Editing Business cycle (section)

== History ==
=== Theory ===
{{multiple image
|height = 160
|image1 = Business_cycle.jpg
|alt1 = Parts of a business cycle
|caption1 = Phases of the business cycle
|image2 = World_Business_Cycle.png
|alt2 = Actual business cycle
|caption2 = Long term growth of GDP
}}
The first systematic exposition of [[economic crises]], in opposition to the existing theory of [[economic equilibrium]], was the 1819 {{Lang|fr|Nouveaux Principes d'économie politique}} by [[Jean Charles Léonard de Sismondi]].<ref>[http://www.economictheories.org/2008/11/over-production-and-under-consumption.html "Over Production and Under Consumption"] {{webarchive|url=https://web.archive.org/web/20090425055556/http://www.economictheories.org/2008/11/over-production-and-under-consumption.html |date=2009-04-25 }}, ScarLett, History Of Economic Theory and Thought</ref> Prior to that point [[classical economics]] had either denied the existence of business cycles,<ref>{{Cite news|title=Economics in Crisis: Severe and Logical Contradictions of Classical, Keynesian, and Popular Trade Models |last=Batra |first=R. |year=2002}}</ref> blamed them on external factors, notably war,<ref>{{cite web |url=http://www.thefreemanonline.org/featured/classical-economists-good-or-bad/|title=Classical Economists, Good or Bad?|url-status=dead |archive-url=http://arquivo.pt/wayback/20091002020124/http://www.thefreemanonline.org/featured/classical-economists-good-or-bad/|archive-date=2009-10-02}}</ref> or only studied the long term. Sismondi found vindication in the [[Panic of 1825]], which was the first unarguably international economic crisis, occurring in peacetime.{{Citation needed|date=May 2019}}

Sismondi and his contemporary [[Robert Owen]], who expressed similar but less systematic thoughts in 1817 ''Report to the Committee of the Association for the Relief of the Manufacturing Poor,'' both identified the cause of economic cycles as [[overproduction]] and [[underconsumption]], caused in particular by [[wealth inequality]]. They advocated [[government intervention]] and [[socialism]], respectively, as the solution. This work did not generate interest among classical economists, though underconsumption theory developed as a heterodox branch in economics until being systematized in [[Keynesian economics]] in the 1930s.

Sismondi's theory of periodic crises was developed into a theory of alternating ''cycles'' by [[Charles Dunoyer]],<ref>{{cite journal | last1 = Benkemoune | first1 = Rabah | year = 2009 | title = Charles Dunoyer and the Emergence of the Idea of an Economic Cycle | journal = History of Political Economy | volume = 41 | issue = 2 | pages = 271–295 | doi = 10.1215/00182702-2009-003 }}</ref> and similar theories, showing signs of influence by Sismondi, were developed by [[Johann Karl Rodbertus]]. Periodic crises in capitalism formed the basis of the theory of [[Karl Marx]], who further claimed that these crises were increasing in severity and, on the basis of which, he predicted a [[communist revolution]].{{Citation needed|date=May 2021}} Though only passing references in ''[[Das Kapital]]'' (1867) refer to crises, they were extensively discussed in Marx's posthumously published books, particularly in ''[[Theories of Surplus Value]]''. In ''[[Progress and Poverty]]'' (1879), [[Henry George]] focused on [[land (economics)|land]]'s role in crises – particularly [[land speculation]] – and proposed a [[land value tax|single tax on land]] as a solution.

Statistical or econometric modelling and theory of business cycle movements can also be used. In this case a time series analysis is used to capture the regularities and the stochastic signals and noise in economic time series such as Real GDP or Investment.  [Harvey and Trimbur, 2003, ''Review of Economics and Statistics''] developed models for describing stochastic or pseudo- cycles, of which business cycles represent a leading case.  As well-formed and compact – and easy to implement – statistical methods may outperform macroeconomic approaches in numerous cases, they provide a solid alternative even for rather complex economic theory.<ref>{{cite journal|last1=Harvey|first1=Andrew C. |last2=Trimbur|first2=Thomas M.|year=2003|title=General model based filters for extracting trends and cycles in economic time series |journal=Review of Economics and Statistics|volume=85|issue=2|pages=244–255 |doi=10.1162/003465303765299774 |s2cid=57567527 |url=http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/wp0113.pdf }}</ref>

=== Classification by periods ===
[[File:The Forces of the Business Cycle, 1922.jpg|thumb|upright=1.2|Business cycle with it specific forces in four stages according to [[Malcolm C. Rorty]], 1922]]
In 1860 French economist [[Clément Juglar]] first identified economic cycles 7 to 11 years long, although he cautiously did not claim any rigid regularity.<ref>M. W. Lee, ''Economic fluctuations''. Homewood, IL, Richard D. Irwin, 1955</ref> This interval of periodicity is also commonplace, as an empirical finding, in time series models for stochastic cycles in economic data.  Furthermore, methods like statistical modelling in a Bayesian framework – see e.g. [Harvey, Trimbur, and van Dijk, 2007, ''Journal of Econometrics''] – can incorporate such a range explicitly by setting up priors that concentrate around say 6 to 12 years, such flexible knowledge about the frequency of business cycles can actually be included in their mathematical study, using a Bayesian statistical paradigm.<ref name="repub.eur.nl">{{cite journal |last1=Harvey |first1=Andrew C. |last2=Trimbur |first2=Thomas M. |last3=van Dijk |first3=Herman C. |year=2007 |title=Trends and cycles in economic time series: A Bayesian approach |url=http://repub.eur.nl/pub/6913 |journal=Journal of Econometrics |volume=140 |issue=2 |pages=618–649 |doi=10.1016/j.jeconom.2006.07.006 |hdl-access=free |hdl=1765/6913}}</ref>

Later{{when|date=January 2014}}, economist [[Joseph Schumpeter]] argued that a [[Juglar cycle]] has four stages:
# [[Economic expansion|Expansion]] (increase in production and prices, low interest rates)
# [[Economic crisis|Crisis]] (stock exchanges crash and multiple bankruptcies of firms occur)
# [[Recession]] (drops in prices and in output, high interest-rates)
# [[Economic recovery|Recovery]] (stocks recover because of the fall in prices and incomes)

Schumpeter's Juglar model associates recovery and prosperity with increases in productivity, [[consumer confidence]], [[aggregate demand]], and prices.

In the 20th century, Schumpeter and others proposed a typology of business cycles according to their periodicity, so that a number of particular cycles were named after their discoverers or proposers:<ref>
{{cite book |title=History of Economic Analysis |last=Schumpeter |first=J. A. |year=1954 |publisher=George Allen & Unwin |location=London }}</ref>
{{economic waves}}
* The [[Kitchin cycle|Kitchin inventory cycle]] of 3 to 5 years (after [[Joseph Kitchin]])<ref name="Kitchin">{{cite journal |last=Kitchin |first=Joseph |year=1923 |title=Cycles and Trends in Economic Factors |journal=[[Review of Economics and Statistics]] |volume=5 |issue=1 |pages=10–16 |doi=10.2307/1927031 |jstor=1927031 }}</ref>
* The Juglar [[fixed investment|fixed-investment]] cycle of 7 to 11 years. A range of periods rather than one fixed period is needed to capture business cycle fluctuations, which may be done by using a random or irregular source as in an econometric or statistical framework. 
* The [[Kuznets swing|Kuznets infrastructural investment cycle]] of 15 to 25 years (after [[Simon Kuznets]] – also called "building cycle")
* The [[Kondratiev wave]] or long technological cycle of 45 to 60 years (after the Soviet economist [[Nikolai Kondratiev]])<ref name="Kondratieff">{{cite journal |last1=Kondratieff |first1=N. D. |last2=Stolper|first2= W. F. |year=1935 |title=The Long Waves in Economic Life |journal=Review of Economics and Statistics |volume=17 |issue=6 |pages=105–115 |doi=10.2307/1928486 |jstor=1928486 }}</ref>

Some say interest in the different typologies of cycles has waned since the development of modern [[macroeconomics]], which gives little support to the idea of regular periodic cycles.<ref>{{cite web |url=http://www.albany.edu/~bd445/Eco_301/Slides/Business_Cycle_Notes_(Print).pdf|title=Business cycle notes |access-date=2014-09-22|url-status=dead |archive-url=https://web.archive.org/web/20140125054802/http://www.albany.edu/~bd445/Eco_301/Slides/Business_Cycle_Notes_%28Print%29.pdf |archive-date=2014-01-25}}</ref> Further econometric studies such as the two works in 2003 and 2007 cited above demonstrate a clear tendency for cyclical components in macroeconomic times to behave in a stochastic rather than deterministic way.

Others, such as [[Dmitry Orlov (writer)|Dmitry Orlov]], argue that simple compound interest mandates the cycling of monetary systems. Since 1960, World [[Gross domestic product|GDP]] has increased by fifty-nine times, and these multiples have not even kept up with annual inflation over the same period. [[Social Contract]] (freedoms and absence of social problems) collapses may be observed in nations where incomes are not kept in balance with cost-of-living over the timeline of the monetary system cycle.

The [[Bible]] (760 BCE) and [[Hammurabi]]'s Code (1763 BCE) both explain economic remediations for cyclic sixty-year recurring great depressions, via fiftieth-year [[Jubilee (biblical)]] debt and wealth resets{{citation needed|date=September 2019}}. Thirty major debt forgiveness events are recorded in history including the debt forgiveness given to most European nations in the 1930s to 1954.<ref>{{Cite news|url=https://www.telegraph.co.uk/finance/economics/11383374/The-biggest-debt-write-offs-in-the-history-of-the-world.html |archive-url=https://ghostarchive.org/archive/20220112/https://www.telegraph.co.uk/finance/economics/11383374/The-biggest-debt-write-offs-in-the-history-of-the-world.html |archive-date=2022-01-12 |url-access=subscription |url-status=live|title=The biggest debt forgiveness write-offs in the history of the world – Telegraph|last=Khan|first=Mejreen|website=Telegraph.co.uk|date=2 February 2015|language=en-US|access-date=2018-12-10}}{{cbignore}}</ref>

=== Occurrence ===
[[File:Kondratieff Wave.svg|thumb|upright=2.05|A simplified [[Kondratiev wave]], with the theory that [[productivity]] enhancing innovations drive waves of economic growth]]
There were great increases in [[Productivity improving technologies (historical)|productivity]], industrial production and real per capita product throughout the period from 1870 to 1890 that included the [[Long Depression]] and two other recessions.<ref>{{cite book|title=Recent Economic Changes and Their Effect on Production and Distribution of Wealth and Well-Being of Society|last=Wells|first=David A.|year=1890 |publisher= D. Appleton and Co.|location= New York|isbn= 978-0543724748 |url= https://archive.org/details/recenteconomicc01wellgoog |quote=RECENT ECONOMIC CHANGES AND THEIR EFFECT ON DISTRIBUTION OF WEALTH AND WELL BEING OF SOCIETY WELLS.}}</ref><ref name="Rothbard">{{cite book|title=History of Money and Banking in the United States|last=Rothbard|first=Murray|year=2002|publisher=Ludwig Von Mises Inst|isbn=978-0945466338|url=https://mises.org/books/historyofmoney.pdf|url-status=live|archive-url=https://web.archive.org/web/20140210225721/http://mises.org/books/historyofmoney.pdf|archive-date=2014-02-10}}</ref> There were also significant increases in productivity in the years leading up to the Great Depression.  Both the Long and Great Depressions were characterized by overcapacity and market saturation.<ref name="Wells1890">{{cite book|title=Recent Economic Changes and Their Effect on Production and Distribution of Wealth and Well-Being of Society|last=Wells|first=David A.|year=1890 |publisher= D. Appleton and Co.|location= New York|isbn= 978-0543724748 |url= https://archive.org/details/recenteconomicc01wellgoog |quote=RECENT ECONOMIC CHANGES AND THEIR EFFECT ON DISTRIBUTION OF WEALTH AND WELL BEING OF SOCIETY WELLS.}}Opening line of the Preface.</ref><ref>{{cite book |title=Mass Production, the Stock Market Crash and the Great Depression |last=Beaudreau |first=Bernard C. |year=1996 |publisher=Authors Choice Press|location=New York, Lincoln, Shanghi }}</ref>

Over the period since the Industrial Revolution, technological progress has had a much larger effect on the economy than any fluctuations in credit or debt, the primary exception being the Great Depression, which caused a multi-year steep economic decline. The effect of technological progress can be seen by the purchasing power of an average hour's work, which has grown from $3 in 1900 to $22 in 1990, measured in 2010 dollars.<ref name="Legergott1993">{{cite book |title= Pursuing Happiness: American Consumers in the Twentieth Century |last= Lebergott |first= Stanley |year= 1993 |publisher= Princeton University Press |location= Princeton, NJ |isbn= 978-0691043227 |pages= a:Adapted from Fig. 9.1 |url= https://archive.org/details/pursuinghappines0000lebe |url-access= registration }}</ref>  There were similar increases in real wages during the 19th century.  (''See: [[Productivity improving technologies (historical)]]''.)  A table of innovations and long cycles can be seen at: {{slink|Kondratiev wave|Modern modifications of Kondratiev theory}}. Since surprising news in the economy, which has a random aspect, impact the state of the business cycle, any corresponding descriptions must have a random part at its root that motivates the use of statistical frameworks in this area.

There were frequent crises in Europe and America in the 19th and first half of the 20th century, specifically the period 1815–1939. This period started from the end of the [[Napoleonic wars]] in 1815, which was immediately followed by the [[Post-Napoleonic depression]] in the [[United Kingdom]] (1815–1830), and culminated in the [[Great Depression]] of 1929–1939, which led into [[World War II]]. See [[Financial crisis#19th century|Financial crisis: 19th century]] for listing and details. The first of these crises not associated with a war was the [[Panic of 1825]].<ref>{{Cite journal|last=Shallat|first=Todd|date=February 2004|title=The Rhine: An Eco-Biography, 1815–2000|journal=The Public Historian|volume=26|issue=1|pages=163–164|doi=10.1525/tph.2004.26.1.163|issn=0272-3433}}</ref>

Business cycles in [[OECD]] countries after World War II were generally more restrained than the earlier business cycles. This was particularly true during the [[Golden Age of Capitalism]] (1945/50–1970s), and the period 1945–2008 did not experience a global downturn until the [[Late-2000s recession]].<ref>{{cite web |url=http://www.ici.org/pdf/per02-02.pdf |title=Investment company institute – Perspective |access-date=2013-08-01 |url-status=live |archive-url=https://web.archive.org/web/20130313190606/http://ici.org/pdf/per02-02.pdf |archive-date=2013-03-13 }} Stock Market Cycles 1942–1995</ref> Economic stabilization policy using [[fiscal policy]] and [[monetary policy]] appeared to have dampened the worst excesses of business cycles, and [[automatic stabilization]] due to the aspects of the [[government]]'s [[budget]] also helped mitigate the cycle even without conscious action by policy-makers.<ref>{{Citation|title=Business Cycles versus Boom-and-Bust Cycles|work=Economic and Financial Crises|year=2015|publisher=Palgrave Macmillan|doi=10.1057/9781137461902.0009|doi-broken-date=4 April 2025 |isbn=978-1-137-46190-2}}</ref>

In this period, the economic cycle – at least the problem of depressions – was twice declared dead. The first declaration was in the late 1960s, when the [[Phillips curve]] was seen as being able to steer the economy. However, this was followed by [[stagflation]] in the 1970s, which discredited the theory. The second declaration was in the early 2000s, following the stability and growth in the 1980s and 1990s in what came to be known as the [[Great Moderation]]. Notably, in 2003, [[Robert Lucas, Jr.|Robert Lucas Jr.]], in his presidential address to the [[American Economic Association]], declared that the "central problem of depression-prevention [has] been solved, for all practical purposes."<ref>Fighting Off Depression, New York Times, {{cite news |url=https://www.nytimes.com/2009/01/05/opinion/05krugman.html |title=Opinion &#124; Fighting off Depression |newspaper=The New York Times |date=5 January 2009 |access-date=2009-08-15 |url-status=live |archive-url=https://web.archive.org/web/20110430040012/http://www.nytimes.com/2009/01/05/opinion/05krugman.html |archive-date=2011-04-30 |last1=Krugman |first1=Paul }}</ref>

Various regions have experienced prolonged [[depression (economics)|depressions]], most dramatically the economic crisis in former [[Eastern Bloc]] countries following the end of the [[Soviet Union]] in 1991. For several of these countries the period 1989–2010 has been an ongoing depression, with real income still lower than in 1989.<ref>{{Cite journal|last1=Smith|first1=Adrian|last2=Swain|first2=Adam |s2cid=154302466 |date=January 2010|title=The Global Economic Crisis, Eastern Europe, and the Former Soviet Union: Models of Development and the Contradictions of Internationalization|journal=Eurasian Geography and Economics|volume=51|issue=1|pages=1–34|doi=10.2747/1539-7216.51.1.1|issn=1538-7216}}</ref>