Good vintage years on the continent of Europe, and droughts in India, recur every ten or eleven years, and it seems probable that commercial crises are connected with a periodic variation of weather, affecting all parts of the earth, and probably arising from increased waves of heat received from the sun at average intervals of ten years and a fraction. A greater supply of heat increases the harvests, makes capital more abundant and trade more successful, and thus helps to create the hopefulness out of which a bubble arises. A falling off in the sun's heat makes bad harvests and deranges many enterprises in different parts of the world. This is likely to break the bubble and bring on a commercial collapse.
Generally, #a credit cycle#, as Mr. John Mills of Manchester has called it, will last #about ten years#. The first three years will witness depressed trade, with want of employment, falling prices, low rate of interest, and much poverty; then there will be perhaps three years of active, healthy trade, with moderately-rising prices, a reasonable rate of interest, fair employment, and improving credit; then come some years of unduly-excited trade, turning into a bubble or mania, and ending in a collapse, as already described. This collapse will occupy the last of the ten years, so that the whole credit cycle will, on the average, be as follows:--
|---------------------------------------------------------------| | YEARS. | |---------------------------------------------------------------| | 1 2 3 | 4 5 6 | 7 8 | 9 | 10 | |----------- |----------- |--------- |-----------|--------------| | DEPRESSED | HEALTHY | EXCITED | _Bubble._ | _Collapse._ | | | | | | | | TRADE. | TRADE. | TRADE. | | | |----------- |----------- |--------- |-----------|--------------|
#It is not to be supposed that things go as regularly as is here stated;# sometimes the cycle lasts only nine, or even eight years, instead of ten; minor bubbles and crises sometimes happen in the course of the cycle, and disturb its regularity. Nevertheless, it is wonderful how often the great collapse comes at the end of the cycle, in spite of war or peace or other interfering causes.
91. #How to avoid Loss by Crises.# Now, these bubbles and crises are very disastrous things; they lead to the ruin of many people, and there are few old families who have not lost money at one collapse or another. The working-classes are often much injured; many are thrown out of employment, and others, not seeing why their wages should be reduced, make things worse by strikes, which, after a collapse, cannot possibly succeed. It is most important, therefore, that all people--working-people, capitalists, speculators, and all connected with any kind of business--should remember that #very prosperous trade is sure to be followed by a collapse and by bad trade#. When, therefore, things look particularly promising, investors should be unusually careful into what undertakings they put their money. #As a general rule, it is foolish to do just what other people are doing, because there are almost sure to be too many people doing the same thing.# If, for instance, the price of coal rises high, and coal-owners make large profits, there are certain to be many people sinking new mines. Such a time is just the worst one for buying shares in a coal-mine, because, in the course of a few years, there will be a multitude of new mines opened, the next collapse of trade will decrease the demand for coal, and then there will be great losses in the coal business. This is what has happened in the last few years in England, and the same thing has happened over and over again in other trades. As a general rule, #the best time to begin a new factory, mine, or business of any kind, is when the trade is depressed, and when wages and interest are low#. Mining, building, or other work can then be done more cheaply than at other times, and the new works will be ready to start just when business is becoming active and there are few other new works opening.