RELATION TO MONEY AND PRICES

We have also seen that the first three sets of facts fitin with the analysis presented, the first corresponding,although only roughly, with the ideal assumption of per-fect foresight and adjustment, the second and third cor-responding to the more realistic assumption of imperfectforesight and delayed, but accumulated, adjustment.

Two facts have, I think, now been well established.The first, that price changes influence the volume oftrade, has been shown in earlier studies made by me. 16The second, that the volume of trade influences the rateof interest, has been shown by Carl Snyder, 17 Col. Leon-ard Ayres, 18 Prof. Waldo F. Mitchell, 19 and others.

The evidence for both relationships is not only empiri-cal but rational. Rising prices increase profits both actualand prospective, and so the profit taker expands his busi-ness. His expanding or rising income stream requiresfinancing and increases the demand for loans.

In my study of the so-called business cycle, the lagof volume of trade, T, behind price changes when theinfluence of P' was distributed over a range of 25 months,was found to have a modal value of 9% months. The

“See especially Our Unstable Dollar and the So-Called BusinessCycle, Journal of the American Statistical Association, June, 1925, pp.181-202; A Statistical Relation Between Unemployment and PriceChanges, International Labour Review, Vol. XIII, No. 6, June, 1926,pp. 785-792.

“Snyder, Carl, The Influence oj the Interest Rate on the BusinessCycle, American Economic Review, Vol. XV, No. 4, Dec., 1925, pp.684-699; Interest Rates and the Business Cycle, American EconomicReview, Vol. XVI, No. 3, Sept., 1926, pp. 660-663.

“Ayres, Cleveland Trust Co., Business Bulletin, June 15, 1928, andAug. 15, 1928.

” Mitchell, Interest Cost and the Business Cycle , American Eco-nomic Review, Vol. XVI, No. 2, June, 1926, pp. 209-221; Supplemen-tary Note on Interest Costs, American Economic Review, Vol. XVI,No. 3, Sept., 1926, pp. 451-452.

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