So this article is a bit old, but interesting none the less. Enjoy!
“There are very few heroes in economics but for me one of the patron saints of that profession should be Nikolai Kondratiev who was shot by firing squad on the orders of Stalin in 1938. He died for what he believed was the truth. His execution was ordered because his academic work propounded that the capitalist system would not collapse as a result of the great depression of 1929. This truth Stalin did not want to hear, thus Nikolai was exterminated and his work suppressed for over two decades.
Kondratiev’s analysis described how international capitalism had gone through many such “great depressions” and as such were a normal part of the international mercantile credit system. The long term business cycles that he identified through meticulous research are now called “Kondratieff” cycles or “K” waves.
The K wave is a 60 year cycle (+/- a year or so) with internal phases that are sometimes characterized as seasons: spring, summer, autumn and winter:
- Spring phase: a new factor of production, good economic times, rising inflation
- Summer: hubristic ‘peak’ war followed by societal doubts and double digit inflation
- Autumn: the financial fix of inflation leads to a credit boom which creates a false plateau of prosperity that ends in a speculative bubble
- Winter: excess capacity worked off by massive debt repudiation, commodity deflation & economic depression. A ‘trough’ war breaks psychology of doom.
Increasingly economic academia has come to realize the brilliant insight of Nikolai Kondratiev and accordingly there have been many reports, articles, theses and books written on the subject of this “cyclical” phenomenon. An influential essay, written by Professor W. Thompson of Indiana University, has indicated that K waves have influenced world technological development since the 900’s. His thesis states that “modern” economic development commenced in 930AD in the Sung province of China and he propounds that since this date there have been 18 K waves lasting on average 60 years.
William R. Thompson:
“Most people are quite familiar with business cycles that tend to be denominated in terms of months. Sales are good, people are confident about the future, and unemployment is reduced. Then sales fall off, the immediate future seems gloomier, and unemployment increases. The Kondratieff wave is a longer version of economic fluctuation, albeit with the added traits of initial spatial concentration of technological innovation and subsequent diffusion at the world level. It also has some rather major implications for war, peace, and order in the world system that conventional, short-term business cycles lack. Therefore, the k-wave is a core component part of the most significant processes of the world system. Precisely what drives k-waves has been the subject of considerable analytical dispute. Arguments have been advanced that bestow main driver status on investment, profits, population growth, war, agricultural-industrial tradeoffs, prices, and technological innovations. This debate has by no means been settled but at this time the emphasis on technological changes appears to be the best bet…
In the case of the Kondratieff, the argument is that the first appearance of a paired K-wave pattern in economic innovations is found in the 10th century in Sung China which is sometimes credited with developing the first modern economy. The expansion of maritime trade in the South China Sea and the Indian Ocean, as well as the revived use of the Silk Roads on land, facilitated the transmission of long wave, paired growth impulses to the other end of Eurasia. Thus Modelski and Thompson analyze 18 k-waves encompassing some one thousand years between 930 and 1973…
In sum, the Kondratieff wave appears to be a highly pervasive and hence a critical process in the functioning of the world system. As such, it deserves more recognition than it currently receives. When more attention is paid to its influences, we will no doubt discover that it is even more central to world system development than we suspect currently.”
In addition to technology being a major factor in K cycles, credit and banking also play a crucial role. This is due to the fact that new technology spurs growth, initiative and risk taking. This mindset encourages investment and lending, thus, when the multiplier effect kicks in, economies expand rapidly. Thus, as we focus our analysis on more modern times we find that periods of “K” expansion and contraction bring with them phases of bigger booms and busts. The picture is doubly exacerbated by increasingly more integrated world funding mechanisms which means these booms and busts are global rather than local and increasingly more political than economic.
