Business Cycles – Sun Spot Theory of Business Cycles

Sun Spot Theory

Sun Spot Theory of Business Cycles was developed in 1875 by Stanley Jevons. This is one of the oldest theory of business cycles.

Sun Spots are storms on the surface of the sun caused by the explosions happening there. Jevones argued that sun spots affects weather on earth and since economies in old time were heavily dependent on agriculture, so changes in climate conditions caused by sun spots created fluctuations in agriculture output. Changes in agriculture output through its demand and supply relation affects industry.

This way changes in agriculture causes change in the whole economy.

Other earlier economists also focused on changes in weather conditions.

According to them – Weather Cycles causes fluctuations in agriculture output which in turn causes fluctuations in the whole economy.

Even today weather is considered important in countries which are primarily depends on agriculture or are in developing phase.

Lack of sufficient rain or monsoon reduces  agriculture output which causes reduction in income of the farmers and other persons who depends on agriculture in one way or another, reduction in agricultural output (which is mainly food) also causes to rise in prices of food, so peoples have to spent more income or money to buy same quantity of food as before, which results in less amount of money to spent on industrial products, which in turn results in lower demand for the industrial goods, which leads to lower production, and this pushes the economy into recession.

Critical Appraisal –

Through the theories of business cycles which gives importance to climate conditions for business contain an element of truth about fluctuations in economic activity, specially in the developing countries where agriculture still remains important, but they do not provides an adequate explanation of the business cycles.

Nobody can say with certainty about the nature of these sun spots and degree to which they affect rain. There is no doubt that climate affects agricultural production. But climate theory does not adequately explains periodicity of the trade cycles.

If there was truth in the climate theories, the trade cycles should only occur in agricultural countries and should disappear when the country becomes completely industrialized. But this in not the case. Highly industrialized countries are much more subject to business cycles than agricultural countries. So changes in climate do not provide complete explanation of business cycles.

Key Points of the Theory

Oldest Theory

Developed in 1875

Developed by Stanley Jevons

Based on Sun Spots

Based on Climate or Weather Changes

Affects directly agricultural activities

Affects industrial output indirectly

Causes reduction in agricultural output, which causes reduction in industrial demand and supply

Causes increase in food prices and decrease in demand for industrial products