Among the dynamic conditions in industry are changes in the general price level, whether due to changes in the produc tion of the standard money commodity (relative to popula tion) or to changing methods of doing business. if the price level is falling (i. e., the standard unit is appreciating), the burden of the great mass of outstanding debts is growing heavier upon the debtors. Sooner or later some of them break down under its weight. At such times many attempt to shift their capital from active investments, such as stocks, to passive investments, such as bonds. When the price level is rising, the opposite conditions prevail. But such adjust ments proceed uncertainly and unevenly in different indus tries, with much speculation in shifting from one type of business to another, and with mucn accompanying miscalcula tion.
§ 11. Tariff changes and business uncertainty. Another variable influence in American business has been the tariff. Every tariff revision, whether the rates go upward or down ward, shifts somewhat the relative opportunities and profit ableness of different industries. Some of these call for far reaching readjustments of investments and of productive forces. Some persons gain and some lose by every such change. It has been contended that a reduction of tariff rates has a more disturbing effect upon business than does an increase. If this is true it may be because the industries injured by a lowering of tariffs in America are those most fully within the circle of the credit system; whereas most of the consumers adversely affected by a rise of tariff rates are outside the commercial circles where short-time credit is com mon and where the rapid readjustment of investment leads to a financial crisis. It never has been convincingly shown, however, that there is any large measure of correspondence in time (not to say causal relation) between tariff revisions and § 12. Rhythmic changes in weather and in crops. The periodic though not quite regular recurrence of crises has suggested the thought that they may be causally related with some one dominating force such as is found in the conditions of nature. The English economist Jevons attempted toward the end of the nineteenth century to show statistically a re lationship between financial crises and the variation in sun spots. This idea has usually been treated as whimsical, but the continued efforts of physicists to discover a causal relation between sun-spots and the weather suggests that a real causal relation between the physical and the economic phenomena may yet be found. The alteration, of seasons of poor with seasons of good harvests, "lean years with fat years," follows a tine strikingly suggestive of the curve of the business cycle. Some reasons for this relationship are apparent. For example, in America, since about 1865, farm
products have constituted the larger part of our exports, so that a succession of large harvests has usually acted to stimu late exports (one of the features of a period of prosperity), to give us a larger credit balance in international trade, and to reduce the rate of exchange. Large harvests of the staple agricultural crops in America have been shown to be closely related to the amount of rainfall in the three most important growing months. Recently it has been shown that the rainfall of the Ohio Valley occurs in cycles of about eight years, and in a larger cycle of thirty-three years, and that the cycle of yield per acre of the nine principal crops corresponds closely with the cycle of pig-iron production 9 See on tariff legislation and business crises, ch. 18, f 13.
(one of the best single indices of growing business and of an upswing in the business cycle) dated from one to two years later. There is found what is called in statistics a high degree of correlation (.719 in the former and .800 in the latter case), indicating that there is that percentage of proba bility that there is some causal relation between the two sets of figures. As the cycles of rainfall and of harvests are not coincident in different countries, it will require further study to adjust to these observations the fact of the world-wide extent of the great financial crises. But a bet ter understanding of objective conditions of this kind will give fuller meaning to the interpretation of the financial and the psychological features of crises.
§ 13. "Glut" theories of crises. Many explanations of the causes of financial crises have been Nearly all of these belong to the general group of "glut" theories, of which genus there are two species, under-consumption and over-pro duction theories. These are, in truth, but two aspects of the same ideals The one view is that too many goods are produced, the other that too few are consumed. The over production theorist, seeing that in a crisis warehouses are filled with goods that cannot be disposed of for what they cost (or at best not so as to give a profit), and that factories are shut down and men are out of employment for lack of demand, declares that productive power has grown too great. The under-consumption theorist, seeing the same facts, says that the trouble is lack of purchasing power. He observes that there are some people who would like to buy more of some of these things, but that such people lack income with which to buy. Usually he asserts that this is because production io In the first annual report of the United States Commissioner of Labor is given a long catalog of theories that have been suggested, many of them quite fantastic.