Kondratiev wave

Also widely written as "Kondratieff".

In heterodox economics, Kondratiev waves—also called grand supercycles, surges, long waves, or K-waves—are described as regular, sinusoidal 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. Most academic economists do not posit the existence of these waves.

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 Dutch economists, 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 de Wolff and van Gelderen been translated from Dutch to reach a wider audience. Later, Joseph Schumpeter suggested in "Business Cycles" to name the cycle "Kondratieff wave" in honor of the economist who first noticed them. In the 1950s, French economist Francois Simiand proposed to name the ascendant period of the cycle "Phase A" and the downward period "Phase B". Some market commentators divide the Kondratiev wave into two 'seasons', namely, the Kondratiev Fall and the later part, the Kondratiev Winter.

Characteristics of the cycle

The business cycle is supposedly more visible in international production data than in individual national economies. It affects all the sectors of an economy, and concerns output rather than prices (although Kondratieff had made observations about the prices only). According to Kondratieff, the ascendant phase is characterized by an increase in prices and low interest rates, while the other phase consists of a decrease in prices and high interest rates.

Kondratieff identified three phases in the cycle: expansion, stagnation, recession. More common today is the division into four periods with a turning point (collapse) between the first and second two. Writing in the 1920s, Kondratieff proposed to apply the theory to the XIXth century:
* 1790 - 1849 with a turning point in 1815.
* 1850 - 1896 with a turning point in 1873.
* Kondratieff supposed that in 1896, a new cycle had started.

It is tempting to expand the theory to the XXth century. Some economists, such as schumpeterians, have proposed that the third cycle ended with WWII with a turning point in the 1920s or in 1929. Another cycle would have gone from 1945 or the 1950s to the early or late 1990s, with the 1973 crisis as turning point. A new cycle is supposed to have started in the early 2000s, with a huge increase in the global growth rate, up to 5% per year, thanks to the boom of emerging economies. However, such interpretations are excessive, because the crisis of the 1970s is characterized by stagflation (i.e. important inflation and recession), instead of a fall in prices.

Explanation of the cycle

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.

Independently, the economists/physicists Cesare Marchetti and Theodore Modis have evidenced the cyclical Kondratiev pattern from physical variables such as energy consumption, the use of horsepower, the appearance of basic innovations, the discovery of stable elements, bank failures, homicides, and one-mile-run records. These variables tracked in their appropriate units yield more reliable observations than the earlier ones obtained from monetary/financial indicators.Fact|date=July 2008

References

*Vincent Barnett, "Kondratiev and the Dynamics of Economic Development". London: Macmillan, 1998.
*Edward Cheung, "Baby Boomers, Generation X and Social Cycles". Toronto: [http://www.longwavepress.com Longwave Press] , 1994, 2007.
*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).
* [http://www.joshuagoldstein.com/jgcycle.htm Joshua Goldstein, "Long Cycles: Prosperity and War in the Modern Age"] . New Haven, Yale University Press, 1988.
*Murray Rothbard, [http://www.lewrockwell.com/rothbard/rothbard44.html "The Kondratieff Cycle: Real or Fabricated?"] . Ludwig von Mises Institute, 1984.
*Turchin, P., et al., eds. (2007). * [http://edurss.ru/cgi-bin/db.pl?cp=&page=Book&id=53185&lang=en&blang=en&list=Found History & Mathematics: Historical Dynamics and Development of Complex Societies] . Edited by Peter Turchin, Leonid Grinin, Andrey Korotayev, and Victor C. de Munck. Moscow: KomKniga, 2006. ISBN 5484010020
* [http://www.urss.ru/cgi-bin/db.pl?cp=&page=Book&id=53184&lang=sp&blang=en&list=130 Grinin L., Munck V. C. de, Korotayev A. History and mathematics: Analyzing and Modeling Global Development]
* Arno Tausch and Christian Ghymers (2007), "From the 'Washington' Towards a 'Vienna Consensus'? A Quantitative Analysis on Globalization, Development and Global Governance" Haupauge, New York: Nova Science Publishers
* Cesare Marchetti, "Fifty-Year Pulsation in Human Affairs, Analysis of Some Physical Indicators," "Futures", vol. 17, no. 3 (1986): 376-88.
* Theodore Modis, "Predictions: Society's Telltale Signature Reveals the Past and Forecasts the Future", Simon & Schuster, New York, 1992, Chapter 8.
* [http://faculty.washington.edu/modelski/IPEKWAVE.html "Kondratieff waves"] on faculty.washington.edu (The Evolutionary World Politics Homepage).
* [http://kondratyev.com/reference/theory_explained.htm "Kondratieff theory explained"] on Kondratyev.com (Kondratyev Theory Letters).
* [http://www.angelfire.com/or/truthfinder/index22.html "Kondratieff wave"]

ee also

* Business cycle
* Market trends
* Martin A. Armstrong
* Clustering illusion

External links

* [http://www.southerndomains.com/SouthernBanks/p2.htm Smith, Marx, Kondratieff and Keynes; R. L. Norman, Jr.]
* [http://www.cyclesresearchinstitute.org/kondratieffcause.html Cause of the Kondratieff Cycle]
* [http://www.southerndomains.com/SouthernBanks/p5.htm Theories of the Great Depression, R. L. Norman, Jr.]
* [http://www.eumed.net/entelequia/en.index.php Revista Entelequia]
* [http://www.kwaves.com/200210KondraWithCRB4.pdf 200-yr chart of Kondratieff cycles, multifactorial & intricate]