The peaks in Kondratiev cycle of the Price Index can be seen occurring in 1814, 1864, and 1918; between the peaks are two Kondratiev troughs in prices in 1841 and in 1893.
The three cycles from 1800 showed plateaus ending in 1818, 1871, and 1929. The vortices that followed this fall from plateau occurred in 1830, 1878 and 1932.
After 1945 democratic governments in the developed world followed Keynesian economic policies which use fiscal and monetary economic stimuli, this began with the New Deal in the mid 1930’s in the USA. Fiscal stimuli mean government expenditures on public works and monetary stimuli means increasing the level of money supply, government runs a deficit and this puts extra money into the economy than is taken in taxes. The Federal Reserve in the USA and Bank of England in Britain have recently increased the amount of money in circulation through government borrowing to stimulate economic growth.
It can be seen that the Reduced Price peaked in 1981, whereas the raw Price Index plot rises throughout the 1970's to 1990's. There is a peak in the Reduced Price in 1981; which means that the economy has actually been in a down-wave despite rising prices. The economy has received economic stimulus throughout the down-wave from deficit spending from Reagan through to the Bush governments and through growth in Money supply from the 1990's.
In 1992 there was a Kondratiev trough for Reduced Price and followed by a long plateau and a Kondratiev peaks before the sharp drop in Reduced Price to a vortex. Based on previous cycles the Deflationary growth peaks should occur about twenty years after the Kondratiev peak. The first two Deflationary growth peaks were in 1836 and 1881 occurred close to the ends of down wave on the stock markets in 1835 and 1881. If the year 2000 stock peak ends with a second precipitous drop, or fall from plateau as in 1929 this should drop into a vortex. The Kondratiev cycle would then indicates a further down-wave with a second trough with another fall from plateau to come.
This means as deflation has not yet occurred, if the world’s governments increase economic stimuli as they did in the 1940's this may reduced the real fall in price after inflation is taken into account. The reductions in the Federal Funds rate and administrations tax cut so far have failed to stimulation the economy enough to prevent a depression. The monetary economic stimulus on its own will not be sufficient. Government Fiscal policies with public building programmes such a building social housing are required to stimulate employment and create a demand for goods if a deep depression is to be avoided.
Kondratiev’s cycle shows down-wave in the stock market ended with a fall from plateau similar to 1929 for 2000 and that a large drop in Reduced Prices could be about to occur and the vortex is still ahead and the Kondratiev trough. Prices could then fall dramatically this would indicate that a severe Depression may be on its way.
Therefore the stock market peak in 2000 could be equivalent to 1929, if so the cycle is due for a fall off the plateau and that the reduced price should peak. The trend in reduced price began to fall early in 2001 reduced price had fallen to the lowest level since the 1981 down-wave. Action by the US Federal Reserve was able to push the economy back up by cutting interest rate in 1998. But since 2001 the reduced price has continued to fall.
The most recent Kondratiev down wave occurred from 1981-87 with a recession, and incorporated contained a stock market shock.
The 1980's fall to price plateau and the 1940's trough showed different characteristics from similar periods in past cycles. In 1873 and 1929 a lack of economic stimulation and a resultant deflationary pressure prices resulted in an economic depression. Hopefully like the 1940's and 1980's the governments economic action will prevent the fall from plateau like in 1929-32 being repeated. In the last phase it was the end of an inflationary period in 1981 that saw the Kondratiev peak, after this date interest rates began to fall.
The economic stimulation in the 1940,s and in the 1980’s/1990’s avoided full depression and the resulted in upward movement of the stock markets therefore recent fall’s towards plateau and trough period shows that economic demand management of the market can reduce the deflationary effect on the market.
The 1980's fall to Kondratiev plateau was so different from previous falls. Stimulation fell parallel with the price in 1864-66. In the 1918-22 price fall to plateau stimulation peaked in 1919, giving the brief post-war prosperity and upward movement in stock markets, before the deflationary period started, with stimulation continuing until 1921. In the 1981-87 fall to a plateau Reagan and Thatcher deliberately cut back stimulation using high interest rates to begin the process of the fall to a Kondratiev plateau and then cut interest rates to preventing the 1980’s recession becoming a full depression and engineered an upward movement on the stock markets after 1982.
The higher level of stimulation in the Keynesian period made a significant difference to the economic outcome. A massive stimulation was effectively used in the late 1940's period producing the long boom period (known as the thirty golden years);
Reagan and Thatcher were both ideologically apposed to governments running up deficits but both had to resort to running up government deficits by the mid 1980’s. Economic and political realities of deflationary political policies followed in the early 1980,s could not be ignored as easily in a democracy as in fascist state such as Chile or Argentina in the 1970’s when they introduced free market economics which resulting in extreme poverty.
The financial stimulation by the USA, Britain and the other G8 countries plus the latest interest rate cuts would indicate that the World Bank, IMF and G8 leaders see a possibility of an economic depression similar to that of the 1930’s if action to stimulate economic activity is not taken. Financial stimulus alone will not be enough and governments will have to invest in building projects in order to generate enough economic activity thorough public works.
Soviet socialism along with Keynesian welfare capitalism show that there is an alternative to extreme poverty and inequality that is the results of free market capitalism. It also demonstrates that the capitalist elite only make concessions to ordinary people when the fears of the socialist alternative forces social and economic concessions which will then be removed once that threat has been removed as has occurred over the last 30 years.
The financial stimulation by the USA, Britain and the other G8 countries plus the latest interest rate cuts would indicate that the World Bank, IMF and G8 leaders see a possibility of an economic depression similar to that of the 1930’s if action to stimulate economic activity is not taken. Financial stimulus alone will not be enough and governments will have to invest in building projects in order to generate enough economic activity thorough public works.
Socialism in the Soviet Union along with Keynesian welfare capitalism shows there is an alternative to free market capitalism and extreme poverty and inequality that is the results.
It also demonstrates that the capitalist elite only make concessions to the people when they fear the socialist alternative forcing social and economic concessions which they are now removing.
The forth economic cycle began during the Second World War with the ‘up-wave’ which lasted up to the 1970s. A Financial and commodity crisis in the 1970’s ended the first ‘expansionary period’ and by 1973 the economy had ‘Peak’ and the economic ‘down-wave’ or phase of decline started ‘Reaganomics’ and ‘Thatcherite’ policy marked the end of ‘welfare capitalism’ and ‘social democracy’. The 1990’s saw a decrease in the rate of return on capital. Financial speculation on the stock market in the late 1990s and the mortgage market have occurred as technological progress in manufacturing no longer gives the level of return that the capitalist elite expect.
The rising phase ended from 1973 with a ‘primary recession’ until 1983 and a long ‘Plateau’ until about 2000, with the declining ‘secondary recession’ occurring since 2005 with the fall from the’ Plateau’ into the ‘vortex’ and ‘depression’.
In the declining phase of the 1970s, the new-conservatives proposed free-market capitalism as a solution to stagflation. Antony Crosland the Secretary of State in 1973 said ‘the party is over’ with the end of the Keynesian boom. The primary recession started with the collapse of the international finance system and falling rates of profit. In the 1980’s and 1990’s stock market speculation on fictitious capital and the property market stimulating increase demand for consumer goods but today we see the level of debt reaching the point at which personal borrowing can no longer sustain the capitalist economy at the ‘Plateau’ as the forth economic cycle of capitalism descends into the ‘vortex’.
In 1973 the Labour secretary for state Anthony Crosland said ‘the part’s over’ this was a reference to the fact that the long period of boom that followed the Second World War was at an end and the capitalist world economy was entering a primary resection. This started with an international crisis of finance capital along with the falling rate of profit and approaches the ‘critical zone’. At this point the rate of profit made on capital investments have reached the point of ‘Critical Threshold’ At this point it dos not mater how much capital is invested in the production process the rate of profit has fell bellow the general rates of return on capital. In Britain in the 1970’s there was a better return on capital investment in finance than could be achieved from manufacturing consumer goods.
Marx noted within capitalism the ‘tendency of the rate of profit to fall’ as this happens it approaches the ‘critical zone’ and descends into the ‘vortex’. Development of new technologies has in previous periods of crisis increased the rate of profit above the ‘critical zone’. Another way that capital has solved the problem of a falling rate of profit is to obtain a supply of cheap labour or materials from less developed areas of the world by moving production through imperialist expansion of finance capital and multinational corporations.
The critical point in the expansion of capitalism will be reached when imperialist expansion can no longer solve the contradiction of capital, labour and nature. As the capitalist mode of productions is based on exploitation of labour, material resources and nature, the rate of return has declines from eight percent in the 1880’s to four percent by the year 2000 with peaks and troughs that have followed the general economic cyclical of the capitalist market in line with the rate of capital accumulation. Capitalist production has expanded in pursuit of profits by the use of new technologies cheaper labour and materials. Within this occur the cyclical crisis of capitalism, resulting in price inflation, over production, lack of demand ending in an economic downturn and unemployment and a financial crisis. Imperialist wars and new technology have in the past enabled a new phase of expansion to occur. Today we see the possibility that further expansion through globalisation and exploitation of labour and the world’s resources may have reached the limits for capitalist expansion and accumulation.
With the global ecological and financial crisis capitalism would appear to be on the edge of what could be the final ‘vortex’. If so the next stage of human development will be either socialism or the destruction of civilization and descent into war and barbarism. Capitalism threatens the earth’s ability to support human society and life itself.
F Ibrahim ‘Capitalism – ‘The Edge of a Vortex’ Communist Review No. 51, Autumn 2008,
M A. Alexander ‘The Kondratiev Cycle Revisited: Part One, Current Position in Cycle’
http://www.safehaven.com/article-78.htm M. A. Alexander. ‘The Kondratiev Cycle Revisited Part Two, Economic Implications’
http://www.safehaven.com/article-79.htm
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