Kondratieff wave theory: is it any use?

Can Kondratieff wave theory help predict the future and inform investment decisions? Or is it Nostradamus-style mumbo-jumbo?

What is a Kondratieff wave? It is the central concept in a controversial but intermittently fashionable theory of economic history, which holds that major capitalist economies tend to grow, boom, bust and grow again in long waves or supercycles' lasting around 50-60 years. In each long wave, according to the theory, capitalist economies pass naturally through distinct and measurable stages of growth, plateau, contraction and renewal, which closely relate to periods of intense technological innovation. 

Who developed the Kondratieff wave theory?

Nikolai Kondratieff (also spelt Kondratiev'). Kondratieff was a Russian economist born in 1892 and active in the 1920s who discovered' that capitalism reinvigorates itself after a crisis. As part of his work for Stalin's Agricultural Academy and Business Research Institute, Kondratieff made an in-depth study of the emerging capitalist economies from 1789 to 1926, focusing on prices, interest rates, and output data. His work was published as Long Waves in Economic Life in 1926. But unfortunately for the young economist, who had previously impressed Lenin with his talent, this new work for Stalin appeared to show that capitalism (while subject to periodic slumps) never destroys itself completely.  

How did Stalin take the news?

Badly. The Soviet leader - firmly wedded to the view that capitalism brings forth its own gravediggers and is thus doomed to a miserable death - was notably unamused by Kondratieff's findings. The former high-flyer was exiled to the Siberian Gulag, where he went mad and (it is believed) was executed in 1938. But Kondratieff's work, published in German, still attracted international attention. Austrian economist Joseph Schumpeter, who is most famously associated with the idea of capitalism's creative destruction' and the role of technological innovation in driving economic history, took up the Russian's ideas and championed them in the 1930s - coining the expression Kondratieff wave'. 

Do all economists agree that such cycles exist?

No - far from it. The idea of long-wave cycles in economic history has been widely criticised as an overly ambitious and dogmatic ideology that reinterprets reality to fit a theoretical straitjacket, rather than the other way round (much like Marxist philosophy of history). Even in the 19th century, many economists were sceptical about the idea that the economy developed in predictable cycles, preferring to think of recessions as crises' interrupting the flow of things. Most modern orthodox economists still regard long-wave theory with scepticism, with many seeing it as no more than crankery - the economic equivalent of Nostradamus's prophecies. 

So why bother with it?

As with many grand theories in the social sciences, the more zealous supporters of Kondratieff's theory have tended to puff it up into an overly ambitious predictive science'. However, that doesn't mean it should be dismissed outright. It may have a solid basis in historic fact, and its advocates believe that it can provide helpful insights to investors. Although views differ on exactly when waves start and finish, there is broad agreement there have been three Kondratieff waves. The first ran from about 1787 to 1842, driven by the textile, iron and other steam-powered industries of the Industrial Revolution, including a depression from about 1814-1827. The second ran from c.1843 to 1897, sparked by the advent of the railways, and including a depression from 1870-1885. The third wave ran from 1898 and lasted until about 1950, driven by the electricity and car industries - and including the slump of the 1930s, which Kondratieff predicted.  

Where are we now? 

In the second half of the 20th century, the combination of fairly successful Keynesian macroeconomic management and the long post-war economic boom meant that Kondratieff's ideas fell out of fashion. But in the 1970s, and again since the bubble and bust of the start of this decade, interest in his work has surged. And if advocates for K-waves are right (for an example of the writings of believers, see Ian Gordon's site at, we are currently in the depths of the Kondratieff winter (see below). The winter is a time when tensions within society mount - and a dangerous time for investors, who should be in gold, gold shares, and cash.  

The four phases of a Kondratieff wave

In the model Kondratieff wave, the economy moves through four distinct phases within each long cycle, known as spring, summer, autumn and winter (for a detailed overview, see Spring, which lasts about 25 years, sees mostly beneficial inflation and growth - a long upwave ending in severe recession as the economy overheats and boils over (summer - lasting around five years). Eventually, the economy recovers, beginning a period of selective expansion lasting up to a decade, known as the secondary plateau, or autumn. Last, the exhausted economy enters winter - a collapse of roughly three years, which is followed by a 15-year deflationary retrenchment.




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