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Mitchell, Wesley C.

Mitchell, Wesley C.

Theory of business cycles

Teaching and research

Resurvey of the field

Use of cyclical measures




Wesley Clair Mitchell (1874-1948), American economist, was born and raised in Illinois in modest and occasionally straitened circumstances. Entering the University of Chicago in 1892, he was soon attracted by the evolutionary view of the development of human thought and social institutions as advanced by John Dewey and Thorstein Veblen. His other teachers in economics influenced him less, but J. Lawrence Laughlin introduced him to problems in monetary theory and policy and also helped to sharpen his critical sense.

Mitchell’s extensive early writing was devoted mainly to the role of money and its connection with price “revolutions” during the Civil War. He completed a doctoral dissertation on this subject in 1899 and later expanded it into a book entitled A History of the Greenbacks (1903), a major and in many respects still authoritative work on the monetary upheavals of 1862-1865. In 1908 he published Gold, Prices, and Wages Under the Greenback Standard, which carries the analysis of the History further and skillfully organizes a massive statistical investigation of the period 1862–1878.

From his studies of the greenbacks Mitchell derived some of the ideas that were to guide his economic thought. One of the earliest of these ideas was that economics, as one of the sciences concerned with the realities of human behavior and social institutions, must be grounded in observation and measurement. Statistics provide the principal means to ensure a cumulative growth of tested quantitative knowledge, and they are essential for testing hypotheses as well as for suggesting new ones. Mitchell’s lifelong interest in the collection and improvement of economic data led him to make several influential studies, one of the best examples of which is The Making and Using of Index Numbers (a monograph published by the U.S. Bureau of Labor Statistics in 1915 and reissued as late as 1938). Such endeavors did much to increase and improve the output of statistical agencies in several areas, notably the preparation of indexes of commodity and security prices, indexes of production, measures of national income and its subdivisions, and measures of financial and other monetary transactions.

Another of Mitchell’s guiding concepts was that “the use of money and the pecuniary way of thinking it begets is a most important factor in the modern situation.” Throughout his working life, Mitchell conceived his central task to be the acquisition and the transmission of knowledge about how the “money economy” works—that is, how it did and does evolve and how it influences men’s ideas and behavior.

Aiming ultimately at a tested dynamic theory of economic change, Mitchell was often critical of “orthodox” doctrines which dealt with essentially static problems (for example, relative prices, resource allocation, and income distribution, seen as interconnected and determined in equilibrium). He insisted that deductive reasoning must seek support from tests against observed facts; that logical determinacy and consistency of a theoretical system are not sufficient tests of its “truth”; that theorists are susceptible to, and should guard against, unconscious ideological preconceptions; and that methodologically convenient postulates may be misleading when indiscriminately applied. He thought, for example, that the “logic of pecuniary institutions”—the quest for profits or “making money”—fits tolerably well the activities of modern businessmen but not those of housewives who are engaged in the “backward art of spending money” on articles of family consumption. Occasionally, Mitchell’s distrust of theoretical modelbuilding seems too general and categorical; but his writings also clearly recognize the value of traditional theory and the complementarity of theoretical and empirical studies.

From 1903 to 1913 Mitchell taught at the University of California and engaged in particularly productive research. He completed his studies of the greenback episode, turned to a more general analysis of the evolution of the money system, discovered that this task required him to investigate the as yet scarcely explored “recurring readjustments of prices,” and embarked upon a detailed study of this subject, which soon grew into a comprehensive account of cyclical movements in diverse economic variables. In 1913 his Business Cycles appeared, a large treatise which became an acknowledged precursor and guide for cyclical (and other quantitative) studies in economics for years to come. In particular, Part 3 of this work, reprinted several times between 1941 and 1959, remains one of the best analytical accounts of the processes that give rise to business cycles.

Theory of business cycles

Mitchell found the then current theories of business cycles suggestive but fragmentary and uncertain; since none of them was clearly superior, he proposed to test them generally by studying the facts instead of making any one theory a separate object of research. He always conceived of the business cycle in evolutionary and comprehensive terms, and he believed that the study of cycles should encompass all the major parts and aspects of the money economy and should try to explain how they interact and participate in the process of cumulative change. Business cycles, he observed, appear only in those times and places where economic life has come to be organized on the basis of making and spending money incomes. They are not mere random disturbances that jolt the economy temporarily out of its equilibrium; instead, they are widely diffused, cumulative fluctuations generated by the modern economic system itself. Although not periodic, they recur in an unceasing round. Each cycle differs from its predecessors in many particulars, both because it is influenced by unique historical events and because the economy’s structure and reactions change gradually over time. But the study of business annals and historical statistics leads to the conclusion that cycles do have sufficiently numerous and important features in common to constitute a distinct class of related phenomena, somewhat analogous to a biological genus of many species.

Thus conceived, there is no single cause, no simple—or even complex but complete and immutable—explanation of business cycles. Mitchell’s “analytic description” does identify as the central issue the dependence of tides in business activity upon the prospects of profits or (in times of crisis) the quest for solvency. It emphasizes, therefore, such factors as the prices that enter into business receipts and expenses, the volume of sales effected at prevailing margins of profit, and businessmen’s cash and credit requirements. But to explain business cycles it is not enough to know what each of these “factors of chief significance” is or does during such cycles; the “harder half of the battle” is to follow the complex interactions of these factors from one cycle stage to the next.

Thus, prosperity “cumulates” by spreading over enterprises, industries, regions, and types of economic activities in ever widening circles. Increases in prices accompany increases in the physical volume of business. But gradually, stresses also start to multiply. In many areas, costs begin to encroach upon selling prices. The rapid rise in prices of raw materials and goods for resale, the advance in interest rates on bank loans, the lowered efficiency of labor, the reactivation of older and poorer equipment, the increase in “incidental wastes of management”—all these contribute to the rise in costs. At the same time, the advance in selling prices is held back by contractual obligations, custom, and public regulation. In some industries, completion of new investment projects brings about increases in capacity outputs that cannot be sold at the high prices asked. The decline in their reserves makes the banks reluctant to expand loans further. A stringency in capital and money markets develops. These factors bring about postponements of investment projects by those who find current financing and construction costs abnormally high and who expect that they will soon decline. Prosperity, then, “breeds” a crisis or gives way to a contraction, which again cumulates and spreads over the economy for a time.

Even as the decline of activity continues, however, forces of recovery gradually gain strength. Marginal enterprises are reorganized or recapitalized, bad debts are charged off, and inventories are reduced, so that business can again be conducted more efficiently. Less efficient employees are weeded out, and those that remain are constrained to work harder to protect their jobs. The reserve position of banks improves, and costs of borrowing decline. Raw-material prices also fall, and a general realignment of costs and selling prices comes about. Meanwhile the demand for goods revives slowly, aided by the continuing growth of population, by the need to replace long-used durables and to replenish depleted inventories, and by improved investment opportunities (also, perhaps, by new tastes, products, and techniques, or some other favorable outside events). This is “how depression breeds prosperity” and a new cycle begins.

Mitchell attempted to reduce the intricacies of his subject, but he was even more anxious not to oversimplify it; his account of business cycles is, accordingly, complex. Even a brief and necessarily rough sketch of that analysis, however, must not fail to underscore that Mitchell viewed the business cycle as a process whose pervasiveness and continuity are due mainly to institutional responses of the economic system to a variety of unpredictable changes. The lags in these responses are of strategic significance in the dynamics of the cycle. Thus, the essential feature of the cumulative movements of expansion and contraction is that expenditures often are induced by, and lag behind, receipts and that selling prices lag behind buying prices. Also important are the lags of investment expenditures and deliveries behind investment decisions. Orders for new plant and equipment start expanding early during a business revival, when capacity reserves are still ample. Not knowing how much business their competitors are booking, contractors often sell to investors more construction than can readily be executed within the contract time. This is discovered later when efforts to get labor and materials needed to perform the work drive up the prices of these factors. Timely deliveries then become costly, some of the earlier contracts turn out to be less profitable than expected, and much higher prices are asked when new con-tracts are negotiated. The high costs of construction cause postponement of many new investment projects.

In his concept of a self-generating cycle and in his recognition of the need for empirical research, Mitchell had a forerunner in Clement Juglar. Writings akin to Mitchell’s in spirit and approach, notably those by Aftalion and Spiethoff, appeared at about the same time as Business Cycles or in the following decade. But Mitchell’s research was unique in its broad scope and continuity, and it proved particularly influential.

Teaching and research

The study of business cycles remained Mitchell’s central scientific concern for the rest of his life, but he frequently also gave attention to other interests and duties. In 1913 he went to Columbia University, where he taught until his retirement in 1944 (except for 1919-1922, when he joined Alvin Johnson and others in organizing the New School for Social Research). His lectures attracted large audiences; one set, “Types of Economic Theory,” was transcribed stenographically and issued in mimeographed form. This selective historical survey of the thought and activities of major economists from Adam Smith to Veblen and Commons gave rather scant attention to technical economic theory; instead, it emphasized the dependence of ideas on the main economic and social issues of the time, and also, conversely, the influence of ideas on the course of events. In several essays on individual men and doctrines—dealing with, among others, Ricardo, Bentham, and Wieser (see [1912-1936] 1937, chapters 10-12)—Mitchell showed also the interdependence of economic thought and political and moral philosophy.

In 1920 Mitchell assumed direction of the National Bureau of Economic Research in New York City, an organization for “exact and impartial investigations,” whose founding was in a large measure due to his initiative. He served as director until 1945 and continued to be an active member of the Bureau’s research staff until his death. He was author or coauthor of numerous National Bureau publications. Equally important was his role in inspiring and helping to carry out many other studies of the National Bureau. These included work on such diverse topics as seasonal fluctuations (Simon Kuznets), interest rates (Frederick Macaulay), production trends (Arthur F. Burns), national income (Kuznets), cyclical movements in transportation (Thor Hultgren), inventories (Moses Abramovitz), prices (Frederick Mills), consumption (Ruth Mack), business-cycle indicators (Geoffrey Moore), and others. In particular, the National Bureau’s continuing series, Studies in Business Cycles, owes its existence to Mitchell’s initiative, contributions, and guidance.

Resurvey of the field

Business Cycles: The Problem and Its Setting (1927) was the first book Mitchell wrote after he undertook a “resurvey of the field” to improve the analysis and to subject to extensive new tests the findings of his 1913 treatise. Although large, this book corresponds in scope only to the first of the three main parts of its predecessor. The statistical basis of the 1913 book covered four countries but was restricted to the brief period from 1890 to 1911 and to annual data, which often obscure cyclical movements. Furthermore, many economic processes were but poorly, or not at all, represented in the then available materials. By 1927 these deficiencies could be substantially reduced as new data accumulated at a fast pace. The 1927 study relies on a substantial collection of American and English “indexes of business conditions,” which are monthly or quarterly and cover various periods between 1850 and 1925. It also uses reports by contemporary observers on each year’s business in 17 countries; the oldest of these “business annals,” compiled by Willard L. Thorp, goes back to 1790.

Drawing on a much larger mass of evidence than was previously accessible, Mitchell found no reason to alter his basic views on the nature of business cycles and the methods that are appropriate for their study. Of particular interest to the general economist is Chapter 2 of The Problem and Its Setting, which provides a comprehensive survey of the evolution and major features of the modern “economic organization,” with particular reference to business cycles. One section of the book offers an important theoretical contribution by showing that the different elements in the equation of exchange must have differing dates if the equation is to be valid. The lags of deliveries and payments behind price agreements, which are reflected in these dating differences, are highly important for the short periods relevant for business-cycle analysis. Over longer periods, such as a year or more, the difference in dating can be disregarded. In the long run, the quantity of money was seen by Mitchell to be the major determinant of the price level, while in short periods its role is usually passive. This is because in contractions and moderate expansions the effective limit on business transactions is set by demand, whereas in “intense booms” a higher limit is reached, which is set by the monetary and banking systems. This accounts for the strong influence of changes in money supply over long periods of time. [SeeMoney, article Onquantity theory.]

In the “tentative working plans” sketched at the end of the 1927 volume, the question, How do business cycles run their course? was put ahead of the question, What causes business cycles? It is necessary to answer the former question before one can see what the latter means and “in what sense it can be answered.” But Mitchell found that the task of providing this answer required a much larger apparatus of research than he had at first expected: compilation of numerous time series to represent a variety of pertinent processes; development of new techniques of isolating and analyzing cyclical movements; and application of these methods to the accumulated data. Under Mitchell’s direction, all these operations proceeded simultaneously at the National Bureau, each influencing the others.

Use of cyclical measures

The progress of Mitchell’s researches can be traced through several brief preliminary reports, notably in the Bureau’s Annual Reports and the Bulletin series, nos. 31 (Mitchell 1929), 57 (Mitchell & Burns 1935), and 69 (Mitchell & Burns 1938). The last of the above, “Statistical Indicators of Cyclical Revivals,” deserves particular notice, since it paved the way for the more recent research on uses of cyclical measures in the analysis of current business conditions and in short-term forecasting.

A full account of their methods of analyzing cyclical behavior was presented by Burns and Mitchell in Measuring Business Cycles (1946). The working definition of business cycles used in Mitchell’s 1927 volume is here adopted, with some modifications, as a tool of research. The book draws on the results of a systematic analysis of over 1,000 series, most of them monthly, for the United States, Great Britain, Germany, and France. The clustering of turning points in representative samples of these series, together with selected measures of aggregate economic activity, helps to determine the chronologies of general business expansions and contractions in the four countries. Two sets of measures for each series are computed, describing its behavior during the phases of the general business cycle and during its own “specific cycles,” respectively; the differences between the two sets reflect the extent to which the turning dates in an individual series deviate from the turning dates in aggregate economic activity. These deviations also measure the cyclical leads or lags of different economic processes. In addition, measures of duration and amplitude of specific cycles are introduced, as well as “conformity indexes” that reflect the degree of directional agreement between the movements of a given series and those prevailing in the economy at large. Averages of these measures are struck for all the cycles covered by a series in order to bring out the features that are typical; but deviations from these averages are also presented in order to study how the cycles vary in duration, intensity, etc.

The last chapters of the volume contain tests of several hypotheses on the effects of secular trends, long-wave movements, and critical historic events upon business cycles. Some apparently systematic changes in the cyclical behavior of particular variables are indicated, but they seem to be rather weak. A tentative inference, qualified by acknowledged limitations of the data and methods used, is that these changes do not alter the typical course of business cycles appreciably.

Death prevented Mitchell from completing a final treatise in which he planned to give a comprehensive account of business cycles and their causes. His posthumous What Happens During Business Cycles: A Progress Report (1951) is only a fragment of this project. More than two-thirds of its text is given to a systematic analysis of the variety of cyclical attributes of individual economic processes. This part is preceded by a brief exposition entitled “Aims, Methods, and Materials” and is followed by the unfinished part called “The Consensus of Cyclical Behavior.” The latter indicates the synthesis toward which Mitchell’s work was directed. It aims at showing “how [the] measures of cyclical behavior in various parts of the economy fit together, and what composite picture they give of business cycles” (1951, p. 255).

A central theme of the Progress Report is that “both the similarities and the differences (among the cyclical patterns of a substantial sample of representative series) are explicable on the assumption that economic activities are functionally related to one another in the numberless direct and indirect ways suggested in fancy by the equations of Walras and the analyses of Marshall” (p. 112). The specific cycles of each activity depend in part on “factors peculiar to the activity itself” and in part on “those congeries of specific cycles in other activities which we call business cycles” (p. 113). An overwhelming majority of economic series fluctuate in sympathy with the cyclical phases in aggregate activity: only about one-tenth show “irregular” timing, that is, no systematic relation in time to business cycles. Countercyclical processes are not only far less numerous but also typically less regular than those that respond positively. But some conforming series tend to lead and others to lag by different intervals. Hence, business cycles consist not only of roughly synchronous expansions followed by roughly synchronous contractions in many activities: “they consist also of numerous contractions while expansion is dominant, and numerous expansions while contraction is dominant” (p. 79). Mitchell not only put these observations in numerical form but also identified many of the leaders, coinciders, and laggers in the typical round of cyclical developments.

While business cycles provided the focus for Mitchell’s studies, they were conceived by him as nothing less than the “economic process in motion,” or the characteristic course of the money economy in a late stage of development. In this view, to understand business cycles is to understand also the structure and functioning of the economy. The interrelated movements of numerous economic variables reflect economic behavior in its current institutional setting, and their objective, quantitative analysis is the way to reach an understanding of that behavior. This view secured for Mitchell an outstanding place in the evolution of modern economics as a quantitative and empirical science. The theoretical thinking of our times may not seem strongly affected by the general institutionalist challenge of several decades ago, in which Mitchell participated. But Mitchell’s own scholarly, empirical approach left a strong imprint on the growth and orientation of economic research. This applies to his critical attitude toward purely normative and deductive economics; his insistence on the need to improve and systematize observation of the economic manifestations of human behavior; and his belief that cumulation of tested knowledge will ensure that economics will have an important place in the deliberations of policy makers.

Mitchell had strong humanitarian sympathies and democratic convictions as well as a vivid awareness of the shortcomings of the contemporary social order. He believed that advances in economics and other social sciences can help to reduce such defects of the economic system as recurrence of depressions and unemployment, inequality of opportunity, concentration of power, and insufficient economic security. He recognized that “in the countries that have given wide scope to private initiative . . . , the masses of mankind attained a higher degree of material comfort and a larger measure of liberty than . . . under any other form of organization that mankind has tried out in practice” ([1912-1936] 1937, p. 94). But he also believed that government has social responsibilities which it should meet in the most practicable way. The “nation’s full intelligence” should be organized “to deal seriously with social problems before they have produced national emergencies” (pp. 100, 131). National planning, thus conceived as a broad and continuous effort, would encounter many difficulties and doubtless have its share of failures; nevertheless, it would be preferable to the ad hoc “piecemeal planning,” which Mitchell saw as “our common method of attempting to use the powers of government” (p. 130).

Although he treated scientific work as his prime commitment, Mitchell gave much of his time to public affairs. During World War i he was chief of the Price Section of the War Industries Board. Later, he served by presidential appointment on the Research Committee on Social Trends, 1929-1933, and the National Planning Board, 1933, and he prepared a report for the President’s Committee on the Cost of Living, 1944.

Victor Zarnowitz

[See alsoBusiness Cycles; Economic thought, article onthe institutional school; Index numbers.]


1903 A History of the Greenbacks, With Special Reference to the Economic Consequences of Their Issue: 1862-1865. Univ. of Chicago Press.

1908 Gold, Prices, and Wages Under the Greenback Standard. University of California Publications in Economics, Vol. 1. Berkeley: Univ. of California Press.

(1912-1936) 1937 The Backward Art of Spending Money, and Other Essays. New York: McGraw-Hill.

1913 Business Cycles. Berkeley: Univ. of California Press. → Part 3 was reprinted by the University of California Press in 1959 as Business Cycles and Their Causes.

(1915) 1938 The Making and Using of Index Numbers. 3d ed. U.S. Bureau of Labor Statistics, Bulletin No. 656. Washington: Government Printing Office.

1927 Business Cycles: The Problem and Its Setting. National Bureau of Economic Research, Publications, No. 10. New York: The Bureau.

1929 Testing Business Cycles. National Bureau of Economic Research, Bulletin 31.

1935 Mitchell, Wesley C.; and Burns, Arthur F. The National Bureau’s Measures of Cyclical Behavior. National Bureau of Economic Research, Bulletin 57.

1938 Mitchell, Wesley C.; and Burns, Arthur F. Statistical Indicators of Cyclical Revivals. National Bureau of Economic Research, Bulletin 69.

1946 Burns, Arthur F.; and Mitchell, Wesley C. Measuring Business Cycles. National Bureau of Economic Research, Studies in Business Cycles, No. 2. New York: The Bureau.

1951 What Happens During Business Cycles: A Progress Report. National Bureau of Economic Research, Studies in Business Cycles, No. 5. New York: The Bureau. → Published posthumously.


Burns, Arthur F. 1951 Mitchell on What Happens During Business Cycles. Pages 3-14 in Conference on Business Cycles, New York, 1949, Conference on Business Cycles. New York: National Bureau of Economic Research. → Jacob Marschak’s “Comment” and a reply by Arthur F. Burns appear on pages 14-33.

Burns, Arthur F. (editor) 1952 Wesley Clair Mitchell: The Economic Scientist. National Bureau of Economic Research, Publications, No. 53. New York: The Bureau. → Contains a list of Mitchell’s publications.

Dorfman, Joseph 1949 The Economic Mind in American Civilization. Vol. 3. New York: Viking. → See especially pages 455-473, on Mitchell.

Hansen, Alvin H. (1951) 1964 Business Cycles and National Income. Expanded ed. New York: Norton. → See especially pages 394-410, on Mitchell’s work.


SeeLabor force, article onmarkets and mobility; Migration; Social mobility.

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