The Causes of Economic Fluctuations, Possibilities of Anticipation and Control. by Willford I.KingReview by: J. M. ClarkJournal of the American Statistical Association, Vol. 34, No. 206 (Jun., 1939), pp. 431-432Published by: American Statistical AssociationStable URL: http://www.jstor.org/stable/2278876 .

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* BOOK REVIEWS 431

With respect to cycle policy the author holds that the control of the credit- creating activity of the banking system would have a mitigating effect and that, in times of depression, a public-works policy might be advantageous. He expresses the opinion that the central banks ought to hold large volumes of foreign assets, since otherwise drastic and harmful measures must be taken in certain cases in order to avoid a currency crisis. For similar reasons the author favors the policy of a "premium on gold," which essentially amounts to the widening of the range between the gold points.

WILLIAM FELLNER Berkeley, California

The Causes of Economic Fluctuations, Possibilities of Anticipation and Con- trol, by Willford I. King. New York: The Ronald Press Company. 1938. xv, 353 pp. $3.50. This book is the expression of Professor King's belief that economic sci-

ence has advanced far enough to enable it to answer the question as to the essential causes of economic fluctuations and the possibilities of alleviation and to do it in simple enough terms to be available to the average reader. The author steers a middle course between the unduly simple interpreta- tions of fluctuations which run in terms of a single cause and are unconcerned with the complexities of the full factual picture and the opposite method which builds up a formidable mass of descriptive material and statistical analysis, the interpretation of which the average reader is hardly equipped to follow. In his early discussion of the facts, he is mainly concerned with the more violent and spectacular fluctuations, with emphasis on speculative booms and crises and their psychological concomitants. Later, when he is discussing measures of policy, he recognizes the shorter cycles of an average duration of 41 months, many of which do not share the more conspicuous features of the more violent disturbances. As a result, this phase of his treat- ment has the appearance of resting on an inadequate factual basis. The factual picture is simple enough to enable the author to say that the pat- tern is essentially the same at different times and places. The main existing theories are discussed, more in the spirit of disposing of the unsound ones than of searching for the elements of truth they may contain. There is also a chapter on forecasting.

In the author's own theory, fluctuations of solar radiation and their pos- sible psychological effects play a very large part. As to the reasons why the economic system responds as it does, Dr. King emphasizes movements of mass psychology, the elastic credit system and rigidities in the wage and price structure. Tendencies to concentrated buying of durables, and the "multiplier" effect, come into the picture but in rather incidental ways. Oversaving and maldistribution of incomes are dismissed among the unsound theories, on grounds which will probably not appear to economists in general as definitive.

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432 AMERICAN STATISTICAL ASSOCIATION-

The treatment of remedies is in general harmony with this attitude and emphasis as to causes. It is conservative to state that Dr. King does not unreservedly approve all elements of the "New Deal." He doubts the efficacy of deficit spending, even as an immediate stimulus, and condemns unqualifiedly the policy of high wage rates during depressions and of easy made-work at high hourly wage rates as a form of relief. While his strictures on this last have force, he is surely wrong in assuming or implying (page 191) that the program diverted all its employes from private industry. He would substitute a policy so "hard-boiled" as to appear hardly practicable. He favors also the Graham plan of self-sufficing production by the otherwise unemployed, speaking of it as if it had not been tried at all, and assuming that it could sustain the unemrployed without financial cost to the Govern- ment. This last appears unwarranted, on such analysis as the reviewer has been able to make.

The positive program rests mainly on 100 per cent reserve banking, com- bined with open-market operations on a greatly increased scale and on flex- ible wages and prices. His faith in the adequacy of flexible prices as a stabi- lizer appears too absolute, as does his faith in the adequacy of flexible inter- est rates to insure that there shall be no discrepancies between savings ac- cumulated and the amounts industry puts to productive uses. As to flexible wages, various interesting ideas are suggested, looking toward stabilized real annual earnings. But the whole seems to rest on an unduly simple concept of the shape of the demand function for labor as a whole. Held in reserve if other things fail is an interesting proposal for outright planned production, concentrating on production of consumers' goods and leaving stabilized demand for durable productive equipment to come about auto- matically as a by-product (though a provisional suggestion is made for limit- ing demand in boom times).

One point of detail might be noted. On page 111, Dr. King cites Irving Fisher's demonstration that the curve of first differences of wholesale prices leads the curve of physical volume of trade. He avoids Fisher's conclusion but does not point out the selective nature of this comparison (the first derivative of a sine curve leads the curve itself by a quarter-cycle).

Dr. King's book will not resolve all unsettled questions as to business cycles, but that was hardly to be expected. If it is to be used as a text, there will be need of supplementary material to offset the author's controversial leanings. Perhaps the most general criticism of the book is that the author has not applied to the proposals he favors the same hard headed and skepti- cal scrutiny which he applies to our actual policies. But he has succeeded in producing a simple and readable study of business fluctuations, and that in itself is no small accomplishment.

J. M. CLARK Columbia University

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