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.