Year Production
Tons
1860 919,770
1861 731,544
1862 787,662
1863 947,604
1864 (Depression) 1,135,996
1865 931,582
1866 1,350,344
1867 1,461,626
1868 1,603,000
1869 1,916,641
1870 1,865,000
1871 1,911,608
1872 2,854,558
1873 (Depression) 2,560,963
1874 2,401,262
1875 2,023,733
1876 1,868,961
1877 2,066,594
1878 2,301,215
1879 2,741,853
1880 3,835,151
1881 4,144,254
1882 4,623,323
1883 4,595,510
1884 (Depression) 4,097,868
1885 4,044,526
1886 5,683,329
1887 6,417,148
1888 6,489,738
1889 7,603,642
1890 9,202,703
1891 8,279,870
1892 9,157,000
1893 (Depression) 7,124,502
1894 6,657,088
1895 9,446,308
1896 8,623,127
1897 9,652,860
1898 11,773,934
1899 13,620,703
1900 13,789,243
1901 15,878,354
1902 17,821,307
1903 (Depression) 18,009,252
1904 16,497,033
1905 22,992,380
1906 25,307,191
It will be observed that the high record of production has been reached
just prior to our greatest periods of depression, or during such
periods.
The second phase of the question, “what signs usually precede such
periods?” opens a wide field for the student of speculative changes.
Some inspiration may be gained from an examination of the two points
already considered, i.e.: priority of price movements and business
inflation; but it would be extremely difficult to use them as guides
unless many other factors were given consideration. If we eliminate
the element of periodicity, any attempt to determine the turning point
by examination of advances in prices of stocks or volume of production
and consumption of commodities is futile. Using pig iron as a barometer
we might, after production has gradually increased from 8,623,127 tons
in 1896, to 15,878,354 in 1901, argue that a considerable reaction was
due in this line, but we would be out in our calculations two years and
two million tons. Neither can we accept the simple fact of a decline,
or the beginning of a decline in iron or in any other single commodity
as indicating lower prices for stocks; for however accurate iron may
be as a barometer of general business, it is not at all a barometer
of the stock market. It is practically certain that stock prices will
move either to higher or lower prices long before any reasons for such
movements are apparent to the ordinary observer. Future stock market
movements are largely deductive, and are not founded upon ordinary
industrial statistical evidence.
There is, however, one method by which some light may be thrown upon
the subject of probable movements. A careful study of monetary
conditions and expansion of credits will frequently reveal dangers not
apparent in any other direction. It is scarcely necessary to say that
such examination must not be confined to one quarter, such as New York
City; or to one country, such as the United States. A comprehensive
view of the world’s monetary conditions will be necessary. This subject
is dealt with more fully in another chapter.
There is much difference of opinion among writers and students of
economics as to the cause of depressions. Bagehot attributes it to
the fact that, “at particular times a great many stupid people have a
great deal of stupid money.” This writer contends that occasionally
money accumulates abnormally and craves an investment outlet. To use
his own words, “This blind capital seeks for some one to devour it,
and there is plethora; it finds some one, and there is speculation; it
is devoured, and there is a panic.” Horace White attributes panics to
over-speculation. Bonamy Price says: “A vast outlay in new enterprises
involving a large consumption of food and materials, whether in the way
of pure waste or temporary unproductiveness, ought always to suggest a
feeling of danger. This excess occurs in seasons of prosperity.” John
B. Clark holds that it is due to an excess of production; or an excess
of production in one line with a deficiency in others. Leone Levi:
“The main cause for the occurrence of crises is the sudden realization
of an insufficiency of capital to meet present demands.” Thorold
Rogers says: “The cause exists in the function of exchange; in the
expectation of unreasonable profits and in incorrect calculation.” It
was the late Henry George’s theory that depressions are brought about
by higher prices of land. He held that workers thrive as they have easy
access to natural opportunities for production, and are impoverished
as they are deprived of such opportunities. All periods of speculation
and inflation end in higher land values. Landlords call for a larger
percentage of the product than workers can afford to pay, and both
labor and capital become idle until there is a readjustment. Prof. W.
S. Jevons, and a host of others, attribute crises to sun spots and
their effects on harvests. And so on through a long line of theories.
The consensus of opinion appears to favor the theory of
over-speculation, whether in realty, commodities, or the shares of
corporations, and this leads up to the question of periodicity. That
there has been a recurrence of these troubles about once in ten years
is not a debatable question. Nevertheless, many thinkers scout the
idea of this repetition at marked periods being other than fortuitous.
As prominent a student as Thorold Rogers, for example, ridicules the
theory of periodicity. Many hopeful people believe that in time we will
find means to avoid these bad spots; that the United States is a young
and enthusiastic country, and that we will gradually sober down in both
methods and effects. But against this theory lies the cold fact that
these cycles have occurred with as charming regularity in France and
England as they have in our own country, which would indicate that age
and seasoning does not produce any appreciable improvement.
It is probable that the most acceptable theory as to the causes of
periodicity is the psychological contention. Human nature is much the
same throughout the civilized world. We suffer from a panic and a
period of depression, and we grow wary and conservative. This course
results in sound methods and accumulation. The business structure rests
on a firmer foundation. Gradually the hard lessons of the past are
forgotten by the older generation, and are entirely unlearned by the
new business generation, all of whom are optimists. Again we expand
our enterprises, again fortune favors us; the appetite for gold grows
greater as wealth accumulates; men who were economical and satisfied
on modest incomes now live extravagantly, and some of them dream of
millions. Capital is spread out thinly. Story after story is erected on
one foundation, and that foundation, sound enough at first, eventually
gives way. Then we must begin our careful building once more. The ten
year periods, therefore, may represent with more or less accuracy,
the lapse of time between wisdom and folly,--the yard-stick of human
intellect and experience.
Many of the writers on this subject seem to strive for tangible reasons
for each depression. They dive into the subject for a cause and emerge
with an effect, or a handful of effects. For example, the depression
following 1893 was not caused by the failures of banks and other
business institutions, but the failures were caused by the depression.
It matters not that the failures ante-dated the bad conditions. Again,
the depression itself was produced by prior inflation. It was the
illness after over-stimulation. And so, in turn, we can ask what caused
the inflation; and the answer is “Human greed and human folly.” This
last analysis brings us around in a circle to the original theory of a
psychological cause.
It is submitted that a dependence on periodicity of any kind, either in
the ten year cycles or in year to year events is fraught with danger
and cannot be adopted by the speculator. It is chart-playing pure and
simple, and the man who disposes of his stocks for no better reason
than that a depression appeared ten years ago, is liable to find
himself in the position of the chart-enthusiast, who, after tracing
a marked uniformity in movements for a period of years, runs into
reverses and loses all.
It is not meant to say that a knowledge of the past is without value.
Inductive reasoning is almost as important as deductive reasoning,
when properly employed and applied. If we scrutinize the history of
past crises and great movements with a view to determining the salient
causes therefor, a great deal has been gained, for we may apply this
knowledge to existent elements lying parallel to those which caused
trouble in the past, and thus decide what is probable in the future.
If, on the other hand, we place dependence on mere repetition, we gain
nothing in education and stand in constant danger.
It may be contended that the active speculator has little to do with
ten year cycles or their causes, but this is not the case. A correct
understanding of the reasons for the great cycles will simplify the
study of smaller intermediate movements. Much knowledge applicable
to year to year movements will be gained. Monetary troubles, for
example, occur almost annually, and their effects on market movements
are usually, (not always), similar to those of more widely separated
periods, but, of course, in a lesser degree.