Economic cycles are back in the headlines as the Coronavirus directly destroys the economies of the counties whose actions are effected while even those that are only receiving peripheral interference are also counting the cost.
When the topic of economic or as they are sometimes called ‘business cycles’ are mentioned, our first mental recall is the outstanding academic, the Russian Nikolai Kondratiev (Kondratieff) (1892-1938) who at his zenith was the world’s authority. His theory was that the cycles moved in the fifty-year patterns. This did not produce a problem for him, until the forecast that Western Capitalism was on a positive upswing. This was a most unfortunate coincidence as Stalin was predicting that capitalism was collapsing.
The tragic outcome for Kondratieff was that he was sent to prison for eight years after returning from a trip to America. On 17th September 1938 he was taken to the Kommunarka shooting ground, Moscow and executed by firing squad.
In 1987 as the policies changed in Russia, Kondratieff was officially reinstated for his outstanding work.
Although not linked is the Mayan civilisation of the Mexican Gulf and Northern Central America, that built their pyramidal structures at Chichén Itzá from 1800 BC. The Mayan belief was that their society performed in fifty-two year cycles.
Linked to the work of Kondratieff is another world class economist, the Austrian Joseph Schumpeter (1883-1950) who after becoming an American citizen was Professor of Economics at Harvard University.
Amongst his extensive range of ideas, Schumpeter believed in economics including our existing businesses being destroyed by ‘creative destruction’ as entrepreneurs were challenged into producing a better, replacement productor to revise existing procedures of management methods.
Also Peter Drucker, who had known Schumpeter since he was a teenager in Vienna recorded as they had continued their acquaintance in America that “Readers familiar with the works of Joseph A Schumpeter will recognised without special reference how much the author owes to this most fruitful of modern economists.” – The Practice of Management (1954).
Later Drucker reflected that Schumpeter laboured mightily to determine when business cycles would occur and had to eventually conclude that they could only be determined after the event.
Against this background we can reflect on occurrences within living memory.
On 22nd October 1987 there was the biggest stock market crash in history – Black Monday – when the Dow Jones Index fell 22.6% and stock markets around the world watched with the London Stock Exchange closing at 12:30pm through staff shortages.
Now, where are we today? As the Coronavirus of 2019 cycle effect is only beginning? This is a story that we all know has a long way to run.
Questioned is how does it fit into Economic Cycles:
1920-1939 The Great Crash 0
1987 Black Monday 38 years
2007/8 Financial Crisis 21 years
2019 Coronavirus 11 years
Which goes to prove Schumpeter was correct; that cycles cannot be timed or forecast!
27th April 2020