Are John M. Clark Business Cycles Insights Still Relevant Today?

Abstract

The object of this study is to compare numerical results for a thought experiment of the economics of business cycles with illustrated demand and cost curves. This is a pure theoretical model inspired by the writings of John M. Clark (1884-1963). This study models a hypothetical cement industry, product Q. The plant assets are assumed durable, to last for 50 years, and specific to manufacturing only one product, Q The model, with its rigid assumptions, shows that industry composed of only modern low fixed-cost Plants\(_K\) will increase the amplitude of the business cycle, the range of industry outputs between peak and off-peak, versus an industry composed of only old high fixed-cost Plants\(_L\). The model shows a positive aspect of fixed costs: that one can expect that industry with high fixed costs to have reduced amplitude of the business cycle. Some may find this a surprising result.