Cycles: Some Empirical Issues


Business cycle theory matters simply because many people believe business cycles exist. This has not been a permanent belief. In the 19th century, business cycles were not thought of as cycles at all but rather as spells of "crises" interrupting the smooth development of the economy. 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.

Naturally, not every economic cycle operates on the same yardstick. The following classification, originally conjured up by Schumpeter (1939), defines a few of them by their duration (trough to trough or peak to peak):

Schumpeter also labelled the "four-phases" of a cycle: boom- recession-depression-recovery. Starting from the mean, a boom is a rise which lasts until the peak is reached; a recession is the drop from the peak back to the mean; a depression is the slide from the mean down to the trough; a recovery is the rise from the trough back up to the mean. From the mean, we then move up into another boom and thus the beginning of another four-phase cycle. In a sense, any cycle of whatever duration can be described as going through these four phases - otherwise the fluctuations cannot really be described as "cycles".

The belief of the business cycle theorist is that the economy, somehow, goes through such waves of economic activity. However, what precisely causes the economy to exhibit this type of activity has been a source of much divisive, yet imaginative, exercises.

Like all business cycle theorists of old, we should be acquainted with a few empirical facts. First and foremost, empirical evidence shows that throughout the 19th Century, the price level oscillated heavily while output was much less subject to fluctuations. Thus, the early analysis of "cycles" was based precisely on their definition as swings in price levels and not output. However, during the 20th Century, save for a few exceptions, there has normally been a constant upward trend in prices. Prices varied, of course, but only around this upward trend. Output, however, oscillated heavily in the 20th century - thus what was defined as "cyclical" was movements in output: in recessions and depressions, output would collapse; in the recovery and boom, output would increase. Thus, defining the "cycle" or even a "crisis" as a movement in output is a rather recent phenomenon.

Secondly, Wesley C.Mitchell dedicated much of his life to measuring and analyzing business cycles, thus it is no surprise that Mitchell's NBER has maintained the most widely accepted historical record of business cycles in the United States. For a view of the American business cycle in the past century and a half, we suggest you go to the business cycle dates table the NBER keeps on record.

Long Waves

The NBER does not record Kondratiev Cycles (or "long waves") - as they, along with many economists, do not believe these cycles exist. Nonetheless, the following four Kondratiev waves have been identified - going through four phases of boom-recession- depression-recovery (the dates and labels are from Kuznets, 1940):

(1) The Industrial Revolution (1787-1842) is the most famous Kondratiev wave: the boom began in about 1787 and turned into a recession at the beginning of the Napoleonic age in 1801 and, in 1814, deepened into a depression. The depression lasted until about 1827 after which there was a recovery until 1842. As is obvious, this Kondratiev rode on the development of textile, iron and other steam-powered industries.

(2) The Bourgeois Kondratiev (1843-1897): After 1842, the boom reemerged and a new Kondratiev wave began, this one as a result of the "railroadization" in Northern Europe and America and the accompanying expansion in the coal and iron industries. The boom ended approximately in 1857 when it turned into a recession. The recession turned into a depression into 1870, which lasted until about 1885. The recovery began after that and lasted until 1897.

(3) The Neo-Mercantilist Kondratiev (1898-1950?): The boom began about 1898 with the expansion of electric power and the automobile industry and lasted until about 1911. The recession which followed turned into depression in about 1925 which lasted until around 1935. We can assume, that this third wave entered into a recovery immediately afterwards the which one might suspect lasted until around 1950.

(4) The Fourth Kondratiev (1950?- 2010?). There has been much debate among believers on the dating the Fourth Wave - largely because of the confusions generated by the low fluctuation in price levels and the issue of Keynesian policies and hence this debate is yet to be resolved. Perhaps the most acceptable set of dates is that the boom began around 1950 and lasted until about 1974 wherein recession set in. When (and if) this recession fell into its depression phase may be more difficult to ascertain (c.1981?), but what has been more or less agreed upon is that 1992 (or thereabouts) the recovery began and has been projected to give way to a boom and thus a new Kondratiev wave around 2010 or so.

For more on the Kondratiev Waves - see the Kondratiev Wave Homepage and the Longwave Press site.



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