Price, profit and production : principles of economics, by L. A. Rufener, PH. D

Front matter

2 Park STREET, Boston

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Preface

WHEN our ancestors of long ago developed desires for more goods than were freely supplied by Nature, they learned to labor to produce them. But the zeal for hard labor of succeeding generations fell somewhat short of their expanding desires for goods, and so men began to improve methods of production to the end that they might produce more goods with less labor. It happens, however, that efficiency in production is purchased only at the price of complexity. The numerous improvements in methods of production, by means of which men have striven for the double blessing of a life of ease and an abundance of goods, have made economic life exceedingly complicated. Each successive improvement brings, it seems, its corresponding problem. Thus, the simple division of labor, through which the butcher, the baker, and the candlestick maker — specialized workers all — displaced the jacks-of-all-trades, brought the superior productive capacity of specialization at a single task, but it brought also the problem of exchange. And when cumbersome exchange by barter was displaced by the more efficient money exchange, there began for the human race a most perplexing and apparently endless series of monetary problems. With the invention of mechanical power and labor-saving machinery and the growth of the factory system, the effectiveness of labor was in many cases increased a hundredfold or more. But with these came also the intricate problems of the relation between capital and labor, including the problems of trade-unionism and labor legislation. The development of our splendidly effective railway systems has raised important controversial questions pertaining to government ownership or regulation. The expansion of international trade, resulting from low-cost long-distance transportation by rail and water, has multiplied our sources of supply of goods and enormously increased their variety. But it has brought problems of international trade relations so vital that they may lead nations into war. Complicated industrial organization calls for widespread governmental activities leading to heavy taxation of the people, and so emerges the problem of the proper distribution of the burden of taxation.

v1 PREFACE

Thus we might continue our enumeration of problems at great length, but the reader who is interested enough to have read the preface up to this point may read more about those problems in the book, if he should be so minded. It will suffice for our present purpose to remind the reader that, under our highly complicated industrial system, comparatively few persons produce the goods that they use to satisfy their wants. Most of us buy the goods we want from others who have produced them for sale — at a profit where possible, but often at a loss. We use, not what we produce, but what we can buy with the money paid to us for the use of our labor, or capital, or land, or business ability. Concerning how much we ought to pay for the goods we buy, and how much money we ought to get for the things that we sell, there is room for enormous differences of opinion, and the more uninformed the varying opinions are, the greater may be the differences among them. And the greater the differences of opinion, the greater becomes the social unrest, the more acrimonious the economic disputes, the more vituperative the oratory of the contending political and industrial factions, and the greater the danger of bloodshed and total economic disorganization.

If we could all understand perfectly the causes and effects of all the activities in our hive of industry, it may be that we might all agree upon fair prices for all things bought and sold, and if we found that some things were too high in price and other things too low, we might then take intelligent measures to bring them to parity. But none of us understands perfectly, and many, unfortunately, do not understand these things at all. That many do not understand the working of our economic system at all is, fortunately, not the result of a general lack of capacity to understand, but merely the result of the lack of systematic thought. There is a body of economic principles more or less generally accepted by economists which if mastered tends to bring order out of chaotic economic thought. But the traditional method of expounding these principles has, alas, made them seem, too often, merely the dry husks of abstract reasoning, rather than, as they ought to appear, fascinating truths throwing light on the intricate problems of price, profit, and production. In the hope of presenting the fundamental principles of economics in a form interesting and intelligible to the general reader, this book has been written.

Cuapter I. Wants, Goons, AND WELFARE... oe dy 1

1. Wants of human beings. 2. Wants satisfied by Bobabl 3. The earth a storehouse of materials. 4. Materials of the earth divided into three classes. 5. Consumers’ goods. 6. Producers’ goods. 7. Useless materials. 8. Production, utility, usefulness. 9. Labor that creates utility is productive. 10. Form, place, and time utility. 11. Difference between goods and services superficial. 12. Unproductive labor. 138. Universal scarcity of goods. 14. Unequal distribution of income. 15. Five fundamental reasons for scarcity of goods. 16. Man can expect no increase in the goods supplied by nature. 17. Our earliest human ancestors lived largely on the bounty of nature, as wild animals do to-day. 18. Men have improved their methods of production; animals have not. 19. The pressure of population. 20. Limitation of the size of families. 21. Statistics of population show that the increase continues. 22. When labor is ineffective goods are scarce. 23. Human happiness dependent upon abundance of material goods.

Cuapter II. Improvinc MEtTuHops oF PRODUCTION .. por eo

1. The use of capital, or the roundabout method of eth totiOu: Pa Accumulation and maintenance of capital. 3. Distinction between capital and land, and capital and money. 4. Distinction between producers’ goods and consumers’ goods based on the use to which they are put. 5. The division of labor and its advantages. 6. Natural forces and chemical processes. 7. Economic evolution. 8. Stages of economic evolution. 9. Capital and economic evolution. 10. The industrial revolution. 11. Agriculture before the industrial revolution. 12. Manufacture before the industrial revolution. 13. The domestic system. 14. Machinery, mechanical power and the factory system. 15. Workmen’s condition changed for the worse in some respects. 16. Complex division of labor. 17. Geographical division of labor. 18. Increased production of goods. 19. Why poverty still exists.

CuapTerR III. Excoancr, VALUE, AND PRICE... Woah

1. Improvements in methods of production bring new aa Paes laxiig problems. 2. Division of labor makes exchange necessary. 3. Difficulties of barter. 4. Money introduced to avoid the difficulties of barter. 5. The uses, or functions, of money. 6. Gold money, an example of the survival of the fittest. 7. Whatisadollar? 8. Money has become practically necessary under our present economic organization. 9. Price, a most important subject the study of which is curiously neglected.

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CHaApTer IV. Business ORGANIZATION AND PROFITS Tht

1. Why every one is interested in business. 2. Business defined. 3. Profits defined. 4. Calculating profits. 5. Profits and expenses further considered; the economist’s definition. 6. Profits calculated according to the economist’s definition. 7. The individual proprietorship and its advantages. 8. Disadvantages of the individual proprietorship. 9. Advantages and disadvantages of the partnership. 10. The corporation and its stockholders. 11. The preferred stockholder’s position. 12. Bonds and bondhoiders. 13. Stocks and bonds further considered. 14. Advantages and disadvantages of the corporation summarized. 15. Do stockholders and bondholders receive interest or profit?

CHAPTER V. DEMAND AND SUPPLY AND MARKET PRICE 5 CN, uae

1. Every one vitally interested in prices. 2. Business men more concerned with prices than others. 3. Why more producers’ goods than consumers’ goods are bought and sold. 4. Price changes and profits. 5. Relation between demand, supply, and market price generally not well understood. 6. Price, supply, and demand defined. 7. Why a decrease in price causes an increase in the quantity demanded. 8. The law of diminishing utility. 9. Diminishing utility and limited incomes related to price and demand. 10. An assumed demand schedule for eggs. 11. Effect of price upon supply of perishable commodities. 12. Effect of price upon supply of non-perishable commodities. 13. Speculation and demand and supply.

CuHapTer VI. DEMAND AND SUPPLY AND MARKET PRICE (continued) .

CuaptTer VII. DEMAND SCHEDULES FOR PrRopucErRs’ Goops

1. Effect of market price on demand and supply summarized. 2. Other causes of changes in supply. 3. Other causes of changes in demand. 4. The principle of diminishing vendibility. 5. Why marginal vendibility sets the price of the whole supply. 6. How a change in demand affects price. 7. Relation between demand, supply and market price summarized. 8. Use of diagrams, or charts, explained. 9. Continuous and discontinuous demands. 10. Doubling of supply and demand in the schedule sense. 11. Demand and supply curves showing doubling of demand and supply. 12. Elastic and inelastic demand.

1. Law of diminishing utility does not apply to producers’ goods. 2. Prices of producers’ goods depend upon the price of the products. 3. Diminishing vendibility illustrated by statistics from the Chicago egg market. 4. The maximum total a producer can pay for all his producers’ goods is the value of his product. 5. Determining the maximum price a producer can pay for any one class of producers’ goods. 6. A producer’s maximum price for any class of producers’ goods varies with his profits, and with the prices of its complementary producers’ goods. 7. Diminishing vendibility of producers’ goods. 8. Market prices of producers’ goods, like those of consumers’ goods, mutually affect one another. 9. The law of diminishing productivity and the price of producers’ goods. 10. Direct and indirect costs defined and illustrated. 11. Indirect costs and the producer’s maximum price.

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CONTENTS 1x

12. The temporary and the long run maximum. 13. Effect of restriction of output upon the price of producers’ goods. 14. Selling out to escape loss from indirect costs.

Cuapter VIII. Costs or Propuction, MARKET PRICE, AND Prorit 138

1. Summary of some conclusions of the preceding chapter. 2. Collectively producers control the market price of producers’ goods, but individually market price controls them. 3. Under competitive conditions producers making profits tend to expand output. 4. Expansion of output and falling prices tend to force the least competent producers out of business. 5. Under conditions of constant and uniform cost price would equal cost of production. 6. Varying cost, market price, and the marginal producer. 7. Causes of differences in cost: differences in ability. 8. Other causes of differences in cost. 9. Causes of differences in profits. 10. A rising price level increases profits. 11. Cost of the business man’s own labor. 12. Are there net profits in industry as a whole? 13. Profits of corporations.

Cuaptrer IX. Cost anp Prick 1n AGRICULTURE: WHEAT-Growine 156 1. Two classes of industries: industries of increasing cost and industries of decreasing cost. 2. Expansion of wheat-growing in the United States. 3. Only two ways of increasing output. 4. The law of diminishing returns. 5. Expansion of output involves increasing cost per bushel. 6. Assumptions made to simplify discussion of increasing costs. 7. A simplified table of costs. 8. A wheat supply schedule. 9. Why consumers must pay more when quantity demanded increases. 10. Market price must equalize demand and supply. 11. This year’s market price depends upon this year’s supply, but is a determining factor of next year’s supply. 12. Questions raised by omission of land as a cost item.

CuHaApTerR X. THE RENT AND Prick oF AGRICULTURAL LAND im 2 169

1. Conditions of cost in wheat-growing summarized. 2. How land differs from other producers’ goods. 38. The amount of land remains fixed. 4. Rent: conditions under which there would be no rent. 5. Development of agriculture and land-ownership in the United States. 6. Calculating the rental value of wheat land. 7. High prices of farm products cause high rents of land. 8. The price of land represents the capitalization of rent. 9. From the farmer’s point of view rent is a cost of production. 10. Land not devoted exclusively to wheat. 11. Differences in ability among farmers, and the rent of land. 12. Demand and supply of land, and rent. 13. Demand and supply and the price of land. 14. Marginal producer, marginal land, and marginal bushels. 15. Customary rent. 16. The price of land may be more or less than capitalization of rent at the current rate of interest.

CuapTerR XI. Inprrect Costs In AGRICULTURE : . 190

1. Conditions of demand and supply of land pdeentectaoit 2. Badioes tending to cause arise in rents. 3. Factors tending to cause a fall in rents. 4. General decrease in costs of cultivation tends to cause a fallin rents. 5. Temporarily a rise in costs may cause a fall in rents. 6. Rising rents cause land speculation. 7. Farm owners’ costs are mainly indirect. 8. The farmer’s indirect costs when prices fall.

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CuHaptTerR XII. Economic RENT AND THE UNEARNED INCREMENT

Cuapter XIV. Decreasine Costs, INprIREcT Costs, AND PRICE

CHAPTER XV. Monopoty anpD Monopoty Prick .. .

1. Economic rent in coal mining. 2. Profit and rent in metal mining. 3. Rent in the petroleum industry. 4. Urban site rent and the price of urban sites. 5. Calculating the rent and price of urban sites. 6. The law of diminishing returns and urban sites. 7. Urban sites for residential purposes. 8. The argument for the appropriation of economic rent by the Government. 9. Two methods of appropriating economic rent or confiscating land values, and objections to them. 10. Appropriating the future increase in rent. 11. Further objections to public appropriation of future increase in rental values. 12. Economic rent and inequality of wealth and income. 13. Some special arguments favoring public appropriation of economic rent. 14. Stabilizing the price of land. 15. Conclusion.

CuHaptTer XIII. Cost or PropuctTIon IN MANUFACTURING: DECREAS- ING Cost

1. Brief statement of the principle of increasing cost. 2. Principle of increasing cost applies to all extractive industries. 3. It applies to all other industries to the extent that they require land for their operations. 4. Tendency to increasing cost not strong in manufacturing. 5. Indirect effect of increasing cost in manufacturing. 6. Principle of decreasing cost in manufacturing. 7. Internal economies of large scale production. 8. External economies or indirect advantages of large scale production. 9. Conditions under which external economies are realized. 10. The less extensively and less directly an industry draws its raw materials from extractive industries the more it gains from external economies. 11. Industries in which internal economies of large scale production are limited.

1. Summary of preceding chapter. 2. Competitive conditions under decreasing cost illustrated by the automobile industry. 3. Varying costs of various producers with plants of various capacities. 4. Demand schedules for automobiles. 5. Conditions of cost and demand graphically depicted. 6. Strong incentive to expansion. 7. Competitors forced to expand in the face of falling prices. 8. Expansion naturally continues until weaker competitors fail. 9. Indirect costs in manufacturing. 10. Influence of indirect costs often confused with economies of large scale production. 11. Effect of uneven expansion of plant capacity and output. 12. Upward jogs in cost curves. 13. Indirect costs and competition. 14. The choice between losing less and losing more. 15. The cost of the extra units.

1. Business men and the dragon of competition. 2. Agreements to maintain price and to restrict output. 3. Horizontal and vertical combinations and their advantages. 4. Desire for monopoly often the chief motive for combination. 5. Complete monopoly in manufacturing almost impossible. 6. Difficulty of maintaining prices without complete monopoly. 7. Reasons for doubting that monopolists produce more economicaily than competitors. 8. Monopoly avoids certain wastes of competition. 9. But monopoly leads to greater wastes.

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CuHapter XVII. Pusuic Utinities AND GOVERNMENT CONTROL .

10. Use of statistics to avoid wastes of competition. 11. Monopolies not resulting from pressure of competition. 12. Public utility franchises. 13. Local railroad traffic. 14. Control of limited natural resources. 15. Associations of business men. 16. Aim of monopolists is greater net gain. 17. The law of monopoly price. 18. Conditions most favorable to raising prices and restricting output. 19. Automobile monopolist compared with the wheat monopolist. 20. Conditions favoring and not favoring raising prices far above the competitive level graphically depicted. 21. Conditions under which a monopolist would not raise price above the competitive level.

CHAPTER XVI. InDUsTRIAL MonopoLigs AND GOVERNMENT CONTROL

1. Monopolies and the Government. 2. The common law and monopoly. 3. The cotton-bagging case. 4. The Standard Oil Company’s trustee device. 5. The Oil Trust and the Sugar Trust illegal under the common law. 6. Monopolistic corporations and the common law. 7. The Sherman Anti-Trust Law. 8. How the oil monopolists evaded the common law. 9. Holding companies and monopolistic property-owning corporations. 10. The holding company an excellent monopolistic device. 11. Holding companies and the corporation laws of New Jersey. 12. American Sugar Refining Company case: monopoly of manufacture held not to be in restraint of trade. 13. The Sherman Act applied to railroads —the Trans-Missouri Freight Association case. 14. The Sherman Act applied to labor organizations. 15. The Standard Oil Company of New Jersey dissolved. 16. The Tobacco Combination dissolved. 17. The United States Steel Corporation — a “good trust.” 18. The Clayton Act. 19. The Federal Trade Commission. 20. Difficulties of administration and interpretation of anti-trust laws. 21. Continued government regulation of business combinations desirable.

1. Monopoly in public utility enterprises inevitable: why this is true. 2. Monopoly here also desirable. 3. Government regulation versus government ownership. 4. Government ownership less common in the United States than in Europe. 5. Monopolistic conditions the fundamental reason for government control. 6. Satisfactory service and reasonable rates the primary objects of government regulation. 7. Method of fixing reasonable rates by public service commissions. 8. Calculating operating expenses. 9. Value of the investment in a non-regulated business is the capitalized value of the income. 10. An xi

. 305 example of capitalized income: how changes in income cause changes .

in capitalized value. 11. How changes in the interest rate cause changes in the value of investments. 12. Why public service commissions cannot base their valuations on capitalization of income. 183. Finding the cost of the investment — a logical procedure in rate regulation. 14. Finding the cost of construction at the time of construction less difficult than finding it a generation later. 15. Estimating the original cost and the present cost of construction. 16. How fixing rates on cost of production basis may rob the investor. 17. Effects of a general rise or fall in prices upon investors in regulated industries. 18. Effects of changes in the interest rate. 19. Public utilities and the

Xl CONTENTS unearned increment in land values. 20. Investors in public utility enterprises should be given the status of investors in bonds. 21. Valuation and the courts. 22. Depreciation and valuation.

Cuapter XVIII. Rartroaps AND GOVERNMENT ConTROL . . . 328 1. Railroads and public utilities discussed separately. 2. Size and importance of the railroad industry. 3. Peculiar characteristics of the railroad industry and their results. 4. Decreasing cost, indirect costs, and joint cost. 5. Classification of railroad expenses. 6. Constant, or indirect, costs and competition. 7. Joint cost illustrated. 8. Why extra traffic pays at ridiculously low rates. 9. Difference between extra business of railroads and of manufacturers. 10. Rate discrimination. 11. What the traffic will bear: local discrimination. 12. Commodity discrimination. 13. How competition modifies what the traffic will bear. 14. Effect on competition of few competitors and specialized plant. 15. Water competition. 16. Personal discrimination. 17. Pools, rate agreements, combinations. 18. Through lines and competition. 19. The Interstate Commerce Commission. 20. Primary purpose and complexity of government regulation of railroads. 21. Main provisions of the Interstate Commerce Act. 22. The Commission declared practically powerless by the Supreme Court. 23. Later laws give Commission full legal power over rates, but its power is limited by economic law. 24. Valuation and a reasonable return. 25. The Transportation Act of 1920. 26. The recapture of earnings clause. 27. Government control over new construetion and issues of securities.

CuapTer XIX. DemaANnp ScHEDULES FOR LABOR... Y WSh6

1. Simplicity of the wages problem before the factory date 2. The present wages system. 3. How much can a particular worker expect to get in wages for helping make a product on which many workers codperate? 4. Labor one form of producers’ goods. 5. Demand schedules for labor. 6. Business men may temporarily employ labor at aloss. 7. An employer’s three resistance points to wage increases. 8. What are additional nonessential employees worth? 9. A demand schedule for every class of workers. 10. How an increase in workers lowers the competitive wage level. 11. Why some employers pay more than the competitive wage rate. 12. Some workmen accept less than the full competitive wage rate.

CHAPTER XX. DIFFERENCES IN WAGES de ae deed ii oh tel Jv (ed ne OOO

1. Marginal vendibility of labor, and wages. 2. Conditions under which there would be no differences in wages. 3. Differences in wages arise from differences in attractiveness and complexity of work and differences in natural ability, training and experience of men. 4. Occupations may be classified according to complexity of work. 5. The unskilled labor class of occupations. 6. The skilled and the semi-skilled groups. 7. The clerical group. 8. The professional and big business groups. 9. Non-competing groups. 10. Wages in various occupations equalize demand and supply of workers. 11. Possibility of shifting from one occupation to another. 12. Most men cannot shift upward: the bottom ranks remain crowded. 138. Some

CONTENTS xiil natural talent wasted for lack of opportunity: some opportunity, for lack of natural talent. 14. Demand for labor as a consumers’ good. 15. Wages of business men. 16. The general level of wages depends in part upon total output of industry. 17. Scarcity of labor relatively to land, capital and management affects the wage level. 18. Conclusions respecting differences in wages: money wages and real wages.

1. Wages under competitive conditions. 2. Forcing wages below the true competitive level. 3. The advantages to the workers of labor organizations. 4. Forms of labor organization. 5. The extent of labor organization. 6. The American Federation of Labor. 7. The essentials of the collective bargain. 8. Labor controversies. 9. How much may be gained by Trade Unionism? 10. Conclusions.

CHAPTER XXII. Lasor LEGISLATION... CN UR ane Bp

1. Labor conditions under unregulated Rom betition: 2. The evil of child labor. 3. The evils of long hours and low wages. 4. Industrial accidents and occupational disease. 5. Inadequate compensation to victims of industrial accidents and their dependents. 6. Early opposition to labor legislation. 7. Development of labor legislation in England. 8. Why effective labor legislation has come late in the United States. 9. Child labor laws in the United States. 10. Hours of labor. 11. Laws in the interest of safety and health. 12. Workmen’s compensation laws. 13. Minimum wage laws. 14. Arbitration laws. 15. The Watson-Parker Bill for adjustment of railroad labor disputes. 16. Unemployment.

CyaptTer XXIII. Interest, tHE Price or Loans ... . 442

1. Interest assumed to be a cost of production. 2. Interest Menhed as the price of loans, or premium on present goods in terms of future goods. 3. Conditions under which no interest would be paid. 4. Money has become a medium of lending as well as a medium of exchange. 5. Why some people are savers and lenders and others borrowers and spenders. 6. Lack of foresight. 7. Self-control and habit. 8. Expectation of life and love of posterity. 9. Ambition, ingrained thrift, love of accumulation, large incomes, public spirit. 10. Interest adds both to one’s desire to save and one’s capacity to save. 11. Three reasons for borrowing. 12. Durable consumers’ goods. 13. Borrowing for business purposes. 14. All that is saved is not lent. 15. The rate of interest a price problem — the price of loans. 16. Demand schedules for loans. 17. Supply schedule for loans. 18. The rate of interest equalizes the demand and supply of loans. 19. Pure interest and contract interest. 20. Paying for risk assumed by lenders. 21. Service, liquidity of loans, anticipated changes in interest rates. 22. Bank loans which are not the result of saving.

CuapTreR XXIV. Propucers’ Loans AND THE Rate or IntEREsST . 458 1. How time-preference accounts for producers’ loans. 2. Discounting producers’ goods. 3. Calculating the value of producers’ goods. 4. Productivity of capital. 5. Gross, net, and diminishing productiv-

XIV CONTENTS ity of capital. 6. Marginal productivity of capital. 7. Competition forces business men to resort to roundabout methods of production, or the use of capital. 8. Relation between the rate of interest and the roundabout method. 9. Does marginal productivity of capital determine the rate of interest? 10. Social significance of the time-preference theory versus the marginal productivity theory of interest. 11. Social significance of saving and lending. 12. The rate of interest and the price of land.

Cuaprer XXV. THE QUALITIES AND QUANTITY OF MonEy . . . 483

1. The four functions of money. 2. Qualities of good money: acceptability and portability. 3. Divisibility and homogeneity. 4. Cognizability. 5. Durability and stability of value. 6. Qualities of a good standard of value. 7. Stability of value important in a standard of deferred payments. 8. Why other kinds of money are used although gold is the best money. 9. The peculiar nature of the price and value of gold. 10. The quantity of gold and its value. 11. The quantity theory of money. 12. The equation of exchange. 13. Relation between money and bank deposits. 14. Doubling the quantity of money tends to double prices, but does not necessarily double them.

CuHaptTeR X XVI. StrveR Money IN THE UNITED STATES oe ONS

1. The coinage law of 1792 provided for free coinage of both silver and gold. 2. Why gold was not taken to the mint. 3. New silver coins victims of Gresham’s law. 4. The mint ratio changed to 16 to 1 in 1834. 5. Subsidiary Coinage Act of 1853. 6. Dropping the silver dollar — the ‘‘crime of 1873.’”’ 7. Reasons for the free silver controversy. 8. Sources of support for the free silver campaign. 9. Debtors stood to gain by the free coinage of silver, and more money. 10. Why business men may favor more money. 11. The silver purchasing acts and the Bryan campaigns. 12. Why bimetallism was abandoned in the United States. 13. Bimetallism might have been saved with advantage by coéperative action among leading nations.

Cuapter XXVII. GovERNMENT Parser Money sigue . 510

1. What government paper money is. 2. Geld and silver certificates. 3. Credit money and fiat money. 4. Why credit money is issued. 5. Apparent advantages of a moderate issue. 6. A real net gain is possible from a moderate issue. 7. Government paper money breeds more paper money. 8. Results of immoderate issues of government paper money. 9. Robbing Peter to pay Paul. 10. Fiat money most commonly issued under stress of war.

CuHapTeR XXVIII. Bank Deposits AND BANK Notes . . ie) 2

1. Classes of banking institutions. 2. Savings banks and their services. 3. Investment banks and trust companies. 4. Commercial banks and their main purpose. 5. Organizing a state bank. 6. Beginning banking operations. 7. Discounting illustrated. 8. Advantage of granting loans in the form of deposits. 9. Maintaining a safe cash reserve ratio. 10. Ratio of loans to deposits. 11. What is a safe reserve ratio? 12. Natural antagonism between reserves

CONTENTS XV and profits. 13. Bank notes compared with bank deposits. 14. Desirability of legal regulation of bank note issue. 15. Difference between bank loans and other loans.

CHAPTER X XIX. Bank CreEpit AND Business CYCLES J nOO9

1. A business cycle defined. 2. No exact periodicity of ties 3. Business cycles natural result of relations between banks and business. 4. The period of depression. 5. Recovery aided by cheap bank loans. 6. Accidental circumstances may hasten prosperity. 7. Stock market may foreshadow prosperity and boom. 8. The business boom. 9. Reckless buying and speculation. 10. The rise in prices and the expansion of bank loans. 11. Bankers and business men welcome the expansion in bank loans. 12. Loan expansion reduces the reserve ratio. 13. Why prices fall when loan expansion ends. 14. When everybody unloads, the crisis. 15. Why business men profit in the early stages of the expansion. 16. Howrising costs bring failure. 17. Crises and panics. 18. The gains and losses resulting from business cycles. 19. Are crises and depressions blessingsin disguise? 20. Increase in the supply of money, and expansion.

CHAPTER XXX. GOVERNMENT REGULATION OF BANKING IN THE UNITY STATES EU Cheeta 6 | nea ie. HS

1. Requisites of sound financial conditions. 2. We have suffered little from government paper money. 3. Our government has not prevented unsound expansion of bank credit. 4.'The First and Second Banks of the United States. 5. The National Banking System and national bank notes. 6. Reserve against deposits under the National Banking System. 7. Why many banks did not join. 8. Value of the note issue privilege. 9. What constitutes an ideal banking system. 10. Note issue under National Banking System inelastic. 11. Deposits subject to inflation and reserves inadequate in time of need. 12. Causes of strain. 13. The Federal Reserve System. 14. Member Banks and cash reserves. 15. Reserve Banks and cash reserve. 16. Reserve Banks are bankers’ banks. 17. Rediscounting illustrated. 18. Why member banks borrow. 19. Rediscounting and expansion of loans. 20. Effect of expansion on Reserve Banks’ reserve ratio. 21. Limits of expansion. 22. Inflation easy under Federal Reserve System. 23. A good financial shock absorber but not an ideal banking system. 24. Federal Reserve System could stabilize prices. 25. The use of index numbers. 26. The Federal Reserve Board policy, 1923-1926. 27. Stock of money of various kinds in the United States on May 1, 1926.