Cycles - Edward R. Dewey

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age we live in — is a fair route to the insane asylum. Experiments at Yale University, on a pig they called “The Broker,” have demonstrated that a nervous breakdown can be instituted even in a porker, if he is given shocks of surprise repeated often enough.

      A people must plan in order to live. Even an installment purchase assumes a plan for the future. Presidential predictions that “prosperity” was just around the corner in 1930 were well intended, but badly served an entire nation. And esteemed government economists, who predicted unemployment in this country of at least 8,000,000 for the spring of 1946, similarly performed a national disservice. A whole government program was laid out on the basis of a forecast which events proved erroneous.

      When a people finds that predictions of many financial advisers, statesmen, historians, and other proclaimed experts are seldom better than the predictions of the astrologers, our social sciences have demonstrably not been earning their way. It is time for action.

      This study is an attempt to show that something is indeed being done. The scientists who are busy at the problem seldom report their progress in the language of the average citizen. So their work often escapes his knowledge. The pioneering scientists will hardly be satisfied with this attempt to restate, in a simple way, the outcome of some of their researches. Some average readers, conversely, may feel equally dissatisfied, on the ground that the subject still seems abstruse and the language used is otherworldly, regardless of all efforts to avoid scientific jargon.

      To both sources of justified criticism the authors apologize in advance. Every book, like every house plan, represents compromise; and a completely satisfactory compromise is a contradiction in words.

      This book is an attempt to show, in an elementary way for the reader unfamiliar with this form of research, how some of the inept arguments over economic outlooks can be avoided by using a few facts that should now be familiar to all. This application of a new method to a study of economic activity, while relatively young, seems nevertheless more promising, in offering results, than traditional economic theories that fill textbooks with opinions and arguments over whether a given cause is really an effect, and vice versa.

      Here are traced trends evidenced in various parts of the American economy — existing trends that can be calculated, measured, and demonstrated beyond reasonable doubt. The overwhelming evidence for distinct rhythm or periodicity in the cycles that accompany these trends is set forth. How such information may be used to assay future probabilities is then suggested.

      Before reaching the end of the book, the reader will have attained, it is hoped, some new insight for gauging the probable future that faces America in the years following the most disrupting war in all world history.

      The student of periodic rhythms in human affairs has a tool which the law of averages itself puts into his hands. If trends have continued for decades, or if the oscillations of cycles around the trend have repeated themselves so many times and so regularly that the rhythm cannot reasonably be the result of chance, it is unwise to ignore the probability that these behaviors will continue.

      The result is not prediction, in the sense in which the word is ordinarily understood. If the reader nevertheless wishes to regard essential parts of this book as prediction, then it should be emphasized that the “forecasts” are written by the data themselves. They emerge as tendencies in the organisms being studied. They do not rest on the opinion of any man, or men. They are, in effect, the probabilities of tomorrow.

      I

       Why Trends Are Important

      The facts of growth are common knowledge to most mothers, who are encouraged by doctors to keep a weight chart around the nursery, for reference at weighing time. All healthy babies, like other healthy young organisms, show large initial rates of growth — over 100 per cent for babies the first year. As they get older, the rate of growth gradually falls off. At the approach of maturity, the rate of growth finally reaches zero.

      Why it is that an organism stops growing we do not really know. We believe that biological organisms — whether dogs or babies or other animals — have their growth controlled by inhibiting secretions of glands. We are not so sure what it is that controls the size of different kinds of trees, or, say, of a Jimson weed.

      But knowledge that such an inhibiting factor does exist is important to us, even when we cannot explain it. We find it reasonable that such a factor should be at work in organisms like a baby or a tree, just because we are used to observing it in action. But it also works in other kinds of organisms, such as human institutions and business organizations.

      Few executives are used to thinking of a business enterprise as an “organism.” But it does have a rate of growth that can be shown by a trend line. For the weight figures, which we might consult in establishing the trend for a baby, we can readily take the business output, as revealed in successive sales figures.

      Suppose we draw such a trend for a hypothetical business organization which shows average annual sales of $20,000 during its first year of business, and proceeds as follows:

Annual Sales Five-Year Growth
1905 Company founded $20,000
1910 Five years after founding $38,000 $18,000
1915 Ten years after founding $68,000 $30,000
1920 Fifteen years after founding $116,000 $48,000
1925 Twenty years after founding $186,000 $70,000
1930 Twenty-6ve years after founding $279,000 $93,000
1935 Thirty years after founding $391,000 $112,000
1940 Thirty-five years after founding $508,000 $117,000
1945 Forty years after founding $609,000 $101,000

      Offhand this looks like a business that has been expanding rapidly, with a satisfactory forward thrust every five years. But if we analyze the figures, we find them showing signs of what, on the contrary, is a “dying” business. Years may pass before the business really goes under. But it has long been approaching maturity. What the figures show us is a steady decline in the rate of growth. The declining rate, by five-year periods, is as follows:

      RATE OF GROWTH

1905-1910, 90% of actual sales in 1905
1910-1915, 80% of actual sales in 1910
1915-1920, 7°% of actual sales in 1915
1920-1925, 60% of actual sales in 1920
1925-1930, 50% of actual sales in 1925
1930-1935, 40% of actual sales in 1930
1935-1940, 30% of actual sales in 1935
1940-1945, 20% of actual sales in 1940

      It is obvious from the table that during each five-year period the rate of growth of this hypothetical business has decreased 10 per cent and that, if these tendencies continue, the rate of growth in the future will be:

1945-1950, 10% of actual sales in 1945
1950-1955, 0% of actual sales in 1950

      In other words, we see that by 1955

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