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Doctor COMMONS. That there is no conflict between the two; that the two operate together ?

Doctor MILLER. I do not know. I will tell you frankly that even in the days when—I should say in the early nineties—we had a revival of an acute interest in money and price phenomena, and men were expected to take sides either by proclaiming their faith in the validity of the quantity thereof or against it; it never really made much of an appeal to me, and it does not now. I feel that, taking that as a touchstone or test of a man's economic faith—it does not mean very much to me. Personally I would suppose that no man would deny that changes of conditions affecting the supply of money and credit have an important bearing upon price changes. I would also

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You spoke of three things that guided you—experience, experiment, and judgment. Now, what do you mean by judgment?

Doctor MILLER. Of course, you are aware that psychologists will tell you that the judgment process is the most difficult one to analyze and describe.

By judgment as I use it in discussions of this kind I mean most frequently what I would call the judgment of degree. I think most commonly men who have good abilities will agree upon what might be called the qualitative analysis of any situation. They will agree upon a specification of the factors that enter into a given situation, but when it comes to their evaluation, to saying that this is.5 or 10 per cent responsible, this is 3 per cent, or 17 per cent, and so forth, they may differ. In other words, you are then dealing with forces that are imponderable, immeasurable, except by what I call the process of judgment.

Into that goes your experience, your scientific and intellectual equipment, yoiir imagination, your capacity to sense things. I t is what makes the difference frequently between a man of great capacity in business and another of lesser capacity.

Now, of course, into the judgment frequently enter many factors that are at least in an approximate sense measurable. A good deal of the scientific apparatus of the laboratory in medicine or in the Federal reserve is set up for the purpose of ascertaining, if you please, the knowable quantities so as to reduce those that are incapable of exact determination or perhaps even of approximate determination and which therefore have got to be referred to the judgment of an individual or a group of individuals who have to take the responsibility for acting.

Let me go perhaps a little step further here. You have asked about this term. I would say that judgment, as I can conceive of it in relation to such matters as Federal reserve administration, also implies the power to select the factors of difference in a different situation from which you have previously dealt with. In other words, you might give the proper valuation to 10 or 12 different factors in this situation. Some of those perhaps have got to get a different appraisement in a different situation; therefore good judgment means that you also sense what are the factors in the latest situation that have gained in relative importance, and which, therefore, in the language of our index number making, we describe as a different weighing. I should say it is knowledge of how to weigh these factors, as well as what the factors are, and to free yourself from valuations which you have attributed to them in the past.

Doctor COMMONS. Well, then, according to that, good judgment always looks toward the future effects of any action that you may now take.

Doctor MILLER. Action always looks toward the future, and judgment, as I see it, is for the purpose of action.

Doctor COMMONS. YOU would not call that a cause-and-effect relation ? You do something now, say open market and discount, with the idea that in the future it will have certain effects. Now, your idea is that that factor to which you have for the time being given the greatest importance will work out toward a certain result in the future. That is about what judgment means, then; it means

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Doctor MILLER. Yes; sometimes to a very slight degree; sometimes to a pretty considerable degree; and sometimes I would feel that the changes in the price level were a very important and essential indicator, and that would be when I felt that the situation warranted an increased weighting of that factor, and at other times I would be disposed to pay practically no attention to it. I would not pay much attention to it now, for instance, in the determination of a question that came before the Federal Reserve Board to raise or lower discount rates, to put into the market or take out of the market two or three hundred million dollars.

Doctor COMMONS. If this bill were enacted into law you would be required to take into account your expectations, the effect of what you do upon price movements, would you not?

Doctor MILLER. It would contemplate that, undoubtedly.

Doctor COMMONS. A matter which you do not now consider of importance except as conditions change?

Doctor MILLER. Personally I consider it of importance when it is important, in my judgment. When it is not important I do not pay much attention to it.

Doctor COMMONS. YOU use your judgment to tell which is important ?

Doctor MILLER. Exactly.

Doctor COMMONS. And if Congress proposed to say that you shall use your judgment to determine that prices are important Doctor MILLER (interposing). Always important; uniformly important.

Doctor COMMONS. SO that your judgment under such a guidance will probably be somewhat different from what it is now, when you do not necessarily Doctor MILLER (interposing). It ought to be, if one is, at my age, capable of refashioning his mental processes to fit the requirements of a legislative mandate. I do not know to what extent that is possible.

Doctor COMMONS. Personally I believe you could fit yourself very well into this bill.

Now I want to ask you about the statistical charts which you have developed as an aid to what I would call this prediction or judgment of what is going to happen. As I understand it, those statistical compilations were not begun until about in 1922—September, 1922— when Mr. Stewart came to the research and analysis division ?

Doctor MILLER. They were begun earlier, but the more active development and the publication of results came in 1922.

Doctor COMMONS. What do you mean by more active development ?

More prompt development?

Doctor MILLER. N O ; I meant more concentrated study of various groups of data thought to be relevant to the effective handling of credit problems by our division of research.

Let me just refresh my recollection. My recollection is, Doctor Goldenweiser, that we began some of these in 1919, that in 1920 they were carried on, and in 1921 we were pretty active?

Doctor GOLDENWEISER. I think so.

Doctor MILLER. But they did not come to fruition, so to speak, until a large amount of preliminary work had been done, and they did not appear in publication until the early part of 1923. If I

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tistics and the figures the board of trade had, etc., and they would furnish the best basis for international prices.

Doctor COMMONS. What I want to know Doctor MILLER (interposing). You want to know why publication of a price chart was discontinued in the bulletin; is not that so ? Not the specific price curves that the Federal Reserve Board itself had been constructing, but why the price chart disappeared?

Doctor COMMONS. I will put it thisi way. The Bureau of Labor and the board of trade did not publish their statistics in an analytical form such as you evidently started out to do. That is, you distinguished export prices, import, domestic, and so on, and had your separate index numbers for those different prices.

Doctor GOLDENWEISER. The answer to that, somewhat in detail, Mr. Commons, is that these people also analyzed prices, although they did not analyze them in the same way we did. We found that the import and export classification was not a satisfactory classification, because the imports in this country applied to only a few commodities and the export group was very much dominated by the price of cotton, and we found we would not get any additional light out of them. The official foreign indexes are also grouped; the grouping of the board of trade, for instance, is shown on page 850 of the bulletin for May. It includes the food and nonfood products and then the industrial products under certain other groups, and we found by actual experiment that these groupings that they were making were more significant than our groupings, in which the exports and imports seemed the most significant but turned out not to be. The other grouping we had was into raw materials, semifinished products, and finished products, and we found that this grouping did not work out; that it was too complicated and that there were difficulties in definition, and all the work we did in trying to make use of those figures turned out to unsuccessful; so we decided that we were no longer justified in spending money on those compilations when they were not yielding any results.

Doctor COMMONS. The point I am getting at is this: I have taken your chart and I have analyzed the index number and divided it into exports and imports and the general average, and I find that since 1919, when there was a rise in prices, the export and import prices rose much faster than the general level, and when there was a full in prices, the same happened. This is what I gathered from your charts up to as long as I continued it.

From that I would draw this inference The CHAIRMAN. Can we not identify this chart so as to have it in the record?

Doctor COMMONS. This is a chart of wholesale prices, having three curves, one being of commodities, of the Federal Reserve Board, and later of the Bureau of Labor; the second being exported goods; and the third being imported goods, with the index numbers of each.

(Chart, commons; whole prices, p. 278.) The CHAIRMAN. Without objection, this chart will be inserted in the record at this point. We will call it the chart headed " Wholesale prices2 1913, equals 100, covering the years 1919 to 1928." The clerk will insert the proper number, to more properly identify it.

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Doctor MILLER. I would suggest at this point, in case this chart goes into the record now or is referred to, in view of the fact that we have here a chart contributed by Doctor Commons, that these charts be marked " Federal Reserve Board," so that they can be distinguished from one another.

The CHAIRMAN. The clerk will make note of that so that there will be no confusion as to the origin of these two charts.

Doctor MILLER. YOU see, in 1927 there is a very sharp rise in the price of cotton. I can not say offhand—perhaps you can, Mr.

Goldenweiser—about approximately what the ratio of the value of cotton exports is to our exports during the autumn months.

Doctor GOLDENWEISER. I should say about 25 per cent.

Doctor MILLER. SO you see it will pull up prices of export commodities very materially. We had the same general movement, though in a less pronounced degree, with regard to grain. We know last year was a good grain year.

Back in 1924, we had a very pronounced upward movement in the price curve for grain. We know that that was due, firstly, to the short crops in Europe. The autumn of 1924 was a bad wheat year in Europe, and the establishment of credits in this market enabled the European consumer and the purchaser to get our goods and pay those prices. Approximately the same is true of cotton. So that I would say that, with regard to the exports, the primary factor of variation is the state of the European or outer world demand, the state of our crops, and the resulting prices. Credit also comes into it; it came into it strikingly in 1924.

Mr. WINGO. I think this chart should reappear in the record right at the beginning of this statement.

Mr. GOLDENWEISER. We can very well have it reinserted.

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Doctor COMMONS. I notice the acceptance rate makes an extraordinary spread from what is called the bank discount rate in 1924.

It drops down to 2 per cent, whereas the discount rate on commercial paper is 3 per cent.

Now, would that facilitate the furnishing of credit to Europe through bankers' acceptances? Would it cooperate, in other words, in helping raise the prices of exports and imports ?

Doctor MILLER. I do not answer your last question because Doctor COMMONS. YOU do not know?

Doctor MILLER. I do not know, and, from my point of view, it is an approach at the wrong end, but that does not mean that you may not be right. I would say it is a factor in the cost of importation of American products. Now, to the extent that Europe will take more grain when she can import it at a little less cost by reason of the fact that credits for financing it can be arranged in the New York money market, at a lower rate than the current rate in London—to that extent it may do what? It may result in a brisker demand in this market, in which case the price would be higher, or it might result in the importation of a larger amount which would be sold in Europe at an existing price.

I do not believe there is any method by which you can tell, particularly in the case of commodities like grain and cotton, whether a revision in the cost of financing through a lower acceptance rate, either in New York or London or anywhere else, is going to raise the price or simply increase the amount taken at a given price.

I do not know as it would be worth while, Doctor Commons, except as you want to pursue this particular thing, to introduce into the discussion here the terms "elasticity" and " inelasticity" of demand, but we do know from studies that have been made that there are certain commodities the consumption oi which is very quickly stimulated by a reduction of price. The same commodities will be those in which there is a contraction in the amount that will be taken the moment the price shows a disposition to go up.

Mr. BEEDY. Those commodities are notably what?

Doctor MILLER. Those commodities, the commodities whose consumption would change quickly with a change of price, belong to the group of what we might call articles of optional consumption, and notably the luxuries.

It is probably true that if the price of automobiles to-day could by reason of some superorganization be cut in half it would get response in the increased use of automobiles.

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