Business cycles are difficult to anticipate accurately, in part because of the number of variables involved in large economic systems. Nonetheless, the importance of tracking and understanding business cycles has lead to a great deal of study of the subject and knowledge about the subject. Business cycle peaks and troughs cannot be identified immediately when they occur for two reasons. First, recessions and expansions are, by definition, recurring periods of either decline or growth. Business cycles are also affected by seasons of the year, holidays and other recurring events. Bathing suits and sunscreen, for example, sell well in spring and summer, poorly in fall and winter.
Business cycle theories are legion and they come and go. But the only explanation that has stood the test of time was first advanced in 1912, in Ludwig von Mises’s masterwork, The Theory of Money and Credit . Business cycles date from at least colonial times. The data for the colonial period are limited; thus, it is more difficult to date cycles precisely.
Government control of the money supply through central banks disturbs this equilibrium such that the interest rate no longer reflects the real supply of and demand for investment capital. Austrian School economists conclude that, if the interest rate is artificially low, then the demand for loans will be higher than the actual supply of willing lenders, and if the interest rate is artificially high, the opposite situation will occur. Government figures show consumer spending on computers rising at its slowest rate since 1992, while unfilled orders for information-technology equipment are shrinking for the first time since 1994. O’Brien, economist for Hewlett-Packard Co.: ”We think we’re in the late stages of a business cycle, and we’re exhibiting the lower growth rates you’d expect,” because of lower capital spending.