business cycles

business cycles, fluctuations in economic activity characterized by periods of rising and falling fiscal health. During a business cycle, an economy grows, reaches a peak, and then begins a downturn followed by a period of negative growth (a recession), that ends in a trough before the next upturn. The theory of business cycles is generally attributed to French physician Clement Juglar, who proposed in 1862 that such fluctuations were to be expected in any economic system. Other later theorists developed Juglar's theory, arriving at business cycles of anywhere from 10 years to the half-century cycle suggested by Russian economist Nikolai Kondratieff. Many attempts have been made to equalize business cycles through monetary and fiscal policy decisions. During the 1970s and 80s, for instance, U.S. fiscal policy deliberately created a recession to combat inflation. Theories on the causes of business cycles consider various possible factors; however, none has conclusively delineated the underlying causes for fluctuations. Such 20th-century theorists as John Maurice Clark and Joseph Schumpeter have attempted to find cures for economic instability, rather than describing it as simply a natural phenomenon in the manner of many 19th-century theorists. The "underconsumption" theory, for instance, claims that an inordinate amount of income goes to the wealthy rather than to investment, thus producing instability.

See R. J. Gordon, ed., The American Business Cycle (1986) and W. C. Mitchell, Business Cycles and Their Causes (1989); A. W. Mullineux, Business Cycles and Financial Crises (1990).

The Columbia Electronic Encyclopedia, 6th ed. Copyright © 2012, Columbia University Press. All rights reserved.

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