Nikolai Kondratiov, a Soviet economist, published his essay "Long Economic Cycles" in 1922. This study of the business cycle in capitalist economies did not find favor with Kondratiov's superiors, and Kondratiov ended his life in Siberian exile.
It was left to a luckier economist to rediscover Kondratiov's theory and add a new wrinkle of his own. Joseph Schumpeter, Harvard professor and one-time Minister of Finance in a short-lived Austrian government, believed the driving force behind the Kondratiov waves was innovation, by which he meant not only new inventions, but any "change in the method of supplying commodities."
In his book "Business Cycles," published in 1939, Schumpeter associated each of Kondratiov's Long Waves with specific innovations in technology and commerce. While economists still debate the existence of long economic cycles like those described by Kondratiov and Schumpeter, the associated graph does demonstrate a striking interplay between prosperity and innovation.
Kondratiov's cycles are based on statistical profiles of three industrial societies - France, Britain, and the United States - starting at the end of the eighteenth century. The vertical axis is an index of prosperity derived from wholesale prices, wages, the stock market, and the production of coal and steel. Contemporary economists have extended Kondratiov's graph into the more recent past, the present, and the future.
The first wave, starting at the time of the French Revolution and the beginning of constitutional government in the United States, corresponds with the Industrial Revolution and is marked by the exploitation of steam power and the development of the cotton textiles industry. This period peaks with the War of 1812 and the fall of Napoleon. Post-war recession is followed by a brief plateau of renewed prosperity before the economy plunges into depression.
A second wave, dominated by the new industries of steel and the railroad, peaks at the time of the U.S. Civil War and ends with the Panic of 1873.
Wave number three starts at the beginning of the twentieth century and is marked by the new technologies of electricity and the automobile. It ends with the Great Depression.
The rise of television and computers can be said to represent a fourth wave of innovation which may have peaked at the time of the Viet Nam War. If Kondratiov's cycles hold for the future we may be at the end of the plateau that typically follows a post-war recession. The next step would be a steep slide into depression, which would yield in turn to the next wave of innovation. Time will tell.
