The Kitchin cycle. Short-term economic cycles. Juglyar cycle. The Blacksmith's Cycle

The economic cycle is the fluctuations in the value of gross domestic product in the long run. This reduction or increase in GDP is associated with the stage of development. There are several types of such oscillations that differ in their duration. The shortest is the Kitchin cycle, which lasts 3-5 years. Other economists also studied the issue of fluctuations in gross production. The cycles of Juglar, Kuznets and Kondratyev are also distinguished.

Basic terms

In the course of its development, the economy is experiencing both periods of rapid development and stagnation. The Kitchin cycle explains short-term fluctuations. Kondratieff's waves cover half a century of change. The concept of the economic cycle in a broad sense means a period of time that includes only one period of prosperity and recession, going one after another. These two stages are fundamental. The indicator of the beginning and the end of the cycle is the percentage of growth in the real gross domestic product. Although often these fluctuations in business activity are quite unpredictable.

Study history

The concept of the economic cycle was denied by representatives of the classical school. Their existence in practice, they explained by wars and conflicts. The first study of them engaged Sismondi. His work was devoted to the panic of 1825 in England, which was the first economic crisis that occurred in peacetime. Sismondi and his colleague Robert Owen called it the reason for overproduction and underconsumption caused by inequality in the distribution of income between the population. They advocated government intervention in the economy and socialism. In academic circles, their work did not become instantly popular. However, on the notion that underconsumption is the cause of crises, a well-known Keynesian school will then be built. The theory of Sismondi was developed by Charles Dunoyer. He put forward the concept of changing cycles. Karl Marx considered periodic crises as the main problem of any capitalist society and predicted the communist revolution. Henry George called speculation with the land the main cause of recessions and proposed the introduction of a single tax on this factor of production.

Types of cycles

In 1860, the French economist Clement Juglar for the first time determined economic fluctuations with a frequency of 7-11 years. Joseph Schumpeter argued that they consist of four stages:

• Expansion. There is an increase in production, prices are rising, interest rates are falling.
• A crisis. At this stage stock exchanges collapse, and many enterprises and firms become bankrupt.
• Recession. Prices and production volumes continue to fall, while interest rates, on the contrary, are growing.
• Recovery. The exchanges are starting to work again due to a drop in prices and revenues.

Schumpeter linked the recovery of the economy with the growth of productivity of production, confidence in the future of consumers, aggregate demand and prices. In the middle of the XX century, he proposed a typology of cycles for their duration. Among them:

• The Kitchin cycle. Takes 3 to 5 years.
• Juglyar cycle. Its duration is 7-11 years.
• The Blacksmith's Cycle. It is connected with investments in infrastructure. Takes from 15 to 25 years.
• Kondratieff Waves, or long-term technological cycle. Takes from 45 to 60 years.

Today interest in cycles has slightly decreased. This is due to the fact that modern macroeconomics does not support the idea of regular periodic fluctuations.

The Kitchin cycle

It takes about 40 months. These short-term fluctuations were first investigated by Joseph Kitchin in the 1920s. Its reason is considered to be temporary lags in the movement of information, which lead to a delay in decision-making by firms. Firms respond to the improvement of the commercial situation, increasing production. This leads to the full utilization of labor and capital. As a result, after a certain time, the market becomes flooded with goods. Their quality is gradually deteriorating because of the law of Saya. Demand is falling, prices are too, the goods begin to accumulate in warehouses. After a certain time, firms begin to reduce production volumes. So the Kitchin cycle goes through.

Causes and consequences

The economic cycles of Kitschyna are connected with the absence of the possibility of an instantaneous assessment of the market situation. Firms need time both to begin to increase production, and in order to decide whether to reduce its volume. The delay is due to the fact that entrepreneurs do not immediately understand what is prevailing now in the market - supply or demand. Then they need to check this information. Time takes and the implementation of the decision in practice. It is not so easy to immediately find new employees or fire old ones. Thus, short-term Kitchin cycles are associated with a delay in the collection and processing of information.

Josef Kitchin: brief information

He is a British specialist in statistics and a businessman. Joseph Kitchin worked in the mining industry in South Africa. In 1923 he conducted a study of short-term business cycles in the United Kingdom and the United States of America between 1890 and 1922. Their duration was about 40 years. The results of his research, he outlined in a paper entitled "Cycles and trends in economic factors." The author explained the presence of such fluctuations by psychological reactions to capitalist production and temporary lags in the transmission of information, which affects the decision-making process by firms. In other words, the cycles of Kitchin characterize the regulation of the supply of goods by enterprises in terms of their need in the market.

Period of 7-11 years

The Juglyar cycle is twice as long as Kitchin. But his existence scientist established in 1862. Among the reasons for the revealed fluctuations, Juglar called changes in investing in fixed assets, and not just the level of employment. In 2010, a study using spectral analysis confirmed the existence of such cycles in the dynamics of the world's gross domestic product.

The Blacksmith's Cycle

These are fluctuations of average duration. For the first time, Simon Smith studied them in 1930. They take about 15-25 years. The reason for this cycle is the author called demographic processes. He considered the influx of migrants and related construction booms. The smith also described them as infrastructure investment cycles. Some modern economists associate these cycles with an 18-year fluctuation of value on land as a factor of production. They see the way out in the introduction of a special tax. However, Fred Harrison believes that this does not help even to soften the cycle. In 1968, Howry criticized the study of Kuznets. He argued that the data was incorrectly analyzed. However, Kuznets replied that the cycles revealed by him can be seen in the growth of the world gross domestic product and without the use of a filter invented by him.

Research Kondratyev

The longest cycles of business activity have a duration of 45-60 years. The famous Soviet economist Kondratiev believed that fluctuations affect all sectors of the economy. He concentrated on prices, interest rates. In each cycle, Kondratiev singled out four stages. The main indicator that he studied was production in value terms. To date, there are five long waves:

• From 1890 to 1850. It is associated with the appearance of a steam engine and the beginning of the widespread use of cotton.
• From 1850 to 1900. The main engine was steel railways and steel production.
• From 1900 to 1950. It is associated with the spread of electricity and the development of the chemical industry.
• From 1950 to 1990. Pharmaceuticals and automotive industry became propulsive branches.
• The new wave is connected with information and communication technologies as the engine of progress.

In addition to the technological explanation, some scholars associate Kondratyev's long cycles with demographic changes, speculation with land and deflation of debt. There are several modern modifications of the theory of the Soviet economist. They can be divided into two groups. The first focuses on technology change. The second examines credit cycles. However, many economists do not accept the theory of long waves Kondratieff. Even more controversy goes around what years to consider the beginning of each of the cycles. The onset of the global financial crisis fits well enough into Kondratiev's theory, signaling the beginning of a period of recession.