The Birth of the Business Cycle. (Volumes I - II).

Abstract

The immediate purpose of this work is to ascertain the earliest period in which a 'modern' business cycle could be found in English history. The concept of a 'modern' business cycle is not as clear or straightforward as might initially be suspected, however; and therefore the first half of this dissertation examines the economic theory of modern fluctuations. After a survey of the history of theories of macroeconomic instability, the first volume outlines a critique of contemporary theories of value, capital, income, the treatment of time and finance in the context of the firm, all of which have stymied a consistent theory of instability in the past. This general critique applies equally to all three modern schools of macroeconomic thought: Rational Expectations, General Equilibrium with Rigidities, and the Left Post-Keynesians. A discussion of the meaning of a 'general' model of the business cycle follows, and then such a model is developed, which includes four basic components: the notion of simple disproportionality; the simultaneous determination of both the level and distribution of economic activity; a postulation of the parameter/variable distinction as a dichotomy; and the explicit recognition of the endogenous/exogenous distinction. This model traces its main influences from the institutionalist economists, especially the work of Veblen. The second volume then takes up the question of the historical preconditions of the operation of such an economy. In Engl and , a case is made that most of the institutions were effectively operating by the last decade of the seventeenth century, and therefore that is when we would expect to see the beginnings of the 'modern' business cycle. Next, in order to describe eighteenth century fluctuations, two new timeseries are developed: a series representing the rate of profit from circa 1730 to 1825, and a share price index stretching from 1700 to 1811. In passing, certain conventional notions about the relative dearth of fixed capital in eighteenth century firms are called into question, and the phenomenon of a very thin market in corporate shares is examined. In the final chapter, the new evidence is brought together with the new model developed in book one in an analysis of economic fluctuations in Engl and from 1690 to 1825. Some novel findings are that the aftermath of the South Sea Bubble was much more severe and serious than previously thought, and that the period of the incipient 'Industrial Revolution' (the 1780's) was characterized by a slup rather than a boom. Another subsidiary finding is that the rate of profit in the eighteenth century does not seem to have been either substantially higher or lower than in modern experience. The dissertation ends with some speculation on long-term trends in instability.