An Introductory Explanation of Capitalist Economic Crises

Chapter IV: Capitalist Economic Crises in the Imperialist Era

(Last update to Chapter IV: 8/9/08)

4.1   Capitalism in the imperialist era.

      Capitalism has existed (at first just here and there) for over four centuries now, though it is only during the last couple centuries that it has become the dominant economic system in the world. But even during just those last two centuries lots of things have changed, including capitalism itself in some important ways. And with those changes and developments, capitalist overproduction crises first appeared in the early 19th century,1 and since then the characteristics of these crises themselves have changed and evolved somewhat.

      Capitalism itself has had two main stages over the past two centuries. The first major stage is usually called ‘pre-monopoly capitalism’, and the second major stage, which dates roughly from near the end of the 19th century, is usually called ‘monopoly capitalism’ or ‘imperialism’. All of these terms can be misleading, and often lead to difficulties for those new to the concepts.

      First, there were some cases of monopoly or semi-monopoly even during what is called ‘pre-monopoly capitalism’. But such cases did not characterize capitalism in that period.

      Second, the term monopoly capitalism is not meant to suggest that every industry, or even any industry, has only a single company producing specific products. Instead the idea is simply that there has been a qualitative increase in the degree of consolidation in industry in general in the direction toward monopolies. In Imperialism, the Highest Stage of Capitalism (1916), Lenin says this about monopoly:

Economically, the main thing in this process is the displacement of capitalist free competition by capitalist monopoly. Free competition is the fundamental characteristic of capitalism, and of commodity production generally; monopoly is the exact opposite of free competition, but we have seen the latter being transformed into monopoly before our eyes, creating large-scale industry and forcing out small industry, replacing large-scale by still larger-scale industry, and carrying concentration of production and capital to the point where out of it has grown and is growing monopoly: cartels, syndicates and trusts, and merging with them, the capital of a dozen or so banks, which manipulate thousands of millions. At the same time the monopolies, which have grown out of free competition, do not eliminate the latter, but exist over it and alongside of it, and thereby give rise to a number of very acute, intense antagonisms, frictions and conflicts. Monopoly is the transition from capitalism to a higher system.2

It is clear from this that Lenin conceives it to be entirely possible for there to be a qualitative shift from competition towards monopoly even if there are still some aspects of competition left. It seems to me desirable to spell out the respects in which competition still remains, however. And one way to do that is to talk about oligopoly rather than monopoly; that is, where a small number of producers share a market among themselves and often restrict their competition to areas of design and advertising rather than the more fundamental matters of price and quality.3 Another way to do this is to explicitly bring out the fact that there is usually more competition today among companies internationally than there is in the home market.

      But whether we talk about monopoly or oligopoly, the central point is that in this second major stage of capitalism there is a qualitative decrease in the level of competition, at least within individual countries. This is of enormous importance economically.

      Using the term ‘imperialism’ for this second major stage of capitalism also causes confusion and hang-ups. Classical imperialism, the conquest of one country by another and its subsequent economic exploitation, arose in ancient times, long before capitalism ever developed. And there were also imperialist actions by capitalist countries during the first major stage of capitalism—such as the English conquest of India and the U.S. grabbing large parts of Mexico. But Lenin, in calling the second major stage of capitalism “imperialism” or “modern imperialism” meant to do two things: First, to emphasize that this second stage of capitalism was qualitatively more imperialist in its actions than ever before. And second, to stress that imperialism was no longer a simple policy choice, but rather something that modern capitalism must do in this new stage, or in other words, something which has become essential to it. These are both very important and valid points. Still, because of the possible confusion between this new use of the word ‘imperialism’ and the old use, many of us prefer to use the term capitalist imperialism when we are referring to the second major stage of capitalism. Lenin himself did this on occasion.4

      Within this capitalist-imperialist era itself there have been two stages in how the imperialist control of other countries has been handled. During the first period (beginning mostly in the 19th century and in some cases before that, and continuing, for the most part, up until after World War II) imperialist control was exercised through old-style open and undisguised colonialism. As the 20th century progressed, however, and especially in the first few decades following World War II, the people of the oppressed colonies rose up and forced the imperialists to grant them at least nominal independence. In a few cases (such as Vietnam) this actually did lead to something close to complete political and economic independence for a while. But in most cases it only led to a more disguised form of imperialist control, neocolonialism, wherein the imperialists in the mother country exercise indirect control via local, nominally independent, puppet or “client” regimes. And if and when these client regimes show too much independence the imperialist power behind the scenes steps in and replaces them—with military force if necessary.

      To summarize, the two biggest changes in capitalism from the first major stage to the second major stage are therefore:

  1. Qualitatively much less competition. (Or: A qualitatively much higher degree of oligopoly or “monopoly”.)
    1. A corollary to this is the domination of the world economy by a fairly small number of truly giant corporations.
  2. Qualitatively much more imperialism, or domination of other countries by a few imperialist countries which are (usually, at least) the most developed economically.
    1. A corollary to this point is the completion of the division of the entire world into spheres of influence and control by a few imperialist powers. (During some limited periods there is a single top dog, or “super-power”, such as Britain during the late 19th century, and the U.S. in the period since the collapse of the revisionist USSR in 1991.)
    2. A second corollary is the consequent overall qualitative increase in interimperialist contention and war, even if there are periods of relative peace in between those wars.
    3. A third corollary is that the giant corporations—even those which operate internationally and are therefore called “multinational” or “transnational” corporations—are in almost every case actually controlled by the citizens of one single imperialist country. Furthermore, these corporations exercise enormous influence over the imperialist country itself, and in turn operate under the primary protection of that imperialist country.

      However, there are also other important changes in capitalism in its second major stage, which have occurred more or less simultaneously with those two central changes (and their corollaries). They include:

  1. A great expansion in the productive capability of capitalist society (due mostly to scientific and technical advances).
  2. A much greater role for the capitalist state in the regulation and control of each national economy. And secondarily, the advent of a few international economic agencies, such as the International Monetary Fund and the World Bank, which try to do the same thing on a world scale, mostly to promote the interests of the top imperialist powers—especially the U.S.
  3. The development of “finance capital”—the merger of bank and industrial capital. (There are, however, major variations from country to country in how this has worked out, and also considerable differences in different time periods.)
  4. The greatly increased importance of the export of capital along with the expansion of foreign markets.
  5. The de facto separation of management from ownership of the big corporations.

      Note well that many of the changes listed above are not entirely new things, but merely a qualitative change in a characteristic that already existed to some extent in the first major stage of capitalism. But qualitative changes can have tremendous ramifications even if they are not absolutely new phenomena. This is especially so when there are a number of these qualitative changes acting together at the same time. And this is why it is essential to view “monopoly capitalism” or “capitalist imperialism”, as it has existed since the last years of the 19th century, as being the second major stage in the history of capitalism in its period of world dominance.

4.2   Have economic crises changed in the modern era?

      Lenin remarked, in his famous pamphlet on the topic, that monopoly capitalism “has intensified all the contradictions of capitalism”.5 This must certainly include the central contradictions that give rise to capitalist economic crises. And if those contradictions are intensified, then the crises themselves must be intensified as compared with those of pre-monopoly capitalism.

      But is this actually true? Haven’t the recessions over the past half-century been pretty short and mild? Doesn’t this really serve to show that the contradictions of capitalism that lead to economic crises must have actually been moderating for the most part, during the capitalist imperialist era? Let me now remind those who lean toward that view about one embarrassing historical event—the Great Depression of the 1930s. If most of the industrial cycles during the imperialist era have been fairly mild, one of them was nevertheless a doozy!

      Consequently it might seem that neither the theory that crises have been intensifying during the imperialist era, nor the theory that they have been moderating, can really be backed up. But this confusing initial picture is based on too superficial of an analysis of the situation here. We’ve got to review both the actual history of the past century in closer detail, and also develop the theory to explain this economic history a bit further.

      I’ll start by pointing out that Marx and Engels themselves expected that capitalist economic crises would change over time. In particular, they expected that these crises would gradually become worse and more intractable. As I earlier quoted them as saying in the Communist Manifesto, the bourgeoisie gets over these crises by “paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented”.6

      In an 1894 footnote in volume III of Capital, which he edited, Engels remarks that

… a change has taken place here since the last major general crisis. The acute form of the periodic process, with its former ten-year cycle, appears to have given way to a more chronic, long drawn out, alternation between a relatively short and slight business improvement and a relatively long, indecisive depression—taking place in the various industrial countries at different times. But perhaps it is only a matter of a prolongation of the duration of the cycle. In the early years of world commerce, 1815-47, it can be shown that these cycles lasted about five years; from 1847 to 1867 the cycle is clearly ten years; is it possible that we are now in the preparatory stage of a new world crash of unparalleled vehemence? Many things seem to point in this direction…. Thus every factor, which works against a repetition of the old crises, carries within itself the germ of a far more powerful future crisis.7

The entire period from 1873 to 1893 was one of economic weakness or recession, which partly explains Engels’ comments here. But there are several remarkable things to note about these comments. First, Engels shows that neither he nor Marx dogmatically insisted that the industrial cycle should always and forever have an average duration of 10 years. On the contrary, he suggested that it had already changed from an average 5-year duration to 10 years, and maybe seemed to be moving toward a longer duration still. Second, he reaffirmed that these crises were, on average, growing more powerful. Third, he said there were signs that the depression phase of the industrial cycle was becoming much longer, more drawn out, and more chronic. He implies here that the depression phase may have lost some of its purgative force and become rather “indecisive”, which I interpret to mean something like chronic stagnation rather than completely clearing the ground for a powerful new boom. These are all remarkable insights, coming—as they did—just a few decades before the Great Depression of the 1930s. (And that depression may have itself been delayed a bit by World War I.)

      Let’s focus on the duration of the industrial cycle a bit more. I think Engels was really on to something here, though once again this is often obscured by other writers due to their superficial analysis of the situation. In the United States there have actually been 24 complete “business cycles” (trough to trough), as conventionally measured, from 1891 through 2001.8 This means the average duration of this U.S. business cycle over the modern imperialist era has been 111 years divided by 24 cycles which equals 4.625 years/cycle. Far from lengthening beyond 10 years, the cycle duration seems to have fallen back to about what it was in the early 1800s in Britain! But if you look closer at these business cycles you see something very fishy. For example, during the Great Depression of the 1930s there were “business cycle” troughs in March 1933 and June 1938. But the Great Depression itself lasted about a dozen years in the U.S. (1929-1940). Quite obviously these “business cycles” within that Great Depression should be viewed as relatively minor and secondary movements within a much more important overall economic period (i.e., a major fairly long-term economic downturn). Since that time the same sort of thing is true for other business cycles during both periods of overall expansion and periods of general slowdown.

      The only rational conclusion here is that these “business cycles” are now only a part of the economic story, and a secondary part at that. From at least the time of the Great Depression on, they have become a rather superficial secondary cycle within much more important longer-term economic developments.

      The last 75 years have seen the following major economic periods in the U.S.:

  1. The Great Depression (1929-1940).
  2. The World War II economic recovery and war boom (1941-1945).
  3. The immediate post-war disruption and reconversion period (1946-1949).
  4. The Post World War II economic boom (1950-1973).
  5. The long slowdown from then on (1974-the present).

(It is quite possible that the 5th period is now coming to a close, and a new, worse, 6th period is about to begin. We will discuss that possibility later.)

      Within that 5th period in the U.S. there was a short but fairly spectacular “New Economy” boom (from about 1995 through 2000) which confused the overall picture for a while. For the world as a whole the picture has been clearer since that debt and speculation bubble developed primarily in the U.S. But during the long slowdown the overall annual rate of economic growth in the major capitalist countries as a whole has shrunk to less than half of what it was during the post-World War II boom period. (See the more precise statistics in Table 4.2A below.) Clearly, major overall changes like this are much more important to focus on than any mere superficial business cycle ups-and-downs within them.

Table 4.2A – Average annual percentage growth of GDP in different periods
Note both the general decline in the GDP growth rate in the major capitalist
countries over the past half century, and also the one short aberration
during the late 1990s with the “New Economy” boom in the U.S.

Period U.S. Germany Japan G-7
1960-1969 4.6 4.4 10.2 5.1
1970-1979 3.3 3.6 5.2 3.6
1979-1990 2.9 2.15 4.6 3.0
1990-1995 2.4 2.0 1.7 2.5
1995-2000 4.1 1.7 0.8 1.9
Source: Robert Brenner, The Boom and the Bubble, table 1.10, p. 47. Gross domestic product
(GDP) is the total output of goods and services produced within a country during a given period.
The G-7 group consists of the U.S., Germany, Japan, Britain, France, Italy and Canada.

4.3   Long waves or cycles?

      There are two possibilities to consider at this point. One is that while the conventional “business cycle” still continues today, it does so within the context of broader, more slowly changing economic conditions which are not themselves truly cyclic. The other possibility is that there are in fact two sorts of economic cycles at work under modern capitalism, the short-term “business cycle”, and some sort of “long-wave” cycle.

      The first thing to notice here is that whichever one of these two possibilities we decide to go with, we have some more explaining to do. The theory that there are two cycles requires us to explain why there are two (and not just one) and what processes internal to capitalism are causing each, as well as how the two cycles interact and affect each other. But the theory that there is only one economic cycle, which operates within broader, non-cyclic economic periods also demands some further explanations. First, of course, we would have to give the special reasons why each specific broader economic period develops and continues. Second, we would have to explain why each one of these broader periods eventually ends. And third, and most difficult, we should really be able to come up with some sort of general explanation for why these broader economic periods—even if “non-cyclic”—nevertheless exist and seem to develop in a definite and coherent way.

      Another thing we should notice is that according to most bourgeois economists, even the short-term “business cycle” is not really cyclic! Most such economists, including those of the dominant “neoclassical synthesis” school, believe that every single economic downturn has some sort of “special explanation” or “exogenous” factor (external to the laws of capitalism itself) lying behind it, such as some misstep by the central bank or other government officials. Of course, after dozens of recessions, at pretty regular intervals, over the past couple centuries, this continued denial that there is any real economic cycle inherent to capitalism has become totally laughable. And that would be true even if Marx had not provided us with a scientific explanation for these cyclic crises. Now that we have both a solid theory to explain the business cycle and also a long history of empirical evidence in support of that theory, the notion that there “really” are no cycles inherent in capitalism is completely ridiculous. Nevertheless we should note this absurd bourgeois bias that there “cannot” be inherent economic cycles within capitalism as we consider the possibility that, actually, there may be two sorts of cycles, one with a short period, and one with a long period. And we should keep in mind that there might be a residue of this widespread anti-cyclic bias even within the Marxist milieu.

      It is true, of course, that there actually are, from time to time, factors which at least appear to be external to the inner workings of capitalism, which nevertheless significantly affect the capitalist economy. But there are several points to consider here:

  • First, many of these apparent “exogenous” influences may not really be external to the workings of the capitalist system as a whole. Consider inter-imperialist wars, for example, such as World War I. Such wars initially appear to be something outside of ordinary capitalist economic operations and development, but according to Lenin’s theory of capitalist imperialism these wars actually develop in response to capitalist economic necessity in the imperialist era. That is, they are themselves a political phenomenon arising out of the economics of modern capitalism, and therefore not truly “external” to capitalism.

  • Second, even some genuinely external factor—such as an erroneous theory or even whim of some government official—might merely serve to kick off a change that was developing for reasons inherent to the laws of capitalism. Thus, a misstep by a government official might seem to be the cause of a recession, when in fact it only served to trigger something that was building up and bound to be triggered eventually by some random minor event or other.

  • Third, most genuinely external factors may have only limited effects on the economy, effects which ordinarily prove to be very secondary to those due to the internal workings of the capitalist economy, or perhaps even entirely negligible. There are always millions of relatively minor “external” factors affecting the economy—from each individual’s precise daily purchasing whims, to consumer fads, or even the effects of sunspots on crop yields—that on the whole are just not that important to think about when watching the overall economy.

      Collectively, these sorts of considerations lead me to the conclusion that the true “external factors” are—with rare exceptions—just not very important as far as the performance of the overall U.S. and world economy goes. To understand the capitalist economy, and the major factors leading to its ups and downs, you must focus your attention on the internal workings of capitalism itself. But this must not be construed too narrowly. Marxist economics is a political economics, and that means—among other things—that economics and politics interact and interpenetrate. Economic arrangements are at bottom also political, and economic developments lead to more open political developments, which in turn often react again on the economy.

      However, not all internal developments in a complex system are cyclic. The solar system, for example, is a complex system which exhibits both cyclic and non-cyclic phenomena. The periodic orbits of each of the planets are some of the many cyclic events that occur. But the earth’s moon is now believed to have formed when a very large asteroid collided with the earth and part of the splatter from the collision then coalesced in orbit to form the moon. That was a non-cyclic event that happened only once. Still, it is true that a large, important and very fundamental part of what it means to understand the workings of the solar system is to come to understand its various cyclic phenomena. And the same is true for coming to understand capitalism and its economic crises too. Even understanding many of the non-cyclic events depends on first understanding the cyclic ones.

      It therefore seems to me that there are two fundamental principles we must keep in mind when explaining modern capitalist economic crises: First, we should focus primarily on the internal characteristics, workings, and developments of the capitalist system itself. And second, we should try to explain as much as we plausibly can in terms of internal cyclic developments. In particular, we should first see if we can construct a plausible theory for long-term economic periods deriving from the internal contradictions of capitalism. Only if this proves to be impossible should we throw up our hands and say, OK, we’re stuck with a series of ad hoc explanations for the advent and termination of each and every long-term economic period.

      And the remarkable thing is, when you actually attempt to explain modern long-term economic periods from the perspective of the existence of cyclic long-waves, you find that it is really pretty easy to do! But before getting into that, we need to first discuss a few more things, starting with a debate that occurred in revolutionary Russia during the 1920s.

4.4   The Trotsky/Kondratiev debate.

      Interestingly, the question of whether there are really any long-wave capitalist economic cycles, or simply separate broad non-cyclic economic periods, became the central issue in a debate in the early 1920s between Nikolai Kondratiev, the most famous proponent of long waves, and Leon Trotsky.9 Unfortunately, the arguments advanced by both sides in this dispute were very weak and also “premature” since they focused on the 19th century and not the imperialist era. Kondratiev took a generally empiricist line, and was unable to adequately explain from a theoretical perspective just why the postulated long-wave cycles should develop.10 Trotsky agreed with Kondratiev that even far back into the 19th century there were long historical periods of overall capitalist economic weakness, and other long periods of overall economic strength—as well, of course, as continuing industrial cycles within both. But he dogmatically insisted that Marx required that the internal contradictions of capitalism could result only in the short-term (roughly every 10 years) business cycles. These more long-term economic periods, argued Trotsky, must therefore be due to accidental external conditions within which capitalist development occurs, and could not possibly be due to any cyclic phenomena inherent in capitalism itself.

      I should note here that Marx himself sometimes suggested that there might be multiple cycles with different periods occurring under capitalism. In one place, for example, he says that the standard decennial cycle is itself “interrupted by smaller oscillations”.11

      Trotsky failed to explain why the internal contradictions of capitalism that Marx explored might not be capable of generating both standard and long-term economic cycles. While Trotsky was correct to argue that the existence of any kind of genuine inherent cycle requires some sort of internal regulator of that cycle, he apparently didn’t comprehend that some kinds of complex internal regulating systems can lead to multiple cycles with differing periods.

      Consider, for example, the regulation of blood pressure by the complex internal mechanisms of the human body. With each heart beat there is an increase in a person’s blood pressure (to the systolic pressure level) and in between the heart beats a falling off of the pressure (to the diastolic pressure level). This creates a short-period cycle alternating between increased and decreased blood pressure levels. But at night the heart beats more slowly when we sleep, and for this reason (and probably also for additional reasons) our average blood pressure when we sleep is lower than when we are awake and active. Thus there is a second, longer-term (usually daily), cycle alternating between higher and lower average blood pressure in addition to the short-term cycle corresponding to each heart beat.

      I believe that the internal regulating mechanisms of modern capitalism in the imperialist era function in a partially analogous way, and create two major economic cycles—one of a short period (roughly 5 to 10 years) and one of a longer period (and of more irregular duration but lasting many decades).

      But for now let’s get back to the Kondratiev/Trotsky dispute. Was Trotsky right that the economic periods of the 19th century were due (or at least were primarily due) to external factors, and thus were not truly cyclic? I lean toward the view that with respect to the 19th century he was partly right and partly wrong: he was wrong in claiming that the factors determining the long periods were “external” to the capitalist system (or at least external to “capitalist development”), but he was nevertheless correct that these longer periods (in the 19th century!) were not truly cyclic in the same way that the standard 5 to 10 year industrial cycle is. Trotsky criticized Kondratiev this way:

One can reject in advance the attempts by Professor Kondratiev to assign to the epochs which he calls long cycles, the same “strict rhythm” which is observed in short cycles. This attempt is a clearly mistaken generalization on the basis of a formal analogy. The periodicity of short cycles is conditioned by the internal dynamic of capitalist forces, which manifests itself whenever and wherever there is a market. As for those long (50 year) intervals of the capitalist curve, which Professor Kondratiev hastily proposes also to call cycles, their character and duration is determined not by the internal play of capitalist forces, but by the external conditions in which capitalist development occurs. The absorption by capitalism of new countries and continents, the discovery of new natural resources, and, in addition, significant factors of a “superstructural” order, such as wars and revolutions, determine the character and alternation of expansive, stagnating or declining epochs in capitalist development.12

      Clearly some of these things, and wars and revolutions in particular, seem likely to be more important than the others, and those are the two that Trotsky did in fact emphasize. But curiously, while the famous supposed “Marxist” Trotsky took the position that the “basic” trend line of the world capitalist economy depends on events and developments external to capitalism and capitalist development, such as wars, revolutions, social reforms, technological innovations, philosophical and literary currents, etc., poor Kondratiev, who is usually not regarded as a Marxist at all, took the position that the most important of these “external conditions” were generally not truly external to the capitalist system overall. That is, he took a more systemic view of capitalism under which these “external conditions” were actually predictably occurring characteristics in the course of each long cycle’s development.13 Nevertheless, it does seem to be the case that Kondratiev was not able to make this argument in a convincing way, nor really demonstrate how the overall sociopolitical characteristics of different prolonged periods were truly cyclic or a direct outgrowth of cyclic changes in the system of capitalist production.

      Of course, as I already pointed out, most of these phenomena in the superstructure—including wars and revolutions—arise out of the economic base and are not truly external to the capitalist system. But, before the imperialist era at least, it was true that these phenomena tended not to be regular and cyclic in the more direct way that standard industrial cycles are. (Even in the imperialist era some phenomena can arise out of the capitalist system without being generally cyclic, such as the steadily growing environmental crisis of the capitalist era, to name one clear example.)

      However, even if Trotsky was right (or partly right) in denying the cyclic character of long economic periods during the 19th century it doesn’t follow that the same is true of the 20th century and beyond. As we have discussed, capitalism changed in a very major and important way at around the end of the 19th century, from “pre-monopoly capitalism” to “monopoly capitalism” (or “capitalist imperialism”). I don’t preclude the possibility of genuinely extraneous outside events also having medium to long-term effects, but I think the primary determinants of the long-term cycle during the modern imperialist era are due to more or less the same cyclic internal mechanisms of the capitalist economic system that produce the short-term industrial cycle. (We’ll get into this deeper in Chapter V.)

      There is also another possibility here, namely that there are both occasional external and/or non-cyclic factors that sometimes lead to long term up-and-downs in the economy as well as some internal cyclic economic factors which tend to lead to long-term cycles as well as the much shorter traditional industrial cycle. Such a combination of internal/external and cyclic/non-cyclic factors may possibly result in a confused and complex overall long-term picture. But as I mentioned earlier, we will try to explain as much as we reasonable can about economic crises in the imperialist era by reference to internal and cyclic phenomena in the capitalist system itself.

Chart 4.4A – One Attempt to Use Kondratiev’s Theory to Predict the Future

This is one representation of Kondratiev’s (or “Kondratieff” as it is transliterated
here) “Long Wave”. Notice that if the supposed 60-year cycle had held true there
should have been a trough around 1960 instead of 1940. Moreover, this chart would
suggest that we should have had a trough in the late 1990s and the economy should
be on the solid upswing now—which is definitely not the case! Basing this long wave
phenomenon on U.S. wholesale prices is also very dubious, since it is supposed to
reflect the general health of the economy on a world scale.

      One of the ironies of history is that sometimes people come up with a crude version of a social theory before it actually becomes correct, and—because it is so premature and half-baked—this theory is denounced and rejected and has a considerable amount of odium attached to it, which then serves to impede the adoption of a better and more correct version of the theory once that version does become appropriate! This, alas, was Kondratiev’s fate.

4.5   Long wave theories of Mandel and Schumpeter.

      Another irony of history is that a follower of Trotsky, the Belgian political economist Ernest Mandel, later resurrected and adopted Kondratiev’s long-wave theory (in modified form) despite the fact that his hero was totally opposed to it!14 In fact, Mandel even tried to make it seem like Trotsky and Kondratiev’s views could largely be reconciled and combined and that Trotsky’s strong comments which precluded this were mere “semantic differences” about waves or cycles versus periods.15 As Richard Day aptly comments, “What Mandel takes to be only a semantic difference in reality constituted the very core of the Trotsky-Kondratiev debate.”16 This was an example of an acolyte being so afraid to disagree with his hero that he twisted what his hero actually said and believed into its direct opposite.17 It is also an example (in Maoist terms) of combining “two into one” (i.e., of trying to merge two inherently opposed things).

      Mandel’s motive in championing a long-wave theory was undoubtedly to try to explain what caused the Great Depression of the 1930s, and to try to prove that something similar might be about to happen again. This much was actually rather reasonable. But he did not fully understand the very basic point that the Great Depression was something specific to the imperialist era; it was not simply a much more intense example of the crisis phase of the industrial cycle which might have happened at any time, but rather something that could only have happened in the imperialist era. Thus his attempt to explain it by adapting Kondratiev’s theory of long waves which started way back in the 19th century was misconceived from the very beginning. This was also combining “two into one”, namely a rather dubious theory about the general economic trends of the 19th century together with something quite new and different in the imperialist 20th century.

      Kondratiev postulated a long wave lasting 45, 50 or 60 years from trough to trough (in his various versions). Mandel’s version was similar to that, with an overall 45 or 50-year length, but with somewhat different dates identified for the larger periods of upswing and downswing. However, Mandel also tried to “deepen” the causal explanation for this long wave that Kondratiev put forward, as we’ll see shortly.

      Mandel puts forward his version of Kondratiev’s long-wave theory both in a chapter in his book Late Capitalism (originally published in German in 1972), and in a smaller later book devoted entirely to that topic, Long Waves of Capitalist Development: A Marxist Interpretation (1995).18 In the preface to the later volume he says his “Marxist explanation” for these waves is that they are “essentially based on long-term movements in the rate of profit determining, in the last analysis, quicker and slower long-term paces in capital accumulation (of economic growth and of expansion in the world market).” Later he says that his theory is actually one of “long waves in the average rate of profit”.19

      What then is to explain these alternating long waves of higher or lower average rates of profit? Mandel says that

      In other words, a sharp increase in the rate of surplus value, a sharp slowdown in the rate of increase of the organic composition of capital, a sudden quickening in the turnover of capital, or a combination of several or all of these factors can explain a sudden upturn in the average rate of profit. In addition, Marx indicated that among the forces dampening the effects of the tendency of the rate of profit to decline are an increase in the mass of surplus value and a flow of capital into countries (and, we should add, sectors) where the average organic composition of capital is significantly lower than in the basic industrial branches of the industrialized capitalist countries.

      Thus one can conclude, at the most abstract theoretical level, that a sudden sharp upturn in the average rate of profit occurs when several or all of the five previously mentioned factors operate in a synchronized way and thereby overcome the previously recognizable long-term decline in the average rate of profit.20

      OK, he has pushed the problem back one stage. But then what is to explain the sudden changes (let alone periodic changes) in these five factors? He basically can give no good explanation for this obvious question. In fact he starts by admitting: “Why this [alternating depressive or expansive waves of average profit] occurs at certain turning points can be explained only in the light of concrete historical analysis of a given period of capitalist development leading up to such a turning point.” This seems to be another way of saying that there is no general explanation for his long-wave theory. Later he adds: “We have said that although the key turning points are clearly brought about by exogenous extraeconomic factors, they unleash dynamic processes that can then be explained by the inner logic of the capitalist laws of motion.”21 So he thinks he can explain why long-term waves continue once they start, even though he cannot give any general explanation for why they start or why they end! That is a rather weak and even somewhat incoherent theory if you ask me! Somewhat in contradiction to what he says elsewhere, Mandel does think that he can explain “the transition from an expansionist long wave to a stagnating long wave” (though his explanation for this is unclear to me), but he then admits that his theory “cannot explain the turn from the latter to the former.”22

      So what do we actually have here in Mandel’s version of a long-wave theory? It seems to be primarily another empirical theory which recognizes—what was already long before recognized—that capitalist economic history stretching back into the early 19th century displays not only cyclic short term industrial cycles, but also long term “waves” that apparently have to be explained on an ad hoc basis. He added two main things to this: the implicit prediction that each of these waves up or down should last 20 to 25 years (for reasons he could not explain), and the prediction that a new long-term down wave had started around 1967. I’ll grant him some credit for that last prediction, although many others at the time (including myself) expected the same thing.

      All I can say is that Mandel’s very complex and multi-causal “explanation” for long waves is, if anything, even more unconvincing than was that of Kondratiev. Simply adding lots of additional Marxist-sounding verbiage never proves much of anything. Moreover, Mandel’s implicit predictions of how things would proceed in the future have turned out to be false.

Table 4.5A – Ernest Mandel’s Long-Wave Schema

Long Cycle Period of
Accelerated Growth
Period of
Decelerated Growth
1 1793 to 1823
30 years
1826 to 1847
21 years
2 1848 to 1873
25 years
1874 to 1893
19 years
3 1894 to 1913
19 years
1914 to 1939
25 years
4 1940/45 to 1966
21 to 26 years
1967 to ?
Source: Ernest Mandel, Late Capitalism, (Verso, 1999 (1978)), pp. 130-132.
Day, op. cit., p. 81 shows some slightly different dates for Mandel’s schema.

      One of the curious things about the long-wave theorists of the past is that they have tended to get fixated on some “necessity” for precise numbers for the lengths of the waves. Mandel himself criticizes Kondratiev for this fetishism,23 but he seems to fall into this same sort of tendency himself—if not quite to the same obsessive degree. While Mandel postulates specific historical up and down waves of from 19 to 30 years each, in his theory he generalizes this to “waves of 20 to 25 years in duration”24 Thus for each full cycle (combining both up and down waves) he is talking about periods of quite close to 50 years from trough to trough.

      This numerological mysticism clearly causes a problem if we try to extend Mandel’s schema as given in Table 4.5A. What specifically should we give as the end date for the period of decelerated growth which he posits began in 1967? Should we say “about 25 years later” for example, or 1992? Perhaps in the U.S. that might initially sound fairly plausible, given that the “New Economy” rebound began here a few years after that, but it won’t work at all on a world scale since no worldwide rebound occurred. Moreover, if we do focus only on the U.S. and say a new up-wave began around 1995, then—if that 25 year thing is roughly correct—we should still be in that period of accelerated growth for around another decade. But the bubble only lasted about 5 years, and the new century has so far seen a recession in 2000-2001 with a very slow and weak recovery following it, and now in mid 2008 with the very serious collapse of the housing bubble we are already either in another recession or are about to enter one. This new century so far actually seems to be part of what Mandel would have to call a period of decelerated growth. In short, Mandel’s schema from 1972 seems to fall apart if we try to extend it in any sort of reasonable way to the following 35 years or so. The whole roughly 50-year long wave that he postulated has already been proven false by events!

      The well-known bourgeois economist Joseph Schumpeter (1883-1950) also put forward a long-wave theory in his book Business Cycles (1939).25

      Just as Mandel did later on, Schumpeter pretty much just borrowed the idea from Kondratiev—but with the 60-year cycle version this time—with the supposed empirical justifications stretching back into the 19th century or before, and with the causal explanations Kondratiev supplied somewhat padded by his own additions. At the same time Schumpeter adopted two other cycles, the 10-year cycle that Marx and others had discussed (but which Schumpeter called the “Juglar Cycle”26), and another one he called the “Kitchin Cycle” with a duration of just 40 months (and based primarily on inventory fluctuations). This was all designed to work out perfectly from a mathematical standpoint, with exactly 3 Kitchin Cycles in each Juglar Cycle, and exactly 6 Juglar Cycles in each Kondratiev Cycle! (Talk about economic numerology gone mad!)

      Other people, most of whom do not claim to be Marxists, have also put forward long-wave theories. There were a number of commentators suggesting such a thing at the time of the 2000-2001 recession—partly because it had been about 60 years since the end of the Great Depression of the 1930s and partly because it looked for a while that that recession would turn out to be deeper than it was. The ghost of Kondratiev and his “60 year cycle” still lived! Despite the passing of the 60 year boundary that was supposed to be so special, I predict that as the current long-term economic crisis intensifies in coming years more and more bourgeois pundits will dig up Kondratiev’s long wave theory again.

      However, the thing to emphasize here is that it is not Kondratiev’s old theory, or any slight modification of it (along the lines of Mandel or Schumpeter) that should be resurrected, but rather that there needs to be a general update to crisis theory which will explain the new phenomena of crises in the imperialist era. And that means a theory which will explain both why most recessions are now relatively mild, but also why at much longer intervals there are now also much more serious major depressions. If this is not yet obvious, it will certainly become so when the next major depression strikes.

Notes for Chapter IV

1   Actually, some people claim that such periodic crises go back into the 18th century. See for example Joseph Schumpeter, History of Economic Analysis, (Routledge, 1997 (1954)), p. 738. Our knowledge of these very early crises and their exact character is quite limited, however. They were probably non-cyclical “panics” which occurred when speculative valuation bubbles popped, as happened with the wild example of “Tulipmania” in Holland in 1636-37. Marx thought that only from 1826 on could one speak of fully developed overproduction crises. Today speculation bubbles are generally connected with the capitalist industrial cycle, but occasional examples of such speculation bubbles also occurred long before the industrial cycle became discernible.

2   V. I. Lenin, Imperialism, the Highest Stage of Capitalism, (Peking: FLP ed., 1975), pp. 104-5.

3   This important point is made by Paul Baran and Paul Sweezy in their book, Monopoly Capital (NY: MR Press, 1966).

4   Cf. Lenin’s remark in the 1st paragraph of chapter VII of Imperialism, the Highest Stage of Capitalism: “But capitalism only became capitalist imperialism at a definite and very high stage of its development…” (Peking: FLP edition, 1975), p. 104.)

5   Lenin, Imperialism, the Highest Stage of Capitalism, (Peking: FLP edition, 1975), p. 150.

6   Karl Marx and Friedrich Engels, Manifesto of the Communist Party, (1848), section I. Page 61 in the Norton Critical Edition edited by Frederic Bender (NY: 1988).

7   Friedrich Engels, editorial footnote in chapter XXX of Karl Marx, Capital, vol. III, (NY: International, 1967), p. 487.

8   For a list of the business cycle peaks and troughs in the U.S. from 1890 to 1992 see David R. Henderson, ed., The Fortune Encyclopedia of Economics, NY: Warner Books, 1993), p. 174. There has so far been one more trough since then, in 2001.

9   This debate between Kondratiev and Trotsky is discussed at length—though inadequately with respect to the question at issue here—in Richard Day, “The Theory of the Long Cycle: Kondratiev, Trotsky, Mandel”, New Left Review, #99 in the first series, (Sept.-Oct. 1976), pp. 67-82.

10   Kondratiev did make an attempt to give a theoretical explanation. As Richard Day summarizes part of his argument: “In his oral report of February 1926, Kondratiev went beyond a descriptive analysis of long cycles and endeavored to explain their causes. He began by dealing with capitalism’s constant tendency towards equilibrium, which he now defined in terms of three ‘orders’. The first order was based upon relatively fixed supply and demand; the second resulted when, on the basis of existing capital equipment, volumes of production expanded or contracted; and the third order involved changes in the capital stock. The long cycles represented deviations from the long-term moving equilibrium, these deviations being related to the reproduction of the most durable and costly forms of fixed capital. In Kondratiev’s words: ‘[Just as] Marx asserted that the material basis of crises, or of average cycles, repeating themselves each decade, is the material wearing out, replacement and expansion of the mass of means of production in the form of machines lasting an average of ten years, … it can be suggested that the material basis of long cycles is the wearing out, replacement and expansion of fixed capital goods which require a long period of time and enormous expenditures to produce. The replacement and expansion of these goods does not proceed smoothly, but in spurts, another expression of which are the long waves of the conjuncture.’ … The forms of investment which Kondratiev had in mind included canals, railways, buildings and the periodical technological renovations of industry which attend the rising wave of a long cycle. The implication of this argument was that the long cycle was no less regulated by the ‘internal dynamic’ of capitalism than the short cycle.” (Day, op. cit., pp. 76-77.) Day provides a bit more of Kondratiev’s argument, but correctly states that this overall argument left many of Kondratiev’s critics appropriately “less than satisfied”.

11   Karl Marx, Capital, vol. I, chapter XXV, section 3; (NY: International, 1967), p. 632; (Penguin edition, 1990 (1976)), p. 785.

12   Richard Day, op. cit., p. 71.

13   See Day, op. cit., pp. 74-75.

14   Richard Day makes note of this irony, ibid. p. 79.

15   Ernest Mandel, Late Capitalism, (Verso, 1999 (1978)), p. 129. (First published in German in 1972.)

16   Richard Day, op. cit., p. 80.

17   Mandel, of course, denies this as well as Day’s claim (which I agree with) that Mandel was trying to combine the ideas of Kondratiev with those of Trotsky. See for example, Mandel’s book Long Waves of Capitalist Development, referred to in a footnote below, p. 104.

18   Mandel, Long Waves of Capitalist Development: A Marxist Interpretation, 2nd revised edition, (London & New York: Verso, 1995).

19   Ibid., p. 16.

20   Ibid., p. 11.

21   Ibid., pp. 18-19.

22   Ibid., p. 16.

23   Mandel complains about Kondratiev’s postulating an “absolute regularity” for the long cycles, namely 2 ½ classical cycles per long half-cycle. See Mandel, Late Capitalism, p. 133.

24   Mandel, Long Waves…, p. 9. The fuller passage here reads: “It is our contention that a third time frame [in addition to the standard 10-year industrial cycle and the “breakdown theory” postulated by some for the capitalist era as a whole] must be introduced in order to be consistent both with the overall theoretical analysis and with the empirical data that are available. That third time frame is precisely that of the so-called long waves of 20 to 25 years in duration.”

25   Joseph Schumpeter, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, 2 vols., (NY and London, 1939).

26   Clément Juglar was a French physician and statistician who in 1860 talked about an economic cycle with a period of roughly 8 to 11 years. Of course Marx and Engels had talked about this cycle a dozen years earlier in the Communist Manifesto.

Chapter V: The Industrial Cycle Has Split in Two!
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