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• Foreword
• On the Manipulation of Money and Credit Three Treatises On Trade-cycle Theory
• Stabilization of the Monetary Unit— From the Viewpoint of Theory
• Introduction *
• I: The Outcome of Inflation
• II: The Emancipation of Monetary Value From the Influence of Government
• III: The Return to Gold
• IV: The Money Relation
• V: Comments On the “balance of Payments” Doctrine
• VI: The Inflationist Argument
• VII: The New Monetary System
• VIII: The Ideological Meaning of Reform
• Appendix: Balance of Payments and Foreign Exchange Rates *
• Monetary Stabilization and Cyclical Policy
• Preface *
• Part I: Stabilization of the Purchasing Power of the Monetary Unit
• I: The Problem
• II: The Gold Standard
• III: The “manipulation” of the Gold Standard
• IV: “measuring” Changes In the Purchasing Power of the Monetary Unit
• V: Fisher’s Stabilization Plan
• VI: Goods-induced and Cash-induced Changes In the Purchasing Power of the Monetary Unit
• VII: The Goal of Monetary Policy
• Part II: Cyclical Policy to Eliminate Economic Fluctuations
• I: Stabilization of the Purchasing Power of the Monetary Unit and Elimination of the Trade Cycle
• II: Circulation Credit Theory
• III: The Reappearance of Cycles
• IV: The Crisis Policy of the Currency School
• V: Modern Cyclical Policy
• VI: Control of the Money Market
• VII: Business Forecasting For Cyclical Policy and the Businessman
• VIII: The Aims and Method of Cyclical Policy
• The Causes of the Economic Crisis an Address
• I: The Nature and Role of the Market
• II: Cyclical Changes In Business Conditions
• III: The Present Crisis
• A.: Unemployment
• B.: Price Declines and Price Supports
• C.: Tax Policy
• D.: Gold Production
• IV: Is There a Way Out?
• The Current Status of Business Cycle Research and Its Prospects For the Immediate Future
• 1.: The Acceptance of the Circulation Credit Theory of Business Cycles *
• 2.: The Popularity of Low Interest Rates
• 3.: The Popularity of Labor Union Policy
• 4.: The Effect of Lower Than Unhampered Market Interest Rates
• 5.: The Questionable Fear of Declining Prices
• The Trade Cycle and Credit Expansion: the Economic Consequences of Cheap Money
• 1.: Introductory Remarks *
• 2.: The Unpopularity of Interest
• 3.: The Two Classes of Credit
• 4.: The Function of Prices, Wage Rates and Interest Rates
• 5.: The Effects of Politically Lowered Interest Rates
• 6.: The Inevitable Ending

VII

Business Forecasting for Cyclical Policy and the Businessman

1.

Contributions of Business Cycle Research

The popularity enjoyed by contemporary business cycle research, the development of which is due above all to American economic researchers, derives from exaggerated expectations as to its usefulness in practice. With its help, it had been hoped to mechanize banking policy and business activity. It had been hoped that a glance at the business barometer would tell businessmen and those who determine banking policy how to act.

At present, this is certainly out of the question. It has already been emphasized often enough that the results of business cycle studies have only described past events and that they may be used for predicting future developments only on the basis of extremely inadequate principles. However—and this is not sufficiently noted—these principles apply solely on the assumption that the ideology calling for expansion of circulation credit has not lost its standing in the field of economic and banking policy. Once a serious start is made at directing cyclical policy toward the elimination of crises, the power of this ideology is already dissipated.

Nevertheless, one broad field remains for the employment of the results of contemporary business cycle studies. They should indicate to the makers of banking policy when the interest rate must be raised to avoid instigating credit expansion. If the study of business conditions were clear on this point and gave answers admitting of only one interpretation, so that there could be only one opinion, not only as to whether but also as to when and how much to increase the discount rate, then the advantage of such studies could not be rated highly enough. However, this is not the case. Everything that the observation of business conditions contributes in the form of manipulated data and material can be interpreted in various ways.

Even before the development of business barometers, it was already known that increases in stock market quotations and commodity prices, a rise in profits on raw materials, a drop in unemployment, an increase in business orders, the selling off of inventories, and so on, signified a boom. The question is, when should, or when must, the brakes be applied. However, no business cycle institute answers this question straightforwardly and without equivocation. What should be done will always depend on an examination of the driving forces which shape business conditions and on the objectives set for cyclical policy. Whether the right moment for action is seized can never be decided except on the basis of a careful observation of all market phenomena. Moreover, it has never been possible to answer this question in any other way. The fact that we now know how to classify and describe the various market data more clearly than before does not make the task essentially any easier.

A glance at the continuous reports on the economy and the stock market in the large daily newspapers and in the economic weeklies which appeared from 1840 to 1910 shows that attempts have been made for decades to draw conclusions from events of the most recent past, on the basis of empirical rules, as to the shape of the immediate future. If we compare the statistical groundwork used in these attempts with those now at our disposal, then it is obvious that we have recourse to more data today. We also understand better how to organize this material, how to arrange it clearly and interpret it for graphic presentation. However, we can by no means claim, with the modern methods of studying business conditions, to have embarked on some new principle.

2.

Difficulties of Precise Prediction

No businessman may safely neglect any available source of information. Thus no businessman can refuse to pay close attention to newspaper reports. Still diligent newspaper reading is no guarantee of business success. If success were that easy, what wealth would the journalists have already amassed! In the business world, success depends on comprehending the situation sooner than others do—and acting accordingly. What is recognized as “fact” must first be evaluated correctly to make it useful for an undertaking. Precisely this is the problem of putting theory into practice.

A prediction, which makes judgments which are qualitative only and not quantitative, is practically useless even if it is eventually proved right by the later course of events. There is also the crucial question of timing. Decades ago, Herbert Spencer recognized, with brilliant perception, that militarism, imperialism, socialism and interventionism must lead to great wars, severe wars. However, anyone who had started about 1890 to speculate on the strength of that insight on a depreciation of the bonds of the Three Empires1 would have sustained heavy losses. Large historical perspectives furnish no basis for stock market speculations which must be reviewed daily, weekly, or monthly at least.

It is well known that every boom must one day come to an end. The businessman’s situation, however, depends on knowing exactly when and where the break will first appear. No economic barometer can answer these questions. An economic barometer only furnishes data from which conclusions may be drawn. Since it is still possible for the central bank of issue to delay the start of the catastrophe with its discount policy, the situation depends chiefly on making judgments as to the conduct of these authorities. Obviously, all available data fail at this point.

But once public opinion is completely dominated by the view that the crisis is imminent and businessmen act on this basis, then it is already too late to derive business profit from this knowledge. Or even merely to avoid losses. For then the panic breaks out. The crisis has come.

[1. ][See above, p. 129, n. 2.—Ed.]