"The second sort of price movement to be considered is the price of money, the course of interest rates. In the summer of 1920 the interest rates on commercial paper reached a high point of eight percent. From that peak they fell for two years, until in this August they were below four percent. Since then they have been rising, and it seems probable that they will tend to rise rather than to fall during the rest of 1922. If industry continues to expand during the early months of 1923, interest rates will probably advance. If they do advance in any marked degree in the early months of next year, that upward movement will probably foretell the turning point in the stock market. My personal opinion is that money rates will advance next year.

"The third group of prices to be considered is that of general wholesale commodities. They are now rising, and they have been during most of the present year. They are rising, because of a short supply of manufactured goods, an abundant supply of credit, and an increasing purchasing power of farmers, miners, and industrial workers. These same influences bid fair to carry the advance along for some time to come. An individual forecast would be that they might be expected to turn down some time next fall, perhaps about a year from now.

Wages Also Going Up

"The last of this group of four kinds of prices is the prices of labor, commonly termed wages. These are rising, after having gone through a long decline. They will probably continue to rise next year, and it would be reasonable to expect that they might advance during all of 1923, for the turning points of wages ordinarily come somewhat later than those of the prices of goods or of securities.

"At this point it is appropriate to consider what influence or influences will probably call a halt on the expansion of business when the time comes for it to turn the corner, and begin the slowing down process. In the past the turning point from prosperity to business decline has characteristically come when expanding commerce and industry have made such great demands for money as to cause a shortage or a stringency of credit. When that has happened interest rates have risen so high as to discourage further business expansion, and to result in a general slowing down of activity.

"At present no such prospect is in sight. Banks throughout the country have great amounts of loanable funds. They have far greater investments than ever before, and these could readily be converted into loanable funds. The Federal Reserve System has immense gold holdings which might form the basis of an almost unlimited amount of credit. If the present expansion of business were to go forward until halted by a shortage of credit we might well look forward to a very great business boom.

"It seems probable that the present business, expansion will be halted, not by a shortage of credit, but by a shortage of labor, complicated by a shortage of railroad transportation, and it seems further probable that those two shortages are already well on the way toward becoming serious. During the peak of the boom in the spring of 1920 manufacturing firms began an active and aggressive competition for labor, and when that happened manufacturing costs ran up and profits disappeared.

Labor Shortage May be Serious

"Already shortages of labor are beginning to appear. As they grow more acute, competition for labor will take place, wages will go up, efficiency will decline, and business expansion will probably halt. While this is going on the existing shortage of railroad transportation will probably continue to be serious, and that in turn will increase expenses and discourage enterprise.

"In summarizing the prospects for next year's business it may be said that it now appears probable that 1923 will be a year of business prosperity that will culminate and begin to slow down before the end of the year. Among the statistical measures of business and industry there are some that will probably advance, some that may be expected to decline, and some that will in all likelihood both advance and decline.

"Among those that will probably advance are the following: Interest rates, wages, railroad car loadings, automobile output, money in circulation, cost of living, unfilled orders of the Steel Corporation, bank loans; iron and steel production, traffic on the Great Lakes, rediscounts with the Federal Reserve Banks.

"Among those that will probably decline are the following: The price of bonds, the number of failures, building construction, the reserve ratio, bank investments.

"Among those that will probably rise first and then fall are the following: Stock prices, wholesale commodity prices, the volume of manufactures, the volume of employment.

"To the foregoing it might be added that there will probably be during 1923 an increased number of marriages, an increased number of divorces, and a decreased number of suicides, for these are regular accompaniments of a period of prosperity."

Mr. G. W. Norris, governor of the Federal Reserve Bank of Philadelphia, discussed "The Objective of Federal Reserve Credit Policy".