Dr. Horace Secrist
Director of the Bureau of Business Research, Northwestern University
The speaker prefaced his main exposition by saying that the discussion consisted of two parts: first, a presentation of the fundamental causes of periods of prosperity and depression, and second, a statement of the conditions which make it possible to forecast the fluctuations in business.
The general subject, “The Business Cycle,” could more properly be called, said the speaker, “The Business Spiral,” since periods of fluctuation do not repeat themselves in precisely the same way from time to time. Neither do they begin and end under precisely the same conditions or at the same economic levels. To speak of periods of prosperity and depression and the intermediate stages associated with them as the Business Cycle is unduly to simplify the concept suggested in the term. There is a tendency to generalize about these periods in the same way that in previous times people were wont to generalize about the “economic” man and his next of kin, the “business” man. He who thinks that these concepts are precise and concludes that they can be stated or explained by one formula is committing the same intellectual breach of thought as he who expects to find for industry a single and sovereign solution for economic problems. Periods of prosperity and depression are of unequal length and are far from uniform for all phases of business. They do not synchronize in point of time nor agree as to intensity. They have different characteristics for different businesses.
The speaker characterized the different phases of the business spiral in point of time by speaking of periods of depression, recovery, liquidation and expansion. Business under the stimulus of individual effort and actuated by the incentive of profit tends generally to be in a period of expansion. Business hopes and aspirations of necessity make this so. As a result, periods of relative over-development and under-development come in succession and the only possibility of reducing the swing through which they pass is through caution in periods of expansion and courage in periods of depression.
The speaker outlined in detail the characteristics of the different phases of business in its spiral aspects, touching particularly upon the peculiarities of price fluctuations with their attendant changes in production and consumption. In summary of the first part of the thesis, the speaker assigned as the fundamental causes of the periodic phases of business
- The institution of private property and the freedom of initiative which it implies.
- The money and profit stimulus in industry.
- The uneven and haphazard development of business.
- The interdependence relationship of businesses in their financial, production and consumption aspects.
- The reciprocal relationship between individual profits and prosperity.
The speaker dwelt upon the roles played, in the guidance of economic activity, by technical experts, individual enterprises, banks and financial institutions, government encouragement and discouragement, chance and necessity. He held that so long as industry and business rest upon their present fundamental bases, periods of prosperity and depression and the intermediate stages associated with them are bound to occur, but there is some hope of removing the uncertainties associated with them if business men will act intelligently upon the basis of known facts. An accurate forecast of fluctuations in business cannot, in the nature of the case, be made. This, however, is not equivalent to saying that business must continue to operate, as it has largely done in the past, in ignorance of the facts and in the grip of blind routine. Through the developments of modern statistical methods it is now possible to measure with some degree of accuracy the association between, and the causal order of business phenomena. Hope lies in acting in the light of such measurements. The science of business is yet in its initial stages, and business men should beware of being captivated by ready-made, patent nostrums purporting to show with unerring exactness what lies ahead of business as it proceeds on its spiral course. The way to discount the uncertainties of the future is to act intelligently in the present. Such action
ought to be, and can be made, more common through an intelligent use of the data of business now available in many forms. The speaker summarized the second phase of the topic of his address by saying that there are no conditions which make it possible to forecast with accuracy the rise and fall of business in its spiral development, but with conditions making it possible to act rationally in the present uncertainty in the future can be minimized.
