Page 70 - Encyclopedia Of World History Vol V

trade cycles 1847

Commerce is the cure for the most destructive
prejudices. • de Montesquieu (1689–1755)

contributed to the growth of democratic institutions and time. Since the breakdown in 1973 of the Bretton Woods
international stability. system of fixed exchange rates, these fluctuations in pros-
perity and international payments have been accompa-
Trade Cycles in the nied by fluctuations in exchange rates (with the adoption
Present and the Future of the euro, initially by eleven European countries in
Do business cycles still exist? Are periods of economic 1999, reducing the number of exchange rates and cur-
boom still followed by slumps? The Great Depression of rencies, and thus reducing the possibilities for variation).
the 1930s and the associated rise of Keynesian macro- Economists now use the terms trade cycles or business
economics led national governments in the leading indus- cycles to mean economic fluctuations, without any impli-
trialized countries to accept responsibility for stabilizing cation that the fluctuations are cycles of fixed duration.
the economy; they used monetary and fiscal policies to The fluctuating pattern of economic prosperity and
manage aggregate demand to try to smooth out fluctua- depression has had deep social effects throughout history,
tions in output and employment.The larger share of gov- and fluctuations continue to recur, as the result of shocks
ernment spending in the economy also acted as an such as the creation of the OPEC oil cartel, the invention
automatic stabilizer, since government spending would of a new technology, wars, or weather, or as the result of
be maintained when private consumption and investment waves of optimism and pessimism among investors.The
fell in a recession, while such structural reforms as deposit process of economic growth has not been, and likely will
insurance made the financial system less vulnerable to not be in the future, smooth and steady, but will consist
runs on banks by anxious depositors. Swift reaction by of fluctuations around a trend.
the U.S. Federal Reserve System prevented the abrupt
Robert W. Dimand
stock market slump of October 1987 from having the
wider consequences of the stock market crash of October See also Long Cycles
1929. Even with the OPEC oil price shocks of 1973 and
1979–1980, the world economy has clearly been more
Further Reading
stable since World War II than it was between the two
Ashton, T. S. (1959). Economic fluctuations in England, 1700–1800.
world wars. However, the economist Christina Romer
Oxford, UK: Clarendon Press.
has argued, controversially but influentially, that the Friedman, M., & Schwartz, A. J. (1963). A monetary history of the
apparent greater stability of the U.S. economy after United States, 1867–1960. Princeton, NJ: Princeton University Press
for National Bureau of Economic Research.
World War II than before World War I is nothing more Gayer, A. D., Rostow, W. W., & Schwartz, A. J. (1953). The growth and
than a statistical artifact, resulting from the ways in fluctuations of the British economy, 1790–1850. Oxford, UK: Claren-
don Press.
which retrospective national accounts data were created
Glasner, D. (Ed.). (1997). Business cycles and depressions: An encyclo-
for the pre-1914 United States. pedia. New York and London: Garland.
Since the 1980s, governments have been less influ- Hagemann, H. (Ed.). (2001). Business cycle theory: Selected texts, 1860–
1939. London: Pickering & Chatto.
enced by Keynesian arguments for government stabiliza- James, H. (2001). The end of globalization: Lessons from the great depres-
tion of output and employment to smooth out the sion. Cambridge, MA: Harvard University Press.
Kindleberger, C. P. (1989). Manias, panics, and crashes: A history of
business cycle. Instead, the emphasis has been on limit-
financial crises (rev. ed.). New York: Basic Books.
ing inflation and on public policies to promote long-run Kindleberger, C. P., & Laffargue, J.-P. (Eds.). (1982). Financial crises:The-
growth of productive capacity. Booms and recessions ory, history and policy. Cambridge, UK: Cambridge University Press.
O’Brien, D. P. (Ed.). (1997). The foundations of business cycle theory.
continue to succeed each other, transmitted internation- Cheltenham, UK: Edward Elgar.
ally through trade and investment flows in an increasingly Sherman, H. J. (1991). The business cycle: Growth and crisis under cap-
italism. Princeton, NJ: Princeton University Press.
integrated global economy, but with different countries
Solomou, S. (1987). Phases of economic growth, 1850–1973: Kondratieff
not always in the same phase of the cycle at the same waves and Kuznets swings. Cambridge,UK: Cambridge University Press.