tide of prosperity

219

November, 1902-July, 1904—The

195

4'rich

man's p a n i c "

A u g u s t , 1 9 0 4 - F e b r u a r y , 1 9 0 7 — F l o o d tide of prosperity

251

M a r c h , 1 9 0 7 - S e p t e i n b e r , 1 9 0 8 — L i q u i d a t i o n , crisis and depression

193

October, 1 9 0 8 - D e c e m b e r , 1 9 0 9 — R e v i v a l of business a c t i v i t y

268

January, 1910-December, 1911—Reaction

251

4. The Diversity of Fluctuations in the Prices of Common Stocks
, Stock prices have a much wider range of
^
^
^
^
Table 33, which presents the decils for our 40 c o m m o n stocks ^ o

g

^

between the lowest and highest relative p
d
e
c
i
l
s
for
as great as the corresponding margins in Table 8, wmc g
145 commodities at wholesale.
.
. . .
i t i g f a i r l v regular.
But though this dispersion o f s t o c k prices is
f the margins
greater density toward the middle of the field,^narro^i g
and
between the decils under depression and f ^ t Z e ^ V ^ i n ^ e ^ e
general agreement between the movements ot ail tne a
divergencies
^ stocks as in the case of commodities, and
means may
among the fluctuations are orderly in
d ^ J ^ J ^ M
b e accepted as a convenient summary of the whole set o
( l e c a de are
. The stocks which have the highest relative P ^
Table
general those which had the lowest actual prices m
seventeen
34 gives the evidence in the form of the average relative prices^o
^
stocks which averaged less than $ 2 5 per share^in_ 1 8 9 0 - ^ ,
Q
T H E
which averaged $ 2 5 - 9 9 , and the ten stocks which averaged



192

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

TABLE

33

DECILS OF THE RELATIVE PRICES OF COMMON S T O C K S ^
4 0 Stocks.
Lowest

B y years, 1 8 9 0 - 1 9 1 1 .

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =

100

1st decil

2d decil

4th decil

Median

6th decil

30

60

92

7th decil

1890

8th decil

9th decil

97

105

109

120

134

146

171

266

1891

30

82

93

98

102

106

114

120

132

149

210

1892

70

96

101

105

111

115

119

125

142

167-

210

1893

61

66

85

89

93

95

96

99

102

106

147

1894

40

52

65

73

79

87

91

92

96

100

106

Year

3d decil

Highest

1895

30

53

71

81

87

89

92

94

98

103

121

1896

26

53

64'

75

77

81

85

88

92

96

102

1897

12

59

66

80

85

88

90

96

98

101

127

1898

17

61

79

85

89

91

98

105

107

121

178

1899

65

84

97

104

107

116

121

138

147

165

303

1900

60

85

91

102

118

124

129

138

150

195

306

231

282

328

488
564

1901

102

125

136

144

160

183

203

1902

104

139

149

173

204

218

241

285

342

372

1903

94

119

131

155

168

182

196

204

248

285

535

1904

92

104

130

157

165

168

187

208

223

284

522

1905

97

129

159 *

194

208

240

253

265

306

369

689

1906

94

126

170

199

223

236

271

289

327

444

748

1907

63

88

116

139

166

179

192

223

256

311

610

49

92

117

131

156

169

189

219

257

348

586

1909

58

113

132

160

193

241

' 284

318

372

512

761

1910

32

97

125

135

165

218

233

256

386

488

817

1911

25

89

113

127

155

184

215

259

378

498

878

38.1

66.6

1908

-

Averages
1890-99
1900-09

81.3

112.0

81.3

88.7

93.5

97.7

102.6

109.1

116.0

127.9

177.0

133.1

155.4

176.1

194.0

214.5

238.0

276.3

344.8

580.9

high-priced shares have been most stable in price; but even they have advanced
much more than commodities at wholesale.
A geographical arrangement according to the section of the country served
by the railways (Table 35) shows differences even greater than those between
low-priced and high-priced stocks. All the groups participate in the larger
movements of the market. That is, all fall heavily between 1892 and 1896; all
regain much more than the lost ground in 1897-02; all fall in 1903; all rise
vigorously again in 1904-06; all go down once more in 1907; all move upward
sharply in 1909, and finally all decline in 1910-11. But the differences in degree
7i T h i s t a b l e i s c o m p i l e d , n o t f r o m t h e e x t r e m e , b u t f r o m t h e a v e r a g e p r i c e s o f t h e s e v e r a l s t o c k s i n each
year.




MITCHELL: BUSINESS CYCLES

TABLE

34

RELATIVE PRICES OF STOCKS CLASSIFIED ACCORDING TO AVERAGE ACTUAL PRICES IN
Arithmetic means.

B y years, 1 8 9 0 - 1 9 1 1 .

Year

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =

Less than $ 2 5 $ 2 5 to $99
per share
per share

1890-99
100

Over $ 1 0 0
per share

1890

125

127

1891

118

115

101

1892

106

128

126

107

1893

92

92

99

1894

76

77

95

1895

85

79

95

1896

73

72

91

1897

78

84

93

1898

89

98

100

1899

136

129

114

1900

147

130

116

1901

271

186

140

1902

325

221

161

1903

246

187

141

1904

221

192

142

1905

297

248

173

1906

319

265

183

1907

225

214

155

1908

218

214

157

1909

332

271

193

1910

301

260

166

1911

296

253

160

100

100

100

260

213

156

Averages
1890-99
1900-09

The 7 T

193

fal1

are as striking as the uniformity in direction of movement.
them, western, and Pacific stocks suffer more severely than the others
anC* s c o r e g r e a ter gains in 1 8 9 7 - 1 9 0 2 .
RECORD
Between the earlier high
an( *
stock
^ ^
coal-carrying and Pacific railway
and S
* a r g e gains, the southern moderate gains, and the middle western
W e s ^ e r n moderate losses, while the Atlantic railway and the express,
steam
tioned ^ ^^
stocks change but little. On the whole, the last mena v e ^ e e n the stablest in price, and the Pacific railway stocks
the m
^
ftiore '
But, once more, even the stablest group of stocks has risen
--—_J^price than have commodities at wholesale.72
in

72 T h a t
t o t h e Irrpnf d l f f e r e n c e s in t h e
fluctuations
o f s t o c k s f r o m d i f f e r e n t sections o f the c o u n t r y are not w h o l l v
ngure8;
t e r
*
a d v a n c e in t h e p r i c e s o f s t o c k s w h i c h w e r e c h e a p i n 1 8 9 0 - 9 9 a p p e a r s f r o m t h e f o l l o w i n g

f

U e




194

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

TABLE

35

RELATIVE PRICES OF SEVEN GROUPS OF TRANSPORTATION STOCKS.
A r i t h m e t i c means.

BY

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9

YEARS, 1 8 9 0 - 1 9 1 1
= 100
5 express,
steamship,
and telegraph
companies

Year

5 North
Atlantic
railways

4 coalcarrying
railways

6 Southern
railways

8 Middle
Western
railways

7 Northwestern
railways

5 Pacific
railways

1890

113

117

132

120

105

144

117

1891

108

106

123

118

94

134

108

1892

119

135

114

128

119

139

108

1893

97

97

84

93

92

99

96

1894

89

95

78

83

76

65

89

1895

89

89

82

93

85

68

91
85

1896

86

88

67

77

78

64

1897

90

89

89

76

88

67

91

1898

95

84

98

93

100

87

99

1899

115

99

134

120

164

132

117

1900

110

99

151

123

180

145

108

1901

158

144

259

206

267

259

137

1902

162

181

297

256

332

292

171

1903

133

161

259

188

245

236

151

1904

130

170

250

174

214

240

153

1905

186

255

325

214

281

306

176
178

1906

177

305

341

227

289

363

1907

127

245

269

153

190

320

152

1908

125

270

246

150

192

326

142

1909

159

340

358

201

296

445

177

1910

141

331

349

197

243

406

148

1911

140

328

345

178

244

405

137

1890-99

100

100

100

100

100

100

100

1900-09

147

217

276

189

249

293

155

Averages

5. The Prices of Preferred Stocks
Preferred stocks are hybrids—a cross between common stocks and bonds.
Their owners have a legal claim to dividends at a certain rate before the
common shareholders are allowed any return. Often this prior right is cumulative—any deficiency in the preferred dividend for earlier years must be made
good from later profits before dividends can be declared on the common stock.
Average
actual prices,
1890-99
Coal-carrying

railways

Gain in
relative prices,
1890-09

$103.98

223

points

91.92
82.46
41.41
35.58
33.28
27.08

46
60
191
81
301
226

points
points
points
points
points
points

North Atlantic railways
Express, steamship, and telegraph companies
Northwestern railways
M i d d l e western railways
Pacific railways
Southern railways
A table showing
f o u n d in t h e Journal




the relative prices of these various groups of
of Political
Economy,
M a y , 1910, pp. 3 7 7 - 3 7 9 .

*

stocks b y

q u a r t e r s in

1890-1909

may

be

MITCHELL: BUSINESS CYCLES

195

On the other hand, all of the dividends which remain after the prefeiied^ shareholders have received their allotted rate usually go to the common shareholders,
so that the latter may receive a larger dividend than the f o r m e i f u r t h e r ,
the right of voting for directors, and hence tlie control ol me co i <
.
frequently vested in the common shareholders alone. These
the two kinds of stock give rise to differences in their price
therefore, desirable to keep the two kinds separate in an index number o stock.
But it is also desirable to determine the differentiating characte s ^cs °f « «
two sets of fluctuations, and to measure as nearly as may be the varying maigm
^ S Investigation is best based upon the prices of p r e f e r r e d ^
shares in the same corporations; for if preferred *shares areOaken n one e
of companies and common shares in another set the
^
in the financial fortunes of the two sets of companies as well as
the bnsine. factors affecting the two types o stock. Aecordrng* the M o w i n g
tables are made from data concerning the pieieirect ana coi
obtained
ten railways for which the most regular
The titles of these securities are given in Table , an
•
.
Prices in Table 37.73
+ w n tvr>es 0f
The general trend of fluctuation in the;
^
«
stocks has been similar. There are but two instances in wi
*
* o m one year to the next have not been
^
^
and for common stock. Between 1890 and 1891 tiie pieie
slightly, while the common stocks showed no change;' Z ^ Z e T v o ^ s
In
the preferred stocks fell one point, while the common rose thirteen points.
ev ery other case the tvpes rose or fell together.
,
t
of
There are, howeve^ notable
fluctuations. For the first eleven years, indeed, the relax
<*>se together. The maximum difference occurs m 1900
But even during these years of close
^ e m ^

a

^ P rator
.
^ e

characteristic greater stability m P ^ ^ ^ r t h e r the''spread''between
W e r , and again rise higher than preferred F u l t e r ' ^ i g P a l w a v s g r e a ter
the annual averages of the lowest and highest monthly prices is always g
for common stocks.
.
. „ „ .
m u c h wider with the
These differences in degree of rise
f a l l became mu
^
^
great stock market "boom" which began m October l9W.
average relative prices of the common
preferred by margins never less than 59 P ^ ^ " J ^ T ^ e d * by
heyond 100 points. That is, the preferred stocks were mu
the "boom" than common stocks. They rose, indeed, and IOS at a ra e p
a

n

d

.
^Corresponding tables b y quarters for 1890-1909 may be fonnd .n fl .
«
vol. 18, p p . 516-519. Monthly figures are given tn Table 4 4 ,

1910>




Journal of Political Economy,

July,

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

196

in comparison, for example, with the advance in wholesale commodity prices;
but common stocks rose more rapidly still. The greater stability of preferred
stocks, therefore, stands out more clearly in the last eleven years of the table
than in the first eleven years.
TABLE

36

L I S T OF PREFERRED AND COMMON STOCKS INCLUDED IN THE FOLLOWING TABLES, AND THEIR AVERAGE
ACTUAL PRICES,

1890-99
V a l u e of
P r e f e r r e d com
pared with
Common

Average prices, 1 8 9 0 - 9 9
Preferred
stock

Common
stock

$130.00

Chicago, Milwaukee and St. Paul

$79.20

164
133

Chicago and Northwestern

%

152.50

114.60

C l e v e l a n d , Cincinnati, C h i c a g o a n d S t . L o u i s

89.10

47.90

186

Denver and Rio Grande

48.80

14.90

327

41.80

17.50

239

Iowa

32.30

9.20

351

Central

Lake Erie and Western

69.50

18.30

380

Missouri, K a n s a s and Texas

28.14

13.10

215

N o r f o l k and Western

38.30

12.10

317

Wabash

20.10

8.70

231

TABLE

37

RELATIVE PRICES OF PREFERRED AND COMMON STOCKS IN T E N R A I L W A Y S .
A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =

100.

B Y YEARS,

IJOW

Spread

Common

Preferred

1890-1911

Arithmetic means
Average
Common

Year

Preferred

1890

104

106

113

120

9

14

108

113

1891

99

105

109

120

10

15

104

113

Common

P r e f e r r e d Common

Preferred

1892

111

118

119

129

8

11

115

124

1893

81

82

92

96

11

14

87

89

1894

79

77

85

87

6

10

82

82

1895

83

80

92

94

9

14

87

87

1896

81

76

89

86

8

10

85

81

1897

90

84

98

95

8

11

94

90

1898

103

91

112

102

9

11

107

97

1899

125

118

135

134

10

16

130

126

1900

128

134

138

154

10

20

133

144

1901

169

242

186

283

17

41

178

262

1902

186

290

196

320

10

30

191

305

1903

157

223

169

253

12

30

163

238

1904

152

203

161

226

9

23

156

215

1905

177

266

185

291

8

25

181

278
291

1906

175

277

185

306

10

29

180

1907

133

192

143

220

10

28

138

206

1908

125

182

136

208

11

26

130

195

1909

164

267

174

293

10

26

169

280

1910

143

234

153

262

10

28

148

248

1911

134

224

141

242

7

18

138

233

Averages
1890-99

96

94

104

106

9

13

100

100

1900-09

157

228

167

255

11

28

162

241







MITCHELL: BUSINESS CYCLES 217

198

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

The reasons for this greater stability are found in the differences already
pointed out between the rights of preferred and common shareholders. From
the investor's standpoint, the prior right to dividends, often coupled with a
limitation upon the maximum dividend, promises a more regular return upon
purchases of preferred than upon purchases of common stock. On the other
hand, common stock is the speculator's favorite, precisely because it promises
wider oscillations in price, so that speculative operations doubtless enhance the
differences in variableness which investment dealing would establish. Finally,
contests for control usually center upon common stock, either because it alone
carries voting privileges, or because it is cheaper.
Table 38, which gives the dividend record of our ten stocks, shows that the
returns upon preferred shares have, in fact, been more regular than the returns
upon common shares—except, of course, when no dividends at all have been
paid upon the latter.74
It is less easy to explain why common stocks advanced so much more than
preferred stocks between 1900 and 1901, and why they have since retained
most of the lead thus gained. But Table 38 shows that the roads already
paying the fixed rate of dividends on their preferred stocks in 1900 soon thereafter became able to begin or to increase the dividends on their common stocks.
And Table 39, compiled from the statistical reports of the Interstate Commerce Commission, indicates that this course was the rule. Until the year
ending June 30, 1901, the increase in dividends on preferred stocks had been
relatively more rapid; thereafter the dividends on preferred stocks were
approximately stable, while dividends on common stocks were more than
doubled between 1901 and 1907. The more rapid rise of common stocks was
favored also by the improvement in the physical condition of the properties,
the higher earnings, the livelier speculative interest, and the establishment of
communities of interest and purchases for control. These latter factors, not
susceptible of statistical measurement, seem to have been more potent than
investment considerations. For, purely on an investment basis, Table 38 would
hardly justify Northwestern common, for example, in rising between 1900 and
1902 from $162 to $234, while Northwestern preferred was rising from $201
to $254.
74 T h e data h a v e been t a k e n f r o m the " I n v e s t o r ' s S u p p l e m e n t ' ' appended to the annual issues of the
Financial Review, and checked by Moody's
Manual.
The f e w discrepancies between these two sources have been
settled b y reference to the r a i l w a y reports published in the Commercial and Financial
Chronicle.




199

MITCHELL: BUSINESS CYCLES

TABLE

38

DIVIDENDS UPON PREFERRED AND COMMON STOCK DECLARED BY THE T E N R A I L W A Y S LISTED IN TABLE 3 6
B Y YEARS,
C. M. & s t . P .
1890

7

6

5

4

2.75

0

0

0

7

6

5

3

2.50

0

0

0

2

1893

7

6

5

3

0

0

3

0

5

3

2

0

0

0

0

0

0
0

4

1894

7

6

4

1896

7

5.5

5

0

0

2

1895

7

4

5

0

0

0

0

2

0

0

0
0

4

1897

7

5

5

5

1899

7

5

2.50

0

2

0

0

7

5

5

0

2.50

0

0

0

7

5

5

0

4

0

0

0

7

6

5

3

4

0

0

0

3.50

5

0

1.50

0
0

5

1900

5

1901

•

6

1903

7

6

5

7

1902

8

7

5

4

5

0

3

5

4

5

0

3.50

0

0

4

0

7

1904

8

7

7

1906

8

7

5

4

5

7

1905

8

7

5

4

5

0

4

0

5

0

4

0

7

5

4

7

5

4

5

0

2

0

8

7

5

1

5

0

0

0

7

1909

7

8

7

1908

8

7

1907

8

7

5

0

5

0

0

0

wa Central
-A.

L. E. & W .
Comr

Preferred

Common

0

0

Preferred
3

Common
0

Preferred
0

Common
0

Preferred

Common

Preferred

0

0

4

0

0

0

4

0

0

0

3

0

0

0

0

1.50*

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

0

4.75

0

0

1893

0

0

5

0

0

1895

Wabash

N. & W .

M. K . & T.

1892

1894

0

5

1898

1891

Erie

D . & R . G.

0

1892

1890

C. C. C. & St. L.

0

1891

Year

C. & N. W .

1890-1909

0
0

0
0

5
5

0
0

0
0

1896

0

0

5

0

0

0

0

0

1897

0

0

5

0

0

0

1

0

0

0
0
0

1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909

0

0

3.75

0

0

0

3

0

0

3

0

0

0

0

0

4

0

0

0

0

0

4

0

0

0

4

2

0

0

1.50

0

2

0

0

4

0

0

0

0

0

4

0

0

0

4

2.50

0

0

0

4

3

0

0

0

4

3

0

0

0

0

0
0

0
0

0

0

0

0

0
0
0

0
0

0
Plus i Per cent in scrip.




4
3

0
0

0
0

3

0

0

0

4

3.50

3

0

4

0

4

4.50

0

0

5

0

0

3
1
0

0

4

0

4

0

4

0

4

4

0

0

0

4

0

4

4.50

0

0

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

200

TABLE

39

DIVIDENDS UPON PREFERRED AND COMMON STOCKS PAID BY INTERSTATE R A I L W A Y S
B Y YEARS ENDING J U N E 3 0 ,
Actual dividends
Years
ending
J u n e 30

r

A

1891-1907
Relative dividends*
A

Preferred
stock
Millions

Common
stock
Millions

1891

$16.4

$74.8

82

94

1892

17.9

79.7

90

101

Preferred
stock

Common
stock

1893

17.3

83.7

87

106

1894

14.0

81.5

70

103

1895

13.9

71.4

70

90

1896

16.2

71.4

81

90

1897

15.8

71.3

79

90

1898

21.5

74.7

108

94

1899

101

177

132

41.7

115.0

209

145

44.0

• 141.4

221

178

1903

44.5

152.2

223

192

1904

46.2

175.7

232

222

1905

49.1

188.9

246

238

1906

51.6

221.2

259

279

1907

figures,

156

104.4

1902

These

79.9

35.2

1901

nrpfprlTtfn ^ I f S 8 '
preferred and common stocks.

31.1

1900

49.7

258.4

249

326

1 8 9 1 - 1 9 0 0 = 100.
Since 1 9 0 7 the Commission's reports have not segregated the dividends upon
The aggregate sums paid have been as f o l l o w s :
Y e a r ending J u n e 30, 1 9 0 8
$ 3 9 0 . 7 millions
Y e a r ending J u n e 30, 1 9 0 9
3 2 1 . 1 millions
Y e a r ending J u n e 30, 1 9 1 0
4 0 5 . 8 millions

unlike those f o r 1 8 9 0 - 1 9 0 7 , do not include the returns of switching and terminal companies.

In conclusion, it may not be amiss to show what effect is produced by
putting preferred and common shares together in the same index number.
Table 40 gives first the index number of forty common stocks from Table 30;
second the index number of ten preferred stocks from Table 37; and third an
index number of the two sets in combination. The composite series shows a
slightly smaller fall from 1890 to 1896, and a decidedly smaller rise after 1900
than is shown by the series for common stocks alone. Despite the larger number
of securities entering into the composite series, it is less significant than the
index number for forty common stocks, not only because of the mixing of the
two types which the preceding tables show to be different in important respects,
but also because of the double weighting of the ten railways for which both
kinds of stocks are included.




MITCHELL: BUSINESS CYCLES

TABLE

201

40

RELATIVE PRICES OF FORTY COMMON STOCKS AND OF T E N PREFERRED STOCKS IN TRANSPORTATION COMPANIES.
B Y YEARS,

1890-1911

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =

Year

4 0 common
stocks

100.

Arithmetic means
50 common
and preferred
stocks

10 preferred
stocks

1890

121

108

118

1891

113

104

111

1892

123

115

121

1893

93

87

92

1894

82

82

82

1895

85

87

86

1896

77

85

79

1897

84

94

86

1898

94

107

97

1899

128

130

129

1900

134

133

134

1901

211

178

204

1902

250

191

238

1903

201

163

193

1904

192

156

185

1905

250

181

236

1906

267

180

250

1907

204

138

191

1908

201

130

187

1909

277

169

255

1911

248

138

226

Averages
1890-99

100

100

100

1900-09

219

162

207

6 The Prices of Stocks, Bonds, and Commodities
.

The usual method of constructing index numbers by «
actu£ prices
*
*
terminate
in
percentages and averaging the latter •
M i k e staple commodities and standard stocks, all tends«
I
year are constantly changing
net; vatos th.o S
^ ^
tone. The thing valued in the bond is the e ^ t o t ' o n ot
P
payment for a specified number of yeare
t repaym
P
«pal sum at the date of maturity. As this numbei o f y e a * g r o
each passing season, the thing valued
changing. Of
'ere, represent changing prices of
vAieh themM
compared
eonrse, the relative prices of such changing goods <
^
\,r o f
with the relative prices of shares in continuous business enteip
substantially uniform commodities.



c _ o u p l e d

g o o A s

w

202

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

But an approximately accurate series of relative bond prices can be constructed by an indirect method. The preceding tables of bond yields show
for each year the annual payments for which investors have been willing to
lend $100 to certain borrowers under specific agreements as to security, etc.
The principal is fixed, the interest variable. But the conditions may be
reversed and the principal treated as variable, the interest as fixed. That is,
the problem may be stated in the form: How large a loan have investors been
willing to make in each successive year in return for annual payments of some
given amount, such as the average net yields for 1890-99? The problem is
solved by dividing the average net yields for the decade by the average net
yields for each month or year.
For example: In 1890-99 men who bought the bonds of the Chesapeake and
Ohio Railway, secured by a first consolidated mortgage, required net annual
interest payments averaging $4.70 for each $100 invested. But in 1890 they
required $5.09 per annum for each $100 put into these bonds. Had the railway
offered them interest at the rate of $4.70 in this year they would have lent it
a principal sum represented by the equation 100 ($4.70 -^$5.09) = $92.34. In
this fashion one may compute for each month and year the sums which
investors showed themselves ready to lend to each of the railways in return
for fixed interest payments. And these sums may be regarded as the relative
prices of bonds bearing a uniform rate of interest, and having no fixed period
of termination. Further, these relative prices of bonds are fairly comparable
with the relative prices of stocks and commodities computed on the basis of
average actual prices in 1890-99."
Table 41 has been made in this manner to show the relative prices of each
of the ten bonds described in Table 18. While no two of the bonds have agreed
perfectly in their price fluctuations, the notable feature of the table is the
narrowness of the range between the highest and lowest relative prices. It
would be difficult to find ten staple commodities which have kept so close
together in the last twenty years. The ten common and ten preferred stocks
included in the preceding section of this chapter have differed far more in
relative prices than have the ten bonds.
Among the latter, those which have fluctuated through the widest range are,
of course, the bonds which improved most in credit between 1893 and 1902.
The poorest bonds have made the best investments and the best bonds the
poorest. Not only have the poorer securities yielded higher net returns on
their cost prices year by year (Table 19), but they have also been salable on
more advantageous terms—bringing decidedly higher profits until 1902, and
somewhat smaller losses since then. These higher returns, however, have been
obtained by running greater risks.
75 T h e t a b l e s o f t h e r e l a t i v e prices o f b o n d s w e r e computed b y M r s . John Spasoff ( M i s s M a n s f i e l d




Everett).

MITCHELL: BUSINESS CYCLES

203

A comparison between index numbers for bonds, stocks, and commodities is
made in Table 42. The series for United States bonds is made in the manner
described from the net yields shown in Table 20. The first series for stocks
shows the average relative prices of ten stocks which have paid dividends in
each year since 1890.76 The next three series for stocks are adapted from tables
30 and 37, and that for commodities from Table 9. Table 44 carries out the
comparison between the relative prices of bonds and stocks by months.7' It is
preceded by a summary, Table 43, in which the monthly figures are averaged,
as in Table 26, according to the successive phases of the business cycles which
have run their course in America since 1890.
The following are the chief differences shown by these tables between the
fluctuations in the prices of bonds, stocks, and commodities: (1) With the
exception of the erratic series for United States 4s, bonds are steadier in price
than stocks or commodities—showing higher minima in 1890-99 and lower
maxima in 1900-09. (2) Bonds rise, while stocks and commodities fall, in the
periods of depression following the crises of 1893 and 1907. (3) Bonds reach
their highest levels in 1901-02, while common stocks and commodities mount
still higher in 1906, 1907, or 1909. (4) While the level upon which bonds
fluctuate is somewhat higher in the second decade than in the first, there is no
such marked contrast as in the case of stocks. (5) At the end of the period,
bond prices show trifling losses or moderate gains in comparison with 1890,
while all the series for stocks show large gains. Even the index number for
commodities marks a greater advance than the average for bonds.
The greater steadiness of bond prices requires little comment. Dividends vary, interest is fixed. The ten bonds of these tables have paid the same
average return of 4.06 per cent upon their par value every year since 1890,
while the average dividends upon the ten dividend-paying stocks included in
Table 42 have varied as follows:
per

C ent

P e r cent

P e r cent

Per cent

1890

6.45

1895

5.83

1900

5.95

1905

7.00

1891

6.40

1896

5.90

1901

6.30

1906

7.10
7.70

1892

6.53

1897

5.38

1902

6.90

1907

1893

6.50

1898

5.60

1903

6.90

1908

7.63

1894

6.35

1899

5.60

1904

6.90

1909

7.60

„
" T h e common stocks of the Central Railroad of N e w Jersey, Chicago and
N o r t h w
H u d s o n , I l l i n o i s C e n t r a l , N e w Y o r k C e n t r a l . N e w Y o r k , N e w H a v e n a n d H a r t f o r d , and t h e ™ l c a
Company together with the preferred stocks of the Chicago M i l w a u k e e and St. Paul,

e

s

a w i t h

^
a
X
T
i
e
p r i c e s o f t e n r a i l w a y b o n d s in T a b l e 4 1 a r e ;
f g u r e s f o r each of the ten bonds.
A trial showed that s u b s t a n t m l l y t . o j
e r ^ U t s are a t a
^
l n 8 the a v e r a g e y i e l d s o f all t h e b o n d s in 1 8 9 0 - 9 9 b y their average y i e l d f o r ^
^
W®^
c o m p u t a t i o n is f a r less l a b o r i o u s , I h a v e a d o p t e d i t in w o r k i n g out the month!ly 1figures o f l a
discrepancies, p r o d u c e d b y t h i s d i f f e r e n c e in m e t h o d , b e t w e e n t h e figures o f T a b l e 4 1 a n a m e
w n i c h m a y b e s t r u c k f r o m t h e figures o f T a b l e 4 4 are n e g l i g i b l e .

e

^

P

^ s t e m , and Cleveland, Cincinnati, Chicago and St. Louis
Unfortunately the number £
«tocl«
d i v i d e n d records is n o t l a r g e e n o u g h t o p e r m i t t h e c o m p u t a t i o n o f s i g n i f i c a n t a v e r a g e s l o r c o m




t

Q d

c l e a r
d

44.
a y

The

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

204

TABLE

41

RELATIVE PRICES OF T E N AMERICAN R A I L W A Y BONDS.
Arithmetic means.

«
M

P,
U

Averages

UQ

>

f

1890

95.6

94.4

95.6

92.3

92.8

100.1

97.9

97.0

92.2

98.6

94.1

97.2

95.7

1891

94.9

93.5

94.3

92.0

91.0

92.1

96.6

88.9

91.3

96.6

93.1

93.1

93.1

1892

99.6

97.4

99.2

96.9

95.1

95.8

98.3

94.9

96.6

98.1

97.6

96.7

97.2

1893

97.1

94.9

96.4

94.0

92.6

91.8

96.9

96.4

93.9

95.2

95.0

94.8

94.9

1894

97.4

97.4

98.8

98.9

99.4

96.0

101.3

95.5

99.9

98.9

98.4

98.3

98.4

1895

98.8

103.1

101.1

102.4

101.0

97.7

102.2

97.2

104.3

100.2

101.3

100.3

100.8

1896

97.8

99.7

99.4

99.6

99.0

94.4

102.6

99.5

103.8

99.4

99.1

99.9

99.5

1897

99.8

102.6

100.2

104.9

107.6

100.5

99.7

107.5

106.8

102.9

103.0

103.5

103.3

1898

106.3

107.4

105.1

109.6

111.8

111.4

99.9

111.2

106.2

103.7

108.0

106.5

107.3

1899

115.9

113.0

112.0

114.1

115.9

130.6

105.3

118.6

108.8

107.5

114.2

114.2

114.2

1900

117.3

111.5

113.6

114.1

112.6

132.5

109.5

118.0

108.8

107.2

113.8

115.2

114.5

1901

128.4

119.4

117.0

117.5

120.2

133.3

116.9

118.6

110.3

108.1

120.5

117.4

119.0

1902

130.4

121.2

117.2

117.2

120.8

129.5

122.7

121.3

108.2

107.8

121.3

117.9

119.6

1903

120.7

118.8

112.5

112.2

112.6

122.8

116.0

115.1

103.8

103.4

115.4

112.2

113.8

1904

122.2

120.9

115.0

114.1

114.2

121.8

117.9

115.7

105.4

102.9

117.3

112.7

115.0

1905

126.8

123.6

117.0

116.3

121.5

125.6

120.7

118.6

106.5

103.4

121.0

115.0

118.0

1906

123.4

121.8

112.5

114.6

116.0

119.9

114.5

114.8

105.7

100.7

117.6

111.1

114.4

1907

112.8

115.7

103.7

105.6

107.8

111.1

108.4

107.8

99.2

96.4

109.1

104.6

106.9

1908

115.7

118.2

103.1

108.8

110.1

112.2

110.3

108.4

99.9

96.9

111.2

105.5

108.4

1909

121.0

122.4

112.5

113.8

116.6

115.1

114.5

110.0

102.5

98.4

117.3

108.1

112.7

1910

115.7

120.3

107.9

110.6

111.2

111.1

110.8

105.7

99.9

96.6

113.1

104.8

109.0

1911

115.1

119.1

106.0

110.3

111.5

110.3

109.7

105.2

100.2

96.4

112.4

104.4

108.4

1890-99

100.0

100.0

100.0

100.0

101.0

101.0

100.0

101.0

100.0

100.0

100.0

101.0

100.0

1900-09

122.0

119.0

112.0

113.0

115.0

122.0

115.0

115.0

105.0

103.0

116.0

112.0

114.0

W

M

d

o
d

C. St. P
& 0.

O
Q

Year

4

2d five

®

1st five

<y

100

N. Y. C.
St. L.

E
h
<8

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =

1890-1911

Wabash

M

B Y YEARS,

S
d

o

d

£

<

Averages




MITCHELL: BUSINESS CYCLES

TABLE

42

RELATIVE PRICES OF BONDS, STOCKS, AND COMMODITIES.
Arithmetic means.

United States
4s of 1 9 0 7
and 1 9 2 5

1890

114

1891

104

97

1892

99

1893

West
Shore

R. R.
99

B Y YEARS,

A v e r a g e a c t u a l prices in 1 8 9 0 - 9 9 =

Bonds

Year

205

1890-1911

100

Stocks
A v e r a g e of
10 railway
bonds

10 dividend
paying
stocks

Commodities

Common
stocks in 4 0
Preferred
Common
stocks in 10 stocks in 10» transportation
companies
railways
railways

145 staples

104

108

113

121

114

93

100

104

113

113

113

98

97

105

115

124

123

106

91

95

95

96

87

89

93

105

1894

99

99

98

94

82

82

82

96

1895

96

100

101

95

87

87

85

93

1896

88

99

100

92

85

81

77

89

1897

101

103

103

94

94

90

84

89

1898

103

104

107

102

107

97

94

93

1899

112

107

114

118

130

126

128

103

1900

127

107

115

121

133

144

134

111

1901

140

108

119

142

178

262

211

110

1902

140

108

120

157

191

305

250

114

1903

139

103

114

136

163

238

201

114

1904

132

103

115

136

156

215

192

114

1905

138

103

118

158

181

278

250

116

1906

135

101

114

159

180

291

267

122

1907

127

96

107

129

138

206

204

130

1908

113

97

108

126

130

195

201

121

1909

110

98

113

150

169

280

277

124

1910

101*

97

109

142

148

248

254

131

1911

103*

96

108

137

138

233

248

128f

1890-99

100

100

100

100

100

100

100

100

1900-09

130

102

114

141

162

241

219

118

96

Averages

* Computed f r o m average yields of J a n u a r y , April, July, a n d October, as given by the Report
rency, 1911, p. 8 2 3 .
t Estimated.




of the Comptroller

of the

Cur-

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

206

CHART
RELATIVE

PRICES

OF A V E R A G E

A N D OF T H E

23.

OF T E N

AMERICAN

SHORE

WEST

RAILWAY

RAILWAY

BONDS

BONDS .

1890-1910.

AVERAGE o r TEN AMERICAN RAILWAV
WEST SHORE
RAILWAY BONDS

BONDS
130

130

!

120

120

\\

|

110

110
\

N
100

T

-

r/

/

L.

100
-

-

90

90

1890

'91




'92

'93

'94

'95

'96

'97

'38

' 99

1900

'01

' 02

' 03

' 04

'0:5

'0IG

'07

08

09

19110

'II




MITCHELL: BUSINESS CYCLES 227

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

208

TABLE

43

RELATIVE PRICES OF BONDS AND STOCKS IN SEASONS OF BUSINESS PROSPERITY, CRISIS, AND DEPRESSION,
Bonds
A
A v . of 10
railroad
W . S. R . R .
bonds
..
100
97

A v . of 10
preferred
stocks

1890-July,

1890—Prosperity

August, 1890-December,
January, 1891-July,

1 8 9 0 — M i n o r crisis

May, 1893-October,

1895-September,

1896-June,

July, 1897-February,

May,

123

97

97

106

112

116

93

78

80

84

99

98

81

82

81

-

100

102

93

94

91

.

depression

100

101

88

84

82

98

97

79

74

71
77

campaign

102

102

86

83

.

104

105

103

98

93

i m p e n d i n g . . ..

1 8 9 8 — S p a n i s h war

101

104

98

85

87

1899—Prosperity

....

.

106

111

121

113

113

.

107

113

132

127

133

depression..

107

114

131

138

130

.

108

119

180

269

219

p a n i c " . . ..

103

114

162

228

195

.

103

118

177

263

232

.

102

116

182

290

265

98

110

157

242

231

93

101

122

161

166

97

107

124

184

190

98

1900—Slight

112

166

272

269

97

109

143

241

251

October, 1 9 0 0 - 0 c t o b e r , 1902—Prosperity
November, 1902-July, 1 9 0 4 — " R i c h man's
1904-August,

1905—Revival

1905-September,

October, 1 9 0 6 - S e p t e m b e r ,
October,

127

94

1898—Revival

1900-September,

September,

115

1897—Depression

1898-September,

August,

107

96

crisis.

O c t o b e r , 1 8 9 9 - D e c e m b e r , 1 8 9 9 — M i n o r crisis ..
January,

103

depression

J u l y , 1 8 9 6 - O c t o b e r , 1 8 9 6 — F r e e silver

March, 1 8 9 8 - A p r i l ,

100

98

1895—Revival

October, 1 8 9 5 - J u n e , 1 8 9 6 — R e n e w e d

November,

108

93

crisis

November, 1893-March, 1895—Severe
April,

103

97

1893—Approach of

1893—Major

1907-December,

October, 1908-December,

1906—Prosperity

1907—Approach
1907—Major

January, 1908-September,

of

...
crisis.

crisis

1908—Severe

d e p r e s s i o n .-

1909—Revival

January, 1910-December, 1911—Reaction




TABLE

44

RELATIVE PRICES OF BONDS AND STOCKS.

B Y MONTHS,

Bonds

W . S. R . R .

1890-1911

Stocks

K

January

131
115

94

1892—Prosperity

September, 1892-October,

123

A v . of 10
railroad
bonds

A v . of 10
preferred
stocks

A v . of 10
common
stocks

A v . of 4 0
common
stocks

99.9

97.7

113.5

122.5

129.5

100.2

97.0

112.0

115.0

126.0

March

99.9

96.6

107.5

112.5

123.5

April

99.7

97.3

111.5

115.5

127.0

May

99.7

97.3

119.0

136.5

139.0

February

A v . of 4 0
common
stocks

97

1891—Depression

August, 1891-August,

Stocks
A
A v . of 10
common
stocks

113

t

January,

1890-

June

99.9

97.1

111.5

133.0

136.0

July

99.4

96.4

114.0

127.5

132.5

August

98.6

95.4

112.0

121.0

130.0

September

98.6

94.7

111.0

119.5

124.5

October

97.9

94.7

104.0

109.5

November

95.9

92.3

93.5

97.0

104.0

December

94.7

90.9

92.0

93.5

99.0

-

116.0




MITCHELL: BUSINESS CYCLES

TABLE

44—(Continued)
Stocks

Bonds
A

W . S. R. R.
1891 J a n u a r y

209

A.

Av. of 10
railroad
bonds

Av. of 10
preferred
stocks

Av. of 10
common
stocks

Av. of 40
common
stocks

97.1

93.5

99.0

103.5

107.5

97.6

93.8

101.0

104.0

109.0

March

97.1

92.8

96.5

96.0

104.5

April

97.1

93.2

103.0

106.0

110.5

May

96.6

92.6

103.5

108.5

110.5

June

98.5

102.5

105.5

February

95.9

91.6

July

95.4"

91.5

95.5

98.5

102.5

August

95.7*

92.2

101.0

109.5

110.0

September

96.9

93.1

114.0

129.5

124.0

October

95.9

93.6

113.0

134.0

125.0

November

96.2

94.0

107.5

123.0

119.0

December

96.9

95.3

115.5

134.5

125.0

1892 J a n u a r y
February

98.1

96.7

123.0

138.5

128.0

98.4

97.3

124.0

134.5

126.5

March

98.1

97.0

123.5

133.0

125.5

April

98.1

97.4

119.0

130.5

124.5

May

98.9

98.3

115.5

124.0

122.5

June

99.1

98.4

113.5

118.5

120.5

July

98.4

97.7

113.5

119.5

122.5

August

98.4

97.3

114.5

123.0

125.0

September

97.6

96.7

108.5

113.5

118.5

October

97.4

97.0

110.5

118.5

123.0

November

98.1

96.7

108.5

117.5

119.5

December

97.6

96.3

105.0

111.0

115.5

97.1

97.1

108.0

115.0

119.0
114.5

1893 J a n u a r y
February

97.4

98.1

105.0

111.0

March

96.4

97.3

" 99.5

103.5

107.5

April

95.2

97.3

101.0

104.0

109.0
95.0

May

95.0

95.7

89.0

92.0

June

94.5

94.4

82.5

84.0

87.5

July

92.4

91.4

69.5

71.0

76.5

August

90.9

88.9

69.5

71.5

74.5

September

93.1

92.3

77.0

78.0

82.0

October

95.2

93.9

78.0

83.5

85.5

November

97.4

96.5

81.5

85.5

87.0

December

97.6

97.0

81.5

83.0

83.5

97.1

96.3

79.0

80.5

82.0

February

98.1

97.2

80.5

82.5

83.5
87.0

1894 J a n u a r y

March

98.6

98.2

85.5

85.5

April

99.7

99.1

89.0

90.5

89.0

May

98.6

98.9

84.0

84.0

82.0

June

98.6

98.3

78.5

79.5

77.5

97.6

82,0

76.0

75.0

July

98.6




230 MEMOIRS OF THE UNIVERSITY OP CALIFORNIA
TABLE 44—

(Continued)

Bonds

W . S. R. R.
98.9

Stocks

Av. of 10
railroad
bonds

Av. of 10
preferred
stocks

Av. of 10
common
stocks

Av. of 40
common
stocks
81.0

98.1

83.5

84.5

September

99.1

98.8

86.0

88.5

84.0

October

99.7

99.1

79.5

81.0

80.5

November

100.2

99.5

81.5

82.0

80.5

December

99.9

99.0

78.5

77.0

78.0

99.9

98.5

76.5

72.5

74.0

February

99.1

97.2

74.5

71.5

73.0

March

99.9

97.4

75.0

73.0

73.5

April

99.7

98.4

83.0

82.0

80.0

May

99.7

100.5

90.0

93.0

87.5

June

100.2

102.2

93.5

93.5

91.0

July

100.4

102.7

95.5

96.0

93.0

August

101.2

103.4

97.5

98.5

95.0

September

101.5

103.7

98.0

100.0

96.5

October

100.7

102.9

96.5

96.0

93.0

November

101.0

102.1

90.0

89.0

86.0

December

1894

99.7

100.4

82.5

76.5

77.5

August

1895 January

99.9

99.6

81.0

78.5

77.0

February

100.7

101.1

89.0

87.0

83.0

March

100.4

101.1

90.0

82.0

80.5

April

100.4

101.0

91.0

82.5

84.0

May

99.9

101.6

88.5

80.0

79.5

June

100.2

101.3

87.5

82.5

79.5

July

98.4

98.3

79.0

72.5

71.0

August

96.4

95.0

73.0

68.0

65.5

September

97.9

96.5

80.0

76.5

72.5

October

98.1

97.1

82.0

80.5

75.0

November

99.1

100.1

91.0

92.0

84.5

December

100.7

101.1

86.0

85.5

79.5

1896 January

101.2

101.5

87.0

86.0

79.5

February

102.0

102.1

87.5

82.0

76.5

March

101.2

101.9

86.0

84.0

76.5

April

102.6

101.3

80.5

75.5

72.0

May

102.6

101.6

84.5

75.5

72.0

June

103.1

102.6

88.0

82.0

77.0

July

104.6

103.8

92.5

86.5

83.0

August

103.1

104.0

103.5

102.0

93.0

September

102.6

103.8

111.0

109.0

99.5

October

102.6

103.7

104.5

101.0

95.5

November

104.3

104.6

98.0

92.5

90.0

December

104.8

105.8

103.0

97.5

93.5

1897 J a n u a r y

'




MITCHELL: BUSINESS CYCLES
T A B L E 44

—(Continued)
Stocks

Bonds

A

104.3

107.3

Av. of 10
preferred
stocks
106.0

February

104.6

107.9

107.5

March

W. S. R. R.
1898 J a n u a r y

211

Av. of 10
railroad
bonds

Av. of 10
common
stocks
97.5
96.5

Av. of 40
common
stocks
96.0
94.5

103.1

104.9

99.5

87.0

87.5

April

99.7

102.5

96.0

83.0

86.0

May

101.2

105.2

103.0

92.5

92.0

June

102.9

107.0

108.0

97.0

97.5

July

103.7

107.8

107.5

95.5

95.0

August

104.3

108.5

113.0

104.5

98.5

September

104.0

107.8

113.5

102.0

97.5

October

104.3

108.1

106.5

94.0

96.5

November

105.1

109.1

111.5

100.0

97.5

December

106.0

110.2

120.0

111.5

109.0

106.6

112.3

127.0

120.5

121.0

106.9

112.9

129.0

126.0

125.5

1899 J a n u a r y
February
March

107.5

113.0

127.0

123.0

123.5

April

108.1

114.1

129.5

126.0

125.5

May

108.1

115.0

124.5

121.5

124.0

June

109.3

116.0

125.5

120.5

122.0

July

109.6

115.7

131.0

126.5

129.0

August

109.0

115.5

136.5

133.0

136.0

September

106.9

114.5

136.5

132.0

135.5

October

106.9

113.5

134.0

128.5

133.5

November

107.2

113.4

136.5

132.5

137.5

December

105.4

111.0

126.5

121.0

126.5

106.9

112.5

128.0

123.5

128.0

February

108.4

114.1

131.5

128.5

131.0

March

107.5

114.3

135.0

141.0

135.5

April

108.1

115.3

139.0

150.5

140.0

May

106.6

114.4

133.5

143.0

132.0

June

107.5

113.7

128.5

139.0

126.5

July

106.9

113.6

128.0

137.5

128.0

August

106.3

113.6

127.5

138.5

127.5

September

106.9

114.0

125.5

137.0

122.0

1900 January

October

106.9

113.8

129.0

145.5

131.5

November

107.2

115.3

137.0

160.5

143.5

December

108.4

116.9

150.0

188.0

159.5

109.0

117.7

159.5

202.5

169.0

February

109.6

119.1

165.5

217.0

177.5

March

110.0

120.2

173.0

243.0

192.5

April

109.0

119.6

182.0

269.0

212.5

May

107.8

119.1

172.0

257.5

204.0
228.5

1901 J a n u a r y

June

107.8

119.2

188.0

286.5

July

107.2

118.6

181.5

267.0

215.5

August

107.8

118.3

180.0

271.0

218.0

212




MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE 44—

(Continued)

Bonds

Stocks

A

r

A

Av. of 10
railroad
bonds

Av. of 10
preferred
stocks

Av. of 10
common
stocks

107.5

118.0

182.0

282.5

Av. of 40
common
stocks
223.5

106.9

118.3

180.5

280.0

222.0

November

106.9

119.1

185.5

293.0

233.0

December

107.5

119.2

183.5

280.0

228.5

W . S. R. R.
1901 S e p t e m b e r
October

107.5

119.9

184.5

285.5

232.0

February

107.2

120.2

188.5

293.0

237.5

March

107.5

120.5

188.5

296.0

238.5

April

107.5

321.2

192.5

304.5

248.5

May

108.1

121.2

197.0

299.0

248.5

June

108.4

120.7

200.5

303.5

253.0

July

109.0

120.4

197.5

313.0

258.5

August

108.7

119.4

203.5

331.0

271.5

September

108.4

118.8

199.0

334.0

273.5

October

107.5

118.2

191.5

317.5

259.0

November

106.9

118.1

188.0

298.0

246.5

December

106.0

117.1

184.5

281.0

237.0

1902 J a n u a r y

1903 J a n u a r y

105.4

117.3

187.5

307.5

251.5

February

105.7

117.2

188.5

303.5

249.5

March

105.1

115.5

186.5

282.0

233.5

April

103.7

114.3

179.0

265.0

220.0

May

103.7

114.9

173.0

260.0

213.0

June

103.7

113.5

168.5

228.5

193.5

July

102.9

112.4

154.5

218.0

184.5

August

102.9

110.9

152.0

204.0

175.0

September

102.9

111.1

148.5

198.0

171.5

October

101.5

112.7

141.5

191.5

166.5

November

101.5

113.4

146.5

191.5

168.0

December

102.3

113.4

152.0

205.0

179.0

1904 J a n u a r y

102.9

113.9

156.0

205.5

184.0

February

103.4

113.6

147.0

194.0

175.0

March

102.6

113.1

148.5

192.5

171.0

April

102.0

113.8

152.0

196.5

172.5

May

102.3

114.1

147.5

187.0

165.5

June

102.3

114.3

143.5

183.5

167.5

July

102.9

115.7

155.5

195.0

177.5

August

102.9

115.9

156.5

210.5

190.5

September

102.9

116.0

162.0

230.0

203.0

October

103.1

116.6

169.0

250.0

217.5

November

103.1

117.0

176.5

267.5

229.5

December

103.4

117.2

178.0

266.0

230.5

103.7

117.8

181.0

274.5

236.5

February

104.0

118.3

185.0

284.0

247.5

March

103.4

118.2

186.0

290.0

253.5

1905 January

MITCHELL: BUSINESS CYCLES
TABLE

1905 April

44—(Continued)
Stocks

Bonds

r

W . S. R. R.
103.4

213

A

Av. of 10
railroad
bonds
118.2

Av. of 10
preferred
stocks

Av. of 10
common
stocks

181.0

277.0

Av. of 40
common
stocks
245.0

118.0

174.0

256.5

230.5

May

102.9

June

103.1

118.0

177.5

258.0

232.5

July

103.7

118.3

182.0

270.0

243.5

August

104.0

118.6

188.5

283.5

256.0

September

103.7

118.1

184.0

286.5

259.0

October

103.7

117.9

187.5

285.5

261.5

November

102.9

117.8

180.5

284.0

261.5

December

102.3

117.0

188.0

290.5

266.5

103.1

117.2

187.0

311.5

279.5

102.3

116.7

186.0

304.5

271.5

1906 J a n u a r y
February
March

101.8

115.7

185.5

295.0

264.5

April

101.2

115.1

180.5

288.0

261.0
254.5

May

100.7

114.7

176.5

278.0

June

101.0

114.3

184.0

282.0

259.0

July

100.7

114.1

179.0

274.0

253.0
272.0

August

99.9

113.5

173.5

295.0

September

99.7

113.1

177.0

295.5

278.5

October

99.9

113.4

184.0

291.0

274.5

November

99.7

113.3

184.0

291.5

270.5

December

99.7

112.6

173.5

290.5

270.0

99.4

112.5

171.5

270.0

256.5

February

99.4

111.9

164.0

256.5

243.0

1907 J a n u a r y

March

97.4

109.5

147.5

225.5

218.0

April

97.9

109.1

144.5

220.5

216.5

May

97.9

109.2

142.5

209.5

206.5

June

98.1

107.9

153.0

213.5

205.0

July

97.1

107.9

149.5

224.5

215.0

August

95.9

106.7

147.5

208.0

197.0

September

95.4

105.6

123.0

205.0

197.0

October

94.5

103.3

126.0

169.5

171.5

152.5

159.0

November

1908




90.9

99.5

117.5

December

92.9

101.6

123.5

161.5

167.0

January

95.9

105.8

124.5

166.5

174.5

February

96.4

106.4

102.5

152.0

159.5

March

95.4

105.6

120.5

158.0

170.0

April

95.4

106.8

119.5

171.0

181.0

May

95.7

108.0

119.0

191.5

198.5

June

97.4

107.6

125.5

200.5

199.5

July

97.6

107.7

133.5

208.0

206.0

August

97.6

109.2

135.0

204.5

211.5

September

97.6

109.7

134.0

203.0

212.5

October

97.4

110.3

138.5

211.5

217.0
238.0
252.0

November

97.4

111.3

149.0

238.0

December

97.9

112.1

160.5

259.5




234 MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE

44—(Concluded)
Stocks

Bonds
t

A

Av. of 10
common
stocks

269.0

259.0

Av. of 10
preferred
stocks
164.5

Av. of 10
common
stocks

January

98.9

Av. of 10
railroad
bonds
113.2

February

99.4

113.7

156.0

262.5

253.0

March

98.9

113.6

161.5

262.0

257.5

April

98.9

113.5

172.5

279.0

272.0

May

98.6

113.6

168.5

282.0

278.0

June

97.9

112.9

173.0

284.5

283.5

July

98.1

113.0

173.0

285.0

281.0

August

98.1

112.9

181.0

289.5

285.0

September

97.4

112.2

169.5

281.5

282.0

October

98.1

111.9

174.5

301.5

289.5

November

98.6

111.2

178.5

283.5

288.5

December

97.6

111.2

172.0

295.5

295.5

January

97.1

111.1

167.7

284.3

280.0

February

97.1

110.8

156.2

262.8

263.5

March

96.4

110.0

160.8

278.2

278.5

April

96.2

109.2

156.6

266.5

265.5

May

95.9

108.4

154.0

260.0

262.0

June

96.9

107.9

146.0

237.8

249.0

July

96.2

107.4

136.8

217.4

232.5

August

96.6

107.6

138.9

227.4

239.0

September

96.9

109.2

150.5

229.7

238.5

October

96.9

109.5

145.5

242.9

256.5

November

96.6

108.9

120.4

238.5

254.5

December

96.6

108.7

140.7

242.6

249.0

January

96.9

109.1

141.2

254.3

254.0

February

96.4

109.0

156.5

243.6

258.5

March

96.4

108.5

153.2

255.9

258.0

April

96.2

108.6

158.3

234.7

254.5

May

96.6

108.9

145.8

238.7

256.0

June

96.6

108.9

144.9

248.0

265.0

July

96.6

108.8

142.0

244.5

260.0

August

95.9

108.7

136.6

227.4

247.0

September

95.7

108.2

132.3

215.8

233.0

October

95.9

107.5

134.5

222.4

239.0

November

96.2

108.0

120.7

229.2

245.5

December

96.6

110.1

126.0

233.1

246.0

w. S. R. R.

MITCHELL: BUSINESS CYCLES

215

Moreover, the owners of many high-priced stocks have derived a considerable irregular gain in addition to dividends from the privileges accorded them
from time to time of subscribing for new issues of stock on highly profitable
terms.78 Upon the other stocks included in the table dividends, when paid at
all, have been much more variable. Even among the ten preferred stocks only
three have yielded dividends every year.70 The general situation is best shown
by Table 45, which compares the amounts per mile of line paid by the interstate
railways as interest upon funded debt, and as dividends.80 The broad differences between the relatively stable interest payments and the highly variable
dividend disbursements go far toward accounting for the differences between
the courses pursued by the prices of bonds and stocks.
On a purely investment basis, therefore, stocks should fluctuate more
violently than bonds. In addition, considerations other than those of an
investor intent upon income and safety are a more potent factor in the stock
than in the bond market. Speculation, manipulation, contests for control, etc.
—all the transactions which produce fluctuations not warranted by changes
in the incomes yielded by securities—are primarily phenomena of the stock
exchange, and touch the bond market but indirectly. In proportion as stocks
become firmly established as 41'dividend-payers," however, their prices come
increasingly under the control of investment considerations and approximate
more closely the steadiness of bond prices. It is partly for this reason that
Preferred stocks fluctuate less than common stocks, and mainly for this reason
that the ten dividend-paying stocks in Table 42 fluctuate less than the ten
preferred.
The failure of bonds to match stocks in attaining a much higher level ot
Prices in the second decade is a particular aspect of the general difference in
stability, which merits especial attention. The salient facts upon which an
explanation must proceed are brought out by Table 45.
The fiscal years 1893-97 were disastrous to American railways. The table
shows the loss of nearly half the net income of 1892, the cutting of dividends
and the slow reduction* of interest charges. Common stocks bore the brunt of
these bad years and fell heavily in price. Preferred stocks, though less
affected than common, fell more than commodities at wholesale Even the
strongest dividend-paving stocks dropped from 105 in 1892 to 92 in 189b
But bonds, while falling during the crisis, promptly rose during the years oi
depression to prices higher than had prevailed in the prosperous months ot
r

^

^

T

T

.

W.

Mitchell, " S t o c k h o l d e r s '

Economics (February, 1905).

Profits f r o m P r i v i l e g e d S u b s c r i p t i o n s / ' Quarterly

79 See Table 38
*
. 8 0 Compiled from the statistical reports of the Interstate Commerce ^ ^ J ^ g S ^
P'an of accounting impair somewhat comparisons between the.data for m a o a e » n J ^ 8 ^ ^
the commission's report for 1908 states that the " m a i n figuresi of the . n c o m e a
<P- 86). I have rearranged the figures for the last two years to make them correspona
w >th those for 1890-1907.
81

A n n u a l a v e r a g e s of r e l a t i v e prices.




See T a b l e 42.

Journal

of

* th
iS'SC'year.*
comparable
a r e
^
^

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

216

TABLE

45

ACTUAL AND RELATIVE N E T INCOME, DIVIDENDS, AND INTEREST ON FUNDED DEBT OP THE INTERSTATE R A I L W A Y S ,
PER MILE OF L I N E .

B Y YEARS ENDING J U N E 3 0 ,

1890-1909

Relative amounts
A v . actual amounts 1 8 9 0 - 9 9 =

Actual amounts

r

Years ending
J u n e 30
1890

Interest on
f u n d e d debt

Dividends

Net income

$1,416

$574

$651

1891

1,361

598

682

97

1892

1,478

628

714

106

113

121

1893

1,474

606

654

105

109

111

1894

1,439

578

317

103

105

54

1895

1,420

484

316

102

87

54

1896

1,371

484

492

98

87

83

1897

1,352

477

444

97

86

75

1898

1,333

521

760

95

94

129

1899

1,339

592

875

96

107

148

1900

1,313

725

1,180

94

131

200

96

145

100

209

Interest on
f u n d e d debt D i v i d e n d s Net income
101

104

110

108

115

1901

1,340

802

1,235

1902

1,371

926

1,400

98

167

237

1903

1,383

960

1,443

99

173

244

1904

1,403

1,046

1,313

100

189

222

1905-

1,431

1,097

1,507

102

198

255

1906

1,451

1,227

1,732

104

221

293

1907

1,513

1,355

1,976

108

245

335

1908

1,616

1,718

1,729

116

310

293

1909

1,639

1,377

1,696

117

248

287

Averages
1890-99

1,398

554

591

100

100

100

1900-09

1,446

1,123

1,521

103

203

258

1891-92. For investors, frightened by the panic and discouraged by hard times,
were in a mood to value more highly than before the relative security of
bonds. And this willingness to pay higher prices for relative security more
than offset the increased risk which attached to the bonds themselves, owing to
the weakened position of railway finances.
With the return of prosperity in the summer of 1897 the whole situation
changed. The net income of railways was more than trebled between the years
ending June 30, 1897 and 1902. Dividends were raised on the stocks which
had paid them regularly in the worst of years; dividends were renewed on
other stocks, and dividends were gradually begun on many issues which had
never paid a dollar. But the railway directors did not distribute all of their
increased profits among stockholders. They carried liberal sums over to restore
surpluses impaired by the period of hard times, and devoted part of their
earnings to bettering the physical condition of their properties which had run
down. At the same time they took advantage of the improvement in their







MITCHELL: BUSINESS CYCLES 237

218

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

credit and of the favorable rates of interest to sell new issues of bonds, and
spent the proceeds largely in increasing their equipment. The result of this
policy was to enhance the capacity of the railways for handling traffic and to
reduce the cost per unit. Increased profits abundantly rewarded these efforts.
Even after reduction to a mileage basis, the net incomes of the railways from
1901-09 were never less than double the average net incomes of 1890-99.
Just as common stocks were most affected by the years of depression, so
they were most affected by the years of prosperity. The profits of the railways
doubled, and so did the prices of common stocks—though the increase of dividends was less rapid than the increase of net income. But preferred stocks,
most of which confer but a limited right to participate in increased dividends,
rose considerably less than common stocks. Yet more moderate was the rise
of the few stocks which had paid dividends even in the middle nineties. Most
moderate of all was the rise of bonds. The increased financial strength of the
railways gave the holders of bonds secured by prior liens a wider margin of
safety, and therefore advanced the price of bonds to a somewhat higher level.
But the bondholders made no other gains. On the contrary, the alluring prospects of profits in the rising stock market tempted bondholders to convert their
bonds into stocks. Further, the keen competition among borrowing corporations gave investors an opportunity to exact better terms, and the increasing
cost of living spurred them to make the most of their opportunity. Hence
the marked contrast between the relative prices of bonds and of stocks in
1900-09.
Another difference between the relative prices of bonds and stocks which
requires comment is their course in periods of prosperity, crisis, and depression.
Table 43 shows the facts succinctly.
From the standpoint of profit and loss upon resale, bonds have been the
better investments in periods of crisis and depression, and stocks in periods
of revival and prosperity. Barring the peculiar series for United States 4s,
the tables show no exception to the statements that bonds fall less than stocks
during crises, and rise less during prosperity.82 But the common statement
that during periods of depression bonds rise while stocks fall requires qualification. Bonds did not rise during the dull months January-July, 1891, and
stocks did rise during the dull months January-September, 1908. The truth
is that stocks, like all goods for which we have detailed data, react from the
extremely low points touched during a severe crisis. But, if the crisis is
succeeded by a long period of depression, stock prices sag again, and may, as
in 1895, 1896, and 1897, touch lower figures than those of the crisis itselfBonds, on the contrary, rise during a long period of depression, unless circumss A n a p p a r e n t a n o m a l y in T a b l e 4 3 is t h a t t h e a v e r a g e prices of all classes of s e c u r i t i e s s t a n d h i g h e r in
the m i n o r c r i s i s o f O c t o b e r t o D e c e m b e r , 1 8 9 9 , t h a n in the p r e c e d i n g period of p r o s p e r i t y
But the m o n t h l y
figures of T a b l e 4 4 s h o w t h a t there, w a s a decline during t h e period of stress f r o m t h e level a t t a i n e d t o w a r d
t h e close of t h e prosperous m o n t h s .




MITCHELL: BUSINESS CYCLES

219

stances are such as to cast doubt upon the ability of corporations to pay their
interest coupons. Low grade bonds affected by such doubts fall at the same
time that high grade bonds are rising. But Table 41 shows that in 1894 and
again in 1908 only one bond in the present list fell below its average price
during the preceding year of crisis—the bond of the Chicago, Milwaukee and
St. Paul in the first case and of the Wabash in the second. Further, a comparison between tables 41 and 19 shows that the bonds in highest credit rose
less in price during these years of depression than several of the other securities. Investors who had been frightened out of the stock market did not
insist upon having the very best of bonds; but sought rather for issues which
appeared safe, and at the same time yielded y 4 -y 2 per cent more upon the
investment than did the bonds guaranteed by the New York Central.
In brief, bonds are more stable in price than commodities, commodities
more stable than dividend-paying stocks, the latter more stable than preferred
stocks, while common stocks are most variable of all. Further, bond prices
differ strikingly from stock and commodity prices in rising during periods of
business depression, and sometimes falling in periods of business prosperity.
7. International Comparisons
Unfortunately, no statistics of the prices of securities in other countries
have been published which are comparable in form with the preceding tables.
The usual practice in treating the course of the stock market is to quote the
Prices of securities selected at random for certain dates, or to give the total
Prices of a long list of bonds and stocks lumped together. Such material may
serve other purposes passably; but it is obviously of little value for determining the relations between the price fluctuations of securities and commodities. True index numbers of stocks and bonds are needed, but they have not
been provided.83
Our international comparisons must therefore be confined to the relative
Prices of the few foreign bonds for which interest yields have already been
Presented.84 The relative prices of these securities and of their best American
counterparts are shown in Table 46.
In respect to the price fluctuations which the bonds have undergone irom
year to vear, the three European series are rather like each other and decidedly
different from the American series. The year 1891 was one of "undigested
securities" in Europe, not unlike 1903-04 in the United States. A vast mass
7 r ^ T k n o w n of the foreign series is that
p
^
^
^
total market value of over 300 securities at the quotations of the end ot each montn ^w
These figures are conveniently s . m n n a r i z e d f o r t h e y e a r ^ ^
«« the Investments of Offices in Recent Years with notes on Stock Exchange iroctu
Rate of I n t e r e s t , " Journal of the Institute of Actuaries, vol. 42 pp. 294-320
T h e list o
n
^ s been changed several times during this period. A somewhat ^ ^
nearly every year by Raffalovich in Le marche financier, see, for example, 1909 10, p. <2Di.
8 4 See Chapter I V , iii, 4, above.
t




Review
P u t u r e

included
blished
P

220

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE

46

RELATIVE PRICES OF BONDS OF THE W E S T SHORE RAILROAD AND OF THE AMERICAN, BRITISH, FRENCH, AND GERMAN




GOVERNMENTS.

Year
1890

United States
A
U . S. 4s of
W e s t Shore
1 9 0 7 and 1925
R. R .
114
99

B Y YEARS,

1890-1909

Great Britain,
Consols
2 % and 2 M
s
per cent

France,
Rentes
3 per cent

Germany,
Imperial
3 per cent

93

92

95

1891

104

97

93

95

93

1892

99

98

94

98

94

1893

91

95

95

98

94

1894

99

99

98

101

99

1895

96

100

103

103

108

1896

88

99

107

103

109

1897

101

103

109

105

107

1898

103

104

107

104

104

1899

112

107

104

102

99

1900

127

107

97

102

95

1901

140

108

91

102

98

1902

140

108

92

102

101

1903

139

103

95

99

100

1904

132

103

94

98

99

1905

138

103

96

100

99

1906

135

101

94

99

96

1907

127

96

90

96

92

1908

113

97

92

97

91

1909

110

98

90

98

93

1890-99

100

100

100

100

100

1900-09

130

102

93

99

96

Averages

MITCHELL: BUSINESS CYCLES

221

of stocks and bonds, which European investors had bought during the hopeful
years 1888-90 from promoters and underwriters at home and abroad, weighed
heavily upon the market after the disaster of Barings in November, 1890. To
protect these doubtful holdings many overloaded firms and individuals were
forced to sell their gilt-edged securities, not only in London and Berlin, but
also in New York. Hence the decline in the price of bonds shown by Table 46
in 1891. Rentes escaped the decline, because French investors, sobered by the
collapse of the copper ring, the Comptoir d'Escompte, and the Panama Canal
Company early in 1889, had taken less share in speculative ventures.
During the dull years which followed European investors became as timid
as they had been bold, and sought security above all things. The result was a
fairly steadv rise of high grade b o n d s in England, France, and Germany until
1896 or 1897. In America the course of affairs was very different, because
of the panic of 1893 and the agitation for free coinage of silver—disturbing
factors of which Europe felt but a moderate reflex influence.
After the depression business activity began to revive somewhat earlier on
the other side of the Atlantic—in 1896 or even in 1895, instead of in the summer
of 1897. Confidence returned with prosperity and investors began to show
preference for securities which promised higher returns than government
bonds. Hence the latter declined in price and their net yields rose gradually
until 1900-01. But American investors, with the panic of 1893 and the setback
of 1896 still fresh in mind, kept on buying high grade bonds freely until
1901-02.
The crisis of 1900 was more serious in Europe than here. It again disposed investors to seek safety, and bond prices turned upward—vigorously in
Germany, where the crisis was most severe, mildly in France and England.
The highest points reached, however, were much below the records of 1896-97.
The movements of 1903-05 were irregular and slight—save that United States
4s declined heavily in 1904. But after 1905 the renewed prosperity brought
renewed neglect of bonds, and prices fell rapidly until 1907. This time the
American trend harmonized with the European. The difficulties experienced
in financing large enterprises in New York had their counterparts in London,
Paris, and Berlin. After the crisis, bond prices rose again; but the yearly
averages for United States and German bonds were less m 1908 than m 1WL
In the last year the French, German, and West Shore bonds rose slightly, while
consols and United States 4s fell.
, . ...
,
The chief differences between the trend of the bond market in this country
and abroad, then, are the interruption of the rise of prices in America by the
Panic of 1893 and by the free-silver campaign of 1896, and the rise of American
bonds in 1897-1901, while the European bonds were falling. I his rise oi
American bonds under conditions of marked prosperity, such as usually
dispose investors to seek investments of a more lucrative character, is the most




222

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

surprising result of the whole investigation. So far as United States 4s are
concerned, the settlement of all doubts about the medium in which the obligations would be paid, and the increasing demand for bonds as a basis of nationalbank circulation, provide an adequate explanation. The Gold Standard Act
may also have improved the rating of the West Shore bonds, which are not
expressly payable in gold; but it will be recalled that these bonds were not
greatly affected by the free-silver agitation, save in the summer of 1896. More
influence was exercised by the notable increase in the financial strength of
American railways, to which attention has been called. Directly, the West
Shore bonds were less affected by this factor than the issues of "roads which
had been in straits during the years of depression. But an increase in the
prices of so large a group of securities as the bonds of other railways must
have reacted upon the price of any single issue; for the prices of all high grade
bonds are intimately related to each other through the tie of substitution goods.




CHAPTER V

THE

VOLUME

OF

BUSINESS

I . T H E P H Y S I C A L AND THE PECUNIARY V O L U M E OF BUSINESS

From the viewpoint of economic welfare, changes in the volume of goods
provided f o r a people's use are the most important features of business cycles.
Depression is misfortune because it increases the number of families which
cannot get sufficient food, clothing, and shelter, and because it prevents many
families above the poverty line from getting certain of the good things in life
to which they have been accustomed. The fluctuations of prices are relatively
artificial matters, which acquire significance only because they react upon the
process of providing goods for gratifying wants.
But Chapter I I shows that in attempting to account for business cycles we
cannot keep steadilv to the consideration of economic welfare. For where
money economy prevails there economic activity is animated and guided by
the prospects of winning pecuniary profits. To understand the rhythmical
alternations of expansion and contraction to which this activity is subject we
must therefore look at affairs from the business viewpoint. And from this
viewpoint, changes in the volume of goods made available for use are by no
means the most important phenomena of prosperity, crisis, and depression
On the contrary, they count merely as one of the factors affecting present and
Prospective profits, and stand on the same level as the fluctuations m prices
which were treated in the preceding chapter.
In analyzing the factors on which prosperity depends, prices and volume
of business can be segregated only by making volume of business mean tons
of pig-iron, bales of cotton, bushels of wheat, gallons of petroleum, and the like.
To the man on the street, however, volume of business means pecuniary quite
a s often as physical volume.
A department store reckons the increase in the
size of its trade not bv the yards of cloth, pairs of shoes, and number of frymgPans it sells in successive years, but by its aggregate sales in dollars and cents.
Thus, like most of the terms which economics borrows from work-a-day life,
volume of business is ambiguous.
,
In theoretical discussions, the aim is usually to select some one among the
several current meanings of such a term, erect it into an -economic concept,




[ 223 ]

224

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

and use the word only in this technical sense. But in the present case we face
a special difficulty. Among the chief indices of the volume of business are
several which have no other than a pecuniary meaning—for example, bank
clearings, gross receipts of railways, and domestic bills of exchange. We cannot dispense with these measures, because those expressed in physical terms
are too scanty. And if we could dispense with them, we should miss the
interesting facts which may be learned by comparing changes in the physical
with changes in the pecuniary volume of trade.
Accordingly, the phrase must be allowed to keep both of its current meanings, and both sets of facts which it covers must be investigated. Misunderstandings may be prevented by using one of the two explanatory adjectives
wherever the context does not show whether pecuniary or physical quantities
are meant.
I I . T H E MOVEMENT OF THE POPULATION

Changes in the physical volume of business from one phase to the next
within a business cycle are but slightly affected by changes in the number of
hands capable of work or in the number of mouths needing to be filled. The
best official estimates of the numbers of Americans,7 English,' French, and
O
n
Germans indicate that the rate of increase is not much faster in periods ot
prosperity than in periods of depression.
Table 4 7 shows that in 1 8 9 0 - 1 9 0 9 the United States grew faster in p o p u l a t i o n
than did Germany, and Germany faster than England, while France grew but
little. These differences help to account for the fact, b r o u g h t out by s u b s e q u e n t
tables, that during these twenty years the physical volume of business increased
faster in America than in Germany, faster in Germany than England, and
faster in England than in France. But it is only in periods which can be
reckoned by decades that the population factor assumes great p r o m i n e n c e .
Even when we turn to birth-rates and death-rates, we find it difficult to
establish a close correlation between them and the condition of business. There
are no comprehensive American data on the subject, but the excellent foreign
figures point to a similarity of conditions among nations of western culture.
Germany has both a higher birth-rate and a higher death-rate than her neighbors; but in all three countries both the birth- and death-rates have d e c l i n e d
during the twenty years. This decline is the notable feature of Table 48.
Refined methods of analysis covering a longer period might establish a c o n n e c tion between the varying pace of the decline and business cycles; but certainly
the present figures have no such connection plainly stamped upon their face, a s
have the figures for prices with which we" have been dealing.1 The marriage
i T u g a n - B a r a n o w s k y , Handelskrisen
in England,
p p . 2 9 2 - 3 , shows that the influence o f crises upon the vital
s t a t i s t i c s o f E n g l a n d w a s g r e a t e r in t h e s e c o n d t h a n in t h e f o u r t h q u a r t e r o f t h e n i n e t e e n t h ccntury*
a s c r i b e s t h e c h a n g e t o an i m p r o v e m e n t in t h e e c o n o m i c c o n d i t i o n of the w a g e - e a r n e r s .




225

MITCHELL: BUSINESS CYCLES

rate, 011 the contrary, does vary with the condition of business. It declines in
the middle nineties when times were bad, rises with the return of prosperity
in the later nineties, dips again in the dull years 1902-04, and rises once more
between 1904 and 1906 or 1907. Further, there is slight change in the decennial
averages from 1890-99 to 1900-09.2 But since these variations in the marriage
rate are not followed by corresponding variations in the birth-rate, they possess
little significance for the growth of population.
The one factor of change in population which is clearly and closely connected with changes in business conditions is immigration and emigration.
Immigration into the United States lias shown a marked increase from one
decade to the next; but this growth is exceedingly unsteady. In prosperous

TABLE

47

POPULATION OF THE UNITED STATES, ENGLAND, FRANCE, AND GERMANY
B Y YEARS,

1890-1910

Actual figures
I n millions a n d tenths of millions
United
States

Year

62.9

1890
1891

63.8

Relative figures
A v e r a g e actual p o p u l a t i o n 1 8 9 0 - 9 9 =
United
States

France

Germany

28.8

38.4

49.2

92

95

99

38.4

49.8

93

96

99

96

97

100

97

98

100

98

99

100

99

29.1

1892

65.1

29.4

38.4

50.3

1893

66.3

29.8

38.4

50.8

97

67.6

1895

68.9

1896

70.3

1897

71.6

30.1

38.4

51.3

99

Germany
95

30.5

38.5

52.0

101

101

100

30.8

38.5

52.8

103

102

100

102

38.6

53.6

105

103

100

103

104

100

105

105

101

106
108

31.2

1898

72.9

31.5

38.8

54.4

1899

74.3

31.9

38.9

55.2

109

76.3

France

100

107

1900

100

England
and Wales

95

1894

England
and W a l e s

32.2

38.9

56.0

112

106

101

56.9

114

108

101

110

116

109

101

111

1901

77.6

32.6

39.0

1902

79.2

33.0

39.1

57.8

1903

80.8

33.3

39.1

58.6

118

110

101

113

111

102

115

1904

82.5

33.6

39.2

59.5

121

1905

84.1

34.0

39.2

60.3

123

112

102

116

102

118

34.3

39.3

61.2

125

87.3

34.7

39.3*

62.0

128

114

102

119

88.9

1906

113

35.1

121

85.7

1907
1908

39.4*

62.9

130

116

102

133

117

102

123

135

118

103

124

103

126

1909

90.6

35.4

39.4*

63.7

1910

92.2

35.8

39.5*

64.6

93.8

36.2

39.5*

65.4

137

68.34

30.31

38.53

51.94

100

100

100

100

33.82

112

102

115

83.30

1911

119

Averages
1890-99
1900-09
* Provisional
•—
I

39.19

59.89

122

figures.

Compiled from the OtOUOlllOl O U O H O H O VI the several countries.
statistical abstracts of
^

^

r

i

S e Of t h e

a

g

e

r a t e t e n d s t o rise, w h e r e t h e decline in b o t h birth- a n d death-rates is raising t h e

population




average

M E M O I R S OF T H E U N I V E R S I T Y OP C A L I F O R N I A

226

CHART
RELATIVE

27.

POPULATION OF THE UNITED STATES , ENGLAND , FRANCE: , AND GERMANY.
1890 - 1910
140

— — • —
130

United S t a t e s .
England.
France.
Germany

130

120

120

- -

* *
* * *

110

110

100

100

90

90

1890 '91

'92

'93

'34

'95

'96

'97

'98

'99

1900

0i

'o:2

'03

' 04

' 05

' 06

'0'7

'01B

0<3

1910

years the increase is very rapid; in bad years there comes not a slackening of
the increase, but a heavy decrease. A year or two is required, however, for a
change in business conditions to develop its full influence upon immigration.
Emigration from the United Kingdom follows in general the same course as
immigration into the United States. It seems to depend less on business
conditions at home than on business conditions abroad. Hard tunes and
unemployment in Britain do not drive people abroad so much as good times
and full employment elsewhere attract them, or enable their friends who have
gone before to send back passage money. In Germanv, on the contrary, c o n d i iom f ? . ^ a p p e a i ' t 0 b e t h e f a c t o r o f l a t e s t weight. The dull times after
1890 led to an increase in emigration; and the return of prosperitv led to a
decrease. The dull times following the crisis of 1901-02 were followed by
another increase, and the return of prosperity by a further decrease But
the most striking fact about the German figures is the decline in the level of
fluctuations since the early nineties. The rapid development of the country's
industries which began in 1895 has provided work at home for everv one who
sought it in the years of prosperity, and the vears of depression have been
neither very severe nor numerous. Finally, the French figures for emigration
possess little significance beyond showing that the French prefer to stay at



MITCHELL: BUSINESS CYCLES

TABLE

227

48

BIRTH RATES, DEATH RATES, AND MARRIAGE RATES OF ENGLAND, FRANCE, AND GERMANY
B Y YEARS,
Number of births per hundred
of the population

1890-1909

Number of deaths per hundred
of the population
A

Number of \
persons married per
i.ihundred <
A
England
(t) ^
and Wales
France
Germany
1.55
1.40
1.60

1890

England
and Wales
3.02

France

Germany

England
and Wales

France

2.18

3.57

1.95

2.28

2.44

1891

3.14

2.26

3.70

2.02

2.29

2.34

1.56

1.49

1892

3.04

2.23

3.57

1.90

2.28

2.41

1.54

1.51

1.58

1893

3.07

2.28

3.67

1.92

2.25

2.46

1.47

1.49

1.58

Year

Germany

1.60

1894

2.96

2.23

3.59

1.66

2.12

2.23

1.50

1.49

1.58

1895

3.03

2.17

3.61

1.87

2.22

2.21

1.50

1.47

1.60

1896

2.96

2.25

3.63

1.71

2.00

2.08

1.57

1.51

1.64

1897

2.96

2.23

3.60

1.74

1.95

2.13

1.60

1.51

1.68

1898

2.93

2.18

3.61

1.75

2.09

2.05

1.62

1.48

1.68

1899

2.91

2.19

3.58

1.82

2.11

2.15

1.65

1.53

1.70
1.70

1900

2.87

2.14

3.56

1.82

2.19

2.21

1.60

1.55

1901

2.85

2.20

3.57

1.69

2.01

2.06

1.59

1.56

1.64

1902

2.85

2.16

3.50

1.63

1.95

1.94

1.59

1.51

1.58

1903

2.85

2.11

3.38

1.55

1.93

2.00

1.57

1.51

1.58

1904

2.80

2.09

3.41

1.63

1.94

1.96

1.53

1.52

1.60

1905
1906

2.73

2.06

3.29

1.53

1.96

1.98

1.53

1.54

1.62

2.72

2.05

3.31

1.55

1.99

1.82

1.57

1.56

1.64

1907

2.65

1.97*

3.23

1.51

2.02*

1.80

1.59

1.60*

1.62

1908

2.67

2.02*

3.21

1.48

1.89*

1.81

1.51

1.60*

1.60

2.58

1.95*

3.11

1.46

1.92*

1.72

1.47

1.56*

1.56

2.51

1.96*

2.98

1.35

1.78*

1.62

1.50

1.56*

1.54

2.16

2.25

1.56

1.49

1.62

1.98

1.93

1.56

1.55

1.61

1909
1910

.

Averages
1890-99

3.00

2.22

3.61

1.83

1900-09

2-76

2.08

3.36

1.59

* Provision*

figures.
ate for number of marriages per hundred.

born.

,
, ,
home whether times are good or bad.

l h e v are
T np y a r e

as conservative in choosing
«»

^ e i r homes as in choosing their investments.
c o n n e c t e d with business
But though emigration and immigration are fleariy c o n ^
conditions, except in France, they are not
s u f f i c i e n t o f
total population of anv great nation to
given in
numbers in a notable degree. I f
at a
Table 47 may be trusted, even the United States increases
f a i r l y steady rate whether times be good or bad.
workers, then,
To p r o v i d e steady employment f o r the ever
materials and of
* is not sufficient to maintain unimpaired the s u p p i o
wing army
industrial equipment.' And to provide steady sustenance f o r the gro
g
" " ^ T h i T h l h i f a c t upon w h i c h P o h l e has l a i d such stress.




S e e note, on p. 1 9 , a b o v e .

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

228

TABLE

49

IMMIGRATION INTO THE UNITED STATES AND EMIGRATION FROM THE UNITED KINGDOM, FRANCE, AND GERMANY
' B Y YEARS,
Actual numbers
T h o u s a n d s of immigrants o r e m i g r a n t s
United
States
(I)

United
Kingdom
(2)

France
<3)

455

218

21

1891

560

219

1892

580

210

1893

440

1894
1895

Year
1890

•

1890-1910
Relative n u m b e r s
A v e r a g e actual n u m b e r s in 1 8 9 0 - 9 9 — 100
United
States

United
Kingdom

France

Germany

97

123

122

313

161

6

120

152

122

90

199

6

116

157

117

209

6

88

119

286

156

4

41

259

185

5

37

Germany
<4>

90

192

117

90

146

77

87

60

68

70

103

75

61

75

56

'

1896

343

162

5

34

93

90

1897

231

146

5

25

63

81

75

41

1898

229

141

4

22

62

79

60

36

1899

312

146

5

24

84

81

75

40

1900

449

169

5

22

122

94

75

36

1901

488

172

4

22

132

96

60

36

1902

649

206

4

32

176

115

60

53

1903

857

260

6

36

232

145

90

60

1904

813

271

5

28

220

151

75

46

1905

1,026

262

5

28

278

146

75

46

1906

1,101

325

6

31

298

181

90

51

1907

1,285

396

8

32

348

221

119

53

1908

783

263

5

20

212

147

75

33

1909

752

289

5

25

204

161

75

41

1910

1,042

398

26

282

222

43

1911

879

455

23

238

254

38

Averages
1890-99

369.5

179.2

6.7

60.4

100

100

100

100

1900-09

820.3

261.3

5.3

27.6

222

146

79

46

B y years e n d i n g J u n e 30.
R e v i s e d figures f r o m the I m m i g r a t i o n C o m m i s s i o n ' s Abstract
gration
to the United States, p. 8. T h e data s h o w thousands of " i m m i g r a n t s arriving'" in
1 9 0 4 - 0 5 , a n d of " i m m i g r a n t aliens a d m i t t e d " in 1 9 0 6 - 1 0 .
1

of the Statistical
Review
of 1 ,
1 8 9 0 - 1 9 0 3 , of " a l i e n s admitted

2 T h o u s a n d s of British and Irish passengers leaving the United K i n g d o m
f o r countries outside of E u r o p e .
tical Abstract
of the United
Kingdom.
3 T h o u s a n d s of emigrants to countries outside of E u r o p e .
F r o m the Annuaire
Statistique
de France.
4

fiir

T h o u s a n d s of G e r m a n s leaving f o r countries oversea by both German and f o r e i g n ports.
das Deutsche
Reich.

in

F r o m the S «

F r o m the Statistische

..

hef

Jahrbuc

of consumers it is not sufficient to maintain a constant supply of food, clothing,
and shelter. In both cases the provision must be made on a iarger scale in each
successive year. A period of unchanging physical volume of business, therefore, means actual deterioration in the economic wellbeing of the communitydeterioration which is more serious in the United States, where population
increases fast than in France, where population increases slowlv. Similarly,
a decline in this volume means a more serious setback than the face of the
figures suggests, and a rise means a less considerable gain






229

MITCHELL: BUSINESS CYCLES

CHART 2 8 .
RELATIVE: NUMBER or IMMIGRANTS W O THE UNITED STATES
340

LNIIIKANIO rnun I L U I 1 TD L J M U ,
M N
_
AT U N

AND

FRANCE ANO GERMANY.
1690 - 1910.
320

320

IMMIGRANTS ND TH U Fo STATES.
T £ Nn
— — — EMKRANTS F O T U T o KINGDOM _
R M I Nn
H
E I R N S F O EMW
M A T RM G A R
G
R
SNE
AC

300
1
280

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1
280

t
•
•

260

260

•
•
•

240

240
•

1
220

I •

1

/
/ 1
I 1
. . , tR

I;
200

Ii
180

i

—

\
I

N

i IH
1
140

\\

I

\N

100

80

1
1
• 1 —
I
1
i
1
1 1

1/
F

A

—
/

L/

1

t\

•I

i

<
X

60

F"

\

120

100

••
I

/

Ii
ii
•

•

\
60

\i

\
1890 91 X:'S:I'3-

160

80

\\

40

1I
'
1

/
1/

\\

180

140

/
I
/
t

1/
/

200

V

r

*i

/

1:

1—
1
1

/
lF

1

/

/

1 1
* 1

I

I

\i
\i

i

/
1
/
1

•

U

\
120

|

I

\
^

{
_

/

I

160

1
1
1

J

I

K

220

I

H

/

/
F

/A\

I
\

L
" ' I "

40
V /

1
5 % J "98 99 1900 01 02 03 04 05 06 07 08 09 1910

230

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

III.

T H E V O L U M E OF G O O D S P R O D U C E D

Coal is typical of Sombart's "inorganic goods," the supply of which ordinarily follows the fluctuations of market demand.4 Strikes, railway blockades,
or the like, may interfere for a time with filling orders, and in dull times the
operators may prefer to accumulate stocks rather than to reduce their output;
but, in general, the rate of production is adjusted to the volume of orders.
The latter, however, is far steadier in the case of coal than in that of most
commodities. A large proportion of the demand is for domestic uses, and times
must be hard indeed to cause a considerable decline in the amount of fuel used
for heating and cooking. The business demand is more variable, but nevertheless steadier than the business demand for almost anv other staple. For
coal is largely consumed by every great industry in the country, so that it is
not dependent for its market upon the prosperity of any one.
For these reasons the production of coal pursues a remarkably even course.
Table 50 shows that the output in all four of our countries has increased rapidly
since 1890—much more rapidly than population. The development has been
fastest in the United States, then in order come Germany, Great Britain, and
France. So strong is this factor of growth that a mild depression of business
serves only to lessen the rate at which production increases, and even a severe
depression causes a relatively slight and brief falling off. Thus the lowest
points touched during depression in one business cvcle are higher than the
highest points reached during prosperity in the preceding cycle.
Pig-iron resembles coal in that its production can ordinarilv be adjusted
promptly to changes of demand; but it differs from coal in that the demand is
wholly for business uses. Moreover, the business demand itself is more fluctuating for pig-iron than for coal, because it is distributed less evenlv among
different lines of business and is less continuous in anv one line. Coal is burned
every day a factory runs, but pig-iron and its products are bought in much
greater amounts when factories and railways are striving to increase their
equipment than in duller seasons.
Consequently the production of pig-iron undergoes wider oscillations than
the production of coal. The factor of growth is as prominent in Table 51 as
in Table 50, and the average rate of gain is not notablv different.5 Again, the
United States has gained most, and Germany next. France however shows a
more rapid increase than Great Britain; but'that is mainlv because the smaller
scale of production in France in 1890-99 makes comparatively moderate actual
increases in 1900-09 appear as large percentages of the basic figures.6 This
growth, however, has been broken by more numerous and more serious setbacks
* See Chapter I, ii, 11.
s The increase in the output of pig-iron has been ratter mnm
„
.
the United States, Germany'and I & L e . The o p p o s i ' .s true of Gr'eat Br,tain'
« I n eoal production also the French scale of production was m „ f h
Nevertheless the British increase was greater no' only a b s M y but a L relat.vely



,

" ^
t>

B n t

"

h

°

,*™it in
?
1890-99.

231

MITCHELL: BUSINESS CYCLES

chart

29.

250

R e l a t i v e P r o d u c t i o n o f C o a l in t h e

j\

u n i t e d S t a t e s . U n i t e d Kingdom , F r a n c e . a n d Germany.

240

1890 - 1909.
230

220
-

UNITED S T A T E S .

-

UNITEO KINGDOM.

-

FRANCE.

210

•• GERMANY.
200

200
•
•
•

•

•

190

190

•

1
f

•

•

150

160
•
•

170

170
•

/

160

•

150

160

/
150

•

/

140

130

/

/ •|
/ x••

/

/

y
•
-d

(f

i

—

/

120

•

/

no

•

V

>\

•

7

/

/

/

130

/
•

120

»

•

v

/

140

/ *

Vt

j

!

NO

\\

i
100

A
m m

4

K

A r

90

/.'

100

f
•

90

/

•

80

SO

1890 '91I




'9;

3

'9 4

00
9
o
5 '9i '9 1 '98 3 1

9.

'01 '02

03 "04

'05

'06

'01

' 0 8 '09

1910

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

232

TABLE

50

PRODUCTION OF COAL IN THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY
BY YEARS, 1 8 9 0 - 1 9 0 9
Actual amounts
Millions of long tons
A
United
France.
Kingdom
26
182

A

f

Relative amounts
Average actual amounts 1890-99 = 100
United
Kingdom
95

Year
1890

United
States
141

1891

151

185

26

93

88

97

93

88

1892

160

182

26

91

93

95

93

86

1893

163

164

25

94

95

86

89

89

1894

152

188

27

97

89

98

96

92
97

Germany
88

United
States
82

France
93

Germany
83

1895

172

190

28

102

100

99

100

1896

171

195

29

111

100

102

103

105

1897

179

202

30

119

105

106

107

113
119

1898

196

202

32

126

114

106

114

1899

227

220

32

134

133

115

114

127

1900

241

225

33

147

141

118

117

139

1901

262

219

32

151

153

115

114

143

1902

269

227

30

148

157

119

107

140

1903

319

230

34

160

186

120

121

152

1904

232

34

167

183

121

121

1905

351

236

35

171

205

124

125

162

1906

370

251

34

190

216

131

121

180

1907

429

268

36

203

251

140

128

192

1908

371

262

37

212

217

137

132

201

1909

411

264

37

214

240

138

132

203

1910

448

264

38*

219

262

138

135*

208

Averages
1890-99

171.2

191.0

28.1

105.5

100

100

100

100

1900-09
V

314

158

333.7

241.4

34.2

176.3

195

126

122

167

* Provisional figures.
o ^ ' ^ ^

"Braunkohlen" and "Stein-

than in the case of coal, and, on the other hand, the gain in periods of prosperity
has been correspondingly more rapid. Indeed, the statistics of pig-iron o u t p u t
form one of the most sensitive barometers of business conditions
But, marked as is the effect of depression and prosperitv upon the physical
volume of pig-iron produced, the effect upon the pecuniary Value of the o u t p u t
is greater still. Depression brings not only a reduction of output, but also a
reduction of price, which accentuates the change in volume when the data are
converted from tons into dollars. The price often continues to decline for a
time after the lowest ebb of production has been passed, so that as Table 52



MITCHELL:

BUSINESS

233

CYCLES

T A B L E 51
PRODUCTION OF PIG-IRON IN THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY
BY YEARS, 1890-1910
Relative amounts
Average actual amounts 1890-99 = 100

Actual amounts
Hundreds of thousands of long tons
Year
1890
1891
1892
1893
1894
1895

92

United
Kingdom
79

France
19

83

74

19

92

67

20

71

20

United
States

67

74

20

53

94

77

20

54

23

97

24

1898

118

86

25

136

94

25

1904

138

90

27

159

24

178

87

24

180

28

1905

230

96

30

101

33

1908
1909
1910

258
159
258
273

101

35

91

34

95
100

35*
40*

117

108

116

124

112

134

109

112

145

112

130

171

109

135

171

121

140

185

127

153

209

127

163

219

114

158

200

276

119

163*

214

292

146

145

99

170

124

138

126

276

116

116

113

270

127

118

246

121

1907

112

176

107

253

111

192

99

1906

93
109

190

99

165

93
107

170

84

89

97
109

145

78

29

91

147

84

79

87

84

93

126

80

1903

93

104

72

1899

1902

88
93

79

92

68

1901

84

Germany

France
88

100

63

88

1900

93

72

46

87

1897

79

84

46

86

1896

88

76

49

93

98

Germany

Kingdom
United
99

89

49

70

United
States

126

186*

252

Averages
1890-99

93.6

79.6

21.5

58.0

100

100

100

100

1900-09

197.8

91.6

29.9

103.9

211

115

139

179

* Provisional figures, subject to revision.
, .
tons S m p i l e d f r o m the statistical abstracts of the several countries,
by dividing by 1.0156.

The

metric

tons of France and Germany are reduced to long

° W s , the season of lowest value is f ^ u e n U y
^
«>e season of smallest output. Even after the pnce

Z

L

T

^

X

advance is slow for a while, so that new h.gh records
a
t
.
™ being made than new high records of production
; J
as
record of 1890 was surpassed in 1895 in A , « m a , m W >
1 ^
S
^
early as 1892 in both France and Germany;bu the value ' « '
lg96
surpassed until 1899 in America and E « g and, lH97 in *
,
® Germany. Finally, at the culminaUon o p l e n t y ^
P ^
becomes very rapid, so that the extreme A f ^ ™ ® V .
i
r o u industry
than the extreme fluctuations of output. In other words, the p.g
18 Steadier than the pig-iron business.



234




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

235

MITCHELL: BUSINESS CYCLES

T A B L E 52
VALUE OF PIG-IRON PRODUCED IN THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY, AND RELATIVE
VALUE IN COMPARISON WITH RELATIVE AMOUNT OF PRODUCT
BY YEARS, 1890-1909
Relative figures
Average actual figures 1890-99 = 100

Actual values
In millions of dollars
Year
1390

United United
States Kingdom France Germany
151
117
27
64

United States
Tons
98

Value
125

United Kingdom
\

Tons
99

Value
115

Germany

France
Tons
88

Value
103

Tons
79

Value
93

1891

128

95

24

55

89

106

93

93

88

91

79

80

1892

131

84

24

55

98

108

•84

82

93

91

84

80

1893

85

77

23

51

76

70

88

76

93

87

84

74

1894

65

83

23

55

72

54

93

81

93

87

91

80

1895

105

90

21

56

100

87

97

88

93

80

93

81

1896

90

101

26

71

92

74

109

99

107

99

109

103

1897

95

103

28

83

104

78

111

101

112

106

117

121

1898

117

110

31

90

126

97

108

108

116

118

124

131

1899

245

159

36

108

145

202

118

156

116

137

138

157

1900

260

183

43

131

147

215

113

180

126

163

145

190

1901

242

121

33

117

170

200

99

119

112

125

134

170

1902

373

137

31

108

190

308

109

134

112

118

145

157

1903

344

137

35

125

192

284

112

134

130

133

171

182

1904

233

124

37

124

176

192

109

122

135

141

171

180

1905

382

147

41

138

246

315

121

144

140

156

185

201

1906

506

172

51

170

270

417

127

169

153

194

209

247

1907

530

182

41

196

276

437

127

179

163

156

219

285

1908

254

140

54*

170

170

210

114

137

158

205*

200

247

1909

419

150

57*

165

276

346

121

147

163

217*

214

240

1910

425

167

191

292

351

126

164

186

252

278

Averages
1890-99 121.2

^

26.3

68.S

100

100

100

100

100

100

100

100

1900-09 354.3
S

101.9
149.3

42.3

144.4

211

292

115

147

139

161

179

210

^
^
^
^
f
^
e
t
s
o , the s e v e r ,
E, A m eHcan
Values at Philadelphia 1890-94: at point of production 1895-1909.




prepared *

the U. S. Oeo.o gi ca,

236




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

C AT 3
HR 1
R L TV Q A T Y A D V L E O PIG I O
E A I E U NI N AU F
T
RN
P O U E I T E U IE S A E .
R D CO N H N D T T S
T
440
1890-1910
/;
i
// i
Q A TT .
U NIY
VL E
AU.
#

400

l
i
1
1
1
1
i
1
1
1
1
i
l
l
l
11
i
i i
1I
1i
11
1
1
11
1
+
1"
V

360

320
\
\
\

280

1
i
1
f

24 O

\

/
/

\
\

t

200

160

\

1

\

AOO

360

320

280

240

200

\

i
160

*

120

\»

120

i

\/

I

80

/i
V \y
I
1
1
1
\
\

\
%

i
i
i

'92'93'9i'9S'96'97 98'99'00'(M 0 0 0 (9 1
4
) 0' 31 00
S 2 '7
6 8

80

237

MITCHELL: BUSINESS CYCLES

As representatives of the production of organic goods, where man's control
over the factors determining supply is far less complete than in the cases of
coal and pig-iron, we mav take the wheat crops of our four countries.
A comparison between Table 53 and Tables 51 and 50 shows that the factor
of growth has been far less notable in the production of wheat than in the
production of pig-iron and coal. The British yield has actually fallen off in
recent years, the French vield has gained but a trifle. While the German and
American vields show distinctly higher averages in the second than in the first
decade, the gains are small in comparison with those scored in the coal and iron
trades, and not much greater than the increase of population.

T A B L E 53
WHEAT CROPS OF THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY
BY YEARS, 1890-1911
, „
Relative figures
Mimons a l of f i Chels
Average actual crops 1890-99 = 100
\

1890

United
States
399

United
Kingdom
78

France
309

1891

612

77

219

1892

516

63

311

116

Year

Germany
104
86

United
States
79

United
Kingdom
123

122

121

70

74

103

99

100

100

79

82

89

95

91

99

112

95
101

France
99

Germany
89

1893

396

52

278

110

1894

460

63

348

111

1895

467

39

340

117

93

61

109

85

94

109

108

105

91

79

103

134

121

116

114

117

121
121

1896

428

60

340

126

1897

530

58

247

120

1898

675

77

363

1899

547

69

364

141

109

108

1900

522

56

326

141

104

88

105

748

56

311

92

149

100

79

1901

88

670

60

328

143

133

94 *

123

1902

105

131

127

79

117

113

110

61

96

120

97

107

117

133

1903

638

50

364

1904

552

39

299

140

1905

693

62

335

136

1906

735

62

325

145

1907

634

58

377

128

1908

665

56

318

138

1909

737

65

356

1910

635

58

1911

621

1890-99
1900-09

146

97

104

125

126

91

121

110

132

88

102

119

138

147

102

114

119

258

142

126

91

83

122

66

315

149

123

104

101

503.0

63.6

311.9

116.4

100
100

100

100

659.4

56.4

339.9

133.2

131

*9

107

Averages

l89?-Piled

f rom

the r ^ o o * , . / -




138

^

./

Data for 1890 from

./

128*

100
•/

258

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

CHART

32.

RELATIVE WHEAT CROPS OF THE UNITED S T A T E S , UNITED KINGDOM , FRANCE , A N D GERMANY.
1890

1890 '91

'92




-95 '34

"95

'96

'97

'38

'99

-

1910.

1900 'OL

O2

03

'04

05

'06

'07

"OS '09 1910.

MITCHELL: BUSINESS CYCLES

239

As for the changes from one phase of the business, cycle to the next, there
cases in which increased yields accompanied increased prosperity or
in which poor crops and depression went together. But the correlation between
volume of production and business conditions is far less perfect for wheat than
or minerals. For example, note the decline in the American harvest of 1899,
tne British harvest of 1895, the French harvest of 1897, and the German harvest
0 1 1907, and the increase of the American harvest in 1908, the British harvest
in 1902, the French harvest in 1903, and the German harvest in 1902. In all
ese cases short crops occurred in a year of improving business or large crops
l n a - V e a r of retrogression.
The figures indicate that as a business factor the
c r ° P is less an effect than a cause of change in conditions, particularly
.
m countries where agriculture employs more hands than manufactures. Good
crops tend to bring prosperity and poor crops depression in the seasons which
low. But the numerous exceptions to this rule show that other factors often
overbalance the effect of the harvests.
To show the relation between the physical volume and pecuniary value of
im products it is sufficient to take data for corn, wheat, and cotton in America
v ab|e 54)# With pig-iron it is the rule that reduced prices and, with the
exceptions noted above, increased production and high prices go together.
. ^eneral, the opposite holds of crops—reduced yields cause high prices and
ln cieased yields cause low prices.
Indeed, a deficiency in the yields sometimes
causes such a rise of prices as to make the pecuniary value of the short crop
Sweater than that of a large one, and superabundant yields sometimes cause
cn a drop in prices as to reduce their pecuniary value. Instances of the first
1Q0Q ° C e u r r e d > f o r example, with corn in 3901, wheat in 1904, and cotton in
with i n s t a n e e s o f t h e second kind in 1894 with cotton, 1895 with corn, and 1898
1 h wheat.
But, in the case of staples having several important sources of
re lation between light yields and high prices and heavy yields and
lo\ ^•
w Prices is far from regular.
An increased yield of wheat in America w^as
jcompaniea by a rise in price in 1891, 1895, 1897, 1901, 1908, and 1909, while
cas
^ ^ yield was accompanied by a fall in price in 1892 and 1893. Such
s es are rather less numerous with corn and cotton, of which the United States
a m U e h l a r S e r proportion of the world's supply.
red
But, with corn,
need production and reduced prices went together in 1892 and 1893, and
bet P e a S e d p r o d u c t i o n a n d increased prices in 1890 and 1900.7 Thus the relations
Ween physical production and pecuniary value are decidedly irregular with
ext 1 C U l t U r a l ? r o d u c t s - Neither yields nor prices are controlled to the same
_ _ ^ ^ y b u s i n e s s conditions as are the output and prices of minerals.
are many

an<l

the
l9<y\r»B°0k
Department of Agriculture,
a r e computed from Table 54.




1908, pp. 598, 608, and 674-5.

The prices of cotton in 1900

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

240

TABLE

54

YIELDS AND FARM VALUES OF THE CORN, WHEAT, AND COTTON CROPS OF THE UNITED STATES

,

B Y YEARS, 1 8 9 0 - 1 9 1 0
Corn
A

f

Actual figures
Million
dollars
754

A
Relative fi gures
figures
Av. actual 1
1890-99 =: 100
A
f
>
Yields
Values
81
124

Wheat

ActuaHigures

Million Million
bushels dollars
399
335

Relative figures
Av. actual figures
1 Qon.oo — 1UU
i nrt
A
Yields
Values
79
102

f

Cotton
A
Relative figures
Av. actual figures
Actual figures
A
lftQO-99 = 100
- ,
A.
Million
10,000
Values
dollars Yields
bales
120
96
352
865

Year
1890

Million
bushels
1,490

1891

2,060

836

112

137

612

513

122

155

904

312

101

106

1892

1,628

642

89

105

516

322

103

98

670

267

75

91

1893

1,619

592

88

97

396

213

79

65

755

251

84

86

1894

1,213

555

66

91

460

226

91

69

990

220

110

75

1895

2,151

545

117

89

467

238

93

72

716

259

80

88

1896

2,284

491

124

81

428

311

85

94

876

276

98

94

1897

1,903

501

104

82

530

429

105

130

1,120

356

125

121

1898

1,924

552

105

91

675

393

134

119

1,127

314

126

107

1899

2,078

629

113

103

547

320

109

97

951

324

106

111

1900

2,105

751

115

123

522

324

104

98

1,025

470

114

160

1901

1,523

922

83

151

748

467

149

141

948

387

106

132

1902

2,524

1,017

138

167

670

422

133

128

1,078

422

120

144

1903

2,244

953

122

156

638

443

127

134

1,002

576

112

197

1904

2,467

1,087

134

178

552

510

110

155

1,370

561

153

191

1905

2,708

1,117

148

183

693

518

138

157

1,073

557

120

190

1906

2,927

1,167

159

190

735

490

146

148

1,331

610

148

218

1907

2,592

1,337

141

219

634

554

126

168

1,133

553

126

189

1908

2,669

1,616

145

265

665

617

132

187

1,343

551

150

188

1909

2,772

1,653

151

271

737

730

147

221

1,039

688

116

1910

2,886

1,385

157

227

635

561

126

170

1,197

820

133

1911

2,531

1,565

138

257

621

543

123

165

609.7

100

100

503.0

330.0

100

100

897.4

293.1

100

1,162.0

134

191

659.4

507.5

131

154

1,134.2

540.5

126

Averages
1 8 9 0 - 9 9 1,835.0
1900-09

2,453.1

235
280

100
184

Compiled from A. P. Andrew, Statistics for the United States.
(Publications of the National Monetary C o m m i s s i o n ) , f , n i t e d
Document no. 570, 61st Congress, 2d session; pp. 14, 15. The data for 1910-11 are from the Statistical Abstract of the
States.




MITCHELL: BUSINESS CYCLES

CHART

53.

R e l a t i v e y i e l d s a n d Farm v a l u e s o f t h e w h e a t




of the united

states.

1890 - 1910.

crops

241

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

242

IV.

T H E V O L U M E OF DOMESTIC TRADE

Since every business enterprise of any size directly or indirectly makes use
of the railways on the one hand and on the other hand of the banks, the records
of railway traffic and bank transactions afford perhaps the best single gauges
of the amount of business going on within the limits of a country.
Gross receipts from operations are the most readily comparable among the
various records of railway traffic. These figures, assembled in Table 55, show
the United States in the lead, with respect to absolute amounts, rate of g r o w t h ,
and violence of fluctuations. Germany ranks second, the United Kingdom
third, and France last, though there is little difference between the rate of
growth in the two latter countries. Except in the United States, periods of
business depression do little more than to interrupt the expansion of railway
traffic for a single year. Germany shows a decline of 3 per cent in 1901 and
TABLE

55

GROSS EARNINGS OF THE RAILWAYS OF THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY
Actual amounts
Millions of dollars

Relative amounts
Average actual amounts 1890-99 = 100

A

"N

United
States
1,052

United
Kingdom
373

France
223

Germany
310

1891

1,097

381

229

1892

1,171

382

228

1893

1,221

374

233

Year
1890

A

United
States
91

United
Kingdom
92

France
91

Germany
85

320

94

94

94

88

321

101

94

93

88

335

105

92

95

92

1894

1,073

389

238

336

92

96

97

92

1895

1,075

396

244

357

92

98

100

98

1896

1,150

415

250

378

99

102

102

103

1897

1,222

430

258

399

105

106

106

109

1898

1,247

443

267

438

107

109

109

120

1899

1,314

466

275

463

113

115

112

127

1900

1,487

481

293

483

128

119

120

132

1901

1,589

485

281

470

137

120

115

120

1902

1,726

497

285

482

149

123

117

132

1903

1,901

502

290

515

164

124

119

141

1904

1,975

505

292

540

170

125

119

148

1905

2,082

512

304

580

179

126

124

159

1906

2,326

527

318

626

200

130

130

171

1907

2,589

546

328

653

223

135

134

179

1908

2,394

538

335

642

206

133

137

176

1909

2,419

539

340*

677

208

133

139*

1910

2,751

556

723

237

137

Averages
1890-99

1,162.2

404.9

244.5

365.7

100

100

100

100

1900-09

2,048.8

513.2

306.6

566.8

176

127

125

155

185
198

* Provisional figures.
Compiled from the Statistical Reports of the Interstate Commerce Commission and from the statistical abstracts of the U n £ u e
Kingdom, France, and Germany. With the possible exception of France, the figures show gross receipts from operations.
American figures are for years ending June 30.







MITCHELL: BUSINESS CYCLES

243

244

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

1908; France of 1 per cent in 1892 (perhaps because of the reduction in railway
rates brought about by a change in the tax laws), and one of 5 per cent in 1901,
the year following a great international exposition; the United Kingdom shows
a decline of 2 per cent in both 1893 and 1908.8 The wider fluctuations of
American business are shown by decreases of 13 per cent in 1894 and 17 per
cent in 1908. But while the volume of traffic shrinks little in Europe even in
periods of severe depression, it grows at a pace considerably faster than the
average when prosperity reigns. The maximum increases from one year to the
next are 12 per cent in Germany (1906), 8 per cent in France (1900), and 6
per cent in England (1899). Again the United States with an increase of
23 per cent (1907) far surpasses the other countries. Judged bv this standard,
then, the volume of domestic trade is subject to so large a factor of growth that
it contracts but a trifle when business is dull, and shows the effects of business
cycles mainly by expanding faster than usual when business is brisk. American business, however, is subject to more violent oscillations than European.
It is only in England and the United States that bank clearings are a trustworthy gauge of volume of trade. In France and Germanv bank notes, bank
transfers, domestic bills of exchange, etc., are used for many of the transactions
effected m the Anglo-Saxon countries by checks, and bank clearings accordingly are comparatively small. For the sake of completeness, the Parisian and
German clearings are shown in Table 56; but these figures have little value
aside from indicating that the use of checks has made relatively rapid progress
since 1890.
As indices of the volume of domestic trade, the American and English
clearings show wider variations than do railway receipts. The factor of g r o w t h
is larger in clearings; but nevertheless the decreases in times of depression are
greater and last longer. But the discrepancies between the testimony borne by
the two sets of data are more apparent than real. Clearings are more affected
than railway receipts by changes in prices, which Chapter I V showed to be
large in the period covered by the tables. Even when subject to no governmental regulation, it is notoriously difficult for railways to readjust their
complicated schedules promptly as the level of prices rises and falls. Hence
clearings vary more than railway receipts for much the same reason that the
value of pig-iron varies more than the output. Second, speculation in stocks
and commodities exerts a powerful influence upon the volume of clearings, while
it does not perceptibly affect the earnings o f railwavs.

A n d such speculation

is a branch of trade peculiarly susceptible to wide and sudden fluctuations.
How important is this second factor mav be judged from the difference
between the course followed by clearings in New York and bv clearings in the
rest of the country. The latter clearings decline somewhat more t h a n railway
receipts in times of depression when prices are falling and speculation is stags These percentages are based on the average annual receipts of 1890-99.




MITCHELL: BUSINESS CYCLES

TABLE

245

56

BANK CLEARINGS IN THE UNITED STATES, ENGLAND, FRANCE, AND GERMANY
B Y YEARS, 1 8 9 0 - 1 9 1 1
Actual amounts
In hundreds of millions of dollars
United States

IJU ! ...

t i*
Ul

Outside New York
Year

1890

New
xork

375

No. of
clearing
houses

55

Relative amounts
Average actual amounts 1890-99 = 100

United States

Germany
>
No. of Amount
clearing
of
houses clearings

r

Outside
New
York

Amount
of
clearings

London

Paris

Paris

Germai

231

380

12

9

43

105

94

106

88

84

New
York

London

1891

337

55

229

333

9

9

42

94

93

93

66

82

1892

367

66

253

315

9

9

40

102

103

88

66

78

1893

313

73

229

315

10

9

43

87

93

88

74

84

1894

244

78

211

308

12

9

43

68

86

86

88

84

1895

298

78

233

370

,14

9

50

83

95

103

103

98

1896

289

82

224

369

15

9

54

81

91

103

no

106

1897

334

82

238

365

16

9

57

93

97

102

318

112

1898

420

82

269

394

18

10

67

117

110

110

132

131

1899

608

82

333

445

21

10

72

170

136

124

154

141

1900

526

86

334

436

21

10

70

147

136

121

154

137

1901

794

90

390

465

19

10

69

221

159

129

140

135

1902

763

93

417

488

21

11

71

213

170

136

154

139

1903

660

97

432

492

23

11

74

184

176

137

169

145

1904

686

97

439

514

27

11

78

191

179

143

399

153

1905

938

107

500

598

34

12

89

262

204

166

250

174

1906

1,047

113

552

619

• 48

13

100

292

225

172

353

196

1907

872

113

578

620

50

14

108

243

236

173

368

211

793

113

531

590

52

17

109

221

217

164

382

213

1,036

111

622

658

51

289

254

183

375

973

668

713

66

271

273

198

485

924

676

711

58

258

276

198

426

245.0

359.4

13.6

100

100

100

100

479.3

548.0

34.6

226

196

152

254

1908
1909
1910
1911

ea e
r gs

.

Av,

1890-99

358.5

1900-09

811.5

51.1

100

®*rrnany,
from the Financial Review (calendar years) ; English and German figures from Statistics for Great
Britain,
fl)]/|ures
fiS' 1 2 and 1*9 r a £ c e (Publications of the National Monetary Commission), Senate Document no. 578, 61st Congress, 2d Session,
a SUr e s are f o r i '
* r e , n c h figures from Annuaire statistique de France, 1908, p. 65*, and La reforme tconomxque.
The French
years beginning April 1.




246




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

MITCHELL: BUSINESS CYCLES

247

nant, and advance somewhat more in times of prosperity when prices are rising
and speculation is rampant. But the margins between the relative figures for
these country clearings and for railway receipts are narrower than the margins
between country clearings and New York clearings. More than almost any
other branch of business, stock speculation is concentrated in New York. The
establishment of the Stock Exchange Clearing House in May, 1892, relieved
the banks from much of the work they formerly did in connection with stock
dealings, and was partlv responsible for the decline in the volume of New York
clearings in the years which followed." But the purchase of stocks still requires
a heavy use of bank checks, so that an increase of activity upon the stock
exchange is always reflected at the bank clearing house. Hence the rough
concomitance, shown bv Table 57, between the changes in the number of shares
sold and in the volume of clearings. On the whole, the clearings are steadier
than the stock sales, because the other branches of trade which require the
use of checks fluctuate less wildly than does speculation m stocks But the
contribution made bv the stock exchange to bank clearings is so huge as to
invalidate the use of the New York figures as a gauge of the activity of general
business. The country clearings are a far more trustworthy witness, and, as
has been pointed out, their testimony agrees well with that borne by railway
receipts, after allowance has been made for changes in prices, and for the
measure of speculation which enters into every branch of trade.
London clearings agree with British railway receipts in much the same
manner that country clearings in the United States agree with American railway receipts. Of course, under the influence of changes in prices and speculation thev fall off more than railway receipts in the middle nineties, and rise
more in the second decade. Stock exchange transactions, however cut a less
%ure at the London than at the New York clearing house largely because the
W o n exchange makes fortnightly instead of daily settlements. Hence the
London figures are a less accurate gauge of volume of specula ion and a more
accurate gauge of volume of general trade than the New York figures. Like
the indices previously examined, bank clearings show a smaller factor of growth
in Englishman in American business. But this difference does not prevent
the series for London and for the United S t a t e s outside of ^ Y
f ™
reflecting the agreements and disagreements pointed out in Chapter I I I between
the course of business cvcles in the two countries.
Since bank clearings are so small in France and Germany it ^ advisable
to seek some other gauge of the domestic volume of trade. T h e w de use of
the domestic bill of exchange by business enterprises of every kmd.m Europe
gives this instrument of credit a significance as an index of
transacted not unlike that of the bank check in Anglo-Saxon countnes. More0

Financial Review, 1893, p. 12.




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

248

TABLE

57

NUMBER OF SHARES SOLD ON THE NEW YORK EXCHANGE AND BANK CLEARINGS IN NEW YORK CITY
BY YEARS, 1 8 9 0 - 1 9 1 1
Actual amounts
A
Bank
clearings.
Shares
Hundreds
sold.
of millions
Millions
of dollars
of shares
71
375

r

Year
1890

Relative amounts
Average actual amounts
iann no — inn

Shares
sold
84

Bank
clearings
105

1891

69

337

82

94

1892

86

367

102

102

1893

81

313

96

87

1894

49

244

58

68

1895

67

298

79

83

1896

55

289

65

81

1897

77

334

91

93

1898

113

420

134

117

1899

176

608

209

170

1900

138

526

164

147

1901

266

794

315

221

1902

189

763

224

213

1903

161

660

191

184

1904

187

686

222

191

1905

263

938

312

262

1906

284

1,047

336

292

1907

196

872

232

243

1908

197

793

233

221

1909

215

1,036

255

289

1910

164

973

194

271

1911

127

924

150

258

Averages
1890-99

358.5

100

100

1900-09
Data from the Financial

84.4
209.6

811.5

248

226

Review.

over, the imposition of stamp taxes upon such bills supplies data from which
the amount in circulation from year to year may be estimated with approximate
accuracy.10
10 On the value of these data as a gauge of business activity see K. Helfferich, Der deutsche Geldmarlct 1^95
bis 1902 (Schriften des Vereins fiir Socialpolitik, vol. 110), p. 27. The German figures are computed trow
the receipts of the Wechselstempelsteuer by a formula used by the Reischsbank in compiling its anniversary
volume f o r the years 1876-1900. The tax receipts (at the rate of one-half per mille) are capitalized, an
from the sum 10 per cent is deducted as an allowance for the lower rate of taxation upon large bills. *
amounts of bills on which the French tax is collected are given in the Annuaire statistique, 1908, p. 90.*
^
errors of the press have been corrected in changing these figures into American money. That the original da
are not in thousands but in millions of francs appears from p. 3* and from a comparison between the amou
of the tax and the amount of the bills. The first digit in the amount for 1898 should be 3 instead of 2.







MITCHELL: BUSINESS CYCLES

249

270 MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

These figures, presented in Table 58, agree more closely with railway receipts
in their respective countries than do bank clearings in America and England.
They fall more than railway receipts during years of depression and rise more
during years of prosperity; for, of course, the amount of bills of exchange in
circulation is affected by changes in the price level. The reason why these
divergencies are smaller than the corresponding divergencies between clearings
and railway receipts in America and England appears to be that bills of
exchange, based mainly upon the sale of actual commodities, are less affected
by speculation than are bank clearings. Finally, the differences between the
increase from the first to the second decade in the volume of bills outstanding
in France and Germany confirm the conclusion drawn from earlier tables that
German business has been expanding at a considerably faster pace than French
business in the last twenty years.
TABLE

58

BILLS OF EXCHANGE IN CIRCULATION IN PRANCE AND GERMANY
BY YEARS, 1 8 9 0 - 1 9 1 0
Actual amounts
In tens of millions of
dollars

Relative amounts
Average actual amounts
in 1890-99 = 100

Year
1890

France
542

Germany
335

France
99

Germany
86

1891

551

350

101

90

1892

524

339

96

87

1893

525

350

96

90

1894

509

349

93

89

1895

514

374

94

96

1896

539

394

99

101

1897

556

426

102

109

1898

586

471

107

121

1899

611

516

112

132

1900

621

558

114

143

1901

596

532

109

136

1902

594

517

109

132

1903

625

536

115

137

1904

647

561

119

144

1905

668

629

122

161

1906

733

676

134

173

1907

769

743

141

190

1908

751

703

138

180

1909

778

794

143

203

1910

844

803

155

206

1911

838

Averages
1890-99

545.7

390.4

1900-09

678.2

629.9

215
100

100

124
160
the
Data obtained from the statistical abstracts of France and Germany. For method of computing the amount of bills f r 0 ®
stamp-tax receipts in Germany see preceding note. The German figures are for the fiscal years beginning April 1-




MITCHELL: BUSINESS CYCLES

CHART

3 7 .

RELATIVE A M O U N T S OF B I L L S OF EXCHANGE:
IN CIRCULATION IN FRANCE A N D




1890

-

1910.

FRANCE.
— — — — —

GERMANY.

GERMANY.

251

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

252

V.

T H E V O L U M E OF FOREIGN COMMERCE

Table 59, which brings together the grand totals of foreign commerce for
our four countries as nearly as may be in comparable shape, shows that in this
branch of business the United States is far surpassed by the United Kingdom,
and surpassed also by Germany in volume of imports, though not in volume of
exports. France, as usual, ranks last. Even in rate of increase the United
States takes second place, Germany ranking first, England third, and France
fourth. It is worthy of remark that in each of the countries the increase of
TABLE

59

MERCHANDISE IMPORTS AND EXPORTS OP THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY
BY YEARS, 1 8 9 0 - 1 9 1 1
Actual amounts in millions of dollars
United States
A

Domestic
exports
858

t

United Kingdom

Net
imports
1,732

^

^

France
Special trade

Domestic
exports
1,282

Imports
856

Exports
724

1,203

920

..

689

A

Germany
Special trade
A

Exports
792

Year
1890

Imports
823

1891

828

971

1892

841

938

1,749

1,106

808

1893

776

876

1,683

1,062

744

1894

676

825

1,706

1,051

743

594

937

705

1895

802

825

1,737

1,100

718

651

981

790

1896

682

1,006

1,876

1,169

733

656

1,025

839

1897

743

1,100

1,903

1,140

764

694

1,114

865

1898

635

1,256

1,995

1,136

863

678

1,209

894

1899

799

1,275

2,044

1,287

872

801

1,305

1,001

1900

829

1,478

2,238

1,417

907

793

1,372

1,098

1901

880

1,465

2,210

1,363

843

774

1,290

1,055

1902

969

1,361

2,251

1,379

848

821

1,340

1,113

1903

995

1,485

2,302

1,415

927

821

1,429

1,193

1904

1,036

1,451

2,340

1,463

869

859

1,512

1,243

1905

1,179

1,627

2,372

1,605

922

939

1,697

1,364

1906

1,321

1,798

2,545

1,828

1,086

1,016

1,909

1,513

1907

1,423

1,923

2,696

2,073

1,201

1,080

2,082

1,629

1908

1,116

1,753

2,498

1,835

1,089

975

1,824

1,523

1909

1,476

1,701

2,595

1,840

1.205

1,104

2,028

1,569

1910

1,563

1,829

2,796

2,094

1,384

1,203

2,126

1,779

1911

1,533

2,058

2,812

2,211

1,575*

1,191*

2,310

1,929

Averages
1890-99

1,818

760.5

993.0

1,824.3

1,153.6

1 9 0 0 - 0 9 1,122.4

1,604.2

2,404.7

1,621.8

802.1

Imports
990
988

756

668

956

703

625

943

736

678.0

1,044.8

808.
1,330.

1,648.3
989.7
918.2
* x
Provisional figures.
Nation*1
Figures for United States (calendar years) from A. P. Andrew, Statistics for the United. States (Publications of t h ® . { ; d from
Monetary Commission), Senate Document no. 570L 61st Congress, 2d Session, p 10 Figures for foreign countries c 0 ® p l " i e c oW
the (American) Statistical Abstract for Foreign Countries, 1909, pp. 21, 22, and 42
The foreign figures for 1906-11
n a ls.
puted from tables in the British, French, and German statistical abstracts, or from preliminarv reports in the busio®®® »




253

MITCHELL: BUSINESS CYCLES
TABLE
MERCHANDISE IMPORTS AND EXPORTS

P9—(Concluded)

OF THE UNITED STATES, UNITED KINGDOM,

FRANCE, AND GERMANY

BY YEARS, 1890-1911
Relative amounts
Average actnalamounts 1890-99 = 100
United^States

1890

Imports
108

1891

109

Domestic
exports
86
98

United Kingdom
Net
imports
95

100

Domestic
exports

111

France
Special trade
Imports

Imports

107

95

98

102

95

94

99

92

87

90

91

115

96

101

92

93

Exports

Exports

107

104

Germany
Special trade

-

1892

111

94

96

1893

102

88

92
94

91

93

87

89

83

90

1894

95

95

90

98

105

83

94

1895

103

101

91

98

104

90

101

97

1896

99

95

107

98

104

107

1897

111

102

98

108

111

83

109

116

1898

126

100

112

109

124

112

118

105

128

125

1899

123

113

136

123

131

109

149

117

1900

121

118

105

123

131

116

148

114

1901

137

123

106

121

128

127

120

138

1902

126

123

116

137

148

131

150

121

1903

128

127

108

145

154

136

146

127

1904

155

130

139

115

162

169

1905

164

138

181

135

183

174

140

150

1906

158

187

180

202

148

199

187

194

159

1907

150
136

188

177

159

175

147

137

144

1908

171

160

150

194

194

142

163

1909

184

182

173

203

206

153

177

1910

196*

221

202

154

176*

207

192

239

1911
Averages
1890-99

100

100

100

100

100

100

100

100

162

123

165

148

132

135

1900-09

141

158

92

194

220

Provisional figures.

,
TTVprv vear the United States has sos p o r t s has exceeded that of imports. E^ery yeai
t F
1
called favorable balances of trade, while the European countnes,
m 1905,

have unfavorable balances.
f n r p i s ? n t r a d e upon business
The close dependence of the pecuniary v o l u m o f o r ^ ^
P
cycles is stamped upon this table. ™
to this
Prosperity, and both decline in years of d e p ^ w ^
business.
For
^ l e are brought about by causes not
n E
a n d exports
example 1891 was a dull year, yet iinports inc^asea
i
American
a bun
* the United States, because of the short European a ^
^
harvests; 1897 and the first half of 1898 w a s a
i n
I n d i a ,
England, yet British exports declined a little because




254




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA




MITCHELL: BUSINESS CYCLES

255

256

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

drought in South Africa poor crops and political unrest in South America, the
Dingley tariff m the United States, the Spanish-American War, and the
Fashoda incident; two of these same factors-the Dinglev tariff and the
Spanish W a r - w e r e chiefly responsible for the decline of imports into the
United States in the prosperous year 1898, etc. Apparent exceptions to the
rule may also be brought about by a difference in the course of business in
different countries. Thus in 1901, when Europe was visited by depression,
both imports and exports declined; while the United States, still prosperous,
increased its imports but suffered a decline of exports, because its leading
customers bought less freely.
This case suggests a difference in the character of the relation borne by
business conditions toward imports and toward exports. Prosperitv at home
tends directly to increase imports, but to decrease exports. For'the large
domestic demand and the rising prices which accompanv prosperity make producers less dependent upon foreign markets. On the contrary, while depression
clearly decreases imports, there is reason to expect that it should i n c r e a s e
exports. For the lower level of prices at home and the reduced domestic
demand make producers more eager to sell goods abroad. Since the movement
of exports usually contradicts these expectations, the reason must be not only
that business cycles run a substantially similar course in countries having
important commercial relations, but also that business conditions among the
customer nations have more influence upon the volume of exports than business
conditions among the producers.
It is occasionally said that prosperity works its own undoing through the
effects it produces upon foreign commerce. The argument is that, bv encouraging imports and discouraging exports, prosperity reduces a favorable and
augments an unfavorable balance of trade upon merchandise account, and
therefore tends to produce an outflow of gold. In turn, the latter reduces bank
reserves, causes a restriction of credit, and so brings the movement of expansion
to a close.
With the international movements of gold and their effects upon b u s i n e s s
cycles, we are not yet ready to deal. But it is pertinent to examine the r e l a t i o n
between business conditions and the balance of trade in merchandise. For
this purpose, the excesses of exports over imports or of imports over e x p o r t s
have been computed from Table 59 and set down in Table 60. The figures do
not give unequivocal support to the above stated theory. For example, England's excess of imports was greater in the dull vears 1901-04 than in the b r i s k
years 1905-07; America's excess of exports rose with the rise of p r o s p e r i t y
from 1904 to 1907; France's greatest excess of imports came in the dull years
1891 and 1911, and Germany's excess of imports declined in 1899—the annus
mirabilis. But the cases which support the theorv are more numerous. As »
rule the excess of exports in America has fallen at the culmination of a peri° d
"S
 e e the Economist's


Commercial History and Review of 1897 and 1898.

MITCHELL: BUSINESS CYCLES

257

of prosperity and risen in the subsequent period of depression. Mutatis
mutandis, the rule holds good also for France and Germany. The truth seems
to be that prosperity in a given country does stimulate imports and check
exports; but that this effect is often offset by counter-influences, such as fluctuations in the harvest and business conditions among customer or competitor
nations.
The elaborate form in which statistics of foreign trade are published makes
it possible to examine the influence exercised by business cycles upon exports

TABLE

p
S

OF MERCHANDISE IMPORTS OVER EXPORTS ( — )

60

OR OF EXPORTS OVER IMPORTS ( + ) IN THE UNITED STATES,

UNITED KINGDOM, FRANCE, AND
B Y YEARS,

GERMANY

1890-1911

A c t u a l a m o u n t s in millions of dollars
United
Kingdom

France

35

—450

—132

—198

+

143

—615

—231

—232

1892

+

*>7

—140

—253

1893

+

100

Year

United
States

1890

+

1891

'

—643

Germany

—621

—119

—207

—149

—232

—

—191

1894

+149

—655

1895

+

—637

1896

+324

—707

—

77

—186

—

70

—249

—185

—315
—304

23

67

1897

+357

—763

1898

+621

—859

1899

+476

—757

—

—274

71

1900

+649

—821

—114

1901

+585

—847

—

69

—235

1902

+392

—872

—

27

—227

1903

+490

—887

—106

—236

1904

+415

—877

—

10

—269

1905

+448

—767

+

17

—333

1906

70

+477

—717

—

1907

+500

—623

—121

—453

—396

1908

+637

—663

—114

—301

1909

+225

—755

—101

—459

1910

+266

—702

—181

—347

1911

+525

—601

—384*

—381

1890-99

+232.5

—670.7

—124.1

—263.7

1900-09

+481.8

—782.9

—

—318.3

Averages

P e d fr om

Table 59.




71.5

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

258

and imports in great detail. It will suffice for present purposes to take the
three grand divisions under wrhich exports and imports of merchandise are
classified: foodstuffs, raw materials, and manufactured goods.12
Tables 61 and 62 show that the correlation between business conditions and
imports and exports of foodstuffs is far from close. Whether the changes from
T A B L E 61
RELATIVE IMPORTS OF FOODSTUFFS, RAW MATERIALS, AND MANUFACTURED PRODUCTS INTO THE UNITED STATES,
FRANCE, AND GERMANY
BY YEARS, 1890-1911

Average actual amounts in 1890-99 = 100
Foodstuffs

Average
actual
amounts
1890-99

United
States
261.6

France
237.1

1900-09

266.6

171.4

Year
1890

100

118

Manufactured goods

Raw materials

A

A

Germany
361.8

United
States
185.5

France
446.0

511.0

357.3

637.4

92

92

103

A

Germany
457.3

United
States
303.8

France
119.1

Germany
225.4

843.9

456.1

181.2

293.5

92

115

100

104

108

95

100

90

1891

114

135

100

99

106

90

117

1892

120

114

99

101

94

86

104

1893

109

86

87

113

96

91

120

91

95

1894

110

98

95

70

91

87

76

89

88

1895

95

84

91

98

91

94

97

95

98

1896

95

82

97

107

94

98

108

100

99

1897

99

84

106

106

100

109

101

99

102

1898

73

123

120

102

102

117

76

100

107

1899

85

77

114

113

123

136

86

118

121

1900

88

67

116

149

131

146

111

137

127

1901

90

64

125

134

128

110

125

112

125

126

116

83

1902

67

130

163

122
121

133

1903

90

78

128

178

131

148

149

133

128

1904

96

66

129

173

123

165

136

135

129

1905

111

67

154

210

134

180

142

141

140

1906

105

77

153

224

160

229

174

162

137

1907

118

84

161

210

190

147

257

174

256

1908

112

76

149

196

155

216

174

181

131

1909

126

77

168

243

178

244

171

191

135

1910

125

115

163

305

188

265

215

229

144
152

1911

135

162*

197

276

201*

274

214

248*

Averages
1890-99

100

100

100

100

100

100

100

100

102

1900-09

72

141

193

143

* Provisional figures.
Compiled from data in the statistical abstracts of the several countries.

"

185

150

152

100
•

130
30.

The American figures are for years ending J u ° e

io ^
•hreexo*"

12 Great Britain is excluded f r o m the following comparisons, because I have not found the T . f i c a t j 0 n
classification carried back to 1890 in the available documents. To make the fivefold American e } ? s S \ c r U d e
correspond as closely as may be with the less detailed French and German tables, I have c ° m b i n e f a C t u r e 8
with manufactured foodstuffs, and 4 4 manufactures f o r further use in m a n u f a c t u r i n g ' ' with 1 i ^ m ^ *
ready f o r c o n s u m p t i o n . ' ' Since these American figures are f o r fiscal years, they do not tally with tn
ican figures f o r calendar years in Table 59.




MITCHELL: BUSINESS CYCLES

259

year to year or from decade to decade be examined, it appears that international
trade in food is controlled quite as much by the harvests as by the alternations
of business activity and stagnation. But these figures do throw light upon the
general trend of economic development in the three countries. France has
become distinctly less and Germany distinctly more dependent upon foreign
supplies of food since 1890, while American imports of this character have
increased but a trifle, despite the rapid growth of population.

TABLE
KELATIVE EXPORTS OF FOODSTUFFS,

62

RAW MATERIALS, AND MANUFACTURED PRODUCTS FROM THE UNITED STATES
FRANCE, AND GERMANY
BY YEARS, 1890-1911
A v e r a g e actual a m o u n t s in 1 8 9 0 - 9 9 =

Average
actual
amounts
1890-99
1900-09

France
137.1

499.4

Manufactured goods

Raw materials

F'oodstuffs
United
States
419.6

100

Germany
179.6

United
States
241.1

France
369.5

325.3

585.5

524.7

101

94

74

105

98

94

91

78

101

93

Germany
106.8

United
States
286.7

France
171.5

142.6

127.9

461.4

251.6

120

105

106

98

121

Germa
521.
876.

Year
1890
•

85

1891

79

114

1892

122

107

82

110

93

84

76

98

89

1893

95

100

95

86

88

89

74

91

91

1894

92

96

85

89

84

87

86

91

94

1895

76

83

93

92

98

96

85

100

99

1896

83

92

101

88

94

102

107

100

105

1897

99

102

115

104

106

108

129

101

105

1898

141

93

112

100

105

113

135

100

109

95

107

97

136

135

158

118

124

147

201

118

136
132

1899

128

1900

130

108

115

114

122

1901

139

105

101

139

115

144

193

117

1902

122

100

95

130

132

154

188

124

141

1903

121

93

114

143

132

162

194

126

150

1904

106

98

117

161

137

167

217

133

157

1905

96

110

113

165

151

186

253

144

174

175

166

198

285

161

196

1906

•

125

207

170

219

307

175

212

142

194

151

209

311

155

191

116

150

182

191

226

278

167

192

88

121

170

197

217

254

318

180

219

92

1911

123

105

104

1909
1910

105

124

1908

100

122

1907

102*

178

249

216*

269

376

184*

241

100

100

100

100

100

100

100

100

100

119

104

120

161

147

181

243

142

168

128

'

A v e rages

1890-99
1900-09

from data in the statistical abstracts of the several countries.




The American figures are for years ending June 30.

260




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA




MITCHELL: BUSINESS CYCLES

261

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

262

The fairly close correspondence established by Table 59 between the volume
of foreign commerce and business cycles is confined almost wholly to imports
and exports of raw materials and manufactured goods. Occasional breaks in
the parallelism are caused by changes in tariffs, by wars, by the influence of
crops on purchasing power, and other factors not directly connected with business activity; but, as a rule, imports rise when times are good at home, exports
rise when times are good abroad, and vice versa.
The chief purpose of the next table is to show that these classes of commodities which do fluctuate in harmony with business cycles make a smaller
proportion of American than of foreign trade. Particularly as an exporter,
America deals more largely in foodstuffs than France or Germanv. On the
other hand, more than half of the French and German exports consist of manufactured goods.13 Conversely, among imports, manufactured goods take the
lead in America, raw materials in France and Germany."
An exaggerated idea of the relative magnitude of foreign as compared with
domestic trade is made by the fullness of the statistics for the former and the
scantiness of the statistics for the latter. Lacking records for the value of
goods bought and sold in interior markets, we are unduly impressed by the
imposing totals of imports and exports furnished by the customs houses. But
TABLE

63

ANALYSIS OP THE MERCHANDISE IMPORTS AND EXPORTS OP THE UNITED STATES, FRANCE, AND GERMANY, BV
DECADES, 1 8 9 0 - 1 9 0 9
IMPORTS
Average actual amounts in millions of dollars
A

United States
1890-99

Foodstuffs

1900-09

237.1

171.4

361.8

357.3

446.0

637.4

457.3

843.9
293.5

303.8

r

456.1

119.1

181.2

225.4

750.9

Total

1,080.0

802.2

990.0

1,044.5

511.0

1fi4SA

Relative amounts
Total actual amounts = 100
United States

1890-99

34.8%

1900-09

24.7%

1890-99

—l

Germany

France

A

Foodstuffs

1900-09

1890-99

266.6

185.5

Manufactured goods

1890-99

1900-09

261.6

Raw materials

Germany

France

A.

1900-09

1890-99

1900-09

29.6%

17.3%

34.6%

31.0%

Raw materials

24.7

33.1

55.6

64.4

43.8

51.2

Manufactured goods

40.5

42.2

14.8

18.3

21.6

17.8

100.0

100.0

100.0

100.0

100.0

-"loEo

Total

SO

13 The United States, however, has been making rapid progress in the exports of manufactured g ° ° d s
that in the second decade this class of merchandise exceeded foodstuffs in value.
. aver« Certain slight discrepancies—less than $1,000,000 in all cases—may be noted between the decennial a
ages f o r France and for Germany in tables 59 and 63.
fruits
The large American imports of foodstuffs consist chiefly of such articles as sugar, coffee, tea, tobacco,
and nuts, etc.




263

MITCHELL: BUSINESS CYCLES

TABLE

63—

(Concluded)

ANALYSIS OF THE MERCHANDISE IMPORTS AND EXPORTS OF THE UNITED STATES, FRANCE, AND GERMANY, BY
DECADES, 1 8 9 0 - 1 9 0 9
EXPORTS
Average actual amounts in millions of dbllars
United States

r

,

l ^ r ^ ^

Foodstuffs

419.6

Raw materials

286.7

461.4

171.5

Manufactured goods

241.1

585.5

369.5

"MM

Tii^i

"678T

918.9

137.1

142.6

?aDy

807.7

Total

499.4

G e r

19.9
8 09

^

10-9
9 00

106.8

1-7.9

251.6

179.6

32o.3

_524J

J2L3
1,330.0

Relative amounts
Total actual amounts — 100
,

United States

~

PVanTT
France

Germany
A

19-9
8 09

Foodstuffs

44.3%

32.3%

20.2%

15.5%

13.2%

Raw materials I I

30.3

29.8

25.3

27.4

22.2

Manufactured goods

25.4

37.9

Total
A„ 2 r
n

i l e d

error

ln

J ^ S
100.0

J ™

an effort to cast up

9.6%
24.5

64 6

fibres

6°'9

100.0

100.0

from data in the" s t a t i c a l abstracts of the s e v e r a l countriw. The American
the French figures for imports of raw materials in 1897 has been correcieu.

10-9
9 00

100.0

are for years ending June 30.

„ d i n g

he vastly greater in volume. Professor
gtetes
make the aggregate imports and exports of the: Unitedbra „ „

paitrv

^

3

h

billions as compared with a total
figures
could
"re certain elements in this estimate, no plausible c h a n g e s i i t
make the foreign trade equal 2 per cent of he d — t , - a d
For
^
three countries we have no corresponding.data'but the re
P P
^
foreign to total trade is certainly considerably larger in t,,r
Oermanv thau in the United States, and pobaldy somewhirttaj-e.- in
^
I - none of these countries, however, can thc forcign ra e n i a ^ l
the domestic trade. For example, if British
on the
double, and if British domestic trade were only «
«
'uld n o t
w0
basis „ ( Fischer's estimate, the foreign commerce of Great
equal 4 per cent of her total business.
nresented are
Accordingly, the statistics of foreign trade which have^beea^ pres
important for present purposes, less because of the *
^
itself than because changes in the volume of imports a n d e x e r t s ^
® the volume of domestic business at home and a b r o a d
J ne ng
value in this respect have been shown to be, not the gianI totals^ b
Concerning the imports and exports of raw materials and manufacture
15

The Purchasing Power of Money




( N e w York, 1911), P- 306.

g

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

264

VI.

T H E V O L U M E OF GOODS C O N S U M E D

The many efforts made to account for crises as a result of underconsumption
lend interest to the estimates of per capita consumption of staple commodities.
But unfortunately the statistics concerning this subject provided by official
bureaus are not very useful.
The chief difficulty is that the figures do not really show the quantity of
goods consumed, but the supply made available for consumption. The tacit
assumption that a nation does use up within each year substantially the quantity
of wheat and corn, tea and coffee, provided by its farmers and merchants is of
exceedingly doubtful validity. For example, if the American statistics may
be trusted, there was a notable decline in consumption between the fiscal years
1897 and 1898. Table 64 shows that in the latter year the average inhabitant
economized to the extent of 31 pounds of sugar, 10 ounces of tea, and 3 pounds
of wool. The fact is that extraordinarily large quantities of these c o m m o d i t i e s
T A B L E 64
PER CAPITA CONSUMPTION OF NINE COMMODITIES IN THE UNITED STATES
B y YEARS, 1 8 9 0 - 1 9 0 9
Actual amounts

r -

Raw
wool
Pounds

Years
ending
June 30

Wheat and
wheat flour
Bushels

Corn and
corn meal
Bushels

Sugar
Pounds

32.09

Distilled
spirits
Pf. gallons

Wines
Gallons

6.09

51.00

Tea
Pounds

Malt
liquors
Gallons

1890

Coffee
Pounds

7.83

1.33

1.40

13.67

.46

6.03
6.44

1891

4.59

22.84

60.70

8.00

1.29

1.43

14.84

.46

1892

5.94

30.48

60.22

9.67

1.38

1.49

15.24

.43

6.75
7.10

1893

4.89

23.83

64.24

8.31

1.32

1.52

16.19

.48

1894

3.44

22.96

72.99

8.30

1.36

1.34

15.32

.32

5.13

1.14

15.13

.30

7.39

1.01

15.85

.27

6.98
8.40

1895

4.59

17.18

62.69

9.33

1.40

1896

4.85

29.18

63.98

8.11

1.33

1897

3.95

29.40

78.20

1898

4.29

23.19

1899

6.09

23.51

1900

4.74

24.44

10.12

1.58

1.02

14.94

.53

47.55

11.68

.93

1.12

15.96

.28

5.44

61.98

10.79

.98

1.18

15.30

.35

4.51

58.68

9.81

1.09

1.28

16.02

.39

5.72

1.14

1.33

16.22

.37

5.18
6.07

1901

3.95

24.77

71.92

10.48

1902

6.50

18.92

63.53

13.42

.94

1.36

17.50

.63

1903

5.81

30.45

79.38

10.91

1.30

1.46

18.04

.48

5.74

1904

6.33

26.74

69.26

11.79

1.34

1.48

18.34

.53

5.66

1905

6.15

28.59

72.47

12.17

1.23

1.45

18.50

.42

6.52

1906

7.07

30.73

77.07

9.94

1.10

1.52

20.19

.55

5.88

1907

6.86

33.11

82.61

11.40

.99

1.63

21.24

.67

5.81

1908

5.41

29.11

75.61

10.07

1.07

1.44

20.98

.60

4.95

1909

6.22

29.71

82.24

11.74

1.29

1.37

19.79

.70

6.67

4.872

25.466

62.355

9.214

1.29

1.265

lo.244

.388

73.277

11.173

1.149

1.432

18.682

.534

Averages

1890-99
1900-09

5.904

27.657

Compiled from the Statistical




Abstract

of the United States,

1909.

6.417
5.820

MITCHELL: BUSINESS CYCLES

TABLE 64—

265

{Concluded)

PER CAPITA CONSUMPTION OF NINE COMMODITIES IN THE UNITED STATES
BY YEARS, 1890-1909

ending
June 30
1890

Wheat and Corn and
wheat flour corn meal
125
126

Relative amounts
Average actual amounts 1890-99 = 100
A
Distilled
Malt
Sugar
Coffee
Tea
spirits
liquors
82
85
111
103
90

Wines
119

Raw
wool
94
100

1891

94

90

97

87

100

113

97

119

1892

122

120

97

105

107

118

100

111

105

1893

100

94

103

90

102

120

106

124

111

1894

71

90

117

90

105

106

100

82

80

1895

94

67

101

101

109

90

99

77

115

1896

100

115

103

88

103

80

104

70

109

1897

81

115

125

110

122

81

98

137

131

1898

88

91

76

127

72

89

105

72

85

1899

125

92

99

117

76

93

100

90

70

1900

97

96

94

106

85

101

105

101

89

1901

81

97

115

114

88

105

106

95

81

1902

133

74

102

146

73

108

115

162

95

1903

119

120

127

118

101

115

118

124

89

1904

130

105

111

128

104

117

120

137

88

1905

126

112

116

132

95

115

121

108

102

1906

145

121

124

108

85

120

132

142

92

1907

141

130

132

124

77

129

139

173

91

1908

111

114

121

109

83

114

138

155

77

1909

128

117

132

127

100

108

130

180

104

Averages
1890-99

100

100

100

100

100

100

100

100

100

1900-09

121

109

117

121

89

113

122

138

91

. d ; ^ e d to American ports in the fiscal year 1897 and early in 1898, in
Later ti a V ° i ( * t l l e C r e a s e d duties about to be levied under the Dingley tariff.
the m? ^ l e S e
stocks, piled up in warehouses, made it possible to supply
0 l

f 0 r tj .

many months without new importations.

There is no ground

c o n sumption was so large as the fresh supplies provided in
I897
S m a U a S t h e f r e s h s u P P l i e s Provided in 1898.
T h ^ a°
ex Port f
e r i e a n % u r e s for wheat and corn are made by deducting the net
r0ni
s ^ndard crop, and dividing the remainder by the number of
the r
>
on - 16
the
No account is taken of the stock on hand at the beginning
3 *' ° r
the iiiA^
stock carried over for use in the year following. Thus,
by Coji
commerce in moderating the irregularity of current production,
stocks in seasons of abundance and distributing the store in seasons
e

th*

Statistical Abstract,




1909, pp. 585, 586.

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

266

T A B L E 65
PER CAPITA CONSUMPTION OP SIX COMMODITIES IN THE UNITED KINGDOM

Year

Coffee
Pounds

Tea
Pounds

1890

0.75

Actual amounts
A
Wine Spirits prf. Beer
Gallons
Gallons Gallons

5.17

0.40

1.02

Tobacco
Pounds

30.00

1.55

Relative amounts
Average actual amounts in 1890-99 — 100
f
Tobacco
Beer
Spirits
Wine
Tea
Coffee
92

103

100

98

96

101

102

99

95

93

1891

0.76

5.35

0.39

1.04

30.16

1.61

106
107

1892

0.74

5.43

0.38

1.03

29.75

1.64

105

97

98

101

98

97

1893

0.69

5.40

0.37

0.98

29.55

1.62

97

97

96

96

97

96

1894

0.68

5.51

0.35

0.97

29.41

1.66

96

99

90

95

96

98

1895

0.70

5.65

0.37

1.00

29.58

1.66

99

101

96

98

97

98

99

101

102
103
108

1896

5.75

0.69

0.40

30.79

1.01

1.72

97

103

103

1897

0.68

5.79

0.39

1.02

31.29

1.75

96

104

101

100

103

1898

0.68

5.83

0.41

1.03

31.76

1.82

96

104

106

101

104

1899

0.71

5.95

0.41

1.09

32.53

1.88

100

107

106

107

107

111
115

1900

0.71

6.07

0.38

1.12

31.56

1.95

100

109

98

110

104

1901

0.76

6.16

0.37

1.09

30.77

1.89

107

110

96

107

101

112

1902

0.68

6.06

0.36

1.05

30.24

1.92

96

109

93

103

99

114

1903

0.71

6.03

0.33

0.99

29.69

1.93

100

108

85

97

97

114

28.79

1.95

95

107

72

93

94

115

95

107

72

89

91

116

1.97

93

111

72

88

92

116

27.58

2.03

93

111

72

89

90

120

0.85

26.62

2.02

93

111

65

83

87

119

0.25

0.69

25.83

1.95

93

113

65

68

85

115

5.583

0.387

1.019

30.482

1.691

100

100

100

100

100

100

6.116

0.306

.946

28.675

1.957

97

110

79

93

94

116

1904

0.67

5.99

0.28

1905

0.67

5.99

0.28

0.91

27.70

1.96

1906

0.66

6.17

0.28

0.90

27.97

1907

0.66

6.21

0.28

0.91

1908

0.66

6.18

0.25

1909

0.66

6.30

1890-99 0.708
1900-09 0.684

0.95

Averages

Data from the Statistical

af

of

Abstract

of the United

thelww-

Kingdom.

Simil?5V-the

bSttf^L^r

^

™

e S t i m a t e S o f c ' o n s m "Ption

have little value except

of value to the student

V7-L
'
r s p i r i t u o u s u < X l l t v i . llltx
T
:
"es
sition of stamp taxes enables the Commissioner of ) u o r s i m d Revenueh e i deterInternal
to m p o "
mine with substantial a ^ u i a u j the quantity SOIU e a C I l s e c i s u i i .18 Even # t •
n i m c w i l i i o u u o i a i i i i a i accuracy i i i c q u a i l 11
sold each season.
—
figures are made rather irregular by changes in the rates of taxation and in
prohibition laws. x" uniicr, the considerable factor of growth blurs the e ^,
pruiiiuitiuii iciwo. Further, tue consiuerauie iacior oi growiii uiuio -—
of business cycles. Nevertheless both series, as given in Table 64, show a TO g
1
11:
• •
correlation with business conditions, falling or rising slowly ^ "hard t i n '
in h a r d
rising more rapidly in good times.
Ibid-, P
*
u a v a v u

^

v v v m . . ^

v^'.mv/iu

Wiiv/

17 The domestic production of wine, minus exports, is nowadays six times the volume of imports.

597
is Ibid., p. 597, note 2.




.

^/J

MITCHELL: BUSINESS CYCLES

267

T A B L E 66
PER CAPITA CONSUMPTION OP SIX COMMODITIES IN FRANCE
Actual amounts
v

*ear

Sugar
Pounds

Coffee
Pounds

Cocoa
Pounds

Wine
Gallons

Spirits
Gallons

Beer
Gallons

Average actual amounts in 1890-99
100
Relative amounts
——
—
—
>
Sugar
Coffee
Cocoa
Wine
Spirits
Beer

r

1890

26.24

3.90

0.81

24.82

1.15

5.81

104

93

92

85

100

93

1891

26.02

4.03

0.83

27.98

1.15

5.81

103

96

94

96

100

93

1892

27.12

4.13

0.84

25.61

1.20

6.34

108

98

95

88

105

102

1893

24.26

3.96

0.82

37.75

1.14

6.34

96

94

93

130

99

102

1894

26.02

4.01

0.85

29.04

1.07

5.81

103

95

96

100

93

93

1895
1897
1898
1899
1900

26.68

4.15

0.87

21.91

1.07

6.07

106

99

99

75

93

97

23.59

4.30

0.90

35.11

1.11

6.34

94

102

102

120

99

102

22.93

4.42

0.92

25.87

1.13

6.34

91

105

104

89

99

102

24.26
24.92

4.52
4.64

0.99
1.00

26.40
36.96

1.24
1.21

6.60
6.86

96
99

107
110

112
113

91
127

108
105

106
110

25.80

4.67

0.99

47.52

1.23

7.13

102

111

112

163

107

114

24.03

4.89

1.04

40.39

0.93

9.77

95

116

118

139

81

157

1902

26.02

4.99

1.10

28.51

0.86

9.77

103

119

125

98

75

1903

157

29.77

6.31

1.17

26.40

0.93

9.24

118

150

133

91

81

148

1901

1904

33.30

4.30

1.22

48.05

1.03

9.77

132

102

138

165

90

157

190o
1906

29.99

5.12

1.22

40.13

0.94

8.98

119

122

138

138

82

144

32.63

5.49

1.31

37.49

0.94

9.77

129

131

148

129

82

157

76

1907

32.85

5.71

1.30

46.46

0.87

9.50

130

136

147

159

1908

33.52

5.77

1.14

43.82

0.91

10.03

133

137

129

150

79

1909

34.62

6.02

1.30

39.34

0.91

10.03

137

143

147

135

79

161

4.206

0.883

29.145

1.147

100

100

100

100

100

100

Averages
1890-99 25.204

5,327
1,179
39,811
Data 0 ^ 3 0 ' 2 5 3
a from the Annuaire statistique de France.

the 'TV16

0,955

6.232
9,399

120

127

134

137

83

151

statistics in Table 65 are more regular and more significant than
^ u t again, changing habits of consumption mask part of the
tea n ° e
business conditions. Since 1890 the British have been using more
^ r i t ' h *eSS e o ^ e e > while the opposite is true of Americans. Further, the
1 con sumption of wine, spirits, and beer has declined, while the American
Con
perif
* l a s risen. There are indications, however, that business prosbusi
to check a decline and to stimulate a growth in consumption, while
e s s depression has the opposite tendencies.
iCan
* the French figures (Table 66) are almost as irregular as the Amerfeugar
and wine reflect the fortunes of French agriculture; coffee shows
an
by t h e l a 0 r d i n a r y J u m P i n 1 9 0 3 a n d d e c l i n e i n 1 9 0 4 5 b e e r appears to be affected
whic^ a ' 3 U U ( ^ a n c e o r scarcity of wine and has a very high factor of growth
beer m a y
result from the diminishing use of spirits; finally, cocoa, like
a rou S ^ einS t o b e u s e ( i P a r tly as a substitute for wine, but nevertheless shows
g h d e l a t i o n with business cycles.
neriean*




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

268

VII.

UNEMPLOYMENT

Another aspect of the volume of business is shown by the statistics of
unemployment. Unfortunately, systematic information upon this subject is
exceedingly meagre in the United States. The Geological Survey reports
annually the average number of days in which the bituminous and anthracite
coal mines are operated; but we have data covering no other industry in each
year since 1890.'" Of these two series, that for bituminous mines is the more
significant, because less affected by serious strikes. The figures reflect the
decline of business activity after the panic of 1893, the brief revival of 1895,
the sustained revival after 1896, the depression of 1903-04, the fresh revival of
1905-07, and the depression of 1908.

TABLE

67

AVERAGE NUMBER OP DAYS IN WHICH THE COAL MINES OP THE UNITED STATES WERE OPERATED
BY YEARS, 1 8 9 0 - 1 9 0 8
Actual number of
days

Relative number of days
Average actual number in
1890-99 = 100
>

Bituminous
mines
109

Year
1890

Anthracite
mines
200

Bituminous^
mines
226

Anthracite
mines
109

1891

203

223

111

108

1892

198

219

108

106

1893

197

204

107

99

1894

190

171

104

83

1895

196

194

107

94

1896

174

192

95

93

1897

150

196

82

95

1898

152

211

83

102

1899

173

234

94

113

1900

166

234

91

113

1901

196

225

107

109

1902

116

230

63

111

1903

206

225

112

109

1904

200

202

109

98.

1905

215

211

117

102

1906

195

213

106

103

1907

220

234

120

113

1908

200

193

. 109

93

Averages
1890-99

183.3
207.0
100
Compiled from the reports of the U. S. Geological Survey on Slintral Retourctt

100
of the Vaitrd State,

1908, Part

! » S e e Scott Nearing, " T h e Extent of Unemployment in the United S t a t e s . " Quarterly
American Statistical Association, September, 1909; vol. xi, pp. 525-542: " S t a t i s t i c s of
Bulletin of the United States Bureau of Labor, No. 109, October 15,~1912."'




P'

^

PuWcat\0^m°Jnt,''

Unemp' 0 ?

MITCHELL: BUSINESS CYCLES

—

9

'

92

93

34

'95

'%

'97

'98

'99

1300 '01

*02

'03

'04

'05

269

'06

'07

'08

'09

1910

Lab"*1 ® n gland the trade-unions which pay unemployed benefits report to the
lagt
apartment the percentage of their members receiving such aid on the
f*rit'
°^ e a e ^ m o n th. 2 0 These reports have made possible the admirable
the 4
unemployment. While the returns are far from covering
^ake th
* n d u s try, they are sufficiently inclusive in their scope " t o
^ a r J • m o v e i l l e n t s of the general unemployed percentage over a period of
l y r e P r e s e n tative of labour conditions as a whole."21
this S
Table 68 shows
percentage, the percentages for several trades separately, and the
l n ( ^ e x numbers of employment.
For convenience of comparison, the
Corre
the r
series showing the percentage of members out of work among
Th
"^ r e n c h l m ions is inserted in the same table,
t i s h s e r i e s indicates that work was plentiful in 3890.
times 6
Thereafter
g P e W s t e a d i l y worse for wage-earners until 1893-94, then better until
I899
- - e again until 1904, better once more until 1906, worse until 1908, and
fi
accord i e r a g a i n i n i 9 1 0 " 1 1 - T h a t i^ the fluctuations of unemployment
Perfectly with reports of business conditions published by the
8tract

of 7 * a 6 o L ° o , S t r i k e o r l o c k e <* out, sick or superannuated, are excluded from the figures."
Stics °f t h e United Kingdom, 1906-07, p. 3, note,
H B
everidge, Unemployment (London, 1909), pp. 22, 23.

21 W -




Twelfth

Ab-

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

270

Economist. The maximum swing from the best to the worst years is 5.5 per
cent of the membership of the reporting unions in 1890-99 and 5.3 per cent of
the membership in 1900-09.
The French figures run upon a higher level than the British; but that fact
possesses little significance because of differences in the trades represented.
The series does not begin until recovery from the depression of the early nineties
was under way. A fairly stable level of employment is indicated until 1900.
But the crisis of that year was followed by hard times and involuntary idleness
increased among workingmen until 1904." The tide turned in 1905; 1906 and
1907 were busy years, and even the depression of 1908 was less severe than that
of 1902-04 if this gauge may be trusted.22
TABLE

68

STATISTICS OF UNEMPLOYMENT IN THE UNITED KINGDOM AND FRANCE
France

United Kingdom
Percentages unemployed in certain industries

Year
1890

Index
number of
employment
Average
of 189099 = 100
102

All unions
included
in the
returns
2.1

Engineering,
shipbuilding,
and metal
2.2

Building
2.2

4.1

1.9

1891

101

3.5

1892

98

6.3

7.7

3.1

1893

97

7.5

11.4

3.1

1894

97

6.9

11.2

1895

98

5.8

1896

101

1897
1898

Woodworking
Printing
and
and
furnishing
bookbinding
2.5
2.2

All other
trades
included in
the returns
1.6

4.0

1.7

3.8

4.3

5.6

4.1

4.1

2.6

4.3

4.4

5.7

1.9

8.2

4.4

3.6

4.9

3.3

7.0

3.3

4.2

1.3

2.0

4.3

2.3

6.7

101

3.3

4.8

1.2

2.2

3.9

1.8

6.9

102

2.8

4.0

0.9

2.3

3.7

1.5

2.1

1899

102

2.0

2.4

1.2

2.1

3.9

1.2

1900

102

2.5

2.6

2.6

2.8

4.2

1.6

1901

101

3.3

3.8

3.9

3.7

4.5

2.1

1902

100

4.0

5.5

4.0

4.1

4.6

1.9

1903

99

4.7

6.6

4.4

4.7

4.4

7.3
6.6

2.5

1904

98

6.0

8.4

7.3

6.8

4.7

99

5.0

6.6

8.0

5.8

5.1

101

3.6

4.1

6.9

4.8

4.5

101

3.7

4.9

7.3

4.6

4.3

1.6

1908

96

7.8

12.5

11.6

8.3

5.5

2.9

1909

96

7.7

13.0

11.7

7.6

5.6

9.4
10.2

1.9

1907

9.9

2.3

1906

7.8

3.0

1905

6.8

2.6

1910

99

4.7

6.8

8.3

5.4

4.9

101

3.0

3.4

4.2

3.3

5.1

100

4.35

6.02

2.36

2.91

4.10

99

4.83

6.80

6.77

5.32

4.74

8.6
7.3
5.8

2.35

1900-09

7.0

2.1

Averages
1890-99

7.6

2.2

1911

9.0

2.24

Data from the Fourteenth
France, 1908, p. 178*.
22 T h e G e r m a n figures
significance as y e t .




Abstract

of Labor Statistics of the

United Kingdom,

showing the percentage of unemployment

1908 09, pp. 2 and 6 ;

cover

4.7

8.36
tisW
At

assess
t o o s h o r t a t i m e t o p<

271

MITCHELL: BUSINESS CYCLES

CHART

43.

INDEX NUMBERS OF EMPLOYMENT IN THE UNITED KINGDOM.
AVERAGE o r

1890 '91

'92

95

'94

'95

%

'97

'98

1690-1899 - 100.

1900 'O,

'02

'05

"04

^

^

^

'<»

Among the American figures patterned after the British statistics of unemployment, the following series published by the New York State Department of
Labor Statistics is perhaps the best. It shows the average percentage of
members reported out of work by upwards of 200 trade unions.
14.89!

1907

16.2%

1903..

17.5

190 8

29.7

1904..

16.9

190 9

I8-5

1905..

11.2

191 0

19-1

9.3

191 1

21.1

1902..

1906..

.

The exceedingly high level upon which these
figures
depression
than the violence of the changes from good years
t
depression
of 1903-04, the prosperous times of 1905-06, the j w w t f ^
1910.n are
of 1908, the brief revival of 1909, and the returni of
»
maximum
H reflected in this series. But the most ^ ^ J ^ i m u m .
Percentage of unemployment is more than three times the n

less

V I I I .

PER

C A P I T A I N D I C E S OR T H E V O L U M E OE

BUSINESS

(
\ f business cycles is usuaii>
The volume of business important for the study o
^ B u t s o m e times
rf? total volume as measured in physical or pecuma :
>
i t h t h e changes
1 1 1 8 desirable to know the changes in this volume a s w m p w e
^
* Population. To serve such purposes, Beveralofthemo
g
^
shown in the preceding tables have been reduced to a pei cap



i n d i c e s

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

272

The results, presented in the next table, throw the effects of prosperity and
depression into higher relief, because they reduce, though without wholly
eliminating, the obscuring factor of growth. Per capita figures also make
possible fairer comparisons between the provision made in different countries
for the material welfare of each citizen. Especial interest attaches to the
relative figures. They show that the rate of progress has been fastest in the
United States and next fastest in Germany, except in reference to foreign
commerce, where the rank of these two leaders is reversed. More surprising
i s the conclusion that in most of the lines investigated France has p r o g r e s s e d
more rapidly than the United Kingdom.

TABLE

69

INDICES OF THE VOLUME OF BUSINESS IN THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY,
REDUCED TO A PER CAPITA BASIS
B Y YEARS, 1 8 9 0 - 1 9 1 0
Tons of coal produced
per capita

Tons of pig-iron produced
per capita
>

Value of pig-iron produced in dollar*
per capita

United
Kingdom

France

Germany

United
States

United
Kingdom

France

.46

.211

.049

.093

2.40

3.12

.703

1.87

.130

.196

.049

.092

2.01

2.51

.625

.677

1.81

.141

.176

.052

.097

2.01

2.20

.625

4.26

.651

1.85

.107

.182

.052

.096

1.28

2.00

.599

2.25

4.83

.703

1.89

.099

.190

.052

.103

0.96

2.13

.599

1895

2.50

4.85

.7.27

1.96

.136

.196

.052

.104

1.52

2.30

.545

1896

2.43

4.92

.753

2.10

.122

.220

.060

.119

1.28

2.55

.675

1897

2.50

5.05

.777

2.22

.135 .

.220

.062

.127

1.33

2.58

.725

1898

2.69

5.00

.825

2.32

.162

.213

.064

.132

1.61

2.72

.799

1899

3.06

5.39

.823

2.43

.183

.230

.064

.145

3.30

3.90

.925

1900

3.16

5.46

.848

2.63

.181

.218

.069

.150

3.41

4.44

1.105

1901

3.38

5.26

.821

2.65

.205

.190

.062

.137

3.12

2.91

.846

1902

3.40

5.40

.767

2.56

.225

.207

.061

.145

4.71

3.26

.793
.895

United
Kingdom

France

Germanj 7

1890

United
States
2.24

4.85

.677

1.79

1891

2.37

4.89

.677

1892

2.46

4.78

1893

2.46

1894

Year

United
States

1903

3.95

5.45

.870

2.73

.223

.211

.072

.169

4.26

3.25

1904

3.81

5.45

.867

2.81

.200

.204

.074

.166

2.82

2.91

1905

4.17

5.49

.893

2.84

.273

.223

.077

.177

4.54

3.42

1906

4.32

5.78

.865

3.10

.295

.233

.084

.198

5.90

3.96

1907

4.91

6.13

.916

3.27

.296

.231

.089

.205

6.07

4.17

1908

4.17

5.94

.939*

3.37

.179

.206

.086*

.184

2.86

3.17

1909

4.54

5.93

.939*

3.36

.285

.213

.089*

.195

4.62

3.37

1910

4.86

5.88

.962*

3.39

.296

.223

.101*

.226

4.61

2.496

4.882

.7290

2.024

.1361

.2034

.0556

.1108

1.770

2.601

1900-09

3.981

5.629

.8725

2.932

.2362

.2136

.0763

.1726

4.231

3.486

1.09

1.00
1.07

1.08
1.34
1.55
1.65
1.96
2.34

2.06
1.87
2.13

3.72

1890-99

1.30

1.10

Averages

.944
1.046
1.298
1.043
1.370*
1.446*

.682
1.0786

2.08
2.29
2.78

3.16
2.70

2.59

2.96
1.314
2.400

.. itead of * *
* Provisional figures, subject to revision.
Computed from data in the preceding tables of this chapter, except that the population of the United Kingdom O
figures for England and Wales given in Table 4 7 ) is used as the divisor of amounts which relate to that area.




MITCHELL: BUSINESS CYCLES

TABLE 69—
S

273

(Continued)

OF THE VOLUME OF BUSINESS IN THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY,
REDUCED TO A PER CAPITA BASIS

Bushels of wheat produced
per capita
United
TTnitli
^
S t »tes
Kinirf
^
8
c oa
France Germany
6.34
2.08
8.05
2.11

Ye*r
IOV
-1890
1891

Railway gross earnings in dollars
•
per capita
'

United
States
16.7

United
Kingdom
9.9

France
5.81

Bank clearings in
dollars per capita

Bills of exchange
in dollars
> t
>
^
per capita
U.S.outside England ,
*
N
Germany New York London
France Germany
141
68.1
1,319
6.30
367

9.59

1897

10.1

5.96

6.43

359

1,144

143

70.3

1.65

8.10

2.31

18.0

10.0

5.94

6.38

389

1,071

136

67.4

1.35

7.24

2.17

18.4

9.7

6.07

6.59

345

1,057

137

68.9

1.62

9.06

2.16

15.9

10.0

6.20

6.55

312

1,023

133

68.0

.99

8.83

2.25

15.6

10.1

6.34

6.87

338

1,213

134

71.9

6.09

1896

17.2

6.78

1895

1.73

6.81

1894

5.70

5.97

1893

2.04

7.93

1892

1.52

8.83

2.39

16.4

10,5

6.49

7.16

319

1,198

140

74.6

1.45

6.40

2.24

17.1

10.7

6.68

7.44

332

1,170

144

79.5

1.91

9.36

2.45

17.1

11.0

6.88

8.05

369

1,251

151

86.6

1.69

9.36

2.55

17.7

11.4

7.07

8.39

448

1,395

157

93.5

1.36

8.38

2.52

19.5

11.7

7.53

8.62

438

1,354

160

99.6

1.35

7.98

1.62

20.5

11.7

7.21

8.26

503

1,426

153

93.5

1.43

8.39

2.47

21.8

11.8

7.29

8.34

527

1,479

152

89.4

1.18

9.31

2.24

23.5

11.9

7.42

8.79

535

1,477

160

91.5

.92

7.63

2.35

23.9

11.9

7.45

9.08

532

1,530

165

94.3

1.44

8.55

2.26

24.8

11.9

7.76

9.62

595

1,759

170

104.3

1.43

8.27

2.37

27.1

12.1

8.09

10.23

644

1,804

187

110.4

1.33

9.59

2.06

29.7

12.5

8.35

10.53

662

1,787

196

119.8

1.27

8.07*

2.19

26.9

12.2

8.50*

10.21

597

1,681

191*

111.8

1.46

9.04*

2.17

26.7

12.1

8.63*

10.63

687

1,859

197*

124.6

1.29

6.53*

2.20

29.8

12.4

11.19

724

1,991

214*

124.3

1.46

7.97*

2.28

721

1,964

1.630

8.093

2.236

17.01

10.34

6.344

7.016

357.8

1,184.1

141.6

74.88

'317

8.521

2.225

24.44

11.98

7,823

9.431

572.0

1,615.6

173.1

103.92

7.40
9.26
7.36

1900

6.84

1901

9.64

1902

8.46

1903

7.90

1904

6.69

1905

8.24

1906

8.58

1907

7.26

1908

7.48

1909

8.14

1910

6.89

1911

6.62

128.1

A*?raees

7.353
1 9 0 0

^

7.923
1

figures, subject to revision.




274

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

TABLE 69—

(Continued)

INDICES OF THE VOLUME OF BUSINESS IN THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY,
REDUCED TO A PER CAPITA BASIS
Imports of merchandise in
millions of dollars

Exports of merchandise in
millions of dollars

Year
1890

United
States
13.1

United
Kingdom
46.2

France
22.3

Germany
20.1

United
States
13.6

United
Kingdom
34.2

France
18.9

Germany
16.1

1891

13.0

48.1

24.0

19.8

15.2

31.8

17.9

15.2

1892

12.9

45.9

21.0

19.0

14.4

29.0

17.4

14.0

1893

11.7

43.7

19.4

18.6

13.2

27.6

16.3

14.5

1894

10.0

43.9

19.3

18.3

12.2

27.0

15.5

13.7

1895

11.6

44.3

18.6

18.9

12.0

28.1

16.9

15.2

1896

9.7

47.4

19.0

19.4

14.3

29.5

17.0

15.9

1897

10.4

47.6

19.8

20.8

15.4

28.5

18.0

16.1

1898

8.7

49.4

22.2

22.2

17.2

28.1

17.5

16.4

1899

10.8

50.1

22.4

23.6

17.2

31.5

20.6

18.1

1900

10.9

54.3

23.3

24.5

19.4

34.4

20.4

19.6

1901

11.3

53.1

21.6

22.7

18.9

32.8

19.8

18.5

1902

12.2

53.6

21.7

23.2

17.2

32.8

21.0

19.3

1903

12.3

54.6

23.7

24.4

18.4

33.5

21.0

20.4

1904

12.6

54.9

22.2

25.4

17.6

34.3

21.9

20.9

1905

14.0

55.2

23.5

28.1

19.3

37.3

24.0

22.6

1906

15.4

58.6

27.6

31.2

21.0

42.1

25.9

24.7

1907

16.3

61.7

30.6

33.6

22.0

47.4

27.5

26.3

1908

12.6

56.6

27.6*

29.0

19.7

41.6

24.7*

24.2

1909-

16.3

58.3

30.6*

31.8

18.8

41.4

28.0*

24.6

1910

17.0

62.3

35.0*

32.9

19.8

46.6

30.5*

27.5

1911

16.3

62.1

39.9*

35.3

21.9

48.8

30.2*

29.5

11.19

46.66

20.80

20.07

14.47

29.53

17.60

25.24

27.39

19.23

37.76

23.42

Averages
1890-99

13.39
56.09
1900-09
* Provisional figures, subject to revision.




15.52

22.11

MITCHELL: BUSINESS CYCLES

TABLE 69—

275

(Continued)

INDICES OF THE VOLUME OF BUSINESS IN THE UNITKD STATES, UNITED KINGDOM, FRANCE, AND GERMANY,
REDUCED TO A PER CAPITA BASIS
Relative

figures.

A v e r a g e actual figures 1 8 9 0 - 9 9 =

Tons of coal produced
per capita
Year
1890

A
United United
States Kingdom France Germany
90
99
93
98

100
Value of pig-iron produced
per capita

Tons of pig-iron produced
per capita
United United
States Kingdom France Germany
84
88
104
107

United United
States Kingdom France Germai
120
136
130
99

1891

95

100

93

92

96

96

88

83

114

97

92

84

1892

99

98

93

89

104

87

94

88

114

85

92

83

1893

99

87

89

91

79

89

94

87

72

77

88

76

1894

90

99

96

93

73

93

94

93

54

82

88

81

1895

100

99

100

97

100

96

94

94

86

88

80

82

1896

97

101

103

104

90

108

108

107

72

98

99

102

1897

100

103

107

110

99

108

112

115

75

99

106

118

1898

108

102

113

115

119

105

115

119

91

105

117

126

1899

123

110

113

120

134

113

115

131

186

150

136

149

1900

127

112

116

130

133

107

124

135

193

171

162

178

135

108

113

131

151

93

112

124

176

112

124

157

136

111

105

126

165

102

110

131

266

125

116

142

158

112

119

135

164

104

129

153

241

125

131

162

153

112

119

139

147

100

133

150

159

112

138

158

167

112

122

140

201

110

138

160

256

131

153

174

173

118

119

153

217

115

151

179

333

152

190

212

197

126

126

162

217

114

160

185

343

160

153

240

167

122

129*

166

132

101

155*

166

162

122

201*

205

182

121

129*

166

209

105

160*

176

261

130

212*

197

195

120

132*

167

217

110

182*

204

260

143

100

100

100

100

100

100

100

100

100

100

100

115

120

145

174

105

137

156

239

134

158

183

1901
3902
1903
1904
1905
1906
1907
1908
1909
1910

225

Av<
erage8
1890^99

loo

1 9 0 0 - 0 9 159
Provisional

figures>

subject to revision.




276

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

TABLE 69—

(Continued)

INDICES OF THE VOLUME OF BUSINESS IN THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY,
REDUCED TO A PER CAPITA BASIS
Relative

figures.

A v e r a g e a c t u a l figures 1 8 9 0 - 9 9 =

Bushels of wheat produced
per^capita
Year
1890

Railway gross earnings
per capita

United United
States Kingdom France Germany
86
138
99
94

United United
States Kingdom France Germany
98
96
92
90

100

Bank clearings
per capita

Bills of exchange
per capita

1891

130

125

70

77

101

98

94

92

100

97

101

94

1892

108

101

100

103

106

97

94

91

109

90

96

90

1893

81

83

89

97

108

94

96

94

96

89

97

92

1894

93

99

112

97

93

97

98

93

87

86

94

91

1895

92

61

109

101

92

98

100

98

94

102

95

96

1896

83

93

109

107

96

102

102

102

89

101

99

100

1897

101

89

79

100

101

103

105

106

93

99

102

106

1898

126

117

116

110

101

106

108

115

103

106

107

116

1899

100

104

116

114

104

110

111

120

125

118

111

125

1900

93

83

104

113

115

113

119

123

122

114

113

133

1901

131

83

99

72

121

113

114

118

141

120

108

125

1902

115

88

104

110

128

114

115

119

147

125

107

119

1903

107

72

115

100

138

115

117

125

150

125

113

122

1904

91

56

94

105

141

115

117

129

149

129

117

126

1905

112

88

106

101

146

115

122

137

166

149

120

139

1906

117

88

102

106

159

117

128

146

180

152

132

147

1907

99

82

118

92

175

121

132

150

185

151

138

160

1908

102

78

100*

98

158

118

134*

146

167

142

135*

149

1909

111

90

112*

97

157

117

136*

152

192

157

139*

166

1910

94

79

81*

98

175

120

159

202

168

151*

166

1911

99

90

98*

102

201

166

Averages
1 8 9 0 - 9 9 100

100

100

171

100

100

100

100

100

100

100

100

100

1 9 0 0 - 0 9 108
81
105
. 99
+ 11 —i_2__
* Provisional figures, subject to revision.

144

116

123

134

160

136

122

139




\

U. S. out- England
side N. Y. London France Germany
91
103
111
100

277

MITCHELL: BUSINESS CYCLES

TABLE

69—

(Concluded)

INDICES OF THE VOLUME OP BUSINESS IN THE UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY,
REDUCED TO A PER CAPITA BASIS
Relative

figures.

A v e r a g e a c t u a l figures 1 8 9 0 - 9 9 =

100

Exports of merchandise per capita

Imports of merchandise per capita

United
Kingdom
116

France
107

105

108

102

98

95

100

98

99

90

93

93

91

93

93

93

94

93

91

84

91

88

88

104

95

89

94

83

95

96

98

1896

87

102

91

97

99

100

97

102

.1897

93

102

95

104

106

97

102

104

1898

78

106

107

111

119

95

99

106

1899

97

107

108

118

119

107

117

117

1900

97

116

112

122

134

116

116

126

1901

101

114

104

113

131

111

112

119

1902

109

115

104

116

119

111

119

124

1903

110

117

114

122

127

113

119

131

1904

113

118

107

127

122

116

124

135

1905

125

118

113

140

133

126

136

146

1906

138

126

133

155

145

143

147

159

1907

146

132

147

167

152

161

156

169

1908

113

121

133*

144

136

141

140*

156

1909

146

125

147*

158

130

140

159*

158

1910

152

134

168*

164

137

158

173*

177

1911

146

133

192*

176

151

165

172*

190

Averages
1890-99

100

100

100

100

100

100

100

100

1900-09

120

120

121

136

133

128

133

143

Year
1890

United
States
117

United
Kingdom
99

France
107

1891

116

103

115

99

1892

115

98

101

1893

105

94

1894

89

1895

* Provisional

figure8,




subject to revision.

Germany
100

^United
States
94

Germany
104

CHAPTER

VI

THE CURRENCY
I . T H E PRODUCTION OF GOLD

Gold mining is one of the branches of production in which the output is
but slightly affected by business cycles. It has often been pointed out that
prosperity tends to check the production of gold by increasing the operating
expenses of mines. Of course the gold miner has not the recourse open to most
business men of raising the price of his product. Hence mines which pay but
a small profit in years of depression may be closed in years of prosperity.
What is more important, the low-grade ore in profitable mines may be extracted
or not according as operating expenses fall or rise. But it is not often noted
that capital for exploiting gold mines, improving transportation in mining
districts, and the like, can be raised more readily when investors are in an
optimistic frame of mind than when they are rendered conservative by hard
times. Which of these factors is the more weighty is neither easy nor important
to determine. For the factors of decisive weight in changing the annual production in the period under discussion belong to a different order—the discovery
of new deposits of gold, improvements in the arts of mining and metallurgy,
and the maintenance of peace in the chief producing districts.
How large a part the latter factors have had in causing the marked increase
in gold production since 1890 may be inferred from the following table. The
development of the South African mines, discovered in the eighties, has contributed the lion's share of the increase. But the low-grade African ores could
not have been worked at a profit by the methods in use a generation before.
A similar combination of discoveries and advance in technique made in other
quarters of the globe accounts for the remaining increase. On the other hand,
the marked decline of production in 1900 was due to the Boer War.
Rapid as the increase has been, the rate of increase lias fallen off in a notable
degree since the later nineties. This fact is brought out by the last column
of the table, which shows the annual gain or loss in the form of a percentage
of the preceding year's output. The average of these percentages in the s e c o n d
decade is less than half the average of the first decade.




[ 278 ]

279

MITCHELL: BUSINESS CYCLES

T A B L E 70
THE PRODUCTION OP GOLD BY YEARS, 1890-1911
Annual production of gold
A
Relative amounts
Average actual amounts
Actual amounts
in 1890-99 = 100
Millions of dollars
>
Africa
World
r World
Africa

r

Year

Per cent of
increase ( + ) or
decrease ( — ) in
comparison with
preceding year

1890

119

11

61

26

— 3.8%

1891

131

16

67

38

+

1892

147

24

75

57

+12.2

1893

157

29

80

69

+

1894

181

40

92

95

+15.0

1895

199

45

101

107

+

9.7

1896

202

45

103

107

+

1.8

1897

236

59

120

140

+16.7

1898

287

80

146

190

+21.5

1899

307

73

156

173

+

1900

255

9

130

21

—17.0

1901

261

9

133

21

+

1902

297

39

151

92

+13.7

1903

328

68

167

161

+ 10.4

1904

347

86

176

204

+

6.0

1905

380

113

193

268

+

9.5

1906

403

135

205

320

+

5.8

1907

413

152

210

360

+

2.5

1908

443

167

225

396

+

7.3

1909

454

171

231

405

+

2.5

1910

455

175

231

415

+

.2

235

460

+

1.5

1911

194

462

Averages

9.9

7.4

6.9

2.5

1890-99

42.2

100

100

+

9.7

1900-09
Dat*

196.6
358.1

94.9

182

225

+

4.3

compiled from the Reports of the Director of the Mint upon the Production

II.

of the Precious

Metals.

T H E Q U A N T I T Y OF GOLD CURRENCY

i s not°(T
^ i s new gold has gone into monetary use, and remained there,
^finitely known. Scrupulously accurate records are kept of the quantity
0f
^ C O I N
°
*'
P r °blem, ( 1 ) because large sums of
C

I N E C

D O

N O T

S O L V E

T H E

serve monetary uses in the reserves of governments and banks,
s m i t ^ C a u s e considerable sums of gold coin are annually melted down by golds> ^c., and (3) because few mint reports distinguish between the new




280




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

MITCHELL: BUSINESS CYCLES

281

bullion and the old coin, old plate, etc., which they turn into money. Indeed,
the tables compiled by the American mint make out that more gold has been
coined in the world since 1890 than has been mined.1
Another method of attacking the problem is to estimate the quantity of
new gold which is consumed in the arts and drained away to the Orient. Since
1893 the Director of the United States Mint has undertaken to make annual
estimates of "the world's industrial consumption of gold." His figures indicate that in 1893-1909 about one-quarter of the annual output of the mines has
been used in the arts. If the absorption of gold by British India is added to
the industrial consumption, the proportion of the output withdrawn from
monetary use in the Occident is raised from one-quarter to rather more than
one-third.2 These estimates, however, are admittedly based on inadequate
returns, and are therefore subject to a wide margin of error. Another competent authority, Professor L. de Launay of the Ecole Superieure des Mines,
has recently estimated the industrial consumption at 40 per cent of the output,
oriental absorption at 16 per cent, and coinage at 44 per cent.3 Whether the
actual proportion of the new gold which has gone into monetary use in the
west is nearer the mint's ratio of two-thirds or Launay's ratio of two-fifths,
1 For 1890-1909 the figures are: aggregate production $5,547 millions, aggregate coinage $5,811.
Report on
the Production of the Precious Metals in 1909, p. 36; Report of the Director of the Mint, 1910, p. 61. Of course,
the discrepancy may be due in part to an underestimate of the gold production. For the grounds for suspecting such an error in the figures, see L. de Launay, The World's Gold, translated by O. C. Williams (London,

1 9 0 8 ) , pp. 161-168.
2 THE INDUSTRIAL CONSUMPTION AND INDIAN ABSORPTION OF GOLD
Industrial consumption

A

Year

United
States

1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910

13
10
12
11
11
13
17
19
20
23
24
23
28
33
34
15
30
34
Sums 370
of production 6.5%

^

Other
countries

39
44
48
50
50
54
58
58
62
55
55
57
57
61
66
63
82
78
1,037
18.2%

Indian
absorption

+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+

6
11
14
14
24
29
39
12
16
38
43
43
13
59
69
27
90
75
+ 600
10.5%

—

Total
Columns
1, 2, and 3

World's
production
of gold

58
43
74
75
85
96
114
89
98
116
123
123
98
153
168
106
202
187
2,008
35.2%

157
181
199
202
236
287
307
255
261
297
328
347
380
403
413
443
454
455
5,705
100%

Per cent of
column 4 to
column 5

37%
24
37
37
36
33
37
35
38
39
38
35
26
38
41
24
44
41

accn ° i U m n 1 shows the amount of new bullion and gold coin consumed in the arts in the United States. In
a d d e d * C e W i t h t h e D i r e c t o r o f t h e Mint's revision of the gold-stock estimate, $2,000,000 a year has been
elers
/0Qthe c o n s u m Ption in 1893-1902 to correct the original understatement of the gold coin melted by jewthe p \ e e . t h e Director's report for 1907, p. 86.) Column 2 has been compiled from the annual Reports on
ction.
import
°f ^e Precious Metals. Column 3 shows the production of gold in British India, plus the net
from
° r . m i n u s t h e n e t exports. The figures are for the fiscal years, beginning April 1. They are taken
Statist* ^ r t i c l e b y F - J- Atkinson, Accountant-General of the United Provinces of India (Journal of the Royal
Pm,*?, f- Sodety, vol. 72, p. 563). The data for 1909 and 1910 have been computed from the Report on the
Production of the Precious Metals.
3

The World's




Gold, p. 178.

Launay does not publish the data upon which his estimate rests.

282

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

we do not know. We cannot even aver with certainty that the average ratio
falls within these limits. The one fact of present interest which the mint's
investigation does establish is that the industrial consumption of gold, like that
of other luxuries, varies widely between periods of prosperity and of depression.
So far as this factor counts, it restricts the increase in the quantity, of money
when business is active and expands the increase when business is dull.
The United States is the only one of our four countries in which the statistics
of coinage and industrial consumption are used in framing an annual estimate
of the quantity of gold money. Starting with his estimate for the close of
the preceding year, the Director of the Mint adds the net increase in gold coined
during the current year and the imports of American coin. On the other hand,
he deducts the estimated industrial consumption and the exports of coin. Of
these items, none but the coinage can be accurately determined. Even the
exports and imports must be guessed at in part; for no one knows what sums
of gold coin are taken out of and brought into the country by immigrants,
emigrants, and travelers. Moreover, if the error in the estimates runs the same
way year after year a mistake of a million will presently mount to tens of
millions. Convinced by the criticisms of Muhleman and others that the official
estimate was too high, the Director of the Mint made a thorough revision of
the figures in 1907, and deducted a round $135,000,000 from the monetary stock
of gold to correct errors which had been accumulating since 1873.4 There is
no satisfactory way of determining the margin of error to which even these
revised figures are subject; but they probably do show with approximate accuracy the facts of most importance for this inquiry, namely, the change from
one year to the next since 1890.
According to the figures (Table 71), the monetary stock of gold declined
$145 millions between the end of 1890 and 1895—a period when business was
depressed, the treasury in straits, and, most important of all, when the maintenance of the gold standard seemed doubtful. After Mr. Bryan had been
defeated, the treasury deficit had been wiped" out, and business had improved,
the gold losses were promptly made up—made up more than twice over by
1900. Thereafter the increase was steady but moderate until 1906 and 1907,
when more than $300 millions were added to the stock. The dull year 1908
brought a small additional gain, and the more active year 1909 a still smaller
loss. Thus the largest relative gains were scored by the gold stock in 1896-98
and again in 1906-07—the first a season of increasing trade and reviving confidence in the monetary situation, the second a season when a great business
boom culminated and ended in a panic.
The chief sources from which arise the gains or losses of gold shown by
Table 71 are set forth in the next table. According to these official estimates,
* Report of the Director




of the Mint, 1907, pp. 66-94.

283

MITCHELL: BUSINESS CYCLES

in the long run the United States—though one of the leading gold producers
of the world—absorbs a part of the metal produced elsewhere, in addition to
the output of its own mines. But in short periods monetary legislation and
business conditions frequently reverse this situation, not merely stopping the
American absorption of foreign gold but even expelling a part of the current
American product to foreign lands.5

TABLE

71

OFFICIAL ESTIMATE OF THE MONETARY STOCK OF GOLD IN THE UNITED STATES ON DECEMBER 31 OF EACH YEAR,
1890-1911

Year
1890

Monetary stock
_A
,
Relative amts.
Actual
Av. actual
amounts in
amounts in
millions of
1890-99 = 100
dollars
101
648

Increase ( + ) or decrease ( — )
during the year
Actual
amounts in
millions of
dollars

In percentages
of stock at
end of
preceding year

+

15

+

2.2%

1891

626

97

—

22

—

3.4

1892

582

90

—

44

—

7.0

9

+

1.5

1893

591

92

1894

539

84

—

52

—

8.8

1895

503

78

—

36

—

6.7

1896

589

91

+

86

+17.1

1897

638

99

+

49

129

+

+194

+

8.3

+30.4

1898

832

1899

897

139

+

65

+

1900

989

153

+

92

+10.3

1901

1,050

163

+

61

+

6.2

1902

1,121

174

+

71

+

6.8

1,192

185

71

+

6.3
2.1
5.8

1903

+

7.8

1904

1,217

189

+

25

+

1905

1,288

200

+

71

+

+ 13.2
+10.1

1906

1,458

226

+ 170

1907

1,605

249

+147

1908

1,654

257

+

49

+

3.1

—

16

—

1.0

1909

1,638

254

1910

1,709

265

+

71

+

4.3

1,797

279

+

88

+

5.1

1911
Averages
1890-99
1900-09

644.5
1,321.2

100

+

26.4

+

4.1

205

+

74.1

+

6.3

thefiiflj®
"corrected" figures for 1890-1906 in the Report of the Director
—
~
Port of the Treasurer of the United States, 1910, pp. 61-62.
5 FJ
PJ
SCre anc es

of the Mint, 1907, p. 87, and continued

* P | shown b y Table 72 between the net gain or loss of gold by mining, foreign trade, and
monetarv st°n®umPtlon' on the one hand, and on the other hand the net increase or decrease in the estimated
a r e d . u e c h i e % to the carrying of coin out of or into the country by travelers, soldiers going
J;0 the Phjij
r° u ses. \ PPmes, emigrants, and immigrants. Such exports and imports of gold escape record by the customs
industrial t m i n o r source of discrepancy is that each year over $1,000,000 of old jewelry, etc., passes over from
to monetary use. See Report of the Director of the Mint, 1907, pp. 87-92.
ill( lustrial




284




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

MITCHELL: BUSINESS CYCLES

TABLE

285

72

CHIEF SOURCES OF GAIN OR LOSS TO THE MONETARY STOCK OF GOLD IN THE UNITED STATES
BY YEARS, 1890-1910
In millions of dollars
Excess of
Industrial
gold
consumption
imports ( + )
of coin and
or exports ( — )
new bullion
—
4
15

Year
1890

Production
of gold in
the United
States
33

+

14

+

15

1891

33

—

34

15

—

16

—

22

1892

33

—

59

15

—

41

—

44

1893

36

—

7

13

+

16

+

9

1894

40

—

81

10

—

51

— 52

1895

47

—

71

12

—

36

—

1896

53

+

46

11

+

88

+

86

1897

57

11

+

46

+

49

1898

64

+142

13

+193

1899

71

+

6

17

+

60

+

65

1900

79

+

13

19

+

73

+

92
61

Net gain ( + )
or loss ( — )
from preceding
sources

Increase ( + )
or decrease ( — )
in estimated
stock of gold

36

+194

1901

79

—

3

20

+

56

+

1902

80

+

8

23

+

65

+

71

1903

74

+

21

24

+

71

"+

71

—

36

23

+

21

+

25

+

63

+

71

+170

1904

80

1905

88

+

3

28

1906

94

+109

33

1907

90

+

88

34

+ 144

+147

1908

95

—

31

15

+

49

+

49

1909

100

—

89

30

—

19

—

16

1910

96

34

+

62

+

71

Averages
1890-99

46.7

1900-09

85.9

+170

—

6.2

13.2

+

27.3

+

26.4

+

8.3

24.9

+

69.3

+

74.1

data in *?8 1 a n c i 3 a r e * r o m t h e Report on the Production of the Precious Metals in 1909. pp. 13, 14, and 28. The original
fcolH C 0 . I u m n 3 have been raised $2,000,000 for the years 1893-1902, to correct the original underestimate of the consumption
p«-/ C0 J n l n t h e arts (see Report of the Director of the Mint, 1907, p. 86). Column 2 is from A. P. Andrew, Statistics for
Columnlt*d. States (Publications of the National Monetary Commission), p. 11. Column 4 is computed from columns 1, 2, and 3.
n 5
from Table 71, above.
th«

For comparison with these American figures, there are a few official
estimates of the gold circulation of the United Kingdom and France made at
Regular intervals. The data are assembled in Table 73. Both of the European
countries, like the United States, lost gold between the later eighties and the
early nineties* From the early to the middle nineties, on the contrary, the
European countries gained gold and the United States lost. Finally, since
^ e middle nineties all the countries have gained, but at very different r a t e s the United States five or six times as fast as the European countries, and Great
Britain about two times as fast as France. The per capita circulation ot gold,
however, remains much larger in France than in any other country.
r 7 ^ " ^ ;
A m e r i c a in 1885 a n d 1891 i n d i c a t e a g a i n , b u t m e r e l y b e c a u s e t h e loss f r o m 1888-91 w a s
f o r
W a l l e r t h a n t h e g a i n in 1885-88.




286

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

These European data are so scanty that they may be supplemented by the
record of net imports or exports of gold. In England, France, and Germany
the domestic production of gold is so slight that the customs-house returns are
the best available index of the yearly changes in the total stock of gold, though
not in the monetary stock.7 Of course, part of the net imports are absorbed
into industrial use; part of the net exports consist of gold that was not used
as money; the existing monetary stock is decreased by melting coins, or

TABLE

73

ESTIMATED MONETARY STOCK OF GOLD AT INTERVALS IN THE UNITED KINGDOM AND FRANCE, WITH

ESTIMATES

FOR CORRESPONDING DATES IN THE UNITED STATES
Increase ( + ) or decrease ( — ) in the estimated stock
Estimated stock
in millions of dollars

r

Year

United
Kingdom

1888

499

1892

United
States
650

438

582

1895

450

503

1903

567

1,192

1885

France
965

United States

In percentages of the stock
at preceding estimate

In millions of dollars
A

A

United
States

United
Kingdom
—
+

United
Kingdom

United
States

61

—

68

—12.2%

—

10.5%

12

—

79

+

—

13.7

2.7

+117

+689

+26.0

+137.0

France

United States

France

United States

558

1891

772

626

—193

+

68

—20.0%

+

1897

811

638

+

+

12

+

5.0

+

1.9

1903

926

1,192

+14.2

+

86.8

39

+ 115
8

^
^
s
e
s
s
i
o
n
'
)
which was made by the Chancel i r of the Exchequer
Th P S

'
k

+554
°
f S

"

"
Were

<
mSde

*
b

/

the

RoyaI

12.2%

» (Senate d o c u m e n t , no.
Mint, except that for 1892;

increased by coining plate, etc. But the statistics of Table 74 show that in all
three of our foreign countries there has been a rapid increase in the annual
supply of fresh gold available for monetary use, and it is safe to suppose that
there has been a roughly proportionate increase in the annual additions to the
monetary stock.
Within this period of twenty years France has absorbed a decidedly larger
part of the new gold than Germany, and Germany a slightly larger part than
England. But whether the relative increase in the French monetary stock of
gold has been larger than the German, or the German larger than the English,
remains uncertain. In all three countries the net movements are steadier than
in the United States and more uniformly on the side of an excess of imports
over exports. Nevertheless, the European oscillations are violent in comparc a u L T n X a n r t h o h t h ? r . ™ ! ° f / 0 r / U 8 p e C t i n g t h a t t h ® s t a t i s t i c s o f b o t h i m p o r t s a n d e x p o r t s are i n c o m p l e t e , b?"
r e a s o n n o attemr>t ^ s m a d o t
k r e c e l p t s are recorded.
( L a u n a y , The
World's
Gold, V
165-167.)
For t * 8
reason n o a t t e m p t i s m a d e t o b a s e r e f i n e d c o m p a r i s o n s u p o n T a b l e 7 4 .




MITCHELL: BUSINESS CYCLES

TABLE
NET IMPORTS ( + )

287

74

OR NET EXPORTS ( — ) OF GOLD FOR THE UNITED STATES, UNITED KINGDOM, FRANCE, AND
GERMANY
BY YEARS, 1 8 9 0 - 1 9 1 1
Actual amounts
In millions of dollars
United
Kingdom
+45

>

Relative amounts
Average actual amounts in 1890-99 = 100
A

A

Year
1890

United
States
—
4

1891

—

34

+ 30

+

25

+24

—

548

+

93

+128

+127

1892

—

59

+33

+

53

+

7

—

952

+ 102

+272

+

37

1893

—

7

+26

+

36

+

9

—

113

+

80

+ 185

+

48

1894

—

81

+58

+

68

+60

—1,306

+ 179

+349

+317

1895

—

71

+71

+

2

+

4

—1,145

+219

+

10

+

21

1896

+

46

—28

—

2

+

5

+

—

86

—

10

+

26

+

31

+

9

48

1898

+ 142

+35

—

22

+25

1899

+

+54

+

30
64

1897

6

France
— 26

Germany
+14

United
States
65
—

742

United
Kingdom
+139

France
—133

Germany
+

74

+ 159

+

+2,291

+ 108

—113

+ 132

+32

+

97

+167

+154

+169

+30

+

210

+ 117

+328

+ 159

+102

+282

+259

1900

+

13

+38

+

1901

—

3

+33

+

55

+49

—

48

1902

+

8

+30

+

61

+

8

+

129

+

93

+313

+

1903

+

21

+

4

+

36

+45

+

339

+

12

+ 185

+238

1904

—

36

+

4

+ 103

+93

—

581

+

12

+528

+492

1905

+

3

+38

+ 125

+43

+

48

+ 117

+641

+228

1906

+109

+17

+

52

+69

+1,758

+

52

+267

+365

1907

+

+30

+

56

—

+1,419

+

93

+287

—

—

—

—1,435

88

5

1908

—

31

—19

+ 192

+74

1909

—

89

+36

+

35

+

+31

+

11

+42

+

20

+42

1910
1911

7

+35

26

59

+985

+392

+111

+179

+

+
+

500

42

+

+222

96

323

56

37

+185

+ 130

Averages
1890-99 —

R?1?-

the
Unit

ea

6.2

+32.4

+

19.5

+18.9

100

100

100

100

1900-09

8.3

+21.1

+

77.9

+41.3

134

65

399

218

+

^
(American) Statistical Abstract of Foreign Countries, Part i, for the years 1890-1907, and completed from
!® tlcaI abstracts of England, France, and Germany. The data for the United States are from Andrew's Statistics for the
states (Publications of the National Monetary Commission), p. 11.
from

the

with most of the data exhibited in preceding chapters, as the columns of
relative figures show. To account for these changes in detail year by year
Would be an exceedingly difficult task, because of the multiplicity of the factors
affecting the balance of payments in international trade. For present purposes
suffices to note that no simple rule holds for all the countries concerning the
Nations between the course of business cycles and the net imports or exports
gold.
1Son




288

MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

III.

T H E Q U A N T I T Y OF SILVER AND OF P A P E R M O N E Y

The quantity of other forms of money in the United States can be estimated
more accurately than the quantity of gold coin. There is no industrial consumption of greenbacks and bank notes, and but a trifling industrial consumption of silver coin, since silver bullion costs less than half as much as silver
dollars. Moreover, neither paper nor silver money is acceptable to foreigners,
so that the small sums carried out of the country are promptly sent back again.
Only one source of error in the statements need be feared—accidental loss or
burning. On this account the treasury has already written off $1,000,000 from
the amount of United States notes outstanding, and might safely write off
several millions more from that item and from the amount of silver coins and
bank notes. But these unrecorded losses cannot make more than a small per-

TABLE 75'
MONETARY STOCK OF THE UNITED STATES ON JULY 1 OF THE YEARS 1 8 9 0 - 1 9 1 1
Actual amounts in millions of dollars
Treasury
United
Subsidiary
States
notes
Silver
silver
notes
dollars
of 1890
347
77
380

National
bank
notes
186

Total
1,629

Per
cent of
gold
39

50

168

1,623

36

102

173

1,689

36

147

179

1,673

32

347

153

207

1,726

32

Year
1890

Gold
639

1891

591

389

78

347

1892

600

389

78

347

1893

532

391

77

347

1894

548

395

76

1895

542

402

77

347

146

212

1,726

31

1896

507

422

76

347

130

226

1,708

30

1897

594

442

76

347

115

231

1,805

33

1898

747

460

76

347

101

228

1,959

38

1899

849

470

75

347

94

241

2,076

41

1900

917

490

83

347

76

310

2,223

41

1901

1,003

520

90

347

48

354

2,362

42

1902

1,068

540

97

347

30

357

2,439

44

1903

1,124

554

102

347

19

414

2,560

44

1904

1,198

560

107

347

13

449

2,674

45

1905

1,228

559

115

347

9

496

2,754

45

1906

1,343

561

118

347

7

561

2,937

46

1907

1,466

562

130

347

6

604

3,115

47

1908

1,618

563

147

347

5

698

3,378

48

1909

1,642

564

159

347

4

690

3,406

48
48

1910

1,636

565

155

347

4

713

3,420

1911

1,753

565

160

347

3

728

3,556

49

115.3

205.1

1,761.4

34.8

21.7

493.3

2,784.8

45.0

Averages
1890-99

614.9

414.0

76.6

1900-09

1,260.7

547.3

114.8

347.0
347.0-

The data for 1890-1909 are from Andrew's Statistics for the United States (Publications of the National Monetary C 0 ® ? 1 ?
sion), p. 156. The data for 1910 and 1911 are from the Report of the Treasurer of the United States. The figures for goia »
1890-1900 are revised on the basis of the new estimates made by the Director of the Mint in 1907. See page 282, and note »
page 289.




MITCHELL: BUSINESS CYCLES

289

T A B L E 75—(Concluded)
MONETARY STOCK OF THE UNITED STATES ON JULY 1 OF THE YEARS 1 8 9 0 - 1 9 1 1
Relative amounts.
Silver
dollars
92

Average actual amounts in 1890-99 = 100
Treasury
United
National
Subsidiary
States
bank
notes
silver
notes
of 1890
notes
101
100
91

Year
1890

Gold
104

1891

96

94

102

100

43

82

1892

98

94

102

100

88

84

96

1893

87

94

101

100

127

87

95

1894

89

95

99

100

133

101

98

1895

88

97

101

100

127

103

98

1896

82

102

99

100

113

110

97

1897

97

107

99

100

100

113

102

1898

121

111

99

100

88

111

111

1899

138

114

98

100

82

118

118

1900

149

118

108

100

66

151

126

1901

163

126

117

100

42

173

134

100

26

174

138

Total
92
92

1902

174

130

127

1903

183

134

133

100

16

202

145
152

1904

195

135

140

100

11

219

1905

200

135

150

100

8

242

156

1906

218

136

154

100

6

274 •

167

1907

238

136

170

100

5

294

177

1908

263

136

192

100

4

340

192
193

1909

267

136

208

100

3

336

1910

266

133

202

100

3

348

194

1911

285

136

209

100

3

355

202

Averages
1890-99

100

100

100

100

100

100

100

1900-09

205

132

150

100

19

241

158

rentage of the total. Thus the official figures, reproduced in Table 75, may be
ousted to show with approximate accuracy the variations in the monetary stock
S1]*ce 1890.8
So long as the mints were working up the silver bullion purchased under
Sherman Act of July 14, 1890, the stock of silver dollars increased steadily,
111 dull times as in brisk times, when the currency was redundant as when it
scanty. But the last silver dollar was struck in 1904, and since then the
0c 'k has remained substantially constant at about $560 millions. The treasury
jtotes of 1890, issued in payment for silver bullion, also increased rapidly until
e Sherman Act was repealed on the first of November, 1893.
Thereafter
of these notes began to decline as rapidly as they were presented to
~
~
8 rrT
a n ( * s ^ v e r certificates need not be included in the table, because they are fully covered by
corresn 6 §•
a m o u n t s of gold and silver coins in the treasury.
Ms rev
I
The Director of the Mint has not published
revisedfi
e8timates
S 0 ^ s * o c k o n Juty
1890-1906. I have therefore been compelled to assume that the
to the / j ? u r e s
this day would bear a ratio to the old figures midway between the ratios born by the revised
oia figures for the December preceding and following.




290




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

!
CHART

46

J

RELATIVE: MONETARY STOCK o r GOLD . S I L V E R ,
AND B A N K NOTES

IN THE UNITED STATELS

I
;

F 1

»

1 6 3 0 - 1911.

N

I

•

/! 11

340

I

i

320
GOLD
SILVER
B A N K NOTES .
300

/1
:

1

1

f

300

:

1

-J—

280

280

!
I
260

260

r
i

/

V

i

jF

240

1J
—
—

\f

/:

_

220

i

L
*

F

—i[

I

j

1

—

/
II

|
;
!

220

| 1

I
1

/

200

200

|

I

—

| ;"r

180

160

•

i

120

J

r
/
t
t

{

/

/

j

120

i

J—

J

/

140
•

\

7

160

•

M

140

100

180

|

I

—

1
I

80

240

T

V-

100

/
i

r

80

1
1890 91 '92 '95 '94 '95 '96 '97 '98 '99 1900 01 '02 03 '04 05 08 07 06 09 I9K) II

291

MITCHELL: BUSIiNESS CYCLES

tho treasury for redemption in silver dollars; for the law had provided that
no greater or less amount of such notes shall be outstanding at any time than
the cost of the silver bullion and the standard silver dollars coined therefrom
then held in the treasury."9 In 1900 the process of reduction was hastened
by the Gold Standard Act, which required the Secretary of the Treasury to
replace the treasury notes which came into his hands by silver certificates, as
fast as the remaining bullion was made into dollars or subsidiary coin. In
consequence of this measure, the treasury notes have all but disappeared from
circulation. Their gradual reduction since 1894 has been roughly concomitant
^Tith the gradual increase of silver dollars, so that the volume of the two forms
°f money when taken together has varied within limits of $26 millions—about
1 per cent of the average monetary stock.10
The estimated stock of the United States notes has not changed at all since
the Act of May 31, 1878, stopped the reduction provided for by the Resumption
Act of 1875, and directed that these notes when received by the treasury should
G 'reissued and paid out again and kept in circulation."
The subsidiary coins require little attention, because the volume of "change"
use exercises no perceptible influence upon business conditions, beyond
acilitating retail trade. The stock remained nearly stationary from 1890 to
1899, and then began to rise steadilv at such a pace as to double in volume bv
1909.
Since the subsidiary coins may be set aside, since the stock of the United
ates notes has remained constant, and since the combined stock of silver
. ars and treasury notes has changed but little since 1894, it follows that for
sixteen years the only variable elements in the American monetary system have
e e n t h e gold coin and the national bank notes.11
I he bank notes increased at a moderate pace from 1891 to 1899, without
^ ^ J ^ r e n c e to the changing needs of business. But in 1900 the Gold
Journnf

Taussig,
n

e c °lumns

Year

1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902




" T h e Conversion of the Treasury Notes of 1890 into Silver Certificates/'

Quarterly

for silver dollars and treasury notes of ±890 are combined Actualfollowing figures result:
the
Relative
A^+NOI
Relative
Relative
Actual
amounts
amounts

amounts

380
439
491
538
548
548
552
557
561
564
566
568
570

73
85
95
104
106
106
107
108
108
109
109
110
i in

Year

1903
1904
1905
1906
1907
1908
1909
1910
1911

amounts

573
573
568
568
568
568
568
568
568

111
111
110
110
110
110
110
110
110

517.8
569.0

100
110

Averages

1890-99
1900-11

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

Standard Act caused an increase of more than 25 per cent in a single year.
By raising the limit of note issue from 90 to 100 per cent of the par value of
the government bonds held as security, and by reducing the rate of taxation
upon notes secured by the new consols of 1930, the law enhanced the profit
which national banks already established might derive from exercising their
rights of issue. Further, by permitting the organization of national banks with
capital of less than $50,000 the law brought a large number of new institutions
into the system. The rapid expansion of note circulation started by this statute
was afterwards promoted by the efforts of a secretary of the treasury who
employed his power of distributing the much desired government deposits to
induce the banks to keep outstanding their full quotas of notes.12 Still later
the decline in the market price of the 2 per cent consols to the neighborhood
of par tended to raise the profit upon circulation. Finally, the activity of
business stimulated the organization of new banks and brought home to new
and old an insistent demand for more currency. Favored by all of these
circumstances, the volume of bank notes rose after 1899 even faster than the
rapidly rising volume of gold coin.
Concerning gold, the present table brings out the same facts as Table 71,
with a few minor differences arising from the use of data for July 1 in one case,
and for December 31 in the other. But the present table also shows the proportion borne by the volume of gold money to the total monetary stock. This
proportion fell rapidly from 39 per cent in 1890 to 32 per cent in 1893, in consequence not only of the direct loss of gold but also of the joint increase of silver
dollars and treasury notes of 1890. From 1893 to 1896 the proportion changed
but little. But after the free-silver party had been defeated at the polls and
business began to revive the incoming flood of gold speedily raised the proportion again to 38 per cent in 1898. Since that time there lias been a slow but
steady advance to 49 per cent in 1911.
When all these different kinds of money are added together it appears that
the total stock has but a rudimentary power of adjusting its volume to the
changing demands of trade. On the whole, the increase in volume -has been
more rapid during good times than during bad; but the increase from 1893 to
1894, from 1902 to 1904, and from 1907 to 1908 shows an absence of the power
to contract when trade falls off.
No paper money is issued by the governments of Great Britain and France,
and none by the German government aside from 120,000,000 marks in treasury
notes, which offset an equal sum of gold coin held in the war chest. Of course
silver coin is widely used in these countries, but no estimates of its volume are
regularly published. The European data available for comparison with the
is For details see A. P. Andrew, " T h e Treasury and the Banks under Secretary Shaw " Quarterly Journal
of Economics, August, 1907, vol. 21, pp. 519-568.




293

MITCHELL: BUSIiNESS CYCLES

preceding figures are therefore limited to the statistics of bank notes in circulation. The most significant of these statistics are brought together in Table 76.
In none of the three foreign countries has the increase in the stock of bank
notes been comparable with the extraordinary increase in America. In Great
Britain the quantity has even declined since 1900, probably because the public
has acquired the habit of paying a larger portion of small bills by check. In
France, on the other hand, the figures reflect an increasing preference among
the people for bank notes in place of gold coin—a change in monetary habits
which causes the "unproductive circulation" of the Bank of France to grow

T A B L E 76
AVERAGE A N N U A L CIRCULATION OP B A N K NOTES IN THE UNITED STATES, UNITED K I N G D O M ,
Bv

YEARS,

FRANCE, AND G E R M A N Y

1890-1911

Actual amounts
In millions of dollars

Relative amounts
Average actual amounts in 1 8 9 0 - 9 9 =

Year

United
States

United
Kingdom

France

Germany

United
States

1890

128

195

591

285

1891

130

197

595

281

100

United
Kingdom

France

73

97

89

97

74

98

89

96

Germany

1892

145

198

608

284

83

99

91

97

1893

165

198

665

276

94

99

100

94

1894

181

195

671

279

103

97

101

95

1895

184

199

681

303

105

99

102

103

1896

205

202

696

300

117

101

104

102

1897

208

205

712

301

119

102

107

103

1898

198

207

713

311

113

103

107

106

1899

209

211

737

315

119

105

110

107

1900

260

221

779

313

148

110

117

107

1901

323

220

794

320

184

110

119

109

219

803

327

184

109

120

111

1902

322

1903

362

218

832

332

206

109

125

113

1904

407

210

827

341

232

105

124

116

1905

462

211

851

353

264

105

128

120

1906

519

211

899

365

296

105

135

124

1907

558

212

926

386

318

106

139

132

210

937

396

358

105

140

135
140

1908

628

1909

655

212

980

410

374

106

147

1910

685

209

1,003

417

391

104

150

142

1911

699

213

1,012

431

399

106

152

147

Averages
1890-99

175.3

200.7

666.9

293.5

100

100

100

100

1900-09

449.6

214

4.

SFI9 8

2N.L 5

9 5 FL

107

199

191

* 'ranee.
From i h " j
•
Y„e "tatiatiche
i„h i,. •• l'n,'Vre

(lermnny,
and France,
*>'at<sti<l«'.
1 9 1 0 , p. 6 8 * .

p. 125. The French figures show the average note issues of the B a n s
The German figures include the notes of all banks of issue, as given by

th i'> September , „ j n
Deutsche Reich.
The British figures for 1910 and 1911 are based on returns for March.
L , e c e m b e r as given in the Statistical
" , e ' "'grave series
Abstract of the United Kingdom, adjusted to fit as nearly as may be




''!r

ias

32 4




MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

MITCHELL: BUSINESS CYCLES

295

steadily larger. In Germany the bank-note currency remained substantially
constant in 1890-94 at a level of about $280 millions, in 1895-97 at a level ot
about $300 millions, and in 1898-1900 at a level of about $313 millions. But
after 1900 the volume began to grow steadily, a little faster in good times than
in bad.
In general there is but a slight degree of correspondence between the fluctuations of bank notes and the fluctuations of business activity from one year to
the next. Even the European countries which have the most elastic systems ot
issue do not regularly retire large sums of notes when business is depressed.
The controlling factors seem to be changes in monetary habits and perhaps the
slow but steady growth in population. A very different conclusion would be
drawn, however, if the figures of monthly circulation were used in place ot
annual averages. Then it would appear that there are notable changes between
the different seasons of the same year in the amount of notes used. In other
words, bank notes in Great Britain, France, and Germany are a much more
elastic form of currency within short periods than they are within the longer
Periods covered by business cycles.

• T H E D I S T R I B U T I O N OF T H E M O N E T A R Y S T O C K A M O N G T H E B A N K S ,

THE

PUBLIC, AND THE TREASURY

^ kince 1892 the Comptroller of the Currency has utilized his bank reports
compile an annual estimate of the proportions in which the monetary stock
s leld by the banks, the public, and the federal Treasury. Dr. A. P. Andrew
figures
b a c k
t o
1 8 6 7 - ' : i
T h e
n e x t
t a b l e
1890Canied t h e
P r e s e n t s these data for
,
in a revised form. The change in the official estimates of the gold
LUCK m 1890-1906. the amount of money in banks which do not report to the
etc
'
former confusion of "cash" and "cash items" in bank reserves,
have all been allowed for as accurately as may be.14
l e figures indicate that on the average the treasury holds a little more than
^ 1 o f the country's money, the banks a little more than a third, and the
m o r e ^ a n one-half.
th ' a
The banks seem to be slowly increasing
eir proportion at the expense both of the treasury and of the public. But
« average distribution undergoes marked changes, which correspond with the
^ccessive phases of business cycles.15 At the height of a panic the public withsums from the banks, reducing the quota of the latter to its mini14 Vor l f\! CS ^° r t } l € ^ n i t 6 d
^onev HeldV^S"18 s e e t h e
15 Com
Quarterly j ^ 6

States>
note

B a n k s ° f t h e U n i t e d S t a t e s i n 1890-1911."
M * W - s Prague, " T h e Distribution of Money

ournal of Economics,




Publications of the National Monetary Commission, p. 155.
appended to the present chapter, " A Revised Estimate of the Amount of
between the Banks and the People since 1893,"

August, 1904, vol. 18, pp. 513-528.

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE

77

DISTRIBUTION OF THE MONETARY STOCK OF THE U N I T E D STATES A M O N G THE PUBLIC, THE B A N K S , AND THE FEDERAL
TREASURY ON OR ABOUT J U L Y

1,

1890-1911

Actual amounts
In millions of dollars
r

In the
treasury
as assets

Outside
of the
treasury

Held
by
banks

Held
by the
public

Year

Total
stock

1890

$1,629

$256

$1,373

$492

$881

1891

1,623

180

1,443

504

1892

1,689

151

1,538

1893

1,673

142

1894

1,726

1895

Proportions of the
stock outside of the
treasury held by the

held by the
A

f

Treasury

Banks

Public

r

A

Banks

Public

15.7%

30.2%

54.1%

35.8%

64.2%

939

11.1

31.0

57.9

34.9

65.1

585

953

9.0

34.6

56.4

38.0

62.0

1,531

517

1,014

8.5

30.9

60.6

33.8

66.2

144

1,582

680

902

8.3

39.4

52.3

43.0

57.0

1,726

217

1,509

620

889

12.6

35.9

51.5

41.1

58.9

1896

1,708

294

1,414

556

858

17.2

32.6

50.2

39.3

60.7

1897

1,805

266

1,539

649

890

14.7

36.0

49.3

42.2

57.8

18.98

1,959

236

1,723

713

1,010

12.0

36.4

51.6

41.4

58.6

1899

2,076

286

1,790

748

1,042

13.8

36.0

50.2

. 41.8

58.2

1900

2,223

285

1,938

787

1,151

12.8

35.4

51.8

40.6

59.4

1901

2,362

308

2,054

828

1,226

13.0

35.1

51.9

40.3

59.7

1902

2,439

314

2,125

875

1,250

12.9

35.9

51.2

41.2

58.8

1903

2,560

317

2,243

881

1,362

12.4

34.4

53.2

39.3

60.7

1904

2,674

284

2,390

1,016

1,374

10.6

38.0

51.4

42.5

57.5

1905

2,754

295

2,459

1,024

1,435

10.7

37.2

52.1

41.6

58.4

1906

2,937

333

2,604

1,043

1,561

11.3

35.5

53.2

40.1

59.9

1907

3,115

343

2,772

1,139

1,633

1 1 . 0

36.6

52.4

41.1

58.9

1908

3,378

341

3,037

1,394

1,643

10.1

41.3

48.6

45.9

54.1

1909*

3,406

309

3,097

1,466

1,631

9.1

43.0

47.9

47.3

52.7

1910

3,420

317

3,103

1,445

1,658

9.3

42.2

48.5

46.6

53.4

1911

3,556

342

3,214

1,573

1,641

9.6

44.2

46.1

48.9

51.1

1890-99

1,761.4

217.2

1,544.2

606.4

937.8

12.3

34.3

53.4

39.1

1900-09

2,784.8

312.9

2,471.9

1,045.3

1,426.6

11.4

37.2

51.4

42.0

Averages

60.9
58.0

* Figures for April 30th, instead of July 1st.
For the construction of this table see the note appended to the present chapter, " A
Held by the Banks of the United States."




y

Revised Estimate of the Amount of

0

297

MITCHELL: BUSIiNESS CYCLES

TABLE

77—(Concluded)

DISTRIBUTION OF THE MONETARY STOCK OF THE U N I T E D STATES A M O N G THE PUBLIC, THE B A N K S , AND THE FEDERAL




TREASURY ON OR ABOUT J U L Y 1 ,

1890-1911

Relative amounts
Average actual amounts in 1 8 9 0 - 9 9 =
Outside
of the
treasury

Held
by

100

Year

Total
stock

In the
treasury
as assets

1890

92

118

89

1891

92

83

93

83

100

1892

96

70

100

96

102

1893

95

65

99

85

108

1894

98

66

102

112

96

1895

98

100

98

102

95

1896

97

135

92

92

91

1897

102

122

100

107

95

1898

111

109

112

118

108

1899

118

132

116

123

111

1900

126

131

125

130

123

1901

134

142

133

137

131

1902

138

145

138

144

133

1903

145

146

145

145

145

1904

152

131

155

168

147

1905

156

136

159

169

153

1906

167

153

169

172

166

1907

177

158

179

188

174

1908

192

157

197

230

175

1909

193

142

201

242

174

1910

194

146

201

238

177

1911

202

157

208

259

175

1890-99

100

100

100

100

100

1900-09

158

144

160

172

152

banks
81

Held
by the
public
94

Averages

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

48.

CHART

PROPORTIONS OF THE: MONEY IN CIRCULATION IN THE: UNITED S T A T E S
HELD BR THE B A N K S A N D B Y THE PUBLIC.
1890
|

-

1911.

h e l d by t h e

Banks.

Held by t h e

|

PUBLIC.

100

100

90

90

80

80

70

70

I
IIP

P

50

40

30

20

10

60

^ 1 1 1

60

I

I

m
I I I I I P
m r n w
V

^XV $ Y

m m m
yy/A
&V&6 y/yxy '/V>A :•//••
•////. //."'/.• v"y'
yyyyy, ////}
> ;:; ;
yt
Y/.'/.• y'.y&s. •>>>» : :>>>:: yy.*
**••

viyy

i
yy

P i l l
: y'yy!(yyyy,
m llsPll
«y> ;yyy
yivX» > J yy
V W xy
S •:'*•"

i
1890 '91




n

-m
40

p

9^S
f

m

,,

M p i

50

M
yyy- m
.m-

W/i m
W/m
Yss Sjt //.-'//.
\y/«y ,y\y .
/////
W/y mk
>
y /iVA;
vyy y^yi
M
I
o
1 1 1 J ? • '< '. '///.•'
i
y/y/y f'^y/yy,
/vy7/ vyy/y W^P-W/yy.
yS/.y, />Xvi y
ffi&Wffm.
yvyyy. yyyy'-\
m W m
< W/fa.
xyy; >.-;-/yy+sP
v
x y ^vy
>>
Wr<
:
m ;

iNH
i
M

i

w

m

yy'y
g

p

M H
'04

20

i

/y'yy. '''>Xy

K'/Zr/y ///// A
\m • • O.
m
m
99 190d 01 '02 ' 0 3
92 '93 94 '95 '96
' 97 '98

30

yy-y'-:

yy yC.
'y*yX ;»>yyi i»X' > « «»

|

H M i H
'05 '06 '0
7

'08

10

:

WW

m II
'09

1910

II

—

—




MITCHELL: BUSIiNESS CYCLES

299

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

mum. As soon as the crisis yields to depression, the current sets strongly in
the opposite direction. Idle money accumulates in the banks and raises their
quota to its maximum. When business revives and employment becomes more
regular a larger proportion of the monetary stock is required for hand-to-hand
use, the quota of the banks declines slowly until the climax of prosperity is
reached. When the crisis which follows comes on slowly or is mild in c h a r a c t e r ,
the banks begin to gain again. But when the crisis degenerates into a panic,
the gradual decline of the banks' quota which occurred during the prosperous
phase of the cycle suddenly becomes the rapid decline with which we s t a r t e d .
These generalizations seem to be justified by the figures of Table 77. But
if these figures were annual averages instead of figures for a single day, they
would probably show a closer correlation between changes in the distribution
of money and changes in business conditions. As matters stand, there seenis
to be a contradiction between the results for the two great panic years. But
in 1893 the panic was at its height on the first of July, while in 1907 on the first
of July general business was but just beginning to feel the reaction which
developed into the panic of October and November. The exceptionally large
holdings by the banks in 1909 may arise from the fact that the data for this
year refer to April 30 instead of to July 1, though we do not know enough about
seasonal variations of this character to be certain that the banks usually hold
a larger proportion of the country's money in midspring than in m i d s u m m e r .
No foreign data upon this subject are available, both because of the scanty
materials for estimating the total monetary stock and because of the lack of
detail in the bank reports concerning the amounts of money in hand.

T H E V O L U M E OP D E P O S I T C U R R E N C Y

V.

d r a w n t ! : : : T ^ U S e V U A m e i ' i c a i n c l u d e s a *** l^ger volume of c h e c k s
d r f t S
t h a n
The t w "
f t
° f m ° n e - V i s a m a t t e i ' o f common knowledge,
a S u r e t h « two elements in the currency with
precision hnvp'l
r
°™
Stv o m l Z ' e C t e d ; 1 1 0 t t 0 W a r d a d i r e c t comparison between the quan(\
S f f i S S ^ h
K f d e P ° S i t s SubJect t 0
^ t toward a comU m e . 0 f k l S i n e S S transactions settled in money and the
Z Z e s ^ Z V
:;°
I n 1 8 9 6 ' l e s s o r David Kinley, who
« l e Z t l Z d Z r
f m s t ~ 8 '
C O n d u d e d t h a t about 80 per cent of all busiZ Z ^ n o l
CheCkS

'

dl>aftS

'

a D d ab0llt 2

c

e

n

t

m0Dey

'

bv c h e c k S w
'
Proportion of business done
t h e S e . C o n d u s i ^ s were based upon a critical studv of r e p o r t s
from the » n n l
s Z f i e d davs r C e T n g ^ C h a r a C t e r ° f f u D d s d ^ s i t e d - i t h ' them upon
specified days. By applying more refined methods of attack, Professor Irving



t 0

8 5

P e i

C e n t

a S

t h e

P™ b a b l e

0

MITCHELL: BUSIiNESS CYCLES

301

Fisher has reached somewhat different results. His ratios for the use of cheeks
are 86 per cent in 1896 and 91 per cent in 1909.16
Important as these results are, they do not answer the present purpose.
We need an estimate of the volume of deposit currency, covering every year
smce 1890, and comparable with the revised data concerning the monetary stock
which have been presented. For such comparisons it has been customary to
r e ly upon the statistics of the individual deposits of the banks. But an investigation by the National Monetary Commission has shown that a large proportion
°f these deposits are subject to conditions which prevent their free use in making
payments. Accordingly, it is necessary to ascertain as nearly as may be what
Part of the individual deposits are actually subject to check in all the classes
banks. The next table shows the results of such an effort, and a note at the
end of this chapter explains how these results were obtained.
The relative importance of bank checks and of money as constituent elements
in this country's currency appears from the figures which show that since 1890
eposit currency has averaged rather more than two-thirds and money outside
l e treasury rather less than one-third of the total circulating medium.
The
eposit currency, moreover, has grown at a faster pace than the money in circuation. Between 1890 and 1911 the former increased about three and one-half
n e s l n volume, the latter about two and one-quarter times. Consequently the
Proportion of deposit currency to the total circulating medium has risen from
per cent to 72 per cent, and that of money lias fallen from 38 to 28 per cent.
^ at business habits have changed during these two decades in the direction
° ^ / r e e r u s e of banking facilities by the business public there can be no doubt,
hough this change obscures, it does not hide the fact of greatest present
.
namely, that the ratio of checks to the total volume of currency varies
1 i the course of business cycles. For this ratio has risen fastest in periods
g r . T r k e d P ros Peritv, such as 1897-1902 and 1904-06. On the other hand, the
ual growth of the ratio has ceased and even given place to a shrinkage in
Periods of business reaction such as 1892-93, 1902-03, and 1906-08.
osely related to but not identical with these changes in the ratio of the
°nrrency to the total circulating medium are the changes in the ratio
m°ney
sho ^
banks to the deposit currency. In the last section it was
11
1Tlone^r
ft
banks has increased faster than the money outside
^treasury. Nevertheless its increase has not kept pace with that of the
The
°f Credit Instruments in Payments in the United States, Publications of the National
PP * 1 1 7 a n d 1 9 8 2 0 1 T h e r e s u i t s of the investigation of 1896 are summarized in this
(pn
a n d references to Kinlev's earlier publications on the subject are given in the bibliog! a p h y (D 99QX
A n int
•
Fisher's results, see his Purchase q Power of Money (New York, 1911), pp. 317, 318, 491,
rumpnf« . r e 8 " n g English parallel is afforded bv the data concerning the proportion of cash and credit
r e o e i p t s of Parr's Bank.
Britain,
Qerrn"
(See the National Monetarv Commission's Statistics for Great
a t the metronT-f
Franre>
144)On a " n o r m a l " day the checks made 97.45 per cent of the total receipts
9 ?.93 and R«oJ n o f f i e e s and 85.70 per cent at the provincial offices.
On a Saturday these percentages rose
a t a refer
1
' a n c * o n a stock-exchange settling day to 98.89 and 88.98 per cent respectively. All of the
* > days in August, 1908.
<

v °lum e




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE

78

T H E VOLUME OF MONEY AND OF DEPOSIT CURRENCY IN THE UNITED STATES ON THE 3 0 T H OF J U N E IN THE YEARS
1890-1911
Relative amounts
Average actual amounts in 1 8 9 0 - 9 9 — 100

Actual amounts
In millions of dollars

Money
in the
banks

Money
held by the Deposit
currency
public
82
94

Year

Total
monetary
stock

Money outside of the
treasury

Money
in the
banks

1890

1,629

1,373

492

881

2,264

92

89

81

1891

1,623

1,443

504

939

2,325

92

93

83

100

85

1892

1,689

1,538

585

953

2,615

96

100

96

102

95

1893

1,673

1,531

517

1,014

2,510

95

99

85

108

91

1894

1,726

1,582

680

902

2,578

98

102

112

96

94

1895

1,726

1,509

620

889

2,731

98

98

102

95

99

1896

1,708

1,414

556

858

2,688

97

92

92

91

98

1897

1,805

1,539

649

890

2,747

102

100

107

95

100

1898

1,959

1,723

713

1,010

3,198

111

112

118

108

116

1899

2,076

1,790

748

1,042

3,865

118

116

123

111

140

1900

2,223

1,938

787

1,151

4,205

126

125

130

123

153

1901

2,362

2,054

828

1,226

4,955

134

133

137

131

180

1902

2,439

2,125

875

1,250

5,367

138

138

144

133

195

1903

2,560

2,243

881

1,362

5,540

145

1^5

145

145

201

1904

2,674

2,390

1,016

1,374

5,853

152

155

168

147

213

1905

2,754

2,459

1,024

1,435

6,559

156

159

169

153

238

1906

2,937

2,604

1,043

1,561

6,863

167

169

172

166

249

1907

3,115

2,772

1,139

1,633

7,109

177

179

188

174

258

1908

3,378

3,037

1,394

1,643

6,522

192

197

230

175

237

1909

3,406

3,097

1,466

1,631

6,808

193

201

242

174

247

1910

3,420

3,103

1,445

1,658

7,713

194

201

238

177

1911

3,556

3,214

1,573

1,641

8,242

202

208

259

175

1890-99

1,761.4

1,544.2

606.4

937.8

2,752.1

100

100

100

100

1900-09

2,784.8

2,471.9

1,045.3

1,426.6

5,978.1

158

160

172

152

Money
held by the
public

Deposit
currency

Total
Money outmonetary side of the
stock
treasury

280
300

Averages

100
217

.

reViseu

The data concerning money are from Table 77, preceding. The data concerning deposit currency give the results of £ u r rencJ
estimate of the bank deposits subject to check.
See the note appended to the present chapter, " T h e Volume of Deposit
in the United States."




303

MITCHELL: BUSIiNESS CYCLES

T A B L E 78— (Concluded)
T H E V O L U M E OF M O N E Y AND OF DEPOSIT CURRENCY IN THE U N I T E D STATES ON THE 3 0 T H OF J U N E IN THE Y E A R S

1890-1911
Ratios borne to the volume of deposit
currencv by the

Year

1890

Total
monetary
stock

Money outside of the
treasury

Money
in the
banks

Money
held by the
public

Amount of money
outside of the
treasury plus the
volume of deposit
currency
Millions of
dollars

Ratios borne to the money outside of the
treasury plus the volume of deposit currency
by the
r

Volume
of deposit
currency

Money outside of the
treasury

Money
in the
banks

Money
held by the
public

72%

61%

22%

39%

3,637

62%

38%

14%

24%

1891

70

62

22

40

3,768

62

38

13

25

1892

65

59

22

36

4,153

63

37

14

23

1893

67

61

21

40

4,041

62

38

13

25

1894

67

61

26

35

4,160

62

38

16

22

1895

63

55

23

33

4,240

64

36

15

21

1896

64

53

21

32

4,102

66

34

14

21

1897

66

56

24

32

4,286

64

36

15

21

1898

61

54

22

32

4,921

65

35

14

21

1899

54

46

19

27

5,655

68

32

13

18

1900

53

46

19

27

6,143

68

32

13

19

1901

48

41

17

25

7,009

71

29

12

17

1902

45

40

16

23

7,492

72

28

12

17

1903

46

41

16

25

7,783

71

29

11

18

1904

46

41

17

23

8,243

. 71

29

12

17

1905

42

37

16

22

9,018

73

27

11

16

1906

43

38

15

23

9,467

73

28

11

16

1907

44

39

16

23

9,881

72

28

12

17

1908

52

47

21

25

9,559

68

32

15

17

1909

50

46

22

24

9,905

69

31

15

16

1910

44

40

19

22

10,816

71

29

13

15

11,456

72

28

14

14

1911

43

39

19

20

Averages
1890-09

65

57

22

35

4,296.3

64

36

14

22

1900-09

47

42

18

24

8,450.0

71

29

12

17




32 4




MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

MITCHELL: BUSIiNESS CYCLES

CHART

51.

PROPORTIONS OF THE: CIRCULATING MEDIUM OF THE UNITED STATES CONSISTING OF DEPOSITS
SUBJECT TO CHECK, MONEY HELD BY THE: BANKS , AND MONEY HELD B Y THE PUBLIC.
1890 -

1911 .

P r o p o r t i o n o f Money h e l d
IMP
I

100

by the

F ^ o p o r t k j n or Money h e l d b y

the.

I Proportion of Deposits s u b j e c t

to

public
Banks
Check .

90

80

70

60

50

40

30

20

10

1690

91




93 94 95 96

97

98 '99 1900 01 '02 '03 '04 '05 '06 '07 'OS '09 1910 'II

305

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

deposits against which it is held as a reserve. Hence the proportion of money
held by the banks to deposits subject to check has fallen from 22 per cent in
1890-99 to 18 per cent in 1900-09. But, once more, the change has not been
steady. On the contrary, it has been dominated by the ever-recurring alternations of prosperity, crisis, and depression. The highest ratio of money to
checking deposits—26 per cent—came in 1894, the lowest—15 per cent—in 1906.
The juxtaposition of these extreme variations shows how inaccurate is the
assumption that the deposit currency may be treated as a substantially constant
multiple of the quantity of money in the banks.
In Section iii of this chapter it has been shown that the American monetary
stock has slight capacity for adjusting its volume to the changing condition of
business. On the whole, it does increase more rapidly in good times than in
bad; but it frequently fails to contract when prosperity passes over into depression. The present table shows that deposit currency is distinctly superior to
money in this quality of elasticity. In prosperous times it expands more rapidly
than money, and in dull times it is more likely to contract. For example,
deposit currency shrank 21 per cent between 1907 and 1908, while the monetary
stock increased 15 per cent.17 Nevertheless, deposit currency does not have that
"perfect elasticity" with which it is sometimes credited.18 For among the
various indices of business conditions presented in Chapter V there are several
which reflect changes in the activity of trade more faithfully than does the
column of relative figures for deposit currency in Table 78.

VI.

T H E VELOCITY OF CIRCULATION

The only serious attempt to estimate the velocitv with which both money
and checks circulate has been made by Professor Irving Fisher for the United
States.19 It is based primarily upon the data collected bv the Comptroller of
the Currency concerning the sums of money and credit instruments deposited
m banks on the settling day nearest July 1, 1896, and on March 16, 1909.
Figures for the intervening years are interpolated.
From these two inquiries Fisher estimates that the total check transactions
of the country made 97 billion dollars in 1896 and 364 billions in 1909. Since
he puts the deposits subject to check at 2.68 billions in the first year and at 6.75
in the second, he finds by division that the average turnover of deposit currency
in 1896 and 1909 respectively was 26.2 and 53.9 times.
to theTavSer Z T ^ t f *
° f " r e l a t i v e amounts - in Table 78, and therefore represent ratios
to tne a\erage actual amounts of both kinds of currency in 1890-99.
" B v Professor J. Laurence Laughlin, f o r example. *See his Principles of Money ( N e w Y o r k , 1903), p. I 2 0 '
"Purchasing

Power




of Money

(New York, 1911), Appendix to chapter X I I , §§ 4-8.

MITCHELL: BUSIiNESS CYCLES

307

To calculate the velocities for the years 1897-1908, Fisher uses the clearings
in New York and "outside New York" as a barometer of business transactions
performed by check, allowing the latter clearings five times the weight ot the
former. But when total check transactions are computed m this taslnon toi
1896 and 1909 he finds that they exceed the same transactions as estimated trorn
the comptroller's bank inquiries of those years. The two estimates can be made
to agree, however, by multiplying the barometer made f r o m clearings by .09
in 1896 and by .88 in 1909. The ratios of correction to be applied to the barometer for intermediate years he assumes to rise at a regular rate from .69 to .»».
After estimating check transactions in this fashion for each year he computes
the velocity of circulation by dividing these totals by the corresponding estimates
of deposits subiect to check.
,
A more elaborate method is required in dealing with the velocity at which
monev circulates. The comptroller's inquiries of 1896 and 1909 allow the total
sums of actual monev deposited in or withdrawn from the banks to be estimated
at 9.6 billions in the course of the first year and at 20.7 billions m the course of
the second. So far as these withdrawals are used in payments to enterprises
or individuals having bank accounts, Fisher assumes that the money taken out
of the bank is exchanged on the average just once before it is redeposited. But
when monev is drawn from the banks to pay people who keep no bank accounts
Fisher assumes that it changes hands twice on the average before it is returned
to the banks bv some depositor. The first time it is paid for labor m the typical
case; the second time it is paid by the laborer for groceries, etc and then it is
deposited once more bv the retail merchant. Hence the sum of wages paid m
money, plus allowances for money payments to other n o n - d e p o s i t o r s must be
added to the sums of monev deposited in banks in estimating the total circulation of monev against goods. These items are put at 5.7 and 13.1 bilUonsm
1896 and 1909." Finally, five small items, the largest half a billion, are added
to cover cases in which money received by depositors is paid out again in cash
instead of being put into the banks, etc. The grand total of transactions settled
Kv the use of monev is thus raised to 16.2 billions in 1896 and to 3o.l billions
m 1909. Dividing these totals by the estimated amount of money m circulation,
Wisher finds that the average rate of turnover was 18.6 times in the first year
and 21.5 times in the second.
,
,
It remains to interpolate figures for the intervening years. This task h isher
Performs by splitting the difference between two h y p o t h e s e s - o n e that the
velocity increased at an unvarying pace each year from 18.6 m 1896 to £U> m
1909, the other that the changes corresponded to those already estimated tor the
velocity of check circulation.
The final results are as follows:




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE

79

F I S H E R ' S E S T I M A T E S OF THE VELOCITY OF CIRCULATION OF C H E C K S AND M O N E Y IN THE UNITED STATES,
Year

Checks

Money

Year

Checks

Money

1896

36.2

18.6

1904

40.2

20.7

1897

37.9

19.1

1905

43.1

1896-1911

21.8
21.7

1898

39.8

19.8

1906

46.8

1899

42.6

21.9

1907

44.9

21.1

1900

39.3

20.0

1908

45.7

20.0

1901

40.6

21.8

1909

53.9

21.5

1902

40.9

21.8

1910

52.8

21.0

1903

39.1

20.6

1911

49.9

20.9

Professor Fisher believes that his figures for checks are subject to a probable
error of between 5 and 10 per cent, and that his figures for money are probably
correct in most cases for the first two digits. But our interest lies rather in
the variations between years of depression and years of prosperity than in the
absolute accuracy of the figures for any one year. These variations have two
sources. First, the original data derived from the comptroller's inquiries of
1896 and 1909 show a marked increase in velocities, particularly in the velocity
of checks. Second, the distribution of this increase over the intervening years
is rendered somewhat irregular by the use of clearings as a barometer of check
transactions. The results indicate that both money and checks, but checks more
than money, are gaining in velocity of circulation j'but that this gain is unsteady,
being rapid in years of high prosperity and being broken by a decline in years
of business reaction.
The part of this conclusion of chief interest here may be tested by methods
which possess slight value for estimating the actual velocity of circulation in
anv one year. The activity of the check circulation must be reflected, though
not without distortion, by the ratio between the bank clearings of a town and
its average deposits. The next table, which presents data of this character for
New York, Boston, and Philadelphia, amply confirms Fisher's conclusion that
the velocity of check circulation rises in prosperity and sinks in depression.
In New York the ratio stood at 93 in 1890, fell to 43 in 1894, rose to 83 in 1901,
fell again to 61 in 1904, rose once more to 102 in 1906, and then ran doAvn to 61
in 1908. The Boston figures for these years are 39, 25, 33, 31, 40, 31; and the
Philadelphia figures are 39, 27, 27, 24, 31, 22. The violence of the changes in
these ratios suggests that Professor Fisher's results under- rather than overrate the variations in the velocity of circulation from one year to the next.
But it is difficult to test this suggestion, because certain of his data have to be
interpolated for all years except 1896 and 1909 on the basis of hypotheses which
themselves cannot be verified or disproved.



309

MITCHELL: BUSIiNESS CYCLES
TABLE

80

HATIO OF T H E Y E A R L Y CLEARINGS TO T H E AVERAGE B A N K D E P O S I T S IN N E W

A v . deposits
Millions of
dollars

1890
1891

33,749

409.4

1892

36,662

504.4

1893

31,261

433.7

1894

24,387

568.9

1895

29,841

543.3

1896

28,870

482.5

33,427

602.7

41,971

729.8

Year

1897
1898
1899

(2)

404.4

60,761

1902

852.8

79,420

1901

844.7

52,634

1900

957.4

76,328

1905

898.6

68,649

1904

934.9

65,970

1903

1,118.1

Philadelphia

Ratio

Clearings
Millions of
dollars

(3)

(4)

(5)

(6)

(7)

(8)

(9)

5,130

130.2

3,710

94.2

39.4

4,753

129.2

3,296

95.9

34.4

92.6
82.4

39.4
36.8

5,005

55.5

140.1

5,095

59.8

160.0

4,498

54.9

166.9

4,757

42.9

135.9

4,148

72.1

147.2

4,577

72.7

173.8

34.0
33.7
24.9

32.1
29.3

5,425

212.2

7,655

61.4

204.2

6,631

73.4

211.2

6,717

81.6

216.5

6,930

83.0

200.4

7,191

61.7

228.8

6,180

71.9

192.8

7,086

07.5

29.7

223.2

28.1
31.0
30.8
33.2
32.8
32.9
31.2

1.120.4
1,025.0

102.1

8,335

211.2

87,182

1908

1,065.2

81.8

8,135

215.0

7,338

235.5

8,440

262.1

32.2

8,299

245.9

33.8

79,275

1911

1.347.6

97,275

1910

1.302.5

103,588

1909

1,216.9

92,373

1,372.8

A v . deposits
Millions of
dollars

Ratio

A v . deposits
Millions of
dollars

104,675

1907

PHILADELPHIA

Clearings
Millions of
dollars

93,822

1906

BOSTON, AND

Boston

New York
Clearings
Millions of
dollars
(1)
37,458

YORK,

83.7

60.9
76.9
79.9

34.3
39.5
37.8
31.2

Ratio

3.810

112.1

34.0

3,403

98.6

34.5

3,060

113.4

27.0

3,556

108.3

32.8

3,161

100.1

31.6

3,222

119.9

26.9

3,671

131.4

27.9

4.811

164.8

29.2

4,677

178.9

26.1

5,475

204.9

26.7

5,875

210.8

27.9

5,841

210.7

27.7

5,776

237.8

24.3

6,928

256.9

27.0

7,686

249.6

30.8

7,161

250.4

28.6

5,937

272.5

21.8

7,021

314.9

22.3

7,690

201.9

25.5

7,692

328.4

23.4

67.3

8,340

270.7

30.8

5,047.4

160.49

31.9

3,570.0

113.87

31.77

219.15

33.59

6,237.7

238.74

26.32

Averages
1890-99
1900-09
.

^OlUmn
Column S
8 L O N ^. P. 8.

35,838.7

552.38

66.23

81,154.3

1,062.25

76.65

( 1 \

''

( 4 )

'

a n d

C o l u S n s ( m C(J™Puted

Columns m '
J',and
the N e w York K BI
•
Th* clearing,
1
for

7,355.2
S O U R C' Ei S
OUUKt t S

/A\

9

1 9 1 0

<7)'

A . P . A n d r e w , Statistics

for

the

OP
ur

DM T A
1 AT

United

States

data in ibid., pp. 98-118.
c o m P u t e d from data in the preceding columns,
compiled from weekly reports in the Commercial
and
1 0
a n d
1 9 1 1
» r e also from this source.
a » d 1 9 1 1 are taken from the Financial
Review.

(Publications of the National Monetary Commis-

from

Financial

Chronicle.

The

average

deposits

of

Pierre des Essars has utilized the reports of the Bauk
the receipts, payments, and average balances of its c u r r e n t accou.ntsto sUo
that the av^age turnover reaches its maximum in years ot
declines s h a r p i e A continuation of his table to 1911 shows that " c l u
sions hold good of recent years, though the changes alter the c r i s i s o f 1 9 0 0 ^ e
veiled somewhat by the rapid rate at which the turnover has been incieasing
l n the past decade.
20

Journal de la Societe




de Statistique

de Paris, April, 1895.

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE

81

VELOCITY OF CIRCULATION OF PRIVATE DEPOSITS IN THE B A N K OF FRANCE, COMPUTED ACCORDING TO THE




OF P . DES E S S A R S , FOR

1890-1911

Year

Sum of the
"versements"
and " p a y e m e n t s "
I n millions
of francs

1890

108,636

804

135

1891

120,388

866

139

1892

97,430

839

116

1893

97,415

811

120

1894

113,734

890

128

1895

126,889

1,055

120

1896

107,823

1,056

102

1897

109,420

904

121

1898

118,458

896

132

1899

128,151

863

148

1900

130,263

874

149

1901

136,678

932

147

1902

142,023

887

160

1903

148,601

760

196

1904

169,327

989

171

1905

196,701

1,023

192

1906

216,443

1,014

213

1907

208,104

920

226

1908

197,102

932

211

1909

240,692

1,232

195

1910

269,507

1,096

246

1911

293,880

1,071

274

"Solde moyen"
multiplied
by 2
In millions
of francs

Velocity of
circulation =
amounts in 1st
column
amounts
in 2d column

Averages
1890-99

112,834.4

898.4

126.1

1900-09

178,593.4

956.3

186.0

tatistique

de France,

1 9 0 9 , p. 6 8 * .

FORMULA

MITCHELL: BUSIiNESS CYCLES

311

NOTES
A REVISED ESTIMATE OF THE AMOUNT OF MONEY HELD BY THE BANKS OF
THE UNITED STATES IN 1890-1911
Beginning in 1892, the Comptroller of the Currency has included in his annual reports an
estimate of the amount of the total monetary stock held by the federal treasury, by the banks,
and by the general public. In Dr. A. Piatt Andrew's Statistics for the United States (Publications of the National Monetary Commission), p. 155, this table is carried back from 1892 to 1867.
While these figures afford a satisfactory working basis for estimating the character of the changes
in the distribution of money from year to year, they require several corrections.
1. The amount of money held by the banks is computed from the bank reports secured by the
Comptroller of the Currency. These reports include all of the national banks, but not all of the
state and private banks and trust companies. Although the omitted institutions are doubtless
small banks for the most part, their number is sufficient to make a considerable deficiency in the
Published figures for money in the banks.
In 1900 and 1902-1911 'the comptroller estimated the number and the individual deposits of
these institutions from which reports were not received. His figures were as follows:

Number of
banks

Individual
deposits

1900

3,595

$450,000,000

1902

3,732

478,600,000

1903

4,546

502,500,000

1904

3,994

448,000,000

1905

3,500

435,600,000

1906

3,491

413,200,000

1907

4,191

554,900,000

1908

3,654

486,000,000

1909

3,021

389,700,000

1910

4,168

521,600,000

1911

4,159

560,000,000

p r o ^ n o t ' l e r estimate of the number of banks operating under state laws has been made by
A r ar eSS ° r ^ e o r g e
Barnett in his Slate Banks and Trust Companies Since the Passage of the
Bank
based
(Publications of the National Monetary Commission). Barnett's figures are
s t a t e reports, where the latter are available, and elsewhere upon the various
alma l ' P ° n
DaC'S S ' v i n ® t h e n a m e s and addresses of banking institutions.
Bar
The following table compares
n e t t ' s figures for 1890-1908 with the number of banks reporting to the comptroller:




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

Number
of State banks

Number
of trust companies

Number
of private banks
A

Number of banks not reporting
to the comptroller

Comptroller

Barnett

State
banks

Trust
companies

Private
banks

Total

102

1,344

4,305

433

47*

2,961

3,347

171

125

1,235

4,230

530

46*

2,995

3,479

168

r

124

1,161

4,004

293

44*

2,843

3,092

Comptroller Barnett

Year

Comptroller

Barnett

1890

2,101

2,534

149

1891

2,572

3,102

1892

3,191

3,484

"\

A

1893

3,579

3,700

228

214

848

4,031

121

14*

3,183

3,290

1894

3,586

3,705

224

228

904

3,844

119

4

2,940

3,063
2,897

1895

3,774

3,818

242

241

1,070

3,924

44

1*

2,854

1896

3,708

3,917

260

257

824

3,810

209

3*

2,986

3,192

1897

3,857

3,978

251

264

759

3,806

121

13

3,047

3,181

1898

3,965

4,062

246

268

758

3,853

97

22

3,095

3,214

1899

4,191

4,253

260

276

756

4,168

62

16

3,412

3,490

1900

4,369

4,405

290

492

989

5,287

36

202

4,298

4,536

1901

4,983

4,906

334

561

917

5,060

477

227

4,143

4,293

1902

5,397

5,433

417

636

1,039

4,976

36

219

3,937

4,192

1903

5,962

6,111

531

827

1,174

5,417

149

296

4,243

4,688

1904

6,923

6,984

585

924

854

5,484

61

339

4,630

5,030

1905

7,794

7,920

683

1,041

1,028

5,291

126

358

4,263

4,747

1906

8,862

9,334

742

1,337

929

4,823

472

595

3,894

4,961

1907

9,967

10,352

794

1,485

1,141

4,947

385

695

3,806

4,882

1908

11,220

11,295

842

1,496

1,007

4,576

75

654

3,569

4,298

r

Comptroller's figures in excess of Barnett's.

Barnett points out that his figures for 1900-08 are swollen by a partial double counting of trust
companies as both trust companies and state banks. To indicate the extent of this duplication,
he publishes a table (p. 249) showing the numbers of trust companies given by official state reports
and the numbers derived from both official and unofficial sources. In answer to an inquiry he
kindly informs me that in 1906-08 the whole number of trust companies officially reported is
counted twice in his tables, while in 1900-05 the double counting is probably not over 150 in any
year and probably not over half the difference between the numbers reported officially and the
numbers ascertained from both official and unofficial sources. On this basis I have framed a
rough estimate of the deductions which should be applied to Barnett s figures. The following
columns show the changes which result in the total number of omitted banks, and also compare
the corrected figures with the comptroller's estimate of the non-reporting banks.




Corrected

Comptroller's
estimate of the
non-reporting
banks

1900

4,536

4,446

3,595

1901

4,293

4,193

1902

4,192

4,097

1903

4,688

4,558

4,546

1904

5,030

4,890

3,994
3,500

Year

f

Barnett's estimate
of the non-reporting banks
Original

3,732

1905

4,747

4,597

1906

4,961

4,383

3,491

1907

4,882

4,204

4,191

1908

4,298

3,664

3,654

MITCHELL: BUSIiNESS CYCLES

313

It will be noticed that Barnett's figures remain higher than the comptroller's, even after the
estimated duplications in his lists have been deducted. The cause of the discrepancy is not clear
for until 1908 the comptroller did not state upon what source he based his estimates. Barnett,
on the other hand, explains that, where official reports are unavailable, his lists are made from
Homans' Bankers' Almanac and its continuations—standard technical publications. Further,
Barnett uses the July edition of the almanac, which makes his results conform in date to the bank
reports used. I am therefore inclined to accept Barnett's results as more trustworthy for the
present than the comptroller's. For 1909-11, however, I use the comptroller's figures, partly
because Barnett accepts them for 1909, and partly because the preceding table shows that the
differences between the two estimates had nearly disappeared by 1907 and 1908.
2. But. granted that Barnett's corrected figures show the approximate number of banks for
which the comptroller obtains no reports, it remains to determine how much money these institutions probably hold.
From the preceding figures published by the comptroller for the number and aggregate
deposits of the non-reporting banks it is easy to compute the average amount of deposits held by
each. These figures agree with the average deposits of the private banks for which reports are
obtained, as the following comparison shows:

Year
1900

Estimated average
individual deposits
of non-reporting
banks
$125,000

Average individual
deposits of the
reporting private
banks
$97,000
129,000

1901
1902

128,000

127,000

1903

111,000

113,000

1904

112,000

112,000

1905

124,000

124,000

1906

118,000

118,000

1907

132,000

132,000

1908

133,000

126,000

1909

129,000

129,000

1910

125,000

133,000

1911

135,000

127,500

The practice of estimating the aggregate deposits of
r n o n r e P orting
deposits of the private banks is justified (1) by the fact thatthe ^ M - r f ^ ™ n _ r e £ o r t i n g
institutions are themselves private banks, and (2) by the p r o b a b
y that wh le th
P^
^
state banks and trust companies have average deposits larger than th^e
^
^
^-reporting private banks have somewhat smaller average deposits than t h e p
^
W h i e h sports are obtained. Indeed, the presumption in
^
^
^
^reporting
s S o strong as to discredit his estimate for 1900, in whicnne puu,
^
than
b ^ k s at a round $450,000,000, without noticing that this figure gives average depo
a quarter greater than those of the private banks for which he had r e »
these
. 3. The money holdings of the non-reporting banks may be estimated *
institutions keep cash reserves, corresponding to those of
tables
One minor difficulty obstructs this procedure. From 1887 to 1 8 9 t
*
f
imate
? r P»vate banks do noLparate " c a s h " from "cash items.'' ^
^
^
^
one rubric
a m °unt of the latter from the figures for later years m which
casn
18 g
- checks and
a n < I ' ' checks and other cash items" under another. In the five years




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

other cash items" made on the average 9 per cent, and *4cash on hand" made 91 per cent of the
sum of the two items. By applying these two percentages, the ratio of cash to individual deposits
may be computed for 1890-95. The amounts are stated in millions of dollars.

PRIVATE B A N K S FOR W H I C H

THE COMPTROLLER P U B L I S H E S

Year

Cash
and cash
items

Cash
items

Cash

Individual
deposits

1890

14.5

1.3

13.2

REPORTS

Per cent of cash
to individual
deposits

99.7

13.2%

1891

12.0

1.1

10.9

95.0

11.5

1892

12.2

1.1

11.1

93.1

11.9

1893

9.4

.8

8.6

68.6

12.5

1894

8.0

.7

7.3

66.1

11.0

1895

9.3

.8

8.5

81.8

10.4

4. We are now ready to estimate the amount of money held by banks from which the comptroller has not secured reports.
Average
Aggregate
Ratio of cash
individual deposits individual deposits
on hand to
of reporting
of non-reporting individual deposits
private banks
banks
in reporting
In thousands
In millions
private banks
of dollars
of dollars
Per cent

Aggregate
money holdings
of non-reporting
banks
In millions
of dollars

Year

Number of
non-reporting
banks

1890

3,347

74

248

13.2

33

1891

3,479

77

268

11.5

31

1892

3,092

80

247

11.9

29

1893

3,290

81

266

12.5

33

1894

3,063

73

224

11.0

25

1895

2,897

76

220

10.4

23

1896

3,192

72

230

10.5

24

1897

3,181

66

210

10.1

21

1898

3,214

82

264

9.3

25

1899

3,490

86

300

8.4

25

1900

4,446

97

431

8.6

37

1901

4,193

129

541

6.1

33

1902

4,097

127

520

7.1

37

1903

4,558

113

515

6.5

33

1904

4,890

112

548

6.1

33

1905

4,597

124

570

6.3

36

1906

4,383

118

517

6.1

32

1907

4,204

132

555

5./

32

1908

3,664

126

462

6.7

31

1909

3,021

129

390

5.7

22

1910

4,168

133

554

5.4

30

1911

4,159

128

560

5.0

28




MITCHELL: BUSIiNESS CYCLES

315

The first column shows the number of non-reporting banks as deduced from a comparison
between Barnett's tables (corrected for the double counting of trust companies in 1900-08) and
the number of banks other than national for which the comptroller publishes reports. The average
individual deposits of reporting private banks are computed from the comptroller's data.21 The
third column is made by multiplying the figures in the first column by the corresponding figures
in the second. The fourth column, like the second, is computed from the comptroller's data for
private banks, but after excluding the "cash items" from the figures for "cash and cash items '
in 1890-95. The fifth column is made by applying the percentages of column four to the aggregate
deposits of column three.
5. A final correction remains to be made in the comptroller's figure for money in the banks^
As has been said, the published reports for private banks in 1890-95 include "cash items and
"cash" under the single heading. The same is true of the comptroller's figures for state and
savings banks and trust companies. To find the amount of money held by these institutions it is
therefore necessarv to segregate the "cash items."
The method adopted toward this end is the one already applied to the private banks. The
separately stated amounts of "checks and other cash items" and of "cash on hand" in 1896-19UU
were added together the ratio of each item to the sum of the two was computed, and the average
of these ratios was struck for the five-year period. It turned out that "cash items" made on the
average 21 per cent of the "cash and cash items" among the state banks, 5 per cent among the
trust companies, 9 per cent among the private banks, and 3 per cent among the savings banks.
When these ratios are applied to the original returns for 1890-95 the following results expressed
l n millions of dollars are obtained.

State banks
Year
1890
1891
1892
1893
1894

1

Trust companies

Savings banks

Private banks

Cash
cash
items

Cash
items

Cash

120.8

25.4

95.4

19.9

1.0

18.9

14.5

1.3

13.2

30.1

.9

29.2

107.5

22.6

84.9

16.5

.8

15.7

12.0

1.1

10.9

29.7

.9

28.8

129.7

27.2

102.5

22.6

1.1

21.5

12.2

1.1

11.1

33.2

1.0

32.2

137.0

28.8

108.2

22.2

1.1

21.1

9.4

.8

8.6

37.0

1.1

35.9

144.5

30.3

114.2

34.4

1.7

32.7

8.0

.7

7.3

42.4

1.3

41.1

143.1

30.1

113.0

35.9

1.8

34.1

9.3

.8

8.5

39.6

1.2

38.4

ar ?d

Cash
and cash Cash
items
items

Cash

Cash
and cash Cash
items
items

Cash

Cash
and cash Cash
items
items

Cash

All banks other than
national

A

Cash
and cash
items

Cash
items

Cash

185.3

28.6

156.7

165.7

25.4

140.3

197.7

30.4

167.3

205.6

31.8

173.8

229.3

34.0

195.3

227.9

33.9

194.0

banks
* >reced * n £ results may now be applied to the comptroller's figures for "money in the
T h e o r i g i n a l d a t a f o r 1 8 9 0 a n d 1 8 9 1 a r e f r o m Andrew's Statistics for the United States,
P 155
T h e ' a n d f o r 1892-1910 from the Report of the Comptroller of the Currency for 1910, p. 58.22
a d d ing the estimated amount of money held by the non-reporting banks
1890 ^ ^ COns * st
rePorts of
s u ^ t r a c ^ n » the estimated amount of "cash items" included writh cash in the
^^
i1JclurlS i°
°ther than national in 1890-95. Money in banks of the island possessions is not
The fi T h e figures a r e i n m i l l i o n s o f dollars.
^ r ofess
to revise the comptroller's figures for money in the banks was made by
His rlTT I r V m . g P i s h e r i n his Purchasing Power of Money, appendix to Chapter XII, §§ 2 and 3.
cover the years 1896-1909, run somewhat higher than mine, by amounts which
21

22

In 1 9 i i

th

c o m P t r o l l e r ' s estimate of these deposits is accepted.
P fii *
' 0 1 of the report for 1911.




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

Year

Money
in the
reporting
banks

Money
in the
non-reporting
banks

1890

488

33

Cash items
included with cash
by the reporting
banks
29

Revised
estimate of
money in the
banks
492

1891

498

31

25

504

1892

586

29

30

585

1893

516

33

32

517

1894

689

25

34

680

1895

631

23

34

1896

532

24

556

1897

628

21

649

1898

688

25

713

1899

723

25

748

620

1900

750

37

787

1901

795

33

828

1902

838

37

875

1903

848

33

881

1904

983

33

1,016
1,024

1905

988

36

1906

1,011

32

1,043

1907

1,107

32

1,139

1908

1,363

31

1,394

1909

1,444

22

1,466

1910

1,415

30

1,445

1911

1,545

28

1,573

vary from about ten to upwards of thirty millions. The chief cause of these differences is that
Professor Fisher assumes that the money held by non-reporting banks bears the same ratio to the
money held by the reporting banks as the unreported deposits bear to the reported deposits. But
this assumption overlooks the facts that the great majority of the non-reporting institutions are
private banks, and that the reporting private banks keep smaller reserves in proportion to their
deposits than do the whole number of reporting banks. The differences are shown by the following
figures from Andrew's Statistics for the United States, p. 34.




Proportion of cash to
individual deposits

Year

In all
reporting
banks

1900

10.0%

1901

9.2

In reporting
private
banks
8.6%
6.1

1902

9.0

7.1

1903

8.8

6.5
6.1

1904

9.6

1905

8.5

6.3

1906

8.0

6.1

1907

8.3

5.7

1908

10.4

6.7

1909

9.9

5.7

MITCHELL: BUSIiNESS CYCLES

317

Further, Professor Barnett's tables of the number of banks other than national in the United
States had not been published at the time Professor Fisher made his estimate, and he was therefore compelled to rely upon the comptroller's estimates of the deposits in non-reporting banks in
1900 and 1902-09, and to supply figures for 1896-99 and for 1901 by interpolation. It is in these
years when Professor Fisher had to interpolate that the greatest discrepancies occur between the
two estimates. Even then the differences never reach 5 per cent of the smaller sum, and after
1899 they are always less than 1.5 per cent. The following figures compare the two estimates as
closely as may be.

Year

Fisher's
estimate in
tens of millions
of dollars

Present
estimate in
tens of millions
of dollars

Differences
in per cent of
the smaller
estimate

1896

58

56

3.6%

1897

68

65

4.6

1898

74

71

4.2

1899

77

75

2.7

1900

80

79

1.3

1901

84

83

1.2

1902

88

88

0.0

1903

89

88

1.1

1904

103

102

1.0

1905

103

102

1.0

1906

105

104

1.0

1907

115

114

.9

1908

141

139

1.4

1909

148

147

.7

The results presented here are composed for the year*
actually reported elements make never to than 95 per cent of
„,„„
cements never more than 5 per cent. A considerable error in - w e r : but
fore disturb the results but a trifle. In 1890-95 the estimated *
applied to
r * one set of corrections is added and the other set s u b t r a c ^ ^ f j ^ Z L m not disturb
^ original data are slight. Even an error of 300 per cent in the net c o r r e c t s
Ae final results more than 5 per cent. Further, in the table made ron these flgui«
in the figures
» « text the money in the banks is compared with a much larger
of the country-and of course the relative importance of any e ror contaned m
^
is reduced still more. Finally, the conclusions based upon this table in h
•
Qf
the changes in the distribution of the money in circulation from one year o
^
course such conclusions are not appreciably affected by e r r o r s w h e h r
^
t
direction. Despite the considerable number of assumptions involved i
n
i
n
hand.
troller's incomplete figures, the results are therefore sufficiently accurate for the purpose




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

THE VOLUME OF DEPOSIT CURRENCY IN THE UNITED STATES, 1890-1911
Until recently it has been customary to assume that the volume of deposit currency available
for business use is best represented by the individual deposits of the commercial banks. But the
Special Report from the Banks of the United States, April 28, 1909, obtained by the National
Monetary Commission, showed that a large proportion of these individual deposits is not subject
to check. At the suggestion of Professor Irving Fisher, Dr. A. P. Andrew, then assistant secretary
of the treasury, caused similar investigations into the character of bank deposits to be made for
the years 1896, 1899, and 1906. The results confirmed the conclusion based upon the Special
Report of 1909—nearly half of the total individual deposits of commercial and savings banks
together were found to be made on conditions which precluded their free use as deposit currency.
(Andrew, Statistics for the United States, pp. 151, 152.) In turn, the Comptroller of the Currency included the topic in his annual report and compiled a table classifying the individual
deposits of the banks in 1910. At present, therefore, definite statements of the amount of individual deposits subject to check for all banks from which the Comptroller's Office secures reports
are available for the years 1896, 1899, 1906, 1910, and 1911.

PROPORTION OF INDIVIDUAL DEPOSITS

SUBJECT TO C H E C K IN B A N K S
1 9 0 9 , 1 9 1 0 , AND

OF DIFFERENT CLASSES, IN

NATIONAL B A N K S

STATE

Year

Individual
deposits

1896

1,668

Actual
amount
1,421

Ratio
Per cent

Year

85.2

1896

Individual
deposits
716

Actual
amount

78.6
78.1

2,522

2,151

85.3

1899

1,099

858

4,056

3,202

78.9

1906

2,528

1,835

1909

4,826

3,515

72.8

1909

2,467

1,423

1910

5,287

4,236

80.1

1910

2,728

1,533

4,470

81.6

1911

2,778

1,586

M U T U A L SAVINGS

STOCK

BANKS
1896

1,740

1896

1

2,025

1899

201

3

1906

2,999

1906

354

45

1909

3,145

1909

569

101

1910

3,361

1910

710

146

1911

3,461

.1

1911

752

105

L O A N AND T R U S T

2

.1

PRIVATE

COMPANIES

606

541

89.3

1896

66

60

1899

1,149

1,013

88.2

1899

74

65

2,333

1,732

74.2

1906

103

86

1909

2,836

1,834

64.7

1909

193

105

1910

3,073

1,977

64.3

1910

125

66

1911

3,296

2,069

62.8

1911

142

75




56.2
57.1

.9
1.5
12.7
17.7
20.6
14.0

BANKS

1896

1906

72.6
57.7

SAVINGS B A N K S

175

1899

3

Ratio
Per cent

563

1906

5,478

1906,

BANKS

1899

1911

1899,

Individual deposits
subject to check

Individual deposits
subject to check
r'

1896,

1911

90.9
87.8
83.5
54.4
52.8
52.8

MITCHELL: BUSIiNESS CYCLES 339
These data are assembled in the table on the preceding page. In preparing this table it has
seemed desirable to readjust the original figures to remove two defects. (1) In 1896, 1899, and
1906 "time deposits" estimated at $20,000,000 or more wrere included with the deposits subject to
check. These sums have been distributed among the banks other than national in proportion to
their quotas of deposits subject to check, and then deducted from the latter figures. (2) In 1909
and 1910 considerable amounts were reported under the caption "deposits not classified." These
sums have been divided proportionately between the deposits which are and the deposits which
a r e n °t subject to check. The resulting figures show as accurately as the material permits what
Proportion of the aggregate individual deposits may be treated as deposit currency.
The table indicates that, perhaps because of keen competition for customers, the national,
state, and private banks and the trust companies have been forced since 1899 to pay interest on
an increasing proportion of their deposits. The stock savings banks, on the contrary, have rapidly
increased their business with non-savings depositors. Finally, the checking deposits of the mutual
savings banks are so small as to be negligible.
To estimate the deposit currency of the country since 1890 it is necessary to make some
assumption regarding the proportion of deposits which were subject to check in the years intervening between the dates for which definite statements have been published. The least objectionable assumption is that the changes shown by the figures have been proceeding at a uniform
Pace. But since the figures for 1896 and 1899 indicate that the movement toward paying interest
° n a larger portion of deposits scarcely began until after the latter year, the most plausible
assumption regarding the years 1890-95 is that thev showed the same ratio of checking deposits
a s 1896.
The estimate of the individual deposits subject to check is framed by applying the ratios, thus
a£&regate individual deposits of the various classes of banks.
st ^
For the national,
Stat' ^ ^
hanks a n d the trust companies Andrew gives the individual deposits in his
a istics for the United States, p. 31.23 It has been necessary to compile the figures for the de«i s of stock savings banks from the annual Reports of the Comptroller of the Currency. The
lctual deposits of the non-reporting banks are borrowed from the preceding note " A Revised
t h e B a n k s i n t h e United States."
there*^ ° f ^ A m o u n t o f M o n e y h e l d
For the reasons
e explained, the ratios applied to the latter figures are the ratios used for the private banks,
ever ^ S U m s
these estimates of deposits subject to check in the various classes of banks, howthat' ( H e r s * a * e ^ e volume of deposit currency in at least one respect. Fisher has pointed out
e exchanges for the clearing house reported by the banks on any given day are counted as
b a n k s *n w hich they have been placed for collection and in the banks against
which S
e e n d r a w n > hut to which they will not be presented until the following day.24
The^ ^ ^
^
amount of these exchanges is regularly reported for the national banks; but not for the banks
the V n g U n d e r s t a t e l a w s - Satisfactory data for the latter class of banks are available only in
Report from the Banks of the United States, April 28, 1909. The Comptroll r ( ? S a i d Special
iQlO^h0^
^urrency
indeed, endeavor to secure returns upon this point for his report of
a s to'd U t
*^ures
the state banks, particularly in New York, are so obviously misleading
res nlts of significance for present purposes.
below e p r i V e
The figures for 1909 are given
e s ^ m a t e of the clearing-house exchanges held by the non-reporting banks is added to
the r^t
rnS' ^
m a d e by assuming that these institutions have the same proportion of exchanges
to ri
the private banks.
1906*^8 d . l s c r e P a n c i e s appear between the individual deposits of banks other than national in 1896, 1899,
^ d r e w ' s S/
t^e preceding and in the following table. These discrepancies are found in the source—
re turns from
i
' o r the United
States, pp. 31 and 151. The figures on the latter page appear to include

an<i

24Irvi
lng

g e r number

Fisher,




of institutions than the fiures on p. 31.
The Purchasing Power of Money (New York, 1911), pp. 436, 437.

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

E S T I M A T E OF THE A M O U N T OF INDIVIDUAL DEPOSITS SUBJECT TO C H E C K IN B A N K S OF DIFFERENT CLASSES ON D A T E
OF REPORTS NEAREST TO J U N E 3 0 ,
National banks
A

Year

Individual
deposits

Per cent
subject
to check

Stock savings banks

A

r
Amount
subject
to check

1890-1911

State banks
Per cent
subject
to check

Individual
deposits

Amount
subject
to check

r
Individual
deposits

Per cent
subject
to check

Amount
subject
to check-

1890

1,522

85.2

1,297

553

78.6

435

25*

1891

1,535

85.2

1,308

557

78.6

438

32*
46*

1,753

85.2

1,494

649

78.6

510

1,557

85.2

1.327

707

78.6

556

24*

1894

1,678

85.2

1,430

658

78.6

517

30*

1895

1,736

85.2

1,479

712

78.6

560

33*

1896

1,668

85.2

1,421

696

78.6

547

1897

1,771

85.2

1,509

724

78.5

568

1898

2,023

85.2

1,724

912

78.3

714

1899

2,522

85.3

2,151

1,164

78.1

909

QO
OQ

*

1892
1893

1900

2,458

84.4

2,075

1,267

77.3

2,942

83.5

2,457

1,611

76.5

3,099

82.6

2,560

1,698

75.7

5*

1,232

1902

1*
3*

979

1901

43*

1,285

2*
17

6.3

270

1903

3,201

81.7

2,615

1,815

74.9

1,359

303

7.9

24

1904

3,312

80.8

2,676

2,073

74.1

1,536

317

9.5

30

1905

3,784

79.9

3,023

2,365

73.3

1,734

357

11.1

40

1906

4,056

78.9

3,200

2,742

72.6

1,991

391

12.7

50

1907

4,323

76.9

3,324

3,069

67.7

2,078

440

14.3

63

1908

4,375

74.9

3,277

2,937

62.7

1,841

414

16.0

66

1909

4,826

72.8

3,513

2,467

57.7

1,423

569

17.7

101

1910

5,287

80.1

4,236

2,728

56.2

1,533

710

20.6

146

1911

5,478

81.6

4,470

2,778

57.1

1,586

752

14.0

*Separately stated as "deposits subject to check," etc., in Reports of the Comptroller
separate reports of savings deposits and deposits subject to check are dropped until 1 9 1 0 .

of the Currency.

105
After 1 9 0 1 these

E S T I M A T E OF THE A M O U N T OF INDIVIDUAL DEPOSITS SUBJECT TO CHECK IN B A N K S OF DIFFERENT C L A S S E S ON DATE
OF REPORTS NEAREST TO J U N E 3 0 ,

1890-1911

Loan and trust companies

Individual
deposits

Per cent
subject
to check

Year

Non-reporting banks

Private banks

Per cent
subject
to check

A

r
Individual
deposits

Amount
subject
to check

A

Amount
subject
to check

r
Individual
deposits

Per cent
subject
to check
90.9

1890

337

89.3

301

100

90.9

91

248

1891

355

89.3

317

95

90.9

86

268

90.9

1892

412

89.3

368

93

90.9

85

247

90.9

1893

486

89.3

434

69

90.9

63

266

90.9

1894

471

89.3

421

66

90.9

60

224

90.9

1895

547

89.3

488

82

90.9

75

220

90.9

1896

587

89.3

524

59

90.9

54

230

90.9

1897

567

89.0

505

50

89.9

45

210

89.9

55

264

88.9

57

300

87.8

1898

662

88.6

587

62

88.9

1899

836

88.2

737

65

87.8

1900

1,028

86.2

886

96

87.2

84

431

87.2

1901

1,271

84.2

1,070

119

86.6

103

541

86.6

1902

1,526

82.2

1,254

132

86.0

114

520

86.0

1903

1,589

80.2

1,274

133

85.4

114

515

85.4

1904

1,600

78.2

1,251

96

84.8

81

548

84.8

1905

1,981

76.2

1.510

128

84.2

108

570

84.2

1906

2,009

74.2

1,491

110

83.5

92

517

83.5

1907

2,062

71.1

1,466

151

73.8

111

555

73.8

1908

1,867

67.9

1,268

127

64.1

81

462

64.1

1909

2,836

64.7

1,835

193

54.4

105

390

54.4

1910

3,073

64.3

1,977

125

52.8

66

554

52.8

1911

3,296

62.8

2,069

142

52.8

.75

560

52.8




Amount
subject
to check
225
244
225
242
204
200
209
189
235
263
376
469
447
440
465
480
432
410
296
212
293
296

321

MITCHELL: BUSIiNESS CYCLES

EXCHANGES FOR THE CLEARING H O U S E HELD BY B A N K S OF DIFFERENT CLASSES ON APRIL 2 8 ,
Amount
in millions of
dollars

National banks
State banks
Mutual savings banks
Stock savings banks
Loan and trust companies
Private banks
Non-reporting banks

1909

Proportion
of
the total

303.6
62-3

79.7%
16 3

4
12-2

3,2

-5

ml
3

AH banks

^To

These figures indicate that the clearing-house exchanges of the national hanks make so large
a proportion of the total that they may he accepted as a fairly satisfactory gauge of the changes
in the latter. Accordingly, the deductions to be made from the total deposits subject to check are
esimated by dividing the exchanges of the national banks given by the report nearest June 30 of
each year by .797.
The final results of these operations are as follows:

ESTIMATE OF THE DEPOSIT CURRENCY IN A L L THE B A N K S OF THE UNITED STATES, ON OR ABOUT J U N E 3 0 , OF THE
YEARS

Year

1890-1911

Estimated
Clearingindividual deposits house exchanges
subject to
of national
check
banks

Estimated
clearing-house
exchanges of
all banks

Estimated
deposit
currency of
all banks

1890

2,374

88

110

2,264

1891

2,425

80

100

2,325

1892

2,728

90

113

2,615

1893

2,646

108

136

2,510

1894

2,662

67

84

2,578

1895

2,835

83

104

2,731

1896

2,783

76

95

2,688

1897

2,859

89

112

2,747

1898

3,316

94

118

3,198

1899

4,120

203

255

3,865

1900

4,405

159

200

4.205

1901

5,333

301

378

4,955

1902

5,677

247

310

5,367

1903

5,826

228

286

5,540

1904

6,039

148

186

5,853

1905

6,895

268

336

6,559
6,863

1906

7,256

313

393

1907

7,452

273

343

7,109

1908

6,829

245

307

6,522

1909

7,189

304

381

6,808

1910

8,251

429

538

7,713

1911

8,601

286

359

8,242

_ The methods just explained differ in several respects from those applied b
F l s h e r in making his pioneer estimate of deposit currency.
(1) B«ore
P

^
the
« D u e to

national banks were instructed to report sums due to savings ^ . ^ ' T i n Z d m ?
state banks." But the Comptroller discovered that certain
" X d a
b a n k deposits with individual deposits. To check this prance the Comp rol er reqm
re Port of s u m s due to savings banks, and later of sums due to savings banks and trust




savingsseparate
>
P

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

Professor Fisher endeavored to correct this misclassification of deposits in the years 1896-1900
by deducting from individual deposits sums ranging from 160 to 330 millions. * He has kindly
written me that no deduction whatever should have been made on this score in 1900 since the
new rule went into effect in that year. Further, he now thinks that he over-corrected for this
error in 1896-99, and that his figures probably would be more accurate had he attempted no correction upon this score. Inspection of the changes resulting in the items "Due to state banks"
and "Individual deposits" from the insertion of the new item "Due to savings banks" makes
me share Professor Fisher's later view. (Compare the reports for February 13 and June 29,
1900.) Accordingly, I have not made any deduction for misclassification of bank with individual
deposits. (2) Professor Fisher's figures for deposits in non-reporting banks are based upon the
Comptroller's estimates in 1900 and 1902-09, and upon interpolations in the remaining years
which he covers. As explained in the preceding note, my figures are based on Barnett's count of
the number of banks other than national. (3) Instead of working with the individual deposits
of each class of banks separately, as I have done, Professor Fisher works with the total deposits
of all classes together. This difference of procedure gives different results because the percentage
of deposits subject to check is far from uniform among the several classes of banks, and because
the amounts of deposits in the several classes have not changed at the same rate. (4) From the
deposits of all banks, Professor Fisher's computer deducted the deposits in savings banks as
reported in the text of the Comptroller's report—for example, 1909, p. 44. These figures are
considerably larger than the deposits in savings banks reported in the appendices of the same
documents—for example, 1909, p. 888. And it is these latter figures which were used by the
Comptroller in making up his estimate of total bank deposits. The discrepancies between the two
sets of returns average nearly 150 millions in 1901-08, and reach a maximum of 195 millions in
1907. Accordingly, Professor Fisher's figures for individual deposits in the reporting c o m m e r c i a l
banks are too small. (5) On the other hand, Professor Fisher has not included the checking
deposits in stock-savings banks. The preceding tables show that these sums, actually reported or
estimated, vary from 1 to 146 millions. (6) Professor Fisher's method of estimating exchanges
for the clearing house as explained in his text is practically the same as mine. But for some
reason, which is not clear, his computer has obtained results which differ from mine by margins
of 5 to 50 millions. Finally, Professor Fisher deducts these exchanges from individual deposits
before he applies his percentages of deposits subject to check, while I make the deduction afterward, on the ground that these exchanges consist chiefly of checks drawn against checking deposits.
This difference in method, however, makes little difference in the results because Professor Fisher
allows for exchanges in fixing his percentages of deposits subject to check.
Despite all these differences in detail, the final results of the two computations harmonize
rather closely. As the following comparison shows, the differences vary within limits of .3 and
4.5 per cent of my figures. Minor corrections which Professor Fisher has made in his figures for
1900 and 1908 since the Purchasing Power of Money was published are embodied in the
comparison.
Present
estimate in
tens of millions
of dollars

Year

Fisher's
estimate in
tens of millions
of dollars

269

+0.4%

1903

570

554

1897

268
280

275

—1.8

1904

580

585

1898

319

320

+0.3

1905

654

656

Year
1896

Fisher's
estimate in
tens of millions
of dollars

Present
estimate in
tens of millions
of dollars

Differences
in percentages
of the present
estimate

1899

390

387

—0.8

1906

684

686

1900

440

421

—4.5

1907

713

711

1901

513

496

—3.4

1908

660

652

1902

543

537

—1.1

1909

675

681




Differences
in percentages
of the present .
estimate
—2.9
+0.9
+0.3
+0.3
—0.3

—1.2
+0.9

CHAPTER VII

THE CONDITION OF THE BANKS
The primary sources of information concerning the relations ^ w e e n
W
ness cycles and banking are the statements which show the condition of the
banks at regular intervals.
, ih
A
Material of this character is far more abundant or the
for England, France, or Germany. The central hanks
indeed, publish weekly balance sheets which enable one to
«ons in periods of prosperity, crisis, and depression m some deta l But the
do
reports of the Bank of England, the Bank of France, and the
not give an adequate picture of the effects of business
of banking upon business cycles. For the operations of these
vastly exceeded, both in volume and variety, by the o p e r a t i o n s of jo ^ o c k
and private banks in the several countries. Concerning ^
banks the National Monetary Commission has recently brought t o i l e r much
information hitherto unavailable.1 Nevertheless, the reports remain too incomplete, too infrequent, and too lacking in detail to match the American material
^ U r t h L ™ 4 T w T h a v e (1) the ^ ^ f ^ f X f l T l t u ^ t
clearing-house banks in certain great cities, (2) five detailed staicementeach
^ a r for the national banks, and (3) one statement each year for most of the
banks operating under state laws. By analyzing these statements we may find
what changes in the condition of the banks usually accompany
a business cvcle from the moment of incipient revival of activity to the ^timate
return of depression. With these results in hand we can then make the best
of the scantier European material.
I.

T H E C L E A R I N G - H O U S E B A N K S OF N E W

YORK

It is well to begin with the clearing-house banks of New York, both because
beir reports are more frequent than those of the national banks and because
tbe phenomena of business cycles are more pronounced in financial centers than
l n tbe country as a whole.
A

S

^

^

o

ashlngton,

r
Great Britain, Germany, and France (Senate Document, no. 578, 61st Congress, 2d session),
1910.




[ 323 ]

324

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

The New York material is presented in two tables, one of which averages
the weekly reports by years, the other by phases of business cycles. Either
set of averages, however, may prove misleading. For example, if cirulation
averages larger during a period of business depression than during the preceding period of crisis, it does not necessarily follow that the banks increased
their note issue after the pressure relaxed. On the contrary, they may have
withdrawn a part of the issues made during the crisis and still have left the
average circulation for the whole period of depression higher than before.
Accordingly, it is necessary to supplement the use of the tables in the text by
continual references to the weekly returns from which they were made. When
the following statements do not agree precisely with the indications of the
tables, it is because they are based on the weekly reports.
Among all the items included in the statements of the Associated Banks,
circulation is by far the smallest in actual amount, but shows by far the most
rapid rate of growth from 1890 to 1910. The latter fact obscures somewhat the
effect of business cycles. None the less, certain regularly recurring relations
can be made out between the volume of note issue and the condition of business.
(1) During minor crises the circulation increases little; but when the demand
for currency becomes intense, as in 1893, 1896, and 1907, the banks take out
additional notes as fast as they can buy bonds and make the necessary arrangements with the treasury. But the increase is tardy and the maximum circulation is not reached until several weeks after the strain upon the banks has
begun to relax. (2) When crisis yields to depression the banks begin to c o n t r a c t
their circulation; but the reduction in volume is even slower than the preceding
increase. (3) A revival of business activity is accompanied by a slight increase
of note issues, which sometimes has and sometimes has not continued as full
prosperity is attained. (4) Finally, when prosperity has run its course and a
major crisis approaches, circulation expands but a trifle, as in 1893, or
declines,
as in 1907.
The circulation of the New York banks, then, possesses a certain degree of
elasticity in the sense that the volume rises when business revives after a period
of depression, attains its highest points immediately after panics, and c o n t r a c t s
slowly when depression returns. But the amount issued in New York is so
small in comparison with that of deposit currency as to count for little in
meeting the changing needs of business. And the degree of elasticity exhibited
is less than that found under most foreign systems of note issue.2
Since about 1902, the behavior of bank loans in New York during the typical
phases of business cycles has been distinctly different from what it was formerlyFrom 1890 to 1902 the banks were able to contract their loans slightly on the
2

See chapter VI, iii.




MITCHELL: BUSIiNESS CYCLES

TABLE

325

82

A N N U A L AVERAGES OF THE W E E K L Y S T A T E M E N T S OF THE CLEARING-HOUSE B A N K S OF N E W Y O R K C I T Y ,
Actual amounts
In millions of dollars

Relative amounts

A

Capital and
surplus
Circulation

Year

A

Loans

Net
deposits

1890-1911

Lawful
money

Per cent of
reserve

CirCapital and
surplus
culation

Net
deposits

Loans

Lawful
money

1890

120.8

3.6

404.4

399.8

104.5

25.88

92

34

73

79

64*

1891

124.2

4.3

409.4

400.9

114.6

27.98

95

40

74

80

70

1892

127.5

5.5

504.4

472.9

141.7

28.00

97

51

91

94

86

1893

131.3

8.5

433.7

419.5

130.2

29.70

100

80

79

83

79

1894

132.3

10.9

568.9

471.0

213.6

37.59

101

102

103

93

130

1895

134.1

13.1

543.3

497.7

164.2

30.17

103

123

98

99

100

1896

134.3

16.2

482.5

463.9

142.1

29.38

103

152

87

92

87

1897

133.9

15.4

602.7

538.2

189.2

31.45

102

144

109

107

115

1898

133.9

14.7

729.8

637.0

213.4

29.32

102

138

132

126

130

1899

136.0

14.6

844.7

739.9

228.1

26.94

104

137

153

147

139

1900

158.7

24.3

852.8

779.5

228.8

26.82

121

228

154

155

139

1901

173.6

31.1

957.4

880.1

253.2

26.45

133

291

173

175

154

1902

201.9

34.5

934.9

894.5

244.1

26.11

154

323

169

177

149

1903

237.4

44.5

898.6

909.2

236.6

26.32

181

417

163

180

144

1904

249.7

39.8

1,118.1

1,061.2

307.0

27.43

191

373

202

211

187

1905

254.5

48.5

1,120.5

1,090.5

290.1

25.87

195

454

203

216

177

1906

267.7

49.6

1,025.0

1,044.8

263.3

25.68

205

464

186

207

160

1&07

288.9

53.0

1,065.2

1,111.4

265.3

24.89

221

496

193

220

162

1908

288.0

57.5

1,302.5

1,240.4

365.4

28.04

220

538

236

246

223

1909

299.7

50.3

1,347.6

1,305.1

352.5

26.14

229

471

244

259

215

1910

319.1

48.4

1,216.9

1,223.5

322.8

26.70

244

453

220

243

197

1911

331.1

47.9

1,372.8

1,340.7

369.2

26.91

253

448

249

266

225

'

Averages
1890-99

130.83

1900-09

242.01

m,ssion)
1 9 1 0

and

nn

?

lQii

9 0

'

10.68

504.08

164.16

29.648

100

100

100

100

100

43.31
1 9 0 9

552.38
1,062.26

1,031.67

280.62

26.375

185

406

192

205

171

compiled from A . P. Andrew, Statistics for the United States
or
an( * 1911 compiled from the Financial Review;
and Financial
Chronicle.

^ata

compiled from the Commercial




(Publications of the National Monetary Comdata for capital, surplus, and circulation in




324MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

327

MITCHELL: BUSIiNESS CYCLES

CONDITION OF THE CLEARING-HOUSE B A N K S
BANK

T A B L E 83
SEASONS OE BUSINESS
^ N E W^ Y O E K 1CITV 1IN 1
8 9 0 _ 9 1

Actual —

in millions o , «
0

January, 1890-July, 1 8 9 0 - P r o s p e r i t y
August, 1890-December, 1 8 9 0 - M i n o r crisis

-

3 5

-

3 3
395.3
396.8

^

™ .
404./

4

466.3

g

503 8

» •
oov-o

5.6
"

^

•
•
•

g g

-

«

454.0
449.9
406.6

5 5

May, 1893-October, 1 8 9 3 - M a j o r crisis
November, 1893-Mareh, 1 8 9 5 - S e v e r e depression
April, 1895-September, 1895—Revival

r

3 5

January, 1891-July, 1891—Depression
August, 1891-August, 1 8 9 2 - P r o s p e r i t y
September, 1892-April, 1893—Approach ol c
u

^

H.l

475.3

October, 1895-June, 1 8 9 6 - K e n e w e d depression

^

460

July, 1896-October, 1896—Free silver campaign

^

November, 1896-June, 1897-Depression
July, 1897-February, 1 8 9 8 — R e v i v a l
March, 1898-April, 1 8 9 8 - S p a n i s h W a r impending

»

•

m

g

28.11
2g

0

i n . X
^ ^

57

26.81
27.4,_
36.60

m

?

30.82

u ?

6

2 9.38

i 3 q 9

28.07
32.89

553.8

^

3Q 0 8

14.7

587.0

13.9

595'5

^
„ , " ft
814.0

687.7

22 2

773.7

January, 1900-September, 1 9 0 0 - S l i g b t depression
October, 1900-0ctober, 1902—Prosperity
November, 1902-July, 1 9 0 4 - " R i c b man's panic

42 4




6

^

510.8

g

—

1907-December, 1 9 0 7 - M a j o r crisis - . - • •
••
1908-September, 1 9 0 8 - S e v e r e depression
1908-December, 1909—Revival
1910-December, 1911—Reaction

99*3

u 3

f

^

706.3

August, 1904-August, 1905—Revival
September, 1905-September, 1906 Prosperity —
October, 1906-September, 1907-Approacb o f crisis

ol

466.1

g

October, 1899-December, 1 8 9 9 - M i n o r crisis

CBISIS, AND
RIT,O

.8

16 0

May, 1898-September, 1899—Prosperity

October,
January,
October,
January,

PR0SPEE.TV,

0 F

u

31 3

44 0
50 7
50 9
gg>7
59 g

^
48 2

' .„'

203 2

229.3
^

29.95
28.27
25.54

931.9

27.15

.3

26.22

g

2 6.76

247

877.6
942.0
1,113.7

94.-9
*> •
1.MJ-J

309 6

^

1,042.6
1,086.4
1)U8.1

1>« •
1,05"

270 2
^ g

i > 2 14.0
1;309.3
i)282.1

1,27".^
l,359.i
'

^

362.i

^
^

26.46
25.70
25.66
2 2.33
28.44
26.24
2 6.81

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA
T A B L E 83

CONDITION OF THE CLEARING-HOUSE B A N K S OF N E W

Y O R K C I T Y IN SEASONS OF B U S I N E S S PROSPERITY, CRISIS, AND

DEPRESSION,
Relative amounts.

—(Concluded)

1890-1911

Average actual amounts in

)-1899 =

100

Circulation

Loans

Net
deposits

Lawful
money

66

34

80

75

33

78

71

61

January, 1891-July, 1891—Depression

33

79

73

69

August, 1891-August, 1892—Prosperity

51

90

88

85

September, 1892-April, 1893—Approach of cri

52

89

84

76

May, 1893-October, 1893—Major crisis

81

81

73

68

107

93

100

123
105

November, 1893-March, 1895—Severe depressi
April, 1895-September, 1895—Revival

124

100

101

October, 1895-June, 1896—Renewed depressioE

132

94

91

90

July, 1896-October ; 1896—Free silver campaig

163

91

84

80

November, 1896-June, 1897—Depression

157

101

100

111

July, 1897-February, 1898—Revival

138

116

122

117

130

118

123

124
140
117

March, 1898-April, 1898—Spanish War impend
May, 1898-September, 1899—Prosperity

137

140

147

October, 1899-December, 1899—Minor crisis ....

150

136

136

January, 1900-September, 1900—Slight depress

208

153

155

141

October, 1900-0ctober, 1902—Prosperity

293

174

171

151

November, 1902-July, 1904— 4 'Rich man's pan

397

187

172

156

August, 1904-August, 1905—Revival

412

221

212

189

207

187

162

September, 1905-September, 1906—Prosperity

475

October, 1906-September, 1907—Approach of c

477

216

191

165

October, 1907-December, 1907—Major crisis ..

550

228

192

144

560

241

230

221

469

260

246

217

451

254

234

211

approach of crises and to contract them much more radically during crises,
i n the succeeding periods of depression they expanded loans, despite the inactivity ot trade-a result due in large part to the accumulation of idle funds
sent by the country banks to New York and to the inclusion of security holdings
with discounts under the caption of loans in the weekly statements. Finally,
when business revived, the banks increased their loans much faster than during
depression and continued in this course as long as prosperity reigned.3
In the rich man's panic" of 1903-04, on the contrary, the New York banks
not only failed to contract but even expanded their loans. During the prosperous years 1905 and 1906, when a further rapid expansion might have been
expected, the banks were able to carry their loans only a little above the level
attamedat the end of 1904. When the panic of 1907 came on, they were again
3

Save, of course, for the seasonal changes which recurred with considerable regularity from year to year.




MITCHELL: BUSIiNESS CYCLES

329

forced to increase their loans under circumstances when they would fain have
enforced a drastic contraction. To complete the anomaly, they made heavy
extensions of loans in the face of the severe business depression of 1908. The
changes of 1909-10, however, were more regular. The banks expanded loans
during the short-lived revival of activity and contracted them again when
business relapsed into dullness.
Save perhaps for the moderate increase of loans during periods of depression, the fluctuations of loans in 1890-1902 are what writers upon crises regard
^ "normal." 4 But certain of the fluctuations in 1903-07, particularly the
expansion of loans during crises and the slight expansion during periods of
abounding prosperity, are highly curious. The most plausible explanation
given is that based upon the relation of the "out-of-town" banks and the New
York trust companies to the money market. When interest rates become very
lxgh, particularly rates upon call loans, both sets of institutions and also certain
Railway, insurance, and industrial corporations which control large funds, withl a w their balances from the clearing-house banks and lend the money upon
keir ow7n account to stock brokers, etc. On the contrary, wThen the call-loan
rate falls to the neighborhood of 2 per cent these enterprises find it advantageous to redeposit their funds in the banks, content with the lowr rate of interest
Paid upon balances. Such movements help to explain both the slight expansion
^ loans in 1905-06 and the rapid expansion in 1908. For the withdrawal of
\ a n e e s reduced the ability of the clearing-house banks to lend in the years of
Prosperity, and the return of these balances increased their ability to lend in
. g y e a r s of depression. The increase of bank loans during the crisis of 1903-04
u P l0 bably due to the fact that the clearing-house institutions were forced to
^ carry ' many important customers who had overloaded themselves with
was j P S t i b l e securities." In the crisis of 1907 the primary source of difficulty
ou t"°f-town banks and the trust companies suddenly wTithdre
bilir * ?r ° m
l ° a n m a r ket. Together they exhausted the possia n c o n fr a c ti° n > a n ( l to avoid widespread disaster the clearing-house
banlf
*°
s were forced to take over some of the loans wThicli these competitors had
be en carrying.5
loan^
Cert""
am

1903 o /

f e W e x e e Pt i o n s,

Newr York deposits fluctuate in the same direction as
t l l e ^ e S r e e o f ri se or fall in these two items is often far from equal.
the differences appear to be characteristic of specific phases of the
(1) During crises deposits decline more than loans, or, as in
in 1907, rise less. (2) During periods of depression following

4 J however ' (
. *
0 be preferred n ° r m a l "

lt

ma

7 be for banks to contract loans during a crisis, ability to expand them is much

^ a tional^M^netn?^'n^' S P r a g u e , History of Crises under the National Banking
l d * y Commission), p. 300.
See also chapter X I I , iii, 3, below.




System

(Publications of the

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

upon crises, deposits rise more than loans. (3) When business revives after
depression deposits usually expand somewhat less rapidly than loans, though
this rule, unlike the others, has been subject to exceptions within the period
covered. (4) The same rule applies when a business revival develops into full
prosperity—both items expand, but loans faster than deposits.
These relations stand out more clearly if the ratio of loans to deposits be
computed. The next table shows that this ratio rises on the approach of a
crisis, attains its maximum during the crisis, and then falls off. If the succeeding period of depression be severe, the ratio reaches its lowest point; but
in such brief seasons of business contraction as that of 1891 the readjustment
is not worked out until after a revival of activity has come. In either case,
the return of prosperity is accompanied by a rise of the ratio, which continues
until the next crisis. This ratio, indeed, forms one of the best barometers of
business conditions, though it is less reliable as an indication of fair weather
than as a warning of approaching storm.

TABLE

84

RATIO OF L O A N S TO N E T DEPOSITS IN THE CLEARING-HOUSE B A N K S OF N E W
B y years
1890-1911

YORK

By phases of business cycles
1890-1911

1890

98.9

1891

97.9

August, 1890-December, 1890—Minor crisis

1892

93.8

January, 1891-July, 1891—Depression

98.1

1893

96.7

August, 1891-August, 1892—Prosperity

93.8

1894

82.8

September, 1892-April, 1893—Approach of crisis

1895

91.6

May, 1893-October, 1893—Major crisis

1896

96.2

November, 1893-March, 1895—Severe depression

84.4

1897

89.3

April, 1895-September, 1895—Revival

90.6

1898

87.3

October, 1895-June, 1896— Renewed depression

94.6

1899

87.6

July, 1896-October, 1896—Free silver campaign

98.9

1900

91.4

November, 1896-June, 1897—Depression

92.2

January, 1890-July, 1890—Prosperity

97.5
100.9

97.3
101.5

1901

91.9

July, 1897-February, 1898—Revival

86-8

1902

95.7

March, 1898-April, 1898—Spanish War impending

87.7

1903

101.2

1904

94.9

May, 1898-September, 1899—Prosperity

86-8

October, 1899-December, 1899—Minor crisis

91-5

1905

97.3

January, 1900-September, 1900—Slight depression

90.6

1906

101.9

October, 1900-0ctober, 1902—Prosperity

9 3 1

1907

104.3

November, 1902-July, 1904—"Rich man's p a n i c ' '

9 8 9

1908

95.2

August, 1904-August, 1905—Revival

1909

96.9

September, 1905-September, 1906—Prosperity

101,1

1910

100.5

October, 1906-September, 1907—Approach of crisis

103.2

1911

97.6

October, 1907-December, 1907—Major crisis

108,5

9 5 3

January, 1908-September, 1908—Severe depression

Averages

9o-6

1890-99

92.21

October, 1908-December, 1909—Revival

96 3

1900-09

97.07

January, 1910-December, 1911—Reaction

99 0







MITCHELL: BUSIiNESS CYCLES

331

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

The "specie and legal tenders" held by the New York banks, that is, their
cash reserves, have declined in every crisis since 1890, and at a pace roughly
proportionate to the severity of the disturbance. Almost before the crises were
over, however, reverse movements have set in on such a scale as within a few
weeks to make the banks stronger in cash than before the troubles began. This
immense accumulation of money in the bank vaults has more than once begun
to decline again before business revived. Iu other cases the resumption of
activity has been accompanied by an outflow of cash from New York. But
business revivals have usually come in the autumn when currency would have
been shipped west to move the crops, even though depression had continued
unbroken. Finally, the periods of full-fledged prosperity have been accompanied by a moderate gain, or by a small loss of cash. In 1902, for example,
the average reserves were less than in 1901; in 1906 they were less than in 190o.
and in the latter year less than in 1904.
Not less significant than the actual amount of the reserves is the ratio b o r n e
by reserves to deposits. In good times the New York clearing-house banks as
a group have been content to carry reserves but slightly above the minimum set
for national banks in central-reserve cities—25 per cent of their net deposits.
When crises have occurred, reserves have usually fallen for a time below this
limit. The minimum ratios reached in the successive crises of the last two
decades have been as follows: 24.13 per cent in 1890, 20.55 per cent in 1893,
26.84 per cent in 1896, 24.62 per cent in 1899, 25.06 per cent in 1903, and 19.98
per cent in 1907. During the succeeding periods of depression, reserves have
risen well above 25 per cent, as the following list of maxima shows: 30.94 pel
cent in 1891, 45.20 per cent in 1894, 35.51 per cent in 1897, 28.87 per cent in 1900,
29.84 per cent in 1904, and 30.06 per cent in 1908. These maximum ratios have
all been reached before business began to revive again. In the course oi 111
revival the decline of the ratio has continued, and when no reaction has inteirupted the movement of business expansion the figure has presently returne
to the neighborhood of 26 per cent. The seasonal outflow and inflow of cas »
combined with the seasonal expansion and contraction of loans, has m a i n t e w e
continual oscillations of the ratio; but when prosperity has been long continue
the level of these oscillations has slowly declined, and toward the end of t ®
prosperous phase of the cycle the reserves usually have dipped from tune
time, below the level of 25 per cent.
summarize the results of the preceding analysis: In times of c r i s i s
New York banks have increased their circulation, though tardily; they na
contracted their loans in the earlier crises, but have been forced to expand e
in 1903 and 1907; their deposits have fallen more or risen less than their loan ^
so that the ratio of loans to deposits has invariably increased; and they
lost cash at such a pace as to reduce the ratio of their reserves to d e p o s i t s .
To




MITCHELL: BUSIiNESS CYCLES

333

In times of depression the banks have slowly reduced their circulation, and
increased their loans. But their deposits have risen faster than loans, so that
the ratio of loans to deposits has fallen. Money has flowed into their vaults
in large amounts and raised the percentage of reserve to the highest points
attained at anv stage of the business cycle.
When business has revived after depression, the banks have usually increased
their note issues somewhat, and expanded their loans rapidly. The rise of
deposits has not long kept pace with the increase of loans, so that the ratio of
loans to deposits has risen presently, if not at the outset of the revival. Reserves
have usually exhibited an uncertain sagging tendency; at least they have not
grown as fast as deposits. In consequence, the ratio of reserves to deposits has
described a descending saw-toothed curve, the decline often beginning before
depression has been relieved.
As revival has developed into prosperity, the banks have seldom done more
than to maintain their circulation unimpaired. On the contrary, they have
continued to expand loans at a faster rate than their deposits have grown.
Hence the ratio of loans to deposits has risen gradually. In some cases the
actual amount of cash has increased, in others decreased; but the ratio of
reserves to deposits has continued the checkered decline which marked the
period of revival.

II.

T H E NATIONAL B A N K S

of V l e n e X * ( l 110s ^' on i s whether the changes shown by the clearing-house banks
-New York during the successive phases of business cycles are peculiar to
all Cen ^ er o r a r e characteristic of the whole country. Since the reports for
to , C 0 ' n m e r c * a l banks are available for only one date in each year, it is better
ase the analysis upon the fuller data for the national banks. A condensed
J ract of tlie resources and liabilities of these institutions, made from the
^P^ofthe
Comptroller of the Curr nicy, is presented in the following table.6
« U . X S * h ! ! S i a b l e " ^ n s " include " l o a n s and discounts' ' and " o v e r d r a f t s " ; " U n i t e d States b o n d s " include
secure
"Premiums"8
c i r c u l a t i o n , " " U . S. bonds to secure U. S. d e p o s i t s , " 11 I T . S. bonds on h a n d , " and
securities et ''> other bonds, securities, e t c . , " include " o t h e r bonds to secure I T . S. d e p o s i t s , " and " b o n d s ,
not reserve °
' ' ' ? , U e ^ r o m b a n k s " includes " d u e from approved reserve a g e n t s , " " d u e from national banks
include " c h ^ * 1 * 8 , " a n ( * " d u e f r o m state banks, bankers, trust companies, e t c . " ; " c h e c k s and e x c h a n g e s "
b a n k s " . <<0 yf,, a n r l o t h e r c a s h i t e m s , " " e x c h a n g e s f o r the clearing h o u s e , " and " b i l l s of other national
certificates o f H i n ? l l J ? e s ' ' f r a c t i o n a l currency, nickels, c e n t s , " " s p e c i e , " " l e g a l tender n o t e s , " and " U . S.
f f a l estate ow T ' m ' ' ' " m i s c e l l a n e o u s r e s o u r c e s " include " b a n k i n g house, furniture, and fixtures," " o t h e r
<(J ne f r o m fij n j f '
" f i v e per cent redemption f u n d , " " c l e a r i n g - h o u s e loan certificates, net b a l a n c e . " and
u - S. Treasurer, other than the 5 per cent f u n d " ;
Paid
" c a p i t a l , e t c . , " includes " c a p i t a l stock
a n < l " u n d i v i d e d profits less expenses and t a x e s " ;
bank notes oi
" c i r c u l a t i o n " includes " n a t i o n a l
g
United S t a t l ^
" i n d i v i d u a l d e p o s i t s " include " i n d i v i d u a l d e p o s i t s " and " d i v i d e n d s u n p a i d " ;
aePositS" i n c ] i / y s i t s "
include " U . S. d e p o s i t s , " and " D e p o s i t s of U. S. disbursing o f f i c e r s " ; " b a n k
a n d bankers," a
r e s e r v e a g e n t s , " " d u e to national banks not reserve a g e n t s , " " d u e to state banks
1
e t o * n i s t companies and savings b a n k s " ; "miscellaneous liabilities" include " c l e a r i n g ^ouse loau certifi *
i l l s Payablp
" s t a t e bank notes outstanding," " b o n d s b o r r o w e d , " " n o t e s and bills rediscounted,"
e>
reserved f o r t a x e s , " and " l i a b i l i t i e s other than those above s t a t e d . "




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE

85

CONDENSED ABSTRACT OF THE RESOURCES AND LIABILITIES OF A L L N A T I O N A L B A N K S AS S H O W N BY THEIR REPORTS
TO THE COMPTROLLER OF THE CURRENCY
Actual amounts in millions of dollars
Loans,
etc.

U . S.
bonds

Other bonds,
securities, etc.

Due from
banks

Checks and
exchanges

Cash

1890 Feb. 28

1,845

195

117

331

149

278

89
91

Date

Miscellaneous

May 17

1,904

194

117

325

104

275

July

18

1,934

194

116

325

123

282

87

Oct.

2

1,986

185

116

336

142

283

93

Dec.

19

1,932

184

117

300

123

279

112

1891 Feb. 26

1,928

186

121

321

110

303

95

1,970

187

122

321

164

304

99

May

4

July

9

1,964

187

122

318

118

311

94

Sept. 25

2,005

190

125

339

155

298

101

Dec.

2

2,001

192

128

354

146

311

105

1892 Mar.

1

2,059

195

138

420

167

355

103

May 17

2,108

197

144

412

137

374

106

July 12

2,128

196

151

423

129

367

100

Sept. 30

2,171

197

155

410

143

328

106

Dec.

9

2,167

199

154

382

148

320

111

1893 Mar.

6

2,160

203

153

357

162

315

109

May

4

2,161

204

151

329

153

324

111

July 12

2,020

207

150

299

145

290

103

Oct.

1,844

238

149

277

144

347

110

415

103

Dec.

3
19

1894 Feb. 28
May

4

1,872

236

160

350

107

1,872

248

174

387

103

435

105

1,927

.245

185

407

109

453

107

191

397

98

440

108
108
108

July 18

1,944

244

Oct.

2

2,007

240

193

399

123

404

Dec. 19

1,992

248

197

390

112

376

1895 Mar.

5

1,965

264

197

366

108

367

111

May

7

1,989

267

194

367

116

365

112

July 11

2,017

253

194

394

116

384

113

Sept. 28

2,059

251

195

377

86

341

114

Dec. 13

2,042

251

193

367

117

338

115

1896 Feb. 28

1,966

283

192

333

119

338

116

1,983

282

191

338

117

350

116

May

7

July 14

1,972

274

190

349

107

345

117

Oct.

6

1,893

280

189

331

109-

344

117

Dec.

17

1,901

281

190

377

117

382

118

9

1,898

280

198

425

105

421

118
120

1897 Mar.

May 14

1,934

279

203

429

116

411

July 23

1,978

279

205

446

122

414

119

5

2,067

277

Dec. 15

Oct.

2,100

301




209
218

494

148

390

120

526

152

411

120

335

MITCHELL: BUSIiNESS CYCLES

(Continued)

TABLE 85—

CONDENSED ABSTRACT OF THE RESOURCES AND LIABILITIES OF A L L N A T I O N A L B A N K S AS S H O W N BY THEIR REPORTS
TO THE COMPTROLLER OF THE CURRENCY

Date

Loans,
etc.

1898 Feb. 18

2,152

May

2,110

5

2,164

July 14

Actual amounts in millions of dollars
D u e from
Other bonds,
U . S.
banks
securities, etc.
bonds

Checks and
exchanges

Cash

Miscellaneous

278

230

579

145

442

120

279

236

499

164

461

120

251

524

132

472

130
124

304

Sept. 20

2,173

358

255

525

147

422

Dec.

1

2,237

383

259

609

236

465

123

1899 Feb.

4

2,318

368

277 •

695

114

509

122

364

300

684

252

495

122

305

687

248

493

121

468

121

Apr.

2,421

5

2,508

June 30

346

Sept.

7

2,516

348

320

686

192

Dec.

2

2,514

351

325

604

129

431

121

1900 Feb. 13

2,505

383

331

630

228

478

120

2,585

410

337

664

188

505

123

418

357

691

205

504

125

419

367

736

170

522

125

228

503

127

Apr. 26
June 29
Sept.

5

Dec. 13

2,644
2,710
2,748

427

373

736

2,851

439

391

791

282

554

127

Apr. 24

2,940

445

421

808

338

551

129

July 15

2,981

451

435

788

351

542

128

785

287

541

128

1901 Feb.

5

Sept. 30

3,052

454

449

Dec. 10

3,081

453

452

784

301

538

113

1902 Feb. 25

3,161

456

459

835

241

563

129

Apr. 30

3,200

456

467

807

342

560

131

460

485

819

296

571

132

493

820

375

509

133

535

136

July 16
Sept. 15
Nov. 25

3,247
3,314

469

3,347

492

512

801

281

1903 Feb.

6

3,387

500

529

844

262

572

141

Apr.

9

3,433

503

535

813

249

538

143

June

9

527

539

802

277

554

146

198

556

150

Sept.

3,442

9

3,508

537

541

820

Nov. 17

3,476

543

545

834

229

522

152

1904 Jan. 22

3,511

555

558

893

286

616

157

Mar. 28

3,576

554

581

888

231

619

157

June

9

3,622

554

577

880

201

660

162

Sept.

6

601

962

271

663

164

644

167

3,758

556

Nov. 10

3,828

565

602

993

399

1905 Jan. 11

3,772

567

611

922

332

672

172

Mar. 14

3,888

569

647

1,047

340

643

174

May 29

3,929

562

677

1,007

325

651

176

673

1,040

317

667

180

1,043

400

624

185

Aug. 25
Nov.




9

4,028
4,071

566
575

666

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA
TABLE 85—

(Continued)

CONDENSED ABSTRACT OF THE RESOURCES AND LIABILITIES OF A L L N A T I O N A L B A N K S AS S H O W N BY T H E I R REPORTS
TO THE COMPTROLLER OF THE CURRENCY
Actual amounts in millions of dollars
Other bonds, D u e from
securities, etc.
banks

Date

Loans,
etc.

U . S.
bonds

1906 Jan. 29

4,IIS

586

660

6

4,176

593

June 18

4,237

4

4,331

Nov. 12

4,420

1907 Jan. 26

Checks and
exchanges

Cash

1,065

482

670

189

676

1,036

377

623

189

605

679

1,046

373

653

192

642

688

1,074

460

628

193

654

724

1,140

443

637

197

4,505

660

736

1,166

186

698

204

Mar. 22

4,573

666

745

1,121

319

658

206

May 20

4,664

671

774

1,130

334

694

209

Aug. 22

4,709

675

769

1,072

249

704

213

Dec.

4,623

713

890

925

311

663

282

Apr.
Sept.

3

Miscellaneous

1908 Feb. 14

4,452

743

887

1,035

259

791

230

May 14

4,551

734

855

1,062

295

864

233

July 15

4,640

733

840

1,104

309

852

236

Sept. 23

4,782

733

858

1,203

340

871

240

Nov. 27

4,879

719

855

1,251

401

847

244

4,870

787

879

1.282

342

863

248

1909 Feb.

5

Apr. 28

4,988

740

889

1,233

384

881

254

June 23

5,061

744

904

1,243

373

889

257

916

1,227

408

857

261

886

1,285

411

808

265
271

1

5,158

746

Nov. 16

5,191

746

1910 Jan. 31

5,264

747

857

1,264

492

836

Mar. 29

5,464

748

856

1,285

378

838

273

June 30

5,456

749

863

1,202

525

824

279

1

5,497

751

865

1,215

366

855

278

Nov. 10

5,498

819

284
291

Sept.

Sept.

751

867

420

1,317

1911 Jan.

7

5,443

752

894

1,351

250

839

Mar.

7

5,588

752

937

1,439

325

911

289

June

7

5,634

755

1,008

1,377

366

949

294

Sept.

1

5,690

775

1,034

1,306

376

899

299

Dec.

5

5,695

781

1,052

1,405

345

866

299

Capital,
etc.

Circulation

Individual
deposits

U . S.
deposits

Bank
deposits

Miscellaneous

Date

Total

1890 Feb. 28

916

124

1,482

32

434

14

3,003

May 17

936

126

1,482

31

414

21

3,010

July 18

934

126

1,525

31

424

22

3,062

2

961

123

1,568

29

426

34

3,141

Dec. 19

985

123

1,486

29

375

49

3,047

1891 Feb. 26

979

123

1,484

29

423

26

3,065

992

123

1,578

29

420

25

3,167
3,113

Oct.

May

4
9

987

124

1,540

26

408

28

Sept. 25

1,009

131

1,589

20

431

33

3,213

135

1,604

18

442

26

3,238

July
Dec.




2

1,013

"

MITCHELL: BUSIiNESS CYCLES

TABLE 85—

337

{Continued)

CONDENSED ABSTRACT OF THE RESOURCES AND LIABILITIES OF A L L N A T I O N A L B A N K S AS S H O W N BY THEIR REPORTS
TO THE COMPTROLLER OF THE CURRENCY
Actual amounts in millions of dollars
Capital,
etc.

Date

1892 Mar.

1

Circulation

Individual
deposits

U . S.
deposits

Bank
deposits

Miscellaneous

Total

1,011

138

1,703

17

555

13

3,437
3,479

May 17

1,020

140

1,746

16

543

14

July 12

1,011

141

1,757

14

556

14

3,494

Sept. 30

1,027

143

1,769

14

531

26

3,510

Dec. 29

1,045

146

1,765

14

484

27

3,480

472

35

3,460

.

1893 Mar.

6

1,038

149

1,752

14

May

4

1,041

152

1,753

14

429

44

3,432

July 12

1,029

155

1,561

14

365

90

3,213

Oct.

3

1,029

183

1,454

14

349

80

3.110

Dec. 19

1,029

180

1,540

14

450

29

3,242

1894 Feb. 28

1,012

174

1,589

14

517

19

3,325

1,673

14

542

20

3,433

May

4

1,012

173

July 18

1,001

172

1,681

14

534

21

3,422

Oct.

2

1,003

172

1,731

14

527

27

3,474

Dec. 19

1,007

169

1,696

14

515

21

3,423
3,379

1895 Mar.

5

992

170

1,669

28

495

24

May

7

993

176

1,693

27

494

28

3,410

July 11

987

179

1,739

13

527

26

3,471

Sept. 28

994

182

1,704

14

495

35

3,424

Dec. 13

998

185

1,722

14

470

35

3,424

1896 Feb. 28

3,348

988

187

1,649

34

448

41

7

989

197

1,690

24

443

34

3,378

July 14

983

199

1,671

15

454

31

3,354

Oct.

6

985

210

1,600

15

415

39

3,264

Dec. 17

990

211

1,641

15

486

24

3,367

9

976

203

1,670

15

563

18

3,446

May 14

972

198

1,729

16

558

19

3,492

19

3,563

May

1897 Mar.

July 23

962

196

1,772

16

597

Oct.

5

966

199

1,855

16

646

23

3,705

Dec. 15

971

194

1,918

44

678

25

3,829

1898 Feb. 18

964

184

1,984

31

765

19

3,947

5

962

188

2,001

27

670

21

3,870

July 14

955

2,026

53

720

34

3,978
4,004

May

190

Sept. 20

962

195

2,032

75

698

41

Dec.

1

962

207

2,226

94

795

29

4,313

1899 Feb.

4

943

204

2,233

87

913

25

4,404

Apr.

5

947

204

2,439

87

932

30

4,639

June 30

947

199

2,530

76

932

• 24

4,709

Sept.

7

956

200

2,452

79

929

34

4,650

Dec.

2

971

205

2,382

80

796

41

4,475




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE 85—

(Continued)

CONDENSED ABSTRACT OF THE RESOURCES AND LIABILITIES OF A L L N A T I O N A L B A N K S AS S H O W N BY T H E I R REPORTS
TO THE COMPTROLLER OF THE CURRENCY
Actual amounts in millions of dollars
Capital,
etc.

Date

1900 Feb. 13

977

Circulation

Individual
deposits

205

2,483

109

U . S.
deposits

Bank
deposits

Miscellaneous

Total

856

45

4,675

Apr. 26

1,001

236

2,450

109

975

40

4,812

June 29

1,013

265

2,460

99

1,063

44

4,944

5

1,020

284

2,509

94

1,097

45

5,048

Dec. 13

1,036

299

2,625

94

1,045

43

5,142
5,436

Sept.

5

1,035

309

2,755

95

1,205

37

Apr. 24

1,057

317

2,895

96

1,227

39

5,631

July

1,062

319

2,945

99

1,207

44

5,676

1901 Feb.

5

Sept. 30

1,086

324

2,942

107

1,185

52

5,695

Dec.

1,114

319

2,965

110

1,169

45

5,723

10

1902 Feb. 25

1,117

314

2,983

112

1,279

37

5,843

Apr. 30

1,132

310

3,114

120

1,249

38

5,962

July 16

1,185

309

3,101

124

1,243

47

6,009

Sept. 15

1,201

318

3,210

124

1,200

60

6,114

Nov. 25

1,232

337

3,154

147

1,155

80

6,104
6,235

1903 Feb.

6

1,249

335

3,161

148

1,272

70

Apr.

9

1,266

335

3,169

148

1,218

76

6,213

June

9

1,285

359

3,203

147

1,212

80

6,287

Sept.

9

1,310

375

3,157

150

1,226

92

6,310

Nov. 17

1,324

376

3,177

163

1,164

99

6,302

1,329

381

3,303

163

1,323

78

6,577
6,606

1904 Jan.

22

Mar. 28

1,341

386

3,255

160

1,383

81

June

9

1,349

400

3,313

110

1,412

71

6,656

Sept.

6

1,354

411

3,459

111

1,561

79

6,975

Nov. 10

1,372

419

3,709

110

1,513

74

7,197

1,368

424

3,615

106

1,535

69

7,118
7,308

1905 Jan.

11

Mar. 14

1,386

431

3,778

93

1,556

64

May 29

1,407

445

3,785

75

1,547

68

7,328

Aug. 25

1,420

469

3,822

62

1,625

75

7,472

Nov.

9

1,441

486

3,992

61

1,504

80

7,563

1906 Jan.

29

1,451

498

4,090

62

1,596

72

7,770

Apr.

6

1,470

506

3,980

74

1,557

83

7,671

June 18

1,491

511

4,058

90

1,545

89

7,784

4

1,506

518

4,201

108

1,589

94

8,016

Nov. 12

1,536

536

4,291

140

1,600

111

8,214

1,552

545

4,118

157

1,677

105

8,155

Sept.

1907 Jan.

26

Mar. 22

1,579

543

4,271

153

1,637

104

8,288

May 20

1,604

548

4,324

181

1,686

134

8,477

Aug. 22

1,631

552

161

1,595

130

8,390

235

1,388

353

8,408

Dec.




3

1,652

602

4,320
4,178

339

MITCHELL: BUSIiNESS CYCLES

TABLE

85—(Concluded)

CONDENSED ABSTRACT OF THE RESOURCES AND LIABILITIES OF A L L N A T I O N A L B A N K S AS S H O W N BY T H E I R REPORTS
TO THE COMPTROLLER OF THE CURRENCY

Capital,
etc.

Date

Actual amounts in millions of dollars
U . S.
Individual
deposits
deposits
Circulation

1908 Feb.

14

1,649

628

4,107

May

14

1,671

614

4,314

July

15

1,668

614

4,378

130

Sept. 23

1,689

614

4,549

126

N o v . 27

1,700

599

4,721

124

1,700

615

4,701

636

4,827

641

4,900

1909 Feb.

5

Apr. 28

1,729

233

182

Bank
deposits

Miscellaneous

Total

1,584

197

8,397

1,692

122

8,595

1,823

102

8,714

1,942

107

9,027

1,959

93

9,197

100

2,035

69

9,221

70

2,037

69

9,369

74

2,035

77

9,472

49

2,019

90

9,574

1,886

86

9,591

June 23

1,744

Sept.

1

1,746

658

Nov. 16

1,780

668

5,122

49

1,779

668

5,194

48

1,967

75

9,731

669

5,229

48

1,988

82

9,842

5,302

55

1,900

113

9,897

50

1,944

134

9,826
9,956

1910 Jan.

31

Mar. 29

1,825

5,012

June 30

1,851

676

Sept.

1

1,877

675

N o v . 10

1,900

680

5,306

48

1,906

115

1,892

684

5,119

47

1,991

87

9,820

2,224

74

10,241

1911 Jan.

7

5,147

Mar.

7

1,910

681

5,306

46

June

7

1,933

682

5,480

49

2,147

92

10,383

48

2,088

124

10,379

2,085

107

10,443

Sept.

1

1,930

697

Dec.

5

1,958

703

5,492
5,537

53

The circulation of the national banks as a whole has a t o p t e d J r i f
changing conditions of business scarcely better than has ths cwraMon o
New York banks. The volume has expanded tardily durrng ^
^
con.
slowly during depressions, expanded again when h " ®
™
,,
tinued to expand through periods of marked prosperity. In the tax
alone, has the total note issue of all national banks proved iteelf m o r e e
than that of the metropolitan group. But these movement,
ta^be®
^
Sish and generallv of small amplitude. Occas.onally, the ^ h o n M w h t n
expanded when the volume of business was shrinking, as iri i u o a
premature revivals of activity were chocked. Moreover, the
harmonize with the changing phases of business cycles a «
«> «'
O S of long-period shifting* controlled ^ factors wh.ch do n ^ o ,
U
o ^
the business situation. For example, as a whole 1890-96 was a n,
stress, and yet the general level of the circulation r o s e ; as a whole ™
• tune Of business improvement, and yet the
to the
'ell; finallv, the marked rise of the circulation after 1900 was due




32 4

-

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

provisions of the Gold Standard Act, the policy of Secretary Shaw, and the
fall in the prices of government bonds, than to the expansion of American
business.7
National-bank loans behave in a more regular fashion than New York loans.
They invariably fall during crises, and rise promptly in the following depressions, though a year or more sometimes elapses before they reach the antecrisis level. When business revives, the rise continues at an accelerated pace,
and, save for seasonal variations, this rise runs on through the years of prosperity until another crisis comes.
In the New York bank statements security holdings are included with loans;
in the national-bank reports the two items are segregated. One might e x p e c t
that in the stress of a crisis the banks would sell part of their m i s c e l l a n e o u s
stocks and bonds in order to reduce deposit liabilities, to obtain cash, or to buy
TABLE
ANNUAL

AVERAGES OF THE CHIEF

ITEMS

86

IN THE REPORTS OF THE N A T I O N A L B A N K S ,

1890-1911

Actual amounts in millions of dollars
Other bonds, Due from
securities, etc.
banks

Year

Loans,
etc.

U . S.
bonds

1890

1,920

190

117

323

Checks and
exchanges

Cash

128

279

Miscellaneous
resources
94

1891

1,974

188

124

331

139

305

99

1892

2,127

197

148

409

145

349

105
107

1893

2,011

218

153

322

142

338

1894

1,948

245

188

396

109

422

107

1895

2,014

257

195

374

109

359

113

1896

1,943

280

190

346

114

352

117

1897

1,995

283

207

464

129

409

119

1898

2,167

320

246

547

165

452

123

1899

2,455

355

305

671

187

479

121

1900

2,638

411

353

691

204

502

124

1901

2,981

448

430

791

312

545

125

1902

3,254

467

483

816

307

548

132
146

1903

3,449

522

538

823

243

548

1904

3,659

557

584

923

278

640

161

1905

3,940

568

655

1,026

343

651

177

1906

4,256

616

685

1,072

427

642

192

1907

4,615

677

783

1,083

280

683

223

1908

4,661

732

859

1,131

321

845

237

1909

5,054

743

895

1,254

384

860

257

1910

5,436

749

862

1,257

436

834

277

1911

5,610

763

985

1,376

332

893

294

187.3

136.7

374.4

110.5

309.9

646.4

177.4

'

Averages
1890-99

7

2,055.4

253.3

1900-09

3,850.7

574.1

Compare Chapter VI, iii.




626.5

418.3
961.0

MITCHELL: BUSIiNESS CYCLES

TABLE 86—
ANNUAL

341

{Continued)

AVERAGES OF THE C H I E F I T E M S IN THE REPORTS OF THE N A T I O N A L B A N K S ,

1890-1911

Actual amounts in millions of dollars
Total
resources
Miscellaneous
and
liabilities
liabilities

Circulation

Individual
deposits

1890

946

124

1,509

30

415

28

3,053

1891

996

127

1,559

24

425

28

3,159

1892

1,023

142

1,748

15

534

19

3,480

1893

1,033

164

1,612

14

413

56

3,291

1894

1,007

172

1,674

14

527

22

3,415

1895

993

178

1,705

19

496

30

3,422

1896

987

201

1,650

21

449

34

3,342

1897

969

198

1,789

21

608

21

1898

961

193

2,054

56

730

29

4,022

1899

953

202

2,407

82

900

31

4,575

1900

1,009

258

2,505

101

1,007

43

4,924

1901

1,071

318

2,900

101

1,199

43

5,632

1902

1,173

318

3,112

125

1,225

52

6,006

1903

1,287

356

3,173

151

1,218

83

6,269

1904

1,349

399

3,408

131

1,438

77

6,802

1905

1,404

451

3,799

79

1,553

71

7,358

1906

1,491

514

4,124

95

1,577

90

7,891

1907

1,604

558

4,242

177

1,597

165

8,344

1908

1,675

614

4,414

159

1,800

124

8,786

1909

1,740

644

4,912

68

2,002

78

9,445

1910

1,846

674

5,236

50

1,941

104

9,850

1911

1,925

689

5,387

49

2,107

97

10,253

Year

Capital,
etc.

U . S.
deposits

Bank
deposits

*

3,607

Averages
1890-99

986.8

170.1

1,770.7

29.6

549.7

29.8

3,536.6

1900-09

1,380.3

443.0

3,658.9

118.7

1,461.6

82.6

7,145.7




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE
ANNUAL

AVERAGES OF THE CHIEF

ITEMS

Relative amounts.
Year

Loans,
etc.

U . S.
bonds

86—(Continued)

IN THE REPORTS OF THE N A T I O N A L B A N K S ,

1890-1911

Average actual amounts in 1 8 9 0 - 9 9 =: 1 0 0
Other bonds,
securities, etc.

D u e from
banks

Checks and
exchanges

Cash

Miscellaneous
resources

1890

93

75

62

77

94

75

85

1891

96

74

66

79

102

81

90

1892

103

78

79

98

106

93

95

1893

98

86

82

77

104

90

97

1894

95

97

100

95

80

113

97

1895

98

101

104

89

80

96

102

1896

95

111

101

83

83

94

106

1897

97

112

111

111

94

109

108

1898

105

126

131

131

121

121

111

1899

119

140

163

160

137

128

109

1900

128

162

188

165

149

134

112

1901

145

177

230

189

228

146

113

1902

158

184

258

195

225

146

119

1903

168

206

287

197

178

146

132

1904

178

220

312

221

203

171

146

1905

192

224

350

245

251

l74

160

1906

207

243

366

256

312

171

174

1907

225

267

418

259

205

182

202

1908

227

289

459

270

235

226

214

1909

246

293

478

300

281

230

233

1910

264

296

460

301

319

223

251

1911

273

301

526

329

243

238

266

1890-99

100

100

100

100

100

100

100

1900-09

187

227

334

230

227

173

161

Averages




MITCHELL: BUSINESS CYCLES

TABLE 86—
ANNUAL

AVERAGES OP THE C H I E F

ITEMS

Relative amounts.

(Concluded)

IN THE REPORTS OF THE N A T I O N A L B A N K S ,

Average actual amounts in 1 8 9 0 - 9 9 =
Individual
deposits

U . S.
deposits

Bank
deposits

1890-1911

100

Year
1890

96

73

85

101

75

1891

101

75

88

81

77

94

89

1892

104

83

99

51

97

64

98

1893

105

96

91

47

75

188

93

1894

102

101

95

47

96

74

97

1895

101

105

96

64

90

101

97

1896

100

118

93

71

82

114

95

1897

98

116

101

71

111

70

102

1898

97

113

116

189

133

97

114

1899

97

119

136

277

164

104

129

1900

102

152

141

341

183

144

139

1901

109

187

164

341

218

144

159

1902

119

187

176

422

223

174

170

1903

130

209

179

510

222

279

177

1904

137

235

192

443

262

258

192

1905

142

265

215

267

283

238

208

1906

151

302

233

321

287

302

223

1907

163

328

240

598

291

554

236

1908

170

361

249

537

327

416

248

1909

176

279

277

230

364

262

267

1910

187

396

296

169

353

349

279

1911

195

405

304

166

383

325

290

1890-99

100

100

100

100

100

100

100

1900-09

140

260

207

401

266

277

202

Circulation

Miscellaneous
liabilities
94

Total
resources
and
liabilities

Capital,
etc.

'

86

Averages




32 4




MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

MITCHELL: BUSIiNESS CYCLES

345

United States bonds as a basis for additional circulation In fact, however,
they have made but little use of their "other seeurities<"for ucfc pmpo.
In the crises of 1893 and 1896 this item did fall a trifle; but m the c n * s o f
1890, 1899, 1903, and 1907 it rose, slightly on the first three occasions heavily
on the last. Apparently the banks are unwilling to sacrifice
low prices which prevail on the stock market in times of crisis, ami ale_often
compelled to take over additional stocks or bonds from embarrassed debtor^
Such holdings, in America at least, cannot be regarded as an effi en second
reserve" for meeting seasons of stress. What service they render in this:regaid
seems to be limited to their use as a basis for clearing-house loan, eer Meates.
As soon as a crisis is over and the inflow of cash begins, the bank^buy
additional securities at the same time that they are expanding loans T h o n e
exception to this rule occurred during the depression of 1908 B u t . t o exception
is more arniarent than real. Between August and December, IWI, u e
had been forced to take over some $121,000,000 of additional
than government bonds. When the crisis was passed, they
of part of these extraordinarily large holdings; but continued to cair> some
$50,000,000 more than before the crisis.
o^nm^mipd
Periods of business revival and of prosperity have usually been accompamed
by further increases of security holdings, p a r t i c u l a r l y when the banks ha; e
been participating actively in syndicates for underwriting newissues lhus,
in the period of company promotion between 1898 and 1902 "other
was the only item among national-bank resources to double its amount-and
more.
.
, .
It is, indeed, one of the salient features of the national-bankingbusme^
since 1890 that the banks have put a gradually decreasing proportion oi then
funds available for productive investment into commercial l o a n * j m d an
increasing proportion into stocks and bonds. The next tabletraces thischange
* detail. Whereas loans used to make about 86 per cent ofthecombinedloans
United States bonds, and other securities, they made in 1910 but < per• cem.
Other securities meanwhile have risen from about 5 to about 12 percentofthe
total, and United States bonds from 9 to 10.5 per cent. Theproportionofother
Purities reached its maximum of 11.0 per cent and that of loans its minimum
ot> 73.2 per cent immediately after the crisis of 1907.
, Individual deposits in the national banks fall during crises " ^ during
depressions, and continue their upward course during periods o f r e j i v a a n a
Prosperity. In all this they resemble loans; but, as in New York, the amplitude
<* the two sets of variations differs from phase to phase of the cycle I hetan
f ^Posits exceeds that of loans in crises, and their rise exceeds that ol loans
during depressions. On the other hand, during periods of revival and pi ospei it>
increase of deposits usually lags behind that of loans.




32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE

87

L O A N S AND SECURITY HOLDINGS OF THE N A T I O N A L B A N K S AT THE D A T E OF E A C H REPORT TO THE COMPTROLLER OF
THE CURRENCY,
Loans and
security
holdings in
millions
of dollars

Date

1890-1911

Proportion of
r

Loans
Per cent

Other bonds
U. S.
bonds and securities
Per cent
Per cent

Loans and
security
holdings in
millions
of dollars

Date

Proportion of
f

Loans
Per cent

Other bonds
U . S.
bonds and securities
Per cent
Per cent

9.2

1890 Feb. 28

2,157

85.6

9.0

5.4

1898 July 14

2,719

79.6

11.2

May 17

2,215

86.0

8.7

5.3

Sept. 20

2,786

78.0

12.8

9.2

July 18

2,244

86.2

8.6

5.2

Dec.

1

2,879

77.7

13.3

9.0

2

2,287

86.8

8.1

5.1

1899 Feb.

4

2,963

78.2

12.4

9.4

Dec. 19

2,233

86.5

8.3

5.2

Apr.

5

3,085

78.5

11.8

9.7

1891 Feb. 26

2,235

86.3

8.3

5.4

June 30

3,159

79.4

10.9

9.7

2,279

86.4

8.2

5.4

Sept.

3,184

79.0

10.9

10.1

Oct.

May

4

7

9

2,273

86.4

8.2

5.4

Dec.

2

3,190

78.8

11.0

10.2

Sept. 25
2
Dec.

2,320

86.4

8.2

5.4

1900 Feb.

13

3,219

77.8

11.9

10.3

July

2,321

86.2

8.3

5.5

Apr. 26

3,332

77.6

12.3

10.1

1892 Mar.

1

2,392

86.1

8.1

5.8

June

29

3,419

77.4

12.2

10.4

May

17

2,449

86.1

8.0

5.9

Sept.

5

3.496

77.5

12.0

10.5

12

2,475

86.0

7.9

6.1

Dec.

13

3,548

77.5

12.0

10.5

Sept. 30

2,523

86.1

7.8

6.1

1901 Feb.

5

3.681

77.5

11.9

10.6

Dec.

2,520

86.0

7.9

6.1

Apr.

24

3,806

77.2

11.7

11.1

11.7

11.2

July

1893 Mar.
May
July
Oct.

9

6

2,516

4

2,516

85.9

12

2,377

85.0

8.7

6.3

. Dec.

3

2,231

82.6

10.7

6.7

1902 Feb.

85.8

8.1
.8.1

6.1

July

15

3,867

77.1

6.0

Sept. 30

3,955

77.1

11.5

11.4

10

3,986

77.3

11.4

11.3

25

4,076

77.5

11.2

Dec. 19

2,268

82.5

10.4

7.1

Apr.

30

4.123

77.6

11.1

1894 Feb. 28

2,294

81.6

10.8

7.6

July

16

4,192

77.4

11.0

4

2,357

81.8

10.4

7.8

Sept. 15

4,276

77.5

11.0

May

18

2,379

81.7

10.3

8.0

Nov.

25

4,351

76.9

11.3

Oct.

2

2,440

82.3

9.8

7.9

1903 Feb.

6

4,416

76.7

11.3

Dec.

19

2,437

81.7

10.2

8.1

Apr.

9

4,471

76.8

11.2

Mar.

5

2,426

81.0

10.9

8.1

June

9

4,508

76.4

11.7

July

1895

May

7

2,450

81.2

10.9

7.9

Sept.

9

4,586

76.5

11.7

July 11

2,464

81.8

10.3

7.9

Nov.

17

4,564

76.2

11.9

Sept. 28

2,505

82.2

10.0

7.8

1904 Jan.

22

4,624

75.9

12.0

Dec.

13

2,486

82.1

10.1

7.8

Mar.

28

4,711

75.9

11.8

1896 Feb.

28

2,441

80.5

11.6

7.9

June

9

4,753

76.2-

11.7

May

7

2,456

80.7

11.5

7.8

Sept.

6

4,915

76.5

11.3

July 14

2,436

81.0

11.2

7.8

Nov.

10

4,995

76.6

11.3

11.9

8.0

1905 Jan.

11

4,950

76.2

11.5
11.1

Oct.

80.1

2,372

80.2

11.8

8.0

Mar.

14

5,104

76.2

Mar.

9

2,376

79.9

11.8

8.3

May

29

5,168

76.0

10.9

2,416

80.1

11.5

8.4

Aug.

25

5,267

76.5

10.7

July 23

2,462

80.4

11.3

8.3

Nov.

9

5,312

76.6

10.8

Oct.

5

2,553

81.0

10.8

8.2

1906 Jan.

29

5,364

76.8

10.9

Dec.
1898

2,362

17

May 14

1897

6

Dec.

15

2,619

80.2

11.5

8.3

Apr.

6

5,445

76.7

10.9

Feb.

18

2,660

80.9

10.5

8.6

June

18

5,521

76.7

11.0

May

5

2,625

80.4

10.6

9.0

Sept.

4

5,661

76.5

11.3




11.3
11.3
11.6
11.5
11.8
12.0
12.0
11.9
11.8
11.9
12.1
12.3
12.1
12.2
12.1
12.3
12.7
13.1
12.8
12.6
12.3
12.4
12.3
12.2

MITCHELL: BUSIiNESS CYCLES

TABLE 87—

347

(Concluded)

L O A N S AND SECURITY HOLDINGS OF THE N A T I O N A L B A N K S AT THE D A T E OF E A C H REPORT TO THE COMPTROLLER OF
THE CURRENCY,
Loans and
security
holdings in
millions
of dollars

Date

1890-1911

Proportion of
Loans
Per cent

A
Other bonds
U. S.
bonds and securities
Per cent
Per cent

Loans and
security
holdings in
millions
of dollars

Date

Proportion of
A

c
Loans
Per cent

Other bonds
U . S.
bonds and securities
Per cent
Per cent

1906 NOV. 12

5,798

76.2

11.3

12.5

June

23

6,709

75.4

11.1

13.5

1 9 07

Jan. 26

5,901

76.3

11.2

12.5

Sept.

1

6,820

75.6

11.0

13.4

Mar. 22

5,984

76.4

11.1

12.5

Nov.

16

6,823

76.1

10.9

13.0

May 20

6,109

76.3

11.0

12.7

Jan.

31

6,868

76.6

10.9

12.5

Aug. 22

6,153

76.5

11.0

12.5

Mar.

29

7,068

77.3

10.6

12.1

Dec.

3

6,226

74.3

11.4

14.3

June

30

7,068

77.2

10.6

12.2

1908 Feb.

H

6,082

73.2

12.2

14.6

Sept.

1

7,113

77.3

10.5

12.2

Nov.

May 14

6,140

74.1

12.0

6,213

74.7

11.8

13.5

Sept. 23

6,373

75.0

11.5

Nov. 27
1909 Feb. 5

6,453

75.6

6,486
6,617

1910

13.9

July 15

1909

Apr. 28

10

7,116

77.3

1Q.5

12.2

Jan.

7

7,089

76.8

10.6

12.6

13.5

Mar.

7

7,277

76.8

10.3

12.9

11.1

13.3

June

7

7,397

76.2

10.2

13.6

75.1

11.4

13.5

Sept.

1

7,499

75.9

10.3

13.8

75.4

11.2

13.4

Dec.

5

7,528

75.6

10.4

14.0

1911

Consequently, the ratio of loansto deposit ^ a y s - s
a

S

«

-

-

into prosperity. The latter movement, however, ' s ^ p i t a l
1897-09, by the change pointed ont below in the relation te
total liabilities. The national bank reports are not made at suffioen t
Intervals to establish the priority of the changes in depositedloans h
a difference does appear! deposits are the first to fall in crises and
rise in depressions.

l

nA11TiQP

and

individual

Deposits made bv banks follow in general the
"metimes
deposits. Their changes are almost always greater in pr<>I»rt.on
greater in actual amount than those of individual deposits-for
tt'e crisis of 1907 and the depression of 1908. The bank depositshaveaso
much the more rapid growth over the whole period covered b> the
^ dep"®Tte
T Cash, like deposits, invariably declines in crises and
During periods of revival and prosperity its
flucuatumsarl®^ar
^
1'eviving activity of trade leads to considerable wlthdrawals of
when this revival coincides, as frequently happens,
'
current of
demand for money to move the crops. But sometimes an inflow.n ™
f i d enables the banks to maintain their reserves imnupa.rcl
evu
«>em, despite a rapid expansion in the amount of money carried in
po
°f individuals and the tills of business enterprises.



32 4




MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

349

MITCHELL: BUSIiNESS CYCLES

TABLE

88

RATIO TO THE N E T DEPOSITS OF N A T I O N A L B A N K S OF T H E I R L O A N S AND OF T H E I R L O A N S P L U S SECURITY
AT THE D A T E OF E A C H REPORT TO THE COMPTROLLER OF THE CURRENCY,
Ratio to net deposits of

K

r

-

HOLDINGS

1890-1911

Ratio to net deposits of
Loans and
securities

Date

Loans

Loans and
securities

1890 Feb. 28

128.5

150.2

14

103.5

130.1

May 17

129.8

151.0

Sept. 20

105.6

135.3

July 18

128.8

149.5

Dec.

1

102.8

132.3

131.0

150.8

1899 Feb.

4

99.2

126.8

155.3

Apr.

5

99.4

126.7

151.4

June 30

99.3

125.0
127.2

Oct.

2

Dec. 19
1891 Feb. 26

134.3
130.6

Loans

Date

1898 July

May

4

130.2

150.6

Sept.

7

100.5

July

9

129.9

150.3

Dec.

2

102.8

130.5

Sept. 25

131.4

152.0

1900 Feb. 13

101.0

129.7

Dec.

2

129.4

150.1

Apr. 26

100.5

129.5

1892 Mar.

1

143.1

June 29

100.6

130.1

5

100.4

129.5

101.5

131.1

5

98.8

127.5

123.2

May 17

121.1

140.7

Sept.

July

120.8

140.5

Dec. 13

12

1901 Feb.

Sept. 30

124.3

144.4

Dec.

9

126.1

146.6

Apr. 24

98.8

127.9

1893 Mar.

6

126.7

147.5

July 15

98.9

128.3

May

4

127.1

148.0

Sept. 30

99.9

129.5

136.3

160.4

Dec.

10

101.0

130.7

161.4

1902 Feb. 25

99.2

127.9

147.9

Apr. 30

99.6

128.3

100.6

129.8

July 12
Oct.

3

Dec. 19
1894 Feb. 28

133.4
122.1
115.8

141.9

July 16

4

113.4

138.7

Sept. 15

103.1

133.0

July 18

113.0

138.3

Nov. 25

103.7

134.8

Oct.

115.6

140.5

1903 Feb.

6

101.8

132.7

142.6

Apr.

9

103.2

134.5

143.5

June

9

103.2

135.1
136.3

May

2

Dec. 19
1895 Mar.

5

116.6
116.3

7

116.7

143.8

Sept.

9

104.2

July 11

114.9

140.3

Nov. 17

106.0

139.2

Sept. 28

118.6

144.3

22

101.9

134.2

119.5

145.5

Mar. 28

101.6

133.9

148.4

June

9

99.4

130.4

146.4

Sept.

6

99.2

129.8

Nov. 10

100.0

130.4
129.4

May

Dec. 13
1896 Feb. 28
May

7

July 14

119.5
118.2
118.1

145.9

1904 Jan.

6

120.2

150.0

11

98.6

Dec. 17
1897 Mar. 9

116.4

145.2

Mar. 14

98.5

129.3

111.4

139.5

May 29

98.2

129.2

May 14

111.0

138.7

Aug. 25

98.5

128.8

136.7

Nov.

Oct.

July 23

109.8

1905 Jan.

9

100.4

131.1
129.6

5

111.2

137.3

1906 Jan.

29

99.5

Dec. 15
1898 Feb. 18

109.5

136.5

Apr.

6

101.3

132.0

106.3

131.4

June 18

101.3

131.9

105.1

130.7

Sept.

101.8

133.0

Oct.

May




5

4

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE 88—

(Concluded)

RATIO TO T H E N E T DEPOSITS OF N A T I O N A L B A N K S OF T H E I R L O A N S AND OF T H E I R L O A N S P L U S SECURITY
AT T H E D A T E OF E A C H REPORT TO T H E COMPTROLLER OF T H E CURRENCY,

r
Date

Ratio to net deposits of
Loans

r

Loans and
securities

Date

1909 June 23

Loans and
securities

95.1

126.1
126.4

133.9

Nov. 16

97.7

128.4

134.4

1910 Jan. 31

97.4

127.1

Mar. 29

98.4

127.2

132.8

Mar. 22

102.3

May 20

102.6
102.5

133.9

Aug. 22

Loans

95.6

134.6

101.4

1907 Jan.

Ratio to net deposits of

1

• 102.6

26

1906 Nov. 12

HOLDINGS

1890-1911

Sept.

3

106.8

143.8

June 30

99.7

129.1

1908 Feb. 14

101.2

138.3

J3ept.

1

99.8

129.1

May 14

97.9

132.1

Nov. 10

100.4

129.9

July

15

96.9

129.8

1911 Jan.

7

98.8

128.7

Sept. 23

96.7

128.8

Mar.

7

96.9

126.2

95.7

125.7

Dec.

Nov. 27

97.0

128.3

June

7

5

95.3

126.9

Sept.

1

96.5

127.1

Apr. 28

95.1

126.1

Dec.

5

97.0

128.2

1909 Feb.

NOTE.—Net deposits = individual deposits plus dividends unpaid and sums due to banks, minus sums due from banks, exch
S
for the clearing house, cash items, and bills of other banks.
Loans = loans and discounts plus overdrafts.
Security hoiaing
all U . S. bonds held, plus premiums, " o t h e r bonds to secure U . S. deposits," and " b o n d s , securities, e t c . "

k

j

w

,

7

times thev have
f'om t h e V e t

0rk

':anks'
4°

f

t h c n ; , t "" 1 ! l 1

tanks as a whole have usually

dep°sits

^ p a i r e d during crises, and some" r ? S e d thC r a t i 0 a
Table 89). But the data
P O t d0,n0t
show the situation at the time of
most intense strain, and perhaps weekly statements covering the whole period
I k T a v T t g l V e d i f f e r e B t r e S l " t S - " i s < " » . however® that The national
Y o r H i " r e V C n m 0 r e t i m i d t h a n th<?- c l° a ring-house institutions of New
in't^
H t l , e n ; r e s e r v e s 1 0 »*tore eonfldenee in times of panic. The prompt
Zw»V„v.,„ «
1° a S ! ? 0 n a s t h e c r i s i s begins to merge into depression is
S° " t h e de|,li"in«
ot
eriv
t
™ « o in times of business
b u s m ? f Pf«sP0''it.v. Indeed, the ratio has usuaUv been lower at
th^il^S
t t a e S t h a n d u r i n » th"
ItniTa ™ k /
i
itself, if the availtimes ktnm
he trusted. But the dwindling of the ratio during prosperous
Tas
^ a g g f a t e d b y t h e d e d i n e " f the general level about which
and t h e " l j
°m'rred ChMy
of 1899
h . , ™ l b i ' i t i e S t 0 1 s t 0 c k h 0 l d e r s ' including capital, surplus, and undivided profits,
r
^ .'TJn
™ " , < w t i ™ w i t h business cycles. These items were expand;
al e d
f T 1 ! m - Bank failurcs
the panic of that year caused
a decline, which continued not only through the period of depression but also



MITCHELL: BUSIiNESS CYCLES

TABLE

351

89

THE C A S H RESERVE OF THE N A T I O N A L B A N K S TO T H E I R N E T DEPOSITS AT THE D A T E OF E A C H REPORT TO
THE COMPTROLLER OF THE CURRENCY,

Date

Cash
reserve
Millions of
dollars
278

1890-1911

Net
deposits
Millions of
dollars

Ratio
Per cent

1,436

19.4

Oct.

1,467

18.7

Dec.
Feb.

Cash
reserve
Millions of
dollars

Net
deposits
Millions of
dollars

Ratio
Per cent

3

347

1,382

25.1

19

415

1,533

27.1

28

435

1,616

26.9

453

1,699

26.7

Date

1890 Feb.

28

May

17

275

July

18

282

Oct.

1,501

18.8

2

283

Dec.

1,516

18.7

May

4

19

279

1,438

19.4

July

18

440

1,720

25.6

1891 Feb.

26

303

1,476

20.5

2

404

1,736

23.3

May

Oct.

4

304

1,513

20.1

19

376

1,709

22.0

July

Dec.

9

311

1,512

20.6

Mar.

5

367

1,690

21.7

Sept.

25

298

1,526

7

365

1,704

21.4

Dec.
1892 Mar.

2

311

21.9

1

355

19.6

1895

May

1,546

20.1

July

11

384

1,756

1,671

21.2

Sept.

28

341

1,736

374

1,740

21.5

12

367

1,761

20.8
18.8

30

Mar.
May
July

1894

19.5

17

Dec.

1893

328

1,747

9

320

1,719

6

315

1.705

Dec.

13

338

1,708

19.8

Feb.

28

338

1,645

20.5

May

7

350

1,678

20.9

18.6

July

14

345

1,669

20.7

18.5

Oct.

344

1,575

21.8

Dec.

17

382

1,633

23.4

Mar.

9

421

1,703

24.7

4

324

1,700

19.1

12

290

1,482

19.6

1896




1897

6

32 4

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

TABLE 89—

(Concluded)

RATIO OF THE C A S H RESERVE OF THE N A T I O N A L B A N K S TO T H E I R N E T DEPOSITS AT THE D A T E OF E A C H REPORT TO
THE COMPTROLLER OF THE CURRENCY,

Date

1897 May 14
July

23

Cash
reserve
Millions of
dollars

Net
deposits
Millions of
dollars

Ratio
Per cent

411

1,742

23.6

414

1,801

23.0

1890-1911
Cash
reserve
Millions of
dollars

Net
deposits
Millions of
dollars

6

663

3,787

17.5

Nov. 10

644

3,830

16.8

Date

1904 Sept.

Ratio
Per cent

Oct.

5

390

1,859

21.0

11

672

3,826

17.6

Dec.

15

411

1,918

21.4

Mar. 14

643

3,947

16.3

1898 Feb. 18

442

2,025

21.8

May 29

651

4,000

16.3
16.3

1905 Jan.

May

5

461

2,008

23.0

Aug. 25

667

4,090

July

14

472

2,090

22.6

Nov.

624

4,053

15.4
16.2

9

Sept. 20

422

2,058

20.5

670

4.139

Dec.

1

465

2,176

21.4

Apr.

6

623

4,124

15.1

1899 Feb.

4

509

2,337

21.8

June 18

653

4,184

15.6

Apr.

5

495

2,435

20.3

Sept.

4

628

4,256

14.8

637

4,308

14.8

26

698

4,443

15.7
14.7

1906 Jan. 29

Nov. 12

June 30

493

2,527

19.5

Sept.

7

468

2,503

18.7

Dec.

2

431

2,445

17.6

Mar. 22

658

4,468

1900 Feb. 13

478

2,481

19.3

May 20

694

4,546

15.3

Apr. 26

505

2,573

19.6

Aug. 22

704

4,594

15.3

June 29

504

19.2

Dec.

3

663

4,330

15.3

1908 Feb. 14

791

4,397

18.0

Sept.

5

Dec.
1901 Feb.

2,627

1907 Jan.

522

2,700

13

503

2,706

18.6

May 14

864

4,649

18.6

5

554

2,887

19.2

July 15

852

4,788

17.8

Apr. 24

551

2,976

18.5

Sept. 23

871

4,948

17.6

July 15

542

3,014

18.0

Nov. 27

Sept. 30

541

3,055

17.7

Dec. 10

538

3,049

1902 Feb. 25

563

3,186

19.3

847

5,028

16.8

5

863

5,112

16.9

17.6

Apr. 28

881

5,247

16.8

17.7

June 23

889

5,319

16.7

1909 Feb.

Apr. 30

560

3,214

17.4

Sept.

1

857

5,396

15.9

July 16

571

3,229

17.7

Nov. 16

808

5,312

15.2

Sept. 15

509

3,215

15.8

1910 Jan. 31

836

5,405

15.5

Nov. 25

535

3,227

16.6

Mar. 29

838

5,554

15.1

572

3,327

17.2

June 30

824

5,475

1903 Feb.

6

15.1
15.5

Apr.

9

538

3,325

16.2

Sept.

1

855

5,510

June

9

554

3,336

16.6

Nov. 10

819

5,476

Sept.

9

556

3,365

16.5

1911 Jan.

7

839

5,509

Nov. 17

522

3,278

15.9

Mar.

7

911

5,766

1904 Jan. 22

616

3,447

17.9

June

7

949

5,884

16.1

Mar. 28

619

3,519

17.6

Sept.

1

899

5,898

15.2

866

5,872

June

9

660

3,644

18.1

Dec.

5

NOTE.—Net deposits = individual deposits plus dividends unpaid and sums due to banks, minus sums due from
changes in the clearing house, cash items, and bills of other banks.




15.0
15.2
15.8

14.7

MITCHELL: BUSIiNESS CYCLES

353

through the revival of activity and into the good times. Then the tide t u r n e d ,
and since February, 1899, capital liabilities have risen with scarcely a setback
through crises, bad times and good.
.. ,
M
There is, however, one little-known fact c o n c e r n i n g the ratio between capita
liabilities and total liabilities, of considerable moment for the theory o f b u s m e s s
cycles. This ratio remains remarkably stable during periods of established
prosperitv, crisis, and depression; but it declines to a permanently lower leve
when business is recovering from a prolonged period of contraction The next
table shows that the maximum variation in this ratio> was from 32.3 t - .
per cent in 1890-96, and from 21.0 to 18.2 per cent in 1900-10. But during the
interval between these two periods, when business was recovering fromt
troubles of 1893-96, the ratio dropped from about 30 to about 20 per cent lhe
extreme range of thefluctuationsabout the 30 per cent level m 1890-96 was
only 3.9 per cent, and the extreme range of thefluctuationsabout the 20 per cent
level in 1900 to 1910 was only 2.8 per cent, much less in both cases than the 10
per cent drop from the earlier to the later level. Moreover the lowestratiojm
1890-96-28.4 per cent-was much higher than the highest ratio m 1900-1021.0 per cent.
„ ,,
, ,
The cause of this striking change in the condition of the national Dan
can be found bv analyzing the statements for, say, October, 1896, and June
1899. Between'these dates the resources of the banks increased by more than
a billion dollars. Whence did the banks get these additional funds I
trom
the stockholders, for capital, surplus, and undivided profits fell 38 millions
Not from the issue of notes, for circulation declined 11 millions. Not from
the sale of bonds and stocks, for the banks bought more than they so Id. >ot
W
miscellaneous sources, for these items fell 15 millions S o l e l y from
depositors. Individual deposits increased 930 millions, net bank deposits lbl
millions, and United States deposits 61 millions-a total of llo2 millions, u i
course, a large part of the increase in individual deposits was caused by an
increase of loans; but the more ample reserves which enabled the banks to
extend their loans and security holdings were provided by customers and not
by stockholders. What happened was that, as business began to improve ti e
Public deposited enormous sums with the banks. The latter made Profitable
nse of these funds to increase their commercial discounts (thus augmentm
deposits still further), to buv more interest-bearing securities and even to
^turn part of the former capital, surplus, and profits to stockholders 1 his
reduction of capital liabilities is explained by the relatively low profits made
V the national banks from 1893 to 1899.8 When the public had provided the
funds which made an extension of business possible, despite a lower capitalization, profits increased again, and then investors began putting more capital
8

Compare Chapter IX, i, below.




32 4

374 MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

TABLE

90

RATIO OF THE CAPITAL LIABILITIES TO THE TOTAL LIABILITIES OF THE N A T I O N A L B A N K S AT THE D A T E OF E A C H
REPORT TO THE COMPTROLLER OF THE CURRENCY,
Average
for the
year

1890-1910

Date

Ratio
at date of
report

Date

1890 Feb. 28

30.5

Ratio
at date of
report

1898 July 14

24.0

May T7

31.1

Sept. 20

24.0

July 18

30.5

2

30.6

Dec. 19
1891 Feb. 26

Oct.

May

4

July

31.0

Dec.

1
4

21.4

32.3

Apr.

5

20.4

31.9

June 30

20.1

31.3

Sept.

7

20.6

Dec.

2

23.9

22.3

1899 Feb.

Average
for the
year

21.7

9

31.7

Sept. 25

31.4

1900 Feb. 13

20.9

Dec.

2

31.3

Apr. 26

20.8

1892 Mar.

1

29.4

June 29

20.5

20.8

20.2

May 17

29.3

July 12

28.9

Sept. 30

29.3

Dec.

31.5

Sept.

5

Dec.

13

20.1

1901 Feb.

29.4

5

20.5

19.0
18.8

9

30.0

Apr. 24

1893 Mar.

6

30.0

July 15

18.7

May

4

30.4

Sept. 30

19.1

July 12

32.0

Oct.

33.1

3

31.4

10

19.5

1902 Feb. 25

19.0

19.1
19.0

Dec.

Dec. 19

31.7

Apr. 30

1894 Feb. 28

30.4

July

16

19.7

29.4

Sept. 15

19.6

Nov. 25

20.2

May

4

July

18

29.2

Oct.

2

28.9

1903 Feb.

6

20.0

Dec.

19

29.4

Apr.

9

20.4

1895 Mar.

5

29.4

June

9

20.5

May

7

29.1

Sept.

9

20.8

July 11

28.4

Sept. 28

29.0

Dec.

13

1896 Feb. 28

19.5

May

29.5

29.0

Nov. 17

21.0

1904 Jan. 22

20.2

29.1

Mar. 28

20.3

29.5

June

9

20.3

Sept.

6

20.5

19.4

7

29.3

July 14

29.3

Oct.

6

Dec.
1897 Mar.

29.5

Nov. 10

19.1

30.2

1905 Jan. 11

19.2

17

29.4

Mar. 14

19.0

9

28.3

May 29

19.2

May 14

27.8

July

23

27.0

Oct.

19.9

Aug. 25
26.9

19.0

9

19.1

1906 Jan. 29

19.1

18.7

Nov.

5

26.1

Dec. 15

25.4

Apr.

6

19.2

1898 Feb. 18

24.4

June 18

19.2

24.9

Sept.

4

18.8

May




5

18.9

355

MITCHELL: BUSIiNESS CYCLES

TABLE

90—(Concluded)

RATIO OF T H E CAPITAL LIABILITIES TO THE T O T A L LIABILITIES OF T H E N A T I O N A L B A N K S AT T H E D A T E OF E A C H
REPORT TO T H E COMPTROLLER OF T H E CURRENCY,
Ratio
at date of
report

Date

1906 Nov. 12
1907 Jan.

26

Mar. 22

Average
for the
year

1890-1910

Date

1909 June 23

18.7

Ratio
at date of
report

18.4

19.0

Sept.

1

Nov. 16

18.4

18.2

19.1

Average
for the
year

18.6

20

18.9

31

18.3

Aug. 22

19.4

Mar. 29

18.5

May

19.2

1910 Jan.

Dec.

3

19.6

June 30

18.7

1908 Feb.

14

19.6

Sept.

1

May

14

19.4

Nov. 10

18.7

19.1
19.1

July

15

19.1

19.1

1911 Jan.

7

19.3

Sept. 23

18.7

Mar.

7

18.6

Nov. 27

18.5

June

7

18.6

5

18.4

Sept.

1

18.6

Apr. 28

18.5

Dec.

5

18.8

*909 Feb.

NOTE.—Capital liabilities includes capital, surplus, and undivided profits.




18.8

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

356

into bank stocks. But, as the preceding ratios show, the increase of capital
was only fast enough in 1900-10 to maintain the lower level of capital to total
liabilities which had been reached by 1899.9
The differences brought out by the preceding analysis between the effect of
business cycles upon the condition of the national and the New York banks
are few. (1) The national banks always contract loans during crises, while
the clearing-house banks of New York expanded loans in 1903 and still more
in 1907. (2) The national banks seem to hoard their cash during crises more
than the metropolitan institutions. (3) During periods of prosperity, the
national banks expand their circulation, and (4) also their loans and deposits
with greater regularity. The reason for the last-mentioned difference is that
the national banks as a whole have no such intermittent competition to meet
in the loan market as the New York clearing-house banks face from the outof-town institutions, the trust companies, and the great insurance, railway, and
industrial corporations.
Besides these differences, the present section brings out additional information about items not adequately reported in the New York bank statements.
(1) Securities other than United States bonds contract less than loans in crises
and someimes rise—on occasion rise with extreme rapidity. This advance
usually continues through periods of depression, revival, and prosperity. (2)
Bank deposits follow the same general course as individual deposits, but
undergofluctuationsof greater relative amplitude. (3) The ratio of capital
liabilities to total liabilities remains nearly constant during periods of prosperity, crisis, and depression; but drops to a permanently lower level when
business is recovering from a prolonged and serious period of contraction.
(4) Finally, the decline in this ratio diminishes the sums banks can lend out
of resources of given amount,10 and therefore reduces the level about which the
ratio of loans to deposits fluctuates.
III.

T H E NATIONAL B A N K S IN RESERVE CITIES AND IN R U R A L DISTRICTS

Of the five sets of reports received annually from the national banks, the
Comptroller of the Currency publishes the fourth set in a form which shows
the condition of the banks in central-reserve cities, reserve cities, and country
towns. Statements for but one day in each year are, of course, too meagre
9 See W e s l e y C. Mitchell, " T h e Decline in the Ratio o f Banking Capital t o L i a b i l i t i e s , " Quarterly
of Economics, August, 1909, vol. 23, pp. 697-713. This paper shows that recovery from a prolonged ' ' y ^ p i t j U
is usually, if not invariably, accompanied b y a fall in the otherwise stable level about which the ratio o ^ lV(1]l
liabilities to total liabilities fluctuates. Such changes occurred among the national banks in 1878-8 .
jgg7as in 1896-99; among the state banks at the same dates; among the Canadian banks in 1868-70, 18(8
> ^e
93, and in 1896-1900; among the English joint-stock banks in 1887-88, 1894-96. and 1905-06. Concerni e
^an
recent experiences of the last group see the end o f section iv, below.
10 A bank with a reserve of $100,000 provided wholly b y stockholders can clearly lend larger sums . ^ j .
one with an equal reserve provided half b y depositors, other conditions being the same. For the la
tution must keep larger sums o f cash on hand against the extra $50,000 of deposits.




MITCHELL: BUSIiNESS CYCLES

357

basis for investigating the influence of each phase of business cycles upon these
three groups of institutions. For example, the relation of the national banks
in urban and rural districts to the panic of 1907 cannot be made out by comparing the reports for September 4, 1906, August 22, 1907, and September
23, 1908. But these reports do throw additional light upon a few matters of
significance for the history of American business since 1890.
Loans in the central-reserve cities—New York, Chicago, and St. Louisexhibit the influence of business cycles in a more striking degree than do loans
in country districts. Table 91 brings out this fact by means of relative figures.
For example, the rural banks contracted their loans less than the city banks
in 1893, expanded them less in 1894, and again contracted them less between
T A B L E 91
RELATIVE FLUCTUATIONS

IN THE L O A N S OF N A T I O N A L

B A N K S IN N E W

Y O R K , THE CENTRAL RESERVE CITIES,

RESERVE CITIES, AND IN O T H E R PLACES, ACCORDING TO THE FOURTH REPORT M A D E TO THE
COMPTROLLER OF T H E CURRENCY IN THE Y E A R S

1890-1911

Average actual amounts in 1890-99 = 100

Average actual amounts
in 1 8 9 0 - 9 9

New
York

Central
reserve
cities

Reserve
cities

Country
districts

All
national
banks

2,072.1

490.8

531.0

1,050.2

2

81

83

96

102

96

1891 Sept. 25

83

85

94

104

97

1892 Sept. 30

94

98

101

110

105

77

77

87

95

89

1890 Oct.

365.6

1893 Oct.

3

1894 Oct.

2

99

98

97

96

97

1895 Sept. 28

100

99

99

100

99

1896 Oct.

6

86

86

91

94

91

1897 Oct.

5

112

108

101

95

100

1898 Sept. 20

121

119

105

98

105

148

148

128

106

121
131

1899 Sept.
1900 Sept.

7
5

x56

156

137

116

1901 Sept. 30

167

174

151

133

147

1902 Sept. 15

166

179

164

149

160

1903 Sept.

9

173

184

170

162

169

1904 Sept.

6

221

222

174

166

181

1905 Aug. 25

220

228

195

178

194

1906 Sept.

192

207

220

204

209

4

1907 Aug. 22

195

216

235

229

227

1908 Sept. 23

248

253

233

219

231

1909 Sept.

1

253

266

259

236

249

1910 Sept.

1

239

260

275

263

265

1911 Sept.

1

242

269

288

271

275

1890-99

100

100

100

100

100

1900-09

199

209

194

179

190

Averages




THE

358




MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

359

MITCHELL: BUSIiNESS CYCLES

1895 and 1896. The revival of the autumn of 1904 was far less pronounced iu
the country than in the large cities, and so also was the business reaction of 1910.
Again, the country banks were slower than the city institutions in recovering
from the effects of the panic of 1907.
The policy of investing a decreasing proportion of funds in commercial
loans and discounts and an increasing proportion in stocks and bonds has been
hardly less marked among the country than among the city banks. Table
92, which justifies this conclusion, also indicates that business depression accelerates and business prosperity retards this change in the case of banks in reserve
cities and country districts. The same can hardly be said for the institutions
in New York. And even outside of New York the rule was broken in 1898-1901,
when the national banks joined in the movement towards company promotion
on a grand scale.
TABLE
L O A N S AND SECURITIES OP T H E N A T I O N A L B A N K S IN N E W

92

Y O R K C I T Y , T H E CENTRAL RESERVE CITIES, T H E RESERVE

CITIES, AND COUNTRY DISTRICTS AT THE D A T E OP THE REPORT NEAREST OCTOBER 1 , IN E A C H Y E A R ,

Date

1890 Oct.

2

1891 Sept. 25
1892 Sept. 30

Central reserve cities

A

N e w York City

f

Loans and
securities in
millions of
dollars

329

337
384

Loans
Per cent

90.3
89.6
89.9

U . S.
bonds
Per cent

1890-1911

Other
bonds and
securities
Per cent

Loans and
securities in
millions of
dollars

Loans
Per cent

U . S.
bonds
Per cent

Other
bonds and
securities
Per cent

2.7

7.0

445

91.0

2.7

6.3

3.0

7.4

461

90.5

2.8

6.7

532

90.4

2.4

7.2
8.0

7.8

2.3

1893 Oct.

3

329

85.4

6.1

8.5

436

86.7

5.3

1894 Oct.

2

421

85.7

5.0

9.3

554

86.8

4.5

8.7

1895 Sept. 28

424

85.9

5.4

8.7

559

87.3

4.8

7.9

1896 Oct.

6

379

82.8

7.7

9.5

498

85.0

6.6

8.4

1897 Oct.

5

8.6

609

86.7

5.3

8.0

727

80.2

10.4

9.4
9.1
9.9

1898 Sept. 20
1899 Sept.

7

1900 Sept.

5

1901 Sept. 30
1902 Sept. 15
1903 Sept.

9

1904 Sept.

6

1905 Aug. 25
1906 Sept.

4

1907 Aug. 22
1908 Sept. 23
1909 Sept.

1

1910 Sept.

1

1 9 H Sept.

1

Averages
1890-99
1900-09




476

85.7

5.7

10.0

•

77.8

12.2

649

83.5

7.4

9.1

856

84.6

6.3

715

79.7

9.5

10.8

943

81.0

9.1

769

79.5

9.2

11.3

1,052

81.1

9.0

9.9

778

78.0

10.2

11.8

1,091

80.5

9.1

10.4

13.9

1,139

79.3

8.9

11.8

13.4

1,344

81.2

7.0

11.8

1,378

81.2

6.5

12.3

80.3

6.9

12.8

79.4

6.3

14.3

568

829
1,016

76.2
79.5

9.9
7.1

4

14.3

1,021

78.9

6.8

897

78.2

6.6

934

76.3

6.2

17.5

1,338

1,144

79.2

5.6

15.2

1,551

80.2

6.3

13.5

1,618

80.8

6.0

13.2

1,561

81.8

6.0

12.2

1,661

79.5

5.6

14.9

15.2

1,164

79.6

5.2

15.2

1,082

80.8

5.1

14.1

1,153
429.6
926.7

76.8

5.2

85.66

5.75

78.51

7.63

18.0

1,266

8.59

567.7

86.92

5.11

7.97

13.86

1,272.0

80.50

7.51

11.99

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

360

TABLE 92—
L O A N S AND SECURITIES OF THE N A T I O N A L B A N K S IN N E W

(Concluded)
Y O R K C I T Y , THE CENTRAL RESERVE CITIES, THE RESERVE

CITIES, AND COUNTRY DISTRICTS AT THE D A T E OF THE REPORT NEAREST OCTOBER 1 , IN E A C H

Country districts

Reserve cities
Loans and
securities in
millions of
dollars

Date

Loans
Per cent

bonds
Per cent

Other
bonds and
securities
Per cent

U. S.

YEAR, 1 8 9 0 - 1 9 1 1

Loans and
securities in
millions of
dollars

Loans
Per cent

bonds
Per cent

U. S.

Other
bonds and
securities
Per cent

2

556

91.4

4.8

3.8

1,286

83.4

11.4

5.2

1891 Sept. 25

549

90.9

5.1

4.0

1,310

83.1

11.4

5.5

1892 Sept. 30

599

89.8

5.2

5.0

1,392

82.7

11.1

6.2

1893 Oct.

3

536

86.6

8.4

5.0

1,258

79.7

13.5

6.8

1894 Oct.

2

593

86.5

7.3

6.2

1,293

78.3

13.3

8.4

1890 Oct.

1895 Sept. 28

610

86.4

7.7

5.9

1,338

78.1

13.3

8.6

1896 Oct.

6

576

84.2

9.4

6.4

1,288

76.5

15.0

8.5

1897 Oct.

5

631

85.3

8.4

6.3

1,312

76.3

14.6

9.1

1898 Sept. 20

682

82.1

10.0

7.9

1,377

74.8

15.5

9.7

1899 Sept.

7

828

81.9

8.9

9.2

1,500

74.3

14.7

11.0

1900 Sept.

5

905

80.1

9.8

10.1

1,647

74.1

14.8

11.1

1901 Sept. 30

1,020

78.8

9.7

11.5

1,882

74.1

13.8

12.1

1902 Sept. 15

1,095

79.4

9.5

11.1

2,091

74.9

12.7

12.4

1903 Sept.

9

1,163

77.7

10.8

11.5

2,286

74.4

13.6

12.0

1904 Sept.

6

1,194

77.3

11.0

11.7

2,378

73.3

14.0

12.7

1905 Aug. 25

1,324

78.2

9.8

12.0

2,566

73.0

13.5

13.5

4

1,486

78.5

10.4

11.1

2,909

73.8

13.8

12.4

1907 Aug. 22

1,590

78.4

10.2

11.4

3,225

74.4

13.3

12.3

1908 Sept. 23

1,607

76.9

10.8

12.3

3,214

71.6

14.4

14.0

1909 Sept.

1

1,764

78.1

10.1

11.8

3,437

72.0

13.6

14.4

1910 Sept.

1

1,829

79.8

9.9

10.3

3,725

74.1

12.8

13.1

1911 Sept.

1

1,945

78.6

9.7

11.7

3,893

73.0

12.6

14.4

1906 Sept.

Averages

1890-99

616.0

86.51

7.52

5.97

1,335.4

78.72

13.38

7.90

1900-09

1,314.8

78.34

10.21

11.45

2,563.5

73.56

13.75

12.69

The differences between the fluctuations of deposits in rural and urban
districts are similar to those between the fluctuations of loans in the same
districts (see Table 93). But when the figures are averaged by decades, 1
appears that the net growth of deposits has been faster in the country,
that of loans has been faster in the cities. Coupled with the peculiarly rapi
growth of the item "due to banks," in the accounts of institutions in r e s e r v e
and central-reserve cities, thesefiguressuggest the conclusion that in an increas



MITCHELL: BUSIiNESS CYCLES

361

T A B L E 93
RELATIVE

FLUCTUATIONS

IN

THE

INDIVIDUAL

DEPOSITS

OF THE

NATIONAL

BANKS

IN

NEW

YORK,

THE

RESERVE CITIES, THE RESERVE CITIES, AND IN OTHER P L A C E S , ACCORDING TO THE FOURTH REPORT
M A D E TO THE COMPTROLLER OF THE CURRENCY IN E A C H Y E A R ,

1890-1911

Average actual amounts in 1890-99 = 100
Central
reserve
cities

Reserve
cities

Country
districts

All
national
banks

313.0

406.6

443.0

925.5

1,775.4

2

81

82

88

91

88

1891 Sept. 25

88

88

87

92

90

1892 Sept. 30

88

92

97

104

100

1893 Oct.

3

80

81

80

83

82

1894 Oct.

2

109

106

97

94

98

1895 Sept. 28

96

95

96

96

96

1896 Oct.

6

88

87

91

91

90

1897 Oct.

5

109

107

107

102

104

1898 Sept. 20

118

117

117

112

114

1899 Sept.

7

144

145

141

133

138

1900 Sept.

5

135

136

145

142

141

1901 Sept. 30

181

179

161

162

166

1902 Sept. 15

193

192

170

181

181

1903 Sept.

9

144

153

169

193

178

1904 Sept.

6

186

190

182

203

195

1905 Aug. 25

210

212

199

224

215

1906 Sept.

4

211

213

223

254

237

1907 Aug. 22

170

182

229

277

243

1908 Sept. 23

238

237

241

272

256

1909 Sept.

1

249

256

275

298

282

1910 Sept.

1

223

236

280

318

290

1911 Sept.

1

245

257

299

337

309

1890-99

100

100

100

100

100

1900-09

192

195

199

221

209

Average actual amounts
in 1 8 9 0 - 9 9

1890 Oct.

New
York

Averages




CENTRAL

362

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

ing degree the great central money markets are supplied with funds drawn
from the country districts. The national banks in agricultural sections seem
unable to find enough local borrowers to use the funds which local depositors
provide a situation for which the clause prohibiting national banks from
lending upon real estate security is doubtless responsible in part.11 They theretore find it advantageous to send sums far in excess of what is needed for
operations m exchange, plus what can be counted as part of their lawful
reserves, to banks in the great business centers. The latter have long encouraged this practice by paying interest, generally at the rate of 2 per cent, on
country-bank balances. In recent years out-of-town institutions have often
realized a substantially higher return by lending money in the cities on their
own account. Hence it happens that the items due to eountry banks from other
banks increased 209 per cent between the autumns of 1890 and 1910 while their
loans increased only 157 per cent. And doubtless this moderate increase of
loans would be reduced still further if we could exclude the investments in the
commercial paper of city firms, which country banks have come to buy in large
amounts through brokers.12
Despite the infrequency of the statements, the next table indicates that the
ratio of loans to deposits behaves in much the same fashion in the country as
in the cities—that is, the ratio rises before and during crises, falls during
depressions, and recovers again in prosperity, if not early in the course of
business revival. The chief differences among the fluctuations s h o w n by the
three groups of banks are that the movement in country districts lags s o m e w h a t
behind that in the cities, and that the decline in the'level of fluctuations has
been greater among the country than among the reserve-city banks, and g r e a t e r
among the latter than among the banks of the central-reserve cities.
This second difference is accounted for, not onlv bv the a b o v e - m e n t i o n e d
difficulties met by country banks in finding satisfactory local borrowers, but
also by the unequal decline in the ratio of capital to total liabilities. It has
already been pointed out that in proportion as a bank depends less on its stockholders and more on its depositors for funds, the ratio of its loans to deposits
must decline. Now Table 95 shows that the drop in the proportion of the
capital, surplus, and undivided profits to total liabilities has been most rapid
among the country banks. Then in order come the banks of reserve cities,
central-reserve cities and New York. The table also shows that the stability
of the ratio from 1890-96 and from 1900-10 has been less remarkable among
the several groups of banks taken singly than it was found to be among the
national banks taken as a whole.
£ e f o r m i n t h e U n i t e d S t a t e * (Cambridge, 1911), chapter ii.
what i s T a w T n w H ' n n ^ ' ^ I T * '
See A S
LO
what is said in section i of the present chapter about the loans o f out-of-town banks in New York.
t o m a i n t a i n t h e i r relatively high rates of interest upon local
is a m o r e Z V ^ f i t l * ^
is a more potent factor than the unwillingness of their customers to borrow







MITCHELL: BUSIiNESS CYCLES

363

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

364

TABLE

94

R A T I O TO T H E N E T D E P O S I T S OF T H E L O A N S AND OF T H E L O A N S
OF N E W

PLUS

SECURITIES H E L D BY T H E N A T I O N A L

Y O R K C I T Y , T H E C E N T R A L RESERVE C I T I E S , T H E RESERVE C I T I E S AND T H E C O U N T R Y
AT T H E D A T E OF T H E REPORT N E A R E S T OCTOBER 1 , IN E A C H
N e w Y o r k City
Ratio to deposits of
r

Central reserve cities
Ratio to deposits of
r
L o a n s and
Loans
securities
P e r cent
Per cent

Loans
Per cent

L o a n s and
securities
P e r cent

2

91.1

100.9

93.5

1891 Sept. 25

93.2

104.0

1892 Sept. 30

89.1

1893 Oct.

3

1894 Oct.

r

YEAR,

BANKS

DISTRICTS,

1890-1911

Reserve cities
Ratio to deposits of

r

Country districts
Ratio to deposits of
L o a n s and
securities
P e r cent

Loans
P e r cent

L o a n s and
securities
Per cent

102.8

131.9

144.4

154.2

184.8

94.6

104.5

130.3

143.3

154.9

186.4

99.2

92.0

101.7

122.8

136.8

146.4

177.1

91.8

107.5

92.4

106.6

139.8

161.4

156.8

196.9

2

74.1

86.5

78.5

90.4

119.0

137.6

146.7

186.3

1895 Sept. 28

82.9

96.6

86.8

99.5

122.0

141.2

140.8

180.3

1896 Oct.

6

84.9

102.4

88.9

104.6

123.7

146.9

139.3

182.2

1897 Oct.

5

81.1

94.6

82.5

95.2

114.0

133.7

134.4

176.1

1898 Sept. 20

79.9

102.7

81.4

101.5

106.5

129.6

126.1

168.6

1899 Sept.

7

79.9

95.7

81.7

96.6

100.6

122.8

118.1

159.1

1900 Sept.

5

77.8

97.6

79.8

98.5

100.4

125.3

119.5

161.2

1901 Sept. 30

79.4

99.9

81.8

100.9

99.5

126.2

115.8

156.3

1902 Sept. 15

85.5

109.6

88.6

110.1

101.9

128.2

114.3

152.6

1903 Sept.

9

85.5

112.2

88.6

111.8

104.9

134.9

114.6

153.9

1904 Sept.

6

78.5

98.7

81.7

100.6

100.8

130.4

113.6

154.9

1905 Aug. 25

81.2

102.9

83.6

102.9

99.2

126.9

109.8

150.4

4

85.7

109.5

87.3

108.7

101.8

129.7

110.4

149.6

1907 Aug. 22

87.4

114.5

88.8

111.9

102.4

130.6

110.0

147.8

1908 Sept. 23

76.6

96.8

79.3

98.9

97.4

126.7

109.0

152.2

1909 Sept.

1

79.2

99.6

80.9

100.2

95.7

122.6 •

105.6

146.7

1910 Sept.

1

82.3

101.9

84.7

103.5

101.0

126.6

108.1

1911 Sept.

1

77.4

100.8

80.8

101.6

97.3

123.9

105.5

Date

1890 Oct.

1906 Sept.

Averages

Loans
P e r cent

1890-99

84.80

99.01

87.23

100.34

121.06

139.77

141.77

1900-09

81.68

104.13

84.04

104.45

100.40

128.15

112.26

145.8
144.6
179.78
152.56

N O T E . — N e t deposits = individual deposits plus dividends unpaid and sums due to banks, minus sums due f r o m bank \
for the clearing house, cash items, and bills of other banks.
L o a n s = loans and discounts plus overdrafts.
Securities
bonds held plus premiums, " o t h e r bonds to secure U . S. deposits," and " b o n d s , securities, e t c . "
eld,




^

g

g.




MITCHELL: BUSIiNESS CYCLES 385

CHART

61.

RATIO OF THE LOANS TO THE NET DEPOSITS
OF THE NATIONAL BANKS IN
NEW YORK ,
AND

IN THE RESERVE

IN COUNTRY

CITIES,

DISTRICTS.

1690 - 1910.

NEW
— —

YORK

CITY.

RESERVE

CITIES .

COUNTRY

DISTRICTS.

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

366

TABLE

95

RATIO OF CAPITAL LIABILITIES TO TOTAL LIABILITIES OF THE N A T I O N A L B A N K S IN N E W Y O R K , THE CENTRAL RESERVE
CITIES, OTHER RESERVE CITIES, AND IN COUNTRY T O W N S , ACCORDING TO THE REPORTS
NEAREST THE 1ST OF OCTOBER IN E A C H Y E A R ,
New York
City
Per cent

Central
reserve cities
Per cent

Reserve
cities
Per cent

Country
towns
Per cent

All national
banks
Per cent

2

18.9

19.5

29.3

36.0

30.6

1891 Sept. 25

19.0

20.1

30.4

36.9

31.4

Date

1890 Oct.

1892 Sept. 30

17.8

19.1

27.6

34.8

29.3

1893 Oct.

3

20.6

22.0

31.3

38.8

33.1

1894 Oct.

2

15.8

17.2

27.1

36.0

28.9

1895 Sept. 28

17.5

18.7

27.7

34.7

29.0

1896 Oct.

19.0

20.5

28.6

35.4

30.2
26.1

6
5

14.9

15.5

24.3

32.8

1898 Sept. 20

13.0

13.8

22.8

30.7

24.0

1899 Sept.

7

11.4

12.1

18.3

27.2

20.6

1900 Sept.

5

12.8

13.0

18.1

26.1

20.2

1901 Sept. 30

12.6

12.6

17.3

24.4

19.1

1902 Sept. 15

14.8

14.7

17.8

23.9

19.6

23.6

20.8

1897 Oct.

1903 Sept.

9

17.8

17.4

19.2

1904 Sept.

6

14.5

14.6

17.7

23.5

19.4

1905 Aug. 25

14.7

14.4

17.4

22.8

19.0

1906 Sept.

4

16.1

15.4

17.1

21.6

18.8

1907 Aug. 22

18.7

17.5

17.7

21.3

19.4

1908 Sept. 23

14.2

14.2

17.0

22.3

18.7

1909 Sept.

1

14.8

14.4

16.1

21.7

18.2

1910 Sept.

1

17.2

16.6

17.3

21.4

19.1

1911 Sept.

1

16.3

15.7

16.7

21.1

18.6

16.79

17.85

26.74

34.33

28.32

14.82

17.54

23.12

19.32

Averages

1890-99
1900-09

in

MADE

1890-1911

15.10

w i t h c a s h r e s e i ' T C 8 ><™

giving relative fluctuations

Despite T h e fa ° / R ? a e I d '
°THCR
P^entages of cash to net deposits.
l e l fast in
T ^ h a V e incl'e»s<«i
reserves have increased
C0U
y \
t h c cities^decline in tI,
« « second table shows that
8 ^ ° f reSerVeS ' w h i d l a11
T o t u r ha, h t / r T '
groups have permitted
J e a s t marked in New York, and most marked in the sman
-,,,„„„
"
b e t w e e n t h « * two extremes. So decided
h t £ lee ne t h T C r V e O U ~
gr°Up o f banks ^
1 W eaual to it,
a reserve ratio in anv vears since
S
' t h f r r a g e / ! t 1 0 i n 1 8 9 0 - " ' Y e a r s o f prosperitv show the heaviest
d e P * * < ™ show moderate upward reactions.
divertreneZs f J S
These
t Z Z Z h T
T i g e t r e u d 0 f t b e fl»<*>ations are less wide among
country than among the city banks.




MITCHELL: BUSIiNESS CYCLES

367

Finally, it is interesting to note that tlie growth of the banking business
as conducted under federal charters has been fairly uniform in city and country.
Perhaps the best gauge of this growth is the increase in the aggregate resources
of the national banks. From 1890 until 1901 the country banks lost ground
relatively to the banks of New York, Chicago, and St, Louis, while those of
the reserve cities a little more than held their own. But since that time the
rate of expansion has been faster in the country districts than in the centralreserve cities, while the reserve-city banks have scored another slight gain. In
1910, however, the country banks had not wholly made up for their earlier
loss in relative importance, New York stood almost exactly in the same position
as in 1890, while the other central-reserve cities, and the reserve cities had

TABLE

96

FLUCTUATIONS IN THE C A S H RESERVES OP NATIONAL B A N K S IN N E W Y O R K , THE CENTRAL RESERVE CITIES,
THE RESERVE CITIES, AND IN OTHER P L A C E S , ACCORDING TO THE F O U R T H
THE COMPTROLLER OP THE CURRENCY IN E A C H Y E A R ,

REPORT M A D E TO

1890-1911

Average actual amounts in 1890-99 = 100
Average actual
amounts in 1 8 9 0 - 9 9

New York
City

Central
reserve cities

Reserve
cities

Country
towns

86.2

109.7

All national
banks

126.2

166.5

2

73

74

79

84

78

1891 Sept. 25

68

74

89

89

82

1890 Oct.

362.4

1892 Sept. 30

82

84

95

97

91

1893 Oct.

3

86

92

89

108

96

1894 Oct.

2

136

127

97

98

111

1895 Sept. 28

99

96

90

94

94

96

109

95

1896 Oct.

6

86

85

1897 Oct.

5

109

110

110

102

108

1898 Sept. 20

121

121

121

107

116

1899 Sept.

7

141

138

132

113

129

1900 Sept.

5

170

165

144

112

144

1901 Sept. 30

171

170

147

119

149

146

149

145

124

140

1902 Sept. 15
1903 Sept.

9

161

161

158

139

153

1904 Sept.

6

228

218

172

139

183

1905 Aug. 25

200

204

187

151

184

1906 Sept.

4

158

169

194

163

173

1907 Aug. 22

174

187

222

183

194

1908 Sept. 23

267

260

255

199

240

202

236

1909 Sept.

1

239

246

262

1910 Sept.

1

231

240

258

211

236

1911 Sept.

1

240

254

277

216

248

Averages

1890-99

100

100

100

100

100

1900-09

191

193

189

153

180




368

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

36

CHART
RATIO

OF THE CASH

RESERVES

o r THE NATIONAL
IN THE

RESERVE

62

CITIES

BANKS
AND

TO THE

NET

IN NEW YORK ,

IN COUNTRY

DISTRICTS

1890 - I 910

32

—

—

NEW

-

30

20

26

24

22

20

16

I 6

14

I2

10




—

—

—

YORK

CITY.

RESERVE

CITIES

COUNTRY

—

DEPOSITS

DISTRICTS

MITCHELL: BUSIiNESS CYCLES

TABLE

369

97

RATIO OF THE C A S H RESERVES TO THE N E T DEPOSITS HELD BY THE N A T I O N A L B A N K S IN N E W

Y O R K , THE CENTRAL

RESERVE CITIES, THE RESERVE CITIES, AND IN COUNTRY DISTRICTS AT THE D A T E OF THE FOURTH
REPORT TO THE COMPTROLLER OF THE CURRENCY IN THE Y E A R S

1890-1911

New York
City
P e r cent

Date

New York,
Chicago, and
St. Louis
Per cent

Reserve
cities
Per cent

Country
districts
Per cent

All
national
banks
P e r cent

18.7

2

28.2

28.4

17.7

13.2

1891 Sept. 25

26.5

27.9

20.1

13.9

19.5

1892 Sept. 30

26.6

26.8

18.7

13.5

18.8

1893 Oct.

3

35.3

37.4

23.2

18.5

25.1

1894

2

35.3

34.6

19.5

15.4

23.3

1895 Sept. 28

28.5

28.5

18.1

13.9

19.7

1896 Oct.

6

29.2

29.6

21.2

17.0

21.9

1897 Oct.

5

27.2

28.6

20.1

15.0

21.0

1898 Sept. 20

27.7

28.1

19.8

14.3

20.5

1899 Sept.

7

26.3

25.8

16.9

13.1

18.7

1900 Sept.

5

29.2

28.6

17.2

12.0

19.3

1901 Sept. 30

28.1

27.1

15.7

10.9

17.7

1902 Sept. 15

25.9

25.0

14.6

9.9

15.8

1903 Sept.

9

27.5

26.3

15.8

10.2

16.5

1904 Sept.

6

28.0

27.2

16.2

9.9

17.5

1905 Aug. 25

25.5

25.4

15.4

9.7

16.3

1906 Sept.

24.3

24.2

14.6

9.2

14.8
15.3

1890 Oct.

Oct.

4

1907 Aug. 22

26.8

26.1

15.7

9.2

1908 Sept. 23

28.5

27.6

17.3

10.3

17.6

1909 Sept.

1

25.8

25.3

15.7

9.5

15.9

1910 Sept.

1

27.5

26.5

15.4

9.1

15.5

1911 Sept.

1

26.6

25.9

15.2

8.8

15.2

29.08

29.57

19.53

14.78

20.72

26.96

26.28

15.82

10.08

16.67

Averages

1890-99
1900-09
*0r

the

eip«?et

^P
^ = individual deposits plus dividends unpaid and sums due to banks, minus sums due from banks, exchanges
earing house, cash items, and bills of other banks..
0 8

absorbed what the small towns had lost. On the average the countrj bank
though vastly greater in number, have but about half of the tota
the New York banks about one-sixth, and the other reserve-city banks, including
Chicago and St. Louis, a little more than one-third.
The conclusion which stands out most clearly from the

of thiss^ction

a whole is that the development of banking has been strtogly
the cities and iu the country. Differences are numerous, but they are Merenees
<* degree, and mostly of small degree. Moreover, most of these <Ufferences
appear in the shifting of the level of fluctuations from one tab *
£
rather than in sudden changes from year to year under the influence of business



370

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

TABLE
RELATIVE G R O W T H

OF THE N A T I O N A L B A N K S

IN N E W

98

YORK

CITY,

THE

CENTRAL

RESERVE

CITIES,

CITIES, AND COUNTRY DISTRICTS, AS MEASURED BY T H E I R RESPECTIVE SHARES IN THE
RESOURCES

OF

ALL

NATIONAL

BANKS,

ACCORDING

TO THE

NEAREST THE 1ST OF OCTOBER IN E A C H Y E A R ,
Aggregate
resources of
all national
banks in
millions of
dollars

Date

1890 Oct.

2

3,141

REPORTS

THE

RESERVE

AGGREGATE

MADE

1890-1911

Proportions of the aggregate resources held by
the national banks in
*

New York
Chicago
City
and St. Louis
Per cent
Per cent

Reserve
cities
Per cent

Country
districts
Per cent

All national
banks
Per cent

17.0

5.6

25.0

52.4

100.0

1891 Sept. 25

3,213

17.4

6.0

24.4

52.2

100.0

1892 Sept. 30

3,510

17.2

6.3

24.6

51.9

100.0

1893 Oct.

3

3,110

17.5

5.8

24.8

51.9

100.0

1894 Oct.

6.2

24.9

49.0

100.0

2

3,474

19.9

1895 Sept. 28

3,424

18.5

5.9

25.0

50.6

100.0

1896 Oct.

6

3,264

17.7

5.7

25.3

51.3

100.0

1897 Oct.

25.9

48.0

100.0

5

3,705

19.8

6.3

1898 Sept. 20

4,004

21.1

6.6

25.5

46.8

100.0

1899 Sept.

7

4,650

21.2

7.2

26.7

44.9

100.0

1900 Sept.

27.1

44.4

100.0

5

5,048

21.1

7.4

1901 Sept. 30

5,695

21.5

7.7

26.7

44.1

100.0

1902 Sept. 15

6,114

21.2

7.6

26.3

44.9

100.0

19.1

7.5

26.6

46.8

100.0

1903 Sept.

9

6,310

1904 Sept.

6

6,975

21.9

7.4

26.1

44.6

100.0

1905 Aug. 25

7,472

20.8

7.4

26.6

45.2

100.0

1906 Sept.

27.3

47.2

100.0

4

8,016

18.4

7.1

1907 Aug. 22

8,390

16.3

7.0

27.4

49.3

100.0

1908 Sept. 23

9,327

19.7

7.0

27.0

46.3

100.0

1909 Sept.

1

9,574

18.7

7.3

27.7

46.3

100.0

1910 Sept.

1

9,826

16.9

7.3

27.7

48.1

100.0

1911 Sept.

1

10,379

17.0

7.4

27.8

47.8

100.0

Averages

1890-99

Z T L o

3,549.5

18.73

6.16

25.21

49.90

100.0

1900-09

7,262.1

19.87

7.34

26.88

45.91

100.0

{ \ l « C a s e ' f 0 r e x a m p l e - w i t h t h e dissimilar rates at which loans
t h e Z , f 0 W r ? a t y a a d i u c w m b - y ' < " * also With the more rapid

capital i i ? , i « r ' / r 'V 1 S , t r , 1 C t S ° f t h e rati0 n f * » » •
individual deposits, of
t 0 t 0 t ° ' 'labi,ities> a n d
Z z l l
ff'
reserves to net deposits. The
eS
b c a r directl-v
t b * s '">ject Of business cycles
Z
rsumted
a r e k ™ " , f
' S e D t e D e e : t h e « " " » » » experienced or initiated by banks
p r o m p t a n d l e s s considerable in the country than in the urban centers.



M I T C H E L L : BUSIiNESS CYCLES

IV.

371

T H E JOINT-STOCK B A N K S OF ENGLAND AND W A L E S

The reports of the great deposit banks of France and Germany have not
been compiled in such form for the whole period since 1890 as to be available
for analysis here. But the Economist's half-yearly summaries for the jointstock banks of England and Wales make possible a brief comparison between
the effect of business cycles upon American and upon foreign banks.
The most striking difference between the preceding tables for the national
banks and the following tables for the English banks is the relative stability
°f conditions shown by the latter. Not only is the expansion of business from
one decade io the next smaller in England, but so also are the changes from
year to year caused by prosperity, crisis, and depression. Indeed, the fluctuations of the leading items during successive phases of the business cycles since
1890 are often confined to slight differences in the rate of growth.
Whereas the national banks contracted their loans during the crises of 1890,
1893,1903-04, and 1907, the English joint-stock banks were able to expand their
ioans slightly during the crises of 1890,1900, and 1907. In periods of depression
the changes in English loans have been slight; but steady growth has marked
periods of prosperity.
Thefluctuationsin the amount of investments in consols, bonds, stocks, etc.,
consist of a moderate expansion from year to year, interrupted by a slight
contraction in periods of tension—.1893, 1900, 1904, and 1907-08. The ratio
these securities to commercial loans also pursues an even course, exhibiting
a slight decline toward the climax of prosperity, and a compensating increase
ter the crisis. The general level of thesefluctuationsdeclined a trifle between
and the second decade in England, whereas it rose decidedly in
f^erica. By the close of the period the national banks still held fewer securities
Proportion to their loans than the English banks had held for twenty years,
deposits rise a trifle during crises in England and change little during
Pression, whereas they fall sharply during crises in America and rise again
nng depressions. During prosperity they increase, of course, in both counThis increase in England seems to precede the increase in loans.
Ihe ratio of loans to deposits has gradually declined in England from 74
in th ^
^ P er cen ^
1910, and in America from about 130 per cent
he .first a^out 100 per cent in the last year. Interruptions of this decline
i . T*n England as in America at the climax of prosperity or during the crisis;
ne ratio does not have the same value as a barometer of business in London
T

i n

N e w

"reserves"

Y o r k

-

wh 1
1
credited to the national banks in the preceding tables consist
of < ^
<
kwful money actually in the vaults; in England the reserves consist
hand, and money at call, and short notice." What proportion is
cag^eas^
> what deposits in the Bank of England, and what loans on call or short



MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

372

TABLE

99

S U M M A R Y OF THE STATEMENTS OF THE JOINT-STOCK B A N K S OF ENGLAND AND W A L E S , AS COMPILED SEMI-ANNUALLY

BY THE London Economist, 1890-1911
Actual amounts in millions of dollars

Date

Capital paid
up, reserve
funds, and
undivided
profits

Acceptance
liabilities
where
stated

Deposit
and current
accounts

Miscellaneous
liabilities

Discounts,
advances,
loans, bills,
etc.

Investments
in consols,
bonds, stocks,
etc.

Buildings
and
sundries

1890 May
Nov.

311
312

93
93

1,716
1,735

13
12

1,272
1,289

366
368

113
117

1891 May
Nov.

330
339

111
77

1,794
1,853

17
21

1,312
1,349

400
422

137
105

1892 May
Nov.

345
345

76
68

1,907
1,927

30
20

1,370
1,357

439
457

1893 May
Nov.

350
349

99
87

1,930
1,913

26
19

1,375
1,361

466
464

1894 May
Nov.

352
348

93
74

1,916
1,956

21
16

Cash in
hand and
money at call
and short
notice

Total
assets and
liabilities

387

4,275

383

4,315

409

4,515

420

4,592

111
102

443

4,727

450

4.731

121
113

455

4,823

435

4,746
4,773

1,380
1,376

460
467

119
99

428
456

4,797

123
110

518

5,031

517

5,193

350
348

98
89

2,039
2,136

23
18

1,397
1,470

477
499

1896 May
Nov.

352
362

115
106

2,217
2,429

30
22

1,517
1,617

523
574

138
126

541

5,438

607

5,848

1897 May
Nov.

366
361

106
78

2,410
2,474

31
27

1,645
1,659

572
576

137
105

564

5.835

603

5,888

613

6,149

640

6,235

1895 May
Nov.

1898 May
Nov.

373
374

107
88

2,566
2,634

24
18

1,719
1,750

604
603

139
125

1899 May
Nov.

385
384

102
98

2,670
2,779

23
14

1,769
1,847

607
616

144
135

665

6,369

682

6,559

1900 May
Nov.

391
392

107
91

2,754
2,782

24
17

1,857
1,882

619
612

146
128

659

6,561

662

6,569

1901 May
Nov.

403
403

105
93

2,855
2,830

34
17

1,924
1,868

622
623

152
134

1902 May
Nov.

408
404

116
78

2,846
2,842

23
20

1,857
1,863

633
624

159
123

703

6,801

723

6.695

749

6,795

738

6.696
6,986

1903 May
Nov.

418
417

122
101

2,921
2,887

29
23

1,885
1,910

637
636

170
142

801
743

6,862

1904 May
Nov.

417
411

133
99

2,864
2,837

29
17

1,929
1,892

612
611

179
143

726

6,891

720

6.732

1905 May
Nov.

415
413

142
129

2,932
2,984

27
16

1,906
1,915

625
640

180
162

807

7,036

828

7,087

1906 May
Nov.

418
415

191
152

3,054
3,055

28
14

1,954
2,004

641
641

223
179

874

7,384

816

7,277

229
171

870

7,615

828

7,537

849

7,619

895

7,567

1907 May
Nov.

420
416

203
141

3,153
3,190

29
21

2,071
2,140

637
629

1908 May
Nov.

417
415

216
157

3,156
3,192

19
17

2,098
2,077

612
628

251
183

1909 May
Nov.

420
413

205
180

3,283
3,303

16
18

2,081
2,069

666
682

230
197

948

7,852

970

7.836

1910 May
Nov.

415
411

201
185

3,334
3,440

20
17

2,110
2,206

668
675

220
197

972

7,940

976

8,107

1911 May
Nov.

413
405

254
191

3,507
3,571

20
26

2,277
2,318

670
663

276
207

972

8,389

Averages

1,005

1890-99

351.7

92.9

2,150.0

21.3

1,491.5

498.0

121.0

510.7

1900-09

411.2

138.0

2,986.1

21.8

1,959.1

. 631.5

174.0

795.4

Compiled from the " B a n k i n g Supplements" of the Economist.




The data do not include the Bank of England.

8,386

5,241-9
7>i1 9.8

373

MITCHELL: BUSIiNESS CYCLES

TABLE 99—

(Concluded)

SUMMARY OF THE STATEMENTS OF THE JOINT-STOCK B A N K S OF ENGLAND AND W A L E S , AS COMPILED SEMI-ANNUALLY

BY THE London Economist, 1890-1911
Capital paid
up, reserve
funds, and
undivided
profits

Date

!890 May

May
May
May
May

80

86
88

83

86

98

90

85

87

82

82

89

142

92

88

92

87

90

73

90

96

91

92

84

88

90

107

90

121

92

94

100

89

92

93

89

89

91

93

93

85

91

98

84

91
92

100

89

100

93

92

80

91

76

92

94

82

89

94

96

102

101

96
99

105

95

110

96

99

82

99

100

91

101

124

103

142

102

105

114

106

104

114

113

103

108

115

104

119

112

114

112

146

110

115

113

110

111

84

115

126

111

116

87

118

112

119

114

115

121

115

120

117

94

123

82

117

121

103

125

119

110

124

110

119

122

119

130

122

106

129

66

124

124

111

133

125

111

May

115

115

128

112

124

124

121

129

125

111

May

97

129

77

126

123

105

130

125
130

114

May

113

133

160

129

125

126

138

115

100

132

77

125

125

111

142

128

116

May

125

132

110

124

127

131

147

130

115

84

132

96

125

125

102

144

128

157

133

145

131
132

131

118

109

136

137

126

128

141

128

128

117

119

May

108

143

133

135

129

123

148

142

117

May

CO

119

107

132

77

127

123

118

141

128

128

126

148

158

134

128

134

162

135

118

153

136

126

117

May

138

139

76

128

119

142

130

131

129

185

171

141

164

142

66

134

129

148

160

139

119

M;
May

205

118

218

147

137

139

128

189

170

145

144

126

142

162

144
145
144

118

May

151

100

148

118

207

126

151

175

221

153

76

140

134

190

186

150

193

154

82

139

137

163

190

149

216

155

94

141

134

182

190

151

199

160

80

148

136

163

191

155

117

273

163

94

153

135

228

190

160

115

°M9

123

139

117

Nov.

141

80

118

May

89

148

117

May

147

169

119

Nov.

233

166

118

May

Nov.

l9

113

109

Nov.

19U

80

109

May

Nov.

19 10

88

106

Nov.

1909

80

106

May

Nov.

19 08

83

104

Nov.

1 9 07

82

119

103

Nov.

19°6

75

100

Nov.

l9°5

76

97

103

Nov.

19°4

93

74

99

Nov.

l9°3

73

99

Nov.

19 02

85
86

99

Nov.

1 9 °1

60
57

100

Nov.

19 00

80
81

99

Nov.

1899

82

100
101

100

May

Nov.

1898

Total
assets and
liabilities

98

Nov.

18 97

Cash in
hand and
money at call
and short
notice

96

Nov.

18 96

Buildings
and
sundries

98

May

Nov.

18 95

Miscellaneous
liabilities

= 100

Investments
in consols,
bonds, stocks,
etc.

94

Nov.

]894

Deposit
and current
accounts

Discounts,
advances,
loans, bills,
etc.

88

*891 May

18 93

Acceptance
liabilities
where
stated

Average actual amounts in 1 8 9 0 - 9 9

89

Nov.

18 92

Relative amounts.

206

166

122

155

133

171

197

160

100

0 m

the

100

1 1 7

C0MPILED

149

"inking




100

100

139

Supplements" of the Economist.

100

102

131

100

127

100

144

The data do not include the Bank of England.

100

156

100

136

•

374




MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

375

MITCHELL: BUSIiNESS CYCLES

TABLE
VARIOUS

RATIOS

BETWEEN

ITEMS

IN

THE

STATEMENTS

100

OF THE

JOINT-STOCK

BANKS

OF

ENGLAND

AND

WALES,

OTHER T H A N THE B A N K OF E N G L A N D

Date

1890 May
Nov.

Loans
to
deposits
Per cent

Reserves
to
deposits
Per cent

Securities
to
loans
Per cent

Capital to
total
liabilities
Per cent

74%

23%

29%

15%

65%

26%

34%

12%

74

22

29

14

Nov.

66

26

33

12

Date

1902 May

Loans
to
deposits
Per cent

Reserves
to
deposits
Per cent

Securities
to
loans
Per cent

Capital to
total
liabilities
Per cent

1891 May

73

23

30

15

1903 May

65

27

34

12

Nov.

73

23

31

15

Nov.

66

26

33

12

1892 May

72

23

32

15

1904 May

67

25

32

12

Nov.

70

23

34

15

Nov.

67

25

32

12

1893 May

71

24

34

15

1905 May

65

28

33

12

Nov.

71

23

34

15

Nov.

64

28

33

12

1894 May

72

22

33

15

1906 May

64

29

33

11

Nov.

70

23

34

15

Nov.

66

27

32

11

1895 May

69

25

34

14

1907 May

66

28

31

11

Nov.

69

24

34

13

Nov.

67

26

29

11

1896 May

68

24

34

13

1908 May

66

27

29

11

Nov.

67

25

35

12

Nov.

65

28

30

11

1897 May

68

23

35

13

1909 May

63

29

32

11

Nov.

67

24

35

12

Nov.

63

29

33

11

1898 May

67

24

35

12

1910 May

63

29

32

10

Nov.

66

24

34

12

Nov.

64

28

31

10

1899 May

66

25

34

12

1911 May

65

28

29

10

Nov.

66

25

33

12

Nov.

65

28

29

10

1900 May

67

24

33

12

Nov.

68

24

33

12

1901 May

67

32

12

69.7

23.6

33.2

13.7

Nov.

25

66

26.7

32.2

11.6

26

33

12

Averages

1890-99
1900--09

65.7

^ r r e n T ^ a c ^ f ^f 0 ™
^ata
Table 9 9 .
Loans include "Discounts, advances, loans, bills, etc."
Deposits include "Deposit and
f ^ d 8
anT un;8-.
Securities include "Investments in consols, bonds, stocks, etc."
Capital includes "Capital paid up. reserve
undivided profits."
Reserve includes " C a s h on hand, and money at call and short notice."

notice, is not definitely known, but British bankers admit that t h e y ^ r r y
lively small sums of "till money." On the other hand, it must ta
that, during the period under review, the English banks have ue^r « n d r l ve n
to limit their payments of cash, while American banks have resoited to that
^
InactuaTamount the English reserves have r i « y m b y >„e,ar
checks. A slight falling off occurred in the crises of 1890,1900. and 1907. T l *
remaining cases of decline are distributed among periods of depression (189a



MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

376

CHART
RATIO

OF THE

8 4

R E S E R V E TO THE DEPOSITS
OF ENGLAND
1690

AND
-

OF THE

JOINT

STOCK

BANKS

WALES.

1910.

30

30

/

28

26

A/

24

22

A

\

V

I /

/\>

r

28

26

\J
24

22
•

1890

91

92

93

94

'95

96

*97

98

99

1900

'02

'03

04

'05

'06

'07

'08

'09

1910

94 and 1903-04), periods of revival (1896-97), and periods of high prosperity
(1906). More significant is the ratio of reserve to deposits. The crises have
brought a slight decline; depression and revival a somewhat greater gain; the
climaxes of prosperity stability or a trifling loss. All these changes are moderate in degree compared with the corresponding American movements. But
the most noteworthy contrast between English and American developments is
that the national banks have allowed their average reserves to decline from
about 20 per cent in the early nineties to about 15 per cent in 1910, while the
ILnglish banks have increased their ratios from about 23 to about 28 per cent.
However, the difference in the character of the funds held as reserves must be
remembered.
Finally, the decline in the ratio of capital liabilities to total liabilities appears
in Lngland as well as in America. During the revival of business activity in
the later nineties, this ratio sank from a level of 15 to one of 12 per cent. Again
m the revival of 1905-06 it sank from the 12 per cent level to that of 11 per cent ;
and when business revived from the depression of 1908 it sank once more to a
level of 10 per cent.




M I T C H E L L : BUSIiNESS CYCLES

V.

377

T H E CENTRAL B A N K S OF ENGLAND, FRANCE, AND GERMANY

The data presented in the following tables concerning the central banks of
England, France, and Germany consist of annual averages of weekly statements.
They are limited to a few of the most important items in the accounts of the
banks.
In none of these institutions do thefluctuationsof circulation betray a close
connection with the course of business cycles. As pointed out in the chapter
on the currency, the elasticity of the foreign systems of note issue is confined
to providing for the changing requirements of business at different seasons of
a given year.13
Loans contract in times of depression and expand in times of prosperity.
Their behavior during crises is veiled in these tables by the use of annual
averages. But in sharp contrast to the American banks, it is known from
other sources that all three of the central banks under discussion have proved
their ability to expand their accommodations to the business public whenever
need arises.
Deposits in these banks vary in a rather irregular fashion, for they consist
argely of government funds and deposits made by other banks. Except in
the Bank of England, the ratio of loans to deposits is extremely high judged
y American standards, because a large proportion of the borrowers prefer to
. e the proceeds of their loans in notes. But in all three banks the fluctuations of this ratio follow the same course as in New York—that is, the ratio
s during depression and rises during prosperity.
In central banks reserves run very high in proportion to demand liabilities.
°tn the English and the German bank, however, have contented themselves
jn the second decade with somewhat lower ratios than those held in 1890-99.
n the contrary, the Bank of France has raised its extremely high ratio higher
1 *
all three institutions the ratios have risen in periods of depression
n
fallen in periods of prosperity. The maximum variations are 41 and 64
Per cent in England, 67 and 77 per cent in France, and 46 and 66 per cent in
in
The lowest ratios all occur in years of crisis and the highest ratios
deep depression or of business revival.
13

Chapter VI,




MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

378

TABLE
PRINCIPAL

101

ITEMS AMONG THE RESOURCES AND LIABILITIES OF THE B A N K OF ENGLAND
Annual averages of the weekly statements,
In millions of dollars

Year

Capital
and
Rest

Government
securities
of the
banking
department

1890

87

1891

1890-1911

Reserve:
notes and
specie of the
banking
department

Notes of
the issue
department

Deposits:
public
and other
deposits plus
7-day bills

70

Other
securities
of the
banking
department
114

67

181

163

41%

87

53

144

76

194

186

41

1892

87

58

128

78

198

177

44

1893

87

56

124

83

200

176

47

1894

87

56

104

126

237

198

64

1895

87

69

108

145

259

235

62

1896

87

72

138

169

286

292

58

1897

87

67

140

122

243

243

50

1898

87

63

155

112

234

243

46

1899

87

66

160

103

229

242

43

1900

87

83

143

104

240

243

43

1901

87

77

140

117

251

246

48

1902

87

79

144

118

250

254

46

1903

87

80

136

116

246

244

48

1904

87

83

128

120

248

243

49

1905

87

81

146

123

255

264

47

1906

87

77

159

114

248

263

43

1907

88

74

156

119

253

262

45

1908

87

72

144

130

263

260

50

1909

87

75

146

130

265

264

49

1910

87

75

147

132

264

267

49

1911

87

72

148

136

270

270

51

Averages
1890-99

87.0

63.0

131.5

108.1

226.1

215.5

49.6

1900-09

87.1

78.1

144.2

119.1

251.9

254.3

46.8

Compiled from Palgrave's tables in the National Monetary Commission's Statistics for Great Britain,
Data for 1910 and 1911 compiled from the Bankers' Magazine (London).
80 and 83.




Per cent of
reserve:
reserve
-f- by
deposits

Germany,

and

France,

MITCHELL: BUSIiNESS CYCLES 399

T A B L E 1 0 1 — (Concluded)
PRINCIPAL

ITEMS

AMONG

THE RESOURCES AND LIABILITIES OP THE B A N K OP E N G L A N D

Relative amounts.

1890

Capital
and
Rest
100

1891

Year

Average actual amounts in 1 8 9 0 - 9 9 =

Government
securities
of the
banking
department

Other
securities
of the
banking
department

Reserve:
notes and
specie of the
banking
department

100

Notes of
the issue
department

Deposits:
public
and other
deposits plus
7-day bills

111

87

62

80

76

100

84

110

70

86

86

1892

100

92

97

72

88

82

1893

100

89

94

77

88

82

1894

100

89

79

117

105

92

1895

100

110

82

134

115

109

1896

100

114

105

156

126

135

1897

100

106

106

113

107

113

1898

100

100

118

104

103

113

1899

100

105

122

95

101

112

1900

100

132

109

96

106

113

1901

100

122

106

108

111

114

1902

100

125

110

109

111

118

1903

100

127

103

107

109

113

1904

100

132

97

111

110

113

1905

100

129

111

114

113

123

1906

100

122

121

105

110

122

1907

101

117

119

110

112

122

1908

100

114

110

120

116

121

1909

100

119

111

120

117

123

1910

100

119

112

122

117

124

1911

100

114

113

126

119

125

1890-99

100

100

100

100

100

100

1900-09

100

124

110

110

112

118

Averages




380

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

TABLE
PRINCIPAL I T E M S

102

A M O N G THE RESOURCES AND LIABILITIES
Annual averages of the weekly statements,

OP THE B A N K

OF

FRANCE

1890-1911

In millions of dollars

Per cent of reserve

Year

Discounts
and loans on
securities

Reserve
gold and
silver

Circulation

Treasury

Private

1890

177

485

591

34

78

82%

69%

1891

204

493

595

47

84

83

68

1892

164

546

608

56

81

90

73

1893

170

571

665

25

78

86

74

1894

165

595

671

31

86

89

76

1895

165

635

681

39

102

93

77

1896

204

622

696

46

102

89

74

1897

210

615

712

43

87

86

73

1898

229

598

713

49

86

84

71

1899

246

591

737

40

83

80

69

1900

264

625

779

49

84

80

69

1901

209

679

794

26

90

86

75

1902

193

706

803

30

86

88

77

1903

221

695

832

32

73

84

74

1904

232

710

827

39

95

86

74

1905

217

764

851

48

99

90

77

1906

273

759

899

50

98

84

73

1907

329

709

926

41

89

77

67

1908

275

764

937

33

90

82

72

1909

246

873

980

35

119

89

77

1910

295

823

1,003

26

106

82

73

1911

356

779

1,012

39

103

77

68

1890-99

193.4

575.1

666.9

41.0

86.7

86.2

72.4

1900-09

245.9

728.4

862.8

38.3

92.3

84.6'

73.5

Accounts current
A

^

to circulation
and accounts
to
current
circulation

Averages

Compiled from the Annuaire




Statistique

de

France.

MITCHELL: BUSIiNESS CYCLES

T A B L E 102—
PRINCIPAL




ITEMS

Year

(Concluded)

A M O N G THE RESOURCES AND LIABILITIES

Relative amounts.
Discounts
and loans on
securities

OF THE B A N K

Average actual amounts in 1 8 9 0 - 9 9
Reserve
gold and
silver

381

or

= 100

Accounts current
A

Circulation

Treasury

Private

1890

92

84

89

83

90

1891

105

86

89

115

97

1892

85

95

91

137

93

1893

88

99

100

61

90

1894

85

103

101

76

99

1895

85

110

102

95

118

1896

105

108

104

112

118

1897

109

107

107

105

100

1898

118

104

107

120

99

1899

127

103

111

98

96

1900

137

109

117

120

97

1901

108

118

119

63

104

1902

100

123

120

73

99

1903

114

121

125

78

84

1904

120

123

124

95

110

1905

112

133

128

117

114

1906

141

132

135

122

113

1907

170

123

139

100

103

1908

142

133

141

80

104

1909

127

152

147

85

137

1910

153

143

150

63

122

1911

184

135

152

95

119

Averages
1890-99

100

100

100

100

100

1900-09

127

127

129

93*

107

FRANCE

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

382

TABLE
PRINCIPAL

ITEMS

AMONG

103

THE RESOURCES AND LIABILITIES OF THE R E I C H S B A N K OF G E R M A N Y

Annual averages of the weekly statements,

1890-1911

In millions of dollars
Discounts
and loans on
collateral

Reserve

Circulation

Per cent of reserves
Deposits:
all demand
liabilities except notes

A

to total
demand
liabilities
62%

Year

Capital
and
surplus

1890

35

3

148

198

234

86

1891

35

3

149

220

231

110

95

65

1892

36

1

152

232

234

122

99

65

1893

36

2

161

208

234

108

89

61

1894

36

1

150

231

238

117

97

65

1895

36

2

156

249

261

119

95

66

1896

36

2

179

220

258

115

85

59

1897

36

2

179

215

258

112

83

58

1898

36

3

193

211

268

113

79

55

1899

36

3

214

205

272

125

75

52

1900

36

5

209

203

271

122

75

52

1901

45

13

219

225

283

142

80

53

1902

46

17

202

242

293

137

83

56

1903

47

19

219

224

297

132

75

52

1904

48

22

214

231

307

127

75

53

1905

58

25

233

243

318

139

76

53

1906

58

28

256

226

330

137

68

48

1907

58

24

286

226

352

138

64

46

1908

58

36

252

264

363

155

73

51

1909

58

66

240

270

375

172

72

49

1910

58

28

260

272

382

154

71

51

1911

58

11

275

288

396

155

73

52

Securities

to
circulation
85%

Averages
1890-99

35.8

2.2

168.1

218.9

248.8

112.7

88.2

60.8

1900-09

51.2

25.5

233.0

235.4

318.9

140.1

74.1

51.3

Compiled from the National Monetary Commission's Statistics for Great Britain. Germany,
and France, p. 1J3.
from the bank's annual report of 1 9 1 1 , as published in the Bankers' Magazine ( L o n d o n ) , August, 1 9 1 2 , pp. 2 7 7 , 2 7 0 .




\ •

MITCHELL: BUSIiNESS CYCLES 403

T A B L E 103—(Concluded)
PRINCIPAL

ITEMS

AMONG

THE RESOURCES

Relative amounts.

AND LIABILITIES OF THE R E I C H S B A N K OP G E R M A N Y

Average actual amounts in 1 8 9 0 - 9 9 =

100

Securities

Discounts
and loans on
collateral

Reserve

Circulation

Deposits:
all demand
liabilities except notes

1890

98

136

88

90

94

76

1891

98

136

89

101

93

98

1892

101

45

90

106

94

108

1893

101

91

96

&5

94

96

1894

101

45

89

106

96

104

1895

101

91

93

114

105

106

1896

101

91

106

101

104

102

1897

101

91

106

98

104

99

1898

101

136

115

96

108

100

1899

101

136

127

94

109

111

1900

101

227

124

93

109

108

1901

126

591

130

103

114

126

1902

128

773

120

111

118

122

1903

131

864

130

102

119

117

1904

134

1,000

127

106

123

113

1905

162

1,136

139

111

128

123

1906

162

1,273

152

103

133

122

1907

162

1,091

170

103

141

122

1908

162

1,636

150

121

146

138

1909

162

3,000

143

123

151

153

1910

162

1,273

155

124

154

137

1911

162

500

164

132

159

138

1890-99

100

100

100

100

100

100

1900-09

143

1,159

139

108

128

124

Year

Capital
and
surplus

Averages




384




MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

CHART
RATIO OF THE

CASH

RESERVES

BANK OF ENGLAND . BANK

65

TO THE

DEMAND

OF FRANCE , AND

LIABILITIES

REICHSBANK

OF

OF THE
GERMANY.

1690 - 1909.
BANK OF ENGLAND,

1890 91

92

93

94 '95 '96 '97

— BANK OF FRANCE.

'98 '99 1900 '01

REICHSBANK

'02 '03 '04 '05 *06 '07

0 T '09
'F




MITCHELL: BUSIiNESS CYCLES 405

386

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

TABLE

104

RATIOS OF C A S H RESERVES TO D E M A N D LIABILITIES AND OF L O A N S TO DEPOSITS IN THE B A N K OF ENGLAND,

BANK

OF F R A N C E , AND R E I C H S B A N K OF G E R M A N Y
Ratio of cash to demand liabilities
Bank
of England
banking
department
Per cent

Bank
of France
Per cent

Reichsbank of
Germany
Per cent

Ratio of loans to deposits
Bank
of England
banking
department
Per cent

Bank
of France
Per cent

Reichsbank of
Germany
Per cent

1890

41%

69%

62%

84%

167%

148%

1891

41

68

65

94

176

113

1892

44

73

65

86

131

106

1893

47

74

61

84

143

129

1894

64

76

65

63

127

111

1895

62

77

66

54

103

115

1896

58

74

59

57

131

133

1897

50

73

58

72

162

137

1898

46

71

55

81

178

150

1899

43

69

52

83

192

156

1900

43

69

52

72

200

156

1901

48

75

53

71

127

142

1902

46

77

56

72

123

135

1903

48

74

52

68

181

153

1904

49

74

53

63

141

154

1905

47

77

53

71

125

155

1906

43

73

48

75

177

172

1907

45

67

46

72

245

191

1908

50

72

51

67

193

149

1909

49

77

49

69

124

127

1910

49

73

51

72

178

154

1911

51

68

52

72

225

165

1890-99

49.6

72.4

60.8

75.8

151.0

129.8

1900-09

46.8

73.5

51.3

70.0

163.6

153.4

Averages

omputed

by dividing "other securities" by "other deposits plus seven-day b i l l s " ; for the Bank of Fra
ccounts current of individuals" : and for the Reichsbank of Germany bv dividing "bills of exch
demand liabilities.




for the

CHAPTER VIII

SAVING, INVESTMENT, ENTERPRISE, AND SPECULATION
I. SAVING

A quantitative analysis of saving cannot be made at present, because the
sums saved do not come under observation until they are deposited in savings
banks, put into life insurance, invested in income-bearing securities, etc. Our
knowledge of how much money the people of any country put by in any year
!s therefore most indefinite. Even the simple question whether the volume
°f savings declines with business depression and rises with business prosperity
cannot be answered with complete assurance. Schmoller conjectures that in
Germany the increase of capital by savings averages about V/o per cent per
annum, but that in good years the ratio probably rises above 2 per cent, and
tails proportionately in bad years.1 On the other hand, certain writers upon
the theory of crises assume that depression does not check saving in an apprec­
iable degree, though it does make people timid about investing their new
accumulations. On this view, the phase of depression in a business cycle is
characterized by the piling up of enormous sums of idle funds, and the phase
p* prosperity by their rapid investment.2 To determine which of these opinions
l s C01
Tect, we have no recourse other than the drawing of inferences from
certain opposing tendencies, the relative magnitude of which is not accurately
known.
Business depression favors saving in that it discourages extravagance and
l
sually reduces the cost of living. The classes whose money incomes are not
ittimisilecl—salaried people who keep their postions and their old rates of pay,
ndlords who keep their tenants on the old leases, bondholders whose securities
prove sound, etc.—these classes have a better opportunity to save when times
e
dull than when times are brisk. But there are larger classes whose money
m
comes decline more rapidly than living expenses, whose curtailment of
tt*avaganee is compulsory. Workingmen are exposed to reductions of wages
e
n times are bad, and suffer still more from irregularity of employment.
__^cssional men working on their own account find less demand for their
It

^ rundriss der AUgemeincn Yoll'swirtschaftslehre,
E r s t e bis sechste Auflage, p. 642.
rp s e e m s to bo Spiethoff 's view, though he does not state it explicitly. See " Die Krisentheonen von
Augan-Baranowski und L. P o h l e , M Jahrbuch fiir GcHctzfjehung, 1903, pp. 679-708, especially pp. 699-701.

v




| 387 ]

388

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

services, if like lawyers and engineers they cater to business needs, or difficulty
in collecting their bills, if like physicians they cater to imperious personal
needs. Business men bear even heavier losses, for profit is the type of income
which is most sensitive to changes in business conditions. Capitalists wThose
property consists in stocks usually suffer loss of income through reduction of
dividends. And business enterprises, which often save up large surplus funds
in periods of good trade, are more likely to encroach upon their old savings
than to accumulate new when trade is bad.
Thus, while depression may inculcate the virtue of thrift, it narrows the
margin of income available for saving in the case of the great majority of
families and business enterprises. The net effect is probably to reduce the
volume of saving, particularly in countries where the distribution of wealth is
most unequal. Schmoller hazards the guess that three-fifths of German savings
are made by the rich and the large business men.3 The bulk of French savings,
on the contrary, is represented by those conversant with the situation as coming
from the agglomeration of millions of small smns put aside by people in humble
or modest circumstances.4 Since the incomes of great business men and of
large capitalists (aside from bondholders) are peculiarly susceptible to the
influence of depression and prosperity, it follows that German savings probably
fluctuate more violently than French savings from one phase of a business
cycle to the next. And since both the distribution of wealth and the diffusion
of thrift in America and England are more like the German than the French
model, it follows that savings in these two countries probably vary widely
from prosperity to depression.
Moreover, the tacit assumption that enormous sums saved in periods oi
depression are kept idle until the next wave of prosperity sweeps their owners
back to the investments markets runs counter to much that we know about the
financial habits of Anglo-Saxon communities at least. The hoarding of money
through a period of years is certainly less common among thrifty Americans
and English now than it was before the advantages of investment in savings
banks, life insurance, and securities had become well known. While much
hoarding of this kind may go on in France and Germany, it is probably
declining even among the peasantry of those countries. What does happe*1
demonstrably is that the character of investment changes from prosperous to
dull times. After a crisis risky investments fall into disfavor, and the highest
grade of bonds are bought more freely.5 But of course this change does no
mean that the volume of savings has increased.
3 Op. cit., p. 635.
.
* For example, see A. Neymarck, i' French Savings and Their Influence. ? ' in the Publications of the Natl
Monetary Commission (Senate Document, no. 494, 61st Congress. 2d session), pp. 165-181.
5
See the next section.




!

MITCHELL: BUSINESS CYCLES

389

Finally, the flood of money which is often poured into the investment market
in the early years of a period of prosperity need not be likened to the outflow
from a reservoir in which the exceptionally large savings of several years of
depression have been impounded. Part of the funds are merely transferred
from the bond market to the stock exchange. On the latter market a given
sum becomes the basis of transactions which are nominally much greater in
volume than the same sum employed on the former market. For a much larger
proportion of bonds are bought outright, paid for in full, and held for months
or years than in the case of stocks, where the bulk of the purchases are made
on margins with the intention of selling again at the first favorable turn.
Moreover, if the preceding conclusions be sound, the increase of funds pouring
into the investment markets results partly from an increase in the actual volume
of current savings. When depression yields to prosperity, money incomes—
especially profits—rise faster than the cost of living, and the thrift inculcated
by hard times yields but slowly to the extravagance encouraged by flush times.
Finally, a considerable portion of the savings made during a period of depres­
sion goes to meet obligations incurred before the preceding crisis.6 When
these old debts have been paid off, and the debit accounts run up during the
dull times themselves have been squared, savers are free to invest their fresh
accumulations as they see fit.
In short, there is small room for doubt that saving, like most of the activities
of economic life, is subject to the rhythm of business cycles, slowing down in
depression, speeding up in prosperity. But, after all, the volume of saving
18
important chiefly for its influence upon the volume of investment. Fortu­
nately, on this subject we have relatively full and reliable information in
quantitative form.
I I . INVESTMENT, ENTERPRISE, AND SPECULATION

As types of economic activity, investment, enterprise, and speculation may
clearly distinguished. In many cases the three types are even represented
y three sets of men—for example, the trustee seeking to "place" funds safely
or
the sake of interest, the merchant actively managing a business enterprise
or
Profit, and the operator in the wheat-pit dealing in "futures." But in a
**rger number of cases the distinction is blurred; for not only is the same man
ten investor, enterpriser, and speculator in one, but one type of his activity
so merges into the others. Thus when the investor buys stocks the act assimW*8 him to the enterpriser, and when he buys real estate trusting to a rise
Prices the act assimilates him to the speculator. Similarly the business
^ _ ^ J ^ n investor in so far as he puts his own capital into his enterprise, and
1e

Compare N. Johannsen, A Neglected Point in Connection with Crises (New York, 1908).



390

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

a speculator in so far as every venture involves the assumption of risk. So,
also, the speculator invests some funds of his own, at least a narrow "margin"
upon the purchase price of his stocks, and he may take an active part in the
management of a business enterprise in order to promote his campaign upon
the stock market.
The intimacy of these connections among the three types of activity makes
it difficult to find statistical records which show the volume of investment apart
from the volume of speculation, or the activity of business enterprise apart
from both speculation and investment. Stock-exchange transactions, for
example, are predominantly speculative in character; but the investment factor
is not unimportant, though it cannot be separated from the speculative factor
in the records. Bond purchases, on the other hand, are made chiefly by
investors; but speculation in the price of bonds is by no means unknown.
Similarly with the tables of "capital applications," "flotations," "listings
on the stock exchange, etc. The figures may be intended to show the fluctu­
ations in the sums invested in business ventures; but they also show the varying
activity of business enterprise in seeking loans for new undertakings or for
the extension of old, and often they reflect the intensity of interest in speculative
ventures.
For this reason it is inexpedient to attempt to separate the statistical
investigations into investment, enterprise, and speculation. Certain indices are
available which apply almost wholly to one type of activity to the exclusion
of the other types; but most of the recorded transactions are those in which
two or even all three of the types are joined together.
1. Savings-bank Deposits
The deposit of funds in savings banks approximates closely to an act of pure
investment. Fortunately, the obvious propriety of exercising close supervision
over the conduct of fiduciary enterprises entrusted with the savings of people
unskilled in business has led to the compilation and publication of relatively
full statistics on the subject, The figures of most significance for the present
purpose are brought together in the next table.
In the United States, the increase or decrease of savings-bank deposits is
clearly correlated with the prosperity or depression of business. In the years
immediately following the major crises of 1893 and 1907 depositors drew ou
more money than they paid in. Every other year since 1890 shows a ne
gain in deposits. However, the maximum ratios of gain occur in years °
widely diffused prosperity, or in years when a mild reaction interrupts a perio
of business expansion, as in 1900 and 1910. Under the latter circumstances
people seem to put into the savings banks funds which they would have kep



MITCHELL: BUSINESS CYCLES

391

T A B L E 105
DEPOSITS IN THE SAVINGS B A N K S OF T H E UNITED STATES, UNITED KINGDOM, FRANCE, AND GERMANY
B Y YEARS, 1890-1911
Relative amounts
Average actual amounts in
1890-99 = 100

Actual amounts
In millions of dollars
Year
lSQfk

United
ktates

United
Kingdom

189

1,525
1,623

0

United United
States Kingdom France Germany

Rates of increase ( + ) or decrease (—)
during the vear
United
States

United
Kingdom

France

Germany

542
557

642
687

1,223
1,272

83
88

79
81

84
90

77
80

+ 7 . 0 % + 2 . 9 % +10.2% + 5 . 5 %
+6.4
+2.8
+ 7.0
+4.1

FVance

Germany

1,713

575

742

1,331

93

83

97

84

+5.5

+3.2

+ 8.0

+4.6

1,785

598

724

1,404

97

87

95

88

+4.2

+4.0

— 2.4

-^^fy

1,748

646

768

1,492

95

94

100

94

—2.1

+8.0

+ 61
.

+6.3

Mil

697

801

1,617

99

101

105

102

+3.6

+7.9

+ 4.3

+8.4

1,907

753

804

1,726

104

109

105

109

+5.3

+8.0

+

.
4

+6.7

1,939

800

824

1,836

106

116

108

116

+1.7

+6.2

+ 2.5

+6.3

2

,066

843

825

1,944

113

122

108

122

+6.5

+5.4

+

.
1

+5.9

2,230

883

837

2,040

122

128

109

128

+7.9

+4.7

+ 15
.

+4.9

2,450

910

825

2,102

134

132

108

132

+9.8

+3.1

— 14
.

+3.0

2,597

936

855

2,276

142

136

112

143

+6.0

+2.9

+ 3.6

+8.3

2

,750

959

847

2,458

150

139

111

155

+5.9

+2.4

—

.9

+8.0

2,935

967

831

2,644

160

140

109

166

+6.7

+0.8

— 19
.

+7.5

3

976

856

2,836

167

142

112

179

+4.2

+0.9

+ 3.0

+8.3

3

997

898

3,023

178

145

117

190

+6.5

+2.1

+ 49
.

-^6.6

3

,482

1,017

921

3,187

190

147

120

201

+6.8

+2.0

+ 2.6

+5.5

3,690

1,020

960

3,306

201

148

125

208

+6.0

+0.3

+ 4.2

+3.7

M*l

1,033

1,009

3,464

200

150

132

218

—0.8

+1.3

+ 51
.

+4.8

3 71

1,055

1,056

3,731

202

153

138

235

+1.4

+2.1

+ 47
.

+7.7

4 07

> 0

1,076

3,994

222

156

251

+9.6

+2.0

4,213

1,117

230

162

>°60

>261

> 3




+3.5

+3.8

+7.0

392

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

CHART

1

67.

•
•
•
•
1

■
1
■

RELATIVE AMOUNT OF SAVINGS DEPOSITS IN THE
UNITED STATES, UNITED KINGDOM , FRANCE,AND GERMANY.
0
0
0

1690 - I9M.
E
j
—
—

—
—

• —

UNITED

—

—

• — •—_

KINGDOM.

f i

"

•

'

VKIT~

:

!

- J

[

r

0,

M
11

$

•

i
i

I

0
0

180

/

•

160

0

200

!

190

j

180

1
no

#

* /
J /

i

j

160

M

1/ 1 II y
if
0 ' J

150

\~ "
i
|

/

•
••
• /
\
••
•

no

2/0

J

1/ / !

190

^

/
/
\ ^

FRANCE.

220

/

•

STATES.

UNITED

#

230

j

^

150

0 m

:/

140

140

*
i

130

J
J

120

•y

/
120

/

f'

/

no

1

4

100

•A

130

! /

^•*

y

s

'

—L l>
™ * .

no

w

100

IS

/
90 i

60

7

/V

AA

/
/

90

80

°

70

—-—\— -

i
I&90 '91

'92 '93




%

94 *95 '96

'91. '98 '99 1800 'oi

i 1

'02 *03 *04- '05 *06 '01 '0* \

'09 1910 ' I I

MITCHELL: BUSINESS CYCLES

393

in hand or in checking deposits if trade had remained active. In Great Britain
no year shows a decline; but the rate of gain is slight when times are dull.
Returning prosperity at first stimulates deposits; but at the height of a business
'boom" the British saver turns to investments which promise a higher rate
of interest than the savings banks pay. It is also noticeable that the decennial
average of growth in savings deposits was much lowrer in 1900-09 than in
1890-99. For once the French figures are less regular than the American and
British. The main conclusion which they suggest is that some factor other
than the shifting of business conditions must exercise a strong influence over
the clients of the savings banks. In Germany, as in Great Britain, every year
shows a gain upon its predecessor, but the ratio of gain varies, declining when
times are hard, rising when times improve, and then shading off again when
prosperity reaches its apex. The one exception to this rule—the rapid gain of
deposits during the dull years 1901 and 1902—probably results from a trans­
ference of funds from commercial and mortgage to savings banks after confi­
dence in the solvency of the former had been shaken by the fall of the Leipziger
Bank, the Dresdener Kreditanstalt, and four mortgage banks.

2. Purchases of Bonds and of Stocks
As has been said, there is certainly more or less speculation in bonds, and
uch investment in stocks.7 Nevertheless, the sales of bonds and of stocks
upon the New York Stock Exchange may be taken as rough gauges respectively
ot the fluctuations in the volume of investment and of speculation. Since the
kgures are published monthly, it is feasible to present them not only by years
u
t also by periods which correspond to the successive phases of business
<Tcies. The use of par values makes the tables reflect changes in the number
I securities sold, rather than changes in the pecuniary volume of transactions.
ere similar figures based upon market values available, the differences shown
y the present tables between the fluctuations in bond and stocks sales would
e s
till more strongly accentuated. For the differences between the fluctuations
n
the relative prices of bonds and stocks brought out in Chapter IV run
°ughly parallel with the differences between the fluctuations of sales.
In periods of severe depression investment in bonds increases, while specua
ion in stocks declines or rises but little in comparison with bond sales. When
ismess begins to revive, both bond and stock sales increase, but bond sales
a
much faster pace. Before prosperity has reached its culmination bond
es decline, while stock sales containue to follow an ascending saw-tooth curve.
-__J^risis approaches bond sales decline rapidly, wrhile stock sales decline
m

verticil °v
^ 1 on I ? 8 ,

*n bonds has been increased in late years by the large issues of income, debenture, and conCompare W. Z. Ripley, "Railway Speculation/ f Quarterly Journal of Economics, February.




394

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

TABLE 106
PAR VALUES OF THE RAILWAY AND MISCELLANEOUS BONDS AND STOCKS SOLD ON THE N E W YORK STOCK EXCHANGE
B Y YEARS, 1890-1911
. Actual amounts
I n millions of dollars

Relative amounts
Av. actual amounts in
1890-99 = 100

A

K

Bonds

Stocks

Ratio of
bond sales
to stock
sales

1890

Bonds
402

6,612

79

83

1:16.4

1891

384

6,676

76

83

1:17.4

1892

486

7,670

96

96

1:15.8

1893

352

7,550

69

94

1:21.4

1894

340

4,822

67

60

1:14.2

1895

500

6,313

99

79

1:12.6

1896

363

5,111

72

64

1:14.1

1897

530

7,426

104

93

1:14.0

1898

889

10,833

175

135

1:12.2

1899

828

17,094

163

213

1:20.6

1900

569

13,372

112

167

1:23.5

1901

994

25,850

196

323

1:26.0

1902

880

17,789

173

222

1:20.2

1903

684

15,028

135

188

1:22.0

1904

1,015

17,394

200

217

1:17.1

1905

816

24,400

161

305

1:29.9

1906

606

24,843

119

310

1:41.0

1907

456

17,006

90

212

1:37.3

1908

999

17,694

197

221

1:17.7

1909

1,279

19,634

252

245

1:15.4

1910

592

14,730

117

184

1:24.9

1911

795

11,489

157

143

1:14.5

„

Year

Stocks

f

Averages

1890-99

507.4

8,010.7

100

100

1:15.9

1900-09

829.8

19,301.0

164

241

1:25.0

Data compiled from the Commercial




and Financial

Chronicle and from its "Quotation Supplement."

MITCHELL: BUSINESS CYCLES

1—

395

'—<
CHART

66.

320

j

1

RELATIVE AMOUNTS OF BONOS AND STOCKS

1

SOLD ON THE NEW YORK EXCHANGE.

| 1

Jl

1890 - 1911.

•

1

' li
ll

1
1

1

STOCKS.

h

2d0

i

1
1
1
1
1

11
260

t
i

1

i

220

,

i

1

i

1 1j <
|
1 1
i 1 i!
! i

1

i

I

200

ii

.

; I

!

j

\i
i

i

i

'

220

P

1 1 1' 1
J ' l
I li

1 !

*1 / ,

'./ 11
\1 n

'

|\
180

1

i l l

»l

i

j

h1 1!

160

i I
M
I

.

\

1 '

1

ii

100

i

1 1

1

1

i
I

fl

1

i\ II i i
!

1

1

||

n A ii

i \ \i /i \ //
/'
\
r—fl \ \ 1 \ 11

1

i 1

1
i

I
1

1V
i

160

\i

I1

f'

If
'
'
1

* 1

1

II II

1 1 1
\
i1 :J i i

1'!
f'

120

j

11

!y

J i

|

1i

i\

1'

140

200

1I 1
1
1 1
1

l/i

i

240

i\

! 'II
' I
Hi
! / 1 !i»
1

1

i

A
ii

i

II

1
I
l
\

i

i
ii'!

j

j 1

i

' ,
i

i
(

j

260

11
1
1

1 1 Ii

■

240
i

i
i

280

1
i

111

1

300

1 II

_

!

1

'CO

140

120

100

* 1

7 \

80

s^y \ l \ l / M V
i
i

60

I J



\ i /

/
V/

Iff V
i

1—r~

80

|
1

1890 91 '92 '95 '94 95 '96 '97 "95 "99 1900 '01 "02 "05 '(A '05 '06 '07 08 09 190 II

60

MEMOIRS OF TTTE UNIVERSITY OF CALIFORNIA

396

T A B L E 107
AVERAGE M O N T H L Y P A R VALUE OF RAILWAY AND MISCELLANEOUS BONDS AND STOCKS SOLD ON T H E N E W YORK
STOCK EXCHANGE IN SEASONS OP B U S I N E S S PROSPERITY, C R I S I S , AND DEPRESSION, 1890-1911

Av. actual amounts
In millions of dollars
,

A

Bonds

J a n u a r y , 1890-July, 1890—Prosperity

:

.

Stocks

AV. reiauve amounts
Av. actual amounts
in 1890-99 = 100
A
Bonds

Stocks

tatio of
1 nd sales
he o stock
1
sales

92

80

"1:13.6

59

87

1:23.2

59

69

1:18.4

106

99

:14.6

80

106

3L:20.8

57

86

1:23.8

66

61

JL:14.6

123

90

3L:11.5

80

66

JL:12.9

54

69

L:19.9
J

85

62

3L:H.4

151

129

3L:13.4

92

116

1L:

182

181

]

111

202

90

131

187

276

132

171

225

315

125

324

83

234

39

531

25

579

25

460

August, 1891-August, 1892—Prosperity

45

659

September, 1892-Aprii, 1893—Approach of crisis

34

708

May, 1893-October, 1893—Major crisis

24

572

November, 1893-March, 1895—Severe depression

28

409

April, 1895-September, 1895—Revival

52

600

October, 1895-June, 1896—Renewed depression

34

438

J u l y , 1896-October, 1896—Free-silver campaign

23

458

November, 1896-June, 1897—Depression

36

411

July, 1897-February, 1898—Revival

64

858

March, 1898-April, 1898—Spanish war impending

39

775

May, 1898-September, 1899—Prosperity

77

1,209

October, 1899-December, 1899—Minor crisis

47

1,347

J a n u a r y , 1900-September, 1900—Slight depression

38

874

October, 1900-October, 1902—Prosperity

79

1,843

November, 1902-July, 1904—" Rich m a n ' s p a n i c "

56

1,142

August, 1904-August, 1905—Revival

95

2,104

September, 1905-September, 1906—Prosperity

53

2,166

October, 1906-September, 1907—Approach of crisis

35

1.564

October, 1907-December, 1907—Major crisis

58

1,157

137

173

J a n u a r y , 1908-September, 1908—Severe depression

69

1,318

163

197

262

254

137

164

August, 1890-December, 1890—Minor crisis
J a n u a r y , 1891-July, 1891—Depression

October, 1908-December, 1909—Revival
J a n u a r y , 1910-December, 1911—Reaction




,

Ill

1,698

58

1,092

19.9

L:15.7

L:28.7
1
] L:23.0
] 1:23.3
] L:20.4
] L:22.1
] [:40.9
]

:44.7

] 1:19.9
] 1:19.1

1:15.3
1
11:18.8

MITCHELL: BUSINESS CYCLES

397

j
42
CHART
OF BOND S A L E S

RATIO

69
TO

IN

NEW

STOCK

SALES

1890 - 1911.

40

|
1

YORK .

I

.

i

11

38

V

•

!

Us

36

l
1

34

1

!

34

i

1

1

1
I

32

32

—:—

30

— —

2ft

28

26

26

24

24

23

-4-—
l\ *

20

y
•

18

1 ' 1

—
—

/
16

30

i
-

"

■

—

22

/ 1

,
f

20

I I

1 1
1

1
1

\

1

-

16

i

\

-

'

16

'

1

14
,

j[

_3^

\

/

ia
—

14

\

i

12

t

1

J890J9^. 9 ,>




'94\

'95 '96 '97

'98 '99

1900 '01 '02

'03 '04 '05 '06

1

'07 '08 '09 1910 'l 1

398

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

more slowly or even increase. During the crisis bond sales usually shrink to
a small volume; but in 1907 they increased. In other words, investment in
bonds increases under depression and reaches its climax early in the following
period of returning prosperity, while speculation in stocks continues to expand
until the season of prosperity has reached or even passed its culmination.
Hence the volume of investment is largest in comparison with the volume of
speculation when a prosperous period is just beginning, and smallest when a
crisis is approaching or is even at hand. Probably the present data minimize
rather than exaggerate this difference, because the proportion of bonds bought
by investors as opposed to speculators swells in periods of depression and
shrinks in periods of prosperity.8

3. Applications for Investment Loans
Since 1871 the Moniteur des interets materiels of Brussels has compiled a
table showing the "public emissions" of each year. M. de Laveleye, for many
years the editor, explained in 1892 that the aim of his efforts was to ascertain
as nearly as might be the sum of money really invested in long-time loans.
Stillborn projects were rejected and loans listed on more than one marks
were counted but once. All the available sources of information were used,
but of course the bulk of small privately negotiated loans did not come to the
knowledge of the compiler.9 While the figures cannot be regarded as complete,
they are made on a uniform plan, and provide the best available gauge of the
changes from one year to the next in the volume of investment loans negotiate
in Europe. The geographical classification is based on the country apply in #
for the loan. Hence, while the totals for all countries show fluctuations in tn
sums presumably invested by Europeans, the figures for Great Britain, France,
and Germany show fluctuations in the amount of loans which their governnien
and business enterprises sought to secure—not the sums which their investo
s The volume of real-estate transactions is currently
But I know of no systematic record of this character
& Sons of San Francisco, and published in their San
in volume and for the most part run parallel with the

believed to be an excellent gauge of speculative a C w a g e e
except that compiled since 1867 by Messrs. Thomas j-»
Francisco Bcal Estate Circular. The fluctuations ar
course of American business cycles.

ANNUAL SALES OF REAL ESTATE IN S A N FRANCISCO

1890
$36.5 millions
1901
$29.1 millions
1891
27.5 millions
1902
47.4 millions
1892
20.6 millions
1903
47.7 millions
1893
13.6 millions
1904
45.8 millions
1894
14.2 millions
1905
74.9 millions
1895
15.9 millions
1906
67.5 millions
1896
11.5 millions
1907
31.8 millions
1897
12.9 millions
1908
31.1 millions
1898
10.7 millions
1909
33.9 millions
1899
14.6 millions
1910
31.3 millions
1900
18.5 millions
1911
35.3 millions
My attention was called to these figures by Mr. Edwin A. Fisher.
» Compare the Bulletin de statistique et de legislation comparee, vol. 46, p. S4, and vol. 47, p. I™-




MITCHELL: BUSINESS CYCLES

399

T A B L E 108
AGGREGATE PUBLIC APPLICATIONS FOR INVESTMENT L O A N S , ACCORDING TO T H E Moniteur

des interets

materiek

B Y YEARS, 1890-1911
Actual amounts
In millions of dollars

Relative amounts
Average actual amounts in 1890-99 = 100

A

Year
1890

Governments,
Railways
Credit
states, and
establish­ and industrial
cities
ments
companies
340
118
764

Conver­
sions
351

"
\
Total
1,572

Railways
Governments, Credit
states, and establish- and industrial Convercities
ments
companies
sions
63
110
75
75

"
Total
84

1891

632

254

463

109

1,459

140

161

66

19

78

1892

177

13

277

17

484

39

8

40

3

26

1893

403

111

252

394

1,160

89

70

36

70

62

1894

566

65

368

2,440

3,439

125

41

53

436

184

1895

383

137

.490

251

1,260

85

87

70

45

68

1896

725

149

888

1,465

3,227

160

94

127

262

173

1897

418

171

1,131

132

1,852

93

108

162

24

99

1898

394

272

1,051

317

2,035

87

172

151

57

109

1899

481

291

1,283

121

2,176

106

184

184

22

117

1900

926

271

1,092

2,290

205

171

157

123

1,918

222

85

112

103

1901

1,001

135

782

1902

1,146

153

659

1,640

3,598

254

97

95

293

193

1903

567

257

1,023

1,688

3,534

125

163

147

302

189

1,113

259

1,060

353

2,785

246

164

152

63

149

1,392

358

1,615

323

3,688

308

226

232

58

198

1,185

445

1,504

1,992

5,126

262

281

216

356

275

1,061

294

1,562

44

2,961

235

186

224

8

159

1,398

265

2,365

64

4,092

309

168

339

11

219

1,643

441

2,185

474

4,743

364

279

314

85

254

1,746

523

2,152

688

5,109

386

331

309

123

274

1,114

646

1,915

143

3,818

247

409

275

26

205

559.7

1,866.4

100

100

100

100

100

657.8

3,473.5

253

182

199

118

186

1904
1905
1906
1907
1908
1909
1910
19U
Averages
1890^99
1*00-09
C

451.9

158.1

1,143.2

287.8

°*piled from the Bulletin H e




696.7
1,384.7
atntiotintm

of el z»

IJsli

v/^» f I'/J >i

400




MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

CHART

70

RELATIVE. AMOUNTS OF THE. PUBLIC
APPLICATIONS FOR INVE.STME.NT

LOANS

1890 - 1910.
FROM.THE TABLES
MONITEUR

DES

OF T H E

INTERETS

MATERIEL.S

MITCHELL: BUSINESS CYCLES

401

TABLE 109
BRITISH PUBLIC APPLICATIONS FOR INVESTMENT LOANS, ACCORDING TO THE Moniteur

des interets

matehels

B Y YEARS, 1890-1911
Actual amounts

Relative amounts
Average actual amounts in 1890-99 = 1 0 0

I n imillions of dollars
A

v

i ear
1890

A

Railways
Governments Credit
states, and establish­ and industrial Converments
companies
sions
cities
69
19
283

1891

69

14

196

1892

57

8

136

1893

99

1894

119

1895

>
Total
372

Railways
Governments, Credit
states, ana* establish­ and industrial Convercompanies
sions
cities
ments
94
84
128

>
Total
92
69

279

84

95

65

1

201

70

54

45

14

50

81

2

183

121'

27

29

45

24

153

56

351

145

162

51

800

86

89

14

214

9

326

109

95

71

129

80

1896

55

15

534

2

607

67

101

177

29

150

1897

105

6

552

664

128

41

183

164

1898

91

8

436

536

111

54

144

132

1899

66

40

434

540

81

270

144

133

1900

317

27

419

763

387

182

139

188

1901

476

9

240

725

581

61

79

179

1902

332

19

251

603

405

128

83

149

1903

230

35

198

464

281

236

66

114

1904

202

23

191

416

247

155

63

102

1905

208

37

298

543

254

250

99

134

1906

77

59

240

406

94

399

79

1907

150

57

277

484

183

385

92

1908

177

32

482

692

216

216

160

1909

250

36

323

609

305

243

107

150

229

31

483

743

280

209

160

183

426

111

432

90

105

1910
1911

30

2

429

100
119

29

170

91

64

271

1890-99

81.9

14.8

301.9

7.0

405.9

100

100

100

100

100

1900-09

241.9

33.4

291.9

3.2

570.5

295

226

97

46

141

Av

erages




402

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

T A B L E 110
F R E N C H PUBLIC APPLICATIONS FOR INVESTMENT LOANS, ACCORDING TO T H E Moniteur

des interets

materiels

B Y YEARS, 1890-1911
Actual amounts
In millions of dolltirs

Relative amounts
Average actual amounts in 1890-99 = 100

A

Year
1890

Governments, Credit
Railways
states, and establish- and industrial Converments
companies
sions
cities
4
40
23
59

1891

168

1892

3

43

1893

8

1894

47

1895

1

1896

>
Total
67

Railways
Governments, Credit
states, and establish­ and industrial Converments
cities
companies
sions
62
59
18

Total
22
99

305

455

13

59

8

63

7

19

41

3

52

22

60

2

17

50

1,456

1,553

127

73

812

507

54

78

46

179

3

247

114

26

58

64

15

71

36

186

173

69

104

20

61

1897

3

4

70

83

159

8

18

102

46

52

1898

2

59

157

219

5

86

88

71

1899

50

65

172

287

136

297

252

94

1900

1

62

230

294

3

283

337

96

1901

53

8

189

251

144

37

277

82

1902

106

4

93

1,515

287

18

136

1903

16

63

58

138

43

288

85

1904

41

4

68

114

111

18

100

1905

34

20

109

163

92

91

160

1906

6

82

83

250

16

374

122

1907

47

16

154

217

127

73

225

1908

75

21

178

274

203

96

261

1909

33

122

178

333

89

557

261

1910

75

37

226

338

203

169

331

1911

17

41

199

257

46

187

291

Averages
1890-99

36.9

21.9

68.3

179.4

306.6

100

100

100

100

100

1900-09

41.2

40.2

134.0

139.3

354.9

112

184

196

78

116

77

* Less than Vz per cent.




1,313

1

79

352

86

494

732

45

*

37
53

44

82
71
89
109
110
84

MITCHELL: BUSINESS CYCLES

403

TABLE 111
GERMAN PUBLIC APPLICATIONS FOR INVESTMENT LOANS, ACCORDING TO THE Moniteur

des intercts

matcrids

B Y YEARS, 1890-1911
Actual amounts
In millions of dollars

Relative amounts
Average actual amounts in 1890-99 = 100

A

v
Year

1890

Governments, Credit
Railways
states, and establish­ and industrial Converments
companies
sions
cities
9 8
74
51
10

Total
233

Governments, Credit
Railways
states, and establish­ and industrial Converments
companies
sions
cities
45
8
111
113

Total
59

1891

133

17

47

197

153

26

42

50

1892

103

3

10

116

118

5

9

29

1893

99

23

22

144

114

35

19

36

1894

66

24

25

190

76

36

22

1895

11

28

38

76

13

42

34

1896

44

76

163

1,208

1,491

51

114

144

932

377

1897

88

83

284

3

458

101

125

251

2

116

1898

83

216

266

565

96

325

235

143

1899

144

120

226

489

166

181

200

124

1900

101

93

188

382

116

140

166

96

1901

207

95

138

440

238

143

122

111

1902

229

105

79

413

264

158

70

104

1903

165

110

113

388

190

166

100

98

1904

121

159

129

409

139

239

114

103

1905

211

167

201

590

243

252

178

1906

265

150

223

638

305

226

197

161

1907

251

79

101

430

289

119

89

109

407

137

183

726

468

206

162

183

386

176

162

723

444

265

143

183

243

167

168

578

280

252

148

146

160

195

180

535

184

294

159

135

1890-99

86.9

66.4

113.2

129.6

395.9

100

100

100

100

100

1900-09

234.3

127.1

151.7

1.1

513.9

270

191

134

1

130

1908
1909
1910
1911

75

11

58

48
19

8

149

Averages




404




MEMOIRS OF THE UNIVERSITY OP CALIFORNIA

CHART
RELATIVE
APPLIED

AMOUNTS

FOR BY

RAILWAYS A N D

71.

OF THE I N V E S T M E N T

LOANS

B R I T I S H , T R E N C H , AND GERMAN
INDUSTRIAL

1&90 -

COMPANIES.

1910.

B R I T I S H COMPANIES
FRENCH COMPANIES
GERMAN COMPANIES.

340

340

320

300

260

260

240

220

200

160

140

120

100

80

60

40

20

1890 92

94

96

96

1900

02

04

06

06

1910

MITCHELL: BUSINESS CYCLES

405

provided. The data for the United States are too incomplete to possess much
significance, particularly in the earlier years. Indeed, the gradual inclusion
of an increasing proportion of the loans negotiated in America is probably
the most serious defect in the table for purposes of comparing one year with
another. But this defect appears only in the figures for all countries, not in
the figures for Great Britain, Prance, and Germany. The latter figures, how­
ever, as well as the totals, are affected by any changes which take place in the
proportions of investment loans which are publicly advertised and privately
negotiated. The use to which the tables may be safely put is therefore limited.
-Nothing beyond rough conclusions as to the general trend in the amount and
W the character of the successful applications for investment loans can be
drawn with confidence.
As might be expected, the loans applied for by governments show but a
slight degree of coordination with business cycles. Municipalities and states
often take the condition of the money market into account when determining
u
pon the feasibility of making improvements to be paid for by the sale of
bonds, and so also may national governments in borrowing to finance public
works. But even local governments are less concerned with the rate of interest
they must pay than are business enterprises, and national governments in
raising money for wars or armaments are often compelled to accept whatever
terms are offered at the moment they need the money. Thus the exigencies
°t public finance are often a "disturbing factor" in the business situation, not
only in the countries which are borrowing but also in the countries which are
ending. In some years these government loans are greater than the public
a
Pplications for long-time business loans; for example, in the dull years 1901
an
d 1902, when Great Britain was adding the Boer War debt to heavy bor­
rowings by other powers. But in the long run, the sums borrowed by govern*ents are much less than the sums borrowed by business enterprises. The
eal disparity is probably greater than the present table indicates, because a
ai
'ger proportion of the public than of the private loans is publicly advertised.
Investment loans to business enterprises, on the other hand, show a close
oordination with business cycles. The amount falls off heavily in a long period
depression, and increases rapidly when prosperity returns. But the figures
lea
te that this increase does not continue unabated until the culmination of
J^osperity is attained. If the actual amount of the business loans does not
eciine, at least the rate of increase shrinks from large to small proportions.
Unculty in securing the ever-growing amount of loan capital for fixed invest­
ment required by the ever-growing volume of business characterizes the high
e of prosperity. The first year or two of depression, on the contrary, may
- marked by very heavy loans to business enterprises. But most of these
oans represent the funding of floating debts incurred in the later stages of
os
perity, rather than the extension of business enterprises.



406

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

Roughly speaking, conversions vary inversely as loans to business enter­
prises. They are undertaken for the sake of reducing interest charges, and
are therefore made only when the investment market is ready to absorb large
blocks of glit-edged securities bringing in a low return. It has been shown in
Section iii of Chapter IV that interest rates are low when business is depressed,
or just beginning to recover from depression. Hence the great bulk of the
conversions entered in the table occur in 1894-96 and 1902-03. The one apparent
exception occurs in 1906. Four-fifths of the conversions of that year, however,
were due to a single operation—the refunding of a large Italian loan, which,
after having been deferred more than once for a better opportunity, had finally
to be carried out under unfavorable conditions.
Comment on the figures for Great Britain, France, and Germany is unnec­
essary, because what has been said of the general table applies substantially
to the special tables. The large role played by credit companies in continental
as compared with British finance may be pointed out, however. The fact that
the British are represented as borrowing so much more capital than the
Germans or the French is due largely to the greater extent and higher devel­
opment of British colonies. The French, it may be added, appear to be less
embarrassed than the other nations by scarcity of capital at the height of a
prosperous period. This conclusion, suggested by the figures, is fortified by
our knowledge of the comparative moderation of French "booms," and the
extraordinary development of thrift in comparison with business enterprise
as economic characteristics of the people.
The Economist's estimates of the annual applications for capital in London,
summarized in the next table, regularly exceed the British figures taken from
the Moniteur des interets materiels by many millions. But these differences
arise chiefly from the fact that the Economist records every public application
for British capital from whatever land it comes, while the Moniteur classifies
as British only the applications from British sources.
For our purposes the chief value of these figures is that they confirm
the conclusions based upon the former compilation. Again, government loans
are found to have the irregularity which results from the exigencies of public
finance. But this irregularity does not altogether hide the effort of local and
perhaps even of national governments to place their loans when the money
market is most favorable to borrowers—that is, when business is depressed,
or just beginning to revive. Business loans, on the contrary, rise and fall wit
the expansion and contraction of activity. The high rates for money at a tim
of abounding prosperity, however, cause would-be borrowers to defer tnei
least imperative demands for fresh capital to the more favorable opportunity
afforded by the first year of the succeeding depression. It is interesting



MITCHELL: BUSINESS CYCLES

407

T A B L E 112
CAPITAL APPLICATIONS IN LONDON, ACCORDING TO THE Economist
B Y YEARS, 1890-1911
Actual amounts
In millions of dollars

Relative amounts
Average actual amounts in 1890-99 = 100

A

Year
1890

A

Loans to
Loans
central
Loans to other
and local
to
business
Loans
govern­
mining
enterto
ments
railways companies prises

Total
loans to
business
enter­
prises

Grand
total

Loans to
central
and local
govern­
ments

Loans
to other
Loans
business
Loans
to
enter­
to
mining
railways companies prises

Total
loans to
business
enter­
prises

Grand
total

117

151

33

393

577

694

69

154

85

151

145

122

1891

219

78

16

196

290

509

128

79

41

75

73

90

1892

187

102

9

97

208

395

110

104

23

37

52

70

1893

119

59

6

55

120

239

70

60

16

21

30

42

1894

227

77

24

119

220

447

133

78

62

46

55

79

1895

180

83

72

174

329

509

106

84

186

67

83

90

1896

168

86

74

416

576

744

99

87

191

160

145

131

1897

158

85

62

461

608

766

93

86

160

177

153

135

1898

214

127

35

355

517

731

126

129

90

136

130

129

1899

116

135

56

341

532

648

68

137

145

131

134

114

1900

334

86

36

349

471

805

196

87

93

134

118

142

1901

492

90

22

172

284

776

289

92

57

66

71

137

1902

407

105

50

187

342

749

239

107

129

72

86

132

3903

281

70

13

164

247

528

165

71

34

63

62

93

1904

359

86

16

138

240

599

211

87

41

53

60

105

1905

376

205

46

187

438

814

221

209

119

72

110

143

1906

196

144

36

210

390

585

115

146

93

81

98

103

1907

218

145

14

224

383

601

128

148

36

86

96

106

1908

318

363

25

229

617

935

187

369

65

88

155

165

1909

376

206

39

266

511

887

221

210

101

102

128

156

1910

446

310

36

509

855

1,301

262

315

93

195

215

229

1911

217

337

41

338

716

933

127

343

106

130

180

164

'

Averages

1890-99

170.5

98.3

38.7

260.7

397.7

568.2

100

100

100

100

100

100

1900-09

335.7

150.0

29.7

212.6

392.3

727.9

197

153

77

82

99

128

Compiled from the Lond on




Econo mist's aiiiii:ial "Comt aercial His torv and Rev iew."

408

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA

notice that the Economist and the Moniteur agree in making the British loans
to business enterprises slightly smaller in the second than in the first decade
covered by the tables.
The best American substitute for the European statistics which have just
been discussed is afforded by the amount of bonds and stocks listed each year
on the New York Stock Exchange. These figures afford a rough gauge of the
new opportunities offered for investment in large corporate enterprises.
Most significance attaches to the listings of new securities. The new stocks
put on the market respond with considerable regularity to changes in business
conditions, falling when business is depressed and rising when business recovers,
but not attaining large proportions until prosperity is fully established. The
bond listings, on the contrary, show a tendency to fall comparatively little or
even to increase heavily when business is dull, and to decline in the later stages
of prosperity. This contrast between the amount of stocks and bonds listed
agrees with the contrast brought out above between the amount of the stocks
and bonds sold upon the same market.
T A B L E 113
LISTINGS OF STOCKS AND BONDS ON THE N E W YORK STOCK EXCHANGE
B Y YEARS, 1890-1911
Actual amounts in millions of dollars

Year
1890

New
issues
161

Old issues
newly
listed
10

Replacing
old
securities
263

Total
435

New
issues
198

Old issues Replacing
newly
old
listed
securities
382
105

Total
685

1891

97

2

91

189

191

16

80

288

1892

100

48

89

237

175

12

130

318

1893

94

49

56

42

107

289

37

5

210

198
251

139

1894

185

32

93

310

1895

77

35

1896

77

31

143

167

16

75

257

514

591

147

8

427

582
357

1897

53

24

425

503

254

70

53

406

528

88
245

16

1898

26

429

700

1899

311

393

704

156

23

346

525

1900

297

130

194

621

148

6

290

444

1901

430

76

1,136

1,642

220

21

682

923

1902

251

11

522

784

198

3

333

534

1903

173

39

215

427

192

13

377

1904

121

55

176

430

105

581
535

1905

125

100

308

533

569

20

391

980

1906

237

16

409

663

303

12

256

572

1907

159

321

96

576

247

72

102

421

1908

124

249

141

514

649

96

128

873

1909

297

364

665

1,326

713

8

378

1,099

1910

305

467

468

1,240

572

52

185

808

1911

256

38

350

644

398

35

148

581

Averages
1890-99

107.7

247.8

377.9

169.1

29.6

232.3

1900-09

221.4

374.1

726.2

366.9

27.9

304.2

431.1
696.2

Compiled from the Financial




28.25
145.1
Review.




MITCHELL: BUSINESS CYCLES

409

410

MEMOIRS OP THE UNIVERSITY OF CALIFORNIA
TABLE 113— (Concluded)
L I S T I N G S OF STOCKS AND BONDS ON THE N E W YORK STOCK EXCHANGE
B Y Y E A R S , 1890-1911

Relative amounts.

Average actual amounts in 1890-99 = 100

Stocks
t

Bonds

Old issues Replacing
newly
old
listed
securities

Replacing
old
securities

Total

159

Total

New
issues

Old issues
newly
listed

106

115

117

355

164

1

37

50

113

54

34

67

93

170

36

63

103

41

56

74

Year

New
issues

1890

150

35

1891

90

1892
1893

87

173

23

52

82

142

46

67

1894

34

18

85

66

109

108

40

72

1895

71

124

13

38

99

54

32

60

1896

71

207

156

87

27

184

135

1897

49

85

172

133

52

54

109

83

1898

65

188

164

140

145

88

185

162

1899

289

159

186

92

78

149

122

1900

276

459

78

164

88

20

125

103

1901

399

269

458

435

130

71

294

214

1902

233

39

211

207

117

10

143

124

1903

161

138

87

113

114

44

162

135

1904

112

22

47

254

45

124

168

227

110

133

1905

116

353

124

141

336

68

1906

220

57

165

175

179

41

1907

148

1,134

39

152

146

243

44

98

1908

115

880

57

136

384

324

55

203

1909

276

1,288

268

351

422

27

163

255

1910

283

1,653

189

328

338

176

80

187

1911

238

135

141

170

235

US

64

135

100

100

100

100

100

217

94

131

161

Averages

1890-99

100

100

100

1900-09

206

513

151

192

4. The Establishment of Joint-Stock

Companies

Another piece of evidence relating to investment, enterprise, and specu­
lation—all three in one—is supplied by the British, French, and Germ a
statistics of the number and nominal capital of the joint-stock compa nie
established. These data obviously include enterprises of different size an
character in the three countries, so that the actual figures for any given yea
cannot properly be compared with each other.10 But in each country the change
from year to year have much the same significance.
io The British figures, taken from the Statistical Abstract of the United Kingdom, refer to c o m P a n 1 1 ^ S 0 f the
tered under the companies act of 1862. Railways and municipal t r a m w a y s are excluded. The bulK
^^e^
joint-stock b a n k s and the majority of p r i v a t e t r a m w a y companies, but not all of either class, are m
^Qjn,
The French figures, t a k e n from the Annuaire Statistiqve,
include, besides joint-stock companies
^°^^ufSche
panies " e n nom collectif ou en commandite simple.'' The German figures for 1890-1907 are from the r ; . ^ , ^ ' Oekonomist, and for 1908-11 from the Statistisches Jahrbuck fiir das Deutsche Reich. They include AK
sellschaftenff
and "Kommanditgesellschaften
auf Aktien."



MITCHELL: BUSINESS CYCLES

411

The correlation between the number and capital of the new "flotations"
on the one hand and the course of business cycles on the other hand is most
marked and most regular in Germany. The French figures plainly show the
influence exercised by the exposition held at Paris in 1900. An unusual number
of companies with extraordinarily large capitals were formed both to prepare
for the fair and to operate concessions connected with it. Except for the years
1898-1901 the French figures follow a relatively even course. The British
figures are more like the German, the chief difference being that the scale of
capitalization in the second decade was much smaller than in the first. More
stringent legislation respecting the obligations of promoters and underwriters
T A B L E 114
-NUMBER AND NOMINAL CAPITAL OF T H E JOINT-STOCK COMPANIES ESTABLISHED IN THE UNITED KINGDOM, FRANCE.
AND GERMANY
B Y YEARS, 1890-1911
Relative amounts
Avefage actual amounts in 1890-99 = 100

Actual amounts
Nominal cap ital 1

Number

Number

Nominal capital

A

\

Year
1890

United
Kingdom

France

2,789

4,470

1891

2,686

4,713

236
160

1892

2,607

4,699

127

Germany

United
Kingdom

France Germany

United
United
Kingdom France Germany Kingdom France Germa

1,162

83

64

74

90

118

117

54

654

103

21

71

95

80

66

68

35

503

117

19

69

94

64

51

77

32

107

1893

2,617

4,586

95

470

63

18

69

92

48

47

41

30

1894

2,970

4,834

92

576

89

21

79

97

46

58

58

35

3895

3,892

4,800

161

1,126

96

60

103

96

81

113

63

100

1896

4,735

4,953

182

1,506

76

64

326

300

91

152

50

107

1897

5,229

5,206

254

1,417

104

91

339

105

127

143

68

152

1898

5,182

5,602

329

1,325

276

310

138

133

164

133

181

184

3 899

4,975

5,912

364

1,197

516

130

332

3 39

3 82

120

339

23 7

3900

4,966

5,605

261

1,079

192

81

332

113

130

109

126

135

1901

3,433

5,485

158

705

244

38

91

130

79

71

3 60

64

1902

3,933

5,491

87

763

108

28

104

330

44

77

73

47

1903

4,075

5,689

84

614

68

71

108

114

42

62

45

119

1904

3,831

5,814

104

450

88

33

102

137

52

45

58

55

1905

4,358

6,034

192

580

125

92

136

323

96

58

82

154

1906

4,840

6,028

212

665

122

113

128

121

106

67

80

189

1907
1908

5,265

60

140

3 38

306

68

337

100

76

51

65

6,842

209

212

671

5,024

151

508

39

133

1909

6,373

179

689

55

3 69

90

69

92

3910
3911

7,184

186

1,037

57

191

93

104

95

6,444

169

766

56

171

85

77

94

200.0

993.6

59.8

100

100

100

164.0

672.4

61.0

122

82

68

Av

erages

3890^99 3,768.2
^ 0 0 - 0 9 4,609.8
pIn

milli

4,977.5

152.3

° n s of dollars.
S0
*rces and limitations of data see note on pr seeding page.




3 00

300

100
102

412

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

may be largely responsible for this falling off in the volume of nominal capital.
At all events, the present figures agree with the indications afforded by the
tables of capital applications in London compiled by the Economist and of
British borrowings compiled by the Moniteur des interets materiels.
The next table derives its chief interest from the emphasis laid by certain
German writers upon the peculiar position with reference to business cycles
held by industries making industrial equipment. Among these industries, those
manufacturing machinery hold perhaps the first place. Accordingly, if the
activity of a period of prosperity is really most marked among the Betriebsmittelindustrien, a table showing the number and capital of machine-building
companies should exhibit the influence of business cycles even more clearly
than the preceding table for companies of all kinds. Werner's admirable study
of "Die finanzielle Ergebnisse der deutschen Maschinenbau-aktiengesellschaft e n ' m provides material for such a comparison.
T A B L E 115
NUMBER AND ORIGINAL CAPITAL OF THE JOINT-STOCK COMPANIES ESTABLISHED IN GERMANY FOR THE MANUFACTURE
OF MACHINERY
B Y YEARS, 1890-1907
Actual amounts

(
1890

Number
8

1891

6

1892
1893

Original
capital in
thousands
of dollars
2,694

Relative ainounts
Av. actual a mounts
in 1890-99 = 100
A_

Number
79

Original
capital
83

1,919

59

59

4

750

40

23

2

309

20

9

1894

3

983

30

30

1895

8

2,404

79

74

1896

8

2,375

79

73

1897

16

4,297

158

132

1898

22

7,629

218

234

1899

24

9,2S8

238

284

1900

16

4,527

158

139

1901

5

1,195

50

37

1902

2

512

20

16

1903

7

5,310

69

163

1904

6

1,585

59

49

1905

5

1,457

50

45

1906

16

4,548

158

139

1907

5

1,571

50

48

Averages
1890-99

10.1

3,264.8

100

100

Ernst Werner, "Die finanzielle Ergebnisse der deutschen Maschinenbau-Aktiengesellschaften,"
n Thiinen-Archiv,

vol. 2, p. 666.




ThiinenArchiv,

vol. 2,

413

MITCHELL: BUSINESS CYCLES

The number of the companies established in this single industry within any
one year is too small to possess much importance; but significance does attach
to the data for the capital. A comparison between the relative amounts of this
capital, as shown in Table 115, and the relative amounts of capital for all
the German joint-stock companies, as shown in the preceding table, indicates
that the machine-building trades really are more subject to alternations of
depression and prosperity than the other trades exploited by joint-stock
companies. This evidence may fairly be quoted in favor of such a theory of
business cycles as that propounded by Spiethoff.12
No American records corresponding accurately to the foregoing statistics
of joint-stock companies are available. But Mr. Luther Conant, Jr., has pro­
vided a cognate table covering the years 1887-1900 in his article upon " Indus­
trial Consolidations in the United States." 13 His figures exclude companies
having less than $1,000,000 of capital, and all companies concerned with rail­
ways, street-car systems, gas, electric lighting, etc. The capital represented
ls
the amount of bonds and stocks authorized in the charters, not the amount
T A B L E 116
UMBER

AND AVERAGE CAPITALIZATION OF INDUSTRIAL COMBINATIONS FORMED IN T H E UNITED STATES, TOGETHER
W I T H T H E INCREASE IN T H E AUTHORIZED CAPITALIZATION OF S U C H COMBINATIONS
B Y YEARS, 1887r-1900
Relative amounts
Average actual amounts in 1890-99 = 100

Actual amounts
Increase in Av. capitalization
authorized
of newly formed
capitalization
combinations
Millions of
Millions of
dollars
dollars
27.0
216

Number of
combinations
formed

Average
capitalization
of newly
formed
combinations

Year

Number of
combinations
formed

1887

8

47

54

137

1888

3

24

7.9

18

6

40

1889

12

152

12.7

71

38

65

1890

13

155

11.9

76

39

61

1891

17

166

9.1

100

42

46

1892

10

193

16.8

59

49

85

1893

6

239

39.6

35

60

202

30

13.7

12

1894

Increase in
authorized
capitalization

70

1895

6

107

17.5

35

27

89

1896

5

50

9.0

29

13

46

1897

4

81

20.3

24

20

103

1898

20

709

34.7

118

178

177

2,244

23.9

512

565

122

247

209

99

100

100

100

1899
1900

831

Averages
1890-99
4

42

19.5

17.0

397.4

19.65

U

onan

**ociatto« t i £
t Jr., "Industrial Consolidations in the United States," Quarterly
~~—■
! ! ! l ! ^ - PP- 207-236, March, 1901.
12
C, m p a r e
13 0 °
c h a p t e r I, ii, 7.
Quarterly

Publications




of the American

Statistical

Association,

Publications

of the American

vol. 7, pp. 207-236, March, 1901.

Statistical

414

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

issued. Further, increases in the capital of the combinations previously estab­
lished are entered in each year, as well as the original capital of the newly
organized companies.
Prior to 1887, Mr. Conant finds only six industrial consolidations in the
United States, with an aggregate capitalization of $170,500,000. Of these the
first was formed in 1860, the next two in 1872, and one each in 1882, 1884, and
1885. The large scale of the combinations among manufacturing establishments
in the later eighties and early nineties was therefore without precedent. The
temporary check in 1888 Mr. Conant ascribes to the presidential election of
that 3 ear. The crisis of 1890 was not severe enough and the depression of 1891
not long enough to administer another check. But the crisis of 1893 brought
the movement almost to a standstill. The combinations of that year were
almost almost all effected before the panic broke out; but one or two arrange­
ments which had reached an advanced stage were carried through in the latter
part of 1893 or in 1894. In 1895 six good sized companies were launched upon
the wave of business confidence which swept over the country after President
Cleveland had made his bargain for the protection of the gold reserve with
the Morgan-Belmont syndicate. But when business slid from the crest of this
wave into the trough of depression which accompanied the Venezuela episode
and the free-silver campaign the movement halted once more. The revival ot
1897 did not have so dramatic an influence as the revival of 1895; but the move­
ment rapidly'increased its momentum in 1898, and in 1899 " developed into a
craze on the part of greedy promoters and vendors to unload properties on
the public at enormous prices. The figures for 1899 . . . " Mr. Conant con­
tinues, "do not fully measure the proportions of industrial consolidations m
that year. In addition to the companies shown, other projects amounting
roughly in proposed capitalization to over one billion dollars were undertaken
and carried to advanced stages, later, however, to be abandoned. . . . The
stock market was so overloaded with new industrial securities in 1899 that
promoters found great difficulty in the latter part of that year and in 1900 m
inducing either bankers or the public to take up new flotations. The recurrence
of another presidential election may also be . . . cited as a factor, but the chief
influence was the difficulty in securing financial assistance for such schemes.
5. The Savings and Investments Made by Business Enterprises Out of Current
Income
Ordinarlv, discussions of savings and investment deal solelv with the saving
of money out of individual incomes and the investment of funds by natura
persons. But it is a grave mistake to overlook the large sums which are save
out of current profits and put back into the business by business enterprises.
A portion of the gross receipts of a prosperous firm or corporation is oite



MITCHELL: BUSINESS CYCLES

415

spent upon "betterments" of its plant or equipment, before the net profits are
computed. And out of these net profits a part is frequently carried to surplus
account and invested in securities, used as working capital, or otherwise dis­
posed of for the benefit of the enterprise. In so far as an enterprise improves
its physical property by the expenditure of income, or accumulates a surplus,
the amount of capital it needs to raise by borrowing or by selling new issues
°f securities is proportionately reduced. Saving and investment have been
performed directly by the business enterprise itself.
The statistics available upon this subject are so meager that they must be
Regarded as illustrations of the practice rather than as measures of the amounts
involved. The data for the national banks, derived from the Reports of the
Comptroller of the Currency, are limited to an exhibit of the excess of net
earnings over dividends. There is such an excess in every year except 1894;
T A B L E 117
SAVINGS MADE BY T H E NATIONAL B A N K S O U T OF CURRENT INCOME
B Y YEARS BEGINNING MARCH 1, 1890-1906, AND BY YEARS ENDING J U N E 30, 1907 -11
Years
beginning
March 1,
1890-1906,
and ending
J u n e 30,
1907-11
1890

Relative amounts
Average actual amounts in 1890-99 = 100

Actual amounts
In millions of dollars

K

K

Dividends
50.7

Net
earnings
77.0

Excess of
net earnings
( + ) or of
dividends (—)
+ 26.3

Dividends
108

Excess of
net earnings
Net
( + ) or of
earnings dividends (—)
134
+250 .

1891

50.6

70.0

+19.4

108

122

+ 185

1892

51.3

68.4

+17.1

109

119

+ 163

1893

46.4

52.4

+

6.0

99

91

+

1894

46.3

45.6

—

.7

99

79

—

7

1895

45.6

48.6

+

3.0

97

84

+

29

1896

43.2

48.6

+

5.4

92

84

+

51

1897

43.8

45.6

+

1.8

93

79

+

17

1898

44.9

49.3

+

4.4

96

86

+

42

101

122

+ 215
+ 357

57

1899

47.4

70.0

+22.6

1900

50.2

87.7

+37.5

107

152

1901

64.8

99.1

+34.3

138

172

+ 327

1902

60.1

102.7

+42.6

128

178

+406

1903

73.6

116.5

+42.9

157

202

+ 409

1904

71.0

105.2

+34.2

151

183

+326

1905

80.8

113.7

+32.9

172

197

+313

{314

{+578
|+606

{1906

{120.1

{180.8

{+60.7

{256

11907

1122.1

|185.7

|+63.6

|260

|322

132.3

+34.2

209

230

+326

1908

98.1

1909

93.0

131.2

+38.2

198

228

+364

1910

105.9

154.2

+48.3

225

268

+460

1911

114.7

157.0

+42.3

244

273

+403

47.0

57.6

+10.5

100

100

100

122.8

+40.9

174

213

+390

Averages
1890-99
1900-09
6

82.0

' to MarolhOIV t , h e ReP°rt
of the Comptroller of the Currency,
*■ 1, 1907, and J u n e 30, 1906, to J u n e 30, 1907.




1911, p. 324. The figures for 1906 and 1907 include March

416

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

but it is trifling during the whole period of -depression in the middle nineties,
rises rapidly after 1898 to a maximum of nearly $43,000,000 in 1903, then falls
off in 1904-05 by about 25 per cent, rises again in the succeeding period of
prosperity to about $64,000,000 in 1906-07, declines upwards of 50 per cent in
1908, and finally begins to recover once more in 1909-10. For the banks, at
least, these figures are representative. They indicate that the savings and
investments of this class of business enterprises are peculiarly sensitive to
changing business conditions.
The railway figures, taken from the Reports on the Statistics of Railways
in the United States prepared by the statistician of the Interstate Commerce
Commission, are more complete, in that they show not only the surplus or
deficit of annual income after the deduction of dividends from net income, but
also the sums spent upon permanent improvements and charged to the income
account before the net income is computed.14
The latter savings and investments remained small, $5,000,000 or less each
year, until the period of business prosperity in the later nineties was well under
way. Then they increased rapidly to thirty or forty millions, declined some­
what in the "rich man's panic," and rose again to nearly $50,000,000 in 1906.
The difficulties of securing adequate funds to finance growing traffic then
caused the railways to reduce such expenditures in 1907, a reduction which the
dull times of 1908-09 carried still further.
The annual surpluses or deficits of the railways have undergone much
greater changes, both absolutely and relatively, than the corresponding sums
in the accounts of the national banks. In the fiscal years 1894 and 1895 huge
deficits resulted from the bad state of trade and the effort to buoy up the price
of stocks by maintaining dividends whether they were earned or not. In the
next two vears, 1896 and 1897, accounts came out nearlv even. But when the
return of prosperity increased earnings, the railways pursued a rather con­
servative dividend policy and saved large sums which they might have distrib­
uted among stockholders. For more than a decade after 1898 these savings
were never less than $44,000,000 a year, and rose with fluctuations which reflec
closely the varying fortunes of trade to a maximum of $141,000,000 in 190 .
The panic of that year, combined with heavy dividend disbursements, reduce
the surplus to a trifling sum in 1907-08, but in the very next year the railway
resumed their former policy on a liberal scale.
i* " N e t income" in the following table is net income from operation and from other sources as c o ^ o D g
by the commission up to 1907 inclusive. "Permanent improvements charged to income account" were
^
the items deducted before striking net income. Hence the sums saved and kept in the business e a o x V t n e
include both these improvements and the surplus, if any. Indeed, in 1908-10 the savings were larger t
^
table shows, since the railways made "appropriations to reserves and miscellaneous i t e m s " out ot
^QT
porate income amounting respectively to 22, 21, and 5 million dollars. How such items were accoun ^ £Tora
before 1908 is not clear. The "surplus or deficit" in the table is found by subtracting "total dividends
" n e t income."
+0 re arSince the commission adopted an improved form of income account in 1908, it has been necessary _w
^
e
range the items so as to correspond as nearly as may be with the figures for 1890-1907. Both °V ™ a g w ell
leased roads are included. In computing the "surplus or deficit," dividends declared from surplu ,
as dividends declared from income, are deducted from the net corporate income of the current year.



MITCHELL: BUSINESS CYCLES

417

T A B L E 118
INVESTMENTS AND SAVINGS MADE BY T H E INTERSTATE RAILWAYS O U T OF CURRENT INCOME
B Y YEARS ENDING J U N E 30, 1890-1910
Relative amounts
Average actual amounts in
1890-99 = 100

Actual amounts
In millions of dollars

\_

Permanent
improvements
charged
to income
account
5

Years
ending
J u n e 30
1890

Net
income
102

1891

110

5

1892

116

4

1893

111

1894

K.

Surplus
(-f)or
deficit (—)
+ 12

Permanent
improvements
charged
to income
account
91

14

91

14

73

3

+
+
+

8

56

4

—

1895

56

4

1896

90

1897

Surplus
< + >or
deficit (—)
+
185

55

+
+
+

123

46

73

—

708

—

30

73

—

462

5

+

2

91

+

31

81

5

—

6

91

—

92

1898

140

7

+

44

127

677

1899

164

13

+

53

236

+
+

1900

227

26

+

88

473

+1,354

1901

242

32

85

582

+ 1,308

1902

280

35

95

636

+1,461

1903

296

42

99

764

+1,523

1904

279

39

57

709

+

1905

327

38

+
+
+
+
+

89

691

+ 1,369

1906

385

49

+112

891

+ 1 ,723

1907

449

39

+141

709

+2,169

1908

393

29

3

527

+

1909

395

25

+
+

74

455

+1,138

1910

523

58

+117

1,054

+1,295

215
215

816

877

54

Averages
1890-99

5.5

1900-09
rom

102.C;
327.3

35.4

+

6.5

100

+

+

84.3

644

+1,295

the statistical reports of the Interstate Commerce Commission.




100

See note on preceding page.

418

MEMOIRS OF THE UNIVERSITY OF CALIFORNIA

Probably the sums saved and invested by business enterprises in the United
States vary from a maximum of several hundreds of millions to a minus quan­
tity during the periods of deepest depression. Thus the sums involved are
considerable, even when compared with the enormous aggregates of individual
savings. And for a theory of business cycles they derive added importance
from their peculiar degree of dependence upon the alternations of prosperity
and depression.

6. Investments in Railway Construction and in the Erection of Buildings
The subject of investment may be approached from still another side—that
of the amount of work done or sums spent in extending the nation's physical
equipment for industrial or personal use.
Best known among statistics of this character are the figures for railway
building. Although the general lines of the American system had been laid
down before 1890, and although the relative importance of this branch ot
construction is much less now than it was in earlier decades, still the figures
possess significance, both for the actual amount of investment which they
represent directly and indirectly and as a symptom of the activity in other
fields. The most trustworthy data for the present purpose are the Interstate
Commerce Commission's statements of the total length of line operated by the
companies, including second, third, and fourth tracks, as well as yard tracks
and sidings. The differences between the figures for successive years represen
roughly the new construction finished, and while the lines formerly built whicfl
pass out of operation within any given time reduce the amount of new con­
struction indicated by the figures somewhat below the truth, this item is n°
large enough to affect the conclusions materially. Another objection is tna
in 1908 the mileage of switching and terminal companies was segregated an
excluded for the first time. But the commission has stated the mileage to
these companies separately in that year, and constructed its data for 1909 o
the same plan as the revised data for 1908. The figures for the increase 0
mileage in 1909 are therefore comparable with the figures for earlier years*
save that the small amount of new construction by switching and term111
companies is not included.
The results, given in Table 119, show that construction has been m°
extensive in good than in bad times. But it also appears that a year or t
is required for a change in the business situation to exercise its full influe
upon railway building. When plans for an extension of tracks have be i
matured, the work is likely to be carried out, even though a crisis intervenes.
On the other hand, a railway may plan extensions when the first signs
returning prosperity appear upon the business horizon; but time is r e ( l u l h i e
to execute the work so that the new tracks can be operated. Further, the a



MITCHELL: BUSINESS CYCLES

TABLE

419

119

I N C R E A S E IN T H E TOTAL L E N G T H OF L I N E OPERATED BY T H E I N T E R S T A T E R A I L W A Y S OF T H E U N I T E D
INCLUDING SINGLE

TRACK,

SECOND, T H I R D , AND F O U R T H
BY

YEARS

ENDING J U N E

T R A C K S AND YARD T R A C K S AND

30,

STATES,

SIDINGS

1890-1910

Annual increase in mileage
t

Years
ending
J u n e 30

Hundreds
of miles
of line
operated

1890

1,999

1891

2,074

75

1892

2,111

37

66

1893

2,219

108

194

1894

2,298

79

142

1895

2,333

35

63

1896

2,391

58

104

Relative amts.
Actual
Av. actual
amounts in
amounts in
hundreds of 1891-99 = 100
miles

134

1897

2,420

29

52

1898

2,453

33

59

1899

2,501

48

86

1900

2,588

87

156

1901

2,654

66

118

1902

2,742

88

158

1903

2,838

96

172

1904

2,971

133

238

1905

3,068

97

174

1906

3,171

103

185

1907

3,280

109

195

1908

3,37s 1

98

176

1908

3,336L>

1909

3,4242

88

158

1910

3,5182

94

168

1890-99

2,279.9

55.8

1900-09

3,011.4

96.5

173

Ml
Reports of the Interstate Commerce Commission on the Statistics
2 I
switching and terminal companies included.
Mil, -'
Se of switching and terminal companies excluded.

of Railways

Averages

1

• 100
in the United

States.

°ws that the extension of the railway network has not stopped altogeker
en J
n he midst of the most serious depression. The smallest net gain in any
y e a r of
the whole period was nearly 3,000 miles of track.
Another bit of evidence is afforded by the figures showing the cost of the
clings erected in forty-five American cities, as reported by the United States
H ^ S ^ S u r v e y for the years 1902-11."
(unitedi l - ! ? r t y ' f i v e
American cities included in the report of building operations are as follows: Allegheny
sbur h
°ambridjl AT
^ ' P a - February 1, 1908); Atlanta, Ga.; Boston, Mass.; Brooklyn, N. Y.; Buffalo, X. Y.;
ich
S ; Chiea
^ « ; Fall p? '
g ° , DL; Cincinnati, O.; Cleveland, O.; Columbus, O.; Dayton, O.; Denver, Colo.; Detroit,
^ansas Ct
^ v e r > M a s s - ; Grand Rapids, Mich.; Hartford, Conn.; Indianapolis, Ind.; Jersey City, K. J.;
LOS An
■Nashville1 T'
& e l c s ' CWL: Louisville, Ky.; Memphis, Tenn.; Milwaukee, Wis.; Minneapolis, Minn.;
b
°roughs
ft/vn,;
Newark, X. J.; Xew Haven, Conn.; New Orleans, La.; New York, N. Y. (data for the
f a d i n g , P Manhattan and Bronx only); Omaha, Neb.; Philadelphia, Pa.; Pittsburgh, Pa.; Providence, R. I.;
Cisco, Cal Q R l c h m o n < l , Va.; Rochester, N. Y.; St. Joseph, Mo.; St. Louis, Mo.; St. Paul, Minn.; San Fran' fecra»ton, P a . ; Seattle, Wash.; Syracuse, N. Y.; Washington, D, C ; Worcester, Mass,



MEMOIRS OF TILE UNIVERSITY OF CALIFORNIA

420

CHART

73

240
RELATIVE AMOUNTS OF NEW RAILWAY MILEAGE:
OPERATED

I N THE UNITED

1891 -

STATES.

1910.

220

220

200

200

180

160

160

160

140

140

120

120

100

100

80

80

60

60

1891 '92 "93 '94 '95 '96 '97 '98 '99 1900*01 '02 '03 '04 '05 '06 '01 '08 *09 1910




MITCHELL: BUSINESS CYCLES

421

T A B L E 120
COST OF BUILDINGS FOR W H I C H P E R M I T S W E R E GRANTED IN 45 AMERICAN CITIES

B Y YEARS, 1902-1911

1902

$368,000,000

1903

397,000,000

1904

460,000,000

1905

623,000,000

1906

657,000,000

1907

612,000,000

1908

535,000,000

1909

733,000,000

1910

675,000,000

1911

658,000,000

Like the data for railway mileage, these figures indicate that new construc­
tion never ceases, but that it is decisively stimulated by prosperity and retarded
by depression. This retardation is felt, indeed, before the depression comes,
** the later stages of prosperity are marked by difficulty in raising capital.




CHAPTER IX

PROFITS AND BANKRUPTCIES
I . PROFITS

Statistics both trustworthy and significant concerning profits are scarce.
Most business enterprises not organized as joint-stock companies, and many
which are so organized, seek to keep their profits from becoming public. Such
accounts as are published are difficult to use because of the many different
methods of reckoning profits. . It is only after expert scrutiny that the published statements can be accepted, and the chief result of such scrutiny is often
the discovery that information of crucial importance for determining the actual
rate of profits has been skilfully withheld. When the details are furnished,
it is difficult to find a workable definition of profits uniformly applicable to all
industries. Further, it is only by collecting figures made by uniform methods
for a considerable number of enterprises that representative results can be
attained. The profits of a single enterprise can no more be accepted as an
index of prevailing conditions than the price of pig-iron can be accepted as
an index of fluctuations in the general level of prices.
For the United States at least, these considerations practically restrict the
available material covering the years 1890-1911 to industries in which the
different enterprises are legally compelled to keep their accounts in a standard
form, and to report the results to some official who publishes a digest of the
whole. Much of the most important body of such data is that contained in
the Interstate Commerce Commission's Annual Reports on the Statistics of
Railways in the United States.
1. American Railways
The leading items in the income accounts of all the interstate railways*
considered as a single system, are presented in the following table.1 The gross
earnings from operation have been affected by every passing phase of the
i In compiling the figures from the annual reports it has been necessary to follow the form of income a C C 0 ^ e
used until 1907, inclusive, although the new form, introduced in 1908, is more logical in c e r t a i n respects.
meaning of the most important headings is sufficiently indicated by the following schedule of items inc
under each. As a rough gauge of the relative importance of each item, its aggregate amount in the y
ending June 30, 1907, is given in millions of dollars.




[ 422 ]

423

MITCHELL: BUSIiNESS CYCLES

business cycles which have occurred since 1890. The activity of general business from the middle of 1889 to the middle of 1893, barring the first seven
months of 1891, caused a moderate increase in traffic receipts. Then the industrial depression brought an abrupt loss of about 12 per cent of the total; the
year 1894-95 made but a slight improvement; and the short-lived revival of
trade in 1895, which swelled the earnings of 1895-96, was succeeded by renewed
depression, which caused another decline in railway earnings. The definite
turn of the tide came for the railways, as for other lines of business, in the
summer of 1897—that is, at the beginning of the fiscal year 1898. Thereafter
gross earnings increased each year until the next major crisis came in 1907;
for the depression of 1903-04 did no more than to reduce the rate of gain. But
the depression which followed the panic of 1907 caused a decline of revenue
reaching $149,000,000—absolutely more, but relatively much less than the
decline in 1893-94. Thus the dependence of railway earnings upon the prosperity of business enterprises in other industries is patent.
Operating expenses, which include the upkeep of the right of way and
rolling stock as well as the cost of moving trains, follow the fluctuations of
gross earnings very closely. The slight divergencies indicate that railway
managers find difficulty in curtailing expenses immediately when traffic falls
off. But once their new plans are laid they may be able to prune expenses
even in the face of slightly increasing traffic, or at least to prevent expenses
from growing at the same pace as traffic. There are also indications that
toward the culmination of a period of high prosperity the increasing prices of
labor and supplies may make their expenses grow a trifle faster than their




Amount in
1907

Gross earnings from operation
Passenger revenue
Mail
Express
Freight
Miscellaneous

:

Operating expenses

565
50
57
1,824
93
1,749

Maintenance of way
Maintenance of equipment
Conducting transportation
General expenses
Income from other sources
Lease of road
Stocks
Bonds
Miscellaneous

$2,589 millions

-

Fixed charges
Interest on funded debt
Rents paid for lease of road
Taxes
Investments charged to income
Miscellaneous

344
368
971
65
287
125
89
24
49
678
344
129
80
39
86

424

MEMOIRS OF T11E UNIVERSITY OF CALIFORNIA

receipts. But over a considerable period of time it seems feasible to keep the
cost of operating railways in close adjustment to the earnings of operation.
Owing to this close adjustment, net earnings from operations agree rather
closely with gross earnings. Net earnings fall a trifle more than gross earnings
in periods of depression, rise a trifle faster in the earlier stages of prosperity,
and a trifle slower than gross earnings when prosperity approaches its climax.
These deviations result, of course, from the slight deviations which have been
pointed out between the fluctuations of gross earnings and operating expenses.
To ascertain the total income of the railways, the income from other sources
must be added to the net income from operation. This additional income shows
exactly the same gain in decennial averages as the items which have been discussed. But from one year to the next it pursues a decidedly different course,
responding