to deposit from twenty-five millions to fifty millions of dollars of government funds in the national banks in those parts of the country where the necessity for funds to move crops existed. The Secretary announced that, as security for such deposits, high-class commercial paper would be accepted at 65 per cent of its face value, bearing the indorsement of the depository bank. This was an unprecedented step, because commercial paper had never before been accepted as security for government deposits. It was, however, a necessary and highly beneficial step, because it enabled the banks to obtain the required funds upon the pledge of available paper already in their vaults. If the banks had been obliged to secure these deposits with government bonds or other fixed investments, the relief would not have been effective, because many of the banks would have been compelled to use the deposits for the purchase of the bonds required by the Government as security.

In order to distribute intelligently the crop-moving deposits, three conventions of bankers were held at the Treasury Department in Washington during August, 1913, the first composed of bankers from the Southern and Southwestern states; the second composed of bankers from the Middle Western and Northwestern states; the third composed of bankers from the Pacific Coast and Rocky Mountain states. It was not necessary to extend aid to the Eastern states, although the Department was ready to do so if it had been required.

It was essential that the action of the Department should be non-partisan and non-political; the crops of Republicans, Democrats, Progressives, and all other classes of the people had to be moved, and the earnest desire of the Department was to have the benefits of this action diffused as widely and impartially as possible. The clearinghouse associations in each of the cities invited to participate in the conferences were asked, therefore, to name the delegates. A most interesting and intelligent body of men assembled in Washington and discussed with the Secretary and Assistant Secretary Williams (in charge of the fiscal bureaus) the needs of their several communities and sections. As a result, allotment of these funds was made upon the basis of the testimony of their several representatives, as follows:

The Department, having no machinery for the investigation of local credits, was obliged to rely upon the banks in the larger cities as instrumentalities for the distribution of government funds to the banks in the smaller communities. In the discussions at Washington, the representatives of the banks were urged to pass the government funds on to their country correspondents upon reasonable terms. The Secretary is gratified to be able to say that in most instances this was done on a basis that seemed fair to all concerned.

The effect of this action was highly beneficial. Confidence was restored. The readiness of the Government to meet every reasonable need of the banks for the legitimate purposes of crop-moving had the effect, so the Department is informed, of causing much hoarded money to be deposited in the banks. This increased their ability to take care of their customers, and caused a decided relaxation in the demands of country correspondents for accommodation, which, prior to the announcement of the Secretary, had been much greater than usual, because the small banks were attempting, very naturally, to impound all the funds they could get to make them safe against the anticipated stringency. The moment it became known that the Government stood ready to assist, the tension was relieved, business resumed a normal aspect, and the fall movement of crops, trade, and commerce proceeded upon an easier and safer basis than for many years past.

It is interesting to note that of the fifty million dollars which the Department offered to place in the banks for crop-moving purposes only $34,661,000 had been called for up to November 25, 1913. These funds will be gradually repaid to the Treasury beginning in January, 1914.

(b) Cyclical

72. THE PERIODICITY OF FLUCTUATIONS IN TRADE'

By S. J. CHAPMAN

Everybody knows that production does not flow along uninterruptedly. It has its ups and downs. Periods of brisk business are followed by periods of stagnation. Some unsteadiness in trade we should naturally be prepared to find, for there are vicissitudes in all human affairs; but certain peculiarities characterize the broad

I Adapted from Outlines of Political Economy, pp. 254-55. By permission of Longmans, Green, & Co., 1913.

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 payments. 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.

I

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