Now science says prophecy is a fact! Not the kind where a mystic means is used, but a type which depends on statistical charts amassed over a period of many years.
by V. N. Gebhardt
Are our lives – yours and mine and the lives of every man and woman in the world-guided by mysterious economic rhythms over which as yet we have little or no control? Do economic forces follow fixed patterns which we can trace and predict but which we do not yet begin to understand
The answer looks more and more like YES.
As mathematicians, statisticians and other investigators begin to make economics a science instead of a guessing game, they see increasing evidence that depressions and booms, droughts and famines, abundance and scarcity followed fixed rhythms in the past and will continue to follow them in the future. This may be such a novel proposition to many skeptics that they will immediately brand it a crackpot idea akin to soothsaying or reading the stars. The very
concept that man does not control his destiny is not acceptable to many persons even if it is true.
But let those with open minds listen to the words of Professors George
Warren and Frank Pearson of Cornell University in their monumental work, “World Prices and the Building Industry.”
“The welfare of an individual is often determined by the time in ‘which he’
was born. If he is old enough to start business at a low of a building cycle, which is accompanied by a falling value of gold and rising prices, his chances for success are very good. Conversely, if he is born at such a date that he starts in business at the peak of a building cycle, which is accompanied by falling commodity prices, is chances of success are small.
“Much of the success or failure of an individual is due to forces over which he has no control; but if he understands these forces, he may protect himself from the worst results of unfavorable combinations and profit personally from favorable combinations.”
Here, then, is the crux of the argument:
Business cycles occur regularly. We can do nothing to bring them on or to halt them. Nevertheless, they are predictable. As long as we can predict them, we can protect ourselves to a certain extent. We can refrain from taking risks at unlikely times. Or we can go into business when the outlook is good.
Among other pioneers in tracing out this new science of economics are Prof. Clarence Long, Prof. Joseph A. Schumpeter of Harvard University, Irving Fisher, and Wesley C. Mitchell.
They are names which lend respectability and authority to the propositions set forth in this article.
First, remember that there are predictions and predictions. We are all familiar with the forecasts that there would be 6,000,000 unemployed in 1946, after the end of the World War. Instead, employment in the United States was higher than it had ever been and continued to grow even more. We remember, too, the predictions that there would be a post- war depression-simply because there was one after World War I. Instead, we have business at the highest levels in its history and as this article went to press, at least, there was no hint of a post-war depression.
It is predictions like these that the new scientific economists scoff at because they were made without reference to the important business rhythms. Such foolish predictions have helped to throw all economists into disrepute.
Remember the great depression of the early 1930s? If you do, you remember that in the year 1930, when the depression was just getting underway, most economists were preaching that “prosperity is just around the corner.”
The fact is, of course, that the depression got progressively worse for three years, and the economic life of the country didn’t return to the levels of 1929 until after World War 11 was well along. In 1930, prosperity was many years away, and many an economist who was shouting about it being around the corner came away with a properly red face.
Yet the new economics scientists say that anyone who had studied the rhythms of business life for the past 100 years or so could not only have known that the depression would get worse in 1930, but could have predicted it in the first place.
The old-fashioned economists hadn’t studied the rhythms and trends of past years. They didn’t believe in that. They tried to reason out cause and effect in their minds, with little reference to facts.
They were like the logicians of the Middle Ages, before the days of the scientific method. These logicians would sit about a table and argue, for instance, about how many teeth a horse had in its mouth. They would prove by sheer logic, and at most a timely reference to Aristotle or the Bible, how many teeth a horse had. Anyone who disagreed was argued down with brilliantly constructed syllogisms.
It never occurred to any of them to go out and count the teeth in a horse’s mouth.
The new economists have gone out to count the teeth. They are tracing prices for as far back as prices exist. They are digging out all the data about costs and production and birth rates and wheat grown and sold and for how much, and hogs butchered for as many years as records can be discovered.
When they put all this data together they find definite rhythms that occur regularly and without fail every few years. Year in and year out, the high peaks and the low prices occur a fixed number of years and sometimes even months apart.
The economists then extend the trends into the future and predict when the next depression or boom or the next high peaks or low points will come.
They have been astounded to discover that many of these rhythms the same in every country, her it is communist Russia, socialist France and England, or capitalist United States. And find that even wars seem to have little effect upon the major rhythms except to intensify them and that the wars may even be timed with the rhythms.
These new economists don’t attempt to explain why this happens.
They admit frankly that they don’t know. They don’t believe it’s necessary to explain why. They chart out the rhythm. There it is. That’s enough for them.
It’s like the tides. Before men knew that the moon was largely responsible for tides, they still knew that tides occurred regularly and learned to guide their ship-launching and docking and clam digging accordingly. The tides still existed and followed their mighty rhythms whether anyone knew why or not.
The same kind of tidal rhythms exist in human affairs, speeding up our activities or slowing them down. There are remarkably close correlations between such activities and sun spot activities, or the presence of ozone in the atmosphere which is dependent upon sun spot activity.
But this article is not concerned with causes of rhythms; it only affirms that they exist.
Why is it important to study rhythms ?
The answer is self-evident. It is to be able to predict the future!
If the new economists are right, we have been able to achieve the goal of all the soothsayers of history. And it is done not with secret sacred rites, with the stars, or with any one of 50 other methods of ancient occult divination-but with hard cold facts and numbers.
There is one qualification, however. The findings relate only to broad trends and to the economy as a whole. How these trends and rhythms affect you individually is still up to you.
The whole emphasis of the new economics is to make prediction possible. For what use is a science, the new economists ask, in which prediction is impossible?
Among the many rhythms that have been traced, the three most important appear to be a nine-year rhythm, an 18-year rhythm, and a 54-year rhythm. These are among the most regular and predictable cycles which affect our lives.
The nine-year rhythm is particularly noticeable in stock and bond prices, wholesale prices, and industrial activity. Let us trace this rhythm in recent years. It reached its low-point in 1932-1933, and it is significant that in that year recovery began from the great depression.
And it is also significant that it reached a peak in 1937- which was the peak recovery year before the start of World War II. This rhythm was due to reach its low point in 1942 and rise to 1946, when it was scheduled to start falling again. But here we must note other factors. First, the war-time inflation, second, the influence of any rhythm by other rhythms. We shall come back to this.
The second rhythm is an 18-year rhythm. It is especially noticeable in real estate and building activity. This rhythm has been plotted fairly accurately for 150 years and it is not just a doubling up of the nine-year rhythm. It shows up in different activities and is perhaps the most pronounced rhythm we have detected.
At no time in the past 150 years has it varied substantially from all 18 1/3-year length. It reached one peak in 1925 and another in 1942. It can be observed by any person closely studying the records of building activity. Yet despite the plain evidence of this rhythm, businessmen have continued to construct business buildings, apartments and skyscrapers at price peaks—only to lose them and their money when the price cycle began to go downhill. Similarly, wage earners
and jobholders have bought their homes at the price peaks and spent the rest of their lives paying for them when their own salaries were educed by the downhill cycle.
Rockefeller Center in New York City is one set of buildings constructed when prices were low. The buildings were also ready for occupation when the cycle began to rise. Professors Warren and Pearson have compiled interesting data showing at what period in the 18 1/3 year building cycle certain costly skyscrapers were built in New York and Chicago.
If their builders had studied the cycles first, many a heartache would have been saved.
It is a strange fact that banks and their investors seem most eager to provide money to build such structures at the most unfavorable times.
That is, when anyone studying the cycles would know that ventures of that kind were least likely to be profitable.
Government can certainly influence the building cycle markedly.
Most building for the first two years after 1933 was financed by the Government. Nevertheless, it coincided with the predicted upturn of the cycle. The 1942 peak came a year or so before the ideal peak of the cycle, yet it is doubtful if even the inflationary building boom of 1947 and 1948 will approach in volume the 14-billion dollar peak of 1942.
The ideal 18-year cycle was just beginning its rise at the end of World War II. Based on these facts, and their belief that the cycle is never far wrong, the economic forecasters believe that the current building boom cannot approach that which followed World War I. Of course, adjustments should be made comparing building volume with its relative position in the national economy. There are many more people in the country, more families, more money today than there were after World War I.
Furniture and lumber production move along with the building rhythm, though they lag slightly behind it. Oddly enough, the marriage rate also moves with it. Common stock prices likewise tend to move with it-Warren and Pearson point out that stock prices rise in the early part of the cycle, fall, then rise again. Major panics usually start after the cycle has reached its peak.
The third business cycle is perhaps the most important. It is 54years long-so long that the economic life of no man can encompass more than one such cycle. It shows itself primarily in price changes, especially wholesale prices. Major wars have not interfered with this great rhythm-on the contrary, the War of 1812, the Civil War and the First World War came just at its peaks.
Today we are on the down wave of a 54-year cycle which began in 1898 and is due to reach its low about 1952.
This long cycle has been traced in Great Britain, Germany and the United States with surprisingly close parallels. Despite the revolution in Germany, the tinkering with exports and currencies in Great Britain and the United States, the socialism of France, the 54-year cycle shows close parallels in all of these countries throughout its length.
The beginning of a new 54-year cycle is marked by a change in economic viewpoint. People are optimistic. They feel that the country is about to expand anew and that great things are in the offing. New investments come in, new industries grow up, the whole economy expands. And, within the limits of its influence by other shorter-range cycles, the entire business life of the nation (and perhaps of the world) expands for 25 years or so, until a saturation point is reached-and we have a depression and the start of the slow decline in prices, in business activity, in employment. People then begin to wonder if the days of opportunity are over and progress is dead.
The business of reading cycles is not at all as simple as this brief summary has indicated. For instance, we have three major rhythms of different lengths. While some are climbing, others are falling. Sometimes all are climbing at once; at other times all are falling at once. Much of the time some of the rhythms are pulling at cross-purposes to others. Furthermore, other rhythms are entering the picture. Most of them are minor as far as we have identified them, but there is a strong 3y2-year rhythm, for instance which affects business activity.
Nevertheless, here we have the three major rhythms of nine, 18 and 54 years. What do they mean to us in our lives, and in planning for our futures?
What do they mean today?
The charts show a significant relationship. Today all of these all of these major waves are declining! All three of them will reach their low point about 1952. That is the most important fact we need to know at present.
It is an enormously complicated job to chart a single rhythm. To chart and harmonize three becomes vastly more difficult, as the accompanying charts show.
It might be that the 54-yearrhythm is even now on the start of its main upswing, though this would be unprecedentedly early. It may be that it will start its main upswing a year or two after 1952. The 18year and the nine-year rhythms, however, will certainly reach their low points very close to 1952 if the new economists are right.
For all who plan for the future, then, watch the years 1951, 1952,1953. The cycles say that 1952 is the year starting the long upswing. There will be setbacks in between, of course, as the other rhythms affect our economic life. But if the economists are right, the 27 years beginning in 1952 will be far more prosperous and fruitful than the preceding downward half of the cycle.
In 1952, all the cycles start up. And the economists agree that when this has happened, their predictions have never been wrong!