Perth Amboy evening news., 1923-01-20
Saws Business Cycle
is DANGEROUS idea

WELLESLEY HILLS, Mass. Jan
2O.-"I don't know which Is more
perilous; to disregard the business
cycle altogether, or to get a smatter'
ing of it without really understand
ing it." says Roger w. Babson, in a
statement issued today. Many ex-
ecutives think they have got the
business cycle by the tail and that
their fortunes are made. These
superficial thinkers who have picked
up the business cycle as the latest
catch-phrase, r simply playing
with edged tools and Ire going to
get badly cut.
eft Is astounding how the public
has taken up the idea. From boot
black stands to international con
~ferences, the latest fad is the bust
ness cycle. If it we're merely talk,
little harm would be done. But many
business men, bankers, investors. and
governmnt officials, are making real
commitments on the basis of an inn
aginary cycle, 1t is high time that
somebody get up in meeting and do
some plain talking, and tell people
that 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. ut Is a serious blunder
to that there will be three
years Cor other fixed ~interval) OF
over-expansion and then three years
of depression, followed by another
three years 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
periodic procession of booms and
bumps, each lasting the same num-
Der of years. There is absolutely
nothing in this idea, and any execu-
tive who attempts to base his plans
thereon will probably ruin the enter
prise for which he is responsible. The
warning applies also to bankers, in
vestors, and statesmen.
my advice is to get it out of your
head Immediately hat business fiuc-
tuates in ~three-year periods or any
other fixed intervals. The real prin-
ciple 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 / say
equivalent 1 am taking into account
the two factors, duration and intens-
ity. Moderate business activity pro-
longed for several years is equiva-
lent to extreme activity of shorter
duration.
ITO take the latest example, there
was a period of over-expansion COW
ering the years 1915-1919. This
would tend to be balanced by a COM
p~ensating period of depression. But
this compensation might take a va
riety of forms. If there had been a
prodigious and excessive crash in
1920, lasting only a year, this would
have been sufficient compensation. 1t
would have offset four years of over
expansion. Or, if the decline in 1920
had been trifiing but dragged out for
years to come, this also would be
sufficient compensation. What &C
tually happened was a sharp decline.
not the worst imaginable, but still a
severe drop. The period has already
extended more than two years. Con-
sidering both the severity of the drop
and the time that has elapsed, it is
plain that 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 itself,
intensity means nothing. The ques-
ton whether 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 6
sound basis. This-and this only-ii
\ the true of depression ant
| the real Interpretation Of the bust
ness cycle.
"At the present juncture, wha
would be the result of sudden ant
reckless imitation? This would NEAR
instead of progressing in an orderly
way up from depression into pros