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of obtaining such figures are particularly grave. But certainly every extension of public authority over corporate activity should be utilized to secure such uniform methods of accounting as have been imposed on the interested railways, and the reports obtained by the government should be made available in some significant form for the information of the business public.

The old barometers of business could also be considerably improved. The index numbers of commodity prices at wholesale would be more useful if separate series were computed for raw materials and for the articles manufactured from them, and if the raw materials were subdivided into farm, animal, forest, and mineral products. The differences between the fluctuations of these several groups would be of assistance in determining the causes, and therefore the significance of changes in the grand total. Further, an index number of identical commodities in the United States, England, France, and Germany would facilitate the effort to follow the concomitant courses of business cycles in different countries and to anticipate the reaction of foreign upon domestic conditions.

Stock prices should be computed upon the index number plan instead of in the current form of averaging actual prices of shares. To facilitate comparisons the basis chosen should agree with that chosen for commodity prices. The distinctively investment stocks should be separated from the speculative favorites, and separate averages should be struck for railways, public utilities, and industrials. By proper selection fluctuations in the prices of industrial stocks might be made to reflect the fortunes of enterprises especially concerned with providing industrial equipment.

Reports of clearings would be more useful if accompanied by index numbers showing the relative magnitude of the changes in the actual amounts. Separate averages for these figures should be provided for the centres in which financial operations, industrial activity, and agricultural conditions are the dominant factors. Finally, one of the darkest points of current business conditions in America could be cleared up if the rates of discount upon first-class commercial paper in these various centres could be regularly ascertained.

To extend the list of suggestions for bettering figures of the sorts already published would be easy; but enough has been said to make clear the character of the desirable changes. In general, the need is for more careful discrimination between dissimilar data now often lumped together in a single total, the collecting from new centres of data already published for New York, more uniform methods of compilation to guarantee the comparability of what pur

port to be similar figures, and the computing of relative fluctuations upon a common basis. In many, if not all these cases, a double set of relative figures is desirable-one set referring to actual average amounts in some fixed decade, the other set making comparisons with the corresponding period of the previous year.

132. The Severity of the Trade Cycle in America

BY W. A. PATON

The peculiar characteristics of Modern Industrialism which make it susceptible to serious disturbance are too well known to require detailed description. They include the detached and impersonal relations between producer and consumer, and producer and investor; the interdependent nature of co-operative production; the extreme length of the productive process; the unstable character of demand in dynamic society, and frequent and radical changes in technique. These characteristics are universal throughout the Western world; yet American industry has been particularly subject to industrial disturbance.

The inadequacy of our banking system and credit facilities has often been urged as the explanation. Since we use credit to a far greater extent than European countries, we have particular need for stability in banking and credit. It is hoped that the new Federal Reserve System, by giving in a higher degree than before these characteristics, will do much to modify the severity of the ebb and flow of the trade cycle. But it needs to be emphasized that banking. reform can never be more than a palliative. Lax banking and unsound currency systems do something to breed speculative fever. But the fundamental conditions leading to the severity of these disturbances lie deeper.

First among these is the supreme optimism which has always characterized American industrial development. Here was a vast new continent, with an abundance of land, minerals, natural power, and other resources untouched. People from all countries were drawn into the task of developing these resources. To them America was the long-sought-for "promised land." There were no rigid class walls; there existed every opportunity for "self-development.' loose social system and the reaction of the physical environment made it inevitable that the bourgeoise attitude should prevail. The immigrant who, as a peasant in Europe, has no thought of changing his status; the native frontiersman, Yankee son of the old New Englander; the prospector looking for diggings-in each you had

the would-be capitalist. There was also the man with capital looking for sudden wealth in the shape of land concession, franchise rights, or public contracts. The situation, the large class of speculative investors, great and small, and the political organization, making a fetish of the principle of let-alone, could not but induce a highly speculative, over-optimistic attitude toward industry.

A partial justification of American optimism made it the more speculative. The scarcity of labor incident to the opening of a new country, the demand for improved transportation facilities to permit the utilization of new lands and new resources, and the rapid and comprehensive extension of the machine technique into line after line of production, did much to convince the American that anything is possible.

The changes in industrial technique have been more rapid and more extensive than in any other country. The greater and increasing dependence upon machinery has led to increasing complexity in the productive process, as well as to its greater length. The disturbance in the labor market, such as temporary unemployment, which has been chronically incident to its introduction, is but a single example of the strain and shock to which the system as a whole has been subjected.

But minor causes have also been at work. The influx of laborers from abroad has continually altered the proportions between the productive factors. In this country, filled with people who have broken away from their old surroundings, custom and tradition have had comparatively little force; among us it has been hard for conventions, even those adapted to the new situation, to be built up; and the situation as a whole has been particularly sensitive and variable, especially in demand.

This brief statement suggests the essential aspects of the American industrial structure which has given it its peculiar dynamic character, and has made it more highly sensitive to irregularity than that of any other country. A word should be added to indicate how these conditions may intensify the severity of the trade cycle. The great speculative optimism of the American people, together with the need of improved technological equipment, leads to a greatly increased demand for capital goods-producer's goods. This means that a great deal of labor power and a large volume of capital are devoted to producing these kinds of goods. In other words, in America there is an unusual heaping up of society's productive resources in the initial stages of the long-time process. This process continues for some time, the boom period. The length of time necessary to permit these investments to yield returns is gen

erally underestimated, as was the case particularly with many of the early American railway projects; and in other cases the ventures are ill advised and could never become profitable. In such a situation many entrepreneurs find themselves embarrassed when their obligations fall due, and a great many failures ensue. ing and development work halts abruptly; prices of raw materials fall very sharply; all prices go down in sympathy, and a more or less severe period of readjustment follows.

In view of the conditions above described, it is difficult to see how this country could have had its very rapid development without these accompanying periods of stress. As the country becomes older, as technique becomes more dependable, as social conventions standardize demand, as efficient government checks the wildest displays of speculative fever, as speculative capital has to look for golden opportunities abroad, and as we have to look more toward internal organization and economy, rather than to external accident, for industrial gain, the ebb and flow of trade depressions will be less and less severe. We are perhaps nearer than we know to the orderly period wherein their rhythm is as circumscribed as in prosaic Europe.

VI

PROBLEMS OF INTERNATIONAL TRADE

Problems come and go, but the tariff seems to be a permanent American institution. In a country where "every man is his own political economist” it possesses a perennial freshness. It has, time and again, been proved guilty at the polls of raising and lowering the standard of living, of increasing and decreasing wages, of creating and destroying monopoly, of abetting and discouraging immigration, of producing crises and causing prosperity. In part this has been due to an easy association of the question with sentiments of nationalism; the absence of grave social problems, such as are found in more mature societies; and the popular idea that it is a simple and manageable piece of mechanism. But, in part at least, its popular hold has been legitimate. It has been intimately associated with the development of the country, and it has served as an instrument for controlling our development. However particular tariff questions may be stated, the real issue lies in the antithesis between protection and free trade, which are the ends of the tendencies underlying particular programs.

The theory of free trade is "a mere corollary to the principle of the division of labor." Foreign, like domestic, trade, “allows increased specialization,” and consequently “increases the aggregate of wealth." A study of the mechanism of exchange shows that "goods are paid for with goods." "Foreign trade fixes its own limits." The tariff, if used, should have as its object the raising of revenue; it should leave "industrial conditions as it finds them." The argument implies a conception of industrial society in static terms, is an aspect of the general theory of laissez-faire, and rests upon a belief in the efficacy of price as an organizing force.

The strength of protection lies in a mercantilist spirit as old as society. Tradesmen have always been willing to use agencies of social control to increase their sales. This disposition is revealed in the inhibitions against buying goods out of town, supported by custom or opinion; in the attempts of legislatures to exempt manufacturing establishments from taxation; and in duties placed upon imported goods.

Nevertheless, there is a social theory of protection. It rests upon the concept of a developing society, the necessity of social direction of that development, and the possibility of determining, partially at least, its course by assessing, raising, lowering, and removing duties upon imported goods. It implies a constant adaptation of the "tariff policy" to the changing condition of the country. This theory reveals itself in the arguments that protection can transform an agricultural into an industrial society, develop a nation strong in arms, add industry after industry to the national wealth, and "scatter plenty o'er a smiling land" by piling up huge aggregates of capital.

All of these things, it is asserted, it has accomplished for American society. Unfortunately we have no trustworthy evidence of the rôle it has played in the transformation of our system. The histories of the tariff are largely records of what has happened to it rather than of what it has done. The argument "from experience" has failed to disentangle the influence of the tariff from the vast complex of "forces" which together have made our system what it is. Yet it is quite evident that the tariff has played its part in the creation of our highly pecuniary, industrial, and urban culture. The development of manufacturing and mining, upon which the structure so

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