THE THEORY OF INTEREST
The periods were not chosen with any reference to, orindeed with any knowledge of, how the choice wouldaffect the comparisons to be made. For example, theperiod 1825-1834 was a period during which commoditiesat wholesale fell at the average (annual) rate of 3.0 percent per annum; this is plotted on the chart, in the usualway, by a horizontal line 3.0 points below the zero line.In the period 1834-1839 prices rose at the rate of 3.3 percent per annum; this is plotted on the chart by a hori-zontal line 3.3 points above the zero line.
A brief glance at Chart 42 reveals that when the rateof price change falls from one period to the next, themoney rate of interest usually falls, and when the rate ofprice change rises, the interest rate usually rises also. Thecomparison of each period with the one following maybe designated as a sequence. In London eight suchsequences out of ten for bank rates, and nine out of tenfor market rates support the theory that money interestrates move in the same direction as the price level.
Comparisons of price change rates and interest rateshave also been made for New York, Berlin, Paris, Cal-cutta, and Tokyo . The results, favorable and unfavorable,of all these comparisons are summarized in Table 13.
Of the sequences compared, 38 support and 15 opposethe theory propounded. Thus, the favorable sequencesare two and a half times as numerous as the unfavorable
[410]