CHART VI. Conspectus of Business Cycles in Various Countries, 1790-1925.

ENGLAND

FRANCE

GERMANY

AUSTRIA

4. DOMESTIC AND FOREIGN FACTORS IN BUSINESS CYCLES.

Possibly this tendency to synchronize their phases, found in the business cycles of different countries, arises from some cosmic cause which affects all quarters of the globe in much the same way each year. Upon that daring hypothesis, our annals throw no light. But the annals do suggest certain tamer explanations, which account not only for the general resemblance among cycles in different countries, but also for their differences. These tamer explanations are not inconsistent with the cosmic hypothesis, but they do not depend upon it.

Whatever the causes of the recurrent fluctuations in economic activity may be, the annals suggest that these causes become active in all communities where there has developed an economic organization approximating that of western Europe. There appears to be a rough parallelism between the stage attained in the evolution of this organization by different countries, and the prominence of business cycles as a factor in their fortunes.

One characteristic of the type of organization in question is the wide area over which it integrates and coördinates economic activities. Bare as they are and short their span, the annals reveal a secular trend toward territorial expansion of business relations and a concomitant trend toward economic unity. For example, the American annals show how often the fortunes of the North, the South and the West diverged from one another in the earlier decades after the adoption of the Constitution, and how these divergencies have diminished in later decades. Not that business is ever equally prosperous or equally depressed in all states of the Union even now: always there are perceptible differences, and at times the differences are wide, particularly among the great farming "belts". Yet the annals picture the vastly greater population of today, spread over a vastly greater territory, as having more unity of fortune than had the people of the thirteen original states and the frontier settlements in 1790-1820.

Broadly speaking, the annals support a similar conclusion for the world at large. The network of business relations has been growing closer and firmer, at the same time that it has been stretching over wider areas. The annals allow us to catch some glimpses of this double trend within the borders of a few countries besides the United States, and they show it clearly in the relations among different

countries. As American business is coming to have one story, diversified by agricultural episodes, so, before the war shattered international bonds for a time, world business seemed to be approaching the time when it too would have one story, diversified by political and social as well as agricultural episodes in different countries.

The basis of this trend toward unity of economic fortunes among communities organized on the European model is that each phase in a business cycle, as it develops in any area, tends to produce the same phase in all the areas with which the first has dealings.

Prosperity in one country stimulates demand for the products of other countries, and so quickens activities in the latter regions. Prosperity also lessens the energy with which merchants, financiers, and contractors seek competitive business in neutral markets, and so gives a better chance to the corresponding classes in countries where the domestic demand is less active. Further, prosperity, with its sanguine temper and its liberal profits, encourages investments abroad as well as at home, and the export of capital to other countries gives an impetus to their trade. A recession checks all these stimuli. A severe crisis in any important center produces quicker and graver results. Demands for financial assistance raise interest rates and reduce domestic lending power in other centers; apprehensions regarding the solvency of international houses may start demands for liquidation in many places; the losses which bankruptcies bring are likely to be felt by business enterprises the world over. So, too, with depressions and revival; wherever they prevail, they exert influences upon businss elsewhere which tend to produce depressions or revivals in all regions with which the center of disturbance trades.

Nor are these relations one-sided. The condition of business in every country not only influences, but is influenced by conditions in other countries. The trend toward international similarity of business cycles is enforced by an endless series of actions and re-actions among the influences exerted and experienced by all the nations which deal with each other.

Of course, the degree of influence exerted by business conditions in a given area upon business elsewhere depends upon the importance of that area in international commerce and finance. Similarly, the sensitiveness of business in a given area to the influence of business conditions elsewhere is least in communities like interior China, whose economic activities are mainly self-contained, and greatest in com

munities which depend largely upon foreign markets, foreign investments, and foreign sources of supply, like England. It is also clear that a country of the latter type will reflect world conditions more faithfully, the more widely its foreign interests are distributed.

While this line of analysis explains the tendency of business cycles in different countries to synchronize their phases, it does not hide the obstructions which this tendency meets.

In so far as the people in any country buy and sell, lend and borrow only among themselves, they are likely to have economic vicissitudes all their own. Agricultural communities which live largely on what they produce suffer more from acts of nature than farming populations which trade extensively; but they have little share in the world fluctuations of business. Even in countries where farmers are more business-like, we have noted that agriculture has a story of its own, dictated by the weather at home and abroad-a story which often differs from the story of mining, manufactures, transportation, wholesale trade, and finance. Of course the agricultural story modifies the general tale. Fluctuations in the cost of raw materials and of foods, as well as fluctuations in the buying power of farm families, react upon the prosperity of other industries in proportion to the relative weight of agriculture in the country's total business. Hence, the larger the agricultural element in a given nation, the less likely are that nation's business cycles to fit neatly into the international pattern over a long series of years. For two nations with large farming interests are not likely to have closely similar harvest fluctuations year after year. The one development touching agriculture which most clearly tends toward unifying business fortunes is the decline in the proportion of families which depend on farming, and the concomitant increase in the proportion following industrial pursuits. Dr. Thorp's prefaces to the chapters of annals which follow show that this decline is world-wide.

While the rise of large-scale industry within a nation of cultivators, craftsmen and petty traders links its economic life to that of other nations, there may be a stage in this development when international influences seem to recede and domestic influences to grow more important. The first modern mines, factories, railways,

In one way, the development of a "world market" for the great agricultural staples even increases the hazards of farming. A scanty yield of wheat in Canada, for example, need not cause a compensatory rise of prices.