Climatic Changes and Business Cycles

Climatic Changes and Business Cycles

Finally, two non-economic theories of the business cycle have at times secured popular support. The first of these claims that business cycles are induced by changes in climatic conditions, sun spots for example playing the role of the villain. The other main­tains that depressions are caused by states of mind—optimistic and pessimistic mental states—which determine the course of business activity.

William Stanley Jevons (1835-1882), one of the great English economists of the last century, is responsible for the first statement introducing the importance of climate. In two works, The Periodicity of Commercial Crises and Its Physical Explana­tion (1878), and Commercial Crises and Sun-Spots (1879), he suggested that business cycles were caused by solar cycles. He investigated the history of trade fluctuations and the appearance of sun spots in England from 1721 to 1878. The close coinci­dence of the sun spots and the depressions convinced him that there was a casual relationship between the two. Thus the sun spot cycle of 10.45 years was almost identical with the 10.466 year period of the commercial cycle. The sun spots were held responsible for causing stronger sun's rays and more plentiful rainfall, thus producing abundant crops. This surplus of agri­cultural products upset the distribution of income, setting in mo­tion the business cycle. Neither Jevons' son, nor Professor H. T. Moore of Columbia agreed with the elder Jevons on the length of the sun spot cycle. They accepted periods of 3.5 years, 8 years, and 10 years respectively. Later authorities while rejecting the relationship to sun spots have emphasized the effect of fluctua­tions in agriculture in causing business cycles, recognizing the im­portance of good harvests and bad harvests upon demand for capital, the interest rate, and the mental outlook of the popula­tion.