Definition of the phrases "business fluctuations, " 94; "business cycle, " 95; "periodic cycle, " 95. — Concept of normal, 96. — Old and new meanings attached to "commercial crisis, " 98. — Classification of the theories according to emphasis placed on causes, 99. — Extracts from writers emphasizing factors other than economic institutions, 104. — Extracts from writers emphasizing economic institutions, 109.

Journal Article The Measurement of Concentration of Wealth Get access G. P. Watkins, G. P. Watkins New York, N.Y. Search for other works by this author on: Oxford Academic Google Scholar Warren M. Persons Warren M. Persons Dartmouth College Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 24, Issue 1, November 1909, Pages 160–190, https://doi.org/10.2307/1886060 Published: 01 November 1909

There is no generally accepted method of measuring the concentration of wealth, 416.—The methods of Lorenz, 417, Pareto, 419, and Watkins, 427, explained and analyzed.—The coefficient of variability, as used by statistical biologists; suggested as a good measure, 429.—Application of that measure to income statistics, 436, and to wealth statistics of Massachusetts, France, and the United Kingdom, 440.—Conclusion, and summary of the features of the different measures of variability, 447.

TN this REVIEW for January I926 we brought together some of the results of our studies of the relationship between money rates and speculation in the business cycle. There we stated our general conclusion that substantial quantitative changes in money rates, regardless of the length of time during which those changes take place, have been, in general, highly significant for security markets.' This general conclusion resulted from our statistical studies of the cyclical fluctuations of monthly average rates on prime commercial paper, duly adjusted for seasonal variation, on the one hand, and of monthly average industrial stock prices, monthly average railroad stock prices, monthly average prime railroad bond prices, and monthly average miscellaneous bond prices, on the other hand. The periods studied were I884-I925 for money rates and stock prices, and I890-I925 for money rates and bond prices. For these periods both the magnitude of fluctuations of the series, and their sequence in time were examined to ascertain whether systematic and simple relation between the money market and the securities could be proven to exist. In making this examination it was found convenient to divide the periods into the following four sub-periods: i884-i896, a period characterized by declining commodity prices, agitation for free silver, and difficulty in maintaining the gold redemption fund for greenbacks; I897-I9I3, a period of rising commodity prices, unquestioned maintenance of the gold standard, and comparative freedom from nonbusiness disturbances; I9I4-I8, a war period of large gold imports and abnormally low money rates followed in I9I7, after the entry of the United States into the war, by a money market controlled with reference to the exigencies of war finance; I919-25, a period characterized by, first, continued control of money rates with reference to the government's post-war financing, second, the withdrawal of control, for government purposes, of the money market and, third, paper inflation and deflation in Europe, unprecedented gold imports into the United States, and abnormally low money rates in this country. When we undertook the search to find some systematic and simple relation between the money market and the securities markets we did not expect to discover, nor did we in fact discover, a constant mathematical relation between money rates and security prices holding invariably in war as well as in peace, in times when the gold standard was threatened (such as I895-96) as well as in times when its permanence was not questioned, and in times of abnormal international gold movements (such as I92225) resulting from non-business influences as well as in times of movements resulting from fluctuations in trade. No one with the slightest familiarity with business and economic affairs would expect to find that security prices were in constant mathematical relation to money rates certainly not for such a long and varied period as I884-I925. Although an unvarying function was neither expected nor discovered our studies had led us to expect that a systematic and simple relation between money rates and security prices might be found to hold during the normal cyclical fluctuations of business from depression to prosperity and back to depression. Disturbances of a non-business nature were fewer and less pronounced during the interval of I7 years from I897 to I9I3 than during any other interval of equal length in the last 40 years. In fact the Spanish War was the only momentous non-business disturbance during these i 7 years, so far as money rates in the United States are concerned. Consequently, the investigation began with a study of the period I897-I9I3. For this test period the conclusion was reached that the simplest and most unvarying relationship of any discovered, between changes of money rates and subsequent levels of stock prices was given by the table showing (i) the rise (or fall) of I4 per cent and (2) the level of stock prices for the month immediately following the rise (or fall) mentioned.2 For the levels of bond prices,

THE accompanying chart presents a bimonthly index of general business conditions for the period I875-I9I3 consisting of three curves representing, respectively, speculation, business, and money (Chart i of the insert).' For the interval I903-I3 the index is that published in this REVIEW in January I924.2 For the interval I875-I902 the index is here published for the first time. The purpose of the present article is to describe the method of construction of the index for the earlier period, to discuss the relations existing between the fluctuations of its constituents compared with the relations found to exist between the curves for the i i years immediately preceding the war, and to make a brief survey of the period I875-I902 in the light of the new index. This index, like the one for I903-I3, is based upon corrected statistics. That is to say, the constituent statistical series of the three curves of the index of general business conditions have been adjusted for secular trend and seasonal variation. The following discussion relates to the fluctuations of the adjusted and not the actual series, unless otherwise specified.

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.

BOTH the month-to-month fluctuations and the long-time trends of (a) loans and investments, and (b) net deposits of New York Clearing House banks are highly similar. For I903-I3, a period for which the fluctuations were carefully examined in a previous study, the correspondence between the seasonal and cyclical movements of the two series was found to be remarkably close and the slopes of the linear secular trends were shown to be identical.2 The range of fluctuations of the actual figures for net deposits, however, is much wider than that for loans and investments.3 Thus, in years of business depression, such as I904, I908, and I9II, when loans and investments of New York Clearing House banks rose to relatively high levels, it was found that net deposits rose even more. Also, in years of active business, such as I903, I906-07, and I910, when loans and investments declined to low levels, net deposits fell still lower. As a consequence of the lesser range of fluctuations of loans and investments 4 than of net deposits, the ratios of the items of the first series to corresponding items of the second series were found to exhibit marked cyclical movements. Furthermore, the timing and general contour of the cyclical movements of the curve representing the loan-deposit ratio were found to agree closely with those of the curve representing rates on commercial paper adjusted for seasonal influences. This agreement, for the ten or eleven years preceding the war, is evident from the comparison in Chart 2 of the loan-deposit ratio and rates on commercial paper.5 Thus the process of taking the ratio of loans and investments to net deposits of New York Clearing House banks results in a series fluctuating concurrently with money rates and, at least for the decade preceding the war, furnishes a supplementary index of money conditions. The crests and the troughs of the cyclical fluctuations of the loandeposit ratio, it should be noted, come at quite different times from those of the constituents of the ratio. That is, the trough of the curve for ratios comes in times of business depression and the early stages of business recovery, when the curves for loans and investments and net deposits of New York Clearing House banks are high; the crest of the curve for ratios comes in times of business prosperity and financial strain, when the curves for loans and investments and net deposits are low. The object of the present study is to ascertain if the loan-deposit ratio (or possibly, the loanliability ratio) is an accurate index of money conditions for other periods than the decade preceding the war and for other banks than those belonging to the New York Clearing House. The reason for studying the ratio of loans and investments to deposits (or, the ratio of loans and investments to total liabilities) rather than the individual series of loans and investments by itself is threefold. First, as stated above, the loan-deposit ratio furnished an accurate index