published in the September 2009 edition of Fusion magazine


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A Long Wave Goodbye

It was a cold morning in Siberia on September 17, 1938. A broken man stood helpless in front of a firing squad. A single command was shouted, a series of shots were fired…and then silence fell.

The man who died that day was Nikolai Kondratiev and while the shots that killed him may not have been heard round the world, they were a deafening end to any hope for capitalism in the Soviet Union’s communist republic.

It all began in 1892 when Kondratiev was born. It was a fitting season for a birth. The icy grip of winter was just starting to crack and thaw, preparing the way for spring and the next wave of warmth, growth and activity.

Quick witted and extremely intelligent, Kondratiev overcame humble beginnings to study economics and history at St. Petersburg University, one of Russia’s most prestigious colleges, where he began making a name for himself as a leader in economic theory: A reputation that would later cost him his life.

By the time he was 25, Kondratiev was appointed to the position of Minister of Supply. However, a few days after he took office, the Bolsheviks seized power and he was relieved of his duties.

Undaunted by this political shift in rule, Kondratiev went on to study economic and agricultural issues as a member of the Socialist Revolutionary party. Using the knowledge gained here, he helped the young Soviet Union create policies for developing its agricultural sector. He played an important role in the New Economic Policy (NEP), adopted by Lenin in 1921, which allowed some small businesses and peasant farmers in the communist nation the freedom to operate for profit.

But in addition to his work for the government, Kondratiev pursued his own special research interests at the Institute of Conjuncture, which he founded. High among these was the question of how and why capitalist economic activity fluctuates over time. Like a handful of researchers before him, Kondratiev had noticed that the capitalist world appeared to go through long economic waves of roughly half a century in length.

These long waves, he noted, begin with a “spring” phase, when technological innovations appear like green shoots of vegetation breaking through the barren sod of winter. As society adjusts, the economy settles into a “summer” phase of escalating growth. Then, in the “fall” phase, economic growth reaches a breaking point and crashes. What follows is a long, desolate economic “winter,” lasting up to twenty years. This kills off all but the strongest businesses and clears the way for a new wave of innovation and growth in the coming spring.

Through his research, Kondratiev discovered that these waves lasted from 40 to 60 years. By his reckoning, the first dateable one was from 1790-1849. Another followed from 1850-1896. This meant the capitalist world was in a new wave that had begun in 1897.

By the mid 1920’s, Kondratiev was living an intellectual’s version of the good life. He published books and papers on his theories. He became well known in academic circles both in the Soviet Union and outside it. He traveled to England, Germany, Canada and the United States to visit and lecture at universities. His work helped establish a consensus on the accepted historical dates of the long wave, and that they were an important thing for economists to study and try to understand.

However, one person who was not impressed with Kondratiev's ideas was Leon Trotsky, one of the leaders of the Russian revolution and, at least for a time, second only to Lenin in the Soviet power structure. Trotsky’s beef was not with long capitalist economic waves per se. He believed they did exist. But he believed they were the result of outside events, such as a war, acting on the economy. Kondratiev’s theory, on the other hand, held that the long wave was a part of the capitalist system itself, and would happen regardless of outside events.

It seems that little came of this dispute, perhaps because Comrade Leon had his own battles to fight with the Soviet bureaucracy. Soon enough, Trotsky would be jettisoned into Kazakhstan, and then completely out of the U.S.S.R. altogether.

Despite this exile of his one time foe, new storm clouds gathered on Kondratiev’s horizon as he had fallen afoul of Trotsky’s vanquisher, Joseph Stalin.

As one of the architects of the New Economic Plan (NEP), Kondratiev supported an economic focus on agriculture and the production of consumer goods. But Stalin, who gained power in the wake of Lenin’s death, was an avowed enemy of the NEP and believed the Soviet economy should eschew markets and focus on heavy industry rather than pesky things like food and consumer goods. Thus Kondratiev gained entry into Stalin’s rather sizable doghouse.

Kondratiev lost his position at the institute he had founded, and in 1930 faced a trumped-up charge of being involved with an illegal political party. Stalin personally wrote a letter asking for his execution. But Stalin’s power in the Soviet Union was not yet absolute. Kondratiev received an eight-year prison sentence instead.

Behind bars he continued to write papers and books on his economic theories, as well as letters home (see sidebar). His international reputation held strong and in 1933 he was elected, along with contemporaries such as John Maynard Keynes and Joseph Schumpeter, to be a founding member of the prestigious Econometric Society.

By 1938 Stalin’s power in the Soviet Union had grown, and he could not have been happy with Kondratiev’s ongoing stature as an economist. He engineered a new trial which ended with Kondratiev standing at the wrong end of the aforementioned firing squad. As the guns were raised, their muzzles aligning on him, it was, like his birth, a fitting season. The autumn crash had arrived. A cold winter was approaching.

In the years following Kondratiev’s death, his long wave theory proved eerily prescient. In the 1920’s, he had dated the current wave as beginning in 1897. That would imply an economic winter setting in somewhere in the neighborhood of 1930 and lasting until about mid-century. The Great Depression of 1930 and the economic re-birth that began at the end of World War II (1945) lined up almost perfectly.

Economist Joseph Schumpeter continued studying long waves. They fit in well with his theory of creative destruction, the idea that recessions are how an economy prunes off deadwood and clears the way for new growth. In his 1939 book Business Cycles, Schumpeter named the long wave the Kondratiev wave, or K-wave, in Kondratiev’s honor.

Despite Schumpeter's work, interest in long waves declined as the years wore on. The economic theories of John Maynard Keynes became the dominant paradigm. These theories said that government policy could be used to control the economy, boosting it out of recession or cooling it down from inflation. The idea that the economy was at the mercy of long, inevitable cycles was antithetical to this.

But like the long wave itself, the ideas of dead economists sometimes come back around. In the 1970's, with Keynes’ ideas falling out of favor, alternative theories like Kondratiev's gained new supporters.

Nonetheless, long waves have never made it fully back into the mainstream of economic thought. One big criticism is that they allow researchers too much wiggle room. By altering starting and ending dates, a wave can be made to fit almost any set of circumstances

For example, in 1982, K-wave theorists declared the start of an economic winter that would last until the year 2000. As it turned out, the economy was strong during this period, with two of the longest expansions on record.

Having re-worked the dates, some say we are now in a K-wave winter. Whether this is true remains to be seen. But getting caught up in such predictions may make us miss the larger lesson of Kondratiev’s work.

Many economists see the economy as an engineering problem: if there is a recession, we need to find the right set of policies to end it. But if Kondratiev was right, there is a rhythm to the economy that is beyond our control. Instead of finding policies to fix a recession, we may need to focus on simply surviving “the winter” until spring returns.

More than anything, Kondratiev left us with a fascinating mystery, one that deserves more attention from modern economists. As one historian noted, all the research on long waves “has convinced many historians and even some economists that there is something in them, even if we don't know what.”

the end