Cycles of the Economy

I cannot remember such a flurry of interest in cyclical trading theories since the aftermath of the panic of 1987. They used to come by airmail, usually well argued, and now they come by Email often in a more abbreviated form, and repeated to countless other correspondents. If one were old-fashioned, one would think that the facility of electronic communications had led to slipshod thinking. What is easily communicated may not be closely argued or fully thought through.

People are impressed when they come for the first time to the names of the cyclical sages, such as Kondratiev, whom I have actively published, or Kitchen – does anyone talk of Kitchen (with a capital K) cycles nowadays? Then at the trading level there are Jones and Precter – if I have spelled his name correctly. There has been no shortage of able men who have devoted their lives to research of the cycles of the economy or of stock markets. Almost everyone is convinced by them when they are first explained.

Even some first class economists have been involved in the development of these theories. William Stanley Jevons is one of the greatest of the English nineteenth century school of mathematical economics – a splendid economist in every way. He has been ridiculed for giving his classical imprimatur to a theory of an economic cycle which he thought was linked to a 10.45 year cycle of sunspots. World trade and sunspot activity were linked through the effect of sunspots on agriculture, particularly Indian agriculture. Sunspots always seem to be unacceptable to the scientific community. In the late nineteenth century scientific economist could not bring themselves to believe that the sunspot cycle could cause the business cycle. They thought it was Voodoo economics and it probably was. In the twenty first century climatologists cannot believe that global warming is caused by the sunspot cycle. They are probably also correct.

Nevertheless, there is one mathematical fact in Jevons’s theory which still niggles at my mind. In 1878, in an article in Nature, then, as now, a highly respected scientific publication, William Stanley Jevons argued that there were fifty year and ten year cycles – which were later to be named after Kondratiev and Juglar, a Russian and French economist. Jevons said that the ten year cycle coincided with the sunspot cycle which had recently been calculated at 10.45 years. The longer Kondratiev cycle ought therefore to be 5 times the Juglar, or 52.25 years.

All of this was written in the 1870s, though with acknowledgements to earlier work going back to the 1840s. In 1720, the South Sea Bubble had burst. That was then 158 years earlier; in 1929 the Wall Street bubble burst. That was 51 years later. From 1720 to 1729 is a period of 209 years, equal to 20 Juglars or 4 Kondratievs. It must, presumably be a coincidence, but it remains a fact that between the first and second great crashes of modern finance exactly 20 sunspot cycles occurred, and that Jevons’s rule would have allowed him to predict the 1929 Wall Street crash in 1878, 51 years before it actually occurred. Of course 51 years is itself the period of the Kondratiev cycle.

William Rees-Mogg
Markets and Money

William Rees-Mogg
Leading political editor William Rees-Mogg is former editor-in-chief for The Times and a member of the House of Lords. He has been credited with accurately forecasting glasnost and the fall of the Berlin Wall – as well as the 1987 crash. His political commentary appears in The Times every Monday. His financial insights can only be found in the Fleet Street Letter, the UK's longest-running investment newsletter.

Leave a Reply

3 Comments on "Cycles of the Economy"

Notify of
Sort by:   newest | oldest | most voted
jim henderson

ooops – 1720 to 1729 . . . 209?

Coffee Addict
As a member of the House of Lords, William should consider his words carefully lest he and his peers be seen as condescending, arrogant snobs. Maybe I’m just as bad (or perhaps worse) for blogging similar types of criticisms under pseudonym so I’ll stop this line of thought here. Unlike traditional writings, the ideas on this and other internet sites can only ever be read as formative. Views feed off each other evolve. That’s what makes the e communication both fun and educative. Knowing what a wide range people are thinking about an issue is essential if you are to… Read more »
here at the begining of the second year of the last solar flare. i give pause to consider the future. a>if one has been accused of living the lie, several years prior to the year of fire. b>i just can’t remember my chinese stuff without the hand written copy. c>the five mythical elements of ancient chinese civilization just don’t look the same in the digital age…. d>now if you piss on the fire, one might think you’ve eliminated the first element with the second element. e>but then in the ground lies a burnt offering. the gift of the magi, if… Read more »
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to