Nikolai Kondratiev’s Theory and Impacts

Kondratiev’s Theory, Influences & Impacts

Very few people have actually read Kondratiev’s theories for several reasons. First he was writing in Russian. Even when he met with other economists in Europe and in the US they begged him to publish in English or German. Few people spoke Russian and even less could read it. Secondly, his life was incredibly short. His working life was primarily in the 1920s as he was jailed in the 1930s before his execution in 1938. Third he was researching and working inside of the early Soviet Union. The fact that he accomplished working on Long Cycles is nothing short of astounding. Finally there was in reality only one heavily abridged article published in German in 1926. Kondratiev first mentioned the idea of Long Cycles in print in the monograph The World Economy and its Conjuncture During and After the War (Mirovoe khozyaistvo i ego kon”yunktury vo vremya i posle voiny) published in 1922. Kondratiev’s first paper devoted specifically to long cycles was published in Questions of Conjuncture (Voprosy kon”yunktury) in 1925, and a version of this paper was translated and published in The Review of Economic Statistics in 1935. On 6 February 1926 Kondratiev wrote an expanded and revised version of his account of long cycles in the Institute of Economics in Moscow.

In 1928 Kondratiev published a detailed application of Long Cycle analysis to the interrelation of international agricultural and industrial prices, which was in many ways the pièce de résistance of his output on long cycles, and this paper was the last which he wrote on Long Cycles. Thus the only years for Kondratiev long cycle publications were in 1922, 1925, 1926, and 1928. They were few and far between.

Another common mistake is that Kondratiev called his theory long waves. He did not. Kondratiev chose ‘cycle’ rather than ‘wave’ and the distinction was important to Kondratiev. He preferred ‘cycle’ to ‘wave’ because Kondratiev referred to the major cycle as being composed of two segments, a rising wave (povyshatel’naya volna) and a declining wave (ponizhatel’naya volna). Thus for Kondratiev a ‘wave’ was really only half a ‘cycle’. Kondratiev’s idea of a wave as half a cycle is very clearly present in a number of his works.1

In fact there have been several errors have been introduced into his work by mistranslation and reprints of Kondratiev’s work. His 1926 article in German was translated in 1935 and errors were introduced into his dating. This has added to what has been mistakenly called Kondratiev long waves and dates. Joseph Schumpeter was one of the most enthusiastic promoters of the idea of long cycles, giving much credit to Kondratiev for first investigating this idea in detail. Schumpeter wrote in his Business Cycles of 1939:

We date it [the first Kondratiev – VB] from the eighties of the eighteenth century to 1842. The second stretches over what has been called the age of steam and steel. It runs its course between 1842 and 1897. And the third, the Kondratieff of electricity, chemistry, and motors, we date from 1898 on.2 We should set a baseline understanding at this point. Kondratiev’s model was wrong. “The course of history has invalidated his specific model. With a few brief minor interruptions, the price level in every major industrial country rose continuously after reaching a trough in the early 1930s. The regular wave motion of the price level Kondratiev had perceived for the 140 years from 1780 to 1920 was undone by an upswing that lasted longer both portions of previous waves and reached levels far above the apparent previous bounds.”3

The search results for terms such as “long waves” or “Kondratiev cycles” fascinates me. The results always show many graphs purporting to be Kondratiev’s work but in reality has absolutely nothing to do with him. This is because he only ever drew one graph which almost no one has ever seen showing what a long cycle looks like. In order to see this graph I had to travel to University of Pennsylvania’s Wharton Business school’s Lippincott library. There they have what not even the Library of Congress does not have and that is Kondratiev’s complete life works published in a four volume set. In volume one on page 173 is the only graph of long cycles which he actually created. It is one and half long cycles. It looks like the image immediately below.

The graph hardly mentioned from a very short chapter which for the most part are lists of revolutions and wars. Kondratiev’s list is for the wars and uprisings he attributed to the “upswings” which occur both in halves of his Long Cycle. This orphaned graph was stuck at the end of the lists and some short paragraphs by the editors because Kondratiev in essence never attempted to really explain what Long Cycles were or why they were repetitive. Why would he go to such lengths and at such great peril to his own life and never bother to hazard to record his thoughts as to what and why? The answer is actually very straightforward. His life was very short. Further after he was imprisoned and his health was failing did he outline some very summary thoughts on these topics.

The reason why he addressed this really for the first time while in Suzdal prison was that he had spent the prior ten years gathering data which he graphed endlessly on prices, wages and other metrics in order to try and come up with a way to move Russia from an agrarian economy to an industrial economy. If you look at his thinking for the first five year plan, he was outlining investing in agricultural infrastructure and capital so that the farmers would be enabled to participate in gaining the profit from their labors. He felt that if this were the case the growth would organically generate Russia’s move towards industrialization from the agricultural economic growth. He said as much upon his return from his trip abroad where he had studied how the US farming system worked. He noted how entrepreneurial the US farmers themselves were and how they maximized their use of capital in order to farm.

Kondratiev was in effect as much a Marxist as any of the US Chairs of the Federal Reserve. In other words he was not a committed communist. In fact as a young man he was arrested twice for his working towards democracy and not communism. The Czar had no interest in democracy and this is why even democratic leanings would land students like Kondratiev in jail. Kondratiev was also a vocal critic of the Bolsheviks after they had taken power. He had been working in the democratically elected Duma (Russia’s version of congress) when the Bolsheviks shuttered it.

Kondratiev encountered the Long Cycles while studying western economies. He discovered this while working inside of a totalitarian led communist government. The Marxists were working to end capitalism. When they asked him to project a date for Capitalism’s end he did not. He did not because he didn’t think capitalism was going to end. His feelings, his work efforts would all lead to his demise. But he was trying to survive inside of a lethal and turbulent society which typified the early Soviet Union. He felt that a market lead agrarian economy could grow into an industrialized one.

From the lone German translated article in 1926 listen to his own words and judge if he is trying to remain faithful to his belief in the long cycle while walking a political tightrope.

It has been pointed out [by other critics] that the long cycles conditioned by casual, extra-economic circumstances and events, such as (1) changes in technique, (2) wars and revolutions, (3) the assimilation of new countries into the world economy, and (4) fluctuations in gold production. These considerations are important. But they, too, are not valid. Their weakness lies in the fact that they reverse the causal connections and take the consequence to be the cause, or see an accident where we have really to deal with a law governing the events.

A few pages later, he concludes with:

In asserting the existence of long cycles and in denying that they arise out of random causes, we are also of the opinion that the long cycles arise out of causes which are inherent in the essence of the capitalistic economy… in the preceding sketch we had no intention of laying the foundations for an appropriate theory of long cycles.4

Kondratiev was forced to waffle because he was at the very center of the fledgling USSR where economic opinions were enforced from the barrel of a loaded rifle. Read the words straight from the most thorough Kondratiev biographer Vincent Barnett who recorded Kondratiev’s words: “technology is (what) stimulates upswing for invention. (He may well, on the other hand, have taken the view that the downswing stimulates innovation and diffusion.)”5 Or when Barnett wrote: “While the Second World War fits nicely into the international relations Long Cycle, as the closing chapter of a global war, it would have been the last thing Kondratiev would have expected, after twenty years of a long downswing.”6

The last major reason why Kondratiev never really postulated why the cycles repeat is because he had only lived when two and half cycles had occurred. Further he utilized dates supplied by others investigating the Long Cycles existence. He did compare prices, wages and the like against those dates therefore he knew a model was in all of that data. He just never had the time to pull it together. This is one of the primary reasons I have spent the time to document all of this. The reality is that very few people have ever read what Kondratiev thought or truly understand the barest outlines of his long cycles. No what you find is people filling in a general model with their own thoughts and typically without the research which Kondratiev actually dedicated his life in pursuit of. The payoff will come later with economists who have the data and time to hammer out a functional long cycle model.

Summary Kondratiev Theories

Summarizing Kondratiev’s Incomplete Theory from later unpublished works:7

  1. The timing of ‘extra-economic circumstances’ in the Long Cycle;
  2. The timing out of or caused by the cycle;
  3. The feedback into the long cycle to provide at least a large element of an endogenous theory.

Frankly Kondratiev had far too little data and time to develop a functioning model (this comes later and from others).  He researched and recorded dates for upswings and downswings he had ascribed to the two rising and falling waves that each long cycle features. He based his logic on four main pillars which fired the mind of other economists, both in his lifetime and later ones. One of the four primary pillars was based on elements which the luxury of time has shown to be features of the economy in his day. He ascribed gold mining as the expansion of the money supply as a primary factor. Since the world removed the gold standard for currency starting in the 1930s, gold is no longer a meaningful measure of the economy (outside of pure investor speculation).

However he did focus on three areas which have been confirmed through time to be crucial for industrialized economies. The first is technical innovations. Kondratiev wrote “far-reaching changes in manufacturing techniques and capacity (which in turn are preceded by significant technical inventions and discoveries).8 Today we know that the economy is being driven by innovations in digital technologies (Cloud, Virtualization, AI etc). He had put his thinking correctly on top of the primary factor.

His second major pillar was the expansion of the economy was due to particular leading nations building out new technical economies. He provided the USA as an example as the economy which was powering the rest of the world’s economy. Kondratiev provides an economic example where he wrote that it was “technical developments which had made transport cheaper.”9  

Finally he addressed the social upheavals which repeat in every long cycle.  The upheavals from civil wars and wars between nations are one of the issues which continue to generate the ongoing interest in Long Cycle theory. Kondratiev tried to fit social upheavals into specific up and down swings. His timings were incorrect as Long Cycle theory had not yet matured for accurate recording.  BUT. But later Long Cycle economists did recognize that social upheavals are and have been a structural element in long cycles.  However timing wars are not predictable in long cycles. The social upheavals are however. Much – much, more on this later. 

Why didn’t Kondratiev every produce a model from all the research and data? You can’t forget he was working inside of the infant USSR. So early in fact that Lenin was still alive when Kondratiev began pursuing Long Cycles. The early USSR was predicated primarily on the Bolshevik read out of Karl Marx’s tome Das Kapital. In Das Kapital Marx employed an unsophisticated version of the theory for the ‘life period of capital goods’ as an explanation of business cycles.10  I suspect that Kondratiev in both breaking new ground while working with the kryptonite of capitalism, was trying to link his work to Marx’s Kapital. I also think he was desperately trying to also remain squarely within macroeconomic neoclassicist’s canon. In classical economics capital goods depreciate over time and the good replacements help fuel the economy. 

There were two central ideas in Kondratiev’s theory of Long Cycles: (1) the discontinuous replacement of basic capital goods; and (2) the periodicity of capital investment. For Kondratiev the material basis of the Long Cycle was the wear and tear, the replacement and the increase in the fund of basic capital goods such as big plants, railways and canals, large land improvement projects and so on. He wrote “the replacement and the increase in this fund is not a continuous process. It takes place in spurts which are reflected in the major cycles of economic life. The period of increased production of these capital goods corresponds to the upswing.”11 We know today that it is not so much as capital goods wearing out but rather the modernization of industries which occurs which propels the second half of each cycle. More of that back in the main Long Cycle history page. However Kondratiev in trying to hook into both Karl Marx’s theory from Das Kapital and neoclassical economics created an unbridgeable conundrum.

Kondratiev’s Influence

Almost immediately after it was proposed, the Kondratiev cycle achieved a certain infamy among both Soviet and Western economists. It is probably true to say that much of the attention was negative, in that many economists were unconvinced that any such cycle exists. For Soviet critics the idea of Long Cycles went counter to the desire for a final and decisive collapse of capitalism; for many Western critics there was insufficient evidence to support Kondratiev’s hypothesis. Some Western economists incorrectly assumed that because the idea of long cycles emanated from the USSR, it must be Marxist in spirit, and criticized it and its originator on this basis. However, a few Western economists took up the long cycle torch with enthusiasm, most notably Joseph Schumpeter, Walt Rostow, and Ernest Mandel. Rostow is known for his book The Stages of Economic Growth: A Non-Communist Manifesto. Rostow’s theories were embraced by both the Kennedy and Johnson administrations (serving as national security adviser to the president). Mandel was famous for having correctly predicted at the beginning of the 1960s, as Milton Friedman (Nobel laureate economics 1976) had, that the postwar economic boom would end at the close of the decade.

Schumpeter’s two-volume Business Cycles of 1939 remain one of the all-time great accounts of economic fluctuations, and was heavily dependent on his own interpretation of the long cycle idea. Schumpeter decided to call the Long Cycle the ‘Kondratiev cycle’, and his work was full of terms such as ‘the Kondratiev depression’, ‘the Kondratiev prosperity’, and ‘the Neomercantilist Kondratiev’. He also named the sequence of Long Cycles the first, second, and third Kondratiev. In his use of the idea of interrelating cycles of various periods Schumpeter was following Kondratiev’s footsteps in methodology as well as in concrete specifics.12

Kondratiev’s Contributions

To conflate Kondratiev’s contribution to economics simply with the idea of Long Cycles is missing the point entirely. Together with others like Wesley Mitchell, Kondratiev pioneered a fundamentally new approach to the study of economic conjuncture Long Cycles actually exist or not has little bearing on the importance juncture within which the Long Cycle was only a small part. Whether Long Cycles actually exist or not has little bearing on the importance of this approach. Kondratiev attempted to integrate the study of various lengths and amplitudes of cycle, and to analyze movements in particular sectors and elements of the economy as parts of a conjectural whole. This approach was most clearly seen in Kondratiev’s 1928 paper on the relative dynamics of industrial and agricultural prices, this being whole. This approach was most clearly seen in Kondratiev’s 1928 paper on the relative dynamics of industrial and agricultural process, this being why it was presented in detail. Kondratiev thus strived to further develop statics and dynamics in economics, a distinction (gap) which had existed in the neoclassical economics for many decades. While Kondratiev was certainly not the only economist moving in this direction in the 1920s, he deserves to stand alongside the other currently more famous pioneers. Schumpeter was published in his day and therefore famous for his work based Kondratiev. It is only due to the publication of the complete Kondratiev’s works in the 1990s which enabled a view into just how far reaching his thinking actually was.

Finally, Kondratiev’s work on conjuncture also attempted the integration of economic theory with economic policy, in that the theory of conjuncture was to be used to provide policy guidance in composing economic plans and in setting economic variables such as tax levels. Kondratiev may have been less successful in realizing this goal in the concrete conditions of the USSR in the 1920s, but the general approach remains impressive. As regards its policy relevance today it should be noted that at a dinner hosted by the German Federation of Industry in 1996, the German president Mr. Herzog raised the prospect that Germany might miss out on the fifth long cycle based on informational technology. Noting that Germany had been a technological pioneer in the second, third, and fourth long cycles, Herzog stressed the importance of investing in R&D to ensure that Germany played a full role in the fifth Kondratiev cycle. The Kondratiev cycle thus still remains in popular consciousness as far as economic policy-making is concerned.13

We will revisit this topic with Long Cycles being subsumed within the evolutionary economics paradigm. Evolutionary economics specifically utilizes dynamic measurements for planning on greener economies and other dynamic measurement problems which neoclassical economics does not address. Long cycles will occupy a place within evolutionary economics due to functionality as a useful contextual planning and measurements tool. 

The only five charts from the 1925 paper published outside of Russia

Kondratiev’s work had been discussed for a few years after the 1926 article based on incomplete and incoherent versions of his original writings. The reason why Long Cycles became so important is due to the later modifications and maturation of Kondratiev’s original conception for Long Cycles by a series of economists. In 1924 and 1925 Kondratiev traveled to Europe to research and advance his theory. Kondratiev did have some of his writings translated in an article and published in German but the article was heavily abridged. The 1926 article we know was read by Schumpeter as he republished some of the five graphs in his own works on business cycles. Until the end of the 20th century these five charts were the only things Kondratiev ever had published in the West.

Kondratiev Influences

Joseph Schumpeter

In the 1930s Schumpeter took up the role of technical progress in long cycles, and argued that basic innovations like the steam-engine and the railway (together with the ‘swarming’ of smaller, secondary inventions) could launch a long cycle. In many ways Kondratiev’s work received its greatest expression not by Kondratiev himself, but by Joseph Schumpeter, whose Business Cycles of 1939 is inconceivable without the foundations laid by Kondratiev. In this work Schumpeter wrote:

… if innovations are at the root of cyclical fluctuations, these cannot be expected to form a single wavelike movement, because the periods of gestation and of absorption of effects by the economic system will not be equal. There will be innovations of relatively long span, and along with them others will be undertaken which run their course, on the back of the wave created by the former, in shorter periods. This at once suggests both multiplicity of fluctuations and the kind of interference between them which we are to expect.

In his two-volume study Business Cycles, Schumpeter acknowledged that economists before Kondratiev had noted elements of the long cycle, but proclaimed that:

“It was N.D. Kondratieff, however, who brought the phenomenon fully before the scientific community and who systematically analyzed all the material available to him on the assumption of the presence of a long wave, characteristic of the capitalist process.”14

Schumpeter’s two-volume Business Cycles of 1939 remain one of the all-time great accounts of economic fluctuations, and was heavily dependent on his own interpretation of the long cycle idea. Schumpeter decided to call the long cycle the ‘Kondratiev cycle’, and his work was full of terms such as ‘the Kondratiev depression’, ‘the Kondratiev prosperity’, and ‘the Neomercantilist Kondratiev’. He also named the sequence of long cycles the first, second, and third Kondratiev.15

In The Growth and Fluctuation of the British Economy Schumpeter’s use of Kondratiev’s work was analyzed in detail and Kondratiev was given credit for certain specific propositions. For example the tendency for prices to rise during the period when technical innovations were being introduced, but before they yielded lower costs and increased output, was called ‘the Kondratiev factor’.

ROSTOW 1960s

Rostow’s work in the 1950s on the process and stages of economic growth was also greatly influenced by Kondratiev’s approach to analyzing long-term change. In a letter to the author (Vincent Barnett) Rostow admitted that he knew of Kondratiev’s work early on in his career, and linked his knowledge of Long Cycles with his work on long-term UK data series which eventually formed part of the two-volume study The Growth and Fluctuation of the British Economy, 1790-1850. In this letter Rostow outlined that two elements of Kondratiev’s work in particular were puzzling to him. Firstly, that Kondratiev did not have a theory of Long Cycles, and secondly whether wars could be related to Long Cycles. Rostow tested the Revolutionary and Napoleonic wars, Bismarck’s wars, and the First World War for correspondence with the Long Cycle, but he found that only the American Civil War was connected. Thus Kondratiev’s long cycle hypothesis had an influence on Rostow’s work on the British economy.16

Kondratiev’s work on long-run dynamics also stimulated later work in indirectly related areas. For example W.W. Rostow’s books on economic growth are Kondratievian in various respects. Rostow emphasized how not only the rate and direction of economic growth, but also the sequence of development was crucial to success. Kondratiev’s trip to the USA allowed him to see this aspect of the problem clearly, although he did not integrate it into a complete theory as Rostow later would. Although in 1990 Rostow would write of a possible ‘requiem for Kondratiev cycles’, caused by the forces making for long cycles in relative prices disappearing, the fact that he was still using Kondratiev’s framework sixty five years after the first paper on long cycles was published says much about Kondratiev’s importance. Rostow went on to become an advisor on foreign affairs in the Kennedy administration and to write two further classics in growth theory, The Process of Economic Growth of 1952 and The Stages of Economic Growth of 1960. 

The Footnotes Follow

  1. The Works of Nikolai D Kondratiev (The Pickering Masters).  Basic problems of Economic Statistics and Dynamics. Volume 1. Nikolai D. Kondratiev (Author), Edited by Natalia Makasheva, Warren J. Samuels and Vincent Barnett. Translated by Stephen S. Wilson. Publisher: ‎ Routledge (1998). Page xxxvi. ↩︎
  2. IBID Page xliv. ↩︎
  3. Business Cycles and Depressions. Edited by David Glasner. Garland Publishing 1997. Page 365. ↩︎
  4. IBID Pages lxxi-ii.  ↩︎
  5. IBID Page lxxii. ↩︎
  6. IBID Page lxxviii.  ↩︎
  7. BID Page lxxii.  ↩︎
  8. IBID Page lxxii. ↩︎
  9. IBID Page lxxiii.  ↩︎
  10. Kondratiev and the Dynamics of Economic Development. Long Cycles and Industrial Growth in Historical Context. By Vincent Barnett. Publisher Palgrave Macmillan; 1998. Page128. ↩︎
  11. The Works of Nikolai D Kondratiev (The Pickering Masters).  Basic problems of Economic Statistics and Dynamics. Volume 1. Nikolai D. Kondratiev (Author), Edited by Natalia Makasheva, Warren J. Samuels and Vincent Barnett. Translated by Stephen S. Wilson. Publisher: ‎ Routledge (1998). Pages 128-129. ↩︎
  12. Kondratiev and the Dynamics of Economic Development. Long Cycles and Industrial Growth in Historical Context. By Vincent Barnett. Publisher Palgrave Macmillan; 1998. Page 136. ↩︎
  13. IBID Pages 140-141. ↩︎
  14. IBID Page 6.  ↩︎
  15. IBID Page 136.  ↩︎