Kondratiev wave
| Cycle/wave name | Period (years) |
|---|---|
| Kitchin cycle (inventory, e.g. pork cycle) | 3–5 |
| Juglar cycle (fixed investment) | 7–11 |
| Kuznets swing (infrastructural investment) | 15–25 |
| Kondratiev wave (technological basis) | 45–60 |
In economics, Kondratiev waves - also called grand supercycles, surges, long waves, or K-waves - are regular S-shaped cycles in the modern (Capitalist) world economy. Fifty to sixty years in length, the cycles consist of alternating periods between high sectoral growth and periods of slower growth. This business cycle is more visible in international production data than in individual national economies and concerns output rather than prices. Some economists divide the Kondratiev wave into two 'seasons', namely, the Kondratiev Fall and the later part, the Kondratiev Winter. A bull market is associated with 'fall' and a bear market with 'winter'. More common today is the division into four periods with a turning point (collapse) between the first and second two.
The Russian economist Nikolai Kondratiev (1892-1938) was the first to bring these observations international attention in his book "The Major Economic Cycles" (1925) alongside other works written in the same decade. Two Dutchmen, J. van Gelderen (1891-1940) and Samuel de Wolff previously argued for the existence of 50- to 60-year cycles in 1913. However, only recently has the work of Wolff and Gelderen been translated from Dutch to reach a wider audience.
Early on four schools of thought emerged as to why capitalist economies have these long waves. These schools of thought revolved around innovations, capital investment, war and capitalist crisis. According to the innovation theory, these waves arise from the bunching of basic innovations that launch technological revolutions that in turn create leading industrial or commercial sectors. Kondratiev's ideas were taken up by Joseph Schumpeter in the 1930s. The theory hypothesized the existence of very long-run macroeconomic and price cycles, originally estimated to last 50-54 years.
Since the inception of the theories, 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.
Long wave theory is not accepted by most academic economists, but it is one of the bases of innovation-based, development, and evolutionary economics, i.e. the main heterodox stream in economics. Among economists who accept it, there has been no universal agreement about the start and the end years of particular waves. This points to another criticism of the theory: that it amounts to seeing patterns in a mass of statistics that aren't really there. Moreover, there is a lack of agreement over the cause of this phenomenon.
Most cycle theorists agree, however, with the "Schumpeter-Freeman-Perez" paradigm of five waves so far since the industrial revolution, and the sixth one to come. These five cycles are
- The Industrial Revolution--1771
- The Age of Steam and Railways--1829
- The Age of Steel, Electricity and Heavy Engineering--1875
- The Age of Oil, the Automobile and Mass Production--1908
- The Age of Information and Telecommunications--1971
According to this theory, we are currently at the turning-point of the 5th Kondratiev. Some scholars, particularly Immanuel Wallerstein, argue that cycles of global war are tied to Capitalist Long Waves. Major, highly-destructive wars tend to begin just prior to an output upswing. Other theorists such as Manuel Delanda maintain Kondratiev waves are examples of oscillatory social behavior; for example, with the emergence of abstract machines and artificial life.
Modern Kondratieff Thinking
Modern Kondratieff thinking sees that the original analysis using price data as having some serious flaws. Work done by Ian Gordon of thelongwaveanalyst.ca is more geared to analysing debt and stock market levels in the cycle. In this work the real driving force behind the cycle is human behaviour as seen in manias, fear and greed.
There has been so much misunderstanding and misrepresentation of K-theory over the last 40 years that it is hoped this new approach will help the theory get back on its feet.
Two important graphs that show off this fear and greed in the economy are:
http://www.marketoracle.co.uk/images/Paul_19_4_07a.png
http://www.thelongwaveanalyst.ca/downloads/NonPublicDeptPerGDP.doc
Here we see the debt peaks of 1836 and 1933 marrying up with stock market peaks of 1834 and 1929.
Also see how the debt troughs of 1864 and 1946 marry up with the stock lows of 1864 and 1948.
Looking at the stocks graph, optimistic peaks of 1834, 1906, 1929, and 1966 the DJIA subsequently moved to the bottom of the long term trend channel. These bear markets were either inflationary, such as the 1966-1982 bear market or deflationary such as in 1929-1932. We have also noticed that inflationary/deflationary crashes tend to alternate.
Using stock markets and debt levels, the number of phases of the k-wave can be questioned. k-wave number 2 (1845-1896) can be challenged as being a valid phase. The stock market and debt levels suggest that this wave no. 2 should be merged in with wave 1 and 3 either side.
The new debt and stocks cycle looks like this:
| k-wave 1 | k-wave 2 | k-wave 3 | |
|---|---|---|---|
| Spring | 1789-1802 | 1865-1907 | 1949-1966 |
| Summer | 1803-1816 | 1908-1920 | 1966-1982 |
| Autumn | 1816-1835 | 1921-1929 | 1982-2000 |
| Winter | 1835-1864 | 1930-1949 | 2000-2020???? |
References
- Vincent Barnett, Kondratiev and the Dynamics of Economic Development. London: Macmillan, 1998.
- Edward Cheung, Baby Boomers, Generation X and Social Cycles. Toronto: Longwave Press, 1994.
- Ernest Mandel, "The Economics of Neocapitalism", in The Socialist Register, 1964.
- Ernest Mandel, Long waves of capitalist development: the Marxist interpretation (Alfred Marshall Lectures, 1979).
- Chris Freeman and Francisco Louca, As Time Goes By. From the Industrial Revolutions to the Information Revolution. Oxford: OUP, 2001. ISBN 978-0199251056
- Solomos Solomou, Phases of Economic Growth, 1850–1973: Kondratieff Waves and Kuznets Swings (1990).
- Joshua Goldstein, Long Cycles: Prosperity and War in the Modern Age. New Haven, Yale University Press, 1988.
- Murray Rothbard, "The Kondratieff Cycle: Real or Fabricated?". Ludwig von Mises Institute, 1984.
- Turchin, P., et al., eds. (2007). History & Mathematics: Historical Dynamics and Development of Complex Societies. Moscow: KomKniga. ISBN 5484010020