Econocycology: A Tool for Timing Activism
and Fund Investment

Herbert William Bonner

[A paper presented at the Joint Georgist Conference, University of Pennsylvania, Philadelphia, Pennsylvania, 1989]

This is a condensed preview of a 40-page paper with graphs and tables, which looks at common business cycles, and surveys the major events which affected the general welfare of the people in the developing economics of Britain and the United States, from 4000 BC to the present time. The survey leads to new conclusions about the effect on the economy of monopoly privileges, debt and taxation, and their limits. A Primary Economic Cycle, and an Ascending Wave are hypothesized. An outline cyclical plan for reform, activism and safe growth investment of funds, and three predictions of future major events are preferred.

For everything there is an appointed time, even a time for every affair under the heavens. [Ecclesiastes 3:1]


Since time immemorial, man has sought to foretell the appointed time for the fulfillment of his dreams and ambitions by many means, from the twitching of chicken entrails, to econometrics. The political, economic and financial advantages of being able to predict the future by these immutable means would be of inestimable value to merchant, investor, speculator, and government alike. Speculators in the financial markets suffer wild mood swings from extreme greed to extreme fear, baffled by ignorance and propelled by impatience, as they study the twitchings of economic entrails through stale, skewed statistics; economists advise their clients according to their erudite interpretations of past business cycles, but with little success.


Great intellects addressed the study of the pattern of business cycles. Henry George was well aware of them, for the fundamental theme of his Progress and Poverty (1879) was an inquiry into the cause of recurring industrial depression. His brilliant and timelessly accurate deduction was, "speculation in things not the production of labor, but yet necessary to the exertion of labor in the production of wealth." Other authors have offered a variety of less plausible explanations. None has offered an explanation of their relative regularity, other than attempts to make the shoe fit by demonstrating some degree of correlation with observed phenomena. Accordingly, the economic cycles have remained little more than mysterious, often confusing, statistical curiosities, with popular perceptions being confined mainly to fluctuations between good and bad times.


Business cycles. The French Dr. Clement Juglar is credited with being the first to speak of "business cycles." The U.S. National Bureau of Economic Research (NBER), uses a definition put forward by Bums and Mitchell. Briefly, it is a fluctuation of an aggregate of economic factors of varying content, which usually includes output, trade, employment, income and sales. The cycle is not periodic and not divisible into shorter cycles of similar character. The factors may be measured in several ways, and the resulting estimate is subject to revision, and lags the event.


Proprietary Cycles. Out of the many cycles that have been proposed, Joseph A. Schumpeter grouped three into his schema: the long Kondratieff cycle of 54 years average duration; the intermediate Juglar of 9 to 11 years; and the short Kitchin of 40 months average length. He superimposed three Kitchen cycles on each Juglar, and six Juglars on each Kondratieff cycle. He concluded, empirically, that synchronization of the three cycles indicated an exceptionally intense phase, as seen during the 1930s. However, his tri-cycle (which conflicts with the definition by Burns and Mitchell) did not perform well for other intense phases, such as the boom of the 1979-81. These cycles are illustrated more fully in the plenary paper.


The Kuznets cycle, named after Simon S. Kuznets, is not a member of Schumpeter's triad. It is a "long swing" of about 15 to 20 years (roughly one third of a Kondratieff Wave, and twice the Juglar cycle), mainly in building construction, but not works. He analyzed other factors, including growth rates of GNP, capital formation, population movement, employment, and incomes. Kuznets recorded peaks in 1873, 1892, and 1913, and troughs in 1878 and 18%, which match those recorded by the NBER, but missed many intervening cycles.


There are serious deficiencies in all the cycles studied, and in the often erudite, complex mathematical explanations offered:

a. The cycles are presented as smooth, regular sine waves alternating about a level horizontal axis, reflecting changes in "business", e.g. prices and mortgage rates, which may be inimical to the "general Welfare";

b. They are constructed from obsolete data drawn mainly from the period before credit became universal, and which are secondary products of fundamental, primary causative factors;

c. No explanation of those primary causative factors has been offered;

d. No in-depth attempt to discover those factors has been noted;

e. British and American data do not indicate regular business cycles.


Data published by the NBER, show: -

  • Between 1834 and 1983, there were 34 cycles averaging 52 months, ranging from 17 to 117 months in length; expansion phases averaged33 months, ranging from 10 to 106 months; contraction phases averaged 19 months, ranging from 7 to 65 months;
  • Between 1945 and 1983, (post-World War II, when credit became more widely available), there were 7cycles averaging about 66 months, ranging from 32 to 116 months peak to peak; expansions averaged 51 months, ranging from 24 to 106 months; the average contractions took 11 months, ranging from eight to 16 months; The trend has been for the cycles and expansions to lengthen, the contractions to shorten. The post-World War economic data are more representative of today's economy than those of the 19th century, when credit was not available to the masses.


The cycles mean different things to different groups, for instance: the slave owner and the slave; the landholder and the tenant; the exploiter and the exploited; the money lender and the borrower: the rich and the poor. Those who have become extremely rich from plundering the people through monopoly privilege, speculation, war and crime, usually develop an arrogant belief that the economy exists for their benefit alone; that the business cycles are measured best by changes which affect their prosperity; arid that legislatures should manipulate the economy to that end.

"...to form a more perfect union, establish justice, - promote the general Welfare,..."
From the preamble to the Constitution of the United States, 1787.


Fluctuations in the economy, except for those caused by unmanageable natural forces, are symptoms of disease, often accompanied by high fever, caused by the failure of government to "promote justice and the general Welfare." The business cycles are symptoms of the fluctuations in market strengths between business and monopoly rentier rights (most visibly those in land); The economic cycles are symptoms of fluctuations in market strengths between labour and monopoly rentier rights. There is a subtle but important difference between them, which is dealt with much more fully in the plenary paper. The odds always favour the monopolists. For those interested in reform which will eliminate recurring economic depressions, consequent involuntary unemployment, poverty and social problems, the general welfare of the people must be the only barometer of change.


The PRIMARY ECONOMIC CYCLE. To ascertain if there were any fundamental factors which caused fluctuations in the economic condition of the people, a survey was made of the major events affecting their welfare from about 4000 B.C., the beginning of the Tribal Period in Britain. While making the survey, which is reported in greater detail in Appendixes A and B of the plenary paper, it became very clear that, contrary to traditional classification which tends to obscure the economic effects of events, there are but two major ages, THE AGRARIAN ERA, and THE DEBT ERA.


The Agrarian Era, c. 4000 B.C. to 1840 A.D., was a period of agrarian reform in reverse. In the beginning land was plentiful and access was free or cheap for the growing population. General poverty was unknown. Justice, the proclaimed goal of the U.S. Constitution, and of modem agrarian reform, prevailed.


After some long-term fluctuations above the subsistence level, the general condition of labour reached a peak (about three and a half times better than the subsistence level for a family of five) during the Golden Age of labour in the late 15th century, never since equalled. Tragically, it was due to a severe labour shortage caused by the Black Death. After that, the few powerful landowners, who already had seized the most valuable half of English land following the Norman conquest, increasingly excluded the people from their common lands through a series of Great Train Robberies, euphemistically called "enclosures." During the next 100 years, the general condition of the people plummeted, in a cruel PAUPERIZING NEGATREND, to well below the subsistence level where it remained for the next 300 years. In the end, land was scarce for the growing population and access cost all but a bare living. Extreme poverty was common. Injustice, the target of agrarian reform, prevailed.


The Agrarian Era represented a general downtrend modified by four cycles averaging 250 years, ranging from 130 to 1,230 years. They were too long and irregular to be useful as a predictive tool in econocycology. As land monopolization had completed the pauperization of the people by the 19th century, and has kept them there, it may not be counted thereafter as a major fundamental causative factor of cyclic changes in the general welfare. Later changes could be but relatively small fluctuations about the subsistence level - of bad times and not-so-bad times. Compared with the Pauperization Period, these are more volatile microcycles best measured by sensitive tools, such as statistics, but caveat statisticus.


The Debt Era, 1700 to ????, began in England after the Bank of England had been established to monetize the National Debt; to finance the budget from future production; to provide financial services to industry and commerce; and covertly to enrich the landowners. It overlapped the last 140 years of the dying Agrarian Era, and coincided with the beginnings of the agricultural, industrial, chemical and electrical revolutions, generally grouped as the Industrial Revolution. In the U.S. it began in 1913 when the Federal Reserve Bank was established. These were the years in which Britain and America emerged from developing to developed status.


The Industrial Revolution and capital investment increased productivity at an exponential rate, but did not improve the general welfare of the people whose condition continued to fluctuate about the subsistence level. Their slice of the ever-growing pie remained the same. Manufacturers and merchants got nice big slices, which were their due rewards. But the bulk of the rapidly growing pie was shared by the holders of monopoly privileges (rentier rights) in land and other things, their portions depending upon their relative strengths in the market.


Taxation is not a primary factor. Distribution theory, observation and statistical evidence demonstrate that, despite the vast increase in taxation over the past 150 .years, the general economic condition of most of the people has remained at a level where they can barely get by from month to month, and only about 3% of the population reaching age 65 can support themselves without the aid of government handouts. Nothing but a concentration camp could drive it lower: nothing but a complete, unlikely reversal of the causative process - a de-monopolization of land and other rentier rights, or a shortage of labor, could send it much higher. Taxation contributes to short-term fluctuations of the cycles, only as major taxation changes are cyclical. In the long term, taxation is at the expense of rent, and may not be considered as a causative factor in econocycology.


The Debt Era mushroomed after the two World Wars, as the people demanded more of the good things of life which they could not afford to buy from their poor wages. The ease with which attractive interest rates enabled wealth to be transferred from private to public hands enticed governments to borrow and build up debt which many believe can never be repaid. (The writer is not one of them.)


Deferment of payment from current to future production increases demand for both finance and production, which translates into an expanding economy, higher interest rates and rent. Government borrowing reduces current taxation, which has the same effect as increased productivity, an advantage which is soon captured by increases in rent and land prices. (Henry George, Progress and Poverty, page 255 et al). Therefore, deficit spending and debt financing is equivalent to a continuously increasing subsidy to landowners.


As the expansion of the economy progresses, land prices, debt and interest rates, increase exponentially, driven by anticipation. When business no longer can meet these costs, slowdown, layoffs, unemployment, bankrupties and foreclosures appear. The boom usually collapses quickly, receding into a depression. Reduced business activity and employment reduce the ability to pay high rents, land prices, commodity prices and interest rates. They eventually sink to a level where business begins to pick up again - the recovery phase - which is usually slow to improve until the speculative fever returns. And so, the PRIMARY ECONOMIC CYCLE IS COMPLETE. It depicts fluctuations in land prices, debt, interest rates, and general prices, all of which have an inverse influence on the general welfare of the people.


The shape of the primary economic cycle is not sinusoidal as represented by other students, but is that of two "J"s back-to-back with a flatfish trough in between, as explained in the plenary paper. The average duration of the down leg of the T is relatively short - about a year; the average of the up leg is about four years; the intervening period varies from 0 to 5 years; the length of the cycle ranges between Sand 10years, averaging 9 years, close to that of Juglar's cycle. The general trend is a succession of higher highs and higher lows, in an ASCENDING WAVE of irregular fluctuations in land prices, or a suitable proxy, fluctuating generally above an ascending trend line of lows.


Resistance to change - a sort of hysteria of the mind: a synaptic short circuit due to deeply embedded conviction, greed or fear, which takes time to clear, is the force which shapes the business and economic cycles. In the financial field it takes about 18 months on average, although greed overcomes fear more slowly than fear overcomes greed. It is the latter which causes "panics." Usually six changes of direction, or fluctuations, are seen in the major nine year interest rate cycle. Some of these fluctuations are blips, which indicate phony recoveries and recessions. Of course, as in any population distribution curve, we would find that a few people change their minds more quickly, and a few more slowly than the average. Among these we find the big winners, and the big losers, respectively.


Psychological changes in mood are highly unpredictable, and the accompanying cycological changes are equally so. Regular, periodic cycles have never existed and it is unlikely that they every shall. Nevertheless, the general trend, short term changes in direction, and probable range of duration, may be a useful planning tool.



The main conclusions drawn from the plenary paper are: -

a. Cycles occur more or less randomly, about every five to 10 years, in an irregular, ascending "back-to-back J-wave," the trend-line of which indicates the portion of the national production privately expropriated by monopolists of land and other rentier rights: Regular, sinusoidal periodic cycles do not occur. The cycles offer no guarantees, but a good, discretionary guide for political activism and investment planning.

b. A primary economic cycle of fluctuations in total monopoly prices is the only one which most accurately, but inversely, indicates fluctuations in the general welfare of the people; land prices, debt, or interest rates may be used as an approximate, but ' nevertheless suitable proxy;

c. The enrichment of the few by privileged monopolization of land and other rentier rights to rob production and pauperize the people, represents a 2,000 year long reaction to government efforts to tax the unearned incomes of the monopolists. Since the beginning of the Debt Era, especially after World War I, these monopoly privileges have become institutionalized, more widely held, and more deeply entrenched. All attempts to impose similar taxes will meet with even greater opposition. Besides, a tax only on land values will make other monopoly rights more lucrative. Funds now invested in equity in land will flow to them, increasing their values, creating a greater shortage of investment funds for real capital investment, and driving up interest rates. A more balanced and politically possible way needs to be exploited;

d. Budget deficits in both government and private sectors increase land values. Balancing the budget will be equivalent to taxing land values; and it is politically possible;

e. The mis-named Capital Gains Tax is mostly a tax on gains from speculation in, and the disposition of monopoly rights in land and other things. It is the only tax which does that, and does not tax wages, real capital investment, and the profits of business. It is the single tax which taxes all monopolies, as Henry George suggested in Progress and Poverty, p. 410, and it is at hand. It already taxes the disposition of monopolies at 33%. A small increase would enable the budget to be balanced; an increase of aout 10% would enable all other taxes to be abolished.


The study of cycology is little more than intellectual bubble blowing unless we can learn from it the causes of changes in the general welfare; how to prevent or reduce their effects; how to relate to the current concerns of the people and the politicians; and how to build a powerful, well-funded movement to get the indicated reforms implemented by available politically possible means, preferably by amending current legislation.


Georgist activists could benefit greatly from using cyclic fluctuations in the general welfare of the people as a guide in customizing their agenda and fund investment plans. An outline agenda is suggested in the plenary paper.