SEQUENCES WITHIN CYCLES
ONE of the sayings of the late O. P. Van Sweringen embodied the key explanation of the business cycle, although neither he nor his associates recognized it as being the key. He used to say, "You can't finance on a falling market," and since he held control over some 260 corporations he spoke from an abundance of experience. He meant that most new financing must be done while security prices are rising, for when they are declining most investors are reluctant to make new commitments, since they believe that by waiting a little longer they will be able to make their contemplated purchases at lower prices.
That simple observation that rising security prices favor new financing, while falling prices hinder it, explains why it is that the flow of new funds into business enterprises has always been an undulating one, with the volume of the inflow of new funds moving in long wave-like fluctuations which have preceded by some months the fluctuations of industrial production that have largely constituted the business cycles. The new funds flowing into corporation treasuries from the proceeds of the sales of new securities have promptly been used for more construction, new equipment, stocks of materials, and increased pay rolls. When the flows of funds have decreased these expansions have terminated.
It has long been a commonplace of financial comment that business confidence increases, and business sentiment becomes more optimistic, when stock prices are advancing. A great deal of derision has been directed at business men because they seemed to permit their judgments to be shaped and their attitudes to be guided by merely transitory changes in the quoted prices of stocks and bonds. Probably the business men have been more nearly in