The Washington herald., 1921-11-12

vice HFeSfQenL NaIlOtidl DAM Va
Commerce.
Belief-human psychology-is the
animating force Of the business cycle.
Men always believe that prices are
either going up or going down. and
act on their belief. So long as the
community. believes prices are going
higher, business is brisk. Conversely
when the belief prevails that prices
are going to be lower, business Is
poor Between these two states OF
mind. and the periods that they pro-
duee. we have usually a twilight
zone" OF hesitation-the twilight Pc
rtod at the base Of declining prices
being usually longer than at the top
or an advancing market. when men
are apt to quickly change their posi-
ton to get from under"
Prof. Kemmerer in his articles In
The Washington Herald's business
wisely said: - s
The business cycle fthrives on un-
certainty" ~
The existence Of the business cycle
has been RECOGNIZED as an established
fact for a great many years. and
business men have operated in the
face Of such cycles ever since the
modern industrial Organization be-
come well established. In America we
have had major business cycles. cul-
minating in crisis or panics, about
every twenty years since the earlier
years Of the nineteenth century. Sc
we're crises occurred In 1887. 1857.
1878. 1898 and 1907. lthor cycles in
tervening between these dates have
eliminated in somewhat lesser crises.
| and every few years we have wit
messed periods of prosperity followed
in order by crisis. liquidation, depres-
sion and revival
But to admit the periodical recur-
renee OF the business cycle is one
thing; to attempt to forecast 1t Is
quite another. A forecast. II &C
cepter as correct by a substantial part
of the community. tends to prevent
| Cor ameliorate In proportion to the
number Of people who acted upon IT.
the happening Of the event predicted.
Forecasts True II Not Accepted,
In other words. a forecast can
only come true to the degree that
1t Is not accepted by the people. ]
deem 1t important to point this out
for the reason that occasionally at
tempts have been made by writer's
to reduce the forecasting Of the
business cycle to q statistical for
mula, which may mislead one to
believe that such predictions can
be made with the practical certain
ty of q weather forecast
II We bear in mind the purely
psychological cause of the business
cycle we shall better understand
its vagaries and shall appreciate
hNN NVTaT "a L. a. Awa n
chart or other guide based on sta
tistics that would forecast the
movements Of the business cycle
with precision.
Real Value Of Warnings.
The value Of such guides is con
fined. in my Judgment, to pointing
out in boom times to the business
community the heights to which
optimism Is carrying II. and thus
by checking the upward movement
temper the effects of the inevitable
reaction. Likewise in periods OF
depression such guides are valu-
able in bringing about q feeling
that the downward movement has
gone far enough and that better
times are ahead in a word, II the
business community were to close
ly study the operations of the bus
mess cycle the result would be a
shortening Of it's dlameter.the
swings from one extreme to the
other would not be so great as at
present. In a Utopian community
peopled by precise thinking ma
chimes devoid of sentiment the bus
mess cycle could not operate.
How can we guage this uncertain
factor of human psychology in Or
der that we may form an opinion
as to how much further the present
movement of the cycle will con-
time? Naturally there are many
symptoms of varying reliability in
various lines of business. But the
one that most concretely and re-
llably expresses the feeling of the
community is sales. The untitled
tonnage report of the U. S. Steel
Corporation is an eloquent argu-
ment on the steel situation. and II
such figures were obtainable in all
the leading lines of business they
would furnish an excellent guide
as to the temperament of the bust
ness community.
when Ratio of Increase Fails.
It must be borne in mind that the