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MEMOIRS
OF THE
UNIVERSITY OF CALIFORNIA
Volume 3
BUSINESS CYCLES
BY
WESLEY CLAIR MITCHELL
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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
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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.
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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.
8G
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.
8G
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.
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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
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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.
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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
Year
100
At
wholesale
At
retail
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 -
1907.
—
—
—
STAPLE
FOODS
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
115
113
106
102
92
92
89
88
94
109
117
113
1890-1910
Consumers'
goods
Year
1902
1903
1904
1905
1906
1907
1908
1909
1910
Averages
1890-99
1900-09
Producers'
goods
107
106
107
107
112
119
115
118
123
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.
190 7
190 8
190 9
191 0
191 1
At
retail
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
/ i
NV
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
ANIHAL
PRODUCTS
PRODUCTS
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
/
>R — / V:\ \I
/
•
/
\
>/
/
i
/
//
/
\
\
\
\
\
\
180
170
/
/
/
/|
/
/
•
y
/
/
•
/
•/
O
FARM
/
/
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
Number of
commodities
MONTHS,
1907-1910
Both raw and manufactured goods
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
96
Bradstreet's
Original
350-50
DunGibson
.843
96
Bradstreet's
.06994
50
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
•
350-50
DunGibson
Original
BY
•
1897
73
6.1
86
1898
78
6.6
92
1899
85
7.2
101
1900
91
7.9
108
113
112
110
1901
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
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
NUMBERS
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
1890 9
' 1 '92 '93 '94 '95 '36 '97 '98 '99 1900 0
' 1 02 '03 '04 '05 06 '07
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
Sums*
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
+ 13
+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
+ 10
+9
+8
+7
+4
+9
+ 13
+ 18
+15
110
18
5.5
Domergue's
French
series
+5
+ 6.
+3
0
—3
0
—4
—2
—2
—3
— 2
+2
+ 10
+8
+10
+ 11
+6
+6
+ 13
+ 19
+ 13
115
19
5.8
N
New
German
series
+1
+3
+3
+6
+3
+2
— 5
—5
—5
— 3
— 1
+1
+ 10
+9
+ 11
+5
+2
+3
+4
+ 13
+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
90
s
/
S
4f
130
//
!1 /
/
;•
k—- """
/
110
/
/OO
/
/
1
/
90
80
80
1
1
1
18910
91 '92 93
X
'95
%
97
120
i
/
f
.
y
/i
\ \ \\
\\
\\
100
1
i /
1
UNITED STATES
1 10
140
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
TOO
\
/
^
>
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,
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
99
1891
100
96
98
102
100
99
1892
101
98
100
102
100
100
103
1893
101
101
100
104
100
104
102
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
130
118
132
124
120
140
124
97
99
97
99
119
129
99
97
99
98
98
98
102
103
1895
100
103
100
97
Tobacco,
cigars
126
Woolen
and
worsted
goods
100
103
98
Iron
and steel* Lumber
103
103
97
98
283
109
98
100
222
99
100
98
STATES.
Average actual wages per hour in 1890-99 — 100
1890
1894
I N D U S T R I E S OF T H E U N I T E D
1890-1907
116
110
120
114
120
117
114
115
111
126
114
122
121
118
119
124
145
115
140
118
126
128
124
131
124
116
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
iog-S
ll
2
5-"=
51
a,
"
=T,
s<
?
•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:
"SJ
s» i
1 1
1 1
1 4
3.6
3.9
4.4
7C
3 £•
* t
£
T
f *3
Z* u
X
©
if
ao
u*
525
©
3.0
41.4
12.2
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 -
1830 91
-
30
STAPLE
GIBSON
MFG. INDUSTRIES
FOODS
INDEX
NOS., IMPROVED. -
92 '93 '34 '35 36 91 '98 '33 1900 '01 '02 'o3 '04 '05 '06 '07
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 COVERED BY THE FLUCTUATIONS
IN THE RELATIVE PRICES OF LABOR
PER HOUR IN 41 MANUFACTURING INDUSTRIES
2BO
1890 -1907
2SO
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
1890 91 9
'?9
' 3 94 9
'5 X 9
' 1 M 99 1900 01 02 03 04 05
<X
07
OS
09
|9O
i
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
First mortgage
First consolidated
mortgage
Consolidated mortgage
Chicago, St. Paul, Minneapolis and Omaha
Chicago, Burlington
and Quincy
General mortgage,
"Series A "
First mortgage
Investments
r
Maturity Authorized 1 8 9 0
1909
Rate
of interest
%
Moody's
rating in
1909*
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
2361
50
50
50
A
a a
First mortgage,
guaranteed by the
New York Central
Analysis of Railroad
Outstanding
Dates of
Issue
1887
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
( 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
EH
<8
o
s
£
%
5.20
1890-1911:
«
%
%
4.99
5.09
4.96
TEN
«.
£
w
©
©
%
%
AMERICAN
RAILWAY
BONDS
RATES
PLH
a
P
M
Q
%
ACTUAL
IN
.J
. -CQ
%
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
C9
S
es
&
%
4.06
1907
A
EH
4.24
4.15
4.33
%
4.24
4.60
4.63
<y
o
PH'
d
d*
d
%
%
4.10
4.45
4.32
«
ACTUAL
«o .
RATES
(U
«
w
PS
f
OQ
A'
a>
se
Averages
>
V
>
cc
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 =
EH
W
Av .-
actual
£
<8
<8
M
ja
00
•
rO
0
£3
PK
4.91
4.77
O
4.70
1890
d
5.01
105
106
105
108
1891
105
107
106
109
1892
100
yields, 1890-99
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
PS
96
1895
94
PS
«.
<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.
110
\
100
100
90
/
/
N T V
\
< \
\ \
^ V\
\
V
80
\
\
70
10 SO
'SI
'92 '93 '94
'35
'96 '97
'3S '99
S
*
*
\
•/
/
/
/
*
/
*
/
*
90
80
\
\
_
1900 01 '02 '03 '04 O
' S 06 0
' 7 08
70
OS IS 10
145
MITCHELL: BUSINESS CYCLES
CHART 17.
RELATIVE RATES OF INTEREST ON BONDS.
i
COMMERCA
I L PAPER. ANO CALL LOANS IN NEW YORK.i
1880 - 1910.
ji
220
200
T
AVERAGE OF TEN RAL
IWAY BONDSCOMMERCA
I L PAPER 60-90 DAYS
CALL LOANS AT STOCK EXCHANGE
180
180
G
IO
160
120
100
1
j
140
i
i
|
|
1
—
\\ 7f 1 ^
VI
i
\
•
V
i
-4
i :
i /
s/
40
i
i
i
i
i!
h-
i
i
i
i
i
i
i
i
140
i
i
1
i
i ®
/
—f—
i
/
i
i
120
ir
100
n
TV f
i *7
4 !
i
i
i;
60
i
i
i
i
ibi
i
i
1
80
i
i
^
! !
!/
i
i
i
i
' 1 02 '03 '04 '05 "06 07 08 09 1910 'II
1830 91 92 '94 'St
5 '96'97 951 '99 1900 0
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 ratesK of interest
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
A 1890-99
—
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
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
....
LOANS
Relative rates
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
f
Hiehest
Lowest
nignest
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
N
^
„
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
which occur during panics and periods of feverish speculation in stocks.556
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
8
Nov., 1902-July, 1904 " R i c h man's p a n i c "
Aug., 1904-Aug., 1905 Revival
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
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
6
1
fi,7
•
6-06
92
265
"
"73
136
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
5-42
0
U9
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
\
/
/ f/
'
•
Y
""
'
80
— •
\
1890
91
92
93
94
95
96
97
98
99
\
110
•/ >
/
/
<<" v .
s'S
f'S
V
t
10
f
7
\
90
N
X
s/
/
T
/
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
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
1890-99
Pacific
railways—
Union
Pacific
Canadian
Pacific
Express, steamship, and telegraph
American
...
29.30
...
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
Average
1890
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
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
1890-1911
means
Averages
68
fell.
1890-99
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
Net imports
( - f ) or exports
( — ) of gold
%
of dollars
J anuary
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
May
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.*
177
3.3
1890-1911
100
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
1892
1893
1894
August
Low
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
4.00
—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
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
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
E
r jrni e r e o r g a n i z a t i o n p
pilaan
n
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
Turning
points
1890-99 =
Current events affecting the stock market
%
( — ) of gol<
in millions
of dollars
3.2
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
June
July
March
April
May
June
July
N °vember
December
84
7 5
9
Max.
Min.
Max.
Min.
Max.
100
call-loan
rates
8
May
1890-1911
Millions
of shares
sold
78
April
MONTHS,
Net imports
70
Min.
BY
.
.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
Relative prices of stocks
A
Turning
Low
H i g h Spread points
110
132
22
February
118
133
15
March
118
129
11
Max.
Net imports
( + ) or exports
( — ) of gold
in millions
of dollars
Millions
of shares
sold
Average
call-loan
rates
%
24.3
2.72
+
4.1
16.1
2.47
+
4.3
17.7
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
points
H
i
g
h
Spread
Low
1901
1902
call-loan
rates
%
( — ) of gold
in millions
of dollars
157
181
24
30.3
3.07
—
4.7
February
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
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
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
January
239
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
Relative prices of stocks
Low
H i g h Spread
23
248
Turning
points
Average
call-loan
rates
Net imports
( + ) or exports
( — ) of gold
in millions
of dollars
11.8
2.25
—15.7
10.6
2.19
—13.4
12.9
3.20
+
1.8
12.7
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
February
March
April
May
June
July
August
Se Ptember
October
N o v ember
De<member
1 % 8 Jam
uary
^bruary
March
April
June
Low
Se Ptember
°ctober
N o v ember
^^ember
Turning
points
Millions
of shares
sold
call-loan
rates
%
( — ) of gold
in millions
of dollars
.2
—
243
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
184
213
29
21.0
1.66
—24.4
192
207
15
9.7
1.52
—
6.2
196
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
High Spread
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
Relative prices of stocks
T
1910
December
1911
January
L.ow
243
Turning
H i g h Spread points
255
12
Min.
Net imports
( + ) or exports
( — ) of gold
in millions
of dollars
+
3.6
Millions
of shares
sold
9.8
Average
call-loan
rates
%
3.38
10.4
3.18
+
8.6
10.2
2.28
+
5.4
6.8
2.28
+
3.6
5.6
2.30
+
3.0
11.1
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
1890
125
127
118
115
101
1892
128
126
107
100
106
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
1900-09
1890-99
Over $ 1 0 0
per share
1891
1890-99
The 7 T
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
Averages
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 m
^
^
the stablest in price, and the Pacific railway stocks
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.
Coal-carrying
railways
Average
actual prices,
1890-99
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
. fl« .
^Corresponding tables b y quarters for 1890-1909 may be fonnd .n
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
Chicago, Milwaukee and St. Paul
Preferred
stock
Common
stock
$130.00
$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
1891
1892
1893
1895
1896
1898
1899
7
6
5
4
2.75
0
0
0
7
6
5
3
2.50
0
0
0
2
7
6
5
3
0
0
3
0
5
3
2
0
0
0
0
0
0
0
1902
1903
7
5.5
5
0
2
7
4
5
0
0
0
0
2
0
0
0
0
1905
1906
1907
1908
1909
5
5
5
7
5
2.50
0
2
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
•
6
7
6
5
7
8
7
5
4
5
0
3
5
4
5
0
3.50
0
0
4
0
8
7
7
8
7
5
4
5
7
8
7
5
4
5
0
4
0
5
0
4
0
7
8
7
5
4
7
8
7
5
4
5
0
2
0
7
8
7
5
1
5
0
0
0
7
8
7
5
0
5
0
0
0
-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
wa Central
1891
7
0
7
1904
6
4
5
1901
1890
7
0
5
1900
Erie
D . & R . G.
0
4
1897
C. C. C. & St. L.
0
4
1894
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
nrpfprlTtfn ^ I f S 8 '
preferred and common stocks.
These
figures,
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
31.1
79.9
156
101
1900
35.2
104.4
177
132
1901
41.7
115.0
209
145
1902
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
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
PU,
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.
OQ
Year
4
2d five
®
1st five
<y
100
N. Y. C.
St. L.
Eh
<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
WEST
23.
OF T E N
AMERICAN
SHORE
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
t
January,
1890-July,
1890—Prosperity
August, 1890-December,
January, 1891-July,
1 8 9 0 — M i n o r crisis
May, 1893-October,
1893—Approach of
1893—Major
April,
1895-September,
J u l y , 1 8 9 6 - O c t o b e r , 1 8 9 6 — F r e e silver
November,
1896-June,
July, 1897-February,
March, 1 8 9 8 - A p r i l ,
May,
115
127
123
97
97
106
112
116
94
93
78
80
84
99
98
81
82
81
-
100
102
93
94
91
.
100
101
88
84
82
98
97
79
74
71
77
102
86
83
104
105
103
98
93
i m p e n d i n g . . ..
101
104
98
85
87
....
.
106
111
121
113
113
.
107
113
1900—Slight
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
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,
96
102
1899—Prosperity
1900-September,
September,
107
98
.
1898—Revival
1898-September,
August,
103
1897—Depression
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,
108
100
campaign
1 8 9 8 — S p a n i s h war
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
January
1890-1911
Stocks
K
W . S. R . R .
131
115
103
depression
depression
123
93
crisis.
1895—Revival
October, 1 8 9 5 - J u n e , 1 8 9 6 — R e n e w e d
113
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
crisis
November, 1893-March, 1895—Severe
Stocks
A
A v . of 10
common
stocks
94
1892—Prosperity
September, 1892-October,
A v . of 10
preferred
stocks
97
1891—Depression
August, 1891-August,
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
1894
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
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
W . S. R. R.
103.4
A
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
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
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
Stocks
Av. of 10
railroad
bonds
118.2
May
1906 J a n u a r y
1908
44—(Continued)
Bonds
r
213
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
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
209
100
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 Ms
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, andn
O
'
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
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
65.1
29.4
38.4
50.3
66.3
29.8
38.4
50.8
97
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
France
1893
67.6
England
and W a l e s
England
and Wales
1892
1895
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
1906
34.3
39.3
61.2
125
113
87.3
34.7
39.3*
62.0
128
114
102
119
88.9
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
1911
93.8
36.2
39.5*
65.4
137
119
68.34
30.31
38.53
51.94
100
100
100
100
33.82
112
115
83.30
102
Averages
1890-99
1900-09
* Provisional
I
United
States
95
1894
•—
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 =
39.19
59.89
122
figures.
Compiled from the OtOUOlllOl
statistical Oabstracts
of the several countries.
U O H O H O VI
^
^
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.
ey
Tl n
hp
v aare
re
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 IML UNI 1 T_D LAJTMUUN,
AND
FRANCE ANO GERMANY.
1690 - 1910.
320
320
n o STATES.
£ UNF
IMMIGRANTS NTD TH
IH UNTn o KINGDOM _
— — — EMKRANTS FROM T
EMIGRANTS FROM E
G
RMAWR
SANCE
300
1
280
300
1
280
t
••
260
260
••
•
240
240
•
1
220
I •
1
/
/ 1
I 1
. . , tR
I;
200
Ii
180
i
—
\
I
N
i1 IH
140
\\
I
\N
100
80
11
• 1I —
1i
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 /
5 % J1 "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
•
1f
•
•
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
mAm
4
K
A r
90
/.'
100
f
•
90
/
•
80
SO
1890 '91I
'9;
3
'9 4
9
5 '9oi '9 1 '98 3 100
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
V
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
314
232
34
167
183
121
121
158
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
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
49
71
70
20
49
United
States
Germany
46
67
74
20
53
94
77
20
54
87
23
63
97
88
24
68
1898
118
86
25
72
1899
136
94
25
80
1897
1900
1901
1902
1903
1904
138
90
27
84
159
79
24
78
178
87
24
84
180
89
28
99
165
87
29
99
1905
230
96
30
107
1906
253
101
33
121
1907
1908
1909
1910
258
159
258
273
101
35
91
34
95
100
35*
40*
Kingdom
United
99
89
93
88
79
98
84
93
84
76
88
93
84
72
93
93
91
46
86
1896
United
States
127
116
124
146
Germany
France
88
79
100
97
93
93
92
109
107
109
104
111
112
117
126
108
116
124
145
118
116
138
147
113
126
145
170
99
112
134
190
109
112
145
192
112
130
171
176
109
135
171
246
121
140
185
270
127
153
209
276
127
163
219
170
114
158
200
276
119
163*
214
292
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 >
1S ^
^
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
S
^
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
101.9
26.3
68.S
100
100
100
100
100
100
100
100
1900-09 354.3
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
CHART 31
RELATIVE QUANTITY AND VALUE OF PIG IRON
PRODUCEO IN THE UNITED STATES.
440
1890-1910
// ;i
/ i
QUANTITY.
VALUE.
#
400
l
i
1
1
1
1
i
1
1
1
1
i
l
l
l
11
ii
1 Ii
1i
11
1
1
11
1+
1 "V
360
320
\
\
\
280
1
i
f1
24 O
\
/
/
\
\
t
200
160
\
1
\
AOO
360
320
280
240
200
\
i
160
*
120
\»
120
i
\/
I
80
/i
VI \y
1
1
1
\
\
\
%
i
i
i
'92'93'9i'9S'96'97 98'99'00'(M
' 30
'178
4 (090 1
)S00260
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
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
f rom
146
97
104
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
the r ^ o o * , . / -
138
125
Averages
l89?-Piled
Germany
104
^
./
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
lo\ ^•
lation between light yields and high prices and heavy yields and
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
Av. actual 1figures
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 ! ...
tU il*
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
erages
.
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
Data from the Financial
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
84.4
358.5
100
100
1900-09
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
115
96
101
92
93
Exports
Exports
Imports
107
95
98
102
95
94
99
92
87
90
91
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
* the United States, because of the short European a ^ bun
^
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
1907
1908
1909
1910
1911
•
125
100
122
105
123
207
170
219
307
175
212
124
105
142
194
151
209
311
155
191
104
116
150
182
191
226
278
167
192
88
121
170
197
217
254
318
180
219
92
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
261.6
Raw materials
185.5
Manufactured goods
Total
r
1890-99
1900-09
1900-09
1890-99
1900-09
266.6
237.1
171.4
361.8
357.3
446.0
637.4
457.3
843.9
293.5
303.8
456.1
119.1
181.2
225.4
750.9
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
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
807.7
Total
499.4
137.1
142.6
G e r
1890.99
?aDy
^
1900-09
106.8
1-7.9
251.6
179.6
32o.3
_524J
J2L3
1,330.0
Relative amounts
Total actual amounts — 100
,
United States
n
Germany
A
1890-99
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
i l e d
error
PVanTT
France
Foodstuffs
Total
A„ 2 r
~
ln
J ^ S
100.0
J ™
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.
an effort to cast up
fibres
1900-09
9.6%
24.5
64 6
6°'9
100.0
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 «
«
'
w0 uld n o t
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
5.17
Actual amounts
A
Wine Spirits prf. Beer
Gallons
Gallons Gallons
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 X lol r
t vs i .i llltx
'
r spirituous u
md
T h e impo"
:sition of stamp taxes enables the
" e s Commissioner
of< ) uInternal
Revenue
to determine
n i m c with
w i l i i substantial
ouuoiaiiiiai a
accuracy
^ u i a u j
the
i i i c quantity
q u a i l 11
SOIU
sold eeach
a C I l sseason.
e c i s u i i . 18
Even
— #t •
figures are made rather irregular by changes in the rates of taxation and in
prohibition
pruiiiuitiuii laws.
iciwo. x"
Further,
uniicr, the
tue considerable
consiuerauie factor
iacior of
oi growth
growiii blurs
uiuio the
-— e ^,
of business cycles. Nevertheless both series, as given in Table 64, show a TO g
11:
• •
hard tin1
'
correlation with business conditions, falling
or rising
slowly ^in "hard
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
0 ^
30'253
5,327
1,179
39,811
Data
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 Amerfeu
gar 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
I899
y worse for wage-earners until 1893-94, then better until
- - 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
2.5
1904
98
6.0
8.4
7.3
6.8
4.7
3.0
1905
99
5.0
6.6
8.0
5.8
5.1
2.3
1906
101
3.6
4.1
6.9
4.8
4.5
1.9
1907
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
2.6
1910
99
4.7
6.8
8.3
5.4
4.9
2.2
1911
101
3.0
3.4
4.2
3.3
5.1
2.1
Averages
1890-99
100
4.35
6.02
2.36
2.91
4.10
2.35
1900-09
99
4.83
6.80
6.77
5.32
4.74
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
7.3
6.6
6.8
7.8
9.9
9.4
10.2
9.0
7.6
7.0
8.6
7.3
5.8
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
3.72
1890-99
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
Averages
.944
1.046
1.298
1.043
1.370*
1.446*
.682
1.0786
1.30
1.10
1.09
1.00
1.07
1.08
1.34
1.55
1.65
1.96
2.34
2.06
1.87
2.13
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
c6.34
oa
France Germany
2.08
8.05
2.11
Ye*r
IOV
-1890
1891
1892
1893
1894
1895
1896
1897
1.73
17.2
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
5.97
1.35
7.24
2.17
18.4
9.7
6.07
6.59
345
1,057
137
68.9
6.81
1.62
9.06
2.16
15.9
10.0
6.20
6.55
312
1,023
133
68.0
6.78
.99
8.83
2.25
15.6
10.1
6.34
6.87
338
1,213
134
71.9
6.09
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
9.64
8.46
7.90
1904
6.69
1905
8.24
1906
8.58
1907
7.26
1908
7.48
1909
8.14
1910
6.89
1911
France
5.81
5.70
6.84
1903
United
Kingdom
9.9
7.93
7.36
1902
United
States
16.7
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
2.04
9.26
1901
'
Bank clearings in
dollars per capita
9.59
7.40
1900
Railway gross earnings in dollars
•
per capita
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
Year
1890
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
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
+
—i_2__
* 11
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
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
Dat*
Per cent of
increase ( + ) or
decrease ( — ) in
comparison with
preceding year
9.9
7.4
6.9
2.5
1890-99
196.6
42.2
100
100
+
9.7
1900-09
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 FPJJ
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
9
—
113
+
80
+ 185
+
48
+ 179
+349
+317
France
— 26
Germany
+14
United
States
65
—
United
Kingdom
+139
France
—133
Germany
+
74
1893
—
7
+26
+
36
+
1894
—
81
+58
+
68
+60
—1,306
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
742
+ 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
+
500
42
26
59
+985
+392
+111
+179
+
+
+
+222
96
323
+ 130
56
37
+185
Averages
R?1?-
the
Unit
ea
1890-99 —
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
1—J
—
\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 Actual
the following
figures result:
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 :•//••
yy/Am'/V>A
&V&6
////}
•////. //."'/.• v"y'
yyyyy, y/yxy
> •>>>»
yt
Y/.'/.• y'.y&s.
;*:*;•;• : :>>>:: yy.*
viyy
iyy
P i l l
: y'yy!(yyyy,
m llsPll
«y> ;yyy
yivX» >VJW yyxy
S •:'*•"
i
1890 '91
n
-m
40
p
9
f ^S
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
1 1 1 Jo? • '< '. '///.•'
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
x>y> ^vyv
Wr<
:
m ;
iNH
i
M
i
w
'y*yX ;»>yyi i»X'yy >y«C«.»
yy'y
g
p
M H
'04
yy-y'-:
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
m
30
|
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
Z Z e s ^ Z V
:;°
.
transactions settled in money and the
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
sho ^ ° n e y
banks to the deposit currency. In the last section it was
11
1Tlone
ft
^r
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
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
1896-1911
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
1900
1901
1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
(2)
404.4
60,761
844.7
52,634
852.8
79,420
957.4
76,328
934.9
65,970
898.6
68,649
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
72.7
72.1
42.9
54.9
59.8
55.5
07.5
71.9
61.7
83.0
81.6
73.4
61.4
39.4
36.8
5,005
147.2
4,577
135.9
4,148
166.9
4,757
160.0
4,498
140.1
5,095
173.8
34.0
33.7
24.9
29.7
32.1
29.3
5,425
192.8
7,086
228.8
6,180
200.4
7,191
216.5
6,930
211.2
6,717
204.2
6,631
212.2
7,655
223.2
28.1
31.0
30.8
33.2
32.8
32.9
31.2
104,675
1,025.0
102.1
8,335
211.2
87,182
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
103,588
1.347.6
97,275
1,216.9
92,373
1,372.8
A v . deposits
Millions of
dollars
Ratio
A v . deposits
Millions of
dollars
1.120.4
1.302.5
PHILADELPHIA
Clearings
Millions of
dollars
93,822
79,275
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
.
^OlUmnS
Column
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
OO
UU
UR
KC
t'E
t iS
S
/A\
9
1 9 1 0
<7)'
A . P . A n d r e w , Statistics
for
the
O
uP
r
D
AT
1M
TA
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
r
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
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
99.7
REPORTS
Per cent of cash
to individual
deposits
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
a
n
d
f o r 1892-1910 from the Report of the Comptroller of the Currency for 1910, p. 58.22
The '
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
1J
S
i clurl 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£®ate 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
The^ ^ ^
^ n d r a w n > hut to which they will not be presented until the following day.24
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
the r^t
^ t e of the clearing-house exchanges held by the non-reporting banks is added to
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
979
1901
2,942
83.5
2,457
1,611
76.5
1,232
1902
3,099
82.6
2,560
1,698
75.7
1,285
43*
1*
3*
5*
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 ,
Loan and trust companies
Private banks
Per cent
subject
to check
Individual
deposits
Per cent
subject
to check
A
r
Year
1890-1911
Individual
deposits
Amount
subject
to check
Non-reporting banks
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
Net
deposits
1890-1911
A
Loans
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
'
1 9 0 9
10.68
552.38
504.08
164.16
29.648
100
100
100
100
100
43.31
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 BBAANNKKS
T A B L E 83
IN SEASONS OE BUSINESS
^ N E W^ Y O E K 1CITV
8 9 0 _ 1 9 1 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
-
u
^
3 3
395.3
396.8
466.3
503 8
» •
oov-o
H.l
475.3
^
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
6
^
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
510.8
553.8
^
3Q 0 8
14.7
587.0
13.9
595'5
^
„ , " ft
814.0
g
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
99*3
u 3
f
^
706.3
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
•
ol
466.1
g
August, 1904-August, 1905—Revival
September, 1905-September, 1906 Prosperity —
October, 1906-September, 1907-Approacb o f crisis
»
CBISIS, AND
RIT,O
.8
16 0
October, 1899-December, 1 8 9 9 - M i n o r crisis
™ .
404./
g
October, 1895-June, 1 8 9 6 - K e n e w e d depression
May, 1898-September, 1899—Prosperity
^
4
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
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
a
c
n
a
n
banlf
*°
fr ti° > ( l to avoid widespread disaster the clearing-house
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
Averages
9 5 3
January, 1908-September, 1908—Severe depression
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
^ouse loau certifi *
* n i s t companies and savings b a n k s " ; "miscellaneous liabilities" include " c l e a r i n g 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
Date
1892 Mar.
1
Capital,
etc.
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 «
«> «'
OUS of long-period shifting* controlled ^ factors wh.ch do n ^ o ,
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
7
1890-99
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
1897
1898
Oct.
6
2,362
80.1
Dec.
17
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
May 14
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.
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
13.9
July 15
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
Apr. 28
1909
1910
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
-
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.
HOLDINGS
1890-1911
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
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
r
Loans and
securities
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.
HOLDINGS
1890-1911
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
s
th^il^S
? f Pf« P0''it.v. Indeed, the ratio has usuaUv been lower at
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
Dec.
Mar.
May
July
1894
1895
19.5
May
1,546
20.1
July
11
384
1,756
1,671
21.2
Sept.
28
341
1,736
17
374
1,740
21.5
12
367
1,761
20.8
18.8
30
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
1893
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
22.3
1899 Feb.
4
21.4
32.3
Apr.
5
20.4
31.9
June 30
20.1
31.3
Sept.
7
20.6
Dec.
2
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
20.2
May 17
29.3
July 12
28.9
Sept. 30
29.3
Dec.
31.5
29.4
Sept.
5
Dec.
13
20.1
1901 Feb.
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
19.1
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
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
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.
26.9
Aug. 25
19.0
9
19.1
1906 Jan. 29
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
Average
for the
year
23.9
20.8
20.5
19.0
19.5
20.5
19.9
19.1
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
18.2
19.1
Nov. 16
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
19.1
May
14
19.4
Nov. 10
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.
Average
for the
year
18.4
18.7
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 ALSO
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
eld, plus premiums, " o t h e r bonds to secure U . S. deposits," and " b o n d s , securities, e t c . "
^
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
15.10
w i t h c a s h r e s e i ' T C 8 ><™
MADE
1890-1911
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
c
i
t
i
e
s
^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 ~
g
r
U
p
o
f
b
a
n
k
s ^
1 W eaual to it,
°
a reserve ratio in anv vears since
r
a
g
e
t
1
0
i
n
1
8
9
0
S
'th f r
/!
- " ' 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
—
—
30
20
26
24
22
20
16
I 6
14
I2
10
—
—
NEW
—
—
DEPOSITS
YORK
CITY.
RESERVE
CITIES
COUNTRY
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
Date
1890-1911
New York
City
P e r cent
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
Z T L o
1890-99
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 11
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
!890 May
Nov.
*891 May
Nov.
18 92
May
Nov.
18 93
May
Nov.
]894
May
Nov.
18 95
May
Nov.
18 96
May
Nov.
18 97
May
Nov.
1898
May
Nov.
1899
May
Nov.
19 00
May
Nov.
1 9 °1
May
Nov.
19 02
May
Nov.
l9°3
May
Nov.
19°4
May
Nov.
l9°5
May
Nov.
19°6
May
Nov.
1 9 07
M;
May
Nov.
19 08
Nov.
1909
May
Nov.
19 10
May
Nov.
19U
May
Nov.
l9
°M9
C0MPILED
0 m
the
Deposit
and current
accounts
Miscellaneous
liabilities
Discounts,
advances,
loans, bills,
etc.
= 100
Investments
in consols,
bonds, stocks,
etc.
Buildings
and
sundries
Cash in
hand and
money at call
and short
notice
Total
assets and
liabilities
82
88
100
80
60
85
73
93
76
89
101
81
57
86
74
97
75
82
94
119
83
80
88
80
113
80
86
88
96
83
86
98
90
85
87
82
98
82
89
142
92
88
92
87
90
98
73
90
96
91
92
84
88
90
100
107
90
121
92
94
100
89
92
99
93
89
89
91
93
93
85
91
98
84
91
92
100
100
89
100
93
92
99
80
91
76
92
94
82
89
94
96
102
101
96
99
99
105
95
110
99
96
99
82
99
100
91
101
100
124
103
142
102
105
114
106
104
103
114
113
103
108
115
104
119
112
104
114
112
146
110
115
113
110
111
103
84
115
126
111
116
87
118
112
106
115
119
114
115
121
115
120
117
106
94
123
82
117
121
103
125
119
109
110
124
110
119
122
119
130
122
109
106
129
66
124
124
111
133
125
111
115
128
112
124
124
121
129
125
111
97
129
77
126
123
105
130
125
130
114
113
133
160
129
125
126
138
115
100
132
77
125
125
111
142
128
116
125
132
110
124
127
131
147
130
115
84
132
96
125
125
102
144
128
157
133
145
131
132
119
131
118
109
136
137
126
128
141
128
128
117
108
119
143
133
135
129
123
148
142
117
107
132
77
127
123
118
141
128
128
126
148
158
134
128
134
162
135
118
153
136
126
117
138
139
76
128
119
205
142
130
131
129
185
171
141
118
164
142
66
134
129
148
160
139
119
218
147
137
139
128
189
170
145
144
126
142
162
144
145
144
118
May
Acceptance
liabilities
where
stated
Average actual amounts in 1 8 9 0 - 9 9
CO
Date
Relative amounts.
151
100
148
118
233
147
89
141
123
207
166
118
169
148
80
139
126
151
175
119
221
153
76
140
134
190
186
150
117
193
154
82
139
137
163
190
149
118
216
155
94
141
134
182
190
151
117
199
160
80
148
136
163
191
155
117
273
163
94
153
135
228
190
160
115
206
166
122
155
133
171
197
160
100
100
1 1 7
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
' FT '09
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
+ 6.1
+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
+ 1.5
+4.9
2,450
910
825
2,102
134
132
108
132
+9.8
+3.1
— 1.4
+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
— 1.9
+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
+ 4.9
-^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
+ 5.1
+4.8
3 71
1,055
1,056
3,731
202
153
138
235
+1.4
+2.1
+ 4.7
+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
STATES.
UNITED
KINGDOM.
#
230
"
•
'
:
!
- J
[
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
VKIT~
r
^
/
1/ / !
190
220
/
•
\ ^
FRANCE.
f i
/
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
111
11
260
t
i
1
i
i
220
j
,
i
1
i
200
ii
.
; I
j
1
i
260
!
j
\ii
i
i
'
220
P
1 1 1' 1
J ' l
I li
1 !
*1 / ,
'./
n
\ 1 11
'
|\
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
1i
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
1 I 11
1 11
l/i
i
240
i\
! 'II
' I
Hi
!1 / 1 !i»
1
i
A
ii
i
II
1
I
l
\
i
i
ii'!
280
j 1
I
i
i
1 1j <
|
1 1
i 1 i!
! i
i
' ,
1
1
1
1
1
11
1
1
(
i
1
i
i
1 1 Ii
■
240
1
300
1 II
_
!
1
'CO
140
120
100
* 1
7 \
80
s^y \ l \ l / Mi V
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
RATIO
CHART
69
OF BOND S A L E S
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 11
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
Number of
combinations
formed
Average
capitalization
of newly
formed
combinations
Year
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
4
Increase in Av. capitalization
authorized
of newly formed
capitalization
combinations
Millions of
Millions of
dollars
dollars
27.0
216
Number of
combinations
formed
1900
42
831
19.5
Averages
1890-99
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
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
Relative amounts
Average actual amounts in 1890-99 = 100
Actual amounts
In millions of dollars
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
rom
1890-99
102.C;
5.5
1900-09
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 Commissi
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