Capitalism has existed (at first just here and there) for over four centuries now, though it is only during the last couple centuries that it has become the dominant economic system in the world. But even during just those last two centuries lots of things have changed, including capitalism itself in some important ways. And with those changes and developments, capitalist overproduction crises first appeared in the early 19^th century,¹ and since then the characteristics of these crises themselves have changed and evolved somewhat.

      Capitalism itself has had two main stages over the past two centuries. The first major stage is usually called ‘pre-monopoly capitalism’, and the second major stage, which dates roughly from near the end of the 19^th century, is usually called ‘monopoly capitalism’ or ‘imperialism’. All of these terms can be misleading, and often lead to difficulties for those new to the concepts.

      First, there were some cases of monopoly or semi-monopoly even during what is called ‘pre-monopoly capitalism’. But such cases did not characterize capitalism in that period.

      Second, the term monopoly capitalism is not meant to suggest that every industry, or even any industry, has only a single company producing specific products. Instead the idea is simply that there has been a qualitative increase in the degree of consolidation in industry in general in the direction toward monopolies. In Imperialism, the Highest Stage of Capitalism (1916), Lenin says this about monopoly:

It is clear from this that Lenin conceives it to be entirely possible for there to be a qualitative shift from competition towards monopoly even if there are still some aspects of competition left. It seems to me desirable to spell out the respects in which competition still remains, however. And one way to do that is to talk about oligopoly rather than monopoly; that is, where a small number of producers share a market among themselves and often restrict their competition to areas of design and advertising rather than the more fundamental matters of price and quality.³ Another way to do this is to explicitly bring out the fact that there is usually more competition today among companies internationally than there is in the home market.

      But whether we talk about monopoly or oligopoly, the central point is that in this second major stage of capitalism there is a qualitative decrease in the level of competition, at least within individual countries. This is of enormous importance economically.

      Using the term ‘imperialism’ for this second major stage of capitalism also causes confusion and hang-ups. Classical imperialism, the conquest of one country by another and its subsequent economic exploitation, arose in ancient times, long before capitalism ever developed. And there were also imperialist actions by capitalist countries during the first major stage of capitalism—such as the English conquest of India and the U.S. grabbing large parts of Mexico. But Lenin, in calling the second major stage of capitalism “imperialism” or “modern imperialism” meant to do two things: First, to emphasize that this second stage of capitalism was qualitatively more imperialist in its actions than ever before. And second, to stress that imperialism was no longer a simple policy choice, but rather something that modern capitalism must do in this new stage, or in other words, something which has become essential to it. These are both very important and valid points. Still, because of the possible confusion between this new use of the word ‘imperialism’ and the old use, many of us prefer to use the term capitalist imperialism when we are referring to the second major stage of capitalism. Lenin himself did this on occasion.⁴

      Within this capitalist-imperialist era itself there have been two stages in how the imperialist control of other countries has been handled. During the first period (beginning mostly in the 19^th century and in some cases before that, and continuing, for the most part, up until after World War II) imperialist control was exercised through old-style open and undisguised colonialism. As the 20^th century progressed, however, and especially in the first few decades following World War II, the people of the oppressed colonies rose up and forced the imperialists to grant them at least nominal independence. In a few cases (such as Vietnam) this actually did lead to something close to complete political and economic independence for a while. But in most cases it only led to a more disguised form of imperialist control, neocolonialism, wherein the imperialists in the mother country exercise indirect control via local, nominally independent, puppet or “client” regimes. And if and when these client regimes show too much independence the imperialist power behind the scenes steps in and replaces them—with military force if necessary.

      To summarize, the two biggest changes in capitalism from the first major stage to the second major stage are therefore:

1. Qualitatively much less competition. (Or: A qualitatively much higher degree of oligopoly or “monopoly”.)
1. A corollary to this is the domination of the world economy by a fairly small number of truly giant corporations.
2. Qualitatively much more imperialism, or domination of other countries by a few imperialist countries which are (usually, at least) the most developed economically.
1. A corollary to this point is the completion of the division of the entire world into spheres of influence and control by a few imperialist powers. (During some limited periods there is a single top dog, or “super-power”, such as Britain during the late 19^th century, and the U.S. in the period since the collapse of the revisionist USSR in 1991.)
2. A second corollary is the consequent overall qualitative increase in interimperialist contention and war, even if there are periods of relative peace in between those wars.
3. A third corollary is that the giant corporations—even those which operate internationally and are therefore called “multinational” or “transnational” corporations—are in almost every case actually controlled by the citizens of one single imperialist country. Furthermore, these corporations exercise enormous influence over the imperialist country itself, and in turn operate under the primary protection of that imperialist country.

      However, there are also other important changes in capitalism in its second major stage, which have occurred more or less simultaneously with those two central changes (and their corollaries). They include:

3. A great expansion in the productive capability of capitalist society (due mostly to scientific and technical advances).
4. A much greater role for the capitalist state in the regulation and control of each national economy. And secondarily, the advent of a few international economic agencies, such as the International Monetary Fund and the World Bank, which try to do the same thing on a world scale, mostly to promote the interests of the top imperialist powers—especially the U.S.
5. The development of “finance capital”—the merger of bank and industrial capital. (There are, however, major variations from country to country in how this has worked out, and also considerable differences in different time periods.)
6. The greatly increased importance of the export of capital along with the expansion of foreign markets.
7. The de facto separation of management from ownership of the big corporations.

      Note well that many of the changes listed above are not entirely new things, but merely a qualitative change in a characteristic that already existed to some extent in the first major stage of capitalism. But qualitative changes can have tremendous ramifications even if they are not absolutely new phenomena. This is especially so when there are a number of these qualitative changes acting together at the same time. And this is why it is essential to view “monopoly capitalism” or “capitalist imperialism”, as it has existed since the last years of the 19^th century, as being the second major stage in the history of capitalism in its period of world dominance.

      Lenin remarked, in his famous pamphlet on the topic, that monopoly capitalism “has intensified all the contradictions of capitalism”.⁵ This must certainly include the central contradictions that give rise to capitalist economic crises. And if those contradictions are intensified, then the crises themselves must be intensified as compared with those of pre-monopoly capitalism.

      But is this actually true? Haven’t the recessions over the past half-century been pretty short and mild? Doesn’t this really serve to show that the contradictions of capitalism that lead to economic crises must have actually been moderating for the most part, during the capitalist imperialist era? Let me now remind those who lean toward that view about one embarrassing historical event—the Great Depression of the 1930s. If most of the industrial cycles during the imperialist era have been fairly mild, one of them was nevertheless a doozy!

      Consequently it might seem that neither the theory that crises have been intensifying during the imperialist era, nor the theory that they have been moderating, can really be backed up. But this confusing initial picture is based on too superficial of an analysis of the situation here. We’ve got to review both the actual history of the past century in closer detail, and also develop the theory to explain this economic history a bit further.

      I’ll start by pointing out that Marx and Engels themselves expected that capitalist economic crises would change over time. In particular, they expected that these crises would gradually become worse and more intractable. As I earlier quoted them as saying in the Communist Manifesto, the bourgeoisie gets over these crises by “paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented”.⁶

      In an 1894 footnote in volume III of Capital, which he edited, Engels remarks that

The entire period from 1873 to 1893 was one of economic weakness or recession, which partly explains Engels’ comments here. But there are several remarkable things to note about these comments. First, Engels shows that neither he nor Marx dogmatically insisted that the industrial cycle should always and forever have an average duration of 10 years. On the contrary, he suggested that it had already changed from an average 5-year duration to 10 years, and maybe seemed to be moving toward a longer duration still. Second, he reaffirmed that these crises were, on average, growing more powerful. Third, he said there were signs that the depression phase of the industrial cycle was becoming much longer, more drawn out, and more chronic. He implies here that the depression phase may have lost some of its purgative force and become rather “indecisive”, which I interpret to mean something like chronic stagnation rather than completely clearing the ground for a powerful new boom. These are all remarkable insights, coming—as they did—just a few decades before the Great Depression of the 1930s. (And that depression may have itself been delayed a bit by World War I.)

      Let’s focus on the duration of the industrial cycle a bit more. I think Engels was really on to something here, though once again this is often obscured by other writers due to their superficial analysis of the situation. In the United States there have actually been 24 complete “business cycles” (trough to trough), as conventionally measured, from 1891 through 2001.⁸ This means the average duration of this U.S. business cycle over the modern imperialist era has been 111 years divided by 24 cycles which equals 4.625 years/cycle. Far from lengthening beyond 10 years, the cycle duration seems to have fallen back to about what it was in the early 1800s in Britain! But if you look closer at these business cycles you see something very fishy. For example, during the Great Depression of the 1930s there were “business cycle” troughs in March 1933 and June 1938. But the Great Depression itself lasted about a dozen years in the U.S. (1929-1940). Quite obviously these “business cycles” within that Great Depression should be viewed as relatively minor and secondary movements within a much more important overall economic period (i.e., a major fairly long-term economic downturn). Since that time the same sort of thing is true for other business cycles during both periods of overall expansion and periods of general slowdown.

      The only rational conclusion here is that these “business cycles” are now only a part of the economic story, and a secondary part at that. From at least the time of the Great Depression on, they have become a rather superficial secondary cycle within much more important longer-term economic developments.

      The last 75 years have seen the following major economic periods in the U.S.:

1. The Great Depression (1929-1940).
2. The World War II economic recovery and war boom (1941-1945).
3. The immediate post-war disruption and reconversion period (1946-1949).
4. The Post World War II economic boom (1950-1973).
5. The long slowdown from then on (1974-the present).

(It is quite possible that the 5^th period is now coming to a close, and a new, worse, 6^th period is about to begin. We will discuss that possibility later.)

      Within that 5^th period in the U.S. there was a short but fairly spectacular “New Economy” boom (from about 1995 through 2000) which confused the overall picture for a while. For the world as a whole the picture has been clearer since that debt and speculation bubble developed primarily in the U.S. But during the long slowdown the overall annual rate of economic growth in the major capitalist countries as a whole has shrunk to less than half of what it was during the post-World War II boom period. (See the more precise statistics in Table 4.2A below.) Clearly, major overall changes like this are much more important to focus on than any mere superficial business cycle ups-and-downs within them.

      Interestingly, the question of whether there are really any long-wave capitalist economic cycles, or simply separate broad non-cyclic economic periods, became the central issue in a debate in the early 1920s between Nikolai Kondratiev, the most famous proponent of long waves, and Leon Trotsky.⁹ Unfortunately, the arguments advanced by both sides in this dispute were very weak and also “premature” since they focused on the 19^th century and not the imperialist era. Kondratiev took a generally empiricist line, and was unable to adequately explain from a theoretical perspective just why the postulated long-wave cycles should develop.¹⁰ Trotsky agreed with Kondratiev that even far back into the 19^th century there were long historical periods of overall capitalist economic weakness, and other long periods of overall economic strength—as well, of course, as continuing industrial cycles within both. But he dogmatically insisted that Marx required that the internal contradictions of capitalism could result only in the short-term (roughly every 10 years) business cycles. These more long-term economic periods, argued Trotsky, must therefore be due to accidental external conditions within which capitalist development occurs, and could not possibly be due to any cyclic phenomena inherent in capitalism itself.

      I should note here that Marx himself sometimes suggested that there might be multiple cycles with different periods occurring under capitalism. In one place, for example, he says that the standard decennial cycle is itself “interrupted by smaller oscillations”.¹¹

      Trotsky failed to explain why the internal contradictions of capitalism that Marx explored might not be capable of generating both standard and long-term economic cycles. While Trotsky was correct to argue that the existence of any kind of genuine inherent cycle requires some sort of internal regulator of that cycle, he apparently didn’t comprehend that some kinds of complex internal regulating systems can lead to multiple cycles with differing periods.

      Consider, for example, the regulation of blood pressure by the complex internal mechanisms of the human body. With each heart beat there is an increase in a person’s blood pressure (to the systolic pressure level) and in between the heart beats a falling off of the pressure (to the diastolic pressure level). This creates a short-period cycle alternating between increased and decreased blood pressure levels. But at night the heart beats more slowly when we sleep, and for this reason (and probably also for additional reasons) our average blood pressure when we sleep is lower than when we are awake and active. Thus there is a second, longer-term (usually daily), cycle alternating between higher and lower average blood pressure in addition to the short-term cycle corresponding to each heart beat.

      I believe that the internal regulating mechanisms of modern capitalism in the imperialist era function in a partially analogous way, and create two major economic cycles—one of a short period (roughly 5 to 10 years) and one of a longer period (and of more irregular duration but lasting many decades).

      But for now let’s get back to the Kondratiev/Trotsky dispute. Was Trotsky right that the economic periods of the 19^th century were due (or at least were primarily due) to external factors, and thus were not truly cyclic? I lean toward the view that with respect to the 19^th century he was partly right and partly wrong: he was wrong in claiming that the factors determining the long periods were “external” to the capitalist system (or at least external to “capitalist development”), but he was nevertheless correct that these longer periods (in the 19^th century!) were not truly cyclic in the same way that the standard 5 to 10 year industrial cycle is. Trotsky criticized Kondratiev this way:

      Clearly some of these things, and wars and revolutions in particular, seem likely to be more important than the others, and those are the two that Trotsky did in fact emphasize. But curiously, while the famous supposed “Marxist” Trotsky took the position that the “basic” trend line of the world capitalist economy depends on events and developments external to capitalism and capitalist development, such as wars, revolutions, social reforms, technological innovations, philosophical and literary currents, etc., poor Kondratiev, who is usually not regarded as a Marxist at all, took the position that the most important of these “external conditions” were generally not truly external to the capitalist system overall. That is, he took a more systemic view of capitalism under which these “external conditions” were actually predictably occurring characteristics in the course of each long cycle’s development.¹³ Nevertheless, it does seem to be the case that Kondratiev was not able to make this argument in a convincing way, nor really demonstrate how the overall sociopolitical characteristics of different prolonged periods were truly cyclic or a direct outgrowth of cyclic changes in the system of capitalist production.

      Of course, as I already pointed out, most of these phenomena in the superstructure—including wars and revolutions—arise out of the economic base and are not truly external to the capitalist system. But, before the imperialist era at least, it was true that these phenomena tended not to be regular and cyclic in the more direct way that standard industrial cycles are. (Even in the imperialist era some phenomena can arise out of the capitalist system without being generally cyclic, such as the steadily growing environmental crisis of the capitalist era, to name one clear example.)

      However, even if Trotsky was right (or partly right) in denying the cyclic character of long economic periods during the 19^th century it doesn’t follow that the same is true of the 20^th century and beyond. As we have discussed, capitalism changed in a very major and important way at around the end of the 19^th century, from “pre-monopoly capitalism” to “monopoly capitalism” (or “capitalist imperialism”). I don’t preclude the possibility of genuinely extraneous outside events also having medium to long-term effects, but I think the primary determinants of the long-term cycle during the modern imperialist era are due to more or less the same cyclic internal mechanisms of the capitalist economic system that produce the short-term industrial cycle. (We’ll get into this deeper in Chapter V.)

      There is also another possibility here, namely that there are both occasional external and/or non-cyclic factors that sometimes lead to long term up-and-downs in the economy as well as some internal cyclic economic factors which tend to lead to long-term cycles as well as the much shorter traditional industrial cycle. Such a combination of internal/external and cyclic/non-cyclic factors may possibly result in a confused and complex overall long-term picture. But as I mentioned earlier, we will try to explain as much as we reasonable can about economic crises in the imperialist era by reference to internal and cyclic phenomena in the capitalist system itself.

Chart 4.4A – One Attempt to Use Kondratiev’s Theory to Predict the Future

This is one representation of Kondratiev’s (or “Kondratieff” as it is transliterated
here) “Long Wave”. Notice that if the supposed 60-year cycle had held true there
should have been a trough around 1960 instead of 1940. Moreover, this chart would
suggest that we should have had a trough in the late 1990s and the economy should
be on the solid upswing now—which is definitely not the case! Basing this long wave
phenomenon on U.S. wholesale prices is also very dubious, since it is supposed to
reflect the general health of the economy on a world scale.

      One of the ironies of history is that sometimes people come up with a crude version of a social theory before it actually becomes correct, and—because it is so premature and half-baked—this theory is denounced and rejected and has a considerable amount of odium attached to it, which then serves to impede the adoption of a better and more correct version of the theory once that version does become appropriate! This, alas, was Kondratiev’s fate.

      Another irony of history is that a follower of Trotsky, the Belgian political economist Ernest Mandel, later resurrected and adopted Kondratiev’s long-wave theory (in modified form) despite the fact that his hero was totally opposed to it!¹⁴ In fact, Mandel even tried to make it seem like Trotsky and Kondratiev’s views could largely be reconciled and combined and that Trotsky’s strong comments which precluded this were mere “semantic differences” about waves or cycles versus periods.¹⁵ As Richard Day aptly comments, “What Mandel takes to be only a semantic difference in reality constituted the very core of the Trotsky-Kondratiev debate.”¹⁶ This was an example of an acolyte being so afraid to disagree with his hero that he twisted what his hero actually said and believed into its direct opposite.¹⁷ It is also an example (in Maoist terms) of combining “two into one” (i.e., of trying to merge two inherently opposed things).

      Mandel’s motive in championing a long-wave theory was undoubtedly to try to explain what caused the Great Depression of the 1930s, and to try to prove that something similar might be about to happen again. This much was actually rather reasonable. But he did not fully understand the very basic point that the Great Depression was something specific to the imperialist era; it was not simply a much more intense example of the crisis phase of the industrial cycle which might have happened at any time, but rather something that could only have happened in the imperialist era. Thus his attempt to explain it by adapting Kondratiev’s theory of long waves which started way back in the 19^th century was misconceived from the very beginning. This was also combining “two into one”, namely a rather dubious theory about the general economic trends of the 19^th century together with something quite new and different in the imperialist 20^th century.

      Kondratiev postulated a long wave lasting 45, 50 or 60 years from trough to trough (in his various versions). Mandel’s version was similar to that, with an overall 45 or 50-year length, but with somewhat different dates identified for the larger periods of upswing and downswing. However, Mandel also tried to “deepen” the causal explanation for this long wave that Kondratiev put forward, as we’ll see shortly.

      Mandel puts forward his version of Kondratiev’s long-wave theory both in a chapter in his book Late Capitalism (originally published in German in 1972), and in a smaller later book devoted entirely to that topic, Long Waves of Capitalist Development: A Marxist Interpretation (1995).¹⁸ In the preface to the later volume he says his “Marxist explanation” for these waves is that they are “essentially based on long-term movements in the rate of profit determining, in the last analysis, quicker and slower long-term paces in capital accumulation (of economic growth and of expansion in the world market).” Later he says that his theory is actually one of “long waves in the average rate of profit”.¹⁹

      What then is to explain these alternating long waves of higher or lower average rates of profit? Mandel says that

      OK, he has pushed the problem back one stage. But then what is to explain the sudden changes (let alone periodic changes) in these five factors? He basically can give no good explanation for this obvious question. In fact he starts by admitting: “Why this [alternating depressive or expansive waves of average profit] occurs at certain turning points can be explained only in the light of concrete historical analysis of a given period of capitalist development leading up to such a turning point.” This seems to be another way of saying that there is no general explanation for his long-wave theory. Later he adds: “We have said that although the key turning points are clearly brought about by exogenous extraeconomic factors, they unleash dynamic processes that can then be explained by the inner logic of the capitalist laws of motion.”²¹ So he thinks he can explain why long-term waves continue once they start, even though he cannot give any general explanation for why they start or why they end! That is a rather weak and even somewhat incoherent theory if you ask me! Somewhat in contradiction to what he says elsewhere, Mandel does think that he can explain “the transition from an expansionist long wave to a stagnating long wave” (though his explanation is for this is unclear to me), but he then admits that his theory “cannot explain the turn from the latter to the former.”²²

      So what do we actually have here in Mandel’s version of a long-wave theory? It seems to be primarily another empirical theory which recognizes—what was already long before recognized—that capitalist economic history stretching back into the early 19^th century displays not only cyclic short term industrial cycles, but also long term “waves” that apparently have to be explained on an ad hoc basis. He added two main things to this: the implicit prediction that each of these waves up or down should last 20 to 25 years (for reasons he could not explain), and the prediction that a new long-term down wave had started around 1967. I’ll grant him some credit for that last prediction, although many others at the time (including myself) expected the same thing.

      All I can say is that Mandel’s very complex and multi-causal “explanation” for long waves is, if anything, even more unconvincing than was that of Kondratiev. Simply adding lots of additional Marxist-sounding verbiage never proves much of anything. Moreover, Mandel’s implicit predictions of how things would proceed in the future have turned out to be false.

      One of the curious things about the long-wave theorists of the past is that they have tended to get fixated on some “necessity” for precise numbers for the lengths of the waves. Mandel himself criticizes Kondratiev for this fetishism,²³ but he seems to fall into this same sort of tendency himself—if not quite to the same obsessive degree. While Mandel postulates specific historical up and down waves of from 19 to 30 years each, in his theory he generalizes this to “waves of 20 to 25 years in duration”²⁴ Thus for each full cycle (combining both up and down waves) he is talking about periods of quite close to 50 years from trough to trough.

      This numerological mysticism clearly causes a problem if we try to extend Mandel’s schema as given in Table 4.5A. What specifically should we give as the end date for the period of decelerated growth which he posits began in 1967? Should we say “about 25 years later” for example, or 1992? Perhaps in the U.S. that might initially sound fairly plausible, given that the “New Economy” rebound began here a few years after that, but it won’t work at all on a world scale since no worldwide rebound occurred. Moreover, if we do focus only on the U.S. and say a new up-wave began around 1995, then—if that 25 year thing is roughly correct—we should still be in that period of accelerated growth for around another decade. But the dot.com bubble only lasted about 5 years, and the new century has so far seen a recession in 2000-2001 with a very slow and weak recovery following it, and now in mid 2008 with the very serious collapse of the housing bubble we are already either in another recession or are about to enter one. This new century so far actually seems to be part of what Mandel would have to call a period of decelerated growth. In short, Mandel’s schema from 1972 seems to fall apart if we try to extend it in any sort of reasonable way to the following 35 years or so. The whole roughly 50-year long wave that he postulated has already been proven false by events!

      The well-known bourgeois economist Joseph Schumpeter (1883-1950) also put forward a long-wave theory in his book Business Cycles (1939).²⁵

      Just as Mandel did later on, Schumpeter pretty much just borrowed the idea from Kondratiev—but with the 60-year cycle version this time—with the supposed empirical justifications stretching back into the 19^th century or before, and with the causal explanations Kondratiev supplied somewhat padded by his own additions. At the same time Schumpeter adopted two other cycles, the 10-year cycle that Marx and others had discussed (but which Schumpeter called the “Juglar Cycle”²⁶), and another one he called the “Kitchin Cycle” with a duration of just 40 months (and based primarily on inventory fluctuations). This was all designed to work out perfectly from a mathematical standpoint, with exactly 3 Kitchin Cycles in each Juglar Cycle, and exactly 6 Juglar Cycles in each Kondratiev Cycle! (Talk about economic numerology gone mad!)

      Other people, most of whom do not claim to be Marxists, have also put forward long-wave theories. There were a number of commentators suggesting such a thing at the time of the 2000-2001 recession—partly because it had been about 60 years since the end of the Great Depression of the 1930s and partly because it looked for a while that that recession would turn out to be deeper than it was. The ghost of Kondratiev and his “60 year cycle” still lived! Despite the passing of the 60 year boundary that was supposed to be so special, I predict that as the current long-term economic crisis intensifies in coming years more and more bourgeois pundits will dig up Kondratiev’s long wave theory again.

      However, the thing to emphasize here is that it is not Kondratiev’s old theory, or any slight modification of it (along the lines of Mandel or Schumpeter) that should be resurrected, but rather that there needs to be a general update to crisis theory which will explain the new phenomena of crises in the imperialist era. And that means a theory which will explain both why most recessions are now relatively mild, but also why at much longer intervals there are now also much more serious major depressions. If this is not yet obvious, it will certainly become so when the next major depression strikes.

Notes for Chapter IV