fluctuations of trade which one would not expect and which call for explanation. These peculiarities we may designate "synchronism" and "periodicity."

Good times in the different industries tend to synchronize or come more or less simultaneously. And so do bad times. There are numerous exceptions, but the rule seems to be that most industries are every now and then depressed together, and every now and then flourish together. Moreover, synchronism appears to hold internationally. When commerce is sluggish in one country it tends to be sluggish also in other countries.

The periodicity of fluctuations in trade means that the intervals between the fluctuations are not of quite uncertain duration. Regularity is far from being perfect, but it is sufficient to warrant the assertion that trade fluctuations exhibit a degree a comparatively high degree of periodicity. They are like the disturbed oscillations of a pendulum when a kitten is playing with it. It used to be claimed that the time normally occupied by a trade cycle was ten or eleven years. But departures from this duration are not uncommon; and it has recently been suggested that the wave-length of a trade cycle inclines to be about twice or three times a period of approximately three and a half years. Thus the cycle, it is said, may be expected to cover seven years at least and, should it exceed this length, to extend to about ten and a half years. But, unfortunately, the evidence which has been collected and sifted so far is too scanty to justify an unhesitating generalization. Of commercial fluctuations prior to the nineteenth century we are comparatively ignorant, and it is not known how far the cyclical movement reaches back.

73. CRISES AND PANICS IN THE UNITED STATES While there were some earlier disturbances of importance, it is generally agreed that the first panic in the United States occurred in August, 1814. It was a direct result of the capture of Washington by the British on August 24, though the disruption of trade and the exigencies of war financing were contributing factors.

The first genuine economic crisis in the United States, however, occurred in 1819. It was an outgrowth of the abnormal expansion of manufacturing industries occasioned by the embargo and the War of 1812 and by the necessary readjustments that follow a period of inflated paper currency. Not until late in 1821 did commerce and industry begin to revive.

Both of these early crises were distinctively local and dependent upon national rather than international causes.

There followed a period of great prosperity and rapid territorial and business expansion, which continued with but slight interruptions until 1837. In 1824 there was an industrial boom, and in 1826 there was a reaction, due, in part, to the European crisis of December, 1825; but these were merely temporary deviations from an otherwise steady expansion.

The crisis culminating in the disastrous panic of. May, 1837, is associated with an undue extension of banking and credit, an overprovision of public roads, canals, and railways, and excessive speculation in western lands. Recovery from the panic was very slow; indeed, it was more than a year before the banks resumed specie pay

A period of depression followed until the summer of 1843, a premature revival in 1838 and 1839 resulting in a multitude of failures.

A general revival of trade began in the autumn of 1843 and continued without much interruption until 1857. The European crisis of 1847 exercised little influence here, owing to good crops and heavy exportations. There was, however, a minor crisis in 1848, occasioned in the main by the Mexican War. The period of rapid expansion came to a head in the very sudden and sharp crisis of August, 1857. While the financial disturbance appears to have been more acute than in 1837, industry and commerce were much less seriously affected, and in consequence the succeeding period of depression was less universal in its effects. The depression reached its worst in 1859. Conditions were rapidly on the mend in 1860, but the outbreak of war in 1861 so disarranged the financial and industrial affairs of the nation that the return of prosperity was postponed for a half-dozen years. There was a great crisis in England in 1866 which the war, no doubt, enabled us to escape.

Following the Civil War we entered upon a new era of industrial expansion. Wide areas of agricultural lands were opened up, immigration was heavy, railroads were built on a scale hitherto undreamed of-built far ahead of settlements and the demands of trade. It was a period also of wild speculation, dishonesty, and extravagance. The great crisis of 1873 affected practically every operation of commerce and finance and shook the credit fabric to its very foundations. The succeeding depression was unprecedented in its severity and duration, continuing in most branches of industry until the end of

1878, and in some lines until 1879. The largest number of failures occurred in the year 1878.

Prosperity returned with bountiful harvests and the resumption of specie payments in 1879. A period of world-wide prosperity was marked in the United States by another era of enormous railroad building, industrial expansion, and extravagant living, which ended in the minor crisis of May, 1884. The downward movement continued until 1886; after the recovery there was a season of moderate activity until 1890. The great crisis in Europe, attending the failure of the famous English banking house of Baring Brothers, near the end of the year 1890, was felt acutely in the United States, though we escaped a complete breakdown, the enormous crops and heavy exports of 1891 tiding us over the threatening situation for another year or two. But in May, 1893, we again went to the wall with a panic which in many respects was even more severe than that of 1873. This crisis, however, was complicated by the unstable monetary standard of the time; by many it has been called a monetary rather than a financial crisis. It was doubtless a result of combined influences. The depression continued until 1896.

Along with the whole commercial world, in 1897 we entered upon another great period of expansion, which was accelerated after the Spanish War and continued with but minor reactions until the autumn of 1907. The crisis which ended in the panic of October, 1907, was marked by all the usual manifestations of such periods, and the‍ depression which followed continued for more than a year. The succeeding years have been marked by great business and banking uncertainty, consequent upon extensive legislative experiments, Mexican troubles, and the European war. The outbreak of war in Europe occasioned a severe financial crisis and near panic in the United States, fortunately tided over successfully by the use of emergency currency.

74. THE RHYTHM OF BUSINESS ACTIVITY1

BY WESLEY C. MITCHELL

With whatever phase of the business cycle analysis begins, it must take for granted the conditions brought about by the preceding phase, postponing explanation of these assumptions until it has worked around the cycle and come again to its starting-point.

'Adapted from Business Cycles, pp. 571-79. (Copyright by the author, 1913. Published by the University of California Press.)

A revival of activity, then, starts with a legacy from depression: a level of prices low in comparison with the prices of prosperity, drastic reductions in the costs of doing business, narrow margins of profit, liberal bank reserves, a conservative policy in capitalizing business enterprises and in granting credits, moderate stocks of goods, and cautious buying.

Such conditions are accompanined by an expansion in the physical volume of trade. Though slow at first, this expansion is cumulative. In time an increase in the amount of business which grows more rapid as it proceeds will turn dullness into activity. Left to itself this transformation is effected by slow degrees; but it is often hastened by some propitious event, such as exceptionally profitable harvests or heavy purchases of supplies by the government.

A partial revival of industry soon spreads to all parts of the business field. For the active enterprises must buy materials and current supplies from other enterprises, the latter from still others, etc. Meanwhile all enterprises which become busier employ more labor, use more borrowed money, and make higher profits. There results an increase in family incomes and an expansion of consumers' demands, which likewise spreads out in ever-widening circles. Shopkeepers pass on larger orders to wholesale merchants, manufacturers, importers, and producers of raw materials. All these enterprises increase the sums they pay to employees, lenders, and proprietors. In time the expansion of orders reaches back to the enterprises from which the initial impetus was received, and then the whole complicated series of reactions begins afresh at a higher pitch of intensity. All this while the revival of activity is instilling a feeling of optimism among business men.

The cumulative expansion of the physical volume of trade stops the fall in prices and starts a rise. For when enterprises have in sight as much business as they can handle with existing facilities, they stand out for higher prices on additional orders. This policy prevails because additional orders can be executed only by breaking in new hands, starting new machinery, or buying new equipment. The expectation of its coming hastens the advance. Buyers are anxious to secure large supplies while the quotations continue low, and the first signs of an upward trend bring out a rush of orders.

The rise of prices spreads rapidly, for every advance puts pressure. on someone to recoup himself by advancing the prices of what he has to sell. The resulting changes in price are far from even: retail

prices lag behind wholesale and the price of finished products behind the price of raw materials. Among the last-mentioned the prices of mineral products reflect changed business conditions more regularly than do the prices of forest and farm products. Wages rise more promptly but in less degree than wholesale prices; interest rates on long loans always move sluggishly in the earlier stages of revival, while the prices of stocks both precede and exceed commodity prices on the rise.

In a great majority of enterprises larger profits result from these divergent fluctuations, coupled with the greater physical volume of sales. For while the prices of raw materials and of bank loans often rise faster than selling prices, the prices of labor lag behind, and the prices making up supplementary costs are mainly stereotyped by old agreements.

The increase of profits, under the spell of optimism, leads to a marked expansion of investments. The heavy orders for machinery, the large contracts for new construction, etc., which result, swell still further the physical volume of business and render yet stronger the forces which are driving prices upward.

Indeed, the salient characteristic of this phase of the business cycle is the cumulative working of the various processes which are converting a revival of trade into intense prosperity. Not only does every increase in the volume of trade cause other increases, every convert to optimism make new converts, and every advance in price furnish an incentive for new advances; but the growth of trade also helps to spread optimism and to raise prices, while optimism and rising prices support each other. Finally, the changes going forward swell profits and encourage investments, while high profits and heavy investments react by augmenting trade, justifying optimism, and raising prices.

While the processes just sketched work cumulatively for a time to enhance prosperity, they also cause a slow accumulation of stresses within the balanced system of business-stresses which ultimately undermine the conditions upon which prosperity rests.

Among these is the gradual increase in the cost of doing business. The decline in supplementary costs per unit ceases when enterprises have secured all the business they can handle with their standard equipment, and a slow increase in these costs begins when the expiration of old contracts makes necessary renewals at higher rates. Meanwhile prime costs rise at a relatively rapid rate. The price of labor rises, both because of an advance in nominal wages and because of