Knowledge that Transforms

of the Aldrich Report do not extend beyond that year, but also by the fact that beginning with I890, and later, quarterly or monthly indexes of wholesale prices have been published by various agencies.2 In studying commodity prices over a period of years it is usual to construct index numbers: a comprehensive summary figure is obtained by averaging all of the individual series selected, by years, quarters, or months, and sub-indexes are often constructed by averaging the series by economic categories, such as farm 'products, textiles, metals, etc., or raw materials and manufactured goods, or producers' and consumers' goods. The comprehensive index is designed to show changes in the general price level, and the sub-indexes reflect the average price movements of related commodities. In this study the nature of the data made it necessary to proceed on the basis of quarterly rather than monthly quotations. A comprehensive or general price index and also group indexes were constructed, but in the latter a distinct de-

THE present survey was undertaken with two objects in view: (A) to analyze developments in the building industry in the light of current statistics and of the relationships shown between the construction industry and general business in the past and (B) to examine the data available for the volume of construction for the purpose of determining the statistical series suitable for current use. A summary of our conclusions follows. A

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

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