xxil 
Introduction 
cate problem, those legislators and leaders of busi- 
ness and finance to whom the nation looks for guid- 
ance, 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 plowed- 
back into business instead of being declared in divi- 
dends, 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.