Saturday, February 18, 2017

Sunspots and the Price of Corn and Wheat | William Stanley Jevons

William Stanley Jevons (1835–1882)
William Stanley Jevons (1835–1882) was a British economist and philosopher who foreshadowed several developments of the 20th century. He is one of the main contributors to the ‘marginal revolution’, which revolutionized economic theory and shifted classical to neoclassical economics. He was the first economist to construct index numbers, and he had a tremendous influence on the development of empirical methods and the use of statistics and econometrics in the social sciences. Jevons also analyzed business cycles, proposing that crises in the economy might not be random events, but might be based on discernible prior causes. To clarify the concept, he presented a statistical study relating business cycles with sunspots.

Daniel Kuester & Charles R. Britton (2000) - William Stanley Jevons summarized his thoughts on the effects of weather on economic activity in three chapters of his book Investigations in Currency and Finance (1909). An in-depth examination of these essays reveals some very interesting conclusions. In the first essay entitled “The Solar Period and the Price of Corn” (1875) he first investigates the striking similarity between the length of many historical business cycles and the length of the average length of the sunspot cycle. Jevons finds that the prices of most agricultural products vary dramatically over an eleven year cycle. He cites English agricultural price data from the years 1259-1400. The prices of wheat, barley, oats, beans, peas, and rye reach a relative minimum in the second year of the cycle, an absolute maximum in the fourth year of the cycle and an absolute minimum in the tenth year of the cycle before recovering in the final year of the cycle and the first year of the new cycle. There does appear to be a rather obvious and consistent trend in prices over these eleven year periods. Jevons discovers that the data (English wheat prices from 1595-1761) available to him in the Adam Smith’s The Wealth of Nations (1776) confirm similar although less marked trends in agricultural prices.

Jevons does not discount other significant factors that might cause the rather predictable nature of these business cycles. Technological advancements, wars, and other factors independent of agricultural and weather cycles can and do exhibit great influence over the economic well being of a nation. Also consumer confidence or a lack thereof could cause significant variations in spending and employment. However, Jevons believes that these consumer attitudes may also be related to the sunspot theory and the corresponding droughts and bumper crops which may result. “If, then the English money market is naturally fitted to swing or roll in periods of ten or eleven years, comparatively slight variations in the goodness of harvests repeated at like intervals would suffice to produce those alterations of depression, activity, excitement and collapse which undoubtedly recur in well- marked succession.” Jevons believes that if it were possible to accurately predict the sunspot cycle and the corresponding bumper crops and droughts then it would also be possible to predict impending economic crises.

In the second essay “The Periodicity of Commercial Crisis and Its Physical Explanation” (1878) with “Postscript” (1882) W.S. Jevons continues his study. In this essay he attempts to find empirical evidence to support his claim that business cycles follow predictable patterns which can be tied to the length of the sunspot cycles. Jevons claims that the relationship between weather patterns and business activity display a stronger relationship in primarily agrarian societies such as India and Africa. This claim makes this subject more meaningful in studying the relationship between weather patterns and economic activity in arid and semi- arid lands.

One piece of empirical evidence which W.S. Jevons believed would strengthen his sunspot business cycle theory actually has weakened this theory somewhat in retrospect. “There is more or less evidence that trade reached a maximum of activity in or about the years 1701, 1711, 1721, 1732, 1742, 1753, 1763, 1772, 1783, 1793, 1805, 1815, 1825, 1837, 1847, 1857, 1866. These years marked by the bursting of a commercial panic or not, are as nearly as I can judge, corresponding years, and the intervals, vary only form nine to twelve years. There being in all an interval of one hundred and sixty five years, broken into sixteen periods, the average length of the period is about 10.3 years.” Jevons points out that it is reasonable for the business cycles to vary somewhat in duration as it is reasonable to expect that there will be different lags between droughts and economic downturns based on inventories available and on the variations in trade patterns and ability to obtain imports quickly.

Potentially the most troubling conclusion that Jevons reached was that a sunspot cycle and the corresponding changes in agricultural yield and national productivity would follow a predictable pattern of approximately 10.3 years. Most astronomers now believe that the sunspot cycle does indeed last approximately 11.11 years which is somewhat troubling and is something that Jevons’ son attempts to address. This potential difference in sunspot duration is a primary reason this subject has not been studied as much as might be expected. However the findings of García-Mata and Shaffner provide some credence to Jevons’ theory. “Summing up, we can say that from a statistical point of view there appears to be a clear correlation between the major cycles of non-agricultural business activity in the United States and the solar cycle of 11+ years.” These authors also claim that it is reasonable that there could be some variation in the duration between sunspot cycles and that there is evidence that these cycles do correspond with business activity.

Christopher Scheiner's 1626 representation of the changes in sunspots over time (1630, recordings
from 1611). Scheiner, a Jesuit astronomer, eventually published the definitive work of the 17th
century on sunspots, in which he accepted Galileo’s argument that sunspots "move like ships" on
the surface of the Sun. Scheiner and Galileo agreed that sunspots counted against the Aristotelian
doctrine of celestial incorruptibility. Earlier Jesuits had been open on this point. Clavius argued
for the corruptibility of the heavens after the nova of 1572. Scheiner here publicized the fact that
the Jesuit theologian Robert Bellarmine had argued for the igneous nature of the stars and the
corruptibility of the heavens even before 1572 on the basis of biblical exegesis and the tradition
of the Church Fathers. Cardinal Orsini paid for the printing of this lavish work (Rosa Ursina - The
Rose of Orsini
, 1630).

The third essay on sunspots and the business cycle was entitled “Commercial Crisis and Sun-Spots Part I” (1878) and “Part II” (1879) completed W. S. Jevons thoughts on the relationship of weather and business activity. In this essay he continues to discuss the existence of a solar cycle of 10.45 years as being wholly consistent with his findings and being a better predictor of economic variables than the now widely used duration of 11.11 years. Despite this potentially unfortunate conclusion Jevons elaborates on the potential relationship between solar and weather cycles and economic activity. He concludes that solar patterns should be studied to determine if a causal relationship does indeed exist between solar patterns and economic activity. If so, then policies should be enacted to reduce the magnitude of the contraction/recession parts of the business cycle. Jevons further elaborates on the importance of the solar cycle on consumer confidence and spending. “From that sun which is truly ‘of this great world both eye and soul’ we derive our strength and our weakness, our success and our failure, our elation in commercial mania, and our despondency and ruin in commercial collapse.” Jevons also finds more empirical evidence that corn prices in Delhi reach maximum and minimum in a similar eleven year pattern which has been exhibited in Europe. Once more this theory seems much more applicably to arid and semi-arid regions such as India.

Sunspot illustration from Scheiner's Rosa Ursina, 1630.
William Stanley Jevons’ son H. Stanley Jevons continued his work on sunspots and published “Changes at the Sun’s Heat as the Cause of Fluctuations of the Activity of Trade and of Unemployment” in Contemporary Review in 1909. He reissued it in a monograph entitled The Sun’s Heat and Trade Activity (1910) in which he further examined and elaborated on the subject. H. S. Jevons believed that his father had some excellent ideas in relating the sunspot theory to the length of business cycles although he does acknowledge some of the criticisms which have been leveled at the work W.S. Jevons did. He states that the sun’s activity has some effect on economic outcomes and while it is not the only variable which should be considered when formulating economic policy it is worth considering when formulating economic policy.

H.S. Jevons acknowledges that his father was in error when he claimed that he solar cycle would only last approximately 10.45 years. He claims that W.S. Jevons attempted to oversimplify his findings and he ignored some events which created economic booms and busts which had nothing to do with arid land’s agricultural productivity. This is what led him to the false 10.45 year business cycle predictor. However he found that wheat production in the United States displayed significant variation during the nineteenth century and reached its peak approximately every 11.11 years. He found a direct relationship between solar activity and wheat production in the United States. H.S. Jevons believes that the eleven year sunspot cycle is actually a combination of three shorter sunspot cycles which were just over three years in duration. There would be a period of drought approximately every 3.5 years and a period of cold damp weather approximately every 3.5 years. This great harvest would precipitate a trade boom according to Jevons. He finds data that suggest the production of pig iron and agricultural produce in the United States were closely related and followed the sunspot cycle closely. He also states that on occasion the business cycle will only correspond with two of these shorter sunspot cycles explaining the variation in business cycles between seven and eleven years. This can explain the error that W.S. Jevons did not understand about the variation in the length of business cycles. H.S. Jevons provides several suggestions as to how this information about solar activity can be useful. He believes that if output and therefore trade can be expected to decline in the near future that there should be wage cuts to attempt to ensure full employment. This suggestion is not reasonable today but if we are going to engage in interventionary fiscal and monetary policy the potential to predict shortfalls in productivity and potentially consumer confidence can have meaningful implications for expansionary monetary policies being enacted. This is particularly useful if there are actual psychological ties between solar activity and consumer’s attitudes which sounds far fetched but may occur. Jevons also recommends less domestic reliance on crops would reduce the variation in economic prosperity. While crop production is still important in many arid and semi-arid lands, this is not as meaningful to the economy as it was when Jevons wrote.