[182] The Joint Stock Banks in England keep "till money" in cash, even though their "reserves" are chiefly deposits at the Bank of England.

[183] Fisher, loc. cit. passim. Vide especially ch. 8.

[184] Purchasing Power of Money.

[185] Business Cycles, pp. 580, 595-596.

[186] Cf. C. M. Walsh, The Measurement of General Exchange Value, pp. 480-481.

[187] On pp. 314-315, and elsewhere, Fisher indicates that all the causes affecting prices operate through the factors in the equation of exchange. Cf. p. 74. This would require a concrete equation of exchange throughout.

[188] Chapter on "Passiveness of Prices."

[189] Loc. cit., p. 169.

[190] Cf. his Silver Situation. 1878 to 1891 do not give time enough for quantity of money to dominate volume of credit, in his exposition!

[191] Mill, Principles, Bk. III, ch. 12, par. 1.

[192] Fisher, loc. cit., p. 62.

[193] "A Compensated Dollar," Quart. Jour. of Econ., Feb. 1913.

[194] The chapter on "Dodo-Bones," supra, and the chapter on "The Quantity Theory and World Prices," infra.

[195] Loc. cit., p. 156.

[196] Ibid., p. 160.

[197] Or organs for pianos, etc. A common practice—less common in the North than formerly—is the payment of bills at country stores in produce. There is not a little barter at secondhand stores in New York City.

[198] Mr. Burton Thompson, of No. 7 Wall St., who knows the real estate situation there intimately, states that while dealers do not like to "swap" real estate, and do little of it when business is good, they are forced to do it extensively when business is sluggish, "as has been the case for the past four or five years."

[199] Cf. E. S. Meade, Corporation Finance, p. 376, and passim.

[200] The same thing often happens when a bond issue is paid off—bond-holders may take their pay in new bonds. "Conversions" of bonds into stocks, or of preferred into common stock, are also barter transactions. $220,000,000 of the $420,000,000 which Mr. Carnegie and his associates received from the Steel Trust for their plants, etc., was paid, not with money and checks, but with bonds. Vide Stevens, Industrial Combinations and Trusts, p. 101.

[201] The foregoing had been written before the discussion in the Annalist of Feb. and March, 1916 (pp. 183-184, 245-272, 313-317, 344, 377), in which Professor Fisher and the present writer joined issue with reference to Professor Fisher's estimate, 387 billions, for the volume of trade in the United States in 1909. The present writer contended that the banking transactions which Professor Fisher took as representative of trade greatly overcounted trade, since they included loans and repayments, taxes, several checks in one transaction, gifts, etc., etc. Professor Fisher contended that the overcounting was offset by undercounting, and instanced particularly the clearing-house arrangements in the speculative exchanges, where checks are in part dispensed with, and the offsetting in "running accounts" through book-credit. This indicates a substantial change in Professor Fisher's view as compared with that set forth in the Purchasing Power of Money, where he maintains, as shown above, that barter is virtually non-existent, that money and checks are "for all practical purposes and all normal cases," "necessities of modern trade," (p. 160), and that book-credit merely postpones, and does not dispense with, the use of money and checks (p. 370).

The extent of the offsetting by barter, clearing-houses in the exchanges, and book-credit, though very great, is quite small as compared with Professor Fisher's 387 billions, and does not nearly offset the overcounting. The writer has obtained some fairly definite data on this point, which will be presented in the chapter on "Statistical Demonstrations of the Quantity Theory," in discussing the volume of trade.

[202] Miscellaneous Articles on German Banking, Report of National Monetary Commission, p. 175. Cf. infra, pp. 288-290.

[203] Cf. our chapter on "The Functions of Money," infra.

[204] One familiar feature of corporation finance makes barter much preferable to money transactions, in one connection, which involves very many corporations indeed, at their inception. Stock, in order to be marketable, must be "full-paid and non-assessable." If the corporation sells its stock to the first stockholders, this means that money must be paid for it to the full par value, dollar for dollar. This is usually not easy. An especial difficulty would then present itself that the promotor would have trouble in getting any pay for his work. (Meade, Corporation Finance, passim; Sullivan, American Corporations, passim.) If, however, the stocks are paid for in goods and services, the courts are much less exacting in looking to see if full value has been received. Barring obvious fraud, the courts will usually count the stock full paid and non-assessable even though the value of the goods and services received is not very great. The first sale of the stocks of a new corporation, therefore (if it is important enough to wish to have a public market for its stocks), is a barter transaction, as a rule.

[205] Purchasing Power of Money, p. 152.

[206] Ibid., pp. 352 et seq.

[207] Infra, ch. on "Passiveness of Prices." Weighted averages of "person-turnovers" will not save the situation here, if incomes stop entirely, since the persons involved then drop out altogether. Moreover, weighted averages would clearly depend on incomes, and hence on prices, and hence could not depend on habits exclusively, or causally explain prices.

[208] Loc. cit., pp. 152-153.

[209] Ibid., p. 154. Italics mine.

[210] Supra, ch. on "Volume of Money and Volume of Credit." Infra, ch. on "Bank Assets and Bank Reserves."

[211] Cf. Kinley, Money, pp. 145 and 205-206, for the discussion of various moveable margins of this sort.

[212] Van Hise, Concentration and Control, p. 16. The tendency to accumulate hoards when money is plentiful is notoriously strong in countries like India.

[213] Loc. cit., pp. 167-168.

[214] Ibid., p. 164.

[215] Cf. Davenport's analysis of the causes governing volume of trade, Economics of Enterprise, p. 272.

[216] Loc. cit., p. 110.

[217] Perhaps not quite correct, since he does recognize differences in degree as between different places, though, perhaps properly, from the standpoint of his normal theory, saying nothing about differences in degree as between different times in the same place.

[218] Cf. also p. 315, loc. cit., where this is placed as one of three main causes of the historical rise in prices.

[219] That the overwhelming bulk of trade is in the cities will appear in our chapter, infra, on "Volume of Money and Volume of Trades."

[220] On the average, in the United States, the banks have less money than the people have. Vide Mitchell, Business Cycles, pp. 295 and 298.

[221] Based on arbitrary assumptions as to variability. Cf. his p. 477. Cf. our chapter, infra, on "Statistics of the Quantity Theory."

[222] Other passages might be cited to show that Fisher thinks that T and the V's are fundamentally governed by different causes. For example, he says "an increased trade in the Southern States, where the velocity of circulation of money is presumably slow, would tend to lower the average velocity in the United States, simply by giving more weight to the velocity in the slower portions of the country." Loc. cit., p. 166.

[223] Cf., infra, our chapter on "Statistical Demonstrations of the Quantity Theory."

[224] Common Sense of Political Economy, p. 623.

[225] Principles, I, 432.

[226] Loc. cit., pp. 432, 438-439.

[227] Ibid., p. 439. Cf. our chapter, supra, on "Volume of Money and Volume of Credit," where Taussig's view as to the relation of money and bank-credit is analyzed.

[228] Loc. cit.

[229] Virtually the same expression is to be found in Barbour, David, The Standard of Value, London, 1912, p. 43. Barbour denies vigorously that more money can increase business, since it cannot increase the number of laborers, or of machines, or the amount of food, etc. The doctrine that volume of trade is fixed by (1) volume of products, and (2) degree of specialization of production, and hence is independent of volume of money, appears in Davenport, Econ. of Enterprise, 271-273.

[230] In this view, Fisher typifies the general position of the quantity theory, and, indeed, in part even of those who do not agree with the quantity theory, but who, with the quantity theorists, view the problems of money and banking as matters of static theory. High or low prices, once the transition is made, exhaust the effects of increasing or decreasing the money supply. During the period of transition, certain readjustments in relations between creditors and debtors arise, which lead to either temporary prosperity or temporary distress, but after the transition, it is a matter of indifference whether or not money is abundant. Though the view is, logically, an essential part of quantity theory reasoning, we find much of it vigorously maintained by Laughlin, Principles of Money, ch. on "Amount of Money Needed by a Country." Laughlin and Fisher would seem to be at one in maintaining that the quantity of money in a country is a matter of indifference, and from the views of both would follow a condemnation of the idea that any long run consequences for volume of trade, efficiency of production, etc., could follow from increasing or decreasing the volume of money.

It may be just as well here to indicate the conviction of the present writer that the relation between the quantity theory and the bimetallic movement is historical rather than logical. Indeed, in laying the stress they did on the importance of an inadequate stock of money in accounting for the depression of the latter part of the 19th Century, the bimetallists were out of harmony with the quantity theory.

[231] P. 50.

[232] Pp. 358-372, vol. I.

[233] Loc. cit., p. 160. Cf. our chapter on "Barter."

[234] The fact that prices are often high in gold mining regions, as compared with prices in the general world markets, has been taken by many writers as proof of the quantity theory. Cf. Kemmerer, Money and Credit Instruments, pp. 50-51, 58; Cairnes, J. E., Essays in Political Economy, particularly the discussion of the Australian episode. It seems to me that this is particularly inconclusive. High prices characterize remote mining regions of all kinds, whether gold, silver, copper, diamonds, tin or what not be the quest. Prices are not lower in the tin and copper region in the northern part of the Seward Peninsula in Alaska than they are in the gold region about Nome in the southern part of that peninsula. They are high in both places, not because of the abundance of gold or of money, but because of the great value of goods, which have to be brought with great trouble and expense from the United States. They are higher in the region of the Saw Tooth Mountains, in the centre of this peninsula, where hydro-electric power for the use of the gold miners about Nome, and for the copper and tin mines further north, is being developed, than they are at Nome itself, on the coast, where the gold is being mined. They were high in Australia because the discovery of gold led everybody to abandon everything but gold mining, and to bring in virtually everything from a distance. Wooden beams were imported to Australia from Sweden! (Pierson, N. G., Principles of Economics, I, p. 389.) One would expect prices in gold money to be higher in a silver or copper mining region, which is prospering, than in a gold mining region, equally remote, where a great deal of gold is being mined, but at a cost too great to make the region prosperous.

[235] Loc. cit., p. 51.

[236] Meaning of Money, p. 18.

[237] Price's address before Western Econ. Asso'n, Nov. 26, 1915; Holt's letter; Dec. 2.

[238] Loc. cit., p. 172.

[239] See our discussion of "money rates" and "interest rates," supra, in the chapter on "Capitalization," and infra, in the chapters on "The Functions of Money," and on "Credit."

[240] Infra, chapter on "Functions of Money," and supra, chapters on "Capitalization" and "Dodo-Bones."

[241] Cf. our chapters on "Supply and Demand," and "The Origin of Money."

[242] New York City can always use idle funds, "at a price."

[243] Kemmerer, as well as Fisher, allows physical production and consumption to dominate his "index" of trade variation. Loc. cit., pp. 130-131; Fisher, loc. cit., p. 479. Cf. our discussion of their statistics, infra.

[244] This confusion of volume of trade and volume of production is a companion of the confusion discussed on p. 307, infra, of quantity of money with volume of money-income. The two confusions, found in virtually all expositions of the quantity theory, give it most of its plausibility.

[245] Loc. cit., ch. 12, and appendix to ch. 12.

[246] Supra, ch. on "Equation of Exchange."

[247] In a letter to the writer, Professor Fisher states that the figures for the physical receipts at the cities, which dominate his index for T, have not been available for recent years, and that since they were discontinued, he has relied chiefly on the indirect calculation of T via the other factors in the equation. These figures were discontinued in 1912. In the American Economic Review for June, 1916 (p. 457, n.) Professor Fisher states that the indirect calculation of T has always had more weight in his figures than the direct calculation. This would serve in some degree to lessen the errors of his index of variation. The extent to which he has allowed his T as directly calculated on the basis of the index to be modified by the indirect calculation, is indicated on p. 302 of the Purchasing Power of Money, as follows: "The alterations in T, as shown in Figure 16, though still greater than the preceding, are nevertheless so small and uniform as to preserve an almost perfect parallelism between the original and the altered curve. The differences rarely exceed 10%." Even an indirect calculation of T, however, would not avoid the criticisms here urged, since the other factors, MV, M´V´, and P are all, as we shall see in the chapter on "Statistical Demonstrations of the Quantity Theory," calculated by methods which give very excessive weight to trade outside New York City and to non-speculative transactions.

[248] Loc. cit., p. 485.

[249] The Use of Credit Instruments in Payments, Senate Document No. 399, 61st Congress, 2nd Session.

[250] This brief account will be amplified for critical discussion in the statistical chapter below. Fisher in fact calculated MV and M´V´ separately. The account above given is strictly accurate only for that part of T, 353 billions, which is carried on by means of checks. The calculation of MV, however, is also based on Kinley's figures. My account here is adequate for the question at issue, which is, not as to the absolute magnitude of trade, but rather, as to the proportions of speculation and other elements in trade.

[251] The substance of the argument here presented first appeared in articles in the Annalist, to which I am indebted for permission to use it here. See the numbers of Feb. 7, March 6, and March 20, 1916. Professor Fisher's replies, directed wholly against the charge of double counting, appeared in the Annalist of Feb. 21 and March 13, 1916. Professor Fisher does not question my contention that speculation makes up the overwhelming bulk of trade, in these replies. He rather seeks to meet the charge of overcounting by holding that bank-transactions do not fully count speculation! This he thinks particularly true of stock exchange transactions. Cf. his article of Feb. 21, 1916.

[252] The Census Bureau figures have been subject to a good deal of criticism, and I therefore refrain from trying to draw precise conclusions from them.

[253] The figures showing the number of banks reporting from each State, together with the number of reports rejected, will be found on pp. 47-49 of his monograph. The figures above are combinations of figures from his various tables. These tables are so carefully indexed in Dean Kinley's monograph that detailed page references are unnecessary here.

[254] Cf. our discussion of this topic in the statistical chapter, infra.

[255] Loc. cit., pp. 153-154.

[256] Discussions in Economics and Statistics, I, 204. Quoted by Kinley, loc. cit., 152.

[257] The coefficient of correlation has been developed by the biologists, chiefly Karl Pearson, but has been applied to problems in many fields, especially economics, sociology, psychology, and education. A good source is Yule's Introduction to the Theory of Statistics. Professor H. L. Moore has made extensive use of the method in his Laws of Wages, and his Economic Cycles.

Connected with the coefficient of correlation, usually, is a figure for "probable error," which depends, primarily, on the square root of the number of observations. When the probable error is low, and the coefficient of correlation high (as .8), it is commonly supposed that a very high degree of causal connection is established. I shall not go into detail in discussion of the method. My personal judgment is that it is overrated, that "spurious" correlations, leading to quite erroneous conclusions, have frequently resulted from it, and that the labor involved in calculating coefficients of correlation is frequently too great for the results obtained. I should never be disposed to accept conclusions based on a "correlation coefficient" unless there were other converging evidence to support it. In effect we have, in the coefficient of correlation, nothing more than a refinement of the method of comparing two curves on a graph. The curves tell the story, in a general way, whereas the coefficient of correlation sums up all the comcomitant variations (and disagreements) in one figure. The eye does not readily compare the degree of relation between two curves with the degree of relation between two others. When it is desired to know which, of several relationships, is closest, the graphic method, or the method of comparing series of figures, burdens the attention. The coefficient of correlation condenses the information to such a degree as to make comparison easy. It is, then, merely a refinement of familiar statistical methods. Used wisely, guided by sound theory, it aids in presenting facts. It enables us to state quantitatively things we already know qualitatively. But there is no magic in it! As I have mentioned both Mr. Silberling and Professor Moore in this connection, it is proper to say that both of them are fully alive to the dangers and limitations of the method, and that Professor Moore emphasises strongly the need for sound a priori testing of hypotheses before submitting them to the test of correlation. One danger, that of getting a high correlation merely because both of the variables compared are growing rapidly, has been avoided by Mr. Silberling by the use of successive percentage deviations, instead of absolute figures. For reasons explained by Mr. Silberling in a footnote, he uses, instead of the "probable error," a statement of the number of observations. Thus, "r = .78 (46)" means that the coefficient of correlation is .78, and that there are 46 observations for each of the two variables compared.

[258] They get into clearings, however, two days after.

[259] Professor Kemmerer, also. See his index of variation of trade, op. cit., pp. 130-131.

[260] It is unfortunate that weekly figures from railways do not exist in such number, or for roads of sufficient importance, to justify correlations of the weekly figures with clearings.

[261] Professor W. M. Persons informs me that Mr. Silberling's results are in accord with calculations which he has made. Vide his article in the Am. Econ. Rev. of Dec. 1916.

[262] The Wealth and Income of the People of the United States, New York, 1915.

[263] See our chapter, "Statistical Demonstrations of the Quantity Theory."

[264] Loc. cit., pp. 78-79.

[265] Jour. of Polit. Econ., vol. v, p. 165.

[266] Even this is too high, for 1909, on the basis of our estimate for net income in 1909, in the Appendix to this chapter.

[267] The extent of speculation in wholesale trade is discussed in this chapter, infra. "Double counting" is discussed in the chapter on "Statistical Demonstrations of the Quantity Theory."

[268] The Use of Credit Instruments, p. 151.

[269] The figures for rent and wages are from W. I. King, op. cit. The other figures are from the Statistical Abstract of the United States, unless otherwise stated. King's estimates are for 1910. The other figures are for 1909. Compare this list with my discussion in the Annalist, March 6, 1916, p. 317, where I made computations purposely much too large. In that computation I clearly greatly exaggerated salaries and professional incomes, and rent as well as retail and wholesale trade. My figure there included the rent of houses as well as the rent of land. King's figure is only for land rent. However, in view of the fact that a high percentage of real estate is used by the owner, with the result that no rent-payments are required, I think King's figure high enough for the whole item.

[270] Professor Fisher has estimated total real estate exchanges in the country at less than 1% of the total 387 billions (op. cit., p. 226), and a colleague of the Harvard Business School has given me an estimate of $1,300,000,000 for total advertising in the United States. Neither of these items is properly counted part of the "static" trade that would occur were things in "normal equilibrium." If, however, we counted them, we should add only 1%, say, of the total. When it is seen how insignificant, in comparison with the 387 billions indicated by deposits, the figures for total manufactures, total farm products, and total wages, are, there really is little need to argue the case. It is impossible to find, in the "ordinary trade" we have not mentioned, items whose total will equal the least of these three. Moreover, we have allowed for a multitude of these items in permitting the figure for retail trade to be as high as it is, and have left large leeway in making no deduction for the speculation in wholesale trade, and in counting farm products in full. Interest and dividends I have not counted. They are not "trade." When we have counted stock sales, we have already counted the exchanges in which dividends were sold. The man who buys the stocks has already bought the dividends. To count the dividends in addition would be a case of that double counting of capital and income against which Professor Fisher has warned us in his Nature of Capital and Income. Rents and wages represent payment for current services, and are properly items of trade. Interest and dividends are one-sided money payments, completing transactions for which money has already passed, and in which a man is merely getting a delivery of something he has already bought. In general, loans and repayments are not properly counted as part of ordinary, or physical trade. If, however, we counted total corporate dividends and interest we should get only $4,781,000,000 (King's estimate, loc. cit., p. 262). This is a little over 1%. What else is there? In his article of March 13, 1916, in the Annalist, Professor Fisher failed to meet my suggestion that a bill of particulars was called for!

[271] See the table of shares and approximate values in Pratt's Work of Wall Street, 1912 ed., p. 187. This table covers the years, 1890-1911.

[272] Boston Transcript, "Tape Record of Sales Incomplete," May 6, 1916, Pt. I, p. 12. The Transcript quotes as authority the New York Commercial. Following the extraordinary market of Sept. 25, 1916, when the ticker recorded 2,317,000 shares sold on the New York Stock Exchange, the newspapers estimated that missed sales, odd lots, and unrecorded sales on stop loss orders, would bring the total above 3,000,000 shares. There was an unusual number of stop orders caught that day. There will be very few other sales of 100 shares missed by the ticker, except in times of extraordinary pressure. See Boston Herald, Sept. 26, 1916, p. 1.

[273] Hollander, J. H., Bank Loans and Stock Exchange Speculation, Senate Document 589, 61st Congress, 2nd Session, p. 23.

[274] Pratt, Work of Wall Street, 1912 ed., p. 264.

[275] Annalist, Dec. 27, 1915, p. 719—"Selling Phantom Grain."

[276] My information regarding the Coffee Exchange in New York comes from the Treasurer of the Exchange, Mr. Jas. H. Taylor, through the courtesy of Mr. W. H. Aborn, of Aborn and Cushman, New York.

[277] Report of the Hughes Commission, in appendix to Pratt's Work of Wall Street, Rev. ed., p. 417. This report gives information regarding all the organized exchanges in New York.

[278] L. Conant, Jr., "The United States Cotton Futures Act," American Economic Review, March, 1915, p. 1.

[279] Hughes Commission, loc. cit., p. 418.

[280] Taussig, Principles of Economics, I, p. 405; Kinley, Report of the Comptroller for 1896, p. 89.

[281] This is probably more extensive in London than in the United States.

[282] Loc. cit., p. 47.

[283] Loc. cit., pp. 130-131. The very title, "growth of business," suggests the fallacy to which we refer in the text, namely, that we have a steady upward movement, with little variation. This is largely true of production and consumption. It is in no sense true of "trade," as distinguished from production.

[284] Kemmerer relied on the investigation of 1896, whereas Fisher used more the figures of 1909. Kemmerer does not, in general, assign an absolute magnitude for "trade," but for 1890 he gives a figure. Loc. cit., p. 136. d.

[285] Loc. cit., p. 136, d.