What is the Benner cycle?

Technical analysis and economic history are full of authors and theories. Some authors have fallen into oblivion but their theories have endured. One of them is Samuel Benner. This farmer from Ohio in the United States wrote in 1884 a premonitory book, not only as to future economic observations, but especially as to the events he had foreseen.

“The science of price cycles is still in the cradle of infancy, but bides its time to reach full development of maturity, to unfold its principles, and declare its oracles to all mankind. »

Benner’s Prophecies (1884), Conclusion, Samuel Benner.

Samuel Benner’s Principle of Cycles

“Until history in detail repeats itself, the future cannot be judged by the past, and all human prospection in terms of cyclical motions is futile; and there is nothing surer and certain for men in the present date and age than taxes and death. »

Benner’s Prophecies (1884), page 43, Samuel Benner.

Samuel Benner was intrigued by the temporality of prices on the markets. In the 1870s, he was particularly interested in the prices of pig iron, pork and cotton for the United States. The particularity of Samuel Benner’s cycles lies in their structure. We are usually used to a regular cycle, say 10 years, which entails a succession of upward and downward phases of 5 years each.

Thus, the singularity of his subject lies in the pattern of repetition of cycles. For the price of cast iron, he identifies, for example, the regular succession of 3 cycles between the lowest: a first cycle of 9 years, a second of 7 years, then a third of 11 years. In total, this gives a grand cycle of 27 years (9 + 7 + 11), and then yet another grand cycle of 54 years (27 × 2). But we will come back to this in more detail. The existence of cycles of different durations is an extremely interesting approach.

Consequently, the duration of the phases of rise or fall varies irremediably. The respective duration of the increases for each of the 3 cycles is 2 years, 4 years, and 3 years. As a result, the phases of decline last respectively 5 years, 7 years, and 6 years. The structure of the increases is therefore 2-4-3 and that of the decreases 5-7-6. Finally, we observe a pattern of cycles between the lows of 7-11-9 years.

This principle, which we could call trinity of cyclesis very interesting and responds to scientific observations. So that each of the cycles cannot exist without its precedent or its successor, and that in the end a higher cycle rises above all as a rule more constant than its parts.

The cycle of financial panics

“The cycles in panics and in the ups and downs of the prices of agricultural and manufactured goods are only the effects of a cause; which manifests itself in periods of 16, 18 and 20 years for the panics; which return in the same order every 54 years, in periods of 8, 9 and 10 years in the price of iron; which return in the same order every 27 years, with 5 and 6 year declines in the price of corn and proc […]. »

Benner’s Prophecies (1884), page 111, Samuel Benner.

Moreover, Samuel Benner’s vision of cycles also applies to financial crises. For him, the panics respond in great cycles of 54 years. The repetition of the panics is done by a succession of cycles of 18 years, 20 years, and 16 years. That’s 18 years old on average.

Further, we project the cycle of Benner panics, we get the dates of the cycle. Therefore, the minor cycle reacts at an 8-7-8 periodicity from when the peak of the major cycle takes effect. Thus, we can conclude the following diagram. Nevertheless, if the reliability of this diagram seems reinforced in the recent period, it may lack coherence for the panics of the 20th century.

Moreover, one could thus envisage a calculation from the bubble of 2000 for example. Indeed, in the case of a projection going back to the past, we obtain in major dates: 1982, 1966, 1946, 1928, 1912, 1894… Thus, this indeed corresponds to most of the extremes of the market (Dow Jones ). But the application possibilities are varied. Furthermore, a sinusoidal application would be better suited.

The other cycles

Consequently, Benner’s cycles are applicable to a series of data as soon as they present regularities. It is indeed interesting to notice a long-term consistency. For example, the study of the price of pork in the United States reveals for Samuel Benner an 11-year cycle. Also, the latter would alternate with upward phases in 5-6 years, and downward phases in 6-5 years.

In any case, Samuel Benner’s approach was prescient regarding the 54-year cycle. The latter can be observed empirically on price, growth, rate and other data from 1800 to the present day. Although also subject to variability (hence a possible Benner pattern of variability), this cycle is indeed observed in global reality. Moreover, the Russian economist Nikolai Kondratiev had it his life’s work. Thus, almost a century after Samuel Benner, an economist named Brian Berry wrote the following words about the long cycle.

“Agree with it or not, our lives appear to be embedded in a higher order of complexity: collectively, we are a social organism that exhibits self-regulating fluctuations around a direction of growth, a dynamic equilibrium. Long cycles should be considered among these fluctuations, these processes by which innovations are introduced, diffused, saturated, surpassed, and finally completed. »

Long-Wave Rhythms in Economic Development and Political Behavior (1991), Brian Berry.

Predictions for the future

Finally, the great success of Samuel benner was to anticipate in a more or less obvious way the panic of 1890/1891. Sure enough, the banking crisis of 1891 caused the 17th largest stock market decline in the United States. This panic spread from London to the Barings bank and caused a heavy domino effect in certain countries such as Argentina. The next great panic in the American market took effect in 1907, 16 years after 1891. Moreover, this panic notably prompted the creation of the American central bank. In theory the next crisis was to occur around 1925, or 1927 in another case. But it will be necessary to wait until 1928/1929.

Although it is clear that the 54-year cycle still remains in effect today, the temporality of Benner’s cycle was not entirely relevant over the mid-twentieth century. Thus, 22 years separate the crisis of 1929 from the panic of 1907. Still later, 17 years separate the crisis of 1929 from the fall of 1946. And another 20 years separate 1946 from the major peak of 1966. Then 21 years separate the peak of 1966 with the panic of 1987. Moreover, another 21 years separate the panic of 1987 from the panic of 2008. There may therefore be variability in this race to panic. The latter seem to be spaced by 20 years on average over the 20th century rather than by the 18 years suggested by Samuel Benner.

Reliable for the future?

In this logic, two conclusions emerge.

• We can hope that a new panic will emerge 21 years after 2008. That is around 2029.
• Or, we can hope that a new panic emerges, as the 19th century temporality suggests, around 2035. An intermediate risk would be 2026.

In any case, this would amount to completely overhauling Samuel Benner’s approach to the temporality of cycles. Which is not our intention here. We will retain a detailed study of the complexity of these regularities later. In the event that the panics were to occur every 21 to 22 years, it should be noted that two cycles of 54 years are “sufficient” to link this temporality with that observed by Samuel Benner (2 × 54 = 108 = 21.6 × 5 or 6 × 18).

What market relevance?

We have studied in our previous publications the cyclicality of many markets. Thus, the cryptocurrency market showed, for example, a high cyclicality and a very low variability of its cycles. In such a case, the application of Samuel Benner’s method may seem less relevant. Indeed, we have notably drawn up the following table which summarizes the major cycles of bitcoin (BTC).

Note that an original cycle of 3.1 years has been offset by longer cycles of 4 years. At this point, it cannot be said whether this corresponds to a Benner diagram. Indeed, it could be that bitcoin (BTC) alternates between cycles of 3 years and then 4 years. As for its upward or downward phases, they generally last 1 year. The upswings would therefore be less cyclical and more complex.

Finally, the answer to Samuel Benner’s cycle mystery may be found in Elliott waves. The latter combine a set of price waves, which themselves form a larger one. The addition of cycle variability as actual data, and not just abnormal data, is of great relevance.

In conclusion

Ultimately, the cycles of Samuel Benner are both prescient in their historical coherence, and singular in the patterns they assume. Indeed, Samuel Benner is based on a logic of regularity with different cyclical periods, but which ultimately form a larger more regular cycle. In particular, he identifies a 54-year long-term cycle that heralds much economic work ahead of time. His method thus deserves to be widely disseminated and reinvented thanks to the dynamics it raises.

In fact, the cycles of Samuel Benner respond to a principle of “trinity”, that is to say that the cycles have different periods and regularly follow one another. Samuel Benner’s observation also amounts to writing that a shorter cycle is usually followed by a longer cycle, so that on average the regularity is absolute. This responds exactly to the observations made by the British economist Joseph Kitchin in 1923 (read more).

Receive a digest of news in the world of cryptocurrencies by subscribing to our new service of newsletter daily and weekly so you don’t miss any of the essential Cointribune!