Cycles in capitalism

The main themes and interests at this year’s AHE conference were the concerns of Keynesian economics: namely whether monetary policy works, whether you can construct Keynesian-type models for explaining the motion of the capitalist economy; whether inequality causes crises and whether Keynes was right to predict that capitalism would be a huge success in delivering prosperity for all and enable people to reduce their hours of toil and enjoy their leisure. Robert Skidelsky spoke on the latter at one session and I plan to return to that issue in a future post – but see recent post,

There were only a few papers that were outright Marxist in approach.  Nick Potts presented a caustic analysis of the key differences between Keynesian and Marxist theory (Potts_AHE2013 on Keynes).  I presented a paper on cycles in capitalism (Cycles in capitalism) – a subject pretty much ignored not only by mainstream but also by heterodox economists.

Any support for cycles in capitalism usually gets dismissed for two main reasons.  The first is that statistics or data showing cycles are spurious and really just an expression of random shocks; or by extension, there are so few turning points in the longer cycles that no statistical significance can be applied.  The second is that there is no theoretical model that can explain apparent economic cycles and, without that, the search for cycles is pointless.

In my paper, I tentatively suggest that these criticisms can be overcome and cycles probably exist as part of the laws of motion of capitalism and can be modelled by economic theory, in particular by Marx’s theory of capitalist accumulation and crisis.  I integrate various cycles identified in modern capitalism to explain why capitalism has experienced a deep slump and an ensuing Long Depression.

Marx thought there were cycles: “All of you know that, from reasons I have not now to explain, capitalistic production moves through certain periodical cycles”, Karl Marx to Friedrich Engels, 1865.  And Marx tried to estimate how long that cycle of accumulation was: The figure of 13 years corresponds closely enough to the theory, since it establishes a unit for one epoch of industrial reproduction which plus ou moins coincides with the period in which major crises recur; needless to say their course is also determined by factors of a quite different kind, depending on their period of reproduction. For me the important thing is to discover, in the immediate material postulates of big industry, one factor that determines cycles’ (05.03.58, CW40, 282).

The key point for Marx was that “the cycle of related turnovers, extending over a number of years, within which the capital is confined by its fixed component, is one of the material foundations for the periodic cycle [crisis] … But a crisis is always the starting point of a large volume of new investment. It is also, therefore, if we consider the society as a whole, more or less a new material basis for the next turnover cycle’ (CII, 264).  So Marx connected his theory of crisis to cycles of turnover of capital.

Can we estimate how long the cycle of accumulation would be now?  Well, the US Bureau of Economic Analysis provides data on the age structure of replacement for private non-residential fixed assets.  And it shows that if the replacement of fixed assets is the model for explaining any cycles in capitalist accumulation, then the US cycle can be expected to be around 15-17 years.

The key argument of my paper is that the accumulation of capital, including fixed assets, under capitalism depends on its profitability for the owners of capital.  From that fundamental premise (or ‘prior’), if there is a replacement cycle of some duration in any capitalist economy, there is likely to be connected to a cycle of profitability.  Can we discern that?  I think we can in two case studies:  the UK economy in the second half of 19th century and the US economy in second half of the 2oth century.  In my paper, these two studies provide an interesting correlation between the cycle of profitability and the cycle of capital replacement and thus evidence of cycles under capitalist production, as Marx asserted.

And the idea of profit cycles is supported by clear evidence of a stock market cycle in all the leading financial centres.  The US stock market cycle appears pretty much the same as the US profit cycle, although slightly different in its turning points. Indeed, the stock market seems to peak in value a couple of years after the rate of profit does.  This is really what we would expect, because the stock market is closely connected to the profitability of companies, much more than bank loans or bonds. When the rate of profit enters its downwave, the stock market soon follows, if with a short lag. 

And now, new research has started to identify a credit cycle at least in the major capitalist economies with a duration of 16-18 years.  Claudio Borio finds what he calls a ‘financial cycle’ using a composite of property prices (house prices to income) and changes in credit (credit to GDP), see borio395.  Borio is struck by the fact that the duration is longer than the ‘business cycle’.  Interestingly, his financial cycle matches the length of the profit cycle identified in my case studies above.  It appears to run inversely with the profit cycle at least in the US – namely that when profitability is its downward phase, the financial cycle is its upward phase. This suggests that capitalists look for unproductive investments like property to replace investment in production when profitability in productive assets falls.  This is very relevant to understanding the relation between the productive and financial sectors of capitalism culminating in the Great Recession of 2008-9.

Can we talk about even longer cycles in capitalist production?  Just as the capitalist profit cycle appears to be spread over approximately 32-36 years from trough to trough and so does the stock market cycle, there also appears to be a cycle in prices that is about double that size, or around 64-72 years.  This is the famous or infamous Kondratiev cycle.  It is usually recorded with a length of about 50-55 years but I reckon that it has lengthened.  Various reasons have been proposed for the lengthening of the cycle including demographics and government debt financing.  The argument of my paper is that the K-cycle now follows much more closely the cycle in profitability as the capitalist mode of production has become dominant. 

Interest rates are a very good proxy for the Kondratiev prices cycle.So if we look at the period from 1946 again, the level of the US short-term interest rate (the Fed Funds rate, it is called, as set by the Federal Reserve Bank, America’s central bank), rose from 1946 to a peak in 1981 and then fell back after that.  That suggests a 36 year up and down phase for the Kondratiev cycle.  And if the length of the K-cycle has reached 72 years, then the next trough is not due until 2018.

There are three more cycles of motion under modern capitalism: the cycle in real estate first identified by Kuznets and now taken up by Borio.  This appears to be about 16-18 years. Then there is the cycle of GDP – the so-called business or Juglar cycle, which appears to be about 8-9 years.  And then the shorter inventory or Kitchin cycle on about four years.  In my paper, I suggest we can integrate these cycles into one picture for the mode of capitalist production in the 21st century.  In other words, the long Kondratiev cycle of 64-72 years can be divided downwards to two profit (and stock market) cycles of about 32-36 years each, four Kuznets cycles of about 16-18 years each; eight Juglar cycles and 18 Kitchin cycles.

The profit cycle is key though. We are now in another profit downwave that should not bottom until around 2015.  So output and employment slumps should be as severe and long-lasting as they were in 1974-5 and 1980-2. This profit downwave now coincides with the downwave in the Kondratriev prices cycle that started in 1982 and won’t reach its bottom until 2018. 

The other issue that I raise in the paper is whether Marx’s causal explanation of capitalist crises just that: a theory of recurrent and even regular crises, of booms and slumps in capitalist accumulation?  Or is it more than that (or alternatively), a theory of breakdown, namely an explanation of how capitalism cannot continue indefinitely (even if it has regular crises), but must reach its limits as a system of social organisation, then break down and be replaced by a new system?

I don’t think either a cyclical or breakdown theory of crisis is the full story.  I prefer a schema that basically combines both the crisis and breakdown model (see my post,  So there are continual recurring crises or cycles that spin round the secular trend for capitalist development that spreads over centuries. 

Is the US in secular decline?  First, there is the growth of unproductive labour. Most labour is increasingly employed in sectors that do not provide surplus value for accumulation, but in circulating existing capital or preserving the capitalist state.  Robert Gordon argues the US is in just such a terminal stage. Gordon suggests that capitalism drove the productive forces (and thus economic growth) upwards from about 1750 to 1950.  But now we are in the downward spiral of capitalism that no longer takes the productive forces forward.   The US rate of profit since 1869 suggests that there has been no particular secular decline in the US rate of profit to support the breakdown theory.  But we can see a secular decline since the 1960s.   So maybe that was when US capitalism entered its ‘terminal stage’.

But there may be life in capitalism globally yet.   There is still a large reserve army of labour composed of unemployed, underemployed or inactive adults of another 2.3bn people globally that could also be exploited for new value. And even if the mature capitalist economies are in ‘down mode’ that may not be the case for the world economy.  But that is not to say this potential labour force will ever be properly exploited by the capitalist mode of production.  The world rate of profit (not just the rate of profit in the mature G7 economies) stopped rising in the late 1990s and has not recovered to the level of the golden age for capitalism in the 1960s, despite the massive potential global labour force.  It seems that the countervailing factors of foreign investment in the emerging world, combined with new technology, have not been sufficient to push up the world rate of profit in the last decade or so, so far.  The downward phase of the global capitalist cycle is still in play.


14 Responses to “Cycles in capitalism”

  1. sartesian Says:

    Highly recommend Maksakovsky’s The Capitalist Cycle.

  2. anarkysheep Says:

    ‘When the rate of profit enters its downwave, the stock market soon follows, if with a short lag. ‘

    Could this lag be explained by companies in response to the declining rate of profit, horde the cash instead of investing, temporarily increase profitability by reducing labour costs and then give the proceeds to investors in the form of dividends?

    Something I observed before the Great Recession was a meteoric rise in merger and acquisition activity and it reminded me of a similar phenomena before the early 90s recession. I remember wondering if it was a harbinger of another downturn. There wasn’t much science in this prediction of course, just an empirical observation…

    The reason I raise this is to ask if it is possible to discern early indicators of a turn in the financial cycle by a rise in certain financial activities such as that I’ve pointed to?

  3. Tom O'Brien Says:

    Hi Michael,

    Great article. Would love to interview you about it for an episode of my podcast ‘From Alpha To Omega’. The podcast has interviews with leading thinkers in Political Economy – previous guests have included marxists Alan Freeman, Matthew Forstater, and Andrew Kliman and an array of radical post-keynesians like Randy Wray and Steve Keen. You can check it out here:

    Hope to hear from you,

    Tom O’Brien

  4. Charles Andrews Says:

    Your view is that an accumulation cycle of 15 to 17 years reflects “the age structure of replacement for private non-residential fixed assets.”

    There are categories of private non-residential fixed assets, like structures, machinery, and more recently certain kinds of software. There is probably an increasing spread in the ages of these categories and subcategories. At the shortening end, we have the famous Moore’s law for semiconductors, the rapid obsolescence of software, and machines for automated bio-engineering.

    A changing, widening distribution of the viable age of private non-residential fixed assets must have implications for all the cycles you list.

  5. Cameron Says:

    In the US “Today, one farmer produces food for 130 others.” “During colonial times one farmer fed four others.”
    “The Ball Corporation’s can manufacturing … 3000 cans a minute. 3 billion a year – It’s the largest recyclable aluminum can manufacturer in the world … The massive plant is so efficient there are only 90 employees on the factory floor.”
    You mention the growth of unproductive labor and the stagnant productive forces as causes of possible “terminal stage”.
    Globally capital is not producing enough value due to the rise of OCC. Combine that with the growth of unproductive labor it’s no wonder that deficit spending and money printing by the central banks is the order of the day. I’m not quite sure how your thoughts on the breakdown theory differ from that of Robert Kurz’s. In a previous post you did mention him but not in details or at least level of details that I was hoping for. I think he has good explanations for the rise of Keynesian and monetarism which account for the deficit spending and currency devaluation.
    For him “Temporary finance by way of printing currency, typical of the war economy during the world wars, is not only being repeated today throughout a large part of the world, but has also become a permanent condition of social reproduction as such.”
    Capitalism has been mortgaging its future via printing money and debt. Countries that currently cannot print money such as Greece and Spain are in deep depression and seem unable to recover. Though they’re still accumulating debt their debt to GDP ratio is increasing not decreasing after all the austerity measures.
    Great post! Thanks.

  6. Kerry Says:

    Hi Michael,

    Thanks for a very interesting post, you are preaching to the converted with me regarding cycles. You may find my 17.6 year stock market cycle interesting:



  7. Arthur Says:

    Hi, a friend just drew my attention to your attached file “Cycles in Capitalism”. I am VERY interested and will be studying your work carefully. Starting with “The Long Depression” and then all the posts here. (But first I have to finish initial read of Anwar Shaikh 2016).

    Meanwhile the one item I have read (above) clearly shows that you are not aware of the direct relation between your interest in role of fixed capital replacement and “The Capitalist Cycle” by Pavel Maksakovsky (short posthumous work of Bolshevik economist on death in 1928). So I am just posting this to let you know that you MUST read it and WILL find it of great interest. Leave long translator’s translation till later. Core theory is in chapter 2. Chapter 1 has methodological critique relevant to approach you are using.

    Key point is that wave of replacements following crash due to price changes making existing technology obsolete and alternatives with higher organic composition more profitable results in later disproportions due to lag in which demand exceeds supply while constructing new plant then supply exceeds demand when it comes online. Then crash (dependent on chapter 3 finance) and cycle repeats at higher level of technology etc.

    I am starting a blog to explain the importance of this book but it is not ready yet. Meanwhile the front page has link for single click free download of pdf scan of the book and another link for cheap paperback order:

  8. Arthur Says:

    Thanks! I have just quoted your initial thoughts and posted an initial response to them.

    Will follow up later in the thread you linked. Meanwhile here’s part of above post to encourage you to look at the full post, which has embedded links not visible below and read the book you have a copy of.

    [main quote omitted]


    “…I await an empirical justification of the Maksakovksy thesis…”

    The empirical justification was provided by the very detailed econometric work done by the Harvard school, (later continued by NBER). The book should have included that material repeatedly referenced by the author but it was presumably assumed that its intended audience, who were Bolshevik economists studying the conjuncture, already had copies. See above link. Updating that will require serious work to understand the changes from the form taken by the regular (Juglar) business cycle before the Great Depression and the form taken since. Starting from a “pure” model gives a much better hope of understanding the many complications, as explained in chapter 1 on methodology and at the end in proposing further work.

    Sorry, above quote is a complete misunderstanding of what Maksakovsky wrote. One cannot understand the discussion at p136-9 without FIRST reading the core chapter 2.

    I strongly recommend also the introduction and chapter 1  first – only postpone the long translator’s introduction.

    In fact Maksakovsky explicitly applies production prices to the reproduction schema (as the actual form developed from “value”) and explains HOW the rising organic composition of capital and corresponding falling rate of profit is actualized cyclically. He explicitly rejects Rosa Luxemberg and other ideas that there is any inherent disproportion arising from the reproduction schema. On the contrary he emphasizes that the law of value (in terms of production prices) enforces proportional groth in accordance with the reproduction schema and explains HOW it does so CYCLICALLY and WITH crises as a NECESSARY part of the cycle due to capitalist anarchy.

    Maksakovsky’s analysis is based on the actual movement of market prices, which rise and fall above and below values in the course of the cycle, and can only be averaged over the whole cycle to arrive at production prices/values as emphasized repeatedly by Marx. He shows that as well as the fluctuations and turbulence essential for forming wages, values and production prices at all by shifting labor and capital between industries in response to movements of demand, supply and profitability there are also SYSTEMATIC cyclical fluctuations in price levels differing between the two main departments which are central to understanding the role of waves of fixed capital replacement in the cycle.

    Anyway, I do think “falling rate of profit theories” show “good taste” compared with the appalling gibberish of ALL the other mainstream, “heterodox” and allegedly “marxian”  theories. There is an actual connection with both the empirical data and the fragments of a theory left by Marx, unlike the speculations of “martians”.

    I am greatly cheered to see confirmation that the lack of attention to Maksakovsky’s theory can be fully explained as due to not having actually read it. Above is clear confirmation that Michael Roberts had only turned to some concluding pages before getting distracted by some completely different theory refuted by Grossman.

    So I am still certain that Michael WILL find it of great interest when he DOES read the book.

    I have not yet read the other links, including the article by Pete Green that this post was reponding to. Also only skimmed the comments. Will do so before responding in that thread.  Did notice wrong claim that Maksakovsky’s theory was “underconsumptionist”. This will need a separate refutation as it is based on the way Maksakovsky (and Marx) did express some aspects that left them open to misunderstanding. Suffice for now to say that Maksakovsky, like Marx, emphatically rejected underconsumptionism along with all the other “marxian” nonsense.

    Thanks for having got me going! More below and I will follow up later.

  9. Arthur Says:

    Fine. Looking forward to it.

    BTW I accidentally omitted link to separate shorter and easier to read file for core chapter 2. Now included.

    BTW I notice you mentioned Marx’s analogy with law of gravity in response to Pete Green – with link to:

    Maksakovsky also refers to this analogy and I have a post peripherally related:

    Will try to do two posts on Pete Green’s response and on underconsumption when I can.

    Could only find “guest posts” and reviews without contact details for Pete Green. Would like to get in touch re follow up on Maksakovsky. Can you provide contact details (or pass on mine to him)?

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