In fact, in the statements, by Marx, set out in Part 2, almost all that is required for understanding the mechanism of the long wave is set out, and the remainder of what is required is set out in Marx's other writings. What Marx sets out here is that at particular periods, wages rise. We know too from Marx's writing, in “Value, Price and Profit”, and in Capital III, Chapter 6, that the cause of this rise in wages, besides the gradual rise in the value of labour-power, is an increase in the demand for labour-power relative to its supply. In the case cited above, in “Value, Price and Profit”, for example, it was the economic boom taking place in the towns, which sucked labour-power out of the countryside, but once the latent reserve of labour-power, represented by the countryside, has been drained, this same process causes all wages to rise.
So, this increased demand for labour-power will cause wages to rise provided that the reserve has been adequately used up, and provided that a relative surplus cannot be adequately created, as a result of a rise in productivity resulting from the use of new techniques and technologies. The rise in wages then tends to be associated with the Summer and Autumn phases of the long wave (the periods of precipitancy and crisis in Marx's description above). In the Spring phase, following a period of stagnation, there is a large reserve of unemployed labour, and new techniques and technologies raise productivity, so that even as additional labour is taken on, output rises faster than the additional employment. In the Winter phase, there is economic stagnation, and so the natural growth of the labour force tends to outstrip the demand for additional labour-power, so unemployment rises.
But, for similar reasons, as Marx sets out in Capital III, Chapter 6, the demand for primary materials also goes through a similar cycle. The same strong economic growth that characterises the Spring phase, causes the demand for such primary products to rise sharply. But, this comes after a prolonged period when the supply of these products exceeded demand, and where their market prices were falling. The consequence of these falling prices, in conditions where supply cannot easily be taken out, because of the large scale fixed capital investment involved in the production, is to cause a freeze on all new such capital investment. Existing agricultural land is used as intensively as possible, existing mines and quarries continue to be worked so as to squeeze every last bit of use out of the fixed capital invested in them, whilst no capital is used for exploration and development of new facilities.
The start of this process arises during the Summer phase. As growth rises sharply during the Spring phase, the increased demand for these primary products outstrips the supply, and prices rise sharply. Supply cannot respond to this increase in market prices, because of the lack of investment in exploration and development of new land, mines, quarries etc. during the previous period. Prices, therefore, continue to rise sharply. These sharp rises in prices eventually cause capital in these spheres to commit to the very large scale investment of fixed capital required. Indeed, it is the very large scale of this fixed capital investment which means that capital will only commit when it is convinced that the price rises are not temporary, as the following indicates.
“The economic theory is that when prices rise due to higher demand, supply will increase as it becomes possible to operate marginally economic mines at a profit due to the higher prices. The problem in practice is that copper is supplied from facilities that require huge investment in the mine and supporting infrastructure, and a major investment decision is required. A short-term rise in copper prices – even when sustained over several months - does not necessarily change industry investors’ perceptions of the long-term copper price. Mining companies will not invest in a project unless their expectations of long-term prices are at a level where the project becomes attractive.”
But, even from the point where a decision is made to engage in such a major new investment, it is necessary to first undertake exploration to find suitable new sources of the particular materials, even before the preliminary construction work can be undertaken to develop a new mine or quarry. It takes seven years to construct a new copper mine, for example, and even then, it does not reach its optimal production for several years after that. It can be seen, therefore, why from the start of the Spring phase of the Long Wave, which causes a sharp rise in market prices for these primary products, it can be as much as 13 years before new production begins to come on stream in sizeable quantities.
In other words, this new production of primary products does not begin to flow into the market until the Summer phase of the Long Wave cycle has commenced, and indeed this duration is a factor playing into the periodisation of the Long Wave itself. The Summer phase of the cycle, therefore, sees a plateau in the price of these products, as their supply begins to match the demand. In the following periods, as economic activity slows, the supply of these products exceeds the demand, and prices fall, leading back to the situation described earlier, whereby these low prices cause a lack of investment. With the Spring phase of the current long wave commencing in 1999, and Summer phase beginning around 2012/13, the quadrupling of copper prices after 1999, the ten fold rise in the price of oil and gold, over the course of that earlier period, and the stabilisation of copper prices, as well as the fall in the price of gold and oil over the last year or so, are, therefore, fully consistent with the predictions of long wave theory.
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