The student may enter this large and important branch of the subject as deeply as he likes. There are many excellent works dealing with the various phases of the subject, and the question has been so long and carefully studied by writers, that many important points have been established so definitely as to admit of little diversity of opinion. The bank statement which is issued weekly by the New York Clearing House, is eagerly scanned by traders, but it is not always the case that this scrutiny is thorough or enlightening. The statement at its best, cannot be considered more than a barometer, and its showings are by no means exact, as it is based on a system of daily averages. That is to say, the banks figure their loans, deposits, etc., for each day of the week, and report the averages to the Clearing House. This method often leads to a false showing. Commenting on this fact, Mr. S. S. Pratt in his book, “The Work of Wall Street,” says: “A striking illustration of the effect of the law of averages upon the Bank Statement was given in September, 1902. The statement of September 20 reported a loss in cash of $7,300,000, while the actual loss, so far as it could be estimated, was only $3,600,000. The statement of September 27th, on the other hand, reported a gain in cash of $1,790,000, while the apparent loss was $4,000,000. The former statement reported a deficit in reserve; the latter a surplus.” It is the practice of many speculators to examine the bank statement merely as regards the changes made from week to week, without reference to the more important totals. A decrease in reserves is considered an evil, etc. There is something in this of course, but such methods and deductions are incomplete and insufficient. A decrease in reserves when the surplus is very large may be practically meaningless, while the same amount of decrease when reserves are small may be significant. It is a good deal like the difference between a man spending a dollar when he has a hundred, and spending his last dollar. The most important general information to be gained from the bank statement, is by a comparison of loans with deposits, and specie with loans. We may thus arrive at a fairly correct idea of the state of trade and the expansion of credits. If we find that loans are in excess of deposits, and the percentage of specie small, we may, with certain qualifications, deduce inflation; while on the other hand, the extent of liquidation may be judged in case these conditions are reversed. As an example of this process, the following historical facts are given.