KONDRATIEV, NIKOLAI (1892–1938)

Soviet economist.

Nikolai Dimitrievich Kondratiev studied at the University of St. Petersburg, where he took courses taught by Mikhail Tugan-Baranowsky and other economists. In October 1920 he founded the Institute of Business Cycle Analysis in Moscow, which by 1923 had become a large and respected center employing more than fifty researchers. Between 1923 and 1925 he worked on a five-year plan for Soviet agriculture. As a supporter of the New Economic Policy (NEP), he favored the primacy of agriculture and the production of consumer goods over the development of heavy manufacturing. On the scientific front, in the 1920s he published several books and articles on long wave cycles. He stated that the capitalist economy was characterized by a succession of long periods of expansion and decline, implicitly rejecting the Marxist notion of an imminent collapse of capitalism. These "unorthodox" ideas and Kondratiev's sympathy for NEP aroused Joseph Stalin's anger. In 1928 he was removed as director of the institute and two years later he was arrested, accused of being a member of an illegal party. Kondratiev was serving an eight-year prison term when in 1938, during Stalin's Great Terror, he was executed.

The most interesting feature of Kondratiev's work is his theory explaining the existence of long cycles of about fifty years (1790–1845, with a peak in 1815; 1845–1895, with a peak in 1875; 1895–?, with a peak in 1914). He introduced the concept of basic capital goods, large-scale investments in infrastructure (canals, railroads, etc.), and other important works (such as clearing of land). These investments are characterized by a long construction period and high costs. Kondratiev assumed that the production of basic capital goods initially took place in a particular period of time, so the replacement of these means of production is also concentrated in a relatively short time span, thereby giving investment a strong boost. This creates additional employment, new incomes, and a higher demand for consumer goods. Eventually all sectors participate in the economic expansion, which lasts for about two to three decades due to the long construction period of basic capital goods.

During the economic upswing investment is so high that more money is required than the financial sector can accumulate. Gradually the money reserves are exhausted, so that interest rates start to rise. At a certain moment the expected return on investment falls below the interest rate and capital formation collapses: the turning point in the long cycle is reached. Overcapacity in the basic capital goods sector gives rise to massive layoffs, which in turn reduces the demand for consumer goods. Unemployment increases rapidly and the whole economy is drowned in a long crisis period. Nevertheless, during the economic contraction the building blocks are put into place for a renewed period of expansion. Investment falls below the accumulation speed of financial resources, so that a new reservoir of money is formed. Consequently, there will be sufficient financial resources available when the replacement of basic capital goods takes off again. Moreover, the economic difficulties incite firms to look for cost savings, which usually generates inventions. Due to the low level of investment, however, these inventions often cannot be transformed into innovations. It is only when investment recovers again that the new technologies can be incorporated in the production process on a large scale.

Kondratiev's ideas provoked a lot of controversy. In the late 1920s the Soviet economist Alexander Oparin heavily criticized the empirical part of Kondratiev's work as statistical manipulation. But for obvious reasons the discussion in the Soviet Union soon came to a complete standstill. In the West Kondratiev touched more fertile ground. His seminal article of 1925 was quickly translated into German but only received real attention when the German version was translated, in abridged form, in Review of Economic Statistics (1935). After a brief vogue in the late 1930s, Kondratiev's ideas were swamped by the ideas of the English economist John Maynard Keynes. But in the 1970s Keynesianism proved unable to address the serious economic problems of the time, leading to the rediscovery of Kondratiev's work, which became more fashionable than ever before. In 1987 the Soviet Union officially rehabilitated Kondratiev, and in the 1990s high quality translations based on his original writings in Russian became available in English.

Nevertheless, the debate rages on. Many economists cannot accept, for instance, the periodical character of the replacement of basic capital goods. Because the depreciation rate of these investment goods ranges from ten to a hundred years, their replacement should be a continuous process and not concentrated in particular periods. The empirical part of Kondratiev's argument also has its weaknesses. The margin of error of the underlying historical series is sometimes very high. Moreover, the number of complete cycles is so small that coincidence can play an important role in identifying long waves.

See alsoFive-Year Plan; New Economic Policy (NEP); Stalin, Joseph .

BIBLIOGRAPHY

Kondratieff, Nikolai D. The Long Wave Cycle. Translated by Guy Daniels. New York, 1984.

Louçã, Francisco. "Nikolai Kondratiev and the Early Consensus and Dissensions about History and Statistics." History of Political Economy 31 (1999): 169–205.

Louçã, Francisco, and Jan Reijnders, eds. The Foundations of Long Wave Theory: Models and Methodology. Northampton, Mass., 1999.

Makasheva, Natalia, and Warren J. Samiels, eds. The Works of Nikolai D. Kondratiev. London, 1998.

Neumann, Manfred. The Rise and Fall of the Wealth of Nations: Long Waves in Economics and International Politics. Cheltenham, U.K., 1997.

Erik Buyst