The Causes of Business Fluctuations

It is now about too years since economists began their study of the business cycle and its causes, if Schumpeter was correct in naming Clément Juglar as the first to be concerned with the problem of wavelike movements of prosperity and depression as distinct from the analysis of periodic crises. During this period the fertility of theoretical economics has resulted in a multitude of possible explanations of wavelike movements in the basic economic variables of production and employment. It is probably fair to say that a great deal more effort has gone into the job of constructing theoretical models than has gone into the job of testing the models against the facts. In particular one aspect of the testing process has been, I think, unduly neglected, viz., the comparison of the periodicity of theoretical models in terms of calendar time with the observed periodicity of business fluctuations. The first, and more excusable, reason for the omission is that it is only in comparatively recent years that even tolerably respectable long-run indexes of aggregate production, have been constructed so that earlier theorists had of necessity to work with sketchy indicators of real fluctuations. Secondly, even when production series were available they have not been fully exploited since the task of constructing theories is usually much more congenial than that of testing them against the facts, a process which has the additional hazard of producing a heavy rate of stillbirths.