Kondratiev Cycles

= also called "long waves" or "long cycles". See also, more generally: Social Cycles, and for even longer cyces, the Hegemonic Cycle

Contextual Quote

< the K-wave pattern is discernible back to the tenth century and the economic breakthrough of Sung Dynasty China > 

[1]

1.

"The move away from periodicity to cycle time means defining the long wave asa unique, historically defined set of alternating phases. The level of analysis is thus world history. History is a unique process."

- Joshua Goldstein [2]

2.

"The following questions are of central importance in the long wave debate:

1) Can long waves be identified in a variety of economic time series?

(2) In which time periods, countries, and types of economic variables can long waves be found?

(3) Is there a connection between the ups and downs of wars and the phases of the long wave?

(4) From the above, what relationships among various economic and political elements can be adduced and what causal theories of the long wave do these relationships suggest?"

- Joshua Goldstein [3]

Description

1. Cryppix:

"In the middle of 1920. N. Kondratiev noticed certain recurring patterns in the changes in the economic situation of developed countries, which he called Large cycles, as opposed to small (Kitschin cycles) and medium (Juglar cycles) economic cycles, which were studied before. N. Kondratiev came to the conclusion that Large cycles consist of two waves (or phases of development): the upward one, where the economy is growing rapidly, and the downward one, where short-term phases of growth are accompanied by long periods of crises and stagnation.

The nature of these cycles N. Kondratiev could not determine until the end, since by the time of his research only two complete large cycles had passed, but he noted certain regular features of them and was able to predict on this basis the further development of the world economic situation up to the Great Depression.

Further research in this direction by many scientists and especially the work of the eminent American economist J. Schumpeter, the German scientist G. Mensch, the Russian economist S. Menshikov made it possible to formulate a general theory of large K-cycles, the main role in which the latest technologies and innovations play.

A major contribution to the study of the nature of K-сycles was made by academician S. Glazyev, who developed the theory of technological structures (TS), recognized as a scientific discovery. In 1993, in his monograph “Theory of Long-Term Techno-Economic Development”, he showed that innovations and new technologies do not develop uniformly and evolutionarily, but by discrete beams or clusters of integral complexes of technologically coupled industries, which he called technological structures (TS).

The 1 TS, in which textile machines appeared in order to complete the Industrial revolution, demanded the formation of the 2 TS: a steam engine and the transition from natural energy resources (water and wind) to coal, since the necessary labour force was concentrated in cities, and the production based on water and wind was being created in rural areas. In addition, the steam engine was more efficient than wind and water. The industrial revolution was formed by the 3 TS, which ensured the production of steel, electricity and chemical production, and the 4 TS, which gave the internal combustion engine, conveyor production and the transition to oil as the main energy resource.

At present, the world passes from the 5-th TS (which began in 1970–1980 on the basis of microprocessor technology, personal computers, the Internet, mobile communications, etc.) to the 6-th TS, which will complete the victory of the Information and Communication Revolution.

On the downward wave of the K-cycle, when the growth potential of the previous TS is completely exhausted, a cluster of basic technologies of the new TS begins to form. The formation of a cluster of basic technologies is accompanied by the development of improving and complementary innovations that contribute to the transition from the downward to the upward wave of the K-cycle, which leads to a strong growth of the world economy, which lasts, as a rule, a quarter of a century.

It is the formation and introduction of a new TS into production that leads to rapid growth of the economy on the upward wave of the K-cycle, and the exhaustion of the growth potential of the TS leads to a slowdown in the economy on the downward wave and a state that G. Mensh called “technological stalemate”, when the introduction of new technologies is actually suspended, and real innovations leading to the use of new more effective technologies are replaced by pseudo-innovations.

At the turn of XX — XXI centuries G. Arrighi, based on research by the French historian F. Braudel and principles of the world-system analysis, developed the theory of Systemic Cycles of Capital Accumulation (SCCA). F. Braudel drew attention to the fact that the centers of capital accumulation are constantly changing their geographical “registration”. In the middle Ages they were in the North of Italy, in the XVII century they moved to Holland, from the beginning of the XIX century — in Britain, and in the 20th century to the USA. These studies F. Braudel served as an impetus for the development of the theory of SCCA by G. Arrighi.

Since the main thing for capitalism is the infinite accumulation of capital, it is precisely the qualitatively special cycles of this accumulation that, according to G. Arrighi, have become milestones in the development of this system. In his monograph “The Long XX century” G. Arrighi identified four SCCA: Genoese-Iberian (XV — early XVII century), Dutch (mid XVII — late XVIII century), British (early XIX century — early XX century) and American (from the beginning of the 20th century). In his last work, “Adam Smith in Beijing”, G. Arrighi predicted the completion of the American SCCA and the coming of the Asian SCCA to replace it."

(https://medium.com/@cryppix/mission-possible-7fe2129214fa)

2. From the Wikipedia:

"Kondratiev waves (also called supercycles, great surges, long waves, K-waves or the long economic cycle) are hypothesized cycle-like phenomena in the modern world economy.[10] It is stated that the period of a wave ranges from forty to sixty years, the cycles consist of alternating intervals of high sectoral growth and intervals of relatively slow growth.

Such theories are dismissed** by most economists on the basis of econometric analysis which has found that recessions are essentially random events, and the probability of a recession does not show any kind of pattern across time.[ Despite frequent use of the term business cycles to refer to changes in an economy around its trend line, the phrase is considered a misnomer. It is widely agreed that fluctuations in economic activity do not exhibit any kind of predictable repetition over time, and the appearance of cycles is a result of pareidolia."

(https://en.wikipedia.org/wiki/Social_cycle_theory)

( ** For empirical data in favour of the existence of cycles see: * Article: A Spectral Analysis of World GDP Dynamics: Kondratieff Waves, Kuznets Swings, Juglar and Kitchin Cycles in Global Economic Development, and the 2008–2009 Economic Crisis 2010. By Korotayev, Andrey V ;Tsirel, Sergey V. Structure and DynamicsVolume 4, Issue 1 doi [4] )

3. Investopedia:

" Kondratiev Wave is a long-term economic cycle in commodity prices and other prices, believed to result from technological innovation, that produces a long period of prosperity alternating with economic decline. This theory was founded by Nikolai D. Kondratiev (also spelled "Kondratieff"), an agricultural economist who noticed agricultural commodity and copper prices experienced long-term cycles. Kondratiev believed that these cycles involved periods of evolution and self-correction." (https://www.investopedia.com/terms/k/kondratiev.asp)

Characteristics

1. From the Wikipedia:

"Characteristics of the cycle

Kondratiev identified three phases in the cycle, namely expansion, stagnation and recession. More common today is the division into four periods with a turning point (collapse) between expansion and stagnation."

(https://en.wikipedia.org/wiki/Kondratiev_wave)

2. Joshua Goldstein:

A.

"Long waves (or Kondratieff cycles) are defined by alternating economic phases an expansion phase(for which I will often use the more convenient term upswing) and a stagnation phase (which I will often call the downswing). These economic phase periods are not uniform in length or quality. The transition point from an expansion phase to a stagnation phase is called a peak, and that from stagnation to expansion is a trough. The long wave, which repeats roughly every fifty years, is synchronous across national borders, indicating that the alternating phases area systemic-level phenomenon."

(http://www.joshuagoldstein.com/jgcyc01.pdf)

B.

"There are seven basic variables of interest:

1. Prices: Are there synchronous long price waves in the core countries? How early can they be found, and in what countries? These questions interest almost all long wave scholars since prices are the most readily available economic data and since all schools posit long waves of prices.

2. Production: Are there alternating phases of fast and slow growth in core countries' production? In what countries and time periods can they be found? These questions are central to the capitalist crisis school as well as to certain liberal critics who see long waves as "only price waves."

3. Innovation and Invention: Are waves or clusters of innovations synchronous with long waves? Are they directly or inversely correlated with economic growth phases? These questions are central to the innovation school.

4. Capital Investment: Do spurts of capital investment correlate with the early upswing of the long wave? The correlation of investment levels with long waves is of particular concern to the capital investment school.

5. Trade: Do levels of exports or other indicators of international trade follow the long wave phases? Trade concerns some members of the capitalist crisis school who see capitalism as production for a world market.

6. Real Wages and Working-Class Behavior: Do real wages fluctuate with the long wave? Do strikes and other worker protests follow long wave phases? These questions concern the capitalist crisis school.

7. War: Do major wars tend to occur at one point in the long wave? Does the timing of major wars correlate with long wave phases?

These seven variables encompass the essential variables of interest to all schools."

(http://www.joshuagoldstein.com/jgcyc04.pdf)

C.

"To summarize, the theoretical model contains ... eight variables. There are six basic two-way causality relationships, which I have portrayed as negative feedback loops with time delays. The primary relationship is between production and war. Of secondary importance are three feedback relationships involving production (innovation, investment, and real wages) and two involving war (social memory and national capabilities). As noted earlier, these encompass most major causal theories of the long wave, which are seen not as competing explanations but as pieces of a larger dynamic. A further set of possible relationships, less well articulated and of lesser importance, were sketched into the long wave model. These include the effects of war on innovation and on investment and the effects of production and innovation on the distribution of capabilities."

(http://www.joshuagoldstein.com/jgcyc12.pdf)

Typology

An 'idealized' description of the long wave, by Joshua Goldstein, in chapter 12 of his book, starting p. 258, and based on the illustration 12.1, "Sequence and Timing of Idealized Long Wave", on page 259.

Joshua Goldstein:

"The sequence of an idealized long wave within cycle time, based on the lagged correlations emerging from chapters 9—11, is depicted in figure 12.1. Starting on the left-hand side, there is a peak in production at about-10 to-15 years in cycle time the growth of production turns downward. Within a few years capital investment also turns downward, and within ten years the growth of innovation is stimulated, turning upward. Soon after this, about ten years into the production downswing, the severity of great power war peaks and turns downward. A few years later prices follow and turn downward, and this triggers an upturn in real wages. A decade follows in which the growth of production, war, and prices are all stagnant but innovation grows briskly. Then production growth turns upward, investment follows, innovation is dampened, and, about ten years into the production upswing, war severity turns upward. Prices turn upward following war, and as prices rise, real wages stagnate. This brings on a decade in which production, war, and prices are all growing steadily while innovation stagnates and real wages are held down (money going into war and investment instead)."

(http://www.joshuagoldstein.com/jgcyc12.pdf)

Status

• <There is consensus among scholars of long waves that long economic cycles (whether called waves, stages, phases, or cycles) of about fifty years' length do exist as a historical fact at the world level (despite disputes about why they exist). On this point the long wave schools all agree and all differ from the dominant view in the social sciences that long waves do not exist.> [5]

• "There is no standardization of K-wave periodicity as yet. Authors put forward approximations that sometimes overlap and sometimes do not."

- William R. Thompson [6]

1.

"The Russian economist Nikolay Kondratieff left after him a mystery that has been haunting economists and social scientists for almost a hundred years. Joseph Schumpeter named this mystery ‘Kondratieff Cycles’. Why do we observe such regularity in long-term fluctuations of economic and non-economic indicators? Why in certain periods do we observe prolonged upswings, whereas in other periods – notwithstanding all the enormous efforts of interested macroeconomic actors – economic development is accompanied by prolonged depressions? What gets out of order in social and economic mechanisms? Since the publication of Kondratieff's seminal works a number of outstanding researchers have made significant contributions to our understanding of various factors affecting and provoking long-term fluctuations of human economic affairs. On the other hand, it has become more and more clear that K-waves influence many social-related processes. However, nobody appears to have found yet an entirely satisfactory solution of ‘Kondratieff's mystery’, and it continues to attract researchers. It is especially important to solve this mystery, as this could extend our forecasting horizons. In any case, whatever the future destiny of Kondratieff's mystery will be, its immense importance resides in the fact that it stimulates scientific studies of numerous researchers."

(https://www.sociostudies.org/almanac/articles/introduction_kondratieffs_mystery/)

2. Joshua Goldstein:

"The long wave debate is currently structured by the interplay of three research schools, each based on a different theory of the central causes of long waves (chapter 3). Each of these three theories reflects a different world view in its conception of social change. The capitalist crisis theory of Mandel and Trotsky is most revolutionary (transformation of order) in seeing long waves as recurrent restructurings of capitalism in the face of universal crises. The capital investment theory of Forrester and Kondratieff is most conservative (preservation of order) in seeing long waves as endogenously generated fluctuations in a system whose underlying rules do not change. The innovation theory of Mensch and Schumpeter is most liberal (evolution of order) in seeing long waves as innovational spurts in the development of society.

The central scholars in each of the three research schools reflect their respective underlying world views in their conceptual frameworks, their models of the long wave, and their prescriptions for society:

The differences among world views are illustrated by the views of different scholars regarding rationality in the long wave. Why do capitalist firms overinvest in fixed capital or fail to apply innovations at the right time? For Marxist approaches, actions that are individually rational for capitalists are collectively self-destructive because of the fundamental contradiction of capitalism—private ownership of the social means of production. The individual capitalist, although acting rationally, makes decisions that for all capitalists together are self-destructive. Mandel says of over- and under-investment by capitalists: "What is rational from the standpoint of the system as a whole is not rational from the standpoint of each great firm taken separately."

Kleinknecht likewise finds the timing of innovations to be individually rational (for the single firm), although undesirable from the point of view of the society as a whole. For liberals like Mensch, by contrast, the investment and innovation decisions that lead to long downswings are "mistakes" on the part of managers, that is, irrational (not in the best interest of those making them). And from Forrester's more conservative angle, incorrect investment decisions result from the complex dynamics of capitalism that cannot be grasped by the human brain unassisted by the computer.4In Mandel's (revolutionary) view, by contrast, Forrester's computer would be irrelevant since the capitalist firm is in fact already acting in its own (individual) best interest; only socializing the ownership of production could bring about socially rational decisions."

(http://www.joshuagoldstein.com/jgcyc07.pdf)

What we know about Cycle theories:

Writing in the 1920s, Kondratiev proposed to apply the theory to the 19th century:

• 1790–1849, with a turning point in 1815.

• 1850–1896, with a turning point in 1873.

Kondratiev supposed that in 1896 a new cycle had started.

The technological cycles can be labeled as follows:

• Industrial Revolution (1771)
• Age of Steam and Railways (1829)
• Age of Steel and Heavy Engineering (1875)
• Age of Oil, Electricity, the Automobile and Mass Production (1908)
• Age of Information and Telecommunications (1971)

Joshua Goldstein concludes:

"The results corroborate three meta-hypotheses:

1. The existence of a world system corroborated by the international synchrony of political-economic movements.

2. The unity of economics and politics in that system corroborated by the strong correlations among political and economic variables.

3. The existence of long waves of political economy within the world system corroborated by the alternating growth rates in the data series."

(http://www.joshuagoldstein.com/jgcyc11.pdf)

Review of the evidence

1. Joshua Goldstein:

"Empirical results generally converge in showing fairly strong evidence for long waves in prices in the major economies since around 1790 (at least up through the 1930s), despite a variety of methodological and theoretical approaches."

(http://www.joshuagoldstein.com/jgcyc04.pdf)

See chapter 4 of Goldstein's book for detailed treatment [7]!

2. From the Wikipedia:

"Since the inception of the theory, various studies have expanded the range of possible cycles, finding longer or shorter cycles in the data. The Marxist scholar Ernest Mandel revived interest in long-wave theory with his 1964 essay predicting the end of the long boom after five years and in his Alfred Marshall lectures in 1979. However, in Mandel's theory there are no long cycles, only distinct epochs of faster and slower growth spanning 20–25 years.

In 1996, George Modelski and William R. Thompson published a book documenting K-Waves dating back to 930 AD in China. Separately, Michael Snyder wrote: "economic cycle theories have enabled some analysts to correctly predict the timing of recessions, stock market peaks and stock market crashes over the past couple of decades".

The historian Eric Hobsbawm also wrote of the theory: "That good predictions have proved possible on the basis of Kondratiev Long Waves—this is not very common in economics—has convinced many historians and even some economists that there is something in them, even if we don't know what".

US-economist Anwar Shaikh analyses the movement of the general price level - prices expressed in gold - in the US and the UK since 1890 and identifies three long cycles with troughs ca. in 1895, 1939 and 1982. With this model 2018 was another trough between the third and a possible future fourth cycle.

...

Some argue that this logic can be extended. The custom of classifying periods of human development by its dominating general purpose technology has surely been borrowed from historians, starting with the stone age. Including those, authors distinguish three different long-term metaparadigms, each with different long waves. The first focused on the transformation of material, including stone, bronze, and iron. The second, often referred to as industrial revolutions, was dedicated to the transformation of energy, including water, steam, electric, and . Finally, the most recent metaparadigm aims at transforming information. It started out with the proliferation of communication and stored data and has now entered the age of algorithms, which aims at creating automated processes to convert the existing information into actionable knowledge.]

Several papers on the relationship between technology and the economy were written by researchers at the International Institute for Applied Systems Analysis (IIASA). A concise version of Kondratiev cycles can be found in the work of Robert Ayres (1989) in which he gives a historical overview of the relationships of the most significant technologies. Cesare Marchetti published on Kondretiev waves and on the diffusion of innovations. Arnulf Grübler's book (1990) gives a detailed account of the diffusion of infrastructures including canals, railroads, highways and airlines, with findings that the principal infrastructures have midpoints spaced in time corresponding to 55-year K wavelengths, with railroads and highways taking almost a century to complete. Grübler devotes a chapter to the long economic wave.[25] In 1996, Giancarlo Pallavicini published the ratio between the long Kondratiev wave and information technology and communication.

Korotayev et al. recently employed spectral analysis and claimed that it confirmed the presence of Kondratiev waves in the world GDP dynamics at an acceptable level of statistical significance.[3][27] Korotayev et al. also detected shorter business cycles, dating the Kuznets to about 17 years and calling it the third harmonic of the Kondratiev, meaning that there are three Kuznets cycles per Kondratiev.

Leo A. Nefiodow shows that the fifth Kondratieff ended with the global economic crisis of 2000–2003 while the new, sixth Kondratieff started simultaneously. According to Leo A. Nefiodow, the carrier of this new long cycle will be health in a holistic sense—including its physical, psychological, mental, social, ecological and spiritual aspects; the basic innovations of the sixth Kondratieff are "psychosocial health" and "biotechnology".

More recently, the physicist and systems scientist Tessaleno Devezas advanced a causal model for the long wave phenomenon based on a generation-learning model[30] and a nonlinear dynamic behaviour of information systems.[31] In both works, a complete theory is presented containing not only the explanation for the existence of K-Waves, but also and for the first time an explanation for the timing of a K-Wave (≈60 years = two generations).

Every wave of innovations lasts approximately until the profits from the new innovation or sector fall to the level of other, older, more traditional sectors. It is a situation when the new technology, which originally increased a capacity to utilize new sources from nature, reached its limits and it is not possible to overcome this limit without an application of another new technology.

For the end of an application phase of any wave there are typical an economic crisis and economic stagnation. The financial crisis of 2007–2008 is a result of the coming end of the "wave of the Information and telecommunications technological revolution". Some authors have started to predict what the sixth wave might be, such as James Bradfield Moody and Bianca Nogrady who forecast that it will be driven by resource efficiency and clean technology.[33] On the other hand, Šmihula himself considers the waves of technological innovations during the modern age (after 1600 AD) only as a part of a much longer "chain" of technological revolutions going back to the pre-modern era. It means he believes that we can find long economic cycles (analogical to Kondratiev cycles in modern economy) dependent on technological revolutions even in the Middle Ages and the Ancient era."

(https://en.wikipedia.org/wiki/Kondratiev_wave)

Research Conclusions from Joshua Goldstein

From Chapter 9 of this book on Long Cycles:

"In this chapter and the next I will analyze the fifty-five economic time series with respect to the historically defined phase periods of the base dating scheme (cycle time). In this chapter I consider the price series, which include fourteen price indexes and fourteen series for individual commodity prices. I examine the "fit" of different types of price series (from different time periods, countries, and commodities) to the base dating scheme and then look for possible leads and lags in different price series relative to cycle time.

...

Results for prices indexes may be summarized thus: British prices fit the phase periods closely during all historical periods. Since at least the late eighteenth century prices in all five countries closely follow the long wave phases, indicating a synchrony in these core economies. In the period before 1650, the only available price indexes are British, and in the period 1650–1800 the only non-British indexes are for classes of Spanish commodities which fit the long wave, but not as closely as the British indexes.

...

The results for the individual commodity prices may be summarized as follows:

1. Commodity prices correlate with the long wave, but less consistently than price indexes.

2. The fit of price series to the long wave phase periods in preindustrial times decreases as one moves from British series to French, German, Prussian at Amsterdam, Swedish, and Italian series in that order corresponding roughly with outward movement from the core of the European world economy.

3. Wheat prices seem to follow the long wave pattern more closely than prices of bread and of nonfood commodities (coal, iron, wood); this may reflect either the centrality of grain in preindustrial economies or perhaps higher quality data for wheat prices.

...

T-tests corroborate the correlation of the twenty-eight price series as a whole with the long wave in both preindustrial and industrial times. The results thus far, then, corroborate these hypotheses:

• Long waves exist. (Most long wave researchers)

• Long waves at least in prices exist before 1790. [A] (Imbert, Braudel, Wallerstein)

The following hypothesis is now rejected:

• Long waves exist only after about 1790.* [R] (Kondratieff, Ischboldin)

...

The empirical analysis strongly corroborates long waves in price data both before and after the onset of industrialization in the late eighteenth century.28 Price waves go back as early as the sixteenth century, although in the earliest centuries they seem strongest in the most central core countries (especially Britain) and weakest in outlying areas of Europe. Since the late eighteenth century, price waves appear in, and are synchronous among, various European countries, reflecting the expansion of the core of the world system and its increasing integration in the industrial era."

(http://www.joshuagoldstein.com/jgcyc09.pdf)

From chapter 10:

"I accept the hypotheses that long waves exist in production as well as prices and that production leads prices:

• Long waves exist in prices, production, and investment. * [A] (Kondratieff, Mandel, Kuczynski, Gordon, Kleinknecht, Delbeke, Van Duijn, Forrester)

• Long waves exist in prices only, not in production and investment.* [R] (Kuznets, Silberling, Cleary and Hobbs, Van Ewijk, Van der Zwan)

• Production increases precede price increases.* [A] (Imbert)-

• Production phases are synchronous with price phases.* [R] (Most long wave researchers)

...

Overall, I find the evidence most consistent with the hypothesis that long waves in innovation are inversely correlated with prices and production and lead prices by about five years.30Innovations hence follow production by five to ten years, which is consistent with the hypothesis that an upturn in production tends to dampen innovation, while a downturn in production stimulates innovation.

...

To summarize, no consistent correlation is found in the trade series either for lagged or unlagged datings. I conclude that long waves cannot be identified in this group of series either because long waves do not affect volumes of trade or because these very limited data are inadequate. Provisionally, I reject the trade hypothesis.

...

I tentatively accept that real wages move synchronously (and inversely) with prices and do not lead prices. These results corroborate long waves in real wages.

...

Summary of Economic Results :

In the case of prices, there was a strong alternation of estimated growth rates in successive phase periods, unlagged from the base dating scheme. This was strongest in England and in recent centuries (but perhaps just because of better data quality) and weakest in the individual commodity prices in non-core countries. For production, long waves were found to lead prices by ten to fifteen years but were weaker than in prices. For innovation, long waves were inversely correlated and seemed to lead prices by about five years (lagging production by five to ten years). For invention, the results were anomalous Britain and the United States both seemed to follow the long wave but were out of phase with each other. For capital investment, data were inadequate but weakly followed long waves, lagging slightly behind production. For trade, no long waves were found. Finally, real wages correlated strongly and inversely with the long wave. The analysis in chapters 9 and 10 has helped sort out the hypotheses concerning economic variables in the long wave. Which hypotheses have been provisionally accepted, and which provisionally rejected, as a result of the economic analysis? The surviving, provisionally accepted hypotheses concerning the scope and timing of the long wave are listed in table 10.14. The empirical analysis was not able to address the hypotheses concerning "other economic variables" (such as employment, mergers, and currency). But regarding the existence and timing of long waves in the main economic variables, the analysis succeeded in sorting out the contradictory hypotheses into a single consistent scheme. Long waves are tentatively corroborated in prices, production, investment, innovation, and wages (the last two are inversely correlated) but not in trade. They extend from 1495 (at least for prices) through the present. The variables are lagged within cycle time in the following sequence: production, investment, innovation, prices, and wages. These results corroborate the central hypotheses of each theoretical school.

The results support Kondratieff and Forrester on capital investment, Schumpeter on innovation, and Mandel on class struggle and production. To a large extent the directions of the research presented here have been driven by data. Where few data were available, I pursued what was available. Where only one school of the debate cared to collect data for a certain variable, that school's data were used.

As a final comment on the economic time series, I note the relationship between data sources and the results emerging from those data. The strongest results are found in the class of variables with the highest quality data—prices—and the results become progressively weaker as the data do, moving through production, innovation, and investment. Data sets developed by researchers in one theoretical school tend to support the theory of that school, even though I apply my own methods to the analysis of the data. Kondratieff's price series corroborated his long wave datings. Kuczynski's world production data corroborate his theory of long waves in production. Kleinknecht's innovation data corroborate his distinction between "product" and "improvement" innovations. Thus each school's data tend to support its own theory. While I have sorted out many conflicting hypotheses, the central hypotheses of all three long wave schools remain and are potentially compatible within a single framework. Before that framework can be built, however, the last major long wave variable—war—must be analyzed."

(http://www.joshuagoldstein.com/jgcyc10.pdf)

From Chapter 11:

Joshua Goldstein:

"Summary of Empirical Analysis Chapters 9–11 have presented the results of my empirical analysis on long waves in economic variables and in war. This analysis began from a conception of long waves as alternating historical phase periods in which cycle time rather than calendar time is the appropriate statistical framework. I defined these phase periods, a priori, by a single base dating scheme that applies across the board to all the time series studied.

Fifty-five economic time series and several war series were assembled into a coherent data base, which was analyzed to find whether the behavior of the series in fact alternates in successive phase periods. The analysis consistently identified synchronous long waves in a variety of price series from different core countries as well as in the two (English) real wage series. The analysis of time-shifted correlations further identified long waves in production, innovation, and capital investment although the paucity of data, especially for capital investment, makes this conclusion quite tentative. The production variables lead prices by about ten to fifteen years, allowing a new interpretation of the "stagflation" of the 1970s as the start ofa production downswing and the end of a price upswing. Innovation seems to lead prices, inversely, by about five years, and capital investment seems to lead prices by about ten years. Long waves in trade are not evident. The severity of great power war correlates strongly with the long wave, leading prices by about one to five years. The pattern of recurring war, while remaining fairly synchronous with the long wave, passes through several different eras over the course of five centuries.

While the results arrived at in chapters 9—11 are in many places tentative, and the data supporting them often fragmentary, I have nonetheless tried to piece together the most coherent picture possible admittedly, only a "rough sketch" from the available information. This effort does not "prove" anything about long waves but helps to build theory consistent with available evidence. Further research into one or another class of variable may well turn up contradictory evidence at some later point, forcing a revision of theory (or resolving an unsolved puzzle, such as the British-U.S. patent mystery). But for now, the picture described in chapters 9—11 is the most consistent and supportable interpretation that can be made of the available evidence.

In closing, I note that the competing long wave hypotheses tested in the preceding chapters may be seen as the bottom level of a hierarchy of hypotheses. At the upper levels, the results corroborate three meta-hypotheses:

1. The existence of a world system corroborated by the international synchrony of political-economic movements.

2. The unity of economics and politics in that system corroborated by the strong correlations among political and economic variables.

3. The existence of long waves of political economy within the world system corroborated by the alternating growth rates in the data series."

(http://www.joshuagoldstein.com/jgcyc11.pdf)

Discussion

Leo and Simone Nefiodow:

"The third Kondratieff was the first long cycle that was carried by the prac­tical application of scientific knowledge. The discovery of the electro-dyna­mic principle by Werner von Siemens enabled the conversion of mecha­nical energy into electrical energy, and the findings on the composition of matter through quantum physics imparted the knowledge of manipulating material – the foundation of modern chemistry.

The third Kondratieff ended with the global economic crisis of the late 1920s and early 1930s. The new upswing, the fourth Kondratieff, came with the automobile and petrochemistry. It marked the height of the industrial society and brought mass transit to the streets and to the air. The fourth Kondratieff drew to a close with the massive crude oil price increases by OPEC in the late 1970s.

The fifth Kondratieff began in the early 1950s. Its driving force originated in computer-based information technology. With constantly increasing speed, information technology permeated all areas of society and turned the world into a global village of information. During the fifth Kondratieff, the industrial society changed over into an information society. Since then, economic growth is primarily defined as growth in the information sector.

The fifth Kondratieff ended at the turn of this century. At the same time it ended, the sixth Kondratieff cycle began. The carrier of this new Kondratieff cycle will be health in a holistic sense.

The Sixth Kondratieff: At first glance, this statement may come as a surprise. Can health expenditures, which are economically classified as pure expenses and as something negative that should thus be avoided if possible, take on the role of a locomotive for growth and employment in the future?

At this point, we should recall the results of modern growth theory. Machi­nery, capital or jobs are only ostensibly the most important sources for economic growth. The main source for economy growth is productivity pro­gress. The sixth Kondra­tieff is carried by an improved productivity in handling health (a more detailed description of the sixth Kondratieff can be found on this homepage)."

(https://www.kondratieff.net/kondratieffcycles)

When Did the K-Waves Start ?

"It is no coincidence that the first manifestation of long-wave economic dynamics coincided with the industrial re volution of the 1780s. We can assume that the transition to the machine industry actually created the phenomenon of K-wave in economy (or at least allowed defining them clearly enough). The point is that in that period the productive forces began to acquire anew fundamental property consisting in striving for a steady and continuous expansion. The emergence of this property brought about various forms of cyclical dynamics connected with various limitations that hinder such an expansion and attempts to overcome them. This forward movement, of course, could not be uniform, and had to obey different rhythms; their common property was the alteration of acceleration and deceleration phases caused by the exhaustion of available resources for growth, market saturation, reduced profit margins andso on. Those rhythms were already present in the development of trade in the 18thcentury. The emergence of the first K-wave at the final phase of the Industrial Revolution meant the origin of the first form of cyclical dynamics that was specific for the industrial production principle. The completion of the Industrial Revolution in Britain and consolidation of the extended production pattern were marked by the emergence of a new and more explicit form of cycling –the medium-term cycles (ending with cyclical crises). The first such cycle can be dated to 1818–1825. It is rather symptomatic that the first medium-term economic cycle in history happened after the completion of the upswing phase of the first K-wave.

(https://www.researchgate.net/publication/327333296_Cyclical_Dynamics_in_Economics_and_Politics_in_the_Past_and_in_the_Future)

Eight Factors Relating Kondratieff Technology Innovation Clusters to Leadership Transitions

William R. Thompson:

"In this paper, eight implications are highlighted.

First, it is possible to argue that innovations in energy convertors or fuels are fundamental to the clusters of economic innovation that have been critical to long wave processes. This argument does not mean that the clusters of innovation are exclusively about energy factors but that energy considerations are closely linked to successive waves of innovation.

A second implication pertains to the question of how far back in time one can trace K-waves. The leadership long cycle program finds evidence for K-waves activity back to the tenth century in the form of technological innovations in Sung Dynasty China. But it is clear that the evidence is stronger after the late 18th century British industrial revolution than before. One good reason is the two energy transitions that took place between the late 18th and early 20th centuries. The consequences of combining clustered technological innovation with energy transitions led to economic changes that are even more pronounced than in earlier centuries.

Third, one of the main foci of the leadership long cycle research program are long waves of economic growth which come in pairs or ‘twin peaks’ of clustered growth spikes. Energy considerations suggest reasons for these paired clusters of growth to be uneven in impact. The first peak should be less revolutionary in impact than the second because the first innovation wave must work within the prevailing economic landscape but the second wave has the advantage of building on the first wave's innovation set.

Since the leadership long cycle research program has focused primarily on the advent of technological innovation, adding energy considerations to the mix encourages an expansion of the focus to encompass resource acquisition and transportation activities as a fourth implication. Another implication of giving more attention to energy is the distinction between relative decline in production and export shares and achieving steady states in energy consumption. The steady state focus, in which periods of non-expansion of energy consumption predominate, may be more useful than focusing on, and debating, relative decline questions.

This observation leads to a sixth implication in underlining the role of lead economies in leading the way through periods of energy transition and the development of reliance on new fuels. Steady states in energy consumption suggest that the gains from energy conversion processes have been maximized. New types of energy sources are needed to expand energy consumption. The next lead economy is likely to lead the way to the new types of energy sources.

Interpreting these processes in terms of energy acquisition and consumption makes it possible to link systemic leadership to ancient processes of development which helps to generalize the nature of the activities being examined. Further help in this regard is provided by a cosmological argument that energy consumption is the common denominator of the evolution of all natural processes. These last two implications reinforce the centrality of the processes focused upon and should help make the leadership long cycle research program seem less unorthodox overall – even while it proceeds from assumptions that are not widely accepted by scholars of world politics."

(https://www.sociostudies.org/almanac/articles/energy_kwaves_lead_economies_and_their_interpretationimplications/)

The Kondratieff-Trotsky Debate

Joshua Goldstein:

"Kondratieff's response to Trotsky's argument was that Trotsky "takes an idealist point of view."17New markets and resources are drawn into the capitalist system "not by accident, but in face of the existing economic preconditions. " That is, the internal dynamics of capitalism shape the long wave, which in turn shapes the superstructural factors such as innovation and war that Trotsky called "external." Specifically, Kondratieff argued that "during the recession... an unusually large number of important discoveries and inventions in the technique of production and communication are made, which, however, are usually applied on a large scale only at the beginning of the next long upswing" ([1926] 1935:111). Likewise, "the most disastrous and extensive wars and revolutions occur" on the upswing of the long wave (p. 111), because long-term economic expansion aggravates the international struggle for markets and raw materials while domestically sharpening the struggle over the distribution of the fruits of that economic growth ([1928] 1984:95). Wars, revolutions, and innovations are thus products, not causes, of the long wave.18 In asserting that long waves are self-generating and inherent in capitalism ([1926] 1935:115), Kondratieff conceded to Trotsky only that "each new cycle takes place under new concrete-historical conditions, at a new level in the development of productive forces, and hence is by no means a simple repetition of the preceding cycle" ([1928] 1984:99). On this question of distinct historical periods, Kondratieff responded to Trotsky's criticism by arguing that "crossing through different stages, capitalism remains capitalism and maintains its basic features and regularities. "19 Kondratieff stated that Trotsky, "while not denying the existence of long waves in economic conditions, refused to recognize their patterned, cyclical character" (p. 31.)"

(http://www.joshuagoldstein.com/jgcyc02.pdf)

Theories 1

Status of the Research Approaches

Joshua Goldstein:

"By around 1980 the debate had coalesced into three research schools (shown by dotted boxes), descended from the approaches of Kondratieff, Trotsky, and Schumpeter, respectively .

• The "capitalist crisis" school is led by Belgian Trotskyist Ernest Mandel .

• The capital investment" school is dominated by Jay Forrester and his team of System

Dynamics modelers at MIT .

• The "innovation" school is centered around Gerhard

Mensch in West Germany and Christopher Freeman in Sussex, England . The synthetic work of Dutch scholar Jacob Van Duijn, and the less well known Marxist - innovation synthesis of Alfred Kleinknecht in West Germany, connect the innovation school with both the capital investment and the capitalist crisis schools."

(http://www.joshuagoldstein.com/jgcyc03.pdf)

Kondratieff's Capital Investment Theory

Joshua Goldstein:

1.

"Kondratieff, a Russian Marxist economist, ran an institute in Moscow in the 1920s concerned with the study of all types of business cycles in the capitalist economies. Kondratieff was not the first to entertain the idea of long-term cycles of about fifty years' duration.11But he was the first to marshal substantial empirical evidence for the idea and spark a sustained debate on the topic.

Kondratieff's principal interest in long waves was empirical, not theoretical; indeed in his most widely read article ([1926] 1935:115) he stated that he "had no intention of laying the foundations for an appropriate theory of long waves" but only of demonstrating their existence empirically. This he tried to do by accumulating data on a variety of economic variables from different countries and examining long-term moving averages in the series. Some of these synchronous long waves in moving averages of various indicators are shown in figure 2.2.12 Kondratieff could not, however, hold to a purely empirical position in the face of theoretical attacks from his critics in the Soviet Union. In 1928 he elaborated a theory of long waves in a book that included responses from some of his critics (see Kondratieff [1928] 1984).

Kondratieff's theoretical explanation centered on capital investment the wearing out of capital equipment and its concentrated replacement in waves of massive investment using savings accumulated during an economic downswing:

- Marx affirmed that the material basis for [seven-to-eleven-year business cycles] was the material wear and tear, replacement, and increase in... machines with a service life lasting ten years, one may assume that the material basis for the long cycles is the wear and tear, replacement, and increase in those basic capital goods requiring a long period of time and tremendous investments for their production. The replacement and expansion of the fund of these goods does not take place smoothly but in spurts, and the long waves in economic conditions are another expression of that (Kondratieff [1928] 1984:93; italics in original).

Thus increased construction of basic capital goods is the central feature of the upswing phase. This increased construction requires the availability of capital for investment (p. 94). But "the investment of capital in big and expensive projects increases the demand for capital," which eventually raises the price of capital (p. 96). The high price of capital dampens investment and notwithstanding long time lags leads to the end of the upswing and the beginning of a downswing. In the downswing phase investment decreases, capital becomes cheaper, and hence "conditions favorable to an upswing are again created" (p. 97). Kondratieff, under attack from Marxists around him, elaborated his theory within a traditional Marxist framework. He stressed that his analysis applied only to capitalist systems (p. 25) and only to industrial capitalism since the late eighteenth century (p. 32). He was careful to build on the work of Marx himself. Marx's view of short-term (seven to eleven years) business cycles with their recurrent crises stressed two points, according to Kondratieff: "First, that they are periodic; second, that they are organically inherent in the capitalist system" (p. 28). These quotations from Marx were a defense against Kondratieff's most prominent critic, Bolshevik activist theorist Leon Trotsky, who saw Kondratieff's theories as far too conservative."

2.

"The capital investment theory was recreated in the late 1970s by the System Dynamics National Model Project under Jay Forrester at MIT. Forrester and his colleagues developed a computer model of the U.S . economy (Forrester, Mass, and Ryan 1976) and found that the model generated cycles of about fifty years' length (see fig . 3.3). After initially suspecting an error in the model, they eventually came across the existing literature on Kondratieff cycles and formulated a theory of why the economy as modeled would give rise to such cycles (Forrester 1978 :6).

This theory sees long waves as "primarily a consequence of capital overexpansion and decline" rather than of basic innovation (Senge 1982 :15). The long wave upswing brings "an overbuilding of the capital sectors during which they grow beyond the capital output rate needed for long-term equilibrium" (Forrester 1981a :9). This is largely because in the early stages of the upswing capital investment takes place at a rate determined by the rebuilding of the economy from the depression rather than at the slower rate needed in the long term for depreciation of the existing capital stock . Eventually, "capital plant throughout the economy exceeds the level justified by the marginal productivity of capital," and "the overexpansion is ended by a great depression during which excess capital plant is physically worn out and is financially depreciated on the account books" (Forrester 1981a :11). During the depression, capital investment is very low until the old capital plant is cleared out and "the economic stage has been cleared for a new era of rebuilding" (Forrester 1981a:9)

This tendency to overbuild capital stock is amplified by what Sterman (1983a :3) calls the " 'self-ordering' of capital by the capital sector of the economy : the dependence of capital-producing industries, in the aggregate, on their own output."

This helps to explain the long span of the cycle and the difficulty of recovering smoothly from long-term overinvestment . Without this self-ordering of capital, the fifty-year cycle would be only a twenty-year cycle, according to Sterman.

Innovation, while not central, plays a role in the model. Forrester (1978 :10) picks up the "leading sector" concept, reasoning that "each major expansion of the long wave grows around a highly integrated and mutually supporting combination of technologies." Each such combination, because it embodies a massive long-term capital commitment, "rejects incompatible innovations." Thus during the last half of an upswing, "radical innovation remains outside the circle of acceptance " (p. 10). During the early depression phase, "the process of using up and wearing out the old technology runs its course" (p . 11), so although innovations continue to be created, they are stored up and left dormant . As the depression draws to an end, "accumulated new ideas are tried and developed," and innovation surges with the emergence of a new combination of technologies.

The theory of Forrester's school follows that of Kondratieff in two important respects:

(1) it sees long waves as endogenously generated within a fixed system structure, 31 and

(2) it explains the long wave with a capital investment theory.

Forrester's general approach is "conservative" in stressing the management of social systems (which he conceives as "multi-loop nonlinear feedback systems" in which actions can have unexpected consequences) . Forrester's computer models aim to enhance corporate and social management . While Trotskyists see the resolution of the long wave in class revolution and Schumpeterians (see below) see the resolution in technical innovation, Forrester's approach implies that what is really needed is better management. Wassily Leontief criticizes Forrester's long wave model because "the whole structure of the economy changes" over the long time periods covered by long wave s (see Business Week 1982).

Forrester (1982) responds that the model is based on "five fundamental processes" that "have changed very little" :

(1) the use of capital equipment for production;

(2) the ten-to-forty-year life of capital plant;

(3) the processes existing for the expansion of credit ;

(4) the lifetime of people ; and

(5) the influence of recent trends on the speculative attitudes of people . The ForresterLeontief debate illustrates the different perspectives of the conservative and liberal world views .

3. Other Capital Investment Theorists

While Forrester's group dominates the current capital investment school, several other scholars have recently proposed capital investment theories as well.

A. Van der Zwan (1980:201) proposes an "overinvestment hypothesis" of the long wave . He stresses the role of technologically advanced leading industries these are where overcapacity occurs, and these industries shape the prospects for recovery from a prolonged depression (p . 205). As regards the current economic downswing, van der Zwan argues that "control of production capacity, especially within the advanced sector of the economy, is a prerequisite for a more lasting improvement of investment expectations" (p . 220).

West Germans Hans Glismann, Horst Rodemer, and Frank Wolter (1983:139–42) elucidate mechanisms whereby changes in capital investment affect upswings and downswings in production and employment. In their theory, the long wave is caused by changes in investment activity, which reacts to incentives. Long lags result from "institutional sluggishness in reacting to market signals ." Glismann et al . argue that labor cost developments and governmental activities (taxes, transfers, and consumption) are "the central agents in long waves" since they affect the incentives for investment. Their approach "is basically endogenous, as was Schumpeter's" (and Kondratieff's and Forrester's) . But they contrast it with Schumpeter's theory in that they see investment incentives as central causes of the long wave, while Schumpeter sees them as effects, and in that Schumpeter sees clusters of innovations as central causes, while Glismann et al. see them as effects. This point parallels Forrester's approach."

(http://www.joshuagoldstein.com/jgcyc03.pdf)

Leon Trotsky's (and Ernest Mandel's) Theory of Capitalist Crisis

Joshua Goldstein:

1.

"Trotsky's first work on long waves, in 1921, was done independently and in ignorance of (rather than in response to) either Kondratieff's or J. Van Gelderen's (1913) work. From 1923 through the late 1920s in Moscow, however, Trotsky and Kondratieff engaged in a running debate on long waves. Trotsky's initial idea, which remained central to his approach, characterized long waves as historical periods of accelerated and retarded growth in the development of capitalism (see fig. 2.3). Trotsky pointed to five "different and distinct periods" from 1781 to 1921 two periods of stagnation alternating with two of rapid growth, the fifth period, since 1914, being "the period of the destruction of capitalist economy. "13These phases arose from "a process of adaptation" as capitalism reacted to events in the "superstructure": "It will depend upon great historical events crises, revolutions, etc., whether the period will become one of accelerated growth, stability, or decline. This is a cardinal trait of the process of capitalistic development. "14Thus Trotsky claimed that long waves are not organically inherent in capitalism but result from the effects of factors exogenous to the capitalist system. In 1923, responding specifically to Kondratieff, Trotsky elaborated his view of long waves as "epochs of capitalist development" (1923:275). He called Kondratieff's formulation of long waves, as cycles inherent to capitalism, a "symmetrically stylized construction" in which the "rigidly lawful rhythm" of shorter business cycles was extended to long-term periods — a case of an "obviously false generalization from a formal analogy" (p. 276).

Trotsky stressed that long-wave periods are not internal to the laws of capitalism:

- "As regards the large segments of the capitalist curve of development (fifty years) which Professor Kondratiev incautiously proposes to designate also as cycles, their character and duration are determined not by the internal interplay of capitalist forces but by those external conditions through whose channel capitalist development flows. The acquisition by capitalism of new countries and continents, the discovery of new natural resources, and, in the wake of these, such major facts of "superstructural" order as wars and revolutions, determine the character and the replacement of ascending, stagnating, or declining epochs of capitalist development" (p. 277).

Trotsky thus anticipated the neo-Marxists of some decades later in ascribing "relative autonomy" to the "superstructure" of society. Trotsky agreed that Marxism "looks for the causes of changes in social superstructure in the changes of the economic foundation" but argued that "economics is decisive only in the last analysis" (p. 277; italics in original)."

(http://www.joshuagoldstein.com/jgcyc02.pdf)

2.

"The Marxist debate on long waves lay dormant from the time of Kondratieff's arrest in 1930 until the mid-1970s, when the Belgian Trotskyist scholar Ernest Mandel (1975, 1980, 1981) reformulated a Marxist long wave theory . Mandel builds explicitly on Trotsky's approach. He argues (1980 :1) that the rejection of long waves„ prevented most Marxists from foreseeing important turning points in recent economic history” the upturn of capitalism in the 1940s and its downturn in the 1970s and hence weakened Marxism .

Mandel stresses that a Marxist theory of long waves should measure production , profits, and (since production serves a world market) exports . He starts "from the assumption . . . that the basic laws of motion of the capitalist system are those of capital accumulation and that capital accumulation originates in the production o f commodities" (1980:8) . In Mandel's theory, the tendency of the economy to grow at a faster or slower pace (measured by the growth of commodity production) depend s on the average rate of profit . Higher profits mean faster growth.

Marx's law of the tendency of the average rate of profit to decline would indicate a general slowing down of growth and hence explain the downswing of the long wave the onset of capitalist crises . How then can the upswing, the resolution of crisis, be explained? Mandel (1980 :21, 28), like Trotsky, argues that recovery is not inherent in the capitalist system but results from exogenous forces acting to increase the average rate of profit.

Factors that can increase the profit rate (the rate at which economic surplus can be generated), according to Mandel, include technological changes and shifts in the flow of capital to different sectors and countries . A sudden upturn in the profit rate results from several such factors operating in synchrony : "Thus, expansive long waves are periods in which the forces counteracting the tendency of the average rate of profit to decline operate in a strong and synchronized way . Depressive long wave s are periods in which the forces . . are fewer, weaker, and decisively less synchronized" (p. 15) .

Mandel delineates the historical factors behind each long wave upswing as follows:

(1) the revolution of 1848 and the discovery of gold in California, which broadened the capitalist world market, stimulated industrialization and technological innovation, and increased the productivity of labor (and hence the rate of profit) ;

(2) the growth of imperialism after 1893 ; and

(3) the historical defeat suffered by the international working class in the 1930s and 1940s (fascism, war, cold war, Mc-Carthyism), which increased the rate of surplus value extracted from labor ; while cheap Middle East oil, state-guaranteed profits from the armaments sector, and advances in telecommunications also increased the profit rate.

Class struggle ("working class militancy and radicalization"), according to Mandel, intensifies late in the expansionary phase, when the working class has been strengthened and expanded. During the depressive phase and early in the expansion (when workers still carry the scar of years of unemployment), by contrast, the interests of capitalists tend to prevail over those of workers.

Mandel (1980:50, 52) argues that class struggle plays a central role in producing long waves, through a "relatively autonomous long-term cycle of class struggle."

Thus, "the outcome of the depressive long wave is not predetermined (it depends on the outcome of class struggles between living social forces) ." Here again, Mandel parallels Trotsky.

Mandel sees technological change as an effect rather than a cause of the long wave (this responds to the competing pro-capitalist "innovation" school) . He argues that investment in new technologies is held back during periods of low growth when profit expectations are low ; then, as the expansionary phase begins, massive investment takes place in new technologies (using the backlog of unapplied inventions from the downswing period).

Each of the last few upturns, in Mandel's view, has been more difficult to achieve (particularly since the Russian revolution) . The upturn since the 1940s occurred only through massive public and private debt and the "artificial stimuli of permanent inflation, growing state intervention, permanent rearmament, etc ." (p. 76) . Mandel sees the downturn since 1968 as the last of the long waves . Capitalism can no longer recover since a massive change in the rate of surplus value extraction is not possible with today's stronger and better-organized working class . Mandel concludes that the only way to avoid economic ruin is through "socialism . . . on a broad international scale" (p . 123)."

(http://www.joshuagoldstein.com/jgcyc03.pdf)

Joseph Schumpeter's Long Wave Theory Based on Innovation

Joshua Goldstein:

1.

"As the debate on long waves was suppressed in Marxist circles after 1930, it began to catch on among some Western liberal economists, who found the concept of longterm capitalist stability more appealing than had Stalin and Trotsky. Joseph Schumpeter was foremost in resurrecting Kondratieff and naming the long wave after him. Schumpeter ([1934] 1951) argued that the depression of the 1930s resembled previous depressions around 1825 and 1873. Schumpeter (1939) attempted.to build a unified, although tentative, theory of business cycles (both short and long), based primarily on the concepts of innovation and of "leading sectors" of the economy. Innovation, in Schumpeter's view, consists not just of inventions but of any "change in the method of supplying commodities" (p. 84). Innovations "turn existing factors of production to new uses" without being a direct consequence of any one of them (p. 86). Schumpeter called innovation "the outstanding fact in the economic history of capitalist society" and designated the "changes in the economic process brought about by innovation... by the term Economic Evolution" (p. 86). Innovations result from the rise to leadership of particular individuals and the emergence of new firms (pp. 94–96). Schumpeter saw clusters of innovations as driving the irregular rhythms of business cycles of various lengths.29 In the case of the long wave, major innovations bring to the fore a new "leading sector" of the economy, supplanting the previously dominant industry or group of industries. The new leading sector drives a powerful expansion of the economy until it runs into diminishing returns and is eventually supplanted by another new leading sector.

Each of the long wave upswings, then, is associated with a particular historical technological basis.

Schumpeter identified these as:

(1) the industrial revolution (1780s–1842);

(2) the age of steam and steel (1842–97); and

(3) electricity, chemistry, and motors (1898–).

Simon Kuznets (1940:261) elaborated these (with Schumpeter's advice) as the Industrial Revolution Kondratieff (cotton textiles, iron, steam power), the Bourgeois Kondratieff (railroads), and the Neo-Mercantilist Kondratieff (electricity, automobiles). Each of these periods began with an upswing and ended with a long downswing.31 Schumpeter's approach is grounded in a "liberal" framework. The key force in economic change is the individual (the individual entrepreneur who develops an innovation). The long economic cycle represents forward steps in an evolving system—"Economic Evolution," as Schumpeter calls it. Nonetheless, many liberal economists rejected Schumpeter's long wave theory. Among the critics, Kuznets (1940:258–63) argued that entrepreneurs would not simply disappear while an innovation was being imitated and built but would "turn to new feats and thus initiate an uprush in another industry." Thus innovations would be conceived of not as "bunching" together but as "flowing in a continuous stream." The economy might move forward in a "jerky" sort of evolution but not with a cyclical character, according to Kuznets."

(http://www.joshuagoldstein.com/jgcyc02.pdf)

2.

"Gerhard Mensch, the first central figure in this group, writes that the common facto r in depressions recurring every fifty years is "the economic stagnation of . . . the then predominant technologies" (1979 :5) . This stagnation, which Mensch calls a "stalemate in technology," results from a failure to bring about new innovations in production and is overcome by the emergence of new innovations . "There was only a limited interest in implementing basic innovations during the prosperous phases . . . ; in contrast to this attitude, the tendency to innovate was very marked during the critical periods of technological stalemate" (p . 130) . Mensch's central thesis (a restatement of Schumpeter) is that "basic innovations occur in clusters" (p . 11). Innovations include both "basic innovations, which establish new branches of industry, and radical improvement innovations, which rejuvenate existing branches" (p. xvii).

According to Mensch, new products follow "life cycles" in which the market at first accepts them hesitantly, then rushes to acquire them, then eventually loses interest (p . 52) the more basic the innovation, the longer the life cycle . A new product eventually saturates the market, and refinements in subsequent years bring diminishing returns (p . 63) . The saturation of the market, supplier concentration, and diminishing returns on improvements combine to set the stage for technological stalemate, according to Mensch . But stagnation in turn eventually stimulates innovation and leads to new growth in new economic sectors. Mensch predicts that the present technological stalemate will break with a cluster of innovations in 1984 -- 94, which will stimulate a new long-term upswing (p. 197).

Mensch proposes that the economy has "evolved through a series of intermittent innovative impulses that take the form of successive S-shaped cycles" (p . 73). Mensch calls this the "metamorphosis" model, as distinct from a "wave" model (see fig . 3.4). It parallels the approach of Trotsky and Mandel (and W. W. Rostow, see below) in its stress on qualitatively different phases of development but differs in its formulation of innovation as an outgrowth of stagnation and hence as endogenous to the economic long wave .

In 1981 Mensch, Charles Coutinho, and Klaus Kaasch elaborated Mensch's model in terms of "phases of extensive and of recessive structural change in the economy " (p. 283). In expansion phases, extensive structural change occurs innovations diffuse through new or modernized sectors, and capital stocks (fixed plant and equipment) rise in value, inducing owners to invest in "more of the same . " In stagnation phases, recessive structural change occurs the diffusion of innovations slows down, and the valuation of that capital falls, causing a shift of investment into alternative types of capital goods. This explains the rise in the innovation rate on the downswing .

Mensch's work has been criticized, mainly for inadequate empirical evidence of increased innovation on the downswing . Mansfield (1983 :144), for instance, concludes that "evidence does not persuade me that the number of major technological innovations conforms to long waves of the sort indicated by Mensch's data . . . . The hypothesis that severe depressions trigger and accelerate innovations is also questionable . "

Christopher Freeman, John Clark, and Luc Soete (1982) build on the theories of Schumpeter and Mensch . 39 They argue that "the upswing of the long waves involves a simultaneous or near-simultaneous explosive burst of growth of one or several major new industries and technologies" (Freeman, Clark, and Soete 1982 :80) . The upswing builds momentum through economies of scale and generates high employment, especially in the early stages when "standardized plant and machinery is not yet available" and the industry is hence fairly labor intensive (p . 75). Eventually, however, the new industry matures, as profits deriving from the innovation are reduced by competition and high labor costs . A process of concentration and cost cutting ensues, with lower employment being generated per unit of investment . As profits decline, unemployment grows and labor force willingness to cooperate with technical innovation decreases. Intense efforts at productivity improvement thus prove less effective than during the expansionary phase, and the economy heads into a period of stagnation and depression.

Freeman et al., in contrast to Mensch, argue that deep depressions inhibit, rather than stimulate, new basic innovations . While they "do not rule out the possibility of some form of bunching of basic innovations or inventions," they attribute such bunching to scientific and technological breakthroughs and periods of strong demand, including booms and wars (Clark, Freeman, and Soete 1981 :321). They (Freeman, Clark, and Soete 1982 :81) therefore stress that "the role of public policy is crucial" in leading the way out of a depression by stimulating an increase in the general level of profitability . As for the economic situation in 1982, Freeman et al . conclude that technology policies, while not a cure-all, "are a vital ingredient of any strategy" against stagflation (p . 200) .

Freeman's associate, 44 Venezuelan scholar Carlota Perez (1983 :358), starts from a "Schumpeterian view" of innovation in the long wave but sees long waves as "not a strictly economic phenomenon, but rather the manifestation, measurable in economic terms, of the harmonious or disharmonious behaviour of the total socioeconomic and institutional system (on the national and international levels)." Whereas Schumpeter had assumed that social and institutional conditions are exogenous to the economic system, Perez proposes that capitalism contains two "sub-systems" : one "techno-economic" and the other social and institutional (p. 359) . While short business cycles are explainable within the former subsystem alone, long waves involve both subsystems and are seen as "successive phases in the evolution of the total system" or "successive modes of development" (p . 360) . Each phase in this evolution of economic life is marked by a "technological style . . . based on a constellation of interrelated innovations" (pp . 358, 360) . A technological style generates a "dynamic complementarity" of economic and social/institutional factors that sustains the long upswing until the technological style approaches the "limits of its potential," culminating in a "structural crisis ." Such a crisis indicates "a breakdown in the complementarity between the . . . economic subsystem and the . . . socio-institutional framework" and "forces the restructuring of the socio-institutional framework" to correct this . Perez does not mention the striking similarity between her theory and that of David Gordon (above), in the capitalist crisis school . She argues that her model is "consistent" with Forrester's capital investment theory excess capital capacity occurring in the old technological style as well as with Mensch's, Van Duijn's, and Freeman et al .'s innovation approaches (Perez1983 :8)."

(http://www.joshuagoldstein.com/jgcyc03.pdf)

The War Theory of Long Waves of Johan Akerman, Norman Silberling, and Others

<"the up swing of the long wave tends to produce wars, and prolonged wars in turn tend, through the resulting upheaval in prices, to initiate the down-swing movement."> [8]

Joshua Goldstein:

"Johan Akerman, a Swedish economist, was among the first to argue (1932:79) that war rather than capital investment, capitalist crises, or innovation is the central cause of the long wave. The long wave is "a problem which goes far beyond the bounds of economics.'

Akerman noted that long wave upswings have "culminated in general inflation during a war period" (p. 87–88). The end of the war period in turn is followed by a "deflation crisis" and a downswing period of falling prices ending with a crisis of credit institutions. In 1944 Akerman wrote: We can draw the conclusion that it is the frequency of wars — i.e. a political phenomenon — that introduces the periodical element in the secular economic changes. The `enigma of the long waves 'in econometrics is thus in a first approximation nothing but a mirror of the enigma of the periodicity of wars."33 Thus what I call the war theory of long waves holds that recurrent major wars are central to economic long waves.

...

Gaston Imbert (1956) provides the first example of what I call a "hybrid" theory, one that combines two theoretical schools in trying to account for long waves. Imbert, writing in the 1950s as interest in long waves was diminishing, integrated the war and innovation theories that had dominated the 1930s and 1940s.

...

Despite short-term "boom" effects, war lays the groundwork for the long wave stagnation phase. War " `consumes' part of the human capital as it destroys physical capital. It destroys some of the combatants, the civilian population, brings epidemics and illness. It leaves behind a mass of invalids, misfits, and wounded people who increase considerably the expenses of the State" (p. 487). Thus "the causes created by the conflict... produce the reversal of the long [expansion] tendency and lead to the long decline of economic activity" (p. 487).

Imbert (pp. 488–90) listed five causal links between the war economy and the ensuing economic stagnation phase:

1. War drains precious metal reserves of belligerents, forcing them to abandon the convertibility of currency and to print large quantities of paper money. Currency depreciates, prices rise, and gold accumulates in the neutral countries.

2. War creates disequilibrium in the system of production (sudden rise in demand, destruction caused by war), leading to stagnation after the brief postwar reconstruction boom.

3. War creates rigidities in economic production due to the control and direction of the economy by the state.

4. War brings an exceptional level of mortality among combatants and civilians. After the war, marriages and births boom. The addition of young children to the population (along with war invalids) at the same time the working population is reduced increases the load on the economy.

5. The trauma of war shapes the psychological atmosphere of the stagnation phase. The war generation remembers this painful experience and guards the peace. "Moreover, the financial and economic conditions of the declining phase make the explosion of a general conflict impossible.""

(http://www.joshuagoldstein.com/jgcyc02.pdf)

Theories 2

See also: Fluctuations in the Intensity of War.

Daniel Smihula's Long Wave Theory

"A specific modification of the theory of Kondratieff cycles was developed by Daniel Šmihula. Šmihula identified six long-waves within modern society and the capitalist economy, each of which was initiated by a specific technological revolution:[

1. Wave of the Financial-agricultural revolution (1600–1780)

2. Wave of the Industrial revolution (1780–1880)

3. Wave of the Technical revolution (1880–1940)

4. Wave of the Scientific-technical revolution (1940–1985)

5. Wave of the Information and telecommunications revolution (1985–2015)

6. Hypothetical wave of the post-informational technological revolution (Internet of things/renewable energy transition?) (2015–2035?)

Unlike Kondratieff and Schumpeter, Šmihula believed that each new cycle is shorter than its predecessor. His main stress is put on technological progress and new technologies as decisive factors of any long-time economic development. Each of these waves has its innovation phase which is described as a technological revolution and an application phase in which the number of revolutionary innovations falls and attention focuses on exploiting and extending existing innovations. As soon as an innovation or a series of innovations becomes available, it becomes more efficient to invest in its adoption, extension and use than in creating new innovations. Each wave of technological innovations can be characterized by the area in which the most revolutionary changes took place ("leading sectors").

(https://en.wikipedia.org/wiki/Kondratiev_wave)

Logistical Waves ?

Joshua Goldstein:

"A separate but related debate among Marxists regarding this early period concerns longer cycles of several hundred years' duration, sometimes called "logistics" (or "secular cycles"), which apparently span the precapitalist and capitalist eras. Wallerstein (1984a) identifies these logistics, "even more strongly than the Kondratieffs," as price movements. He suggests that what is "exogenous" to the long wave for Mandel "is clearly endogenous to the longer logistic.' "Nicole Bousquet (1979:503) notes that "from the point of view of a world economy, the origins of which could date back only to the first half of the sixteenth century, the presence of such logistics [predating 1500] is a bit embarrassing [my translation]. " The rise of the capitalist world economy should have broken their dynamic, Bousquet argues, but this did not happen. Albert Bergesen (1983a:78) likewise worries that "the fact that [logistics] appear to begin within the feudal era and carry over into the period of the capitalist world-economy presents questions of whether they represent the dynamics of feudalism or capitalism, or both." Hopkins and Wallerstein (1979:488) write that "one question that is blurred in the literature concerns the kinds of economic systems within which these very long cyclical rhythms are said to occur."

(http://www.joshuagoldstein.com/jgcyc03.pdf)

Carlota Perez

Joshua Goldstein:

"Freeman's associate,44Venezuelan scholar Carlota Perez(1983:358), starts from a "Schumpeterian view" of innovation in the long wave but sees long waves as "not a strictly economic phenomenon, but rather the manifestation, measurable in economic terms, of the harmonious or disharmonious behaviour of the total socio-economic and institutional system (on the national and international levels)." Whereas Schumpeter had assumed that social and institutional conditions are exogenous to the economic system, Perez proposes that capitalism contains two "subsystems": one "techno-economic" and the other social and institutional (p. 359). While short business cycles are explainable within the former subsystem alone, long waves involve both subsystems and are seen as "successive phases in the evolution of the total system" or "successive modes of development" (p. 360). Each phase in this evolution of economic life is marked by a "technological style... based on a constellation of interrelated innovations" (pp. 358, 360). A technological style generates a "dynamic complementarity" of economic and social/institutional factors that sustains the long upswing until the technological style approaches the "limits of its potential," culminating in a "structural crisis." Such a crisis indicates "a breakdown in the complementarity between the... economic subsystem and the... socio-institutional framework" and "forces the restructuring of the socio-institutional framework" to correct this. Perez does not mention the striking similarity between her theory and that of David Gordon (above), in the capitalist crisis school. She argues that her model is "consistent" with Forrester's capital investment theory excess capital capacity occurring in the old technological style as well as with Mensch's, Van Duijn's, and Freeman et al.'s innovation approaches (Perez 1983:8)."

(http://www.joshuagoldstein.com/jgcyc03.pdf)

Long Waves in Social Values ?

Joshua Goldstein:

"John Langrish (1982), like Namenwirth and Weber (but independently), studies long cycles in social values. Langrish finds that periods of technological optimism and confidence in science and technology have corresponded with the upswings of the long wave. Conversely an "anti-science" mood since 1965 may be connected with the downswing. Langrish analyzes changes in social "optimism," using a content analysis of advertisements in the Journal of Decorative Art each of which he classifies as forward-looking, backward-looking, or time-neutral (p. 156). He constructs an "optimism index" based on these categories and tabulates the average index value in each long wave period to show that optimism increases on the upswing and decreases on the downswing (p. 156). However, the analysis covers only selected years in the period 1924–81 (one long wave). Michael Barkun (1984) considers another aspect of social values the formation of utopian communities in America. Of 270 such communities founded between 1787 and 1919, fully one-third began during two seven-year-long concentrations 1842–48 and 1894-1900. He identifies a third concentration in the 1930s. Each of these three concentrations corresponded with an upsurge of "millenarian movements" in America. Barkun notes (p. 43) that each period - comes near the trough of a long wave. A fourth concentration in the late 1960s, however, does not fit the pattern. "While the first three waves indisputably took place in times of severe deprivation, the most recent did not" (p. 47).28 A different approach to social values is found in Arthur M. Schlesinger, Sr.'s (1939), suggestion that American politics since 1765 have swung between alternating periods of (roughly speaking) liberalism and conservatism."

(http://www.joshuagoldstein.com/jgcyc05.pdf)

More information

• The Kondratieff Almanac

• Graphs:

1. Graph 1: Previous Kondratiev waves: [9]
2. Graph 2: Succession of core cities: [10]

• For empirical data in favour of the existence of cycles see:

Article: A Spectral Analysis of World GDP Dynamics: Kondratieff Waves, Kuznets Swings, Juglar and Kitchin Cycles in Global Economic Development, and the 2008–2009 Economic Crisis 2010. By Korotayev, Andrey V ; Tsirel, Sergey V. Structure and Dynamics. Volume 4, Issue 1 [11]

• The Hegemonic Cycle

• Very Long Cycles

Key Book

* KONDRATIEFF WAVES: Dimensions and Prospects at the Dawn of the 21st Century. Ed. by Leonid Grinin, Tessaleno DevezasA, and Andrey Korotayev. ‘Uchitel’ Publishing House, 2012. – 224 p.

URL = https://www.sociostudies.org/almanac/k_waves/k_waves_1_en/

"We start a series of annual almanacs dedicated to the analysis of economic fluctuations of various lengths, but especially – to the study of large-scale wave-like perturbations of the global socioeconomic realm with a characteristic length of about half a century. These fluctuations, or cycles as preferred by some authors, were named ‘Kondratieff waves’ after the famous Russian scientist Nikolay Kondratieff. In the present publication these waves will be frequently referred also as K-waves for short. The analysis of K-waves allows understanding the long-term dynamics of the World System development, as well as to propose future scenarios about the unfolding of the global economy, for it clarifies much for our understanding of the crises of the past and the current global economic crisis.

Kondratieff waves constitute a sort of mystery that has been haunting economic and social researchers for almost a century. Why do we observe such regularity in the long-term behavior of economic and non-economic indicators? Why in certain periods do we observe prolonged upswings, whereas in other periods – notwithstanding all the enormous efforts of interested macroeconomic actors – economic development is accompanied by prolonged depressions? What gets out of order in social and economic mechanisms?

Since the seminal works published by Kondratieff, a number of outstanding researchers have made significant contributions to our understanding of the possible factors affecting and provoking long-term fluctuations of human economic affairs. On the other hand, it has become more and more clear that K-waves influence many social-related processes. However, nobody appears to have found yet an entirely satisfactory solution of ‘Kondratieff's mystery’, and it continues to attract researchers. That is why we have decided to try to unite the forces of such researchers around the new almanac.

This first issue offers a wide panorama of views on the Kondratieff waves' phenomenon; here one can also find information on Kondratieff’s life and works."