Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-08-12
STOCK BREAK LAID
TO BUSINESS DROP
Economist Believes Slump in
Securities Was Preceded
by Trade Recession.
BY JOHN F. SINCLAIR.

Special DlSpatCn 10 Inc star.
NEW YORK August 12.-Who oil
what started the present business de-
cline? Thousands still point at the
stock market and say: GUILTY."
But was it?
Let DR. Carl Snyder. able economist
of the Federal Reserve Bank of New
York City. give his expert opinion:
THE tendency~to decline had shown
itself some time before the panic, just
as it did before the long stock market
decline which began at the end OF
for believing that the declining course
of trade would have been much the
same, in both instances, had there been
no stock market panic"
Yes. the decline started months be-
fore the stock market smash.
1T is indeed difficult to believe" DR..
Snyder continues, that stock market
gambling. even on such colossal scale
as last year, could so dominate the vast
business of a nation OF 10000, 600,
whose population and trade are now
equal to nearly half the total for the
commercial world. The forces that de-
termine the ups and downs Of this in
credible volume CT trade lie deeper"
Now that the new golden age" buSl-
ness spectrum has turned sickly green,
others point to the business cycle-that
old man of the sea-thaC so often rises
to plague and mock the best efforts OF
man, as the answer.
What is meant by the business cycle
"a term often used but little under
stood?
Cycle Is Disturbance.
.'Viewed in the long stretch Of our
industrial development. tine business
cycle appears as a disturbance in an
otherwise singularly even, continuous
growth in the production and distribu-
ton of goods says DR.. Snyder.
Let's study this a bit. A year and a
half ago everything looked fine. Many
business writers and economists were
talking about "a new industrial era"-a
golden age for business" Labor, more
eff7cient than ever was fully employed
and buying, on the installment plan, ra-
dos, automobiles, new furniture, on g
scale never dreamed of 10 years before
Mass production was in the saddle.
There seemed no end to it. No more
business depression. The business cycle
was a relic of the dead past. Few had
courage to express the belief that we'd
see any more cycles, for such a belief
was sure-f1re evidence of defective and
strabismic vision"
Then the boom days crashed. Bust
ness slowed. Demand declined. Pro-
duction died down. Unemployment rose.
Some contended, ''just passing shower
to clear the atmosphere" But it's still
raining. and the machinery of business
is being flooded.
So old man business cycle appears
again to tell us, after long absence,
the ''how and when of it all. Also, why
the specter of cruel unemployment and
the loss it brings in wages. income and
wealth just had to be, under the present
order of things
sThe business cycle is a fascinating
subject. The term was devised by one
of our foremost American economists,
recognized today as the wold's author
ity on trade fluctuations. He is Dr.
w. c. Mitchell. director of the National
Bureau of Economic Research. Study
OF the causation and behavior of the
cycle, however, goes back well into the
last century.
Fred Y. Presley, former. chairman
OF the Committee on Economic Re
search of Harvard University, and now
president of the National Investors
Corporation, issued book f1ve years
ago on THE Economic Cycle" which
has had wide distribution.
In this Mr.. Presley says there are
five fairly well defined phases of the
economic cycle and that these phases
usually occur in the same order:
ID Depression, 10 recovery, 90 pros
perity. "a financial strain, go indus
trial crisis.
Phases Develop Gradually.
Each phase develops gradually into
the succeeding one. according to Mr..
Presley, and is distinguished by char
acteriStic movements of the speculative
business money market.
But what is back of the business
cycle? Is it inevitable, one of those
factors society must always be sub
ject to?
The rising and falling price level
has much to do with expansion and
contraction of trade. This is admitted
by all. And there is, too, very
definite relationship between gold and
prices. The long drastic depression of
the 70s and the 90s-the worst in
American history-presented years of
declining gold production and declin-
ing prices.
But in the last 40 years from two
thirds to three-fourths of all the gold
ever recovered in the world has been
mined. With 1t has come world expan-
sion of bank credit, easily available cap
ital and world rise in prices. Gold, the
base on which the credit structure of
civilized nations rests, seems to have a
very definite relationship with the world
price level.
But in the last few years gold produc-
ton has been decreasing. Prices, too
have been declining since 1925, about 25
per cent in Great Britain and IS per
cent in the United States. Today, ac-
cording to the Statist, the price level
index in Great Britain is not quite %
per cent above that Of June, 1924, while
in the United States Bradstreets index
on July / gave it as just 2l.2 per cent
above August, 1914.
"a fQRin0 q -
Rod of decline in gold production
Then what? About per cent annually
of new gold (about $500, 000,000) must
be added to the worlds monetary re-
serves to meet the natural credit de-
mand, based on the way it Is handled
today. But new gold production is add
ing around per cent about $500, O0O,-
O0O). This is danger the world must
reckon with in the next decade. If II
Is not met, a long period of depression
unemployment and distress may be the
result.
Increased Production.
So the long depression may not be z
thing of the past. DR.. Snyder says or
this:
"The facts are clear and these Ions
depressions run parallel with declinini
gold production and falling prices, whil
the large prosperity and the short ant
crisp crises of the present generation
have run parallel with an enormous in
crease in production and the credit lin
and a corresponding rise in prices"
It is the contention of the Snyde
school. in contradistinction to the 1rv
ing Fisher group (who hold that tn
business cycle is essentially phenom
ena of prices or price changes), that Tn
almost invariable sequence OF cycl
movements is rising interest rates, de
clining trade, declining prices, crise
and depression. Exactly IN
steps business has followed in the las
10 months