Politics and economics have always been deeply connected to one another in any given period of world history. The current world political situation is no exception. The poor condition of the present world economy has sparked numerous manifestations of political stress. Central Banks of governments all around the world are pumping money as fast as they can into their economies in order to stem the tide of deflation, sweeping over the political and economic landscape. War, and the dislocation of whole populations in the Near East, has added to the fear and suffering. Everywhere one looks, one hears the cries of doom and gloom. And what do our political and economic leaders seem to be doing to stem this tide of negativity? Nothing, because they simply do not know what to do.
It might not be of any comfort to anyone reading this Linkedin Post, but the fact of the matter is that the seriousness of what we are presently going through in world history has been predicted and classified long ago as simply a normal cycle of economics. This was clarified long ago by an obscure Russian economist named, Nikolai Kondratiev.
Kondratiev was born in 1892 and died in 1938. He grew up near Moscow, the son of two poor peasant farmer parents. While attending a local school in his home town, Nikolai was noticed as an especially gifted student, and offered the opportunity to move to a private school in Moscow. Later, he received his university degree, and advanced degrees in economics and taught on the university level at the University of St. Petersburg. Before the Russian Revolution, Kondratiev was converted to Marxism. He joined the Revolutionary movement in Russia, and after the deposition of the Czar, Kondratiev was promoted to the Central Committee for Economic Policy. Just after he joined the Central Committee, he became a key figure and an instrumental influence in the creation of we now speak of as the "The Soviet Five Year Plan."
While Kondratiev was at first popular, and a major success as an economic policy maker, creating and becoming the head of The Institute of Conjuncture in Moscow, he soon fell into disrepute with the Soviet Party because of his first major publication in 1925 entitled, The Major Economic Cycles. In this book, Kondratiev took an inductive approach to economic analysis by examining trends of agricultural crop production in Europe. He reviewed price and production trends and commodity market pricing over an almost three hundred year period prior to the Twentieth Century. Using old agricultural records that covered market production for commodities going back to the Seventeenth Century, Kondratiev's analysis revealed an amazing set of recurring and related patterns. According to Kondratiev, all commodity markets were easily identified as bearing similar trends which could be plotted on graphs, and when an analyst did so, it became markedly evident that agricultural markets in Europe had, over the past three hundred year period, been moving back and forth, up and down, in clear, dynamic, repeating cycles. Some of these cycles were short term, while others were longer in duration.,
Kondratiev's academic examination of the historical evidence also demonstrated that each commodity market could support an overarching long wave market cycle. In other words, even though the corn crop production and market prices for corn had almost nothing to do with wheat prices and their own particular cycles, both the corn and wheat market historical statistics showed evidence of following their own market trends within the context of an overarching, all encompassing, super cycle. This discovery of a market super cycle actually appeared generally to last between 50 and 70 years, and ALL commodity markets could be shown to be self contained within this major super cycle period of history.
Kondratiev's long wave super cycle theory also indicated something interesting about all crop markets. Each commodity appeared to move in cycles of five waves. Three of the waves were characterized by price movements of a commodity moving upward, or with periods of intermittent price inflation. These first three up cycles contained their own peculiar characteristics, but during the final stages of the third up cycle, Kondratiev noticed some kind of severe fall or crash of prices always ended the cycle period. This crash of a commodity's market price was then followed by two cycles of price deflation, eventually causing prices to fall and production of any particular commodity to fall too.
The "Long Wave" or "Super Cycle" theory developed by Nikolai Kondratiev became an embarrassment for the Soviet government because the Marxist Revolution Party Line promised the populace of Russia that by following the government's economic Five Year Plan, all commodities needed for a happy life would always be available to all Soviet citizens in plentiful amounts, and at reasonable prices. Kondratiev's research showed something different from that government promise: that the exact opposite was always the case: in times of prosperity, the seeds of deflation and over supply were always being sown by producers in any given market. As a result, as time passed, his research also demonstrated that prosperity MUST be replaced with a period of over supply and deflation, or what Kondratiev called, "cleansing." The natural movement of all markets, therefore, was to eventually cleanse themselves from excesses of over production and price inflation.
Because of his divergence from the Party Line, Nikolai Kondratiev was eventually arrested and put in prison by the new Soviet leader, Joseph Stalin, but before his arrest in July, 1930, Kondratiev was able to turn his attention, and his Cycle Theory, to an analysis of Western economies. To his amazement, the evidence for production of goods and services, market prices, labor costs, and inflation statistics, showed quite clearly that his cycle theory applied just as much to industrial markets as it did to agricultural and commodity market prices.
After being imprisoned in a Soviet prison for eight years, Nikolai Kondratiev was tried and shot by the personal order of Stalin sometime in 1938. The actual date of his death is not known. The Stalin government also disavowed all of his theories and works. Ever since his death, Kondratiev's academic work has gained international attention among economists, but not to the degree that one might expect. The cycle theory has not found favor among most academic economists because it does not maintain the academic support from either side of the two main streams of economic theory within the field of economics, but it is also the case that government politicians have not wanted to embrace the cycle theory either because to do so would be a kind of acknowledgement that there are periods of time in any given society's history where the government simply cannot repair the economic damage from a down wave period of cleansing deflationary prices.
In my next Linkedin Post, I will examine how the Kondratiev Long Wave theory appears to be directly affecting our present economic and social situation both here in the United States, and around the world.
John K Brackett, Ph.D.
John K Brackett Real Estate
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