STATIC ECONOMICS AND BUSINESS FORECASTING 9
forces are tending is certainly much better informed than the
man who does not know what the goal is, but merely knows that
change is taking place and that some things change first and
others later.
Not all students of static economics have been neglectful of
the laws of change. John Stuart Mill undertakes an analysis of
the phenomena of prosperity, crisis, and depression which, con-
sidering the time at which he wrote is marvelously realistic. Pro-
fessor Clark has been keenly interested in the problems of
dynamics, while Joseph Schumpeter * has developed an interest-
ing theory of business crises which rests the whole story in the
sharp contrast between static and dynamic tendencies.
The business cycle for Schumpeter starts in a static equilibrium
in which costs are proportionate to prices, industry is in balance,
and the general range of economic activities is understood by
those who take part in it. As a consequence, in such a situation
business calculations are easily made and, assuming no Iarge
changes in the course of events, are accurately made. Then
comes a dominating personality, the undertaker, with a new
plan. Backed by new bank credit, created by the banker who
believes in him, he goes into the market, whips control of labor
and supplies from the hands of men engaged in production along
old lines, and starts his new enterprise. He is successful. Others
seeing his success follow him. The movement toward new ways
of doing things grows and is overdone. There is a disturbance
in the equilibrium of prices and costs. Men working on old lines
find their costs increasing and perhaps their markets dwindling.
Others may find that the changes work to their advantage. But
in any case the equilibrium is broken and the situation is changed.
The calculations and plans which had been made earlier, even
if accurately made on the basis of the data at the time they were
made, cease to be applicable since the data themselves have
changed. Finally there comes a time when it is necessary to
pause, to take stock, to readjust. The crisis comes which “holds
court over values and prices” and brings hopes and aspirations
face to face with reality. The crisis is a process of “statification,”
a process of restoring the static equilibrium which the preceding
period of prosperity and change had broken. When the static
equilibrium is restored, the upward movement can begin again.
* Theorie der Wirtschaftlichen Entwicklung.