, 1923-01-21

superficial thinkers who have picked
up the business cycle as the latest
catch.phrase. are simply playing with
edged tools and are going to get bad
" cut
ut is astounding how h public
has k up tho idea. From boot.
black stands to international confer
ences, the latest fad is the business
cycle. If 1t were merely talk, little
harm would be DONE. But many bus
iness men. bankers. investors O and
government officials. r magtng
real commitments oil the basis of an
imaginary cycle. II 10 49,"
somebody get up in meetips and do
some plain talking, anu ueL PsoY.e
hat we are all sitting around a pow.
der keg, If we continue TO cherish this
delusion of a fixed cycle.
'Strictly speaking. there is no such
thing as a business cycle" continued
Mr.. Babson. at is a serious und
to assume tina there will be three
years for other fixed interval) Of over
expansion and then three years OF de-
preston. followed by another three
wears of over-expansion and another
three years of depression. To nine
people out of ten this is what the
business cycle seems to mean, a per
iodic procession Of booms n bumps,
each lasting same number OF years.
There is absolutely nothing IN this
idea, and any executive who at.
tempts to base his plans thereon will
probably ruin the enterprise for which
he is responsible. The warning ap-
A-Nor- trra1fnTa and
statesmen.
MY advice Is to get It out Of your
head Immediately that business fluc-
tuates IN three-year periods or any
other fixed intervals. The real prin-
chile of the business movement is that
of action and reaction. Namely a
period of over-expansion tends to be
followed by an equivalent period OF
depression. And when l say equiv
slent' 1 am taking into account the
two factors, duration and intensity.
Moderate business activity prolonged
tor several year is equivalent to ex'
IRENE activity OF shorter duration.
ITO take the latest example, there
was a period of over-expansion COW
BRING the years l915-l919. h would
lend to be balanced by a compensat.
Ing period of depression. But this
compensation might take n variety
Of forms II there had been a prodig.
!ous and excessive crash in 1920. last
ing only a year this would have beer
sufficient compensation. 1t would
have offset four years Of over-expan-
sion OF. II the decline in 1920 had
been trifling but dragged out for
years to come, this also would be sur
ricient compensation. What actually
happened was a sharp decline, not
the worst imaginable. but still a Sc
we're drop. The period has already
extended more than two years. Con.
Eldering both the severity OF the drop
and the time that has elapsed. 1t is
plain tina we have nearly paid the
bill in full.
"By itself, time is meaningless.
The question whether depression has
lasted a month or a decade, has no
significance. whatsoever. By itse,f.
intensity means nothing. The ques
ton whsther depression has been
drastic or trivial has no Significance,
However. when these two are com.
bined, when you get the product of
time and intensity. you are on q
sound basis. This-and this only
Is the true OF depression and
the real Interpretation Of the business
cycle.
at the present juncture. what
would be the result of sudden and
reckless ~inflation7 This would mean
tina instead Of progressing in an
orderly way up from depression into
prosperity, we would be attempting
a shortcut. We would be trying to
evade the tail-end OF u quota OF de.
preston. There would be n setback
which would last until that quota
was completed. At the moment. there
Is no sign OF such initiation. The
indications are that the remaining
fragment of the allotted depression
Will be wiped out in due course; and
with a clean slate we shall be ready
for the next period OF prosperity.
"'wIll our next period OF prosperity
be big or small? The question is
peculiarly difficult. After a big per.
iod OF over-expansion, a big action. II
Is practically certain that there will
be a big period OF depression. a big
reaction. Knowing the action. you
can forecast the reaction-but the
rule is hard TO work both ways. To
illustrate. II you stretch a spring a
certain amount o AN forecast ap'
proximately what will be the rebound.
But you can't so easily foretell how
far the spring will be stretched the
next time. Hence, periods Of pros
perity or action are far o diff.
cult to forecast than periods of de-
preston or reaction.
However. we know that there Is