The Long Wave - Summary

• The long wave is an economic and social cycle that lasts between 40-60 years, with an average length of 54 years.
• Marx identifies some of the elements of the long wave, without actually using that term, in Capital, and particularly in Theories of Surplus Value, Chapter 9, where he examines the movement of agricultural prices over 50 years cycles. Other writers identify similar long wave patterns, but the first to refer to it by name was Kondratiev.
• The wave consists of four periods, or phases. They are often referred to as Spring, Summer, Autumn, and Winter, but can also be referred to as Prosperity, Boom, Crisis, and Stagnation in line with that characterisation used by Marx to refer to the economic cycle. The first two refer to a period of uptrend, and the last two to a period of downtrend. The period of uptrend (also sometimes referred to as long wave boom) does not signify that this is a continuous boom or uptrend. Mandel, for example, identified five recessions in the period of uptrend that ran from 1949 – 1974. It means only that the average growth in this period is above the average for the whole cycle. Similarly, in the period of downturn, this does not mean that the global economy shrinks, only that it grows at a lower rate than the average for the whole cycle.
• The long wave is both determined by, and a determinant of material conditions.
  • In the Spring phase of the cycle, economic activity increases more rapidly. It creates a sharply increased demand for raw materials, and food that cannot be fully met by existing facilities. Prices for these commodities rise sharply. This, in turn, causes a sharp increase in investment in production of these primary products. Material conditions, however, determine that this investment takes time to be completed, and to bear fruit. In Theories of Surplus Value, Chapter 9, Marx says that such new production, often in new areas, has a higher natural fertility, than existing production, but the existing production benefits from decades of capital investment, which has been incorporated into the natural fertility. He says, it takes around 10 years for this new investment to take effect.
    • One effect is to reduce the market value of these commodities, due to the higher level of fertility, and so is a long-term effect.
    • The other effect, is to significantly increase the supply, so that the previous high market prices, caused by the imbalance of supply and demand is reversed. The sharp increase in supply causes an overproduction of these commodities, and a sharp fall in their prices, until the market clears.
  • In the Summer Phase of the cycle, the expansion of capital begins to run up against constraints on labour supplies.
    • In the Spring Phase, previously introduced new labour-saving technologies have created a relative surplus population. The continued introduction of these technologies to replace older technologies (intensive accumulation), in the Summer Phase, alongside the natural increase in population, means that capital is supplied with the labour it requires to increase both the mass and rate of surplus value, via absolute and relative surplus value.
    • Rising social productivity, which reduces the value of wage goods, and so labour-power, means that living standards rise faster than wages. Rising employment levels means increased prosperity for the working-class, which encourages more rapid population growth (post-war Baby Boom), but which does not itself materially affect labour supply until 12-15 years later.
    • In the Summer Phase all of the old technology has been replaced by the new technologies.
      • The new technology is now the standard technology.
      • Technological development, and so productivity growth slows.
      • Capital accumulation proceeds on the basis of employing additional machines (extensive accumulation), rather than replacing older machines with more efficient new machines. That means employing additional workers to operate each additional machine.
      • In the Spring phase additional labour could be provided by extending the individual working-day, including, when necessary, paying overtime pay. Now, its only possible to extend the social working-day, i.e. to employ additional workers, including married women, children, immigrants. But, this also hits limits.
      • Eventually, absolute surplus value cannot be increased sufficiently by increases in the social working-day to cover the increase in capital accumulation, so the rate of profit begins to fall.
      • Because labour supply does not rise in proportion to capital accumulation, the demand for labour, and competition between capitals causes wages to rise. It also means that, with higher hourly wage rates, workers can refuse overtime, demand longer holidays and so on, which acts to contract the social working-day, putting further pressure on the production of absolute surplus value. They demand improvements in the social wage, which means taxes rise, taking money out of surplus value, and so reducing the rate of profit of enterprise.
      • That means the demand for money-capital to fund accumulation rises relative to its supply causing interest rates to rise, which reduces the rate of profit of enterprise further. Rising interest cause asset prices to fall, busting speculative bubbles created in the previous phases.
    • In the Autumn Phase, this reaches a peak. Wages rose during the 1960's (as did the social wage) causing a profits squeeze. The Autumn Phase begins in 1974, and is marked by the outbreak of this profits squeeze as an absolute overproduction of capital, as opposed to the crisis of overproduction of commodities witnessed at the start of the Summer phase.
      • The crisis of overproduction of capital is one in which capital accumulation outstrips the growth of the social working-day. Absolute surplus value cannot be expanded. The demand for labour enables wages to rise, squeezing profits so that relative surplus value declines rather than rises.
      • The solution is a sizeable rise in productivity, so that a relative surplus population is created, so that wages fall, and surplus value rises, and also so that the value of labour-power itself is reduced, so that relative surplus value can increase.
      • This requires a new technological revolution to provide the new base technologies that make this possible. As with the development of additional primary products during the Spring Phase, and creation of additional labour supplies by an increase in live births, this cannot occur immediately, but is itself a function of material conditions. The gestation period is itself, therefore, a determinant of the periodicity of the long wave cycle.
      • Innovation is not the determinant of the long wave as Schumpeter argued, but is itself a function of the long wave, increased innovation being called forward by the crisis of overproduction of capital. Necessity is the mother of invention, and for capital raising profits is a necessity. It is why, the Innovation Cycle is tied to the long wave cycle. Mensch argued that a peak in the Innovation Cycle occurs forty years prior to the peak of the long wave cycle. He identified an innovation peak in 1935, which fits with the peak of the long wave cycle in 1974. Another innovation peak was predicted for 1985, which fits with the development of the new new technologies around the microchip etc. The developments since then have been developments of, and improvements in, these new base technologies, not developments of new base technologies themselves – although, obviously some new such developments always occur, but at a slower pace.
      • The start of introduction of these new labour-saving technologies causes more acute distributional struggles, such as those seen in the 1970's, and early 1980's. Employers resist pay claims, strikes last longer. The reduction in demand for labour begins to weaken the economic and social position of labour. The organisations of the workers go into decline. Competition between workers at an individual level, plant level, regional level, and national level increases, giving succour to reactionary forces promoting nationalistic and individualistic solutions.
      • Wages fall and profits rise. A relative surplus population means that those in employment can again be asked to work longer – at first for no additional pay – to have fewer holidays, to work intensively, and so on. Absolute surplus value can again be raised.
    • In the Winter Phase, the workers are defeated, absolute surplus value is rising, intensive accumulation means that, the economy grows more slowly with new technology replacing older technology, so as to bring about small increases in output, but with less labour. The new technology means that the existing fixed capital stock suffers a massive moral depreciation, which also raises the rate of profit significantly, and also creates a release of capital.
      • Falling wage share itself restricts the increase in demand for wage goods, and thereby growth of aggregate demand. Net output rises relative to gross output, as surplus value increases, and the rate of profit rises.
      • Rising profits means that more capital accumulation can be financed from profits, reducing the demand for loanable money-capital. Interest rates then fall. Falling interest rates causes asset prices to rise, which promotes speculation and the formation of asset price bubbles, such as those seen in the 1990's and early 2000's, leading up to the financial crisis of 2008.
      • The new technologies developed in the Innovation Cycle, so as to replace labour, also form the basis of new high profit consumer goods industries. Capital accumulates more quickly in these new industries, which form the basis of the new expansion.

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