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Javier E

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economic theory policy cycle kondratieff capitalism dynamism

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  • Kondratieff was a young Russian economist who died in prison in 1938. He developed an economic theory that purportedly explains both the dynamism and the destructiveness of the capitalist economic systems. The source of this explanatory power, he contended, was the existence of “long waves” or “long cycles” that bred both leaps of prosperity and spasms of instability.
  • Unlike normal business cycles, which lasted about a decade, Kondratieff’s long waves typically spanned 50 to 60 years. Initially, investment capital flows into new technologies. That’s the up cycle; the down cycle occurs when surplus production reduces prices and raises unemployment. Markets are saturated.
  • If you Google “Kondratieff cycles,” you get a concise history of the theory
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  • Long cycles don’t preclude shorter, more traditional business cycles. To the contrary, they may make these standard business cycles more likely. As Kondratieff wrote, “Our investigation demonstrates that during the rise of long waves, years of prosperity are more numerous, whereas years of depression predominate during the downswing.”
  • most of these markets move in tandem — usually rising when the long wave is going through its expansion phase and falling in its contractionary period.
  • It’s argued that we’ve passed through five “long waves” since the late 1700s. Here is a brief list, with my rough estimates of the year the cycle’s upswing reached its peak: (1) the invention of the steam engine and advances in textile manufacturing (1817); (2) railroads and steelmaking (1870); (3) electricity (1920); (4) automobiles and petrochemicals (1975); (5) information technology (now). The sixth wave may be health care
  • Similarities between Kondratieff’s different phases and the recent tumultuous behavior of the U.S. and global economies are hard to miss. Economists have struggled to explain low wages and interest rates, neither of which was widely predicted. Could they simply be the consequence of the downside of the most recent long wave?
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