The Washington herald., 1921-10-31
Demands on Buildin g
Trade Encouraging
Factor.
STEPS LEADING TO
RECOVERY GIVEN
Absence of Foreign De
mand, Taxation and Ia
riff Lend Uncertainty.
BY WESLEY CLAIR MITCHELL.

BY WESLEY CLAIR MITCHELL.
Current statistics interpreted In
the Hight Of past experience indi-
cate that American business is now
in the early stages of recovery from
a year-long depression The nor
NAL expectation is that such a re-
vfvaI will gradually gather momen-
tum and develop into a period Of
full-blown prosperity. So much was
shown by the first article in this
series.
But II was also shown that no
two business cycles run exactly the
same course The revivals Of 1879
so, of 1885, off 1897, Of 1904-05. and
of 1sOS-O9 are all precedents to
which we may appeal in judging
the present case; but these prece-
dents differ in important respects.
The rate of improvement was much
faster in some of these instances
than in others. While most of these
revivals were preludes to business
booms, the prosperity that followed
the revival of 19OS-O9 was neither
intense nor long sustained. And
there are more striking cases of
disappointment: The good times
brought back by the revival of 1891
were cut short by the panic of 1898.
and the revival of 1895 relapSed
miserably into renewed depression
The real conclusion to be drawn
from experience, then, is that each
phase of each business cycle has
its Individual idiosyncrasies as well
as its family resemblances. That
conclusion estops US from any sum-
mary application of past prece-
dents to the present case. But 1t
does not estop us from an analytic
use of the lessons of experience.
For most of the idiosyncrasies OF
past revivaIs, booms, crises, and
depressions can be explained by
careful study of the conditions that
preesde or accompanied them. Ac-
cOrdinGly, to learn all that we can
from the past about the near fu-
ture we must analyze the process
Of business revival to- hnd its gen
ersIs characterfsties and then in
zs4ntre how present conditions differ
trom those amid which other re-
Nivals began.
When Hard Times Come.
\ period OF hard times is char
aCterized by fall of prices for
commodities, securities. and labor;
widespread idleness of men and
ElaChincs; a shinkage in both fam
iy and business demands for al
most all classes Of goods; a grad
UaI depletion in the condition of
clothing. house furnishings, and
much equipment used in business;
a reduction in the stocks of goods
carried by merchants. manufactur-
81 -r1durfFnD r. hN- N
ers. and dealers in raw materials;
a paving Of reduction costs by in
creased eXertiOns on the part of
management and labor: a liquida-
tion of business debts and a writ
ing of of losses. a contraction of
bank loans. an increase of bank
reserves, and a decline in discount
rates.
In the early stages of depression
these conditions work Cumulatively
10 reduce business activity. But
after a period that varies in length
with the duration and character of
the preceding boom, certain of
these conditions lead to a slight
but significant increase in the VOL
ume of trade. Shoes and suits,
house furnishings. and business
accessories gradually wear out be-
yond the possibility of repair,
we make last longer in hard times
These are examples of a wide va
ripty of semidurable goods which
than flush. but which we have to
replace after a while, however
economical our mood
When that time comes. the re-
tail stores and supply houses note
that business Is picking up a trifie.
Meanwhile the reduction of stocks
in the hands Of dealers has gone
so far that merchants cannot longer
supply current purchases from the
wares on their shelves, but must
place hand-to-mouth orders with
manufacturers. The manufacturers
In turn must order more materials
and employ more men. The in
crease in wage payments gives a
new f1lip to consumers demand and
so reinforces the movement. Thus
begins an increase in the physical
volume Of trade, at first very slight
and growing at a slow rate; but ca
pable, IL II runs Its cumulative
course unchecked for a few months,
Of changing the face Of affairs,
Certain of the other conditions
Characteristic of depression facili-
tate the incipient revival. The liqui-
datlon Of old debts and the writing
off of old losses remove financial
obstacles. The pairing down of costs
enauIes men to make moderate prof.
its from selling prices lower than
those they could have accepted be-
fore the crisis. The high reserve
ratios and the shrunken loans of the
banks make them able and eager to
provide credit for the conservative
expansion Of business, and the low
rates Of interest encourage borrow
ing.
Presently prices stiffen under the
influence of recuperating demand.
Then merchants anticipating a rise
begin to place orders exceeding
their current requirements. When
manufacturers find their orders for
future delivery mounting towards
satisfactory totals. they contract
for larger<supplies of raw mater
ials and consider the advisability Of
up prices Confidence In
creases among all classes, security
prices reflect the prospect Of better
profits. construction work OF all
sorts is added to the growing de-
mand. and the revival passes over
into prosperity.
Now, this Is a generalized sketch Of
such a revival as has Just started
among US. A moderate increase Of
buying Is reported from numerous