Knowledge that Transforms

THE following paper presents an analysis of the relative price movements of the two most important raw materials used the manufacture of iron and steel products. The place of pig iron in the industry is well known. The place of scrap or recovered metal is little understood outside the trade itself. The market for scrap is nearly coextensive with that for pig. Since scrap is naturally of a very high iron content, it is a strong competitor of pig iron the large producing centers and a partial or complete substitute on the Atlantic seaboard and the west. Indeed some sections of the country are able to maintain a considerable industry without any resort to pig iron a,s a raw material. There has grown up a large industry connected with the collection and preparation of scrap, some firms having a capital of over a million dollars and an annual business of over fifty millions. Of the total scrap products estimated to be worth about four hundred millions annually about one half is handled by middlemen, the other half passes directly from the producing to the consuming plant or is consumed the plant where it originates. Since it is usual for wholesalers or brokers not only to finance the small country collector but to extend credit to the consuming mills, any price change which may occur is a matter of importance for their credit relations. The real significance of the fluctuations of scrap and iron prices is, however, best understood when it is realized that the proportion of scrap and pig used iron and steel works depends quite as much on their relative prices as on the technique of the industry. A typical charge for the basic open-hearth furnace is six tons iron scrap, thirty-two tons steel scrap, and thirty-six tons pig iron; but the charge may vary within very wide limits, sometimes pig and ore, sometimes pig and scrap, or even all scrap. The fundamental limitation on the use of scrap, namely some slight uncertainty as to its analysis, is not a dominant consideration so flexible a process as the open-hearth. A change the price of pig iron disproportionate to the change scrap may, therefore, make a considerable difference the proportions used. In foundry practice the same alternative is found, although work of the highest quality there is not great latitude for varying the materials. Rolling mills also make extensive use of scrap for rerolling or for piling, heating to a welding heat, and rolling into bars. Only the production of crucible steel, malleable castings and a few special products is there a real lack of flexibility the uses to which scrap may be put. Therefore, a large part of the iron and steel industry watches with care not only the cyclical changes the price of its raw materials but also the differences which from time to time appear between them.

W pi THEN, in i919, the post-war Index Chart IV Vof General Business Conditions was constructed, the following statements were made: In order to interpret current data it was found necessary to estimate the level of prices.... The trend thus found is, frankly, a forecast which will be revised as new data become available. 1 . . . the readjustments from the extraordinary war period continue, it is necessary to repeat the cautionthat the conclusions to which the index points, rest upon a narrower basis than those for pre-war years, and are provisional and subject to revision. 2 The index constructed in July i919 was published in the Harvard Economic Service until May i9, I923. Since that date a revised index has been published currently, instead of the index constructed four years ago. The revised index chart, printed on page I79, is constructed according to the same principles as those used in the chart it displaces. Identical or similar statistical series are utilized; the same sequence of movements obtains; and the same methods of interpretation are applicable. The changes in the base lines, or lines of trend of the constituent series, and the use of units of measurement depending upon post-war fluctuations have resulted in a more convenient arrangement of the curves. The amplitude of the fluctuation for all three revised curves is approximately between -2 and +2 units of standard deviation. This. facilitates comparison of the direction and extent of movements of the curves a comparison which is of primary importance in making forecasts of business conditions.3 The data which have become available since the end of the war make it possible to determine base lines or lines of secular trend of the constituent statistical series with more confidence than was possible in i919. Especially in the cases of commodity prices and money rates, new data and a novel and effective device for eliminating secular trend (and yet preserving the cyclical fluctuations) give us confidence in our results. Further, the influence of income tax paymentsa non-business element which augments bank clearings and bank debits four times a year can now be appraised and allowed for.4 The statistical series utilized in our revised index chart include only bank debits, stock prices, commodity prices, and money rates. Curve A, speculation, is based upon New York bank debitsand industrial stock prices; 6 curve B, business, upon outside bank debits and commodity prices; and curve C, upon commercial paper rates. The constituent curves of each group are given in Chart i. Other loans (chiefly commercial) of reporting member banks of the federal reserve system are presented in that chart with money rates, but this series does not enter the average because it has become available only since i919, and there is not, as yet, sufficient evidence of the persistent similarity of its fluctuations with those of money rates to warrant its inclusion in curve C. Chart 2 shows the three volume-series plotted together and, in the lower section, the three priceand money-rate series. Asummary statement of the data and methods used appears in Table 2, page I93, and the adjusted items may be found in the Supplement for June I923, page i67. The revised index for i900-I4 constructed in the same manner as that for I919-23 is given in

THE purpose of the present study is to revise our index of the yield of io railroad bonds by correcting certain defects which have become apparent, so that it will more accurately register the fluctuations of pure long-time interest rates. Table X presents the maturity dates and other data for the bonds included in the old index.' The wide variation in maturity dates, ranging from I927 to 236i, and the fact that the bonds do not at present represent high class investments in railroad securities are obvious reasons for the construction of a new index.

IN many respects I922 was a most disappointing year for Europe. The numerous international conferences were conspicuous failures and their failure prevented the taking of other important steps in advance. The Genoa conference, of which high hopes had been entertained, proved a fiasco. The Hague conference over Russian affairs came to naught. The Paris conference of international bankers in June reported that under existing conditions an international loan to Germany was impossible. The foreign experts called to Berlin in October to advise concerning the stabilization of the German mark, disagreed upon essential points, and the German government, ignoring the majority report, submitted an unacceptable proposal. Repeated conferences over reparations merely postponed a real decision, until early in January I923 a final disagreement led directly to the forcible occupation of the Ruhr. Although war in the Near East was checked before it became a conflagration, the Lausanne negotiations with the Turks were indecisive and the Angora government has since refused to sanction the treaty which their representative had been unwilling to sign. The partition of Upper Silesia was peaceably effected in accordance with the League of Nations decision, and Luxemburg became incorporated into economic union with Belgium; but there has been friction in central Europe over Vilna and Memel, and there are occasional signs of trouble in the Balkans. The noteworthy exceptions to the disappointment are the agreement to support the League of Nations in a vigorous effort for the rehabilitation of Austria, and the arrangement of terms for funding the British debt to the American government, which was accomplished early in I923. The important cabinet changes of the year, on the whole in the direction of greater conservatism, were of mixed character. The Poincare ministry in France is far stronger and better supported than its predecessors, but whether for good or for ill it is perhaps too soon to decide. In Great B,ritain the fall of Lloyd George led to the substitution of a conservative ministry for a coalition cabinet, with a leader of a very different type, but the new cabinet is not strong and its policies are mainly negative. Changes in the Wirth cabinet and the succession of Cuno have added little, if at all, to the strength or prestige of the German government. Only in Italy, where a bloodless revolution brought the Fascisti into power, does the change seem clearlyfor the better, for a strong government has succeeded the series of weak and unstable governments of recent years. Notwithstanding the lack of progress, and indeed some retrogression in these respects, the oft-prophesied collapse of Europe, or even of Germany, has not come; and the statistical evidence reflects unmistakably that I922, while a year of painful depression in several leading countries, was a year of substantial recovery and readjustment. Fiscally, the year was generally unsatisfactory but, with few exceptions, better rather than worse than I920 or I92I. Financially, with certain important exceptions, advances have been registered: on the whole, prices and exchange rates have been less unstable, securityprices higher, moneyrates easier; and business failures, though extremely high, have been declining and the liquidation process is more nearly completed. In respect to production, trade, and capital replacement and extension, the progress was well-nigh universal. The process of readjustment is not complete. Conditions are generally still inferior to those of pre-war days. Few countries in Europe have recovered as far from the depression as the United States. Yet the improvement of I922 was general and fairly continuous; in most of the war-torn countries of the continent productivity was higher and trade more nearly normal than in any year since the war, and the improvement is reflected in all sorts of financial and economic statistics. The outstanding exception to these broad statements is the fiscal and financial degeneration in Germany, which has many serious consequences even though it has not prevented an increase in German output. This article attempts a review and interpretation of the relevant economic and financial statistics. The material falls into two main groups: the financial relating to money rates, security prices, currency and credit, commodity prices, c79: