Business Forecasting: The Principles and Practice of Forecasting Business and Stock-Market Trends with Especial Reference to Business Cycles

By Lewis H. Haney | Go to book overview

VII
A Theory of Business Cycles

THE CAUSES OF BUSINESS CYCLES

We must start with the facts that economic phenomena center in exchange values and prices and that business centers in profits. Business cycles, if they are as fundamental as they appear, may be assumed to be essentially connected with supply, demand, prices, and profits. It is clear, too, that cycles arise out of maladjustments in or among these same things. The maladjustments may differ in degree, in the industries or areas affected, and in duration or period of time, but some maladjustment there always is in the course of the cycle.

Cyclical maladjustments are conditions in supply, demand, prices, and profits which become so acute that violent readjustments are necessary. A cyclical recession in business is a readjustment, or "correction," that is so large and rapid that it cannot be effected in a normal way but is attended by abnormal business losses and failures.

The fundamental questions, however, are What causes the maladjustments? What makes business booms? There is only one way to go in seeking causes here. We must look for them rather early in the expanding phase of the cycle. Once a boom is started, the peak is inevitable. At the peak of the cycle a recession is merely the necessary outcome of the maladjustments that have arisen during the boom.

It might seem that business could pursue a normal course for indefinite periods, and so probably it could if there were no booms. We can imagine a business activity which would run along at a normal level forever, suffering only occasional declines below normal. But these declines would be due to external causes and would either not be regularly periodic

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