Changed Ratio of Prices to Earnings 83 
prices of a few active stocks; this was the weak link 
of the chain; some of the supposedly conservative 
investment trusts were buying certain stocks at in- 
sanity levels.” Doubtless this accounts largely for 
the rapid increase in price of certain stocks as com- 
pared with the increase in their rate of total earnings 
during the months immediately preceding the break. 
But it is important to note that during 1929, as 
compared with 1928, the price earnings ratio fell 
not only on the average, but for a majority of the 
individual stocks listed in the Standard Statistics 
Company’s compilation. 
The increase in the price earnings ratio for pub- 
lic utilities during the first nine months of 1929 
was due to the greatly enhanced expectation of earn- 
ings on account of the mergers in this field and ac- 
companying introduction of sweeping economies in 
operation. Up to a certain point this increase in 
the ratio was justified. Also, in the cases of the 
great majority of stocks, while prices were going up, 
earnings were rising faster than prices. When dur- 
ing 1928 people bought on a high price-earnings 
ratio, expecting the earnings to go up still further, 
they were justified so far as the next year, 1929, 
was concerned, and during that year—at least, until 
the ninety days preceding the panic—the high market 
seems to be justified on the basis of anticipated earn- 
ings, which were behaving as expected. It seemed 
extremely probable that 1930 would show still 
higher earnings and go on justifying the situation 
of buyers in 1928 on a rising market.