Kondratieff Wave

Kondratieff Wave

In heterodox economics, Kondratieff waves — also called Supercycles, surges, long waves or K-waves — are described as regular, sinusoidal cycles in the modern (capitalist) world economy. Averaging fifty and ranging from approximately forty 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 Nicolas Kondratieff 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, Jacob van Gelderen 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 Kondratieff wave into four ‘seasons’, namely, the Kondratieff Spring (improvement – plateau) and Summer (acceleration – prosperity) of the ascendant period and the Kondratieff Fall (recession – plateau) and Winter (acceleration – depression) of the downward period.

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.

The phases of Kondratieff’s waves also carry with them social shifts and changes in the public mood. The first stage of expansion and growth, the “Spring” stage, encompasses a social shift in which the wealth, accumulation, and innovation that are present in this first period of the cycle create upheavals and displacements in society. The economic changes result in redefining work and the role of participants in society. In the next phase, the “Summer” stagflation, there is a mood of affluence from the previous growth stage that change the attitude towards work in society, creating inefficiencies. After this stage comes the season of deflationary growth, or the plateau period. The popular mood changes during this period as well. It shifts toward stability, normalcy, and isolationism after the policies and economics during unpopular excesses of war. Finally, the “Winter” stage, that of severe depression, includes the integration of previous social shifts and changes into the social fabric of society, supported by the shifts in innovation and technology.

It is tempting to expand the theory to the twentieth and twenty-first centuries. Some economists, such as Schumpeterians, have proposed that the third cycle peaked with World War I and ended with World War II after a turning point in 1929.[citation needed] A fourth cycle may have roughly coincided with the Cold War: beginning in 1949, turning with the economic peak of the mid-1960s and the Vietnam War escalation, hitting a trough in 1982 amidst growing predictions in the United States of worldwide Soviet domination and ending with the fall of the Berlin Wall in 1989. The current cycle most likely peaked in 1999 with a possible winter phase beginning in late 2008. The Austrian-school economists point out that extreme price inflation in the absence of economic growth is a form of capital destruction, allowing either stagflation (as in the 1970s and much of the 2000s during the gold and oil price run-ups) or deflation (as in the 1930s and possibly following the crash in commodity prices beginning in 2008) to represent a recession or depression phase of the Kondratieff theory.

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. Kondratieff’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.

There is controversy over the validity of Kondratieff’s theory among many scholars. Some believe that not enough is attributed to actual human errors that have created some of the economic situations of history, and too much to the inevitability of the characteristics of the phases of the waves. They claim that many of the situations were entirely avoidable, not the consequences of an unstoppable wave pattern. Others doubt the legitimacy of Kondratieff’s waves because they believe that every wave is a structural cycle that has unique characteristics and cannot be repeated. There is also controversy over Kondratieff’s research – many believe that the conclusions and results of his research are biased because he highlighted and used only certain events to reach his conclusions and left out other important data and events that could have affected his outcomes.

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 Kondratieff. 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 Kondratieff 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 (Marchetti 1987. Society as a learning system. Discovery, Invention and innovation cycles revisited. Siracusi Scholar. ClibPDF- These variables tracked in their appropriate units yield more reliable observations than the earlier ones obtained from monetary/financial indicators.



A rough schematic drawing showing the “World Economy” over time according to the Kondratieff theory.