Kondratieff Cycle
Featured in:
The field of economics has not produced many legends, but one person who can rightly be regarded as the father of modern economics is Nikolai Kondratieff. His greatest work, the Kondratieff Cycle totally revolutionized the modern capitalist economies in a very short span of time. Kondratieff Cycle, often referred to as Kondratieff Wave Cycle, is still in vogue in many capitalist economies and presents economic periods of both long term high and low growth.
The Background
Nikolai Kondratieff was a Russian economist who lived during the era when communism had taken hold of the country under Stalin’s leadership. Kondratieff realized that European commodity prices remained almost stable for approximately 50 years, the time period he later referred to as economic cycles. He strongly believed that these long cycles or periods of economic activities are one of the fundamental characteristics of all the capitalist economies. He further stated that all these periods also involve self-correction and evolution to some extent.
Significance of Kondratieff’s Work
Experts closely examined the Kondratieff Cycle for more than 50 years after the economic recession of 1922. Finally, they concluded that although it is fully pertinent to political and economic cycles yet it is not very useful when applied to a stock market theory. Stalin and other communist leaders fervently opposed the Kondratieff’s theory because it suggests that capitalist economies are not on the path of destruction despite the fact that they have long cycles of high and low economic activities or growth.
Kondratieff Cycle basically suggests that long economic cycles are actually an integral part of the international mercantile credit system and don’t trigger the collapse of any economy. In this regard, Kondratieff Cycles refer to long economic cycles recognized by the great economist.
The Kondratieff Cycle normally spans over 6 decades and also has secondary or internal cycles characterized by different seasons such as:
- Spring is marked by the rapid industrial, technological and economic development accompanied by rising inflation.
- Summer represents the peak of all the developments that have taken place in last 50 years followed by the ultimate decline. This phase is characterized by socially demoralized masses and even greater inflation.
- Autumn is analogous to bankruptcies, evictions, increasing unemployment, poverty, hunger, starvation and the economic depression. In this phase, financers usually control the market, and an atmosphere of speculated profits prevails.
- Winter is a state of increased frugality and reduced spending in the market. Excessive efforts go to resolving one major problem and the slump follows due to the massive debt burden. As a result, countries don’t have enough money to spend on the welfare of the masses.
How Effective is this Theory?
Kondratieff Cycle has been one of the favorite subjects of academicians and experts. As a result, they have come to the conclusion that it is a highly insightful financial theory presented decades ago by a visionary economist. As a matter of fact, the economic cycles have been playing an important role in world economy and technological development for a millennium now but Kondratieff was the first to identify them.
Financial experts also suggest that the Sung Province of China was the place where modern economic development commenced way back in 950 AD. Since then, the world has seen almost 20 economic cycles lasting for 60 years on average, proving how relevant and applicable Kondratieff’s theory is.