THEORIES OF TRADE CYCLE
forward from time tu time. We shall say here a word about some well-known conchs, Climatic Theory It is said that there are cycles of climate. For some years the climate is favourable and then comes an unfavourable turn. Changes in climate bring about changes in agricultural production. Thus, there are bumper crops for some years followed by failure or crops. The cycle of agricultural production results m a cycle uf industrial activity, for industry is deeply affected by the state of agricultural production. One of the climatic theories is known Slimput. According to Stanley Jcvous, spot. appear on the face of the sun at regular intervals. These spots affect the emission (If heat from the Mill. which. in turn. conditions the degree of rainfall. The rain aftccts agriculture. which. in turn, affects trade and 11 Industry. That is how trade cycles arc caused. Modern economists do nut place much reliance UII climatic theories. Nobody can say with certainty about the nature of the sunspots and the degree to which they affect rain. There is no doubt that cluuate affects agricultural production.Bu the climatic theory L10cs not adequately explain periodicity of the trade cycle.
good and that it is going to remain good. Bus+ncss activity is intensified and becomes feverish. Then, all of a sudden. people start thinking that the Pernod of prosperity has lasted lung enough and adverse round the corner. Thus, although there was no value reason for depression to come about, but it is brought about by the people themselves. It is all psychological. Counts. The psychological theory lacks any sound basis, There is conjectural element in it. There is no doubt that industrial fluctuations ate affected by the waves of optimism and pessimism and are intensified by them. But they do not explain the course of the trade cycles or their periodicity aspect. consumption Theory According to -consumption theory, there I. too much of saving boom and further additions to saving reduce the level of consumption. A reduction level of sumptuous, in the face productive capacity. sooner or later lead collapse of the boom. This theory is associated .