The ‘Long Cycle’—Summary and Conclusions

In this series of posts, I have examined the question of whether the capitalist economy experiences cycles that are considerably longer than the industrial cycles of approximately 10 years. It’s been proposed by various economists over the last hundred years that in addition to 10-year industrial cycles and shorter “inventory cycles,” there also exists a “long cycle” of approximately 50 years’ duration.

Over the last several months, I have examined the concrete history of the cycles and crises that have occurred in the global capitalist economy from the crisis of 1847 to the crisis of 2007-09. Over these 161 years, we have seen decades when economic growth surged ahead, and other periods dominated by prolonged depression or stagnation.

Changing patterns of cycles and crises

While industrial cycles of approximately 10 years have been a remarkably persistent feature of capitalism, there have been periods when these cycles have been suppressed by world wars and other periods when we have had only partial cycles.

For example, the two world wars of the 20th century suppressed to a considerable degree the entire process of expanded capitalist reproduction. Since industrial cycles arise within the broader process of the expanded reproduction of capital, wartime suppression of expanded capitalist reproduction suppressed the industrial cycle.

After the super-crisis of 1929-33—itself part of the aftermath of the World War I war economy—there was no complete industrial cycle. The brutal deflationary policy of the Roosevelt administration in 1936-37 prevented the cyclical recovery of 1933-37 developing into a real boom. The war economy of World War II replaced the recovery that followed the 1937-38 recession before it could develop into a boom. Therefore, in the years from the super-crisis of 1929-33 until after World War II we saw only partial industrial cycles.

No full industrial cycle between 1968 and 1982

There was also no complete industrial cycle between 1968 and the beginning of the “Volcker shock” in 1982. During the recessions of 1970 and 1974-75, governments and central banks attempted to force recoveries through deficit spending and monetary expansion. Under the conditions prevailing at that time, these repeated attempts to force a recovery simply led to panicky flights from the dollar and paper currencies in general, causing the recoveries to abort. Full industrial cycles of more or less 10-year duration only reappeared after the Volcker shock of 1979-82.

Material basis for 10-year industrial cycle

Marx, Keynes and Schumpeter all agreed that periodic replacement of the elements of fixed capital—especially factory machinery—form the material basis of the 10-year industrial cycle. About every 10 years, there is a wave of renewal and expansion of fixed capital—new machines are added to existing factories and new factories filled with state-of-the-art machines are constructed. The resulting “overinvestment” ends with the overproduction of commodities leading to flooded markets.

Once the crisis breaks out, the formation of new fixed capital falls off rapidly. Even after the rundown of inventories leads to inventory restocking, there is still a large amount of idle overproduced fixed capital left over from the last boom. However, about 10 years after the last boom, the need to renew a significant amount of now aging factory machinery kicks off a new boom that soon leads once again to overinvestment in fixed capital, general overproduction of commodities, and crisis.

Material basis for short cycle

The far less marked “Kitchin cycle” is also widely accepted among economists who study “business cycles.” Marx himself made occasional references to this cycle. Joseph Schumpeter called these cycles “Kitchin cycles” in his 1939 book “Business cycles” after the statistician Joseph Kitchin, who described them.

Since Kitchin, these “inventory cycles” have been widely accepted among bourgeois business-cycle experts. About every three or four years, inventories are overproduced leading to a minor recession or “slowdown”—what the business press calls an “inventory adjustment.” When a downturn in the Kitchin cycle coincides with a peak in the 10-year cycle of investment in fixed capital, a major recession occurs.

These two cycles are called cycles rather than mere waves, because each phase of these cycles necessarily leads to the next phase. While accidental factors certainly affect these cycles—and major wars might temporarily suppress them altogether—these cycles are not accidents but the necessary consequence of the capitalist mode of production.

The boom, with its massive overproduction of commodities and overinvestment in fixed capital, ends of necessity in recession. Recession, in turn, reduces inventories to such an extent that they need to be rebuilt. The rebuilding of inventories, made necessary by inventory liquidation of the preceding recession, inevitably results in a recovery.

Is there a 50-year cycle?

But what about the proposed “50-year cycle,” often called the Kondratiev cycle, after the Russian economist Nikolai Kondratiev, who described them in the 1920s? First, do such cycles really exist?

For it to be a true cycle, each stage of the 50-year cycle would necessarily lead to the next phase. Or do these “cycles” reflect accidental causes? If the latter is the case, they are not cycles at all. Assuming that long cycles do exist, what would be the material basis of such a cycle? Does the capitalist economy of necessity give rise to such a cycle?

One explanation proposed by Kondratiev was that the 50-year cycle reflects the lifetime of long-lived elements of fixed capital. Not all elements of fixed capital are actually replaced every 10 years. It is not hard to find machines that are considerably older than 10 years that are still in use in many factories. Buildings and bridges certainly last much longer than 10 years. In this case, the material basis of the long cycle would be similar to that of the 10-year industrial cycle. This theory has, however, won very little support among any school of economists whether Marxist or bourgeois.

Joseph Schumpeter, in his “Business Cycles,” suggested that the 50-year cycle arises from a complex pattern of “innovations.” A wave of major innovations eventually peters out into a wave of minor innovations. The result is great waves of investment every 50 years that gradually tapers off leading to the “depression” phase of the Kondratiev cycle. Eventually the “depression” in the cycle prepares the way for a new great phase of “entrepreneurial innovations” and a new upswing in the Kondratiev cycle.

Schumpeter proposed in “Business Cycles” that the “super-crisis” of 1929-33 was caused at least in part by a trough in all three cycles that occurred in the early 1930s.

Among the economists who came to reject the long-cycle theory was the well-known American Marxist—or Keynesian Marxist, as some would describe him—Paul Sweezy. During the Depression years, which were Sweezy’s formative years as an economist, many economists influenced by Keynes came to the view that the “mature” capitalist economy was marked by a permanent tendency toward stagnation.

Schumpeter, who rejected this view in favor of his own view that the stagnation of the Depression was largely cyclical and therefore just temporary, dubbed these economists stagnationists. Sweezy accepted this label and considered himself a “stagnationist” until the end of his days.

Sweezy, who was influenced by Marx, Keynes and Schumpeter, was throughout his long life as an economist primarily interested in the question of monopoly. Sweezy assumed that the “freely competitive” capitalism of the era of Smith, Ricardo and Marx had been marked by a strong tendency toward expansion. Twentieth-century capitalism, however, was dominated by monopoly and therefore obeyed quite different economic laws. Unlike freely competitive capitalism, which generated economic growth, monopoly capitalism generates stagnation.

Why no permanent Great Depression under monopoly capitalism?

Sweezy explained the Great Depression as the result of the tendency of monopoly capitalism toward stagnation. Depression was, according to Sweezy, really the normal state of monopoly capitalism and didn’t need any particular explanation. What needed explanation if Sweezy’s theory is correct is, why didn’t the Depression span the entire history of monopoly capitalism? Why was monopoly capitalism marked by considerable economic growth during prolonged periods both preceding and following the Depression?

Sweezy came to the conclusion that “innovations” were one of the factors—along with massive military expenditures and other unproductive expenditures, especially after World War II—that had for a considerable period of time overridden the stagnationist tendency of monopoly capitalism.

One great early 20th-century “innovation” especially, the automobile, had been decisive in saving U.S. monopoly capitalism from stagnation during the 1920s and had played a major if not decisive role in staving off stagnation after World War II as well. The automobile did not only mean that industrial capitalists like Henry Ford had to invest huge amounts of capital in auto production. It also required the development of a vast infrastructure of highways and gasoline stations. The rise of the automobile meant a soaring demand for gasoline, providing markets for newly drilled oil, and for the refiners that took the “crude” oil and refined it into gasoline.

In addition, the automobile made possible modern “suburbanization,” the situation where workers live a considerable distance from their work places—whether factories or offices. Suburbanization meant that a huge amount of housing and infrastructure had to be built to serve the needs of the growing number of people living in the suburbs many miles—kilometers—from their work places.

The construction industry not only had to build homes in the suburbs, it also had to construct huge suburban shopping malls. This in turn stimulated the concrete, steel and many other industries. All this created a huge wave of investment that overrode the tendency for stagnation over long periods of time. Here we see Schumpeter’s influence on Sweezy.

Where Sweezy differed with Schumpeter was that Sweezy couldn’t see anything cyclical about the rise of the automobile industry. It was largely a historical accident. There might or might not be a similar new innovative industry on the scale of the automobile industry in the future. There is nothing in the “laws of motion” of monopoly capitalism that make the emergence of industries such as the automobile inevitable.

Trotsky versus long-cycle theory

A very different Marxist, Leon Trotsky, also strongly rejected the theory of long cycles. In an article partially aimed at counteracting the influence of Kondratiev written in 1923, entitled “The Long Curve of Capitalist Development,” Trotsky agreed and indeed strongly emphasized that the concrete history of capitalism showed alternating periods of rapid economic growth and stagnation. But Trotsky denied there was anything cyclical in the succession of long periods of rapid economic growth under capitalism followed by periods of stagnation.

Instead, Trotsky suggested that the succession of “epochs” of rapid economic growth and stagnation could be explained by factors “external” to the capitalist system. For example, he mentioned the opening up of new continents and natural resources, revolutions and counterrevolutions, and world wars as the factors responsible for the succeeding “epochs” of rapid capitalist growth and capitalist economic stagnation or decline.

Ernest Mandel and the long-cycle theory

Trotsky’s avowed follower Ernest Mandel, starting in the 1960s, was far more sympathetic to the concept of a long cycle. As the leader of perhaps the largest faction of avowed “Trotskyists,” as they called themselves, Mandel was embarrassed by Trotsky’s rejection of the long cycle theory, since this opened himself up to charges by members of rival “Trotskyist” groups that he was not a “real Trotskyist.”

Therefore, Mandel, retreating a bit, preferred the term “long waves.” But what factor would, according to Mandel, cause capitalist economic development—expanded capitalist reproduction—to be broken up into “long waves,” or durations considerably longer than the 10-year industrial cycles? Mandel saw the succession of periods of rapid capitalist economic growth and stagnation—or semi-stagnation—as reflecting long-term changes in the rate of profit. But what would cause the rate of profit to fluctuate over periods considerably longer than the 10-year industrial cycles to such an extent that one period would be marked by rapid economic growth and another by semi-stagnation?

Like many Marxists, Mandel was fascinated by Marx’s law of the tendency of the rate of profit to decline. Marx himself in volume III of “Capital” described this law as the most important law of political economy.

Marx’s law of the tendency of the rate of profit to fall

Long before the time of Marx, political economists had assumed that the long-term tendency of the rate of profit was downward. This was assumed even by later schools of economics, including the “classical” marginalists and Keynes. Only after World War II did it become popular among bourgeois economists to deny the historically downward tendency of the rate of profit. But the reasons that Marx gave for the tendency of the rate of profit to fall were completely different than those given by bourgeois economists, whether before or after him.

Marx’s explanation is an extension of his overall theory of value and surplus value. Suppose the level of labor productivity in all branches of production is unchanged. This will mean the value of commodities will be unchanged. If this true, the value of such elements of capital as raw and auxiliary materials, machinery, and factory buildings is a mathematical constant. Marx called this kind of capital constant capital.

The other type of capital consists of the commodity labor power. Labor power alone produces a value greater than its own value. The worker not only produces a value that replaces the value of the capital she or he consumes—the necessary labor—but a value above and beyond it, a surplus value, by performing unpaid surplus labor.

This was Marx’s greatest single discovery in economics, though he made many others. Behind the appearance of the exchange of equal quantities of labor, there is the same old phenomena of unpaid surplus labor that marked chattel slavery, feudalism, and other forms of exploitative class society.

Unlike the value contained in the raw and auxiliary materials, machinery, factory buildings and so on, whose value is preserved in the reproduction process, the variable capital increases in value. It is in the mathematical terminology borrowed by Marx a variable. Marx, therefore, called the portion of the capital represented by human labor power variable capital.

While classical economists such as Adam Smith and David Ricardo considered the primary division within capital to be between fixed and circulating capital, Marx in contrast discovered that the primary division within capital is between constant capital, which does not produce surplus value, and variable capital, which alone produces surplus value. Therefore, before the transformation of values into prices of production, the rate of profit on constant capital is zero. Only variable capital will have a rate of profit of more than zero.

Marx then observed—dropping the assumption that labor values are stable—that over time the ratio between constant capital and variable capital shifts in favor of constant capital. This causes what Marx called the organic composition of capital—the ratio between constant and variable capital—to rise. The constant portion of the capital, which yields no profit—though this is hidden from both the capitalists engaged in everyday business as well as the vulgar economists by the transformation of values into prices of production—rises relative to the variable portion of the capital, which does yield a profit.

All things remaining equal, the rate of profit will fall as the organic composition of capital rises. Various counter-factors tend to work in the other direction. Most important of these is the ratio of unpaid to paid labor, what Marx called the rate of surplus value, or the rate of exploitation. Over time, the rate of profit on the variable capital rises, partially offsetting the growth of the constant part of capital that yields no profit.

Another important counter-tendency is the cheapening of the elements of constant capital, which slows its rate of growth in value terms. Anything that increases the rate of turnover of variable capital, such the opening of new markets or improved methods of transportation, will also increase the rate of profit over a given period of time such as a year.

Because there are counteracting factors, according to Marx the falling rate of profit is only a tendency. It can be overridden by counter-tendencies for a more or less prolonged period of time. Therefore, Marx’s law of the tendency of the rate of profit to fall does not rule out a rise in the rate of profit over prolonged periods.

Mandel’s theory of semi-cycles

Indeed, Marx expected the rate of profit to fall only over the long run. Mandel as I explained in an earlier post ended up with a semi-cyclical theory. Essentially, he held that over a period of about 20 years—about two ordinary 10-year industrial cycles—the rising organic composition of capital leads to a fall in the rate of profit sufficient to cause a considerable slowdown in the rate of accumulation of capital or economic growth.

This slowdown is not accidental, according to Mandel, it is a necessary result of the most basic laws that govern the capitalist system. But why doesn’t the stagnation or semi-stagnation simply last indefinitely or even gradually intensify as the organic composition continues to rise?

Here Mandel saw accidental or non-cyclical factors at work much like Trotsky and Sweezy did. (1) In his short book “Long Cycles of Capitalist Development,” Mandel gave different reasons for each upswing in the “long wave”—or the non-cyclical part of the “semi-cycle.” In theory, Mandel saw nothing inevitable about the transition from a phase of capitalist semi-stagnation to a phase of rapid capitalist economic growth.

As a historical fact, Mandel agreed that through the post-World War II period of rapid capitalist economic growth, every period of slow economic growth has been succeeded by a new “wave with an undertone of expansion.” However, in Mandel’s “mature” long-wave theory the expansionary long waves are not cyclical upswings but accidents.

According to Mandel, there might or might not be expansionary long waves in the future. The basic economic laws that govern the capitalist economy would permit either outcome. The “stagnationist long wave” that Mandel saw as still in effect up until his death in 1995 might well continue until the victory of the world socialist revolution—even if the revolution is not victorious for many decades to come. (2)

According to Mandel, each expansionary long wave of capitalist development that has occurred historically had a different cause. The only thing that these causes have in common is that they all temporarily increased the rate of profit, overriding the long-term downward trend of the profit rate.

The gold discoveries in California and Australia led, according to Mandel (and Marx and Engels), to an extremely rapid expansion of the capitalist market, or what comes to exactly the same thing, to a very rapid growth of monetarily effective demand. In the late 19th century, it was the rapid spread of colonialism that caused the rate of profit to increase. The fruit of this rise in the rate of profit rooted in spreading colonialism was the wave of accelerated capitalist economic growth that began in the 1890s and continued down to 1913.

The last “long wave” of capitalist economic expansion, the one that occurred between 1948 and 1967, Mandel believed was rooted in a sharp rise in the rate of exploitation and profit caused by the huge defeats that the working class had suffered in the years that followed World War I. These included the rise of a series of fascist and military dictatorships—especially the fascist dictatorship of Adolf Hitler—which crushed the European working class movement throughout continental Europe.

This had led to a sharp rise in the rate of surplus value, the ratio of unpaid to paid labor. The sharp rise in the rate of profit on variable capital had for a period of time swamped the effect of any rise in the growth of constant as opposed to variable capital that occurred during this period.

This explanation clearly works better in explaining the postwar prosperity in West Germany, the rest of Western Europe and Japan than it does in explaining the boom in the United States. While the inter-war years were a disaster for the European working classes and perhaps the Japanese working class, where a military dictatorship was imposed in the 1930s and 1940s, they were actually years of advance for the working class of the United States.

The building of powerful industrial unions in basic industry as well as winning unemployment insurance and social insurance—no matter how inadequate—by the U.S. working class under the New Deal certainly made it more difficult for the American capitalists to raise the rate of profit by increasing the rate of surplus value within the United States. This is why the great majority of U.S. capitalists viewed Roosevelt with bitter hatred.

But it is true that after World War II economic growth was much faster in West Germany—and the rest of Western Europe with the exception of Britain—and Japan, than it was in the United States. Therefore, I believe there is some truth in Mandel’s explanation as far as Western Europe and Japan are concerned.

Perhaps Mandel’s views were over colored by the Western European experience. Mandel lived in Western Europe throughout his entire life. And it is true that economic growth was during the first several decades after the war considerably slower in the United States and Britain, where the working class had not suffered under fascist or military dictatorship, than it was in the imperialist countries that had experienced such dictatorships after World War I.

Bill Jeffries, basing himself on Mandel, has pointed out that the overthrow of the planned economies of the Soviet Union and Eastern Europe and the new opening of China to world capital after 1978 have worked as powerful “counteracting” factors to the long-term tendency of the rate of profit to fall. Since the 1970s, the amount of labor power available for capitalist exploitation has skyrocketed.

From the other side of the class barricades, Alan Greenspan, the former chief of the U.S. Federal Reserve System, has emphasized this in his memoir “The Age of Turbulence.”

This has not only increased the rate of surplus value on average on a world-market-wide scale. With so much “cheap” labor available, the capitalists have a greatly reduced incentive to replace living labor—variable capital—with “dead labor”—constant capital. If the planned economies of the Soviet Union and Eastern Europe had not been dismantled, and if China and Vietnam had not been opened up to capitalist investment, the organic composition of capital would be considerably higher, the average rate of surplus value on the world market would be lower, and therefore the rate of profit would be considerably lower.

The new capitalist-run factories that have sprung up in China since 1978 and other “cheap labor” countries tend to be far less “automated” than the highly automated factories that are found in the United States, Western Europe, Japan and other high-wage areas. As a general rule, the factories that are not being shut down in the United States, Western Europe and Japan are highly automated—or in Marxist terminology have a very high organic composition of capital. All this has temporarily retarded, if not reversed, the long-run tendency toward a higher organic composition of capital and a lower rate of profit.

Jeffries as a “disciple” of Mandel—and who is much more consistent and willing to face unpleasant political realities than his “master” was, in my opinion—has drawn the logical conclusion that since the 1980s the capitalist economy has once again been in a period of accelerated economic growth—or in Mandel’s terminology, in “a long wave with an undertone of expansion.”

But doesn’t the panic of 2007-09 refute in practice Jeffries’ views? In my opinion, not necessarily. True, Jefferies made the mistake of predicting that there would be no worldwide recession when the first signs of the recent crisis began to manifest themselves in the summer of 2007. However, other periods that economic historians consider to be “long waves” of economic prosperity have also seen sharp panics followed by worldwide, if brief, recessions.

The panic of 1857, which occurred in Marx’s lifetime, and the panic of 1907, which occurred during the “prosperous” years before World War I, are examples. Could it turn out that the panic of 2007-09 will be another example of a panic that only briefly interrupted a long period of capitalist prosperity? It will be some years yet before we empirically know the answer to that question. (3)

What I will call the Mandel-Jeffries theory of “long waves” is based on problems that the capitalist class faces in the production of an “adequate”—for the capitalists—amount of surplus value. Mandel in his book “Long Waves” noted that the question of “effective monetary demand”—the realization of surplus value in the form of monetary profit—should also be worked into the theory of “long waves.” But Mandel did not do this in his own work.

Fluctuations in the production of gold

This brings us to what is perhaps the oldest explanation for “long waves” or “long cycles”— fluctuations in the production of money material—gold.

According to Mandel, the Dutch Marxist J. van Gelderen, who Mandel credits along with Parvus as a founder of “long-wave theory,” noticed that rises in gold production preceded accelerated waves of growth of the capitalist system. Karl Kautsky in his book “The High Cost of Living” also noted the relationship between rising gold production and periods of accelerated waves of growth of the capitalist economy, as well as the relationship between prolonged depressions and low gold production.

More recent Marxists, however, have generally ignored the role of gold production when they discuss “long cycle” or “long wave” theories. Mandel himself played down the role of gold production in his book “Long Waves,” with the exception of the 1848-1873 expansionary wave.

Modern Marxist economists with few exceptions—agreeing with most bourgeois economists on this question—have assumed, wrongly in my opinion, that with the end of the international gold standard, the level of gold production has no significant effect on the rate of economic growth.

According to the prevailing consensus among Marxist economists, money today no longer represents a money commodity such as gold but instead represents the value of commodities directly without the mediation of a special money commodity. However, in these posts I have presented both theoretical reasons and empirical evidence showing this widely accepted view to be mistaken.

I think the concrete data on the history of gold production from the 1848-51 gold discoveries onward show that periods of extraordinary economic crisis-depression have been preceded or been accompanied by declining gold production, just as eras of rapid capitalist economic growth have been preceded or accompanied by rising gold production.

This is true for the years that were examined by such early 20th-century Marxists as van Gelderen and Kautsky but also for the years and decades that followed. For example, a major drop in gold production during and immediately after World War I preceded the super-crisis of 1929-33. The rate of increase of gold production also began to stagnate immediately before the stagflation of the 1970s. The inflationary economic crisis of 1974-75 was preceded by declining gold production, and gold production remained stagnant at a depressed level until the economic crisis of 1979-82, after which it recovered.

This pattern has been repeated in the most recent crisis. Between the early 1980s and the turn of the century, the trend in gold production was strongly upward, and after the turn of the century it began to decline. And within less than a decade the economic crisis of 2007-09 hit.

I think both theoretical analysis and the concrete economic history since 1850 shows that the long-run rate of growth of the market is tied not to the rate of growth of commodity production, as Say’s Law would have it, but to the rate of growth of the quantity of the money commodity—gold. This is true whether a gold standard in some form is in effect or a system of paper money prevails. (4)

Contrary to the hopes and expectations of bourgeois economists, the end of the gold standard has not freed the growth of the market from its “golden chains.” This is shown both by the economic crisis of 1968-82 and is confirmed once again by the latest violent world market crisis. The level of gold production provides the missing piece in Mandel’s analysis, the role of the growth—or lack of growth—of monetarily effective demand in “long waves.”

Mandel, unlike most modern Marxists who either claim that gold has lost its monetary role with the end of the international gold standard or simply ignore the question altogether, specifically affirmed that gold continues to retain its monetary role and continues to function as the universal equivalent or measure of the value of commodities. But except for the 1848-1873 “long wave of expansion” that occurred when the gold standard was in effect in the most important capitalist country, England, as well in the United States—Mandel played down the importance of the level of gold production on the rate of economic growth. But this left a large hole in his theory of “long waves” that he himself acknowledged—the role of monetarily effective demand.

Is gold production cyclical?

The level of gold production also provides a potential cyclical element. Remember, it was the lack of any perceived cyclical mechanism that caused both Trotsky and Sweezy to reject the presence of long cycles in capitalist production.

But suppose we have a situation where the general price level is below the labor value of commodities, such as is generally the case after a major economic crisis or prolonged deep depression. This will mean that the rate of profit in the gold mining and refining industry will be above the average rate of profit that prevails in capitalist industry as a whole.

Capital, which is always in search of super-profits—profits above and beyond the average rate of profit—will flow into gold production as long as this situation exists. Gold production will be stimulated, and over a period of years considerable amounts of idle money capital will accumulate in the banks. These growing hoards of idle money capital have the effect of driving down the rate of interest and increasing the profit of enterprise, all other things remaining equal.

The industrial capitalists will have to increase their investments—if they don’t, more and more of their capital will consist of idle money capital and the rate of profit will steadily decline. (5) As the industrial capitalists step up their investments (M—C—P—C’—M’), not only will more and more workers be exploited and the production of surplus value increase, but it will become much easier to realize the surplus value. The market will consequently expand at an accelerated pace. The boom phase will come to dominate perhaps several 10-year industrial cycles.

During economic booms, demand tends to exceed supply at current market prices. Prices therefore drift upward as the market equalizes supply and demand. Eventually, prices will rise above their underlying labor values. This will mean the rate of profit in the gold mining industry will fall below the average rate of profit in industry as a whole. Capital will begin to flow out of gold mining and refining into other more profitable industries. The rate of increase in gold production will decline, and eventually the level of gold production will decline absolutely.

Declining gold production—whatever “monetary system” is in effect, whether a gold standard, gold-exchange standard or a paper money system—means that as long as the rate of economic growth remains unchanged the rate of interest will rise relative to the total profit causing a drop in the profit of enterprise.

Money will sooner or later become “tight,” and eventually a major economic crisis—or series of economic crises—will break out. Prices in terms of gold will decline. At some point, prices will again fall below the values of commodities—causing the rate of profit in gold mining and refining to once again exceed the average rate of profit in other industries. Gold production will start to rise and the cycle will repeat.

This would be a true cycle, not simply a wave. One phase of the cycle necessarily leads to the next phase. And it is rooted in the most basic law that regulates the capitalist economy—the law of value of commodities. Such long cycles—if the hypothesis that I am exploring here is correct—would play a necessary role in keeping the level of prices more or less in line with underlying labor values in the long run. The long cycle would then be a necessary consequence of capitalist production.

It also provides a material basis for the long cycle. Just like the 10-year industrial cycle involves the decennial renewal of fixed capital, and the short “Kitchin cycle” involves the “three-year” inventory—commodity capital—cycle, the “long cycle” would involve the cyclical movement in the production of money capital. Unlike Mandel’s theory, both the upper and lower turning points of the cycle are explained. Instead of a semi-cycle, we have a full cycle.

This hypothesis depends on the assumptions that the level of gold production is governed by a cycle that has at least a 20-year up phase. While I am pretty sure that cyclical forces do play a role in the level of gold production, I think it is also clear that many non-cyclical forces play an important role as well. For example, the discovery of gold in California and Australia in 1848-51 was not cyclical. Therefore, insomuch as the mid-Victorian “boom” of 1848-1873 was caused by the rise in world gold production, that boom wasn’t cyclical either.

Similarly, the discoveries of the development of the cyanide process that made it possible to extract minute quantities of gold from very poor ores was not strictly cyclical either. Though here the case could be made that high profits in gold production encouraged high levels of investment and therefore innovation in gold production. The widespread application of the cyanide process in the refining of gold mining starting in the 1890s may have indirectly therefore had a cyclical element.

As I explained in earlier posts, the sharp and prolonged decline in the level of gold production during and immediately after World War I was linked to the inflation of prices—not just in terms of depreciated paper money but in gold money as well—and was not really cyclical either. It was the result of the World War I war economy.

However, the rate of increase in gold production had already slowed to a crawl before the war began, so perhaps World War I only aggravated a crisis in gold production that was already developing. The growing stagnation of gold production in the years immediately preceding World War I followed by sharp increases of commodity prices was very likely a largely cyclical phenomena. (6)

On the other hand, the sharp decline in the output of the South African gold mines that has developed in the last few decades represents the depletion of these mines. The depletion of gold mines—the deteriorating natural conditions of production—is not a cyclical factor.

Because gold production is so strongly influenced by non-cyclical factors, the discoveries of new mines, the exhaustion of old mines, inflations caused by wars—not only World War I and World War II but even smaller wars such as Vietnam—as well as the progress in mining and refining technology, we would not expect to see regular long cycles in the capitalist economy.

The rate of growth of the capitalist economy will respond to changes in the level of gold production, whether these have a cyclical or a non-cyclical nature. Such “cycles” would tend to have an irregular character and would be far more difficult to predict than the 10-year industrial cycle or the three-year “inventory cycles” of capitalism. The underlying cyclical forces toward a long cycle that do exist would be greatly “distorted” or even swamped by non-cyclical forces in the real world. Sometimes non-cyclical forces would reinforce the underlying cycle, and at other times they would cross them or negate them altogether.

And indeed, this just what we see in economic history. During the 19th century, there were 50-year-long swings in prices that did seem to be somewhat regular. This perhaps is what inspired Kondratiev to propose his 50-year cycle in the first place. For example, from 1815—the end of the world war that followed the French Revolution—to about 1843, prices trended downward. This would represent a declining phase of about 28 years. Between 1843 and 1873, prices were generally rising. This would represent an upward trend of 30 years. This comes to a 58-year “cycle,” including both the upward and downward phases.

Between the price peak of 1873 and the trough of 1896, there were 23 years. The next price peak came in 1920—though this price peak was obviously greatly influenced by World War I, just as I think we can assume the price peak of 1815 was determined by the prolonged world war that ended in that year. 1920 minus 1896 equals 24 years. Adding 23 and 24 together, we get a 47-year “cycle”—about 50 years.

After this the “cycles” become irregular. Between 1920 and 1933-34 the trend of prices is strongly downward. However, we get only 13 years of declining dollar prices—and 14 years if we use prices measured directly in gold instead.

Since 1933, prices in terms of U.S. dollars and other paper currencies have risen continuously with only very brief and limited interruptions in 1937-38, 1948-9, and 2008-09. In terms of dollar prices and other paper money, prices have not been cyclical at all. Any long cycle—or even long wave—that existed before 1933 would seem to be extinct.

But if we look at prices measured in terms of gold, we see a different picture. Taking the end of Roosevelt’s 1933-34 devaluation of the dollar as the price trough, we would have an up phase from 1933 to 1970 of 36 years. Adding the down and up phases together, that gives us exactly 50 years 1920-1970 for the entire cycle. The down phase of the cycle was abbreviated, though the shortness of the cycle is compensated by the extreme violence of the 1929-33 super-crisis.

Between 1970 and 1980, prices in terms of gold dropped sharply. Again, the decline in the prices of commodities measured in terms of gold as opposed to paper currencies was very short but also very violent. They recovered after 1980 through until 2001. After 2001, as the dollar resumed its depreciation, prices in terms of gold started to drop. We get, therefore, a 10-year down phase 1970-80 and a 21-year up phase (1980-2001) adding up to a total of 31 years for the latest full cycle. We don’t know yet when the current “down phase” will bottom out.

If the 50-year cycle were in operation and taking 1970 as a peak year, and the up and down phases of the cycle were of equal lengths, we would expect a price trough in terms of gold around the year 1995 and the next peak around the year 2020. But instead we get a price trough in terms of gold around 1980—15 years early—and a new, if considerably lower, price peak in 2001.

Therefore, since 1920, instead of regular cycles with more less equal up and down phases, we seem to have a cycle of 20- to 25-year up phases followed by violent collapses of prices—in terms of gold—that last about a decade. Perhaps the apparent “regularity” of the “long cycle” in the 19th-century and early 20th-century price data was largely accidental. Or it might have reflected greater stability of capitalism under the international gold standard in an era without world wars. (7)

Both the price peaks of 1815 and 1920 seem to have been influenced by world wars—and therefore were not completely cyclical. The mid-Victorian boom was clearly tied to the cheapening of gold in the wake of discoveries of the rich mines in California and Australia, an event that is also clearly non-cyclical.

Even the stagnation of gold production after the mid-1960s is related to the price inflation of the late 1960s, which was caused in part by the Vietnam War. Here, however, it seems that the Vietnam War only accelerated a cyclical decline in gold production that was coming anyway, just like apartheid—also a non-cyclical factor—postponed both the peak of the gold production until 1970 as well as the collapse of commodity prices measured in terms of gold that quickly followed.

There does seem, in my opinion, to be an underlying cyclical pattern here, but clearly non-cyclical forces are also playing an important role.

Conditions that favor the production of surplus value and those that favor the realization of surplus value

Are the theories of long-term changes in the rate of growth of the capitalist economy caused by changes in gold production, on one hand, and the changes in the long-term rate of capitalist economic growth tied to the rise in the organic composition of capital and fluctuations in the rate of surplus value, on the other, mutually exclusive? Or can they be combined?

In the historical series of posts, I put more emphasis on the level of gold production, because reliable statistics on the organic composition of capital and the rate of surplus value are hard to come by, especially on the scale of the world market. Various Marxists have attempted to measure these things for various countries over certain periods. However, this data lacks the reliability or completeness of the statistical data that is available for world gold production.

A combined theory

Despite the problem of the inadequate data on the organic composition of capital and the rate of surplus value, in my opinion the theories that link long waves to long-term fluctuations in the rate of profit caused by the rise in the organic composition of capital and changes in their rate of surplus value and the theory of long-term fluctuations tied to changes in the level of gold production can be combined.

Marx pointed out that the optimum conditions for the production of surplus value and the realization of surplus value only sometimes coincide. If surplus value is not produced, there is no profit. Or if surplus value that is produced is not sufficient to generate profits high enough, there will be economic stagnation.

On the other hand, if surplus value is produced in even more than adequate quantities—to support rapid capitalist economic growth—there is no guarantee that it will be realized in terms of money. And if it is not realized in terms of money, there will be no profit—or if partially realized perhaps a rate of profit that is too low to support rapid economic growth. Indeed, the conditions that favor the realization of surplus value tend over the long run to undermine the production of surplus value. Why is this so?

What would happen if the realization of surplus value was not a problem?

As a thought experiment let’s assume the problem of realizing surplus value could actually be permanently solved under the capitalist mode of production. The market would no longer limit the scale of capitalist production. Production would be able to increase as rapidly as is physically possible. Crises of general overproduction would no longer get in the way.

Would this solve the contradictions of capitalism? The problem of the realization of the value and surplus value of commodities would by definition be solved. But what about the problem of producing surplus value?

The demand for labor power, no longer periodically checked by crises of overproduction, would rise without interruption. With the demand for labor power high and growing, it would only be a matter of time before the balance of forces in the labor market would shift in favor of the sellers of the commodity labor power. Wages would rise, which of course would be very good for the working class.

How would the industrial capitalists react to such a—for them—deteriorating situation? They would introduce machinery at an accelerated rate in order to hold down wages. But the introduction of machinery at an accelerated rate would mean a sharp rise in the organic composition of capital. The rate of profit would come under great pressure. The combination of a falling rate of surplus value and a rising organic composition of capital would squeeze the rate of profit at two ends at once. Overcoming the problem of realizing the surplus value would progressively undermine the conditions of producing it.

Now as a thought experiment assume the opposite situation, one that could arise in the real world. Suppose due to an exhaustion of gold mines throughout the world, the problem of the realization of surplus value is greatly intensified. The demand for labor power would now grow very slowly. On the labor market, the balance of forces would strongly favor the buyers of labor power—the industrial capitalists—over the sellers—the working class. Wages would fall more and more over time. The rate of surplus value would skyrocket. It would become vastly easier to produce surplus value.

With labor so cheap, the capitalists would increasingly favor labor-intensive methods of production over capital-intensive methods, as the bourgeois economists say. The organic composition would rise very little if it didn’t actually fall.

In summary, then, easing the difficulties of realizing surplus value intensifies the problem of producing it. On the other hand, intensifying the problem of realizing surplus value eases the problem of producing it.

Now assume that we have alternating periods—which indeed seems to be the case in the real world—of rising gold production, which makes the realization of surplus value relatively easy but the production of surplus value increasingly difficult, and periods of declining gold production, which makes the realization of surplus value much more difficult but makes the production of surplus value easier.

Constructing an ideal long cycle

Let’s begin with the up phase of the cycle. Gold production is expanding and soon monetarily effective demand is rising rapidly. The demand for the commodity labor rises sharply. At first, there is plenty of unemployment and surplus labor. For awhile the production of surplus value is still quite easy for the industrial capitalists. The rate of profit will be high and business will boom.

Occasionally, production of commodities outraces the production of gold, but a recession quickly corrects the situation, and the economy recovers rapidly. As the boom continues, however, labor shortages begin to appear, first among skilled workers but later among even unskilled workers. Wages rise, and more importantly the rate of surplus value falls. As the production of surplus value becomes increasingly difficult, the industrial capitalists react by increasingly replacing living labor with machinery.

This temporarily increases the rate of profit for individual capitalists before prices adjust to new lower labor values. But in the long run the pressure on the rate of profit gets even more intense as the organic composition of capital rises. More and more of the total capital consists of constant capital, which produces no surplus value—no matter how productive it is in physical terms. Less and less is variable capital, which alone produces surplus value.

But under our assumptions, the remaining variable capital per worker—unit of purchased labor power—is producing less and less surplus value. The total mass of surplus value is increasing at a lesser rate than the total amount of value that is produced by the working class. With the quantity of unemployed labor power increasingly scarce, it is much harder to increase industrial production rapidly. The installation of more powerful machines, or the construction of extremely capital-intensive factories, takes time—especially if construction labor is scarce.

With demand exceeding supply at existing prices, prices start rising above their labor values. The rate of profit falls faster in the gold mining and refining industries than it is falling in capitalist industry as a whole. The production of gold levels out and then starts to decline.

The capitalist system will face increased difficulty in the production of surplus value at the very moment it is becoming more difficult to realize surplus value. Soon a major economic crisis—or series of economic crises—develops.

The demand for labor power will decline dramatically. As unemployment again grows, wages are slashed. It now becomes more profitable for the industrial capitalists to increasingly favor the use of labor-intensive over capital-intensive methods of production. The rise in the organic composition of capital is greatly reduced if it isn’t even reversed.

The devaluation of the commodities that make up the elements of constant capital also works in the direction of lowering the organic composition of capital. Eventually, protracted depression conditions or perhaps a shorter period of acute crisis will lower the prices of commodities in terms of gold below the values of commodities once again.

This raises the rate of profit in the gold production industry once again above the average rate of profit in industry as a whole. At the bottom of the long cycle, a combination of the growing ease of producing surplus value coincides once again with the increased ease of realizing surplus value. In addition, the abundance of money capital will mean a lower rate of interest relative to the total profit and a sharply rising profit of enterprise. Economic growth speeds up once again and the cycle—or wave—is repeated.

So we see here a mechanism for a cyclical or quasi-cyclical process operating over a series of 10-year industrial cycles. If we abstract such “external shocks” as wars, revolutions, counterrevolutions, the discoveries of rich new gold mines, and the exhaustion of old gold mines, perhaps we will have two 10-year industrial cycles dominated by boom conditions, followed by two industrial cycles dominated by crisis and or depression conditions. In the real world, this cycle will be partially broken up by such inevitable “accidents” as wars, revolutions, counterrevolutions, new gold discoveries, inventions in gold mining and refining, and the exhaustion of gold mines.

In addition, changes in the natural conditions of production involved in the production of the elements of constant capital such as copper mines, nickel mines, coal mines, oil wells and so on also will have an important effect on the organic composition of capital and the rate of profit.

The same is true in agricultural production. Indeed, changes in agricultural production can affect both the organic composition of capital and the rate of surplus value. These are among the “accidental” factors that can either reinforce or cross the “long cycle” described above.

At times, these “accidental” processes will reinforce the underlying cyclical trend and intensify it. At other times, such “accidents” will cross the underlying cyclical trend and weaken it or override it. This seems to coincide pretty much with what we see in the economic history of the last 160 years.

With this I end the series of posts that deal with the question of whether there is a long cycle in capitalist production.

The next and final series of posts will deal with the historical limits of capitalist expanded reproduction and its cycles and quasi-cycles. How long can capitalism go on? Could it possibly in the absence of a working-class revolution last indefinitely? Or are there certain economic or historical limits to the process that must end capitalist production at some point? And if this is true, exactly what are the factors that must bring capitalism to an end?

Strictly speaking, this takes us beyond crisis theory, the subject of this blog. The section of Marxist theory that examines the questions of the historical and economic limits to capitalist production is sometimes called “breakdown theory.” But the question is in practice so intertwined with crisis theory that I don’t think it can be avoided. Crisis theory blends into “breakdown theory.” Or what comes to exactly the same thing, crisis theory blends into the question of the fate of modern society. The next and final series of posts will deal with this question.

After that, this blog will be devoted to the examination of the above posts both in a theoretical sense and in the light of unfolding economic developments. The critique itself must be criticized. In this way, we will get ever nearer the truth and thus help arm a reviving workers’ movement with the weapons it will need to finally transform capitalist production into socialist production once and for all.


1 Unlike Sweezy, who saw “innovation” if it was of an epoch-making enough scale as leading to a boom, Mandel held that a pre-existing rise in the rate of profit was necessary before the large-scale investments that transform a “stagnationist long wave” into an “expansionary long wave” could occur.

2 This is highly questionable. Mandel held that the postwar “long wave” of expansion ended with the West German recession of 1967. This is not very far from my own preferred date of the collapse of the gold pool in March 1968. The year 1973 is another date that is often given for the end of the postwar capitalist economic prosperity. Since the rate of economic growth in most countries has never regained the level that prevailed between 1948 and 1967-8, how do we know that the “Great Moderation” was not simply a phase of a “long wave with an undertone of stagnation,” which might or might not give way in the future to a long wave with an undertone of expansion—a return more or less to the rate of economic growth that prevailed between 1948 and 1968?

3 This is assuming that the “Great Moderation” is considered to represent a “long wave of capitalist prosperity.”

4 The evolution of the classical gold standard into various gold-exchange standards, and then the replacement of the gold standard in all its forms by the paper dollar system is an attempt by capitalism to escape the “golden-chains” imposed by the market. However, as long as the capitalist system survives along with its chief contradiction—the contradiction between the social nature of production and the private appropriation of the product—all attempts to overcome what Marx called the “metal barrier” through currency reform is doomed to failure. The most recent world crisis and the depression that continues confirm this once again.

5 Money capital no more produces surplus value than constant capital does.

6 Since the international gold standard was in effect, commodity prices in terms of currency were also by definition commodity prices in terms of gold.

7 The super-crisis of 1929-33, with its violent price decline—both in currency terms and even more so in terms of gold—as well as the earlier price collapse of 1920-21 would not have occurred without the earlier monstrous inflation of prices during World War I. Nothing so destabilizing had occurred in the history of 19th century capitalism. Similarly, the end of the gold standard and its replacement by today’s extremely unstable paper dollar standard has introduced an element of extreme instability that was absent under the 19th-century international gold standard.


4 thoughts on “The ‘Long Cycle’—Summary and Conclusions

  1. I have read through your blog carefully, along with various other theories of crisis and I am now convinced to agree with you that money must be a commodity. However what I am unsure about is whether – in the absence of a gold standard of any kind – this commodity must be gold or even a single commodity.

    The reason given by Marx in capital volume 1 chapter 3 for why the money commodity must become gold is that you cannot write prices of commodities in two separate denominations (such as gold and silver) because one will always displace the other. However if the prices of the commodity is expressed in token money, rather than commodity money, then this day to day problem does not arise.

    It seems to me that commodity money is not money in the day to day sense of means of circulation, but primarily becomes money when capitalists loose confidence in token money. It is only when confidence in the state issued token money is lost that capitalists move into large scale investments in commodity money. This is due to the retention of value of commodities as a result of their being a product of labour.

    If this is the case then there doesn’t seem to be a particular reason why there must be a single money commodity, and in fact a bundle of commodities that capitalists purchase when they loose confidence in token money could be functioning as money.

    In this case we could define money commodities as those who’s prices move counter-cyclically, demonstrating that at times of crisis they are purchased by capitalists and in the boom times they are sold and underproduced. Gold and Silver both appear to be money commodities according to this definition, and since the end of the bretton woods system both the commodities have shown remarkably similar price movements, suggesting that they serve relatively similar functions

    What do you think? Can Gold and Silver both be money commodities, and if not why not?

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