THE THEORY OF INTEREST
of price changes are distributed over many years. Butwhen the effects of price changes are distributed, the r’stake on an entirely different aspect with an entirely newmeaning, especially during the War period when pricesfluctuated widely and quickly. It would seem then thatprice and interest fluctuations are governed by one law,not, as has been suggested, by two different opposinglaws, for short and for long periods of time.
It seems fantastic, at first glance, to ascribe to eventswhich occurred last century any influence affecting therate of interest today. And yet that is what the correla-tions with distributed effects of P' show. A littlethought should convince the reader that the effects ofbumper wheat crops, revolutionary discoveries and in-ventions, Japanese earthquakes, Mississippi floods, andsimilar events project their influence upon prices andinterest rates over many future years even after theoriginal casual event has been forgotten . 14 The skepticalreader need only be reminded that the economic effects
14 In the form of distribution of influence used in this study, the remoteprice changes have comparatively little weight in the composite P'.For example, in the case of a 20 term influence-range straight linedistribution,
P'«(20) =[19(P'e») + 18(P «) +
X
19+18. +2+1
... +2(P'„) +1(P'«) + 0.(P\„)].
It is evident, and I have tested it thoroughly, that the composite P'would be only slightly changed if the tail half of the distribution wereomitted. The distribution in the above example would then be,
^("-“•"-atirAFT+iirX
[19(P’s») + 18(P'») + .... + 11(P'„) + P'so)]-