1. Food Production
2. Agriculture
3. Simple Technology
4. City State

5. Empire (Roman)

Wild cycles of economic activity associated with early Banking collapses. Period of cycle, or its consistency, unknown

6. Medieval

Cycles seen in Chinese trade figures, 3 - 5 year period

Cycles seen in inflation from when data becomes available (UK 1668). Average period (to the present day) nearly 5 years; at Levels 6 to 8 inflation generally negative in the "down" phase

7. Industrial Revolution

Cycles seen in Stock Market from 1800 (US). Average period (to present day) 4.3 years

Cycles seen in GDP from when data available (UK 1855). Average period 4.3 years, with inflation in phase with it apparently in Levels 7 - 8

8. Consumer Society

Panics and Bank Runs associated with "down " part of the Cycle

9. Mass Production Society

Cycles clear in GDP, Consumer Expenditure, Investment, Profits, and other variables, generally with roughly constant phase relationship to each other. Includes markets for most products - where the amplitude often much larger than in GDP

The amplitude of the cycles is variable. But it seems that if unusually large growth occurs it is followed by an unusually large decline. Possibly one explanation for depression of 1930s

Pound left gold standard, now not linked to item of value. Inflation now only positive so rises rapidly, and its phase changes to maximum inflation in the recessions

At end of the period Governments have large deficits, this creating a lot of credit. The cycles become much larger. Money Supply and Inflation soar in waves with the Business Cycle

Evidence suggests the Business Cycles in different countries are broadly congruent - and may be coming more into phase - even in (former) USSR.


There may well be a natural cycle in economic activity - there are so many feedback loops that in mathematical and scientific terms one would expect the system to oscillate.

For the most part these oscillations have been small, and have not caused much effect. When they come to the notice of history the cycles are enlarged and are associated with the supply of credit getting out of hand. At these times the cycles have undesirable effects. This may be the Constant Trend for our purpose. (See also Credit.)

A 4 to 5 year period can be observed in a variety of economic data and markets. The phase of an economic parameter or market is generally reasonably consistent with respect to other economic parameters (e.g. the maximum growth point in a market may lag the maximum growth point of GNP by so many months, and this lag being reasonably consistent in different cycles). However, there is some variability of the period, and of the phases of the various parameters, and of the amplitudes in different cycles. These, coupled with the long time it takes for economic data to be published - plus the fact that the data is revised heavily after it is first published - makes it difficult to estimate where you are in the cycle at any particular time.

There are claims that there are a number of other cycles in economic data of various periods up to 50 years. This may be so, but we do not think these have been statistically demonstrated. Especially for the longer cycles, there has not been enough of them to see if they are consistent, or merely a chance arrangement of the data.

It is believed that the 4 to 5 year period Business Cycle is basically the result of a feedback loop involving business investment - which itself lags business profit growth in the Business Cycle by a year. There is a further lag between the investment being made, and it becoming productive - this is estimated at about another year. When that investment wave from the last cycle becomes productive, that economy can then start to grow accordingly, producing a boom. So then that increased productive capacity is drawn down and is being used. The growth capacity in the economy is thus used up, and economic growth falls away - and the boom comes to an end. The boom produces a profits wave, which stimulates a further investment wave - however unfortunately the delays mentioned in the system above mean the increased productive investment is not ready in time to continue the growth in the current boom.

In particular industries the time constant to produce increased capacity varies considerably. In the famous Pig Cycle, this time constant is associated with the gestation period of pigs, and following the arguments in the above paragraph leads to a cycle of pig supply, demand, prices and profits which is clear in the data. In other industries, such as pulp & paper, the lead time to increase capacity may be a decade, and such industries can have their own cycle stretching over several Business Cycles.


At the beginning of the Post Industrial period the Business Cycles have been large in amplitude, showing large swings in the financial variables.

Impacts from Banking Stability have caused the amplitude in some variables to be depressed - including inflation, and economic growth itself. Others, such as bankruptcies and interest rates have been increased.

Under the Constant Trend, and impacts from Savings and Inflation which indicate a high credit expansion, we should expect large swings in amplitude of economic and market parameters in the Business Cycle.

These have produced, and will continue to produce, hostile business environments. They have been characterised by growth periods which quickly turn into shortages, high interest rates and high inflation; to be followed by sharply contracting periods where capacity cannot be filled, and liquidity becomes a problem - weaker concerns get into financial difficulties (smaller ones go out of business, larger ones expect governments to bail them out). This will apply especially to Post Industrial concerns subject to the "New World Trading Patterns" (see Part C).

Business will learn to live with this environment to some extent - but if the severity increases it may continue to be taken unawares.

As indicated under the Constant Trends, while the Business Cycles are reasonably regular when looked at overall, the occurrence of a particular Cycle may not necessarily be so; it is unlikely that a particular Cycle will behave in the same way as the previous one. A variable may have a small oscillation in one Cycle and wide swings in the next. Because of these, the track record of economic forecasting may not improve.

Understanding the nature of the Business Cycle and its relation to a firm's industry can help mitigate the undesirable effects of the swings. For example, phasing of new investment (one of the consequences of the lags mentioned under the Constant Trends is the new capacity stimulated from the previous Boom tends to start operating in the following recession - increasing the over-capacity then in markets - and increasing the problems of the recession). However, any strategy to adjust timings must allow that you do not know exactly where you are in the Cycle at any one point in time. There is at least 6 months uncertainty.

Business Cycle plots, (which can be supplied for specific Sectors), can however be used to identify long term trends in an industry. Industries which are growing show strong growth periods in Booms. Growth falls away in recessions, but should not usually go negative. Industries where the growth is plateauing may still show Boom growth periods, but growth falls away into contraction in recessions. The switch growth to plateau can be seen occurring over a number of Business Cycles. Some industries are very cyclic, with Boom growth several times larger than GNP, but substantial contraction in recessions - such as advertising, and machinery manufacturing. These can be identified by Business Cycle plots, and are intimately tied in with the Cycle.

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