Abstract
When one discusses the fluctuations known as the business cycle, it is important to remember that one is talking about general, or economy-wide, fluctuations and not fluctuations that are specific to one geographic region or industry within an economy. One is talking about fluctuations in output, unemployment, prices, revenues, profits, and interest rates, among other variables, that occur across the economy. The fluctuations that constitute the business cycle occur across a number of years. In the post-World War II United States, the average cycle has lasted almost six years. Expansions in the post-World War II United States have generally lasted almost five years while the contractions have lasted almost one year on average.
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Notes
This introduction and entire chapter are based to some extent on sections of Chapter 2 in Brian P. Simpson, Trade Cycle Theory: A Market Process Perspective (Ann Arbor, MI: Bell & Howell Information and Learning Company, 2000) and
Brian P. Simpson, “Money, Banking, and the Business Cycle,” audio recording (Irvine, CA: Second Renaissance, Inc., 2005).
For references to writings on ABCT by the economists mentioned, see Ludwig von Mises, Human Action, 3rd rev. ed. (Chicago: Contemporary Books, Inc., 1966), pp. 550–571;
Friedrich A. Hayek, Prices and Production, 2nd ed. (New York: Augustus M. Kelly, 1935); and
Murray Rothbard, Man, Economy, and State, Volume 2 (Los Angeles: Nash Publishing, 1962), pp. 850–879. Also see
George Reisman, Capitalism: A Treatise on Economics (Ottawa, IL: Jameson Books, 1996), pp. 938–940; “When Will the Bubble Burst” (August 7, 1999), http://capitalism.net/articles/stockmkt.htm; “The Stock Market, Profits, and Credit Expansion” (2002), http://capitalism.net/articles/Stock%20Market,%20Profits,%20Credit%20Expansion.htm; “The Housing Bubble and the Credit Crunch” (August 10, 2007), http://capitalism.net/articles/A_Blog_08_07.html; “The Myth That Laissez Faire Is Responsible for Our Financial Crisis” (October 21, 2008), http://capitalism.net/articles/A_Blog_10_08.html; “Economic Recovery Requires Capital Accumulation Not Government ‘Stimulus Packages’” (February 21 and 22, 2009), http://capitalism.net/articles/A_Blog_02_09.html#02_21_09; and “Credit Expansion, Crisis, and the Myth of the Saving Glut” (July 4, 2009), http://capitalism.net/articles/A_Blog_07_09.html. The articles by George Reisman were accessed December 10, 2011, and provide excellent explanations and applications of ABCT.
See Chapters 1–3 of Brian P. Simpson, Money, Banking, and the Business Cycle, Volume 2: Remedies and Alternative Theories (New York: Palgrave Macmillan, 2014).
For those who are unfamiliar with PV analysis, such analysis helps one determine the value of future cash flows and thus how much an investment that produces future profit streams is worth today. The higher the PV, the more the profit streams are worth today. For an explanation of PV analysis, see any basic finance textbook, such as Eugene F. Brigham and Louis C. Gapenski, Financial Management: Theory and Practice, 6th ed. (Orlando, FL: The Dryden Press, 1991), pp. 171–205. Even some economics textbooks have a discussion on PV analysis.
For more discussion on what makes the production of wealth and economic progress possible, see Brian P. Simpson, Markets Don’t Fail! (Lanham, MD: Lexington Books, 2005), pp. 10–13, 22–26, 45, and 115.
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© 2014 Brian P. Simpson
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Simpson, B.P. (2014). What Causes the Business Cycle?. In: Money, Banking, and the Business Cycle. Palgrave Macmillan, New York. https://doi.org/10.1057/9781137331496_4
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DOI: https://doi.org/10.1057/9781137331496_4
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