Tuesday, 23 December 2014

The Long Wave - Part 6

Kondratieff makes the point that the development of new primary production, especially where this involved the opening up of new territories, was not, therefore, some inexplicable random event, but is a consequence of a sharp increase in economic activity, in the Spring phase of the cycle, which cannot be met from existing production facilities, and whose consequence is a sharp rise in prices of primary products, which creates the motivation for such exploration and development. He writes,

“As regards the opening up of new countries for the world economy, it seems to be quite obvious that this cannot be considered an outside factor which will satisfactorily explain the origin of long waves. The United States have been known for a relatively very long time; for some reason or other they begin to be entangled in the world economy on a major scale only from the middle of the nineteenth century. Likewise, the Argentine and Canada, Australia and New Zealand, were discovered long before the end of the nineteenth century, although they begin to be entwined in the world economy to a significant extent only with the coming of the 1890’s. It is perfectly clear historically that, in the capitalistic economic system, new regions are opened for commerce during those periods in which the desire of old countries for new markets and new sources of raw materials becomes more urgent than theretofore. It is equally apparent that the limits of this expansion of the world economy are determined by the degree of this urgency. If this be true, then the opening of new countries does not provoke the upswing of a long wave. On the contrary, a new upswing makes the exploitation of new countries, new markets, and new sources of raw materials necessary and possible, in that it accelerates the pace of capitalistic economic development.”

But, as we have seen the development of this new primary production itself requires around 13 years to achieve, or approximately the length of the Spring phase of the cycle.

In the late Summer, and throughout the Autumn phase of the cycle, capital is faced with slowing productivity gains, and rising unit costs, as the price of primary products plateaus, and wages rise. This provides the impetus for innovation. Schumpeter basically attributes the periodicity of the long wave to this Innovation Cycle. As George Ray, in the previously cited article, (“Innovation in the Long Cycle”) states,

“Innovation is indeed a cornerstone of Schumpeterian business cycle theory, according to which its economic impact is immense. Schumpeter’s thesis, in its most simplified form, stated that the upturn in the first Kondratiev cycle (1790-1813) was largely due to the dissemination of steam power, the second (1844-74) to the railway boom, and the third (1895-1914/6) to the joint effects of the motor car and electricity. These all fitted Kuznets’ requirement of an all-pervasive influence on all, or many sectors of the economy.”

But, Kondratiev points out why trying to explain the long wave by the development of inventions, makes the same mistake as trying to explain it by the opening of new territories.

“Changes in technique have without doubt a very potent influence on the course of capitalistic development. But nobody has proved them to have an accidental and external origin.

“Changes in the technique of production presume 1) that the relevant scientific-technical discoveries and inventions have been made, and 2) that it is economically possible to use them. It would be an obvious mistake to deny the creative element in scientific-technical discoveries and inventions. But from an objective viewpoint, a still greater error would occur if one believed that the direction and intensity of those discoveries and inventions were entirely accidental; it is much more probable that such direction and intensity are a function of the necessities of real life and of the preceding development of science and technique.

“Scientific-technical inventions in themselves, however, are insufficient to bring about a real change in the technique of production. They can remain ineffective so long as economic conditions favourable to their application are absent. This is shown by the example of the scientific-technical inventions of the seventeenth and eighteenth centuries which were used on a large scale only during the industrial revolution at the close of the eighteenth century. If this be true, then the assumption that changes in technique are of a random character and do not in fact spring from economic necessities loses much of its weight. We have seen before that the development of technique itself is part of the rhythm of the long waves.”

The example of the steam engine was cited earlier in that regard; the original discovery of the use of steam as a means of generating motive power going back to the first century AD. But, the same is true of other scientific discoveries and inventions. Basic elements of the internal combustion engine also go back centuries, and the first internal combustion engines, using a variety of combustible materials, including gunpowder and oxygen/hydrogen were developed during the 17th and 18th century. That is long before the use of internal combustion engines at the end of the 19th century. Similarly, whilst the discovery of electricity had occurred much earlier, experiments into electricity began in the 18th century, and the first electric motors were developed in the first half of the 19th century.

In each case, the motivation for machines using these discoveries is to solve particular problems faced in the production process. For example, for a long time the main source of fuel in Britain was wood. But, the start of the Industrial Revolution meant that wood began to run out, and was in any case an inefficient energy source. It was rapidly replaced by coal, which gave Britain an early advantage because it had plentiful supplies, much of it easily accessible from the surface. However, as the need for coal expanded rapidly, it became necessary to dig deeper mines, which then had the problem of water that needed to be pumped out. The first steam engines were developed to pump water from mines.

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