notes and a remarkable increase in gold reserves. During the eleven months ending with November, 1921, the excess of gold imports over exports was over 638 millions, an average of $58,000,000 per month. This constitutes a new high record of net gold imports. In the years 1915 and 1916, when the United States was receiving a flood of gold from Europe for war orders, the monthly averages were only $35,000,000 and $44,000,000, respectively.

Chart IV shows the reflection in money rates of the financial strain of 1919-20. Call rates in New York reached maximum in November, 1919, and have since declined quite steadily. The rate on 60-90 day commercial paper, registering the demands of business rather than speculation, did not reach the maximum of 8 per cent until August-November, 1920, while the minimum rate of rediscount of the New York Federal Reserve Bank did not reach its highest point, 6 per cent, until February, 1921.

The outstanding feature of 1921 is the declining tendency of all rates, a tendency especially marked since the middle of the year. In December the rate on commercial paper is 5 to 514 per cent and the minimum rate of discount of the various federal reserve banks ranges from 412 to 52 per cent.

SUMMARY AND CONCLUSION

A survey of the events preceding and following the crisis of 1920 reveals the presence of the familiar sequence of events in business cycles-rise of security and commodity prices, increased production, money strain, reckless expansion, collapse of security and commodity markets, cancellation of orders, shrinkage of inventories, failures, decreased production, business stagnation, increasing bank reserves, and lower money rates. The difficulties which business encountered in 1920 were, in the main, the same sort of difficulties that business had encountered in previous crises. But there were some new elements in the situation which, in some cases, added to the embarrassments.

The general rise of prices in 1919-20, unparalleled in peace times, was facilitated by government bond issues and the machinery of the federal reserve system; it was intensified by large foreign demands for goods and the difficulties of changing from a war to a peace basis. The collapse of the exchanges added new difficulties to concerns engaged in foreign trade. High taxes were a factor contributing to insolvency when prices turned

downward. The rates of surtax levied upon large incomes have been so heavy as to divert investment from taxable securities to non-taxable government and municipal bonds. These are factors, however, which intensified rather than caused the crisis of 1920.

Let us appraise the situation in which we find ourselves at the end of 1921. Are there elements present which indicate business revival in 1922? Or, are we facing the disappearance of our foreign trade, greatly curtailed purchasing power of agricultural communities, and business depression? The significant elements of the situation which, as I judge them, indicate that revival rather than depression is probable in 1922 are the following:

1. The production of manufactured articles was very much curtailed in 1920-21.

2. The distribution and domestic consumption of goods during the past year were considerably greater than production.

3. The decline in the quantity of goods exported in 1921 was not large. The exports of food products increased materially. In our foreign trade figures there is no evidence that the purchasing power of Europe is seriously curtailed.

4. Real wage rates per hour appear to be about the same as they were in 1913. With cost of living at 177 per cent, wage rates at about 180 per cent, and wholesale prices at 150 per cent of the 1913 figures, and the downward trend of wholesale prices arrested it does not appear that a general downward revision of wages is called for. The line of least resistance toward rectifying the present price maladjustment is an increase in the prices of agricultural products.

5. The gold reserves of the federal reserve banks have greatly increased, while notes in circulation and accomodations to member banks have declined.

6. Money rates have fallen greatly; credit is available and is being utilized in the security markets; bond issues find ready sale.

7. The availability of credit at low money rates combined with a volume of manufacturing output less than current consumption and a fair amount of foreign trade will result in increased business activity and an upward movement of commodity prices in 1922.

LING BUSINESS CYCLES

BY WESLEY C. MITCHELL

New School for Social Research

It is in periods

Interest in the problem of controlling business cycles itself fluctuates with the condition of business. In periods of prosperity few men are concerned to prevent the increasing activity from running to extremes and breeding a crisis. During the crisis everyone is so worried by what tomorrow may bring forth that he takes thought only of emergency measures. of depression, when the outlook is drab rather than perilous and when business men have leisure thrust upon them, that cogitation upon the cause and the cure of business cycles becomes a mass phenomenon. Then thousands of men recall their earlier experiences of hard times, speculate with their associates about the character and causes of such seasons, and consider schemes for preventing their recurrence. In arranging that the American Economic Association devote the opening session of its thirtyfourth annual meeting to a consideration of the crisis of 1920 and its lessons, President Hollander is seeking to take at its flood this tide in the thoughts of men.

My share in the program is greatly facilitated by the accomplishments of the audience and the character of the preceding paper. I can take for granted intimate knowledge of the phenomena of business cycles, a refreshed memory of the peculiarities of the latest crisis and depression, and critical interest in the various proposals which have been made for controlling the business cycle. These advantages enable me to dispense with preliminaries, to jump from one topic to another without stopping to buld bridges, and to pass lightly over details.

I

Let me begin with a few words about the possibility of solving the problem of control over the business cycle. No competent student of the subject will assert that the rhythmical alternations of activity and stagnation so characteristic of modern business can be entirely eradicated so long as we maintain the institutions of the money economy. We do not know what measure of success can ultimately be attained. But on the other hand, there is nothing in current theories of business cycles and nothing in the economic history of the past which forbids us to hope that by well-conceived measures we can mitigate in great part the suffer

ings which we undergo at present in consequence of booms and depressions.

Certainly such hopes are not forbidden by the theories which trace the business cycle to cosmic causes over which we have no prospect of exercising control. Suppose, for example, that Professor Henry L. Moore definitely establishes his hypothesis that "the planet Venus in its eight-yearly periodic motion with respect to the Earth and the Sun" is the cause of "eight-year generating Cycles" upon our planet, and that these "generating cycles" constitute "the natural, material current which drags upon its surface the lagging, rhythmically changing values and prices with which the economist is more immediately concerned” -suppose, I say, that this hypothesis is proven to be valid, still it does not follow that we shall remain forever helpless victims of the business cycle. For though we cannot alter the behavior of Venus, we could hope to counteract the effect of this behavior upon our fortunes by prudent management of processes which are subject to control. Though we cannot arrest the terrestrial seasons in their course, we do offset their influence sufficiently to avoid freezing to death in winter.

Nor need the long list of crises in the past quash our hopes. Business cycles have run a tolerably regular course in the United States for a century and in older nations for a longer period. But it is not inevitable that what has happened will repeat itself indefinitely. Indeed, this very history when examined closely offers strong encouragement to efforts at changing the course of business developments. For among the changes that have taken place in the character of business cycles are certain changes due to the purposeful intervention of men. Men have learned to exercise a considerable measure of control over at least one phase of the business cycle.

In the middle of the last century the English found that if the business public is assured in times of pressure that all solvent borrowers can get bank accommodation by paying a high discount rate there will be no panic fears, no runs on the banks, and no epidemics of needless bankruptcies. The adoption of this method of "crisis financiering" produced a marked change in the character of English business cycles: the crises became less spectacular, the

'Henry L. Moore, "The Origin of the Eight-Year Generating Cycle," Quarterly Journal of Economics, November, 1921; XXXVI, 29; and Economic Cycles: Their Law and Cause, 1914, 149.

liquidations became more circumspect but longer. At the same time the differences between English and American cycles became more marked. We continued to have violent panics, as in 1873, 1893, and 1907. Bankers and economists knew the reason and urged the remedy-such a centralization of banking resources as would enable American bankers to give their customers the same assurance that the English business men received. It took a generation to effect the necessary changes in our federal banking law, but President Wilson finally succeeded in getting Congress to pass the Federal Reserve Act in 1914. And six years later our new machinery was put to the test and found adequate.

To repeat, we have learned how to prevent crises from degenerating into panics, and from that success we may derive substantial encouragement to attack the next problems: how to lessen the excesses of booms and the sufferings of depressions.

II

In dealing with these problems we have seldom made the proper approach. After the usual human fashion we have tried to counteract the effects from which we suffer rather than to control the causes from which they flow. In every period of severe depression we have hurriedly devised emergency measures to prevent people from starving. Of course that is an effort in which every sensible man is glad to join once the emergency grows urgent. But obviously it would be far better to prevent these emergencies from arising if that is possible. Our chief failing has been that we have not devoted sufficient constructive intelligence to finding out whether prevention is possible.

Happily this remark is today a commonplace. The most hopeful sign in our dealings with the economic difficulties of 1920-21 is that many men in public and in private stations have taken the constructive attitude, considering the future as well as the present, thinking about prevention as well as cure. That temper

was a notable feature of the President's Conference on Unemployment, which under Secretary Hoover's leadership first arranged to coördinate the emergency measures for relieving distress this winter, and then provided machinery for framing a preventive program.

In most discussions of preventive measures it is notable that emphasis is laid upon the prosperous phase of the cycle as the phase which requires control. It is becoming a common opinion