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measurement of the factors which influence prices. Statistical measurements can be reduced to index numbers, and can be portrayed by graphs and charts, so that business men can grasp readily the quantities presented. A whole technique of measurement has grown up, and has become useful in guiding the estimates which are made of supply and demand. Although still in its infancy in many ways, nevertheless this technique has laid firm foundations and has already made important achievements. In business, it is utterly inadequate to refer vaguely to abstract logical concepts of supply and demand. The necessities of the money economy urge upon the business man the importance of knowing how much supply and how much demand there are over a stated period of time.

For purposes of illustration, certain samples of statistical measurement are presented in accompanying diagrams. These samples make no pretense to affording a thorough and complete description of the technique of measurement. Such a task belongs in a separate intensive study of business statistics and their interpretation.

Statistics of supply may be given in the form of absolute quantities of a product. For example, they may be given as millions of tons of 'coal, or millions of bushels of wheat. But for convenience in use, these raw statistics may be reduced to index numbers of various types. The accompanying charts present index numbers of production, the indexes being calculated as percentages of an estimated normal. This estimated normal is a mathematical fiction in a sense, since it is not the actual production but the assumed production under certain conditions. It is computed on the basis of the average rate of growth and the average seasonal fluctuation for a given date. Computed normal is the amount which production would be if the industry followed the rate of growth which has prevailed in the recent past and if it followed the average seasonal variation. The indexes in the table on page 149 show whether production is above or below the estimated normal, and how much it is above or below.

These indexes may be used to gain a long range view of production movements by charting the data over a period of years. The diagrams on page 150 afford comparisons between various lines of industry over the period from 1920 to 1925.

It is obvious that some industries are above normal when others are below normal, and that the magnitude of fluctuation varies widely. Such variations show forcefully the need for individual study of supply in each separate industry. In large measure, the fluctuations above and below normal are interwoven with the general business movements which have come to be called the business cycle.

The diagram on page 152 presents the differences in production as between two major classes of goods, those intended for use by consumers and those intended for use by producers for further production. The individual goods included in each classification were shown in the table. above.

In general, it will be noted that consumers' goods fluctuate less violently than producers' goods. The output of producers' goods in the summer of 1921 was barely one-third what it had been in the early part of 1920. The output of consumers' goods was nearly two-thirds in 1921 what it had been in 1920.

The foregoing tables and charts pertain to current production. They represent measurements of the new supply that is being put on the market by the present operation of industry. But current output is by no means a complete measure of supply. In addition, it is necessary to have a measurement of the accumulated stock of goods on hand.

PRODUCTION OF CONSUMERS' GOODS AND PRODUCERS' GOODS

(Computed Normal = 100 Per Cent)

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• Monthly Review, Federal Reserve Bank of New York, November 1, 1923, p. 5.

Accumulated stocks vary widely from time to time. If goods have been accumulating on dealers' shelves and in warehouses, the situation means that current production has been running ahead of current consumption. The diagram on page 153 shows the different fluctuations of stocks of goods and of current output of goods.

The nature of accumulated stocks varies significantly from industry to industry. In manufacture, if producers discover an excessive accumulation of stocks, they can close down their plants and mitigate the consequences of overproduction. In agriculture, if excessive stocks are discovered after crops are planted, there is no way of closing down the activity of the farm. Current farm production is relatively slow in adapting itself to the conditions of accumulated supply. In refrigerated products, figures showing the amount of butter, eggs, and like products in cold storage are of leading importance. In cereal crops, the carry over of supply from one year to the next has to be taken into account. As the factors vary from product to product, the individual analysis of each product is necessary.

The diagram on page 154 illustrates the application of statistical technique to the problem of automobile supply:

On the side of demand, statistical measurement is useful in estimating the rate at which goods are moving into consumption. Two stages of the process of distributing goods to consumers may be noted. The first or primary stage is represented by the volume of goods being

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handled by railroads, by the volume of wholesale trade, by exports and imports, and similar series of items. The second stage is distribution. direct to the consumer, and is represented by sales of retail stores and similar items. Moreover, permeating both of these stages is the factor of general business activity. The tempo and intensity of business vary greatly from time to time, and in order to measure the probable demand for goods, it is necessary to know the general tone of business. Consequently, the attempts to measure demand resolve themselves into three major classifications, primary distribution, distribution to consumers, and general business activity.

The table on page 155 illustrates data bearing upon these three major classifications of demand statistics.

These indexes may be plotted over a period of years, to show the characteristics of their fluctuations. The diagrams on page 156 afford a long-range view of various items.

SUPPLY IN THE AUTOMOBILE INDUSTRY*

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Business Bulletin, Cleveland Trust Company, May 15, 1924.

These diagrams bring out the sharp differences between various items. Factory employment reflects variations in wage earners' purchasing power. Railroad traffic reflects the movement of goods in the direction of consumers. Wholesale trade reflects the anticipations of retail trade.

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Monthly Review, Federal Reserve Bank of New York, May, 1925, p. 5.

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Department store sales and mail order sales reflect the actual movement of goods into the hands of consumers. Each item has a particular significance.

The purchasing power of farmers is sensitively reflected in the volume. of mail order sales. The decline in mail order business in 1920 to 1922

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