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Business/Finance See other Business/Finance Articles Title: The Kondratieff Cycle (economic cycles) The Kondratieff Cycle Geir Solem 12/01/2009 Economical cycles and demographics point down over the next few years. Demographic trends In my Global Forecast published in Financial Sense 21st of August 2009, I pointed out that the spending wave for the US and Europe (incl. Eastern Europe) has topped relative to the rest of the world. The peak was around 2007-2008 and the trend will be down until 2024-2025. In this article I analyse major economical cycles and show how they fit into the declining demographics in the western part of the world. The Kondratieff Cycle. The Russian economist Nikolai Kondratieff was the father of applying cyclical activity to economics in modern times. In his book "The Major Economic Cycles" published in 1925 he identified economical long waves in western countries. According to Kondratieff, the capitalist societies rise in long waves of approx. 50-60 years. Each cycle consists of three phases: expansion, stagnation, and recession. In his theory a new cycle arises from the ashes of the previous cycle and thus the process repeats itself. His conclusion of a new rise in the capitalist economies was not appreciated by Stalin and therefore in 1928 he was dismissed from his post as the director for the Study of Business Activity's institute in Russia. Later he was sentenced to hard labour and finally received the death penalty in 1938. Joseph Schumpeter, an Austrian economist in his book "Business Cycles" published in 1939, named the cycles, "Kondratieff waves", in the honour of the economist who first discovered them. Schumpeter's famous Theory of Economic Development was published when he was 28 and in 1911 he was granted a professorship in economics at the University of Graz. He became the minister of finance in Austria in 1919. With the rise of Hitler, Schumpeter left Europe and the University of Bonn, where he was lecturing (1925-1932) and immigrated to the United States. In that same year he accepted a permanent position at Harvard University, where he remained until his retirement in 1949. Kondratieff identified the following cycles using nineteenth century price behaviour considering wages, interest rates, raw material prices, foreign trade, bank deposits and other factors. 1790 – 1849 first Kondratieff. 1850 – 1896 second Kondratieff. 1896 - ? third Kondratieff. (I assume this ended in the late 1940s) Some divide the Kondratieff wave into four seasons, Spring (improvement), Summer (acceleration and prosperity), Fall (plateau) and Winter (decline and depression). The first stage of expansion and growth, the "spring" stage forces a redefinition of work and the role of participants in the society due to new inventions, new products, new participants and other productive forces. The result is a new wave of prosperity led by entrepreneurs bringing about social shifts, upheavals and displacements which lead to possible revolutions and wars. This gives birth to a new social, political and economic order. In the next phase, the "Summer", there is a rising mood of prosperity and affluence that changes the general attitude towards work in the society, leading to inefficiencies, rising complacency and decadence. After this stage comes the season of deflationary growth, or the plateau period. The popular mood shifts toward stability, normalcy, and isolationism. Unemployment begins to rise. Finally, the "Winter" the stage of severe depression in which businesses go under, the rise in unemployment and debt liquidation leads to deflation in assets and prices. Old institutions that have become obsolete and hinder progress may go under during the shake out. The Kondratieff Wave Poster Comment: Nikolai Kondratieff was first sentenced to hard labor by Stalin's Soviet regime, and then to death. This for having the audacity to explain how economic cycles worked in capitalist countries. Post Comment Private Reply Ignore Thread
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