NEW BAROMETER FOR BUSINESS

Dominion, Volume 16, Issue 89, 11 January 1923, Page 4

NEW BAROMETER FOR BUSINESS

FORECASTING THE TRADE CYCLES UNIVERSITIES TO THE RESCUE

The London School of Economics is co-operating with Cambridge University in establishing what Sir William Beveridge, in an address to the Manchester Luncheon Club (reports the “Guardian”) described as a “meteorological office for business,” the object of which will be to business men who subscribe to it with data by which they may be able to ascertain the coming of upward and downward turns in trade and finance. Sir William, who is head of the London School of Economics, made this announcement towards the close of an address on business cycles and their study. The modern industrial and economical system was such, he said, that it could not function steadily. Neither prices nor business conk] maintain a steady level; they were always rising or falling; and not only the whole economic but also the whole social life of the country was affected by these regular cycles. The length of the fluctuations, however, was irregular. From one depression to another might sometimes be six years, sometimes eleven, or anything between them ; occasionally a little more than eleven or less than six. These fluctuations were more or less common to all advanced industrial countries, but ware to a large extent a modern phenomenon. having become prominent/only in the second half of the nineteenth century. In the Middle Ages, ."’hen all were living elose to the margin of subsistence, the great danger was famine. We had raised the general level ot subsistence, but we had now an industrial system with strange fluctuations and with unemployment as one of the accompaniments of our greater productive power. The causes of these fluctuations were a matter of exceeding dispute; in fact, there were almost as many theories as there were writers on the subject. What agreement there was might be summed up by saying that whilst the equilibrium of our industrial system was' stable in the long run it was unstable in th« short run. When production was increasing it set loose forces which caused it to increase still more; and when there was a decline the decline tended to propagate and multiply itself. This was mainly because the units’ of the whole economic system were mutually interdependent. Confidencc bred confidence, just as lack of confidence bred lack of confidence.

American Pioneers. Brices, however, never went on rising or failing indefinitely, nor did business activity increase or decrease indefinitely; there was always a jxnnt at which each movement was checked in turn, and gave place to the other. But what it was that brought about the change and set the limit to each movement nobody at present seemed to know. The supply of legal tender money and the volume of savings for investment had something to do with the fixing of the limits. But what we wanted to know was what brought the turn about, and when it was coming. In the past we had not studied thg.- problem in the fight way, which probably accounted for the numerous theories and too few facts. Only recently had any attempt been made to study trade fluctuations with anything like scientific method—by first observing facts and then generalising from them. Since the war tho Harvard Research Committee had set on foot an economic research into their cause by taking a large number of statistical records relating to prices of commodities, the extent of production. and other matters, month by month, and even at shorter intervals, and had attempted to get rid of seasonal influences and other disturbing factors. Finally, they had arrived at throe groups, speculation, business, and money, all moving up and down with the trade cycles. But tho important jwint that they discovered was that tliev did not move quite simultaneously, the first group always moved a little ahead of the second and the second a little ahead of the third. Tlio price of industrial stocks rose and fell first, becoming something of a forecast of what the other things were going to do. This, Sir William continued, might bo taken as a real fact. The Harvard people had studied it from 1903 to 1914, and since tho war had found exactly tho same order of events. Tho School of Economics here had worked at similar theories, and also had found tho same order of events before and after the war. It was an important fact which ho had not found brought into prominence in any of the many books on the trading cycle that ho had read. If we could now discover something of the order in which industrial storms came upon us wo should have done somethino; like what was done when it was discovered that a rising barometer meant better weather and a falling barometer worse iveather. In 1920, for two or three months, our exports fell rather steeply, and many people might have thought the fall was coining then. But if they had looked nt the industrial stocks f they would have said it was not coming then : in fact, it did not come Tor some months later. He did not say that that proved the theory, but it was an illustration of the way in which, if we could establish an order of events in these industrial storms, wc might be ablo to use it for practical purposes, and know when the turn was actually coming. ■"

Unreasoning Optimism and

Pessimism.

To every business man who wanted to make profits and not losses the problem was to know when the turn was coming. The Harvard researches had not been published in the ordinary way. They were issued as an economic service to subscribers, and that body of subscribers was a growing one. Tho. view at Harvard was that it would be no use publishing such statistics unless thev got them home to the business world. Recently the London School of Economics had decided to set up a similar service in this country, and he was taking advantage of that meeting to make the first announcement of it. With the help of the business community they wanted to get a thorough-going study of the business cycle established, not financed bv tho Government put of tho taxes, but out of the subscriptions of those who found it worth while. In this they were working with Cambridge University. Of course it would lie a kind of university statistical society, but he was not sure that it would not be the better for these things to be studied by somebody not too close to actual business affairs. This statistical economic service would contain all the essential facts about the 1 rncte cycles so far as they were known, and would provide a means of keeping a keen watch on economic movements all over the world and of supplying the information promptly to the subscrih-

Thev did not want to carry it mi, he added, unless it could pay for itself and unless it really proved useful. If it proved so far useful that people wonk! continue to support it. then, he thought, they wou’d bo able ultimately io discover the causes and :herein- diminish th.- vio’ence of the. fluctuations. At present there was too

much tendency on the part of people to think. when prices were rising and good profits were being made, that such delightful times would go on for ever. Equally unreasoning was th*) pessimism which prevailed when prices' began io fall. At such times a little less unreasoning optimism or pessimism might lessen losses and bring about an earlier recovei y.