Wesley Mitchell: The Intellectual Founder

Wesley Mitchell: The Intellectual Founder of the Modern Business Cycle

Brief Biography

Wesley Mitchell is one of the intellectual founders of the American Institutionalist School, a theory of economics that developed the late 1880s in the United States, and one of the first schools of thought to challenge some of the core assumptions of classical capitalist market theory. The classical school stressed that economics was a universal and exact science, applicable to all historical contexts. In contrast, American Institutionalists such as Mitchell "stressed the importance of historical, social and institutional factors" in economics. (Institutionalists, 2006, New School of Social Research) There were no hard and fast laws of economics. Rather markets were contingent on variable historical factors over which individual people had little direct control. "Much of everything in the economic world, they argued, was not immutable but rather conditioned by the influence of an always changing history -- whether acting on the individual directly, or indirectly through the institutions and society which surround him," or her. (Institutionalists, 2006, New School of Social Research)

Wesley Clair Mitchell was instrumental in focusing this new school of thought around a revamping of business cycle analysis, while he was a professor at Columbia, and later one of the first directors of the New School of Social Research. He also founded the National Bureau on Economic Research (NBER) in 1920 one of the first independent organizations to regularly conduct quantitative studies of the U.S. business cycle. (Wesley Mitchell, 2006, New School of Social Research)

Theory: Business Cycles

Although most major economists now accept the existence of business cycles, this was not always the case. In the 19th century, business cycles were not thought of as cycles at all but rather as a series of inexplicable crises that interrupted the smooth development of the economy, which always 'worked,' and worked well, because capitalism was supposed to always 'work,' according to Adam Smith's theory of the invisible hand of the market. "In later years, economists and non-economists alike began believing in the regularity of such crises, analyzing how they were spaced apart and associated with changing economic structures," that had a predictable pattern. ("Cycles: Some empirical issues," 2006, New School of Social Research)

Mitchell focused his analysis not upon prices, which throughout the 20th century gradually edged upward, regardless of the condition of the economy, but upon contractions and expansions in production. Cycles were defined around short-term and long-term periods of expansion and contraction, within seasonal, three, and decade-long periods, although Mitchell denied the existence of long cycles lasting more than 48-60 years in duration. ("Cycles: Some empirical issues," 2006, New School of Social Research) His greatest legacy has been that of the National Bureau of Economic Research, which continues to compile objective, quantitative data on the business cycle of the kind Mitchell thought was key to planning to meet recessions and curtail inflation head-on. Planning, prediction, and carefully guarding against unexpected events were key to surviving in an economy.

Final Thoughts