Page 138 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Statistical Methods in Economics

Notes

1904

Money in Circulation and Bank Reserves. Bank Reserves. Money in Circulation inclusive of Bank Reserves. 1899

CHART I.

1879 1889

250 200 150 100 50 0

Upon examination of the curves plotted from the two series of statistics representing general prices
and relative circulation (the left and right-hand sides, respectively, of the price equation) Dr. Kemmerer
concludes, “The general movement of the two curves taken as a whole is the same, while the individual
variations from year to year exhibit a striking similarity.”
The graphic method of comparing fluctuations is well enough as a preliminary, but does it enable
anyone to tell anything of the extent of the correlation between the series of figures being considered ? Is Dr.
Kemmerer warranted in deducing his conclusions from observation of the charts ? It seems to the
writer that one opposing the quantity theory might draw opposite conclusions with as much (or as
little) reason. The charts do not answer the questions proposed. The painstaking collection of statistics to
test correlation is useless if there be no more reliable method to measure correlation. A numerical
measure of the correlation must be found if we wish to determine the extent to which the fluctuations
of one series synchronize with the fluctuations of another series.
A second illustration of a conclusion based upon graphic representation is that of Ira Cross in his
study of strike statistics. He says, upon consideration of data taken from the Twenty-first Annual
Report of the United States Bureau of Labor, “the percentage of successful strikes decreases during
periods of business prosperity and increases during ‘hard times.’ “ In the accompanying charts the
per cent. of establishments in which strikes were successful is plotted, first, with the per capita exports
and imports and second, with index numbers of wholesale prices. The foreign trade and the price
statistics are taken as indicative of the activity of business, as indices of prosperity.
A third illustration of a conclusion relating to correlation is taken from the London Statist of April 4,
1908, where the proposition is made that, “When commodities advance prices of Stock Exchange
securities recede; when commodities recede Stock Exchange securities advance.” The proposition is

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