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Cycles The Science of Prediction

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  • Preface, Introduction, and Table of Contents
  • Chapter 1 Why Trends Are Important
  • Chapter 2 Patterns in Growth of Organisms
  • Chapter 3 The Growth Trend in Our Basic Industries
  • Chapter 4 Trends in Some Other Industries
  • Chapter 5 Some Rhythmic Cycles in Natural Phenomena
  • Chapter 6 The 54-Year Rhythm
  • Chapter 7 The 9-Year Rhythm
  • Chapter 8 The 3 1/2-Year Rhythm
  • Chapter 9 The 18-Year Rhythm
  • Chapter 10 Causes, Correlations, Conjectures
  • Chapter 11 Analysis and Synthesis
  • Chapter 12 Timing a Business
  • Chapter 13 Avoiding Some Economic Illusions
  • Chapter 14 War and Its Dislocations
  • Chapter 15 Postwar Trends
  • Chapter 16 Postwar Rhythms
  • Appendix I
  • Appendix II
  • Appendix III

  • Publisherís Preface

    "The Federal Reserve Act tends to conceal from the general public the fact that we print dollars to meet government deficits."

    Edward R. Dewey

    Edward R. Dewey Cycles: The Science of Prediction by Edward R. Dewey and Edwin F. Dakin is a much maligned but very important book. Dewey's projection of the 54 year price-production cycle in business activity and the 18 1/3 year Real Estate Cycle more than any other cycles predicts the state of our economy today. The 54 year price-production cycle has been called the "Kondratieff Cycle" and the "long wave" because its exact length is in dispute. Here I present evidence that the Real Estate Cycle is determined by the Marriage Cycle, which is in turn related to the Kondratieff Cycle by a sequence of 3 generations: Father, son and grandson. Until the recent extension of adolescence into the 3rd decade of college life (and beyond) generations have been about as long as the length of the Real Estate cycle (about 18 and 1/3 years). If you multiply the length of this cycle by 3 you get 55 years, about the length of the Kondratieff Cycle.

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    Cycles: The Science of Prediction by Edward R. Dewey and Edwin F. Dakin is a much maligned but very important book. Dewey's projection of the 54 year price-production cycle in business activity and the 18 1/3 year Real Estate Cycle more than any other cycles predicts the state of our economy today. The 54 year price-production cycle has been called the "Kondratieff Cycle" and the "long wave" because its exact length is in dispute. Here I present evidence that the Real Estate Cycle is determined by the Marriage Cycle, which is in turn related to the Kondratieff Cycle by a sequence of 3 generations: Father, son and grandson. Until the recent extension of adolescence into the 3rd decade of college life (and beyond) generations have been about as long as the length of the Real Estate cycle (about 18 and 1/3 years). If you multiply the length of this cycle by 3 you get 55 years, about the length of the Kondratieff Cycle.

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    Analysis: The Marriage / Housing Cycles and The Long Wave in Real Prices and Production

    The common belief that there is no long wave in prices is due to the unfortunate effect that Federal Reserve has on the apparent price of goods by its inflationary financing of federal deficits. Inflation is low now, as predicted by the long wave but in terms of the price of gold we are going through a deflationary period. The same amount of gold will by you much more today than it would have bought you 20 or 30 years ago.

    Evidence that the Kondratieff Economic Cycle is due to a 60 year Fluctuation in Human Population Growth

    The above chart shows US Census data. A moving average of relative growth has been inserted at putative breaks in the declining exponential growth curve. The percent increase over the previous census was averaged between the years 1800 and 1850, 1860 and 1910, 1920 and 1970, and finally between 1980 and 2000. There appears to be a consistent stepwise decline in the relative growth rate occurring at 60 year intervals. This may be due to people choosing to have smaller families as the result of the increasing urbanization of America.

    In an exponentially increasing population where people have 10 children per generation the population size increases by 900% each generation. When people have 5 children per generation the population increases by 400% each generation. When they have 2 children per generation the population increases by 100% each generation.

    The Chart below shows the census data fitted to 4 regression lines, approximately corresponding to 54 year long waves. Breaks in the fitted lines appear to be coincident with major wars and rising prices (the Civil War and World War I). The putative break in the year 1980 is coincident with the inflation of that era, with the Reagan military build up and the legalization of abortion.

    Dewey's insight into economic growth being analogous to the growth of a biological organism is born out by these observations. Human beings begin their growth as the result of 2 cells (spermatozoa and egg) coming together to form a single cell (the zygote). In a recapitulation of the crises which occurred during each stage of human evolution, a person becomes a solid ball of cells which becomes hollow, involutes, and then flattens out. The baby then elongates due to the limitations imposed upon the absorption of nutrients by the baby's decreasing surface to volume ratio. The baby develops a heart, first with only one chamber, then 2, then 3, and finally (after birth) 4 chambers. The heart supplies all of the baby's cells with the oxygen and nutrients they need to live and to continue to grow. The ultimate size of the person depends only upon the fractal pattern of innervation of the arteries which feed the growing and developing cells. Like a growing person, a human population undergoes periodic crises where re-organization must occur for growth to continue. Just as cells die during the remodeling of the organism to meet the demands of growing cellular populations, people die in the remodeling of society to meet the needs of a growing civil population. You might think of wars as desperate attempts at urban renewal, (as in 9/11).

    The Marriage and Housing Cycles

    This should sound familiar to you.

    "Building costs and rentals, incidentally, tend to stay up for periods well after building activity has started to decline. Strangely enough, in the face of a cycle that is so regular, so clear to the eye on any chart, and so often repeated that there can be no reasonable doubt of its reality, few businessmen refer to it in their operations, and neither does the home-buying public. Thus many of the foreclosures of the depression in the thirties were the aftermath of properties bought at top prices between 1925 and 1929. We shall perhaps see similar foreclosures in the fifties on realty bought at inflationary prices in the forties."

    Cycles The Science of Prediction

    Dewey's projection of the real estate market to the year 2010

    Stock market manipulators and Wall Street brokers hate this kind of thing. They want this knowledge all to themselves and everyone else treated like mushrooms.

    The main driving force of the real estate building cycle appears to be a cyclic activity in people getting married. An image expansion of the charts on building and real estate from Cycles: the Science of Prediction shows that both these cycles are preceded by an increase in marriages.

    But why should marriages be a cyclic phenomena? The decision to get married has to do with raising children. Children require homes to grow up in. That decision is influenced by the cost of housing, which is, in turn, dependent upon the supply of housing. It will be put off if the housing is too expensive. More and more couples will make that decision as the price of housing comes down, and more and more houses will be built to meet the rising demand.

    Synthesis: The 3 Generation Long Wave

    A couple of affine transformations of Dewey's marriage chart allows us to compare his marriage data with his data on wholesale prices. Cutting and pasting allows us to project the marriage cycle backwards and forwards in time. From this we can see that the bottoms of the long wave seem to coincide with every 3rd generation of grandpas dying out. Many fathers see their grandsons, some see their great-grandsons, but very few see their great-great-grandsons.

    Hopefully, this analysis and synthesis of just two of the cycles in Cycles: the Science of Prediction will convince the skeptics that there is much more to this book than is dreamt of in the philosophy of its critics.

    Ernest M. Trionfo