Managing America: 200 + Years of Economic Repetition; the Upwave and Downwave Economic Cycle

It is the early 1930s. A stooped emaciated figure trudges in chains through the dreary Siberian landscape and disappears into history - one of the hundreds of thousands who die in Stalin's prison camps. His name, Nikolai Dmitrievich Kondratieff. Occupation: Economist. Crime: Thinking for himself. 'Forbes', November 9, 1981

Kondratieff studied the work of several economists who were attempting to discern a pattern of rhythmic regularity in the ebb and flow of international and domestic trade.

While John Maynard Keynes was sipping champagne in well-appointed Edwardian drawing-rooms, formulating an economic policy for manipulating our way out of the depression of the 1930s when that depression was nearing an end, Kondratieff was thinking in much grander terms and pondering the long sweep of world economic history.

While most economists of that time were concerned with trade cycles of three, five and fifteen years, Kondratieff noticed a much longer term business cycle repetition.

He questioned the nature of the waves of prosperity and adversity ebbing and flowing in price sequences spanning hundreds of years.

These upswings and downswings seemed to persist throughout the period following the Industrial Revolution in all industrialized nations, regardless of political party or economic policy. Kondratieff concluded there was a supreme order in our economic affairs, an uncontrollable order involving great tides of economic activity capable of humbling economists and plundering politicians.

Kondratieff's theory was originally published in German under the title, 'Die langen Wellen der Konjunktur'.

His paper first appeared in 1926 in the 'Archiv fur Soziakuissenschaft and Sozialpolitik'.

Kondratieff said: “The upswing in the first long wave embraces the period from 1789 to 1874, i.e. 25 years; its decline begins in 1814 and ends in 1849, a period of 35 years. The cycle is therefore completed in 60 years. The rise in the second wave begins in 1849 and ends in 1873, lasting 24 years. The decline of the second wave begins in 1873 and ends in 1896, a period of 23 years. The length of the second wave is 47 years. The upward movement of the third wave begins in 1896 and ends in 1920, its duration 24 years. The decline of the wave, according to all data, begins in 1920.”

Kondratieff never lived to see the startling conclusion to this third wave. The price cycle actually peaked in 1920. It led to a downwave lasting 20 years, involving the Great Depression, and the completion of another long wave lasting 44 years.

America’s current position within the long wave cycle is just about where it is when Kondratieff's work would have projected the wave -about sixty year cycle.

How does this historic economic long wave cycle relate to America?

Politically and Economically Viewing American History

James Madison was President, at the peak of the first American upwave in 1814.  He was elected in 1808, re-elected in 1812, and voted out in 1816, two years after the peak of the first upwave. James Madison was a liberal or 'left wing' politician by today's definition. James Monroe, who succeeded him, would have been described as right wing.

At the peak of the second American upwave in 1864, Abraham Lincoln was President. He could have been called left of center. In 1868, Ulysses S. Grant took office, 4 years after the peak of the second upwave, President Grant was a right-wing politician.

The Third Wave in the late 1890s, prices inched up again. From 1896, right through to the late 1930s, what had happened twice during the preceding 150 years, happened again.

In the Fourth wave prices rose steadily until 1929, business was booming, prices peaked and the commodity market crashed. Hundreds of small investors in America and Britain went bankrupt speculating in Argentine companies and a host of new private companies of dubious merit. The financial crisis in a speculative market led to the recession of 1930, the third time since the 1780s, which caused the world to plunge into deep depression until 1939.  Herbert Hoover was president in the 1920’s- a conservative- and Franklin Roosevelt was president from 1933 to 1945, a liberal.

There was enough strength left in the system to improve the American economy until World War Two with the enactment of the Lend Lease Act in 1941.

The start of the fifth wave, President Ronald Reagan, a conservative, begins his term in 1981 at the end of a period of high prices and high interest rates under President James Carter, a liberal. William Clinton, could be called a right of center liberal, became president in 1994 at the pre-peak of the upwave which peaked in 2007. 

America’s now in year five of the twenty-five year economic downwave with President Obama a liberal politician.

United States foreign policy started after the American Revolution with the themes that were expressed in George Washington's farewell address to all nations. 

These policies became the British base policy of the Hamilton lead Federalist Party which favored a strong federal government in the 1780s that differ from his rival Thomas Jefferson lead Republican Party which favored States Rights and relations with France and lead to an alliance with France, which resulted in declaring the war on Britain in 1812.

George Washington's farewell address: “Harmony, liberal intercourse with all nations, are recommended by policy, humanity, and interest.”

“But even our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing; establishing (with powers so disposed, in order to give trade a stable course, to define the rights of our merchants, and to enable the government to support them) conventional rules of intercourse, the best that present circumstances and mutual opinion will permit, but temporary, and liable to be from time to time abandoned or varied, as experience and circumstances shall dictate; constantly keeping in view that it is folly in one nation to look for disinterested favors from another; that it must pay with a portion of its independence for whatever it may accept under that character; that, by such acceptance, it may place itself in the condition of having given equivalents for nominal favors, and yet of being reproached with ingratitude for not giving more.”

“There can be no greater error than to expect or calculate upon real favors from nation to nation. It is an illusion, which experience must cure, which a just pride ought to discard.”

International trade became American economic foreign policy, we now import more goods that we

export and we now have to borrow funds to pay one-third of our Federal spending budget.

Is this an economic sound policy?

"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world." Thomas Jefferson

Mr. Martin Chekel, a noted international businessman and author of the thought provoking “Managing America” six book series and the retrospective eight book series “The Diary of American Foreign Policy 1938 – 1945” that laid the foundation for US foreign policy the past seventy-four years.