A Re-examination of the Sunspot-Weather – Theory of Business Cycles Daniel Kuester and Charles R. Britton

ABSTRACT economy?” This question is addressed by the authors of this paper. The economic activity in arid/semiarid areas of the western United States would INTRODUCTION seem to be much more influenced by weather than humid/semi humid areas The National Bureau of Economic since they are located marginally closer Research has a specific definition of to major drought conditions at any business cycles. moment in time. This paper reexamines the original “sunspot” theory of business “Business cycles are a type of cycles of William Stanley Jevons, the fluctuation found in the economic contributions of his son H. S. Jevons, activity of nations that organize their and the further extensions made by H.L. work mainly in business enterprises: A Moore. These individuals sought a cycle consists of expansions occurring of causal link between meteorological about the same time in many economic conditions and economic activity activities, followed by similarly general through agricultural production. The recessions, contractions, and revivals authors of this paper present an analysis which merge into the expansion phase of of the development of these theories. the next cycle; this sequence of changes is recurrent but not periodic…” (Lee, KEY WORDS: Business Cycles, 1971) Sunspot-Weather, W.S. Jevons From this definition comes a major PRELUDE salient factor. Business cycles are fluctuations in the overall aggregate The recent drought conditions in the economy yet there are still cycles of U.S. along with a weakening economy particular industries within that have resparked an interest in the impact aggregate. of weather upon the economy. Whereas the drought seems almost pervasive This paper concerns itself with the throughout the United States its effects particular industries represented by are more pronounced in the arid/semi- agricultural production and more arid west where smaller deviations from specifically the influence of periodic normal rainfall compound into larger solar activities upon the agricultural impacts upon the arid region in general. industries. Of particular interest will be The inventory of water stocks is already the development of the “theory” behind low at a time when rainfall replacements the causal relationship between solar are inadequate. (Henderson and Novack activity and overall economic activity. 2003) This type of situation leads to the ques tio n: “W ha t is the re latio ns hip Whereas there are numerous theories as between weather and the overall to the causes of the business cycles (monetary overinvestment, non- monetary overinvestment, under The relationship between agriculture and consumption, psychological, overall business activity has been technological change, population analyzed in depth in economic literature. change, institutional change, natural Much of the analysis deals with the resources, and even war) the authors of lo ng-run or secular activity. This the paper are concerned with the so- concept can be traced to Walter Bagehot called “Nature” theory. These types of who states that cheap corn prices helped theories hypothesize a causal the total economy. (Bagehot, 1887) “The relationship between meteorological effect of this cheapness is great in every conditions and overall business activity department of industry. The working with the connecting link being changes classes, having cheaper food, need to in agricultural output and income. H. L. spend so much less on that food, and Moore’s causal relationship runs have more to spend on other things. In between the behavior of the planet consequence, there is a gentle Venus to rainfall cycles to agricultural augmentation of demand through almost output to agricultural supportive all departments of trade.” industries to overall business activities. (Moore, 1923) Simply put this means that decreasing food prices bring about a decreased A more widely accepted theory (yet still income in the agricultural sector. But being investigated) concerns the works the purchasing power of the industrial of William Stanley Jevons (Jevons, sector increases since it takes less to feed 1909) and his son H. Stanley Jevons urban workers. Obviously, once the (Jevons, 1910). The elder Jevons and general economy becomes more then his son H. S. believed that cyclical industrial relative to agriculture then the behavior of solar activity cause changes overall economy will expand. The in agricultural output and therefore relationship between efficiency gains in general economic activity. This has agriculture and therefore falling food been named the “sunspot” theory. prices relative to industry is a well Although sometimes regarded as recognized phenomenon. Economic bordering on the bizarre it is not too growth results. Business activity farfetched. Non-irrigated agrarian increases in direct relationship with the societies obviously would suffer ratio of manufactured commodities to pronounced effects upon agricultural agricultural commodities (Graue, 1930 production (and therefore incomes) from p. 475). This is a long-run relationship climatic alterations. It follows that however. Expanding agriculture leads to relative large variations in agricultural falling prices and consolidation of farms. production would lead to variations in Falling farm prices allow for a growing supporting industries (forward linkages) industrial sector. The industrial sector and then impacts upon industrial output absorbs the surplus labor released from which use raw materials from agriculture the agricultural sector (Lewis, 1963). (backward linkages) and eventually The total economy expands according to overall economic activity. the general economic growth theory.

AGRICULTURAL OUTPUT AND The short-run relationship is different INDUSTRY ACTIVITY from the long-run growth model. Cycles in agricultural prices and therefore Lack of precipitation impacts greatly agricultural incomes are directly related upon fishing and skiing economies. to industrial and overall economic What the authors wish to do in this paper output. Lower agricultural incomes is examine the weather related “sunspot” mean lower purchasing of industrial theory of the business cycle as goods and lower overall economic developed by the Jevons. activities. The declining importance of agriculture in the general economy means the business cycle is much less THE SUNSPOT THEOR Y agriculturally related but it is still a relationship worthy of study. William Stanley Jevons summarized his thoughts on the effects of weather on “REAL” CAUSES OF CYCLES economic activity in three chapters of his book Investigations in Currency and “Real” causes of a business cycle Finance (Jevons, 1910). An in-depth include variations in weather which is examination of these essays reveals what is at issue in this paper. First, some very interesting conclusions. In agricultural output traditionally has a the first essay entitled “The Solar Period one year production period (excluding and the Price of Corn” (1875) he fir st multiple crop situations). The question investigates the striking similarity is whether there is a rhythmatic or between the length of many historical cyclical aspect to agricultural output business cycles and the length of the over the short-run (versus the long-run average length of the sunspot cycle secular trend). Furthermore, is there a (which is approximately eleven years). cycle to farm output caused by cyclical changes in weather (both temperature Jevons finds that the prices of most and rainfall)? Lastly, are these agricultural products vary dramatically meteorological cycles caused by changes over an eleven year cycle. He cites in other real variables such as English agricultural price data from the “sunspots”? It is to this subject that years 1259-1400. The prices of wheat, William Stanley Jevons directed his barley, oats, beans, peas, and rye reach a attentions which were then continued by relative minimum in the second year of his son H. Stanley Jevons. The the cycle, an absolute maximum in the development of these “sunspot” or fourth year of the cycle and an absolute weather theories of business cycles is minimum in the tenth year of the cycle particularly relevant to arid lands. Non- before recovering in the final year of the irrigated arid and semi-arid lands always cycle and the first year of the new cycle. operate closer to disaster than There does appear to be a rather obvious humid/semi-humid lands. Small and consistent trend in prices over these variations in temperature and rainfall eleven year periods. Jevons finds that have exaggerated effects upon weather the data (English wheat prices re lated industries when that industry from1595-1761) available to him in the operates at marginal levels. It was Wealth of Nations (Smith, 1776) pointed out to the authors that there are confirm similar although less marked non-agricultural industries which are trends in agricultural prices. greatly also affected in arid regions. Jevons does not discount other more meaningful in studying the significant factors that might cause the relationship between weather patterns rather predictable nature of these and economic activity in arid and semi- business cycles. Technological arid lands. advancements, wars, and other factors independent of agricultural and weather One piece of empirical evidence which cycles can and do exhibit great influence W.S. Jevons believed would strengthen over the economic well being of a his sunspot business cycle theory nation. Also consumer confidence or a actually has weakened this theory lack thereof could cause significant somewhat in retrospect. “…there is variations in spending and employment. more or less evidence that trade reached However, Jevons believes that these a maximum of activity in or about the consumer attitudes may also be related years 1701, 1711, 1721, 1732, 1742, to the sunspot theory and the 1753, 1763, 1772, 1783, 1793, 1805, corresponding droughts and bumper 1815, 1825, 1837, 1847, 1857, 1866. crops which may result. “If, then the These years marked by the bursting of a English money market is naturally fitted commercial panic or not, are as nearly as to swing or roll in periods of ten or I can judge, corresponding years, and the eleven years, comparatively slight intervals, vary only form nine to twelve variations in the goodness of harvests years. There being in all an interval of repeated at like intervals would suffice one hundred and sixty five years, broken to produce those alterations of into sixteen periods, the average length depression, activity, excitement and of the period is about 10.3 years.” collapse which undoubtedly recur in (Jevons, 1909b, p. 214-5). Jevons points well-marked succession.” (Jevons, out that it is reasonable for the business 1909a p.204) Jevons believed that if it cycles to vary somewhat in duration as it were possible to accurately predict the is reasonable to expect that there will be sunspot cycle and the corresponding different lags between droughts and bumper crops and droughts then it would economic downturns based on also be possible to predict impending inventories available and on the economic crises. variations in trade patterns and ability to obtain imports quickly. In the second essay “The Periodicity of Commercial Crisis and Its Physical Potentially the most troubling conclusion Explanation” (1878) with “Postscript” that Jevons reached was that a sunspot (1882) W. S. Jevons continues his study. cycle and the corresponding changes in In this essay he attempts to find agricultural yield and national e mp ir ica l evidence to support his claim productivity would follow a predictable that business cycles follow predictable pattern of approximately 10.3 years. patterns which can be tied to the length Most astronomers now believe that the of the sunspot cycles. Jevons claims that sunspot cycle does indeed last the relationship between weather approximately 11.11 years which is patterns and business activity display a somewhat troubling and is something stronger relationship in primarily that Jevons’ son attempts to address. agrarian societies such as India and This potential difference in sunspot Africa. This claim makes this subject duration is a primary reason this subject has not been studied as much as might our strength and our weakness, our be expected. However the findings of success and our failure, our elation in Garcia-Mata and Shaffner provide some commercial mania, and our despondency credence to Jevons’ theory (see attached and ruin in commercial collapse.” figures). “Summing up, we can say that (Jevons, 1909d, p. 235). Jevons also from a statistical point of view there finds more empirical evidence that corn appears to be a clear correlation between prices in Delhi reach maximum and the major cycles of non-agricultural minimum in a similar eleven year pattern business activity in the United States and which has been exhibited in Europe. the solar cycle of 11+ years.” (Garcia- Once more this theory seems much more Mata and Shaffner, 1934, p. 26). These applicably to arid and semi-arid regions authors a lso c la im that it is reaso nab le such as India. that there could be some variation in the duration between sunspot cycles and that William Stanley Jevons’ son H. Stanley there is evidence that these cycles do Jevons continued his work on sunspots correspond with business activity. and published “C hanges at the S un’s Heat as the Cause of Fluctuations of the The third essay on sunspots and the Activity of Trade and of business cycle was entitled “Commercial Unemployment” in Contemporary Crisis and Sun-Spots Part I” (1878) and Review in 1909. He reissued it in a “Part II” (1879) completed W. S. Jevons monograph entitled The S un’s Heat and thoughts on the relationship of weather Trade Activity (Jevons, 1910) in which and business activity. In this essay he he further examined and elaborated on continues to discuss the existence of a the subject. H. S. Jevons believed that solar cycle of 10.45 years as being his father had some excellent ideas in wholly consistent with his findings and relating the sunspot theory to the length being a better predictor of economic of business cycles although he does variables than the now widely used acknowledge some of the criticisms duration of 11.11 years. Despite this which have been leveled at the work potentially unfortunate conclusion W.S. Jevons did. He states that the sun’s Jevons elaborates on the potential activity has some effect on economic relationship between solar and weather outcomes and while it is not the only cycles and economic activity. variable which should be considered when formulating economic policy it is Jevons concludes that solar patterns worth considering when formulating should be studied to determine if a economic policy. causal relationship does indeed exist between solar patterns and economic H.S. Jevons acknowledges that his father activity. If so, then policies should be was in error when he claimed that he enacted to reduce the magnitude of the solar cycle would only last contraction/recession parts of the approximately 10.45 years. He claims business cycle. Jevons further elaborates that W.S. Jevons attempted to on the importance of the solar cycle on oversimplify his findings and he ignored consumer confidence and spending. some events which created economic “From that sun which is truly ‘of this booms and busts which had nothing to great world both eye and soul’ we derive do with arid land’s agricultural productivity. This is what led him to the implications for expansionary monetary false 10.45 year business cycle predictor. policies being enacted. This is However he found that wheat production particularly useful if there are actual in the United States displayed significant psychological ties between solar activity variation during the nineteenth century and consumer’s attitudes which sounds and reached its peak approximately far fetched but may occur. Jevons also every 11.11 years. He found a direct recommends less domestic reliance on relationship between solar activity and crops would reduce the variation in wheat production in the United States. economic prosperity. While crop production is still important in many arid H. S. Jevons believes that the eleven and semi-arid lands, this is not as year sunspot cycle is actually a meaningful to the economy as it was combination of three shorter sunspot when Jevons wrote. cycles which were just over three years in duration. There would be a period of SUMMARY AND CONCLUSIONS drought approximately every 3.5 years and a period of cold damp weather There are significant criticisms of the approximately every 3.5 years. This sunspot theory which has been the cause great harvest would precipitate a trade of this theory being largely ignored by boom according to Jevons. He finds mainstream economists. The first data that suggest the production of pig criticism has been mentioned that iron and agricultural produce in the Jevons’ claim that these cycles occur United States were closely related and every 10.45 years may not be consistent followed the sunspot cycle closely. He with astronomical data. This appears to also states that on occasion the business be accurate as H.S. Jevons admits, cycle will only correspond with two of however we have seen repeated periods these shorter sunspot cycles explaining of expansion and recession in the United the variation in business cycles between States economy approximately every ten seven and eleven years. This can or eleven years even since much of this explain the error that W.S. Jevons did literature was written in the 1930’s. This not understand about the variation in the evidence may not be so easy to dismiss. length of business cycles. There are also some criticisms that there H.S. Jevons provides several suggestions is very little if any lag time between the as to how this information about solar actual sunspot activity and actual trade activity can be useful. He believes that patterns. We are not certain that this is a if output and therefore trade can be valid criticism. Clearly because of the expected to decline in the near future importance of trade and the that there should be wage cuts to attempt interdependence of the world’s to ensure full employment. This economies we expect to see some lag suggestion is not reasonable today but if between sunspot activity and economic we are going to engage in activity. However, the fact that this interventionary fiscal and monetary activity has had a tendency to follow a policy the potential to predict shortfalls predictable eleven year pattern implies in productivity and potentially consumer that the nature of the cycle may have confidence can have meaningful more to do with agricultural productivity and therefore economic growth than we Explanation”, Economica. Vol. 4:13, pp might imagine. Also it is not absurd to 55-82. consider the psychological relationship between something we have little Fulmer, J. 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