Long Wave Economic Cycles Theory

Long Wave Economic Cycles Theory



Economic Cycles

Economists recognize four major cycles, or regular fluctuations, in the economy as follows:

(1) Kitchin’s short-wave cycle of average duration 3-5 years, discovered in 1930;

(2) Juglar’s cycle of average duration 7-11 years, discovered in 1862;

(3) Kuznets’ medium-wave cycle of average duration 15-25 years, discovered in 1923;

(4) Kondratiev’s long-wave cycle of average duration 45-60 years, discovered in 1922.

J. Schumpeter, who was born in Austria and came to the United States where he also served as President of the American Economic Society in the 1950’s, was an outstanding student of economic cycles. He believed that the various cycles are inter-dependent, in contrast with the view of others such as Forrester, who believed that the cycles act independently of one another. Schumpeter baptized three of the four cycles by naming them after their discoverers. The exception was Kuznets’ cycle, which he did not recognize.


From Long-Wave Economic Cycles: The Contributions of Kondratieff, Kuznets, Schumpeter, Kalecki, Goodwin, Kaldor, and Minsky

Several different theories of the long wave exist. These include Kondratieff’s theory of cycles in production and relative prices; Kuznets’ theory of cycles arising from infrastructure investments; Schumpeter’s theory of cycles due to waves of technological innovation; Keynes–Kaldor–Kalecki demand and investment oriented theories of cycles; Goodwin’s theory of cyclical growth based on employment and wage share dynamics; and Minsky’s financial instability hypothesis whereby capitalist economies show a genetic propensity to boom-bust cycles.

Writing in the early 1920s Nikolai Kondratieff advanced the idea of the probable existence of long wave cycles in capitalist economies lasting roughly between 48 and 60 years. Within that, there is a period of accumulation of material wealth as productive forces move to a newer, higher, level of development. But at a certain point there commences a decline in economic activity, only to re-start growing again later (Kondratieff 2004 [1922]). This mechanism has been dubbed, in economic literature, as Kondratieff cycles. It should be noted that prior to Kondratieff, some empirical efforts on systematizing the cyclicality of economic crises was carried out by van Gelderen (1913), Buniatian (1915), and de Wolff (1924), which Kondratieff admits to in his publications (see end note in Kondratieff 1935). Though Kondratieff’s ideas were not well accepted by the official Soviet economics he insisted on his main argument and in short time followed up with more rigorous publications. Only few English language translations were available at the time (most notably, Kondratieff 1935). Nevertheless, the potency of his ideas was recognized quickly entering the work of subsequent economists (e.g., Schumpeter 2007 [1934]; Kuznets 1971; Rostow 1975; and others) as we review in the next section.

Simon Kuznets received the Nobel Prize in Economics in 1971 for his empirical analysis of economic growth, where he identified a new era of ‘modern economic growth’. Like Kondratieff, Kuznets relied on empirical analysis and statistical data in his pioneering research. Absorbing his findings on historical development of the industrial nations with initially abstract categories of the national income decomposition, Kuznets developed a concept of long swings, though disputed, now referred to as Kuznets cycles or Kuznets swings (e.g., Korotayev and Tsirel 2010). The Kuznets swings’ period is ranged between 15–25 years and initially connected by Kuznets with demographic cycles. In that analysis, the economist observed and quantified the cyclicality of production and prices, linking with immigrant population flows and construction cycles. Researchers have attempted to connect these cycles with investments in fixed capital or infrastructure investments (see Ibid. for literature review). 

As mentioned, the work of Kondratieff and Kuznets fostered a systematic approach to modern understanding of long economic swings. Numerous authors have further proposed not only different mechanisms underlying cycles but also cycles on different time scales. An early theory of cycles was put forward by Robert Owen in 1817, who stressed wealth inequality and poverty, originating in industrialization, yielding under-consumption as a reason for economic crises. Sismondi, in the middle of the 19th century took a similar view and developed a theory of periodic crises due to under-consumption. This led to the discussion of the ‘general glut’ theory of the 19th century, which Marx and other classical economists also extensively contributed to. More specifically, a mechanism of cycles on a shorter times scale, of 8–10 years duration, was developed by Juglar (Juglar cycles), resulting, as he saw it, from the waves in fixed investment. Later, Kitchin, in the 1920s, introduced an inventory cycle of 3–5 years. Later an important contribution was made by Schumpeter (1939), who referred to the ‘bunching’ of innovations and their diffusion as a cause for long waves in economic activity. Roughly at the same time, Samuelson (1939), influenced by the Spiethof accelerator and the Keynesian multiplier principle, developed the first mathematically- oriented cycle theory using difference equations.3 Others, such as Rostow (1975), had proposed the theory of stages of growth. Simultaneous with Samuelson, Kalecki (1937) developed his theory of investment implementation cycles where he saw significant delays between investment decisions and investment implementations, formally introducing differential delay systems as tool for studying cycles. Kaldor (1940), rooted in Keynesian theory, developed his famous nonlinear investment-saving cycles, which took into account aggregate demand. Later, Goodwin (1967) proposed a model of growth cycles, which took into account classical growth theory, but was based on unemployment-wage share dynamics, since the overall growth rate, as well as productivity growth, are kept constant in the long run. 

Next we discuss a Minsky long cycle: a financially-based approach to the long wave theory. Long cycles have historically been interpreted as an interaction of real forces with cost and prices. Kondratieff cycles emphasize secular changes in production and prices; Kuznets cycles are associated with economic development and infrastructure accumulation; Schumpeterian cycles are the result of waves of technological innovation; while Goodwin cycles are based on changes in the functional distribution of income arising from changed bargaining power conditions in a period of high growth rates and Keynesian theories express demand factors.

The work of Hyman Minsky provides an explicitly financially driven theory of business cycles. Minsky’s own writings were largely devoted to exposition of a short-run cycle and a very long-run analysis of stages of development of capitalism. The short-run analysis is illustrated in two articles (Minsky 1957, 1959) that present a financially driven model of the business cycle based on the multiplier-accelerator mechanism with floors and ceilings. A later formalization is the Delli Gatti et al.’s work (1994) in which the underlying dynamic mechanism is increasing leveraging of profit flows, which roughly captures Minsky’s (1992a) hedge-speculative-Ponzi finance transition dynamic that is at the heart of his famous financial instability hypothesis. The very long-run analysis of stages of capitalism’s development is illustrated in Minsky’s (1992b) essay on ‘Schumpeter and Finance’. These stages of development perspective have been further elaborated by Whalen (1999) and Wray (2009). Recently, Palley (2010, 2011) has argued Minsky’s (1992a) financial instability hypothesis also involves a theory of long cycles. This long cycle explains why financial capitalism is prone to periodic crises and it provides a financially grounded approach to understanding long wave economics.  A long cycles perspective provides a middle ground between short cycle analysis and stages of development analysis. Such a perspective was substantially developed by Minsky in a paper co-authored with Piero Ferri (Ferri and Minsky 1992). However, unfortunately, Minsky entirely omitted it in his essay (Minsky 1992a) summarizing his financial instability hypothesis, leaving the relation between the short and long cycle undeveloped.


Key People:

  • Jay Forrester
  • John Sterman
  • J. Schumpeter
  • Joshua Goldstein
  • Aleksandr V. Gevorkyan
  • N. Kondratiev
  • Kaldor
  • Kalecki
  • Hyman Minsky
  • Goodwin
  • P. Samuelson
  • Simon Kuznets
  • Juglar
  • Kitchin


Key Sources of Research:


The sixth Kondratieff – long waves of prosperity


Click to access kondratieff_en.pdf







Overview of Kondratieff





Kondratieff Waves in the World System Perspective

Andrey V. Korotayev and Leonid E. Grinin

Click to access 023-064.pdf




Kondratieff, N. and Schumpeter, Joseph A. long-waves theory









by Antal E. Fekete,

January 24, 2005


Click to access aefcausesandconsequenceskondratievs.pdf




John D. Sterman


Click to access SWP-1563-15376357.pdf



Business Cycles and Long Waves: A Behavioral Disequilibrium Perspective

John D. Sterman
Erik Mosekilde







John D. Sterman






A Behavioral Model of the Economic Long Wave

John sterman





Bifurcations and Chaotic Behavior in a Simple Model of the Economic Long Wave

John Sterman

Click to access mosek103.pdf



Simple Model of the Economic Long Wave

Sterman, J.D.


Click to access CP-85-021.pdf



Mode Lockins: and Entrainment of Endogenous Economic Cycles

Christian Haxholdt. Christian Kampmann  Erik Mosekilde . and John D. Sterman

January 1994




Disaggregating a Simple model of the Economic Long Wave

C. E. Kampmann


Click to access kampm438.pdf



Entrainment in a Disaggregated Economic Long Wave Model.



Click to access haxho193.pdf



Nonlinear Interactions in the Economy

Erik Mosekilde, Jesper Skovhus Thomsen, John Sterman




Mode-Locking and Chaos in a Periodically Driven Model of the Economic Long Wave



Click to access thoms1137.pdf



Nonlinear Dynamics in the World Economy: The Economic Long Wave

John Sterman


Structure, Coherence and Chaos in Dynamical Systems



Cycles Research Institute




Solar Cycles and Kondratieff

Kondratieff And Solar Cycles



Time Scales and Mechanisms of Economic Cycles: A Review of Theories of Long Waves

Lucas Bernard

Aleksandr V. Gevorkyan

Thomas Palley

Willi Semmler


Click to access WP337.pdf



Donella Meadows Institute




The Long-Wave Debate


Click to access XB-87-404.pdf



A Spectral Analysis of World GDP Dynamics: Kondratieff Waves, Kuznets Swings, Juglar and Kitchin Cycles in Global Economic Development, and the 2008–2009 Economic Crisis

Korotayev, Andrey V and Tsirel, Sergey V.





Long Cycles: Prosperity and War in the Modern Age

Joshua S. Goldstein

New Haven: Yale University Press, 1988




On the accurate characterization of business cycles in nonlinear dynamic financial and economic systems

Dimitri O. Ledenyov and Viktor O. Ledenyov


Click to access 1304.4807.pdf



Long-Wave Economic Cycles:
The Contributions of Kondratieff, Kuznets, Schumpeter, Kalecki, Goodwin, Kaldor, and Minsky

Lucas Bernard, Aleksandr V. Gevorkyan, Tom Palley, and Willi Semmler

Click to access 120-163.pdf



Long Waves, Depression, and Innovation: Implications for National and Regional Economic Policy

Bianchi, G., Bruckmann, G., Delbeke, J. and Vasko, T.


Click to access CP-85-009.pdf



A War-Economy Theory of the Long Wave

Joshua S . Goldstein

Click to access jgcyciea.pdf



The Predictive Power of Long Wave Theory, 1989-2004





An economic policy for the fifth long wave 


BNL Quarterly Review, no. 231, December 2004.


Click to access 0510008.pdf



A Stock-Flow Consistent Model of Minskyan Long Waves

Soon Ryoo


Click to access Ryoo.pdf



When the Kondratieff winter comes:
an exploration of the recent economic crisis from a long wave theory perspective

Zenonas Norkus


Click to access Zenonas%20Norkus%20-%20KondratieffWinter.pdf



Long Waves in External Imbalances, Credit Growth and Asset Prices: An Historical Perspective on Global Financial Crisis

Marco Gallegati



Author: Mayank Chaturvedi

You can contact me using this email mchatur at the rate of AOL.COM. My professional profile is on Linkedin.com.

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