Business of business cycles;

              42 HASKINS & SELLS June
This Business of Business Cycles
JEVONS, an eminent English economist
who lived from 1835 to 1882, is prob­ably
best known to the present generation,
in this country, at least, as the propounder
of the theory of sun spots. Jevons' general
reasoning tended strongly to bring economics
into relation with physical science, and he
advanced the theory that there is a con­nection
between commercial crises and sun
spots. The reasoning was somewhat in­volved
and had to do with the diminution
of the heat from the sun and its effect on
crops. In short, given sun spots of suffi­cient
size, Jevons contended that panics
are bound to ensue.
Looking back over the history of the
United States for the past one hundred
years, there are a number of crises which
stand out. While they are sometimes
referred to as panics it does not seem neces­sary
to differentiate between panics and
crises, if, indeed, there is any substantial
difference. The outstanding periods of
depression began, respectively, in 1837,
1873, 1893, 1907, and 1921. They are of
some interest in examining the question of
business cycles, because, with one excep­tion,
they have well defined points in
common, and it is not unlikely, in the case
of the exception, that sufficient investiga­tion
would reveal the presence of causes
which are common to the other instances.
Some of the panics synchronize with the
occurrence of sun spots and crop failures;
others show no relation to these phenomena.
The panic of 1837, as it is usually called,
followed a marked period of territorial
and business expansion, with excessive
extension of credit and speculation in public
lands. The panic was precipitated by the
suspension of specie payments, resulting in
great financial disturbance, and was ac­companied
by crop failures. There is no
evidence available apparently to show that
sun spots appeared at that time.
In 1873, due to over-expansion in railway
construction, increase in the demand for
iron, over-expansion in the iron industry,
industrial expansion generally, inflation of
prices, came another so-called panic. This
depression is usually attributed to the fact
that railroad development and construction,
particularly through the west, was too far
ahead of the transportation needs of the
country, and as a result the roads with new
extensions were unable to earn sufficient to
meet the interest on the investment. There
were no crop failures. There were no sun
spots, but the depression was deep and
far-reaching.
Just twenty years later another panic
occurred which lacked, generally speaking,
the ear-marks of its predecessors, with
respect to over-expansion and speculation.
The panic of 1893 is traceable more clearly
to lack of confidence in the ability or in­tention
of the federal government to redeem
government obligations in gold and main­tain
a parity between gold and silver. In
this year there were both sun spots and
crop failures.
The next panic occurred in 1907, and