Below we are featuring three articles relating to Edward Dewey, a pioneer in cycle theory. Dewey’s findings came about as the result of his appointment by President Hoover as the chief economist with the US Department of Commerce as he was charged with finding out what had caused the market crash that began in 1929. His findings were published in several books, mostnotably Cycles: The Science of Prediction, and the Mysterious Forces that Trigger Events.
The first article here is a brief summation from the Cycles Research Institute and highlights some of the empirical laws of cycles proposed by Dewey.
The second article below is a book review of Cycles: The Science of Predictiondone by Time Magazine in 1947. I found it surprising that they gave credence over sixty years ago to the notion that economic cycles and industrial production were governed by natural cycles controlled by mysterious agencies, as they claimed that long ago. It introduces Dewey’s claim that there are four basic cycles that govern economic activity with the 54 year Kondratieff cycle being the longest.
The third one is also from the Cycles Research Institute and is written by Dewey himself in 1951. Although simplistic in its approach, it provides an introduction to cycles and more support for the four basic cycles promulgated in his books.
I believe it is essential for us to understand about all cycles of economic activity to better grasp the how the long wave Kondratieff cycle fits in to the model, and Dewey’s material adds to the picture. Since the material offered here is only an Overview, please read either of the books mentioned above to get the full picture.
Dewey and Cycles
Edward R Dewey (1895-1978)
In 1931 Edward R Dewey was appointed chief economics analyst for the U.S. Department of Commerce with the special task of finding out what had caused the market crash two years before. When he asked other economists what they thought the cause was he got as many different answers as there were economists, and found the most honest answer was “we don’t know”.
He was always a cautious man in reaching conclusions but found that there were cycles in many economic variables and that sometimes multiple cycles came together to cause especially large dips.
Dewey formed and became the President of the Foundation for the Study of Cycles (FSC) in 1942, an organisation which studied cycles in anything for which sufficient time span of reliable data could be found. Over the years he traced the varying cycles in stock market prices, the economy, wildlife abundance, prices of wheat, corn and cotton, precipitation, in wars, tree rings and fashion designs, and many, many more. Cycles were found with periods ranging from months to hundreds of years and several thousand cycles were recorded.
Dewey used simple techniques such as moving averages to highlight the cyclical aspect of any time series, and listened carefully to mathematicians and scientists so that he only presented conclusions that could be considered reliable ones. Most of the analysis was done by hand, computers only becoming accessible in his final years.
These cycles studies were published in Cycles magazine and in a book Cycles, The Mysterious Forces that Trigger Events (Hawthorn Books, Inc., New York, 1971) written together with Og Mandino. Later the best articles from Cycles magazine were collected together with a catalogue of cycles and this book and sold by FSC as the Classic Cycles Collection.
Some of the fundamental empirical laws of cycles found by Dewey over the years are:
- Common cycle periods appear in many seemingly unrelated disciplines.
- Cycles Synchrony is the observation that cycles of the same period often have the same phase.
- Cycles harmonic ratios is the observation that the common cycle periods are often related by ratios of 2, 3 and their products.
- Cycles outside the earth are related to cycles on earth. This was a conclusion that he came to reluctantly because it sounds like astrology.
Although the FSC continued after Dewey’s death it became more narrowly focussed on market cycles in the mid 1990s and went defunct in about 1996. The formation of the Cycles Research Institute in 2004 aimed to keep alive the work of Dewey and other interdisciplinary cycles researchers for future generations, in the spirit of this great pioneer.
Around in Cycles
Industrial production is shown to be closely correlated with the rate of change of sunspot activity. This is an area which has often been criticized, but the graph is interesting. It would be interesting to have an update on this old graph to see what has happened since.
Back in 1934 two budding economists wondered, as others had before them, if sunspots affected agricultural production and thus food prices. When they studied sunspots they found that their wax & wane apparently bore no relation to the rise or fall of agricultural production. But they were amazed to find that sunspot activity coincided with the rise & fall of industrial production and of stockmarket prices.
Such startling coincidences—or, as some firmly believe, “causes”—have given rise to a new quasi-economic science which smacks of witchcraft, astrology and old-fashioned predestination. Biologists, astronomers, chemists, et al. had already found that much of the growth and movement in their fields seemed to be governed by natural cycles controlled by mysterious agencies. Could the same be true of business and industry? Did economic man have no more control over his fate than the lemmings?
The answer is a qualified yes, as given in Cycles, the Science of Prediction (Holt; $3), the latest and most understandable book on the cycle theory. Its authors are balding, professorial Edward R. Dewey, 51, executive director of the Foundation for the Study of Cycles* and economic consultant to such companies as Air Reduction Co., Inc.—who supplied the data; and Edwin F. Dakin, biographer (Mrs. Eddy) and public-relations man for planemakers, steelmakers and shipbuilders—who put it into readable, layman language.
In doing so, Dakin so simplified the complex theory of cycles that some hard-headed businessmen and conservative economists may dismiss the whole thing as moonshine. Nevertheless, Dewey, who insists that the theory is based on objective facts, was an accurate enough prophet to predict, in 1943, what many experts are now saying, that the boom would reach its peak in 1947. And Shelf Union Oil Corp., welcoming even a beam of moonshine in the murky field of economics, has recommended the book for its executives.
The Rhythm’s the Thing. In the cycle theory, the basic elements are trends and cycles. Trends are the long-term rates of growth, while cycles are the shorter up-&-down deviations which take place during the growth. Dewey & Dakin hold, along with Alvin H. Hansen and other “mature school” economists, that the end of the U.S. economy is leveling off, that it has matured. Consequently, the downswings of the cycles may become deeper because there is less & less new growth to counteract them.
Out of the scores of cycles in the economy (each industry has its own), Dewey & Dakin have decided that four cycles, or rhythms, are basic. The four are: the 54-year, the 18⅓-year, the 9-year and the 41-month rhythm.
The important fact about cycles, say Dewey & Dakin, is that world wars, depressions and other economic cataclysms do not seem to change the rhythms. They may distort them, i.e., a cycle may go higher or lower, but its basic length is not changed.
For example, Dewey & Dakin contend that the building cycle reached its peak in late 1942. Because the cycle is now on the downgrade, the expected boom will probably not develop. In the last month, builders have jittered over the same thing. But they blame it on high prices. Dewey & Dakin say it was in the cards all along.
Edward R Dewey (1895-1978) formed the Foundation for the Study of Cycles in 1940.
This is a selection of a small part of his work and that of others that he collected.
The works of Dewey are available from the Foundation for the Study of Cycles in the form of the “Cycles Classic Library Collection” which in its four volumes contains the wisdom of 40 years cycle research.
Now a new organization, the Cycles research Institute, has begun to continue the work of Dewey and the Foundation for the Study of Cycles.
What are Cycles?
by Edward R Dewey, 1951
Cycles are the simplest thing in the world, at least in principle. Let me give you an example.
Suppose you are visiting my house and, looking out of the window, notice a bus pass by at 10:00 a.m. Half an hour later at 10:30 you notice another bus pass. At 11:00 you see another one, ” Ah ha! ” you say. “Buses here run every thirty minutes.” You have discovered a cycle all by your little lonesome, without benefit of slide rule or gobbledygook. Cycles are just as simple as that.
Well, first of all, you have a basis for predicting the probabilities of the future. If we go in to lunch and come out of the dining room at 1:05 you will know that you probably missed the 1:00 o’clock bus and that, if the cycle is continuing, your next bus will pass in 25 minutes. So you-chat for about 20 minutes and leave at 1:25 so as to have to stand in the wind and the rain the least amount of time.
Of course the schedule may have changed, or the bus have been delayed by an accident. You can’t count for sure on a bus at 1:30. You are merely playing probabilities.
Regularity Gives Predictability
Where you have regularity you have predictability-at least to the extent that the regularity governs, and is not present by chance.
Now let’s do some more supposing.
You are overlooking a street near the center of a small town. Every ten minutes or so 10 or 15 people come along, more or less in a bunch. Another cycle! Again you can predict (with qualifications). More than this, with this regular result appearing before you, you have a right to assume a cause – if the time intervals have been regular enough and have repeated enough times so that the behavior cannot reasonably be the result of chance.
You don’t know the cause but there is no law against guessing. So you guess that, there is a bus station around the corner and that every ten minutes a bus comes in and discharges its passengers. If you then find out that there is a bus station, and that a bus does come in every ten minutes, your guess is bolstered. It is bolstered still more if you find that the buses arrive just about the time your bunches of people have been coming. But you still don’t know that your people are coming from the buses. You would have to go out on the street and go around the corner to find out for sure.
You continue to watch and count the people. You see other patterns. Every other ten-minute group of people is bigger. Perhaps there is a second bus with a twenty-minute schedule that reinforces the crowd from the first bus.
This is really the whole story about cycles.
You can predict that part of the traffic that comes in regularly recurring bunches. You can not predict by your 10- or 20-minute cycles the crowd of people that will come along when the feature of the local movie house is over. Your predictions are only partial. But they are good as far as they go if the cycles keep on coming true, and if you have timed them right. Moreover, by finding something else (in the example given, a bus schedule) with regularly recurring cycles of the same length you get a clue as to possible cause and effect and relationship – But to make sure, you need to run your clue down. Where you have partial regularity you have partial predictability. For example, suppose you have a chart recording your heart beats over the period of a minute. Now look at the first half of it only. If you count 30 beats in the 30 seconds You have under examination you will not be far wrong if you forecast another beat at 31 seconds, another at 32 seconds, etc.
Perhaps, if your heart speeded up a little, you would be quite wrong if you made your projection ten beats ahead, but by making your forecast only a beat at a time and revising your forecast each beat, you could probably make your prediction come out fairly well.
Another example of partial predictability: Suppose you knew that February 1st is, in New York City, on the average, the coldest day of the year. Suppose, on the basis of this information, you forecast February 1, 1952 as the coldest day of next winter. It is almost certainly true that February 1st will be colder than August 1st, but in any given year it may not be the very coldest day by as much as one or two months. The cycle of the year influences the weather but it does not completely dominate it. From a knowledge of the cycle of the year alone you could forecast the coldest day only with wide tolerances, yet the cycle of the year is very real.
Almost everything fluctuates with rhythm – that is, in more or less regular cycles. Putting it another way, almost everything acts as if it were influenced by regularly alternating up and down forces which first speed it up and then slow it down.
Random Ups and Downs Too
Everybody would know this fact were it not for two things: First, in addition to the cycles there are accidental (random) fluctuations in things, too. These randoms hide the regularities so that at first glance you do not see them. Second, things act as if they were influenced simultaneously by several different rhythmic forces, the composite effect of which is not regular at all.
If we had several moons, the ups and. downs of the tides would be very irregular. All the other moons would mix things up. It might have taken us much longer to find out about the tides.
Separating Cycles Easy
If you have a long enough series of figures with which to work it is not too hard to separate the different regular cycles from each other. When this has been done, you can project each regular cycle into the future – Then you can easily find out the combined or composite future effect of all the various cycles. When you have done this you have a preview of what is going to happen (a) if the cycles continue, and (b) except as the cycles may be upset or distorted by accidental random non-cyclic events.
“Why wouldn’t the cycles continue?” you may ask.
I’ll give you one reason: The cycles may have been present in the figures you have been studying merely by chance. The ups and downs you have noticed which come at more or less regular time intervals may have just happened to come that way. The regularity – the cycle – is there all right, but in such circumstances it has no significance. If you are zealous enough you can find regularity in almost anything, including random numbers where you know that the regularity has no significance and know it will not continue.
Many Repetitions Needed
How can you tell in any given instance whether or not the regularity you see is the result of a real underlying cyclic force which will continue to fluctuate regularly in the future?
The answer is, if the cycle has repeated enough times with enough regularity and with enough dominance, the chances are that it is the result of real cyclic forces.
Let me give you an example: Pick up a pack of playing cards and start to deal. The first card is red, the second is black, the third is red, the fourth is black. You have two waves of a regular cycle, red, black; red, black. But this sequence could easily come about by chance. You continue to deal: red, black; red, black. Four times in a row now, this regular alternation. It could still be chance, but it couldn’t be chance very often. Continue to deal. Red , black;,red, black; red, black. Seven times now! It could still be chance, but it is less and less likely. It begins to look as if somebody had stacked the cards. You go through the entire deck.
Twenty-six times! “Somebody certainly stacked the deck,” you say.”It couldn’t happen this way by chance once in a million.”
Less and Less Likelihood of Chance
Exactly the same sort of reasoning applies to the cycles you see in the ups and downs of the stock market, or the sales of your own company, or the weather, or anything else in which you may be interested. The more the cycle has dominated, the more regular it is, and the more times it has repeated, the more likely it is to be the result of a real cyclic force that will continue. If it has not dominated enough, or has not been regular enough, you must have more repetitions to get equal assurance.
Well then, supposing that there are these rhythmic cycles in something. Suppose further that you have some knowledge of cycles. So what?
By using nothing more complicated than simple arithmetic you can find the cycles. By seeing how many times each cycle has repeated in the past you can have a pretty fair idea of its significance (i.e. whether or not it will continue). And by projecting all the significant cycles into the future you can get some light on what is ahead insofar as the cycles govern.
Cycle Forecast Like a Weather Forecast
In weather we are used to forecasts in terms of probabilities. “The probability for the Pittsburgh area is for snow.” When you hear such a forecast on the radio you don’t rush out to put on your chains. The weather man may be wrong. You wait for the snow to fall. Then you put on your chains. But the forecast warns you that snow is likely, and on the strength of this fact you do make sure that you have your chains with you. If you are to make use of cycles in your business or your stock market forecasting you are going to have to use the same approach. Moreover, just as you refrain from shooting the weather man when he is wrong, I hope you will refrain from shooting the cycle analyst too.
Cycles are not the whole answer, but on the other hand they are indispensable in attempting to arrive at the whole answer.
Cycles remind me of women. Women are not perfect (with individual exceptions, I hasten to add). But they are the best thing so far invented for the purpose. Until something better comes along we will have to make shift with them as they are – or else miss the values they have to offer.
Let’s find out all we can about them!
Cycles Show Us Our Ignorance
The second reason that the study of cycles is important arises from the fact that wherever you have rhythmic variation – or for that matter pattern of any sort – you probably have a cause. For example, if you scatter iron filings on my desk you would expect them to be distributed at random over its surface. If, to the contrary, you find them arranging themselves into a pattern, you have a right to assume that some unknown force is present – perhaps a powerful magnet in my top drawer.
Similarly, if you find pattern, or more specifically rhythm (reasonably regular cycles), in the alternate thickness and thinness of tree rings or rock strata, or in the abundance of insects, or in the prices of common stocks, you may be sure that there is a cause for such behavior. Also you may be sure that if you do not know that cause you do not fully understand the behavior with which you have to deal. Thus the study of cycles reveals to us our ignorance, and is therefore very disturbing to people whose ideas are crystallized. “If there are regularly recurring ups and downs in business or in prices, all I have ever learned is wrong” an eminent economist once told me; and he added, in a moment of unusual candor, “I simply cannot afford to accept such an idea. All my life’s work would be ruined.” Many doctors in the days of Pasteur must have felt much the same way about germs.
Identical Cycles Suggest Interrelationship
The study of cycles has a third value. Such study can indicate possible cause-and-effect relationships, thus helping to solve the very problems it reveals.
For example, when I was a boy I noticed that the moon came up at about an hour later each night. When I visited the seashore I noticed also that the tide came in half an hour or so later each twelve hours. I did not have the wit to go on from there to note that two consecutive tides were delayed by exactly the same amount of time as was the moon, and therefore that there was perhaps some connection between the two. I did not have the wit to make this observation, I say, but one of the older astronomers did. In doing so he demonstrated the third value of a knowledge of cycles: Where the rhythms in two different phenomena have the same average time span, you are justified in suspecting a possible direct or indirect interrelationship between the phenomena.
For these three reasons many scientists are interested in the study of cycles.
First, it is the business of science to predict; second, it is the business of science to solve mysteries and to learn the “how” of things; and third, the true scientist welcomes any tool that gives him hints as to possible cause and effect relationships. Perhaps 3,000 scientists, the world over, have concerned themselves with the subject, and have written scientific papers embodying the results of their observations.
Scientists however, like all the rest of us, are pretty self centered. Thus the mammalogist interested in cycles in animal abundance is usually not much interested in geological cycles, or in astronomical cycles, or in business cycles. He is primarily, and usually exclusively, a mammalogist. Likewise the men in each of perhaps thirty different aspects of natural and social science are likewise specialists, each involved in his own little field.
However, the techniques of cycle analysis are the same whether one is studying biological data or financial data. And – much more important – it is only by studying cycles in all sorts of phenomena, and finding which phenomena have cycles of identical average time span, that we are likely to get hints of cause and effect relationships.
A New Science
These two facts cry aloud for the creation of a new science – the science of cycles – which is concerned with rhythmic fluctuation per se, which will develop techniques of cycle analysis, which will isolate cycles in all the 30 or 40 different branches of science where cycles are important, and which, having assembled enough facts, will perhaps someday venture to advance some theories in regard to cause and effect.
he Foundation for the Study of Cycles was created, in 1940, to found such a new science, and to develop it to the point where it could serve mankind. In the eleven years which have elapsed since its creation, the Foundation has made slow but steady progress.
It should be clear from the above remarks that the Foundation is purely an educational and scientific body and in no sense a commercial organization. It exists, not to make money but to serve mankind.
An eminent group of scientists and administrators have lent their names to the Committee of the Foundation. Various scientific societies have appointed advisors to help with its awards, and many individual scientists have joined the Foundation as scientific members. On its part, the Foundation has tried to maintain the high scientific standards of the many universities and institutions here and abroad which are, through their professors, connected with it, and I think we have pretty well succeeded.
Cycles Can Help You, Too
The research of the Foundation is of immediate practical value to the average citizen, too. By uncovering cycles in production and trade it throws light on the probabilities of booms and depressions. By uncovering cycles in international conflict it throws light on the probabilities of war. By uncovering cycles in the prices of commodities and of securities it throws light on the probabilities of panics and of other financial disturbances.
The results of the Foundation’s research are made available to the general public by means of reports, bound together and issued 12 times a year in – the form of a magazine called Cycles – A Monthly Report.
The following graphs come from Dewey’s articles in Cycles magazine and later published in the above mentioned collection. Because they are historical data they do not include the recent past. Please excuse the quality of the reproduction. Note also that for most of the graphs Dewey removed the trend of the series by subtracting a moving average from the data with a length approximately equal to the cycle period. The dotted lines show an “ideal” regular cycle of the stated length.
Canadian Lynx abundance has varied by a very wide factor on a 9.6 year cycle. This is very clear cycle with over 230 years data and is considered to be one of the clearest cycles known.
The 9.6 year cycle has been found in the populations of insects, fish and mammals. It is also present in the propensity for humans to have heart attacks. This seems entirely weird until the last member of the group is added, the variation in ozone. Is this a hint at the connection?
The following two graphs are presented as percentage variations from a trend.
Real estate activity is another clear cycle, this time of about 18 years.
Wholesale prices in different continents show not only the same 9 year period, but also are in phase. This tendency for equal periods, even for unrelated series, to have synchronized phases is called “Cycles Synchrony” by Dewey.
The 11 year Sunspot Cycle is one of the better known cycles.