Kondratiev approached the explanation of the great cycles from the point of view of the equilibrium theory. It was not the Marxist philosophical approach that turned out to be his support, but the mechanistic concept: simplifying reality and not giving the necessary answers . The economist did not focus on the analysis of the internal contradictions of world capitalism, capable of provoking long periods of its development. However, in an attempt to provide a first explanation for the great cycles, Kondratiev was able to point out many interesting details of wave development.
Kondratiev suggested that “wave-shaped fluctuations or fluctuations in the conjuncture of the capitalist economy are processes of increasing or decreasing the disequilibrium of the capitalist system, either increasing or decreasing its deviation from the equilibrium level.” At the same time, the economist pointed out that the system of elements of the capitalist economy is never in a state of perfect equilibrium. But its undulating dynamics, as Kondratiev believed, indicates “that this system tends toward equilibrium, that its undulating fluctuations occur in every given period around some equilibrium level.”In other words, “the relationship between the fluctuating concrete quantitative expression of all the individual elements of the capitalist economic system and their level, under the condition of their equilibrium, is analogous to that
Constantly occurring changes in capitalism make the “equilibrium level” a variable value, Kondratiev believed. In his opinion, for each period of history there should be its own level of equilibrium. Further reasoning brought the scientist closer to the answer to the question about the origin of the undulating development of capitalism.
Kondratiev drew attention to changes in the balance of supply and demand, taking into account fluctuations in the cost of goods. Kondratiev also noted the change in the size of production and consumption by industry as an important feature of wave economic development. Starting from this, it was already possible to pose the question of the availability of the necessary resources for the economy to continue growing as a factor of qualitative changes in it. The economist emphasized that the stock of basic capital goods is constantly changing, as is their distribution.However, the focus on average indicators, which smooth out the fluctuations of crises within the framework of large cycles, prevented him from taking another revolutionary step in science.
As part of his attempt to explain long cycles, Kondratiev identified various levels of equilibrium. The first-order equilibrium affects a short period of time. During it, “the production and, consequently, the supply of goods cannot change significantly, expand or contract.” The supply and demand for commodities “can be considered as given and determined quantities.” Under such conditions, a balance will be established between supply and demand in the market, “to which a certain level and relationship of market prices will correspond.”
Kondratiev understood the second-order equilibrium as “the equilibrium of market prices with the prices of production, and the equilibrium in the size of production-consumption in various sectors of the economy, which, however, is based on the same mass of basic capital goods involved”. in the production process”. Kondratiev included among them the main and largest construction structures, skilled labor, the largest land reclamation, etc. Third-order equilibrium is established over a long period. It refers “not just to supply and demand, not just to the size of production based on a given level of productive forces.” It’s a balance”
In the outlined scheme (as Kondratiev himself called it) there was a simplification of reality. The three-tier model described isolated the processes for periods of different lengths, which the researchers felt was not really a simple matter.
If the principle of analysis were another, based on the study of the origin of demand in different periods of the history of capitalism, then it would be possible to establish: what are the reasons for the increase in the production of means of production and consumption? estate. It would be possible to trace the conditions under which the overproduction of consumer goods leads to a long-term decline in the production of means of labor, and an apparently simple crisis of overproduction turns into a systemic crisis of capitalism. A surprising fact of the regular coincidence of such prolonged crises with the moments of the change of long waves would be revealed.
Kondratiev rightly emphasized that “in a capitalist society, various goods and benefits perform their economic functions for very different durations.” He pointed out that the creation of his creation requires unequal times and means. Some items work for a short time and do not require large one-time costs, others work for a longer time and require large expenditures of time and effort to produce. The first items “include significant masses of consumer goods, many kinds of raw materials, and other means of production.” The second group mainly includes production tools.
The third group, according to Kondratiev, consists of major capital goods that have been in operation for decades and require “very significant time and enormous costs for their production.” Among them, the economist attributed: the largest buildings, important railway lines, canals, large recovery facilities and much more. Also, according to the researcher, the third group should include “skilled labor training.”
Between the three mentioned groups of goods and goods it is impossible to draw precise and immutable limits, the researcher believed to draw a precise limit. º group of the cost of such prolonged crises with moments of change of ondas.ismo,. He pointed out that, according to Marx, the material basis of the periodic ten-year cycles of capitalism is “the material wear, change and expansion of the mass of instruments of production in the form of machines that serve on average for 10 years.” Kondratiev suggested: “The material basis of the great cycles is the wear, change and expansion of the main capital goods, which require a lot of time and enormous costs for their production.”This process “does not proceed smoothly, but with shocks, another expression of which are the great waves of the situation.”
The time of active creation of major capital goods turns out to be a boom period, “a long-term rise in market conditions, even if interrupted by more short-term fluctuations.” There is a deviation of the “real level of economic elements upwards from the existing equilibrium level (of third order according to the given scheme)”. The calm time in the construction of basic capital goods is “the period of movement of the real level of economic elements towards the equilibrium level and below it”.The economist’s warning that “in the process of development of the cycle, the same level of equilibrium, changing, passes to another, as a rule, to a higher level”, leaves unanswered the question of what really makes the production of necessary capital goods.
The researcher concludes: “the great cycles of the conjuncture are processes of deviations of the real level of the elements of the capitalist system with respect to the equilibrium level (of the third and, perhaps, higher order) of this system, processes during which the level of balance changes itself.” Kondratiev pointed out that for the rising wave of a great cycle to materialize, great expenditures are needed. Without them, the updating and expansion of basic capital goods, radical changes and regrouping of the main productive forces of society are impossible. The necessary capital must be previously accumulated and concentrated “in powerful business centers” so that its accumulation can then continue at a higher rate.The concentration is “facilitated by the credit system and the stock market.” Also important is “a small degree of connectedness of capital, an abundance.”
The accumulation of technical inventions at the beginning of a new cycle makes capital investments in the sphere of production more profitable. “The upward movement of the economic situation and the growth of the productive forces cause an intensification of the struggle for new markets, in particular for the markets of raw materials.” The orbit of the world market widens and the importance of countries that were previously little included in the international exchange process increases. Political relations worsen between states and within them. The growth of new productive forces increases the activity of the classes and social groups interested in it.Preconditions are being created to intensify the fight against outdated social and economic relations that hinder development.
Kondratiev is absolutely correct in arguing that revolutions are generated by the changes that take place during bull periods. But his reasoning has a serious flaw. It is not clear from his theory what exactly makes capitalists actively resort to new technology, while before, when (being partly already known) it did not arouse so much interest. Naturally, without objective necessity, change cannot occur. Technological upheavals must be caused by the most severe economic necessity, the contradictions that require resolution, and not just the presence of favorable prerequisites.
Kondratiev writes: investing capital during bull waves increases the demand for it. The percentage begins to rise. The economist believes that the reason for this lies “in the development of external military and internal social shocks.” Unproductive consumption (wars) is on the rise. On the one hand, they “cause direct destruction and weaken the rate of accumulation, on the other hand, they increase the demand for capital.”
The researcher confuses the concepts of capital and money, strictly shared by the Marxist political economy. Governments need money to fight wars, which becomes capital for lending banks. On the other hand, state orders provide the industry with high profits. It is directed to the expansion of production, put at interest in banks or invested in securities (sometimes of the government itself). All this is the accumulation of capital, albeit fictitious: documents giving the right to receive profit (shares, first of all).
All capital transactions make sense only if they promise profit. It moves the owners of capital. The bourgeoisie will never allocate funds for investment in production if this promises losses or promises less profit than other uses of capital. Furthermore, wars and revolutions, thanks to the redistribution of wealth, can unusually contribute to the accumulation of capital. So the Great French Revolution, despite all the material destruction, turned out to be unprecedented enrichment for the bourgeoisie. If we take the wars as a whole, they enrich the capitalists of some countries, strengthen their positions on the world market and weaken the capital of other states, as a rule, the losers of the conflict.All this makes it impossible to find some average indicators and requires further study. Kondratiev’s description of the processes turns out to be incorrect.
The conclusion drawn by the Soviet economist that the processes that take place during upswings lead to a lack of capital seems controversial to say the least. On the contrary, rapid industrial growth, due to the high profitability of production, contributes to an increase in total capital. All this happens only up to a strictly defined objective limit.
When it becomes impossible to profitably sell goods produced in the same or greater volume, the industrial race comes to an end: a crisis begins. There is a shortage of money as a means of payment. Whereas before credit rose in price due to the high needs of industry caused by the expansion of production, or became cheaper because of an excess of free capital, now its price rises. The reason for this is lack of funds. Stopping or slowing sales impedes return on investment, while the need to make payments increases the need for them. Banks, for their part, are beginning to act more cautiously. The specter of ruin hangs over everyone.
Kondratiev did not include such reflections in his analysis. Starting from the position on the aggravation of capital scarcity in the course of bullish waves, he concluded: the increase in the price of capital creates the prerequisites “for a general shift in the conjuncture curve to a decline.” The overcoming of the bullish inertia after a long time leads to the beginning of a descending wave of a great cycle. “The previous rate of investment in capital facilities is falling. The activity of all economic life is reduced, prices are falling. Once again, there is a need for technical inventions to help make production cheaper. This pushes, writes the economist, the depressive state of economic life.
The aforementioned provisions do not reveal the reasons that led to the halt in growth and the decrease in interest on capital. But even from Kondratiev’s scheme, it can be concluded that the slowdown in the growth of industry, the reduction in recovery periods and the increase in the duration of overproduction crises indicate a change in the demand situation. Obviously it grows during down waves not as actively as during up waves. At the same time, the persistence of rising consumption (markets continue to widen) does not clarify why commodity prices are falling, when there is no serious technological reason for it.It is clear that this can only be called by an extension of the sentence. But then, what makes up global aggregate demand, and how does it differ from demand in boom periods? What are the laws of demand development? And what is the difference between the mechanisms of its satisfaction in two different phases of the great cycle?
Continuing to substantiate his hypothesis, Kondratiev wrote: in the process of down periods, “the size of investments shrinks, and the reasons for which restricted accumulation weakens.” This explanation for the fall in interest rates on capital during bearish waves does not seem convincing. In fact (even discarding the erroneous understanding that the economist has of the capital accumulation processes), the decrease in interest must be justified by the greater difficulties of direct investment of funds than in periods of upswing.
In fact, the process of accumulation and concentration of capital occurs in the same way, both in the ascending and descending periods of the great cycles. The obvious difference is that during bull waves, the objective conditions are much more conducive to investing directly in production. This is due to the presence of a more dynamic and more stable consumer demand. Agricultural depressions during downwaves clearly indicate a change in the food consumption situation.
Kondratiev’s general proposition that capital accumulation during downswings prepares for upswings does not stand up to scrutiny. Capital accumulation prepares for both upswings and downswings alike, and is by no means limited to the form of money. However, it is important to note that investing in production becomes more profitable precisely during bull waves. This increases the weight of companies associated with the real sector, while recessions make bank capital more influential.
The conditions that cause such changes must be analyzed separately. Consideration also requires the circumstances of major crises, which turn into the “burning” of large capitals right at the crossroads of Kondratiev’s waves.
