Knowledge that Transforms

THE necessity for monthly data for an adequate study of the business conditions of any period is generally recognized. Up to the present, however, no general monthly index of wholesale prices for the decade I890-99 has been available. It is the purpose of this article to present a general index of prices which was developed in connection with a study of price maladjustment for this decade. The new monthly index for I890-99 together with quarterly indexes for I859-89 and the monthly index of the United States Bureau of Labor Statistics for I900-26 are given in Chart i.

THE weekly index of money rates, published currently by the Harvard Economic Service, was designed to furnish a sensitive, adequate, and timely index of changes in money conditions. Open-market rates were chosen as a basis for this index. The great bulk of shorttime borrowing, it is true, takes the form of loans negotiated with the commercial banks by their regular customers; but the available data on such loans those published in the Federal Reserve Bulletin are monthly and not weekly figures. We recognize that open-market rates are more sensitive to changes in money conditions than rates on bank loans, which are to some extent determined by custom and fluctuate only within a narrow range, but both classes are affected by the same general influences, and resemble each other in the general contour of their movements. Since New York City is by far the most important money market in the United States, the rates considered relate to that market. The different means by which funds find employment in the market are well known: they comprise investment in (i) demand loans on collateral (call money), (2) time loans on collateral (time money), (3) bankers' acceptances, (4) commercial paper, and (5) short-term securities, notably Treasury certificates. Rates on these 5 classes of short-time investments were examined to determine (i) the most representative maturities in each class and (2) the classeswhich would yield the most satisfactory weekly index of money conditions. An inspection of the movements of rates on the first class of loans (call money) soon leads to the conclusion that this series, because of its wide and sometimes erratic fluctuations, is not a good representative of the general money market (Chart 2). Our selection was, therefore, made from the remaining classes of short-time investments. The following paragraphs give the reasons for this selection, present the indexes, and summarize some results of the study. In the case of time loans and bankers' acceptances, a middle range of maturities was selected. For the former, rates on go-day and 4-months loans were chosen in order to avoid the premium on longer maturities which arises when an advance in rates is expected, and the corresponding premium on shorter maturities when a decline is anticipated. Another reason for selecting these maturities is that they represent the bulk of transactions. For bankers' acceptances, 60-go day maturities were chosen in order to avoid the relatively low rates existing on the very short maturities, and the relatively high rates on the longer. The choice of maturities was simplified, in the case of commercial paper, by the fact that the great bulk of the transactions are now for 4-6 months. Prior to the war, 60-go day paper formed an important element in the market, but it is now of much less importance; moreover, from the beginning of I9I9 to February I924 the weekly rates on this class of paper, as published by the Commercial and Financial Chronicle, were identical with those published for prime 4-6 months paper. Early in February I924, the Chronicle ceased the publication of quotations for the 60-go day maturities. Of the two important classes now quoted by the Chronicle prime and good 4-6 months paper we chose the former, which represents the higher class of credit. The Federal Reserve Board's index of the yield on Treasury certificates, which was used in the examination of such yields, embraces, in the main, issues maturing 3-6 months from the date to which the index applies. At some dates, however, the issue or issues included had as little as 2X2, or as much as 7; months to run. On the whole, therefore, these maturities fall within the range of maturities selected forthe other classes of short-time investments. Chart I presents the data selected for the four classes of short-time investments. The rates shown are as follows: for prime 4-6 months commercial paper, the average of the range of quoted rates; for time loans, the average of the means of the range of quoted rates on g9-day loans and on 4-months loans; for bankers' acceptances, the average of the means of bid and asked rates on 6o-day and go-day acceptances.

time trend, reflect the physical volumes of trade and manufacture of the United States. Such figures for total loadings for i919-August I926 are presented in Table 3, and graphically in the lower part of Chart i. The adjusted index of total loadings this year, like indexes of general business and manufacturing activity, though fluctuating at a high level, suffered a moderate recession in the spring and early summer months and not until July did it rise. The recession was not apparent from the actual figures, which moved persistently upward; but this upward movement from March through June was in fact less than the usual seasonal advance, and our adjusted index therefore declined. The decline, though definite, was not extreme, and the index remained above normal throughout this period. In July, the increase in the actual figures was greater than usually occurs in that month, and resulted in the upturn referred to above.