The Kondratieff Wave

Timesizing® America
©1998-2002 Phil Hyde, The Timesizing Wire, Box 622, Cambridge MA 02140 USA (617) 623-8080 - HOMEPAGE

The Long Wave and War
Schumpeter's Business Cycles (1939) proposed a three-cycle model of economic fluctuations or waves. Squeezing another cycle between his last two, we get -

Kitchin inventory cycle (3-5 years)
[but for goodnessake, don't confuse the kitchin come-in wave with the bathroom go-away wave!]
Juglar investment cycle (7-11 years)
[always go for the juglar!]
Kuznets infrastructural investment cycle (15-25 years)
Kondratieff long cycle (45-60 years)

For Schumpeter, three Kitchins made one Juglar and six Juglars made one Kondratieff. Fitting in the Kuznets, presumably two or three Juglars make one Kuznets and three Kuznets make one Kondratieff.

A more recent writer, Ernst Mandel in his Long Waves of Capitalist Development (1980), opines that we are now living in the downswing of the fourth Kondratieff, which started in 1945 and reached its peak in the early 1970s. This coincides suspiciously with the post-war labor shortage and the restoration of the labor surplus of the Depression around 1970 as the now-grown-up postwar baby boomers entered the job markets. Plus the Democrats started raising immigration quotas in 1967 to get more grateful voters and housewives started jumping into the job markets in the 70s to compensate for hubbies' missing pay raises once the restored labor surplus plateau'd real wages.

An overview of these cycles is in the Kondratieff entry in Mark Blaug's Great Economists before Keynes (Wheatsheaf, 1986), p. 114-15. And David Kaiser in "Utterly at odds" on p. E1-E2 of the 4/28/2002 Boston Globe says, "Some historians are beginning to focus upon 80-year cycles in American and world history.... In the United States, the founding of a republic divided by the issue of slavery in 1788 eventually made the Civil War inevitable. The outcome of that war, in which the North reestablished the Union but eventually allowed the Confederates to maintain white supremacy, laid the foundation for the civil rights struggles that began in the 1950s. ... In the last 10 years, we witnessed the disintegration of Yugoslavia, Czechoslovakia, and the Soviet Union - all creations of the First World War that had lasted 75-80 years."

Phil Hyde's view is that the real basis of the long cycle has been missed - because it is too obvious and humbling in the same sense in which the Copernican theory (we're not the center of the solar system let alone the universe) was humbling relative to the Ptolemaic theory (we are the center). The real basis is the overall ("aggregate") supply and demand of labor and employment. In other words, is capitalism running smoothly on a shortage of labor = surplus of employment, or is capitalism running poorly on a surplus of labor = shortage of employment? Do we have a resulting, prosperous economy of over-consumption and under-production (with slow inflation) or a resulting impoverished economy of under-consumption and over-production (with slow deflation). See our Bibliography page for the literature on this view.)

Most economists talk as if the price of human time (wages or labor price) is separate and somehow insulated from the ordinary laws of supply and demand to which the prices of non-human goods and services are subject. Hyde sees them all as subject to the same laws. He sees Kondratieff long waves as cycles of balance and surplus in the supply of labor relative to the supply of employment. (The fact that the waves are so long accounts for the difficulty those intimately involved in them have experienced in identifying their true nature. That is, not only are "further fields greener" but they are easier to be "objective" about. It's harder to be detached about something closer to you - it's tough to "operate on your own retinas." The Whorf-Sapir Hypothesis says that one's language determines the class of ideas that one can potentially get, and Hyde would include "one's income source" along with "one's language.")

The mechanism of the long wave is interesting. A balance between the supply of labor and the supply of jobs is usually perceived by employers as a shortage, because it "forces" employers (by market forces) to increase wages and concessions instead of "forcing" them to implement layoffs. As wages rise, wealth centrifuges out of its extreme concentration among the rich. As wealth centrifuges and passes into the hands of the middle and lower classes who tend to spend it more quickly and in smaller amounts, the velocity of money rises and the multiplier effect cuts in. A law of the increasing marginal efficiency of centrifuged wealth operates to accelerate the economy. "A rising tide lifts all boats," eventually even those of the rich - but in healthy proportion to the volume and speed of circulating money.

As peacetime prolongs, however, a surplus of labor gradually arises due to births, immigration, imports, technology, and/or banking manipulations (e.g., interest rates) and the bargaining power of labor erodes, and with it labor's favorable wages and concessions. Wealth gradually reconcentrates in the fewer pockets of the upper income brackets and the law of the diminishing marginal efficiency of concentrated wealth operates to slow the economy. "The more concentration, the less circulation." A falling tide grounds all boats, eventually even those of the rich. [Note the linguistic discovery techniques at work here - gap in paradigm and paradigm completion. We have articulated a hitherto non-extant opposite for two established statements - the marginal efficiency of wealth and the rising tide's effect on all boats.]

The mechanism of the expansion is "demand driven" or rather evoked. It's a powerful pulling process rather than a pushing process, and as Bucky Fuller was fond of pointing out, pulling is much stronger and more efficient and varietous. A balance between the core markets of labor and employment evokes a healthy demand in all other markets. And that demand evokes supply of a great variety of goods and services.

Hyde's view integrates the notion that "wars are good for economies" in the sense that wars (occasionally replaced or supplemented by plagues) periodically cut the labor supply and restore a balance between labor and employment. The hallmark of this balance is a deconcentration of wealth and an acceleration in the velocity of money. Wars (and/or plagues) function to cut labor surplus in three ways -

the obvious way - they kill people (i.e., they create infinite markets for services, especially for trained killers to expose, in turn, to being killed)
the usually mentioned way - they create infinite markets for goods (especially weapons to expose to destruction)
they break the cultural strait jackets that had been determining access to wealth via skills and employment

Hyde's theory holds that a new area (only the last two centuries) of operation for the cultural constraints is on worktime (in five senses, - worklife, workyear, workmonth, workweek, and workday). Hyde holds that the market never constrains worktime - culture does - because worktime is a basic component of the predefinition of any job market - part of the level, or slope, of the playing field as it were - and not part of the definition process that the market itself is constantly doing. A major change agent of the cultural constraints on worktime is war, just as war is a major change agent of the cultural constraints on age, gender and accent variety relative to a given domestic job market (e.g., the exit of children and elders from the job market and the entry of women and immigrants). War creates such a "shortage" of labor that labor has the leverage to get shorter worktime if its cultural conditioning allows it. After World War I, culture allowed shorter hours so hours shortened somewhat in the 1920s (but not enough to offset the laboar displacement of technology during the period). After World War II, culture did not allow shorter hours but coincided with workweek freezing forces such as the Puritan work ethic ("work hard to get ahead") and uncertainty about how much further workweek shortening could go without undermining the viability of the whole exchange method of distributing wealth.

As the 1990s wind to a close, culture is again allowing workweek shortening.

"Work smart, not hard."
"Europeans have a better life than us."
"To handle these big machines and robots with their greater productivity and risk, we need more rest."
"To handle the modern world with its greater complexity and risk, we need more time off."
"To guide our children in these complicated times, we need more family time."
And of course, most compelling, "if we don't cut our over-availability to the job market, rebuild our leverage and get a bigger share of the profits of technology, the top income brackets will concentrate (but not spend) so much spending power that they will starve the markets (us) away from their own investment targets (our productivity) and plunge the world's economies into deeper and deeper destabilization." We now have huge entire nations on the dole of job creation - 4/24/99 "IMF moves to free $4.5b for Russia - NATO allies hope aid would reduce tensions" (Boston Globe, p. F1). "In August, the IMF suspended its $22 billion package to Moscow, because Primakov's government failed to come up with a plan to lift the country out of a financial and economic morass." But there is no such plan on the dole of job creation and wealth concentration. The few wealthy in Russia are as capable of concentrating and shipping out of the country $44b as they are of concentrating and removing $22b or $4.5b. Only capping concentration can solve this, and capping the concentration of work and skills via worksharing/timesizing is a lot easier than capping income or wealth, let alone salaries, wages or stock options.

So, the long wave is primarily a matter of 70-80 year tides of technology and workweek length, and of alternating centripetal and centrifugal forces on wealth. When technology jumps ahead and makes hard human work unnecessary, the workweek either automatically shortens to absorb it (still unfortunately unusual), or the workforce loses leverage and proportional share and the top income brackets concentrate wealth - a situation of unbalanced centripetal (center-seeking) force on wealth.

The concentration evokes war by starving the markets away from its own investment targets. On one side this increases dissatisfaction and "nothing to lose" attitudes on the part of the workforce, especially the young males, more and more of whom are excluded from a good living and marriage and family. On the other hand it increases frustration among big investors who have nothing market-supported to invest in - except - "What if we had a huge war...." So war is motivated on all sides of the domestic economy, and the population throws a considerable proportion of its most aggressive and powerful elements (young males) into maximum risk of being killed. Hey, we "kill three birds with one stone" -

we employ our young males (and now females, now they're included in the military)
we get a number of them out of the job market for keeps via death or maiming
we motivate the centrifuging of our concentrated wealth. Note that during World War II, apart from all the investment that the wealthy were doing - which retained their title to grossly concentrated wealth, centrifuge mechanisms were easy to implement which alienated their title to some of it, mechanisms such as steeply graduated income taxes, revenues from which were centrifuged in the GI bill, housing subsidies such as the mortgage payment deduction, and later the federal highways program.

The Timesizing program and its successors do not redistribute wealth in these inefficient centralized ways. Instead, they reinvest wealth (via their automatic reinvestment thresholds) at the appropriate colossal (as it would appear to us today) levels appropriate to maintain and grow the markets required to support and grow the targets for the large investments needed by wealth that does still concentrate (albeit at a sustainably slower rate).

Bottom line, there's no Kondratieff in the sense of an automatic or necessary ascent after a concentration-borne descent. Ascents have been pushed from outside by Malthus' "active constraints" such as wars and plagues. For further on this, see our economic design page. For more details in general, our layperson's handbook, Timesizing, Not Downsizing, is available at bookstores in Harvard Square, Cambridge, Mass., USA or from *Amazon.com online.

Questions, comments, feedback? Phone 617-623-8080 (Boston) or email us.

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