Changed Ratio of Prices to Earnings 83 
who has read a draft of this book believes that two- 
thirds of the rise of stocks since 1926 was justified by 
earnings; that is, a rectified price level should be at 
167, on the basis of 100 for 1926. My own picture 
of the proper level of the plateau is only slightly 
higher, say 175, on the basis of 1926. 
It is, of course, impossible to tell to what extent 
stock split-ups, and inability to earn future dividends 
at a rate comparable to the increase of savings at com- 
pound interest, are possible for companies plowing- 
back their earnings; or to what extent they are un- 
derstating their earnings. But a rough measure of 
their average success in increasing the rate of earn- 
ings is to be found in a comparison of the rate of 
increase in stock prices during 1929 with the rate of 
increase in total earnings for that year, as compared 
with 1928. 
Inflation Preceding the Crash 
With respect to the quarter immediately preceding 
the stock market break, it has been stated that 
stock prices were rising much more rapidly than 
earnings. Thus Mr. Laurence H. Sloan testifies con- 
cerning the calculations of the Standard Statistics 
Company: 
“Our index of the market value of 405 leading 
industrial, utility, and rail issues rose, during the 
three months immediately preceding mid-September, 
at the rate of 76 per cent per year. At the same 
time it was clear that earnings of leading industrial 
concerns could not, by any stretch of the imagina-