140. The Stock Market Crash—dAnd After 
growth, not past growth, that gives value. In recent 
years the stock market has reflected increasingly 
through the operations of investment counsel and 
investment trusts, more intelligent calculations of 
future growth. 
Effect of Invention on Price-Earnings Ratio 
The effect of new inventions on the ratio of the 
price of stocks to earnings is to increase that ratio, 
because what gives these new stocks their value is 
the future earnings after the new process will have 
had time. This necessarily implies that, in the mean- 
time, the earnings are so small that the price-earn- 
ings ratio is high. For instance, the public utilities, 
up to the September and October breaks in the 
market, showed a ratio of prices to-earnings of more 
than 20 to 1. That is, the prices of stocks were 
over twentyfold the earnings. The reason for this 
high level of prices relative to earnings lay partly 
in the increased gains to be expected in the spread 
of application of new inventions through the power 
group of industries. There has been much careless 
talk, since the crash, about stock prices having been 
inflated far above what earnings warrant. But the 
people who say this so glibly do not specify the 
particular stocks. When any actual stock is exam- 
ined with an unusually high price relative to its cur- 
rent earnings it is almost invariably found that it 
tepresents a new and very promising invention, and 
that those who have bought the stock and put its 
price so high are not so much the ignorant public