RELATION TO MONEY AND PRICES

sequences. This is a large preponderance, especially whenwe consider that there are so many inexactnesses in thestatistical data and so many other causes affecting therate of interest besides changes in the price level.

The same result may be expressed in terms of corre-lation coefficients. When we correlate interest rates withprice changes for the important industrial countries(England, Germany, United States ), fairly high coeffi-cients (about + 0.7) are obtained. Correlating the firstdifferences, that is, changes in interest rates and rates ofprice changes, likewise, shows a fairly high relationshipin accord with the theory. However, the correlation forthe data of all countries combined is insignificant. For allthe countries studied we find +.036; for the correspond-ing first differences, —.165. It is seen that the well de-fined movements of prices and interest in the principalcountries are largely offset by the movements in thecountries of lesser economic importance. To obtain moredecisive evidence upon the relationship studied, it isnecessary to resort to the more rigorous analysis given insubsequent sections.

The evidence obtained from the comparisons in thissection indicate that there is a very apparent, thoughfeeble, tendency for the interest rate to be high whenprices are rising, and the reverse. The adjustment is im-perfect and rather irregular, but in the great majorityof cases the tendency is evident.

§5. Real Interest Varies More Than Money Interest

If perfect foresight existed, continuously rising priceswould be associated not with a continuously rising rateof interest but with a continuing high rate of interest,and falling prices would be associated not with a continu-al!]