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of honest effort. Speculative pools force up prices abnormally. All these things help to bring about crises.

But there is one simple and all-pervasive question, rarely if ever taken into account, which explains much; one condition which, more than any other, works toward the glut of markets and the periodic depression of industry. This axiomatic proposition may be formulated thus: "So long as those who produce wealth do not receive for their labor a return sufficient to enable them to buy back the equivalent of what they themselves produce, congestion is inevitable and depressions will recur. These depressions will vary in frequency and intensity in direct ratio to the discrepancy between values earned and received."

The term "producers of wealth" is by no means confined to those who work with their hands. The rational estimate must accord its full weight to those who direct, invent, organize, and simplify processes of production. But, when all else is said, the laborer, as making up the great bulk of the market for staple products, is the main factor, and his wage-rate and consequent standard of living most acutely modify the demand for manufactured products.

The working of this principle can best be seen by application. Suppose, for illustration, that the wages and standard of living of all American mechanics were to be at once crowded down to the level of the laborer recently arrived from Southern Europe. It requires little perspicacity to foretell the result of such a metamorphosis on American manufactures. There would be almost immediately wholesale stoppages in all those thousand and one industries now supported by the home market.

But that which is true in the extreme case is also true in degree in the rise and fall of wages in narrower margins. A decrease of 10 per cent in wages all along the line in American industry means that hundreds of millions of dollars less will be spent for manufactured products. And every reduction in wages operates in the same direction, while every increase-up, of course, to the absorption of the full margin of profit-means a stimulation of the market.

It is not the millionaires who use up the products of most wealthproducers, but the people of moderate means, who depend upon their daily labor for their daily bread. Consequently panics will recur until the margin of profit in the production of commodities goes to the producer instead of to the speculator or the exploiter.

119. The Impossibility of Over-Production24

BY JOHN STUART MILL

Dearth, or scarcity, on the one hand, and over-supply, or, in mercantile language, glut, on the other, are incident to all commodities. Because this phenomena of over-supply may exist in the case of any one commodity, many persons have thought that it may exist with regard to all commodities; that there may be a general overproduction of wealth; and a consequent depressed condition of all classes of producers.

The doctrine seems to me to involve so much inconsistency in its very conception that I feel considerable difficulty in giving any clear statement of it. In general the theory is that there may be an excess of productions in general beyond the demand for them; that when this happens, purchasers cannot be found at prices which will repay the cost of production; that there ensues a general depression of prices. The advocates of this theory maintain that the accumulation of capital may proceed too fast; and enjoin the rich to guard against this evil by an ample unproductive consumption.

When writers speak of the supply of commodities outrunning the demand, it is not clear which of two elements of demand they have in view; the desire to possess, or the means to purchase. In this uncertainty it is necessary to examine both suppositions.

First, let us suppose that the quantity of commodities produced is not greater than the community would be glad to consume. Is it possible, in that case, that there should be a deficiency of demand, for want of the means of payment? Those who think so cannot have considered what it is which constitutes the means of payment for commodities. It is simply commodities. It is simply commodities. All sellers are inevitably buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should also double the purchasing power. Everyone would bring to the market a double demand as well as supply. It is probable that there would be a superfluity of certain things. If so, the supply will adapt itself accordingly, and the values of things will continue to correspond to their cost of production. At any rate it is a sheer absurdity that all things should fall in value, and that all producers should be insufficiently remunerated. If values remain the same, what becomes of prices is immaterial, since the remuneration of producers depends upon how much of consumable articles they obtain for their goods.

"Adapted from The Principles of Political Economy, II, 105–113 (1848).

But it may perhaps be supposed that it is not the ability to purchase, but the desire to possess, which falls short; that those who have the means do not make the wants, and those who have the wants are without the means. A portion, therefore, of the commodities produced may be unable to find a market.

This form of the doctrine is more plausible and does not involve a contradiction. There may easily be a greater quantity of any commodity than is desired by those who have the means to purchase it, and it is abstractly conceivable that this might be the case with all commodities. The error is in not perceiving that though all who have an equivalent to give might be fully provided with every consumable article which they desire, the fact that they go on adding to the production proves that this is not actually the

Whoever brings additional commodities to the market brings an additional power to purchase; he also brings an additional desire to consume, since if he had not that desire he would not have troubled himself to produce. At most, it can be argued that the demand may be for one thing and the supply may unfortunately consist of another.

Driven to this last resort, an opponent may perhaps allege that there are persons who produce and accumulate from mere habit. They continue producing because the machine is ready mounted, and save and reinvest their savings because they have nothing on which they care to expend them. Such cases are possible; but do not affect our conclusion. For, what do these persons do with their savings? They invest them productively; that is, spend them in employing labor. Now will the laboring class also know what to do with it? Are we to suppose that they too have their wants perfectly satisfied, and go on laboring from mere habit? Until the working classes have also reached the point of satiety, there will be no want of demand for produce. Thus, in whatever manner the question is looked at, the theory of general over-production implies an absurdity.

120. Sun-Spots and Crises 25

BY W. STANLEY JEVONS

I have long felt convinced that a well-marked decennial periodicity can be traced in the activity of trade and the recurrence of

"Adapted from "The Periodicity of Commercial Crises and Its Physical Explanation," in Investigations in Currency and Finance, 207, 214-216 (1878).

commercial crises. Evidence shows that trade reached a maximum of activity in or about the years 1701, 1711, 1721, 1732, 1742, 1753, 1763, 1772, 1783, 1793, 1805, 1815, 1825, 1837, 1847, 1857, 1866. These years, whether marked by the bursting of a commercial panic or not, are corresponding years, and the intervals vary only from nine to twelve years. There being in all an interval of one hundred and sixty-five years, broken into sixteen periods, the average length of these periods is about 10.3 years. But the dates 1701 and 1711 are not well established and the panic of 1866 was probably precipitated by the fall of Overends, Gurney & Co. Judging by the events of 1837, 1847, and 1857, we should probably place the proper date of the collapse in 1867. If we compare the unquestionable collapse of 1721 with 1867, the average interval is 10.43 years; if we prefer to compare 1721 with 1857, in which year there was an undoubted collapse, then the mean interval becomes 10.46. As the year 1763 was also a year of well-marked crisis, it is instructive to compare it with 1857, which gives the average interval just 10.44 years, which falls nearly between the previous results, and may be accepted as the most probable. Now it is very curious to bring this result in connection with the statement of Mr. J. A. Brown26 that his investigations led him to the conclusion that the cycle for sun-spots was 10.45 years. His conclusion agrees with that previously obtained by Dr. Lamont. Judging by this close coincidence of results according to the theory of probabilities, it becomes highly probable that the two periodic phenomena, varying so nearly in the same mean period, are connected as cause and effect.

These periodic variations in industrial activity are frequently attributed to mental action. A commercial panic, it is held, is the destruction of belief and hope in the minds of merchants and bankers. Though I agree, I can see no reason why the human mind, in its own spontaneous action, should select a period of just 10.44 years to vary in. Surely we must go beyond the mind to its industrial environment. Merchants and bankers are continually influenced in their dealings by accounts of the success of harvests, the comparative abundance or scarcity of goods; and when we know that there is a cause, the variation of the solar activity, which is just of the nature to affect the produce of agriculture, and which does vary in the same period, it is almost certain that the two sets of phenomena, credit cycles and solar variations, are connected as cause and effect.

"Nature, XVI, 63 (1877).

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We have no lack of theories-some of them extremely ingenious -setting forth the causes and conditions of crises. Most of these unfortunately are vitiated by a propagandist purpose. Just as the practical politician ascribes depression to the tariff, so the economist is likely to find the cause in social conditions of which he disapproves. Theorists who approve of the existing order on general grounds are disposed to assign a separate cause to each crisis. So of the outstanding fact of periodicity of crises we have hitherto had no satisfactory explanation. Accordingly we may regard as an event of great practical and scientific importance a new book on economic cycles by Professor Moore.28

The author attempts to apply the newer mathematics to the analysis of economic facts. For a generation or more students of meteorology have occupied themselves with cyclical variations in climate; and these variations, affecting as they must the production of agricultural staples, have an obvious bearing upon economic conditions. Professor Moore has attacked the climate problem anew and shows that so far as rainfall is concerned-the most important element the climate of. our middle western agricultural territory is characterized by great cycles of approximately thirty-three years, and by lesser cycles of approximately eight years. An analysis of crop statistics shows that the yield per acre of staple crops correlates very closely with the rainfall cycles thus established. Agricultural prices are high in lean years and low in fat ones; nevertheless the price variations are inadequate to counterbalance the variations in yield. Accordingly the purchasing power exerted by agriculture varies in cycles that are identical with the rainfall cycles. Thus agricultural prosperity and depression are already explained.

Next, as to the effect on industry. Professor Moore analyzes the statistics of pig-iron production-the "barometer of business"-and finds that with due allowance for the secular upward trend in production, the figures reveal cycles corresponding with the rainfall cycles, but lagging after by an interval of about two years. Finally a study of general prices-the indicia of prosperity and depression-brings to light corresponding cycles, with a lag, however, of about four

27 Adapted from "Causes of Crises," in The New Republic, II, 17-19. Copyright (1915).

28 Economic Cycles: Their Law and Cause. Published by Macmillan (1914).

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