Mitchell’s great contributions to economics lie in his pioneering work on business cycles, his broad promotion of empirical work in economics, his role in the development of research organizations, and in the students he inspired.
He was one of the major figures within the institutionalist movement in American economics.
Mitchell was born in Rushville, Illinois, on 5 August 1874, and brought up in Decatur, Illinois.
His university education was at the University of Chicago (AB 1896; PhD 1899), with one year spent at Halle and Vienna taking lectures from Johannes Conrad and Carl Menger. At Chicago, Mitchell came under the influence of Thorstein Veblen and John Dewey, but it was Laurence Laughlin who supervised Mitchell’s PhD thesis on the Greenback issues of the Civil War (Mitchell 1903). Laughlin inspired Mitchell’s empiricism, Veblen his institutionalism, and Dewey his pragmatic reformism.Mitchell worked for a year in the Census Office and for two years at Chicago as an instructor before being recruited to Berkeley in 1903. He continued to work on the Greenbacks, but, influenced by Veblen, expanded his horizons to write on the issue of rationality in economics (Mitchell 1910), the economic problems of the household (Mitchell 1912), and embark on a project concerning the evolution and functioning of the “money economy”. This last project grew too large, and in 1910 he decided to focus on just one part. In a remarkably short time Mitchell produced his most important book Business Cycles (Mitchell 1913). The book provided an empirically based “analytic description” of the course of the cycle, presented as four phases - prosperity, crisis, depression, and revival - with each phase creating the conditions for the transition into the next, and the cycle as a whole growing out of the institutions of the “money economy” in the form of the interaction of business decisions based on profit expectations, the behaviour of the banking system, and the leads and lags in the movement of wages and prices. The book also contained a critical discussion of the adequacy of existing theories of cycles in terms of their consistency with the empirical evidence.
In 1913 Mitchell and his new wife, Lucy Sprague Mitchell, moved to New York where he was appointed to a position at Columbia University. Initially his work focused on index numbers, and the history of economic thought. The First World War took him to the Prices Section of the War Industries Board, work on price and production indexes, and an appreciation of the potential of statistical work for government policy making as expressed in his Presidential Address to the American Statistical Association (Mitchell 1919). Mitchell became involved with the founding of the New School for Social Research in 1919, but returned to Columbia three years later. He was the major figure in the founding of the National Bureau of Economic Research (NBER) in 1920, and acted as its Director of Research from 1920 until 1945, when he was succeeded by his student, Arthur F. Burns. He was also closely involved with the establishment and operation of the Social Science Research Council (SSRC). In these endeavours Mitchell was attempting to provide an institutional foundation for an empirical economics, that would inform and be informed by other social sciences, and that could provide the basic information necessary for improved economic policy making.
Mitchell’s 1924 Presidential Address to the American Economic Association (AEA) forcefully expressed his belief in the combination of institutional and quantitative analysis. For Mitchell quantitative analysis complements the institutional approach to
economics, as it is institutions that standardize behaviour and create those patters of mass behaviour that quantitative work observes. Quantitative work will thus provide the basis for a constructive criticism of the institutions of the money economy, capable of guiding efforts to make the economic system better fitted to serve human needs (Mitchell 1925).
The NBER under Mitchell began by investigating the size and distribution of national income, work later assigned to Simon Kuznets who went on to develop the system of national income accounting for the US government.
From 1922 onwards, however, the major focus of Mitchell’s and the NBER’s work was on business cycles, a project designed to update and expand on Mitchell’s 1913 book. Mitchell produced Business Cycles: The Problem and Its Setting, in 1927. This book provided a review of theories of the business cycle; a historical section linking the phenomenon of business cycles to the rise of the institutions of the money economy; a discussion of business cycles in relation to business decision-making, the system of prices, and the monetary mechanism; and a survey of data sources, both from statistics and business annals. The book concluded with a working concept of business cycles and a plan of work. As Mitchell stated: “The ultimate aim of our business-cycle program is clearer understanding of the complicated processes that bring about financial crises and industrial depressions. Such knowledge we think prerequisite to intelligent efforts to prevent, or even to mitigate appreciably, these recurring disasters” (Mitchell 1939: 23-4).The NBER business cycle project produced a vast collection of data series; many empirical studies of cyclical behaviour in specific economic variables, industries, or sectors; the development of business cycle indicators; and methods of dealing with an array of measurement issues relating to timing, amplitude, and rates of change across successive cycles, which resulted in what became known as the “NBER method” of specific and reference cycles (Morgan 1990: 44-56). The outcome of much of this work was published as Measuring Business Cycles in 1946 (Burns and Mitchell 1946). Measuring Business Cycles was attacked by Tjalling Koopmans of the Cowles Commission as “measurement without theory” (Koopmans 1947). Mitchell’s approach was not based on a structural economic model, but it was informed by existing theories and had theoretical objectives. Rutledge Vining defended the NBER approach by arguing that their methods were designed to discover new and improved hypotheses (Vining 1949: 85).
Nevertheless, the final, theoretical, volume that Mitchell had planned was never completed, although a part was published after Mitchell’s death as What Happens during Business Cycles (Mitchell 1951).The NBER under Burns carried on the business cycle project, ultimately producing such well known work as Milton Friedman and Anna Schwartz’s A Monetary History of the United States, 1867-1960 (Friedman and Schwartz 1963).
Malcolm Rutherford
See also:
Institutionalism (II); Thorstein Bunde Veblen (I).
References and further reading
Biddle, J. (1998), ‘Social science and the making of social policy: Wesley Mitchell’s vision’, in M. Rutherford (ed.), The Economic Mind in America: Essays in the History of American Economics, London: Routledge, pp. 43-79.
Burns, A.F. (ed.) (1952), Wesley Clair Mitchell: The Economic Scientist, New York: NBER.
Burns, A.F. and W.C. Mitchell (1946), Measuring Business Cycles, New York: NBER.
Friedman, M. and A.J. Schwartz (1963), A Monetary History of the United States, 1867-1960, Princeton, NJ: Princeton University Press.
Koopmans, T.C. (1947), ‘Measurement without theory’, Review of Economic Statistics, 29 (August), 161-72.
Mitchell, L.S. (1953), Two Lives: The Story of Wesley Clair Mitchell and Myself, New York: Simon and Schuster.
Mitchell, W.C. (1903), A History of the Greenbacks, with Special Reference to the Economic Consequences of Their Issue, 1862-65. Chicago, IL: University of Chicago Press.
Mitchell, W.C. (1910), ’The rationality of economic activity’, pts I and II, Journal of Political Economy, 18 (February), 97-113, 18 (March), 197-216.
Mitchell, W.C. (1912), ‘The backward art of spending money’, American Economic Review, 2 (June), 269-81.
Mitchell, W.C. (1913), Business Cycles, Berkeley, CA: University of California Press.
Mitchell, W.C. (1919), ‘Statistics and government’, Quarterly Publications of the American Statistical Association, 16 (March), 223-36.
Mitchell, W.C. (1925), ‘Quantitative analysis in economic theory’, American Economic Review, 15 (March), 1-12.
Mitchell, W.C. (1927), Business Cycles: The Problem and Its Setting, New York: NBER.
Mitchell, W.C. (1939), The National Bureau’s Social Function, NBER Annual Report, New York: NBER.
Mitchell, W.C. (1951), What Happens during Business Cycles: A Progress Report, New York: NBER.
Morgan, M.S. (1990), The History of Econometric Ideas, Cambridge: Cambridge University Press.
Vining, R. (1949), ‘Methodological issues in quantitative economics: Koopmans on the choice of variables to be studied and on methods of measurement’, Review of Economics and Statistics, 31 (May), 77-86.