CYCLICAL NIGHTMARE

Evening Post, Volume CXII, Issue 17, 20 July 1931, Page 3

CYCLICAL NIGHTMARE

SIDELIGHTS ON DEPRES-

SION

AN AMERICAN VIEWPOINT

lv an article in the "National Woolgrower,' 'an American production dovoted to sheep breeding and wool production, Mr. S. W. M'Clure, one of the prominent figures* in the, pastoral industry of the United States, has the following interesting and forceful comments to make on the existing depression. Long before the • days of Adam Smith, and even before the time of Christ, the law of supply and demand was in constant operation. When the supply of goods increased, or the .demand, fell off, the price declined. When goods were scarce and demand increased, prices rose. As these changes occurred at rather regular intervals, they were called cycles. Business is always in one of these cycles —either going up or going down—it is seldom stationary. At the present time practically all business over the entire world is in a down cycle, due largely to a surplus of all the more important commodities. These surpluses are a direct result of the over-production of most business as a result of the boom following the war, which reached its apex in 1929. That year was the moafc prosperous _ one of which we have record. Reports indicate tfiat in this regard it was probably 20 per cent, above normal. It seems to represent an apex, of prosperity. It was the top of a high cycle. Prom there we dropped to the bottom of a, low cycle, and we • were not long in going down. The down- cycle seems always to be much more abrupt than the up cycle. MAN-MADE ARRANGEMENTS. The present depression makes past utterancea rather amusing. Along in the days of Calvin Coolidge,. when the lucky statesman was endorsing instalment buying, a new school of economists developed who proceeded to put the cycles out of business. They reasoned that the , cycle was unnecessary and uncivilised, and could easily be disposed of by simple ma*u-rnade arrangements. Their theory was > that when we saw depression approaching, everyone, including the Government, was to' speed up business—make more goods, sell more goods, spend more money. For instance, under, this new theory when the automobile manufacturer saw a, surplus of cars accumulating and hard times coming, he was to enlarge his operations, employ men to build new plants, and thus get ready for the boom, which was sure to. follow. This plan, however, did not provide for any source from which the money was to come to meet such expansion. When the Government saw the depression coming it. was.supposed to put all idle men to work by building roads, post offices, canals, and other public works. The State and city were to do alike, and in this way all idle men were to be given employment, and overnight the ■ depression would be gone. But tl.is plan failed to make any provision for the money to carry it out. These activities by State and Federal Government meant an increase of taxes at a time when taxes should be reduced. They provided for an expansion of all business, including Government, at a time when recession was1 essential. A lot of great men subscribed to this new theory, and many great publications heralded the coming of everlasting good, times: the cycles had forever been eliminated. But what a rude awakening 1930 brought to the whole world. It proved.that these great, highsalaried captains of finance and captains of industry' whom the magazines were touting' were mere figureheads riding on the crests1 of an up cycle and making a down cycle certain by their wild orgies of extravagant business methods. When the crash came they were as powerless to fight it'as the charwoman who cleaned the office. NORMAL. AND LOGICAL. When the depression started our good President called the great leaders of business and industry to Washington, and arranged with them to spend billions for new developments and quickly bring back prosperity. These great men went home, and, after consultation with their directors, reduced the working force, fired the cook, and cut down the wife's allowance for clothing. That was the normal, logical, human thing to do. Money spent to end a depression artificially only prolongs it. If we spend money now that normally would have been epent in 1932, it means that 1932 will have just that much less prosperity. If' enough of this goes on 1932 will be a bad year. To my mind cycles are necessary, and can never be avoided. The Henry Ford theory that there can- never be an over-supply of goods while men are employed is ridiculous. As long as a profit can be made from business,. business will expand. Our power to create goods is fully ten times our power to consume them. Lei us illustrate this with sheep. We produce in the entire world 2,700,000,0001b of clothing wool. He have in the United States 6,300,000 farms. If we had 53 sheep on each farm producing an average .of 81b of wool we would produce as much wool as it now produced in the entire world. Henry Ford eould_ double his production of cars. The United States Steel Company could double its* production. In fact, the only limit to production of most things is the ability to make a profit from their production. With the development of machins operation, consumption can never keep pace with production. If we deny the necessity for a down cycle then we must admit that business can be made permanently profitable regardless of the amount of goods produced. Profit in an open market means increased production. Cycles are not restricted to industry. Nature herself acts in cycles. Dry years are followed by a series of wet years. Diseases, plagues, even reproduction, proceed in cycles. Business always has, and always will, follow a cyclical .career. In 192S and 1929 we made and sold the goods that should have been made in 1930 and 1931. We are now reaping the results.