The League of Nations,
Prosperity and Depression
Joseph Dana Miller
[Reprinted from The Freeman, November 1937.
Original title: "Footnote to a League Document"]
(The intelligence division of the
League of Nations has published a report, "Prosperity and
Depression;" in which all the major theories of the
business cycle are analyzed, compared and to some degree
synthesized. It finds that most theorists agree the cycle
results from the fluctuating profitableness of investment,
aggravated by cost rigidity and monetary instability. In the
following article Mr. Miller explains what is at the basis of
the fluctuation, the rigidity, the instability. - The Editors.)
Every period of industrial depression has been preceded by a feverish
speculation in land. Speculation in houses or in stocks, or in
commodities is a by-product of land speculation; inflation in the
natural element is reflected in other inflations. An orgy of
installment buying follows on this. The tendency of a large portion of
people is to live beyond their means, and business hazards take on a
We know the blight which visits cities which are the subjects of
so-called "land booms " For a time the cities regard with
pride the increased business activities, rising land values, and.
building lots selling at constantly enhancing prices. They regard this
as evidence of prosperity, 'but it is not prosperity. It is soon
discounted by the element of land inflation.
Land values are a community asset, but the factor that upsets all
calculations of continued prosperity, that is bound sooner or later to
interrupt the productivity of the community, is private speculation in
what may be regarded as the life blood of the community.
The analogy may not be perfect that likens land values to the life
blood of the human body, but it is through the arteries of a city's
commerce that the stream of land values flows, without volition,
determining the sites of the city's business activities, the
distribution of its population, the direction of its transit lines.
Anything that interrupts or interferes with the normal pulsation of
land values through the city's various arteries, causes a
disarrangement, or at times a total stoppage of the orderly processes
Business generally can carry the normal economic rent. It is part of
the "overhead" that may be calculated pretty accurately in
advance. It is met easily by the volume of business transacted even
when the normal rent is high. It is only when land speculation sets in
that abnormal rent charges are made under which industry finds it
increasingly difficult to produce at a profit.
Then, to reduce expenses, workmen are laid off, retrenchments are
made, and the volume of production is curtailed. This tendency moves
progressively until failures and bankruptcies follow one another. What
is local becomes general; where men are laid off and wages cease, the
effect of this is felt in other and distant cities. Following the
decline in what the economists call the "effective demand,"
distant markets find their sales decreasing and employment slackened.
The identical phenomena are repeated there, though it may be that in
these places land remains normal and what happens is due to economic
disturbances occurring elsewhere. No important community is or can be
an independent economic unit; and the effect of business disturbances
caused by the passing of the normal economic rent line runs its course
from city to city and town to town until the whole country is
This is the simple explanation of the fundamental cause of panics and