THE THEORY OF INTEREST

lag of i behind T using a simple lag was found by CarlSnyder to be 10 to 15 months, by Leonard Ayres to beabout 14 months and by Waldo F. Mitchell about 6%months.

If we add the lag of T behind P' which I found to beover all about 25 months, and the lag of i behind T of14 months, found by Snyder and Ayres, we obtain a com-bined lag of i behind P' of 39 months. This combinedlag obtained by simple addition is far shorter than thelags discovered in the calculations presented above,whether for yearly or for quarterly price changes in rela-tion to i. Apparently the double distribution of the lagof T behind P' and again of i behind T may result in agreater lag than would be obtained by simple addition.

The fourth relationship stated above must be, I think,regarded as an accidental consequence of the other three.At any rate, it seems impossible to interpret it as repre-senting an independent relationship with any rationaltheoretical basis. It certainly stands to reason that in thelong run a high level of prices due to previous monetaryand credit inflation ought not to be associated with anyhigher rate of interest than the low level before the infla-tion took place. It is inconceivable that, for instance, therate of interest in France and Italy should tend to bepermanently higher because of the depreciation of thefranc and the lira, or that a billion-fold inflation as inGermany or Russia would, after stabilization, perma-nently elevate interest accordingly. This would be asabsurd as it would be to suppose that the rate of interestin the United States would be put on a higher level ifwe were to call a cent a dollar and thereby raise the pricelevel a hundredfold. The price level as such can evidentlyhave no permanent influence on the rate of interest ex-

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