xxil

Introduction

cate problem, those legislators and leaders of business
 and finance to whom the nation looks for guidance,
 owe it to themselves and their country to
function as a fair court and to hear the other side.
To begin at the beginning: Since every stock price
represents a discounted value of the future dividends
and earnings of that stock, there are four reasons
that may justify a rise in the price level of stocks:
(1) Because the earnings are continually plowedback
 into business instead of being declared in dividends,
 this plowing-back resulting in an accumulation
at compound interest, so to speak;
(2) Because the expected earnings will increase
on account of technical progress within the industry;
(3) Because less risk is believed to attach to those
earnings than formerly;
(4) Because the “basis” by which the discounting
is made has been lowered.
When the situation is calmly examined, it is found
that all four of these causes were at work, tending
to raise the prices on the stock market during the
years preceding the panic of 1929.