Pat Gunning has raised the issue of the pre- and post-General Theory
nature of the business cycle and how we look at the cycle today. If I
could, I would make this small contribution. There is a quotation from
Gottfiried Haberler's Propserity and Depression which I have always
thought was amongst the more remarkable sentences I have read in seeing
just how different the world of economics is today from what it had once
been. Prosperity and Depression, as most on this site would know, was
published in 1937 by the League of Nations. The League had commissioned
Haberler in 1930, just as the Great Depression was getting under way, to
write an analysis of the causes of recession and unemployment with
recommendations on how they could be overcome. It really does sum up the
classical theory that was about to completely disappear with the
publication of the General Theory, but today it is more of a relic than
an active contributor to ongoing discussions of the nature of the ebb
and flow of economic activity. 

Part I is a "Systematic Analysis of the Theories of the Business Cycle"
which goes through all of the theories that were then extent and
discussed within the mainstream and the not so mainstream. Then in Part
II, he turns to a "Synthetic Exposition Relating to the Nature and
Causes of Business Cycles" in which he tries to draw it all together to
come up with a synthesis of all that had gone before. It is something of
a shame that he did not publish in 1935, as he might have, since there
would then have been a complete discussion of the pre-Keynesian theory
of the cycle unaffected by the arguments of the General Theory. Such was
not to be, but the book is still almost entirely a product outlining the
collective wisdom of the economics profession before everything would
change, almost overnight. But from today's perspective, the following
sentence, which leads off Part II, is I think worth dwelling on because
of what it says about the economics we teach and study:

     "There is complete unanimity among economists that the problem of
the recurrence of periods of economic depression and the cognate problem
of acute economic or financial crises cannot fruitfully be discussed in
isolation from the major problem of which they form part - viz., the
problem of the business or trade cycle; by which is meant, a wavelike
movement affecting the econmic system as a whole." (Haberler 1937: 161)

I find it astonishing that he can begin by stating that "there is
complete unamimity among economists" on this issue. One wonders whether
there is any comparable belief, never mind one so central as this, of
which one could today say that there is complete unanimity amongst
economists. But perhaps more important here is that the downturn is put
into the context of the preceding period of prosperity. We know during
every period of strong growth that there will be a downturn eventually
and during every period of recession we tend to believe that there will
be an eventual return to better times, even if only because we have a
misplaced faith in the economic theories we apply. The question however
is whether there is a theoretical relationship between periods of good
trade and bad, or whether they are just unrelated events that have no
connection with each other, other than being part of an historical
sequence where the causes of recession have nothing, or next to nothing
to do with the upturn that came before. 

Steven Kates