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CYCLES IN ECONOMICS.
The vision of the cycle in the
economy: the relationship with
macroeconomic variables
Reference bibliography:
1.Renato Giannetti, Crisis económicas: el siglo XIX, Oikos-Tau (Barcelona 1988).
2.Luis Sandoval, “Los ciclos económicos largos Kondratiev y el momento actual”, UNAM, Mexico (2013).
3.Ernest Mandel, Las ondas largas del desarrollo capitalista, Siglo XXI (Madrid 1986) (English title: “Long waves of capitalist
development”).
4.Carlota Pérez, Revoluciones tecnológicas y capital financiero, Siglo XXI (Mexico 2004).
5.Joseph A. Schumpeter, Ciclos económicos. Análisis teórico, histórico y estadístico del proceso capitalista, Prensas Universitarias de
Zaragoza (Zaragoza 2002).
6.Angus Maddison, Contours of the World Economy, 1–2030 AD. Essays in Macro-Economic History, Oxford University Press (Oxford
2007).
7.Josep González I Calvet, “Los ciclos: aspectos reales y financieros”, Department of Economic Theory, Universitat de Barcelona,
unpublished.
Prof. Carles Manera
1
The perception of the crisis
• Before Clement Juglar’s work (1860): crises were
considered natural, isolated “calamities”, caused by the
incorrect functioning of credit.
• Crises were not understood as parts of the global
dynamics of capitalism: the observation was almost
“final”, according to authors François Sismondi and
Thomas Malthus. They were not understood as an
intrinsic part of the capitalist mode of production.
• Karl Marx: he perceived the contradictory nature of
capitalist development, and related crisis to the
industrial cycle.
Prof. Carles Manera
2
Absence of a theory of crisis and the
economic cycle
• This is explained by the acceptance of Say’s law. Crisis is
perceived as a temporary disturbance. This continued until
the publication, in 1936, of John Maynard Keynes’ General
Theory.
• But prior to this, the Great Depression which began in
1873, led to the development of research in the field of
Economics: Tugan-Baranovsky (Russia), Spiethof (Germany),
Wicksell (Sweden), Hawtrey (Great Britain), Aftalion and
Lescure (France). These works are related to the changes in
capitalist economics, both in the productive apparatus and
in the transformations in the sphere of competence.
• Later on, authors like Hayek, Kalecki, Kaldor, Hawtrey,
Schumpeter or Samuelson provided modern models of
economic cycles and theories.
Prof. Carles Manera
3
The big cycles, according to Schumpeter
• There are three kinds of cycles which overlap: Kitchin, Juglar and
Kondratiev.
• 1. Juglar: duration of around 8-10 years.
• 2. Kitchin cycle: 3 years, based on analysis of interest rates and
wholesale prices.
• 3. Kondratieff (around 1920): 50-60 years, a long cycle. Analysis
based on the dynamics of investments in direct relation to social
realities. During the expansion phase of the economic forces, wars
and revolutions occur. In the recession phase, discoveries and
inventions take place which are applied in the next upswing. The
long cycles behave in accordance with the innovations.
Schumpeter: a pattern that includes a model of fluctuations with three
cycles: the brief or Kitchin cycle, the medium or Juglar cycle, and
the Kondratieff long-wave period.
Prof. Carles Manera
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Crisis and technological change…
• Kondratieff establishes a relationship between
the market equilibriums and the periodic
reinvestment of fixed capital, where the
replacement of capital goods is identified.
• Economic upswing is explained by the
availability of loans and low interest rates…
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…which ends up as overaccumulation
• …and the boom represents an increase in production
on a higher lever than that permitted by the current
flow of savings. The increased supply of capital goods
eventually leads to an increase in interest rates, and
this is a sign of a scarcity of loans, in a context of
increasing costs (wages and inputs). Profits fall.
• The crisis comes into being due to the overinvestment made and the scarcity of capital.
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Cycles detected
(Source: E. Mandel, L. Sandoval)
KONDRATIEFF CYCLES IN THE WORLD ECONOMY
Periods
Long waves
Duration
First
1793-1825 Upswing
33 years
1826-1848 Downswing 23 years
Second
1849-1873 Upswing
25 years
1874-1893 Downswing 20 years
Third
1894-1913 Upswing
20 years
1914-1945 Downswing 32 years
Fourth
1946-1975 Upswing
30 years
Prof. Carles Manera
1976-201?
Downswing
7
The waves vision
(Source: Alec Oxenford)
• Existencia de ciclos decenales: cierto acuerdo
entre los economistas.
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Waves and sectors
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Expansion phases, or A phases…
• Significant capital investments are made in new technologies.
High profit rates are obtained.
• Once the innovations have been disseminated, the markets
become saturated and the profits drop. Investments contract.
• Capitals change strategy: they accumulate in the financial
sector, which offers greater rates of yield and fewer risks.
• The expansive long wave leads to increases in wages and the
expansion of internal markets.
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…linked to innovations, which are
of a different nature
• 1. Revolutionary innovations. Energy change, the
appearance of new engines. They reach the whole
economy. They increase productivity. They comprise
the core of the technological-economic revolution.
• 2. Radical innovations. Assembly-line production or
the appearance of a factor that has an impact on
others (the microchip, for example, in electronics).
• 3. Complementary innovations. Of process, having to
do with secondary changes, with the presentation of
products, and design.
Prof. Carles Manera
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Depressive or B phases…
• The pace of development becomes slower,
and profits and investments fall.
• Radical innovations accumulate in the final
years of these phases, which will be
developed – along with the revolutionary ones
– during the new long wave of economic
upswing, when investing in the financialspeculative bubble is no longer attractive.
Prof. Carles Manera
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…with conflicts between productive
and speculative capital
• “The ensemble of innovations of process and
products, of management, organisation and
intensification of labour have led to an increase
in the exploitation of labour and a zigzagging
recovery of the profit rate of productive capital, a
process that is constantly interrupted by the
diversion of these capitals towards “financial
innovations” high profit rates, with a downward
trend of the average profit rate of productive
capitals therefore prevailing in the medium and
long term” (L. Sandoval).
Prof. Carles Manera
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More consequences of phase B
•
•
•
•
•
1. Bankruptcies of companies.
2. Concentration of capital.
3. Productive relocations.
4. Wage decrease.
5. Job insecurity.
For the next cycle: competence and the progress of
new countries, and tardiness of the leading ones
(1848-1873 with the Industrial Revolution; 19451973, with technology adapted to oil).
Prof. Carles Manera
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Schumpeter draws inspiration from
Kondratieff
• 1. The cycle is the specific form of economic
development.
Four
factors
can
be
distinguished: the EXOGENOUS FACTOR
(demand
from
governments),
the
DEVELOPMENT FACTOR (changes in the
population), the SAVINGS FACTOR and the
INNOVATION FACTOR.
• 2. The economic cycle represents the
periodicity with which innovations become
manifested in the economy: therefore the
Prof. Carles Manera
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The figure of the entrepreneur
• The entrepreneur in a situation of equilibrium: his or her
initiative is followed by others. The innovations are
accompanied by expansion of credit, by rising interest rates.
When innovations concentrate on a few industrial sectors, the
innovation burnout is accentuated. Stocks accumulate. Credit,
interest rates and prices drop.
• That is to say: the destabilising factor is the entrepreneur who
is capable of disrupting the production and distribution
conditions: “creative destruction”.
• Innovations are verified in clusters. Relationship with
Kondratieff, and the theory of long-term investments.
Prof. Carles Manera
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The composition of the long cycle
• Each long Kondratieff wave contains a number
of Juglar and Kitchin cycles.
• Six Juglar cycles can be counted for each long
wave, and three Kitchin cycles are counted for
each Juglar cycle. However, this is not an
absolute, automatic rule for Schumpeter.
CRITIQUE: Simon Kuznets qualifies Schumpeter’s conclusions, by saying
that the statistical basis is too fragile to clearly identify highly-defined
short cycles (on which only annual information is available). Monthly
data are required for short cycles. More interestingly: the use of
trends, which mark economic evolution.
Prof. Carles Manera
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Juglar cycle
• Ten-yearly. This cycle was already present in the
works of other authors, such as Karl Marx.
• Movements in prices determine the evolution of the
cycle: more pronounced expansion of the larger
cycles during the phase of rising prices and smaller
depression. In the case of a downward phase in the
long period, the phenomenon is the opposite.
• To sum up: when prices fall, phases of prosperity are
shorter than those of depression; when prices rise,
depression phases are briefer than those of
prosperity.
Prof. Carles Manera
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Juglar and Kitchin cycle:
predictive capacity?
(Source: Vicente Canuto)
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