Business Cycles
Almost everyone in the world wants to delve in and explore business. From simply small businesses, advertising and marketing, up to internet and international marketing, business cycles are present among these mentioned. What are business cycles?Business Cycle is a term denoting the irregular alternations of business activity from peaks of prosperity to the low points of depressions. Prior to the crisis of 1929, this precipitated the depression of 1929-1939, the length of business cycles averaged about four years from boom to boom in the United States and a little more in other leading nations. The length varied. However, from one to twelve years. Business activity in major booms, measured chiefly by productive activity, commonly rose as high as 15 percent above the general average of current business. Depression sank 15 to 20 percent below. Generally, a typical cycle, disregarding a number of very small ones, may be pictured by a wave with a length of four years. Certain ordinary terms used in describing the business cycles have somewhat technical meanings. The crest, as the term implies, is the highest point reached in the boom, usually determined after minor irregularities are rounded off. The trough, similarly, is the bottom of the wave. The crest is usually marked or followed by a crisis, or a distinct turn downward, analogous to the crisis of a fever. The crisis may develop a panic, with ruinous sales of securities and runs on banks. An analysis of the cycle distinguishes certain phases such as the expansion and contraction phases. It will also involve consideration of other concurrent aspects of business variations, the numerical influences of which are removed, when possible, from index numbers representing the cycle. These influences include the so-called secular trend, or average rate of growth of business over the decades, and the seasonal factor, the influence of weather and custom on such things as the sale of fuel or the holiday trade. Accidental factors, such as strikes and earthquakes are also noted.
Though the business cycle centers about industrial production and gross national product, it does not affect all phases of business alike. Livestock marketing, for example, though strongly influenced by prosperity and depression, are thrown out of phase largely because it takes time to build up herds and flocks. In somewhat the same way, a multiplicative effect is carried over the shifting demand for certain factory products to the producers of machines and machine tools. Building construction, also, though sometimes a major phase of the cycle often merges into longer cycles. Producer goods reflect the cycle to a greater degree than consumer goods. In fact, the cycle may plausibly be regarded as successive pulsations of active capital investment.
Some activities tend to precede the main features of the business cycle. This was formerly true to the stock market. On the average, but with wide variations, the crest of the stock market has preceded the crest of business activity by about six months. Those who are in touch with the plans of business leaders naturally anticipate profits. On the other hand, some aspects of business have tended to follow the most obvious features of the cycle.
Few types of business activity have tended to run directly counter to the cycle; in fact, gold production is perhaps the only one. And this was true only of the days when the gold standard was allowed to operate relatively freely. In earlier times, notably in the nineteenth century after the Napoleonic Wars, price inflation in the boom put a damper on gold production, since the price of gold was fixed at the mint and costs of producing were increased. On the other hand, the cost of producing gold fell with other costs during depressions; hence its production was stimulated, and the search for new gold fields was intensified. Of course, accidental discoveries of new ores, or new methods of processing the ores, in turn inflated prices. This was particularly true to the South African gold boom near the end of the nineteenth century. The increased production of gold, finding its way into the channels of world trade, was perhaps the chief factor changing the declining price trend prevailing in the years from 1890 to the beginning of World War 1.
The business cycle has been closely related to various social phenomena. In earlier decades, for example, marriage and divorce rates, and the consumption of luxuries, varied more or less closely with the cycle. Church activities varied somewhat in reverse order. Crime rates also responded to the cycle, but in several different ways, depending on the nature of the crime. In general, the cycle was definitely correlated with many activities and moods other than those directly expressed in business data.
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