From Cosmic Rhythms to Market Waves
Nature is a constant cycle. The sun rises and sets, the seasons change, the tides ebb and flow. Ancient Eastern philosophy explained these natural rhythms through the concepts of the "Dao" and "Yin-Yang." Yin and Yang oppose yet harmonize, transforming into one another to generate all change in the universe. When night reaches its deepest point, dawn begins. After the heat of summer comes the coolness of autumn. When Yin reaches its extreme, Yang begins. This universal principle is not limited to nature alone—human history, society, and economy all move within this cosmic order.
The economy is no exception. The ebb and flow of economic growth and recession, boom and bust, mirror the cyclical dynamics of Yin and Yang. For centuries, economists, thinkers, and investors have tried to grasp the rules behind this repetitive pattern. From this pursuit, business cycle theories were born, and over time they have grown more refined and complex.
The first to explicitly describe the cyclical nature of the economy was the 19th-century French economist Joseph Clément Juglar. Through empirical data, he discovered that the economy tends to alternate between expansion and contraction in cycles of approximately 7 to 10 years. This so-called "mid-term wave theory" was later refined by the research of Burns and Mitchell, who helped establish the classical business cycle structure of expansion-peak-contraction-trough.
However, there were broader trends that mid-term cycles could not explain. In the 1920s, Russian economist Nikolai Kondratieff proposed a long-term economic wave that recurs approximately every 50 to 60 years. He believed that these waves were driven by waves of technological innovation and changes in modes of production. Joseph Schumpeter later expanded on this idea and introduced the concept of "creative destruction," emphasizing the cyclical process of innovation, collapse, and renewal within capitalism. Capitalism, he argued, is a system that evolves by destroying and reinventing itself.
In the 1950s, Simon Kuznets added a new dimension to business cycle theory by explaining medium- to long-term waves caused by social structural factors such as demographic change, urbanization, and infrastructure investment. Population changes influence consumption patterns and investment demand, thereby reshaping the overall economic landscape.
From there, economic theory expanded beyond structural analysis into the realm of psychology and perception. In the 1930s, Ralph Nelson Elliott proposed the Elliott Wave Principle, which posits that market prices move in a recurring pattern of five upward waves followed by three corrective waves. He believed that market behavior was not merely a result of numbers and data but stemmed from the emotional and psychological patterns of human behavior. These waves exhibit a fractal structure and repeat and expand over time.
While Elliott focused on the psychological patterns of market participants, George Soros took it a step further. Through his theory of Reflexivity, he argued that markets do not simply reflect reality but actively shape and distort it. The feedback loop of investor expectation → action → price movement → reinforced expectation explains the self-sustaining internal logic of the market. According to Soros, markets move not in perfect rationality but in cycles of error, illusion, excess, and collapse.
More recently, Ray Dalio, founder of Bridgewater Associates, has attempted to integrate structural and psychological theories into a unified perspective. He sees the essence of capitalism as a repetitive cycle of credit creation and deleveraging. Dalio explains both short-term (about 8 to 10 years) and long-term (up to 100 years) debt cycles. His approach considers multiple interconnected forces—technology, demographics, policy, and psychology—and represents a modern attempt to understand business cycles as a comprehensive systemic phenomenon.
At the root of all these theories lies the principle of Yin and Yang. Growth and decline, greed and fear, innovation and collapse—all follow the cosmic rhythm of "geuk-jeuk-ban (極卽反)," the idea that when one force reaches its extreme, the opposite begins. Technological innovation and demographic shifts create the large waves of long-term cycles, while investor psychology causes the shorter-term fluctuations. All of these waves ripple through the rhythm of our daily lives, and more broadly, through the natural and cosmic order.
Today, we stand somewhere near the crest of this complex wave. While we may not predict its rhythm perfectly, we can understand and prepare for it through wisdom drawn from history, philosophy, economics, and psychology. The market, like life itself, is composed of cycles and waves. What matters is learning to recognize their nature and to maintain balance as we navigate through them.