Joseph Schumpter (1892-1950) wrote a book called ‘Business Cycles’ & supported the existence of:
1. Business cycle (a.k.a. trade, industrial, Juglar) – on average about every 10 years; governed by fixed capital
2. Kitchen cycle – 40-48 months; governed by commodity capital (alluded to by Marx)
3. Kondratiev cycle – about every 50/60 years; governed by money capital (Nikolai Kondratiev (1892-1938))
There is also a proposed 20 year cycle based upon the construction industry – the Kusnet’s cycle.
No evidence Marx thought there was a long cycle; capitalism hadn’t been around that long.
The expansion of the market depends upon the production of the money material – silver & gold.
Hence the discovery of new silver & gold mark periods of new expansion, e.g. The Americas in the 16th century, Californian & Australian gold in the mid 19th century.
The ‘discovery’ of the Americas also provided cheap raw materials that reduced the organic composition of capital & so increased the rate of profit, as did a new source of labour power increase the quantity of surplus value produced.
Mandel Waves
Ernest Mandel (1923-1995) wrote ‘Late Capitalism’ (1972) & credits Parvus (1867-1924) with the discovery of ‘long waves’.
He also wrote a short book called ‘Long Waves of Capitalist Development’.
That capitalist laws can explain the downturn, due to the tendency of the rate of profit to fall, but not the upturn.
“The correlation between fluctuations in gold production and long waves of economic development has fascinated many economic historians…gold production fluctuates in a ‘counter-cyclic’ manner in response to the ups and downs of the capitalist economy.”
But he rejects the link with gold production writing, “…the question of additional capital investments cannot be reduced to the production of money material (i.e., gold production) but constitutes a problem of the additional production and accumulation of surplus value”.
Mandel neglects the fact that before capital can be accumulated, invested, it has first to be sold for money to make a profit. Surplus value has to be realised.
Mandel does not support the idea that money can be de-commoditised.
That non-commodity money was in contradiction to Marx’s LTV.
Token & credit money doesn’t replace, it represents commodity money.
Is Gold Production Cyclical?
Partially, as discoveries of gold like those in California, Australia & South Africa were by chance & not part of a cyclical process.
Gold production has moved cyclically with movements in prices & profits.
The Mid-Victorian Boom (1848-73)
Still had downturns in 1857 & 1866.
From 1873 to 1896 prices trended downwards.
The discovery of gold increased commodity money & so effective monetary demand – it expanded the world market.
The Great Depression (1873-96)
A persistent downward trend in prices.
But gold production didn’t start to increase until about 1885, & then rose strongly after 1890.
Gold production continued to increase until the eve of WWI.
WWI
“In light of the growing stagnation in gold production, if World War I had not shortly intervened the rise in prices in terms of gold that had been going on since 1896 would not have been sustainable much longer. Instead, either prices would have fallen in terms of currency, or a major devaluation of the world capitalist currencies would have occurred ending the international gold standard.”
Expanded reproduction came to a halt in Europe, but continued in the USA.
War ‘prosperity’ ended the 1913 recession.
Shortages mean price rises.
Prices declined significantly in the 1920-1 recession, but were still above pre-war levels.
That is, prices were still high relative to values.
WWI delayed the price fall & exacerbated the difference between prices & values.
Gold production continued to decline until 1924.
After the war the US did not occupy Europe, but demanded its loans, loans that paid for Europe’s destruction, get repaid.
The Soviet Union refused to pay, & Britain & France squeeze funds from Germany to help them pay.
Germany borrowed from the USA.
Hence the debts of Britain & France were passed onto Germany.
US markets were closed to German exports, making it difficult to repay the debts.
The Fed cut interest rates in the summer of 1927, as things began to slow, & this stimulated production & speculation.
In 1928 there were 499 bank failures in the USA as credit tightened.
The Great Depression (1929-39)
In three weeks that covered the Wall Street Crash, the Dow Jones fell more than 40%.
In Britain industrial production fell 14%.
France by 26%, Germany 41% & the USA down by 45%.
Friedman & Schwartz claim it was caused by the Fed allowing the money supply to fall by a third.
Keynes saw scarcity beginning to disappear, & scarcity drives value for marginalists, hence profitability fell & so followed lower investment & depression.
Sweezy’s theory of stagnation sees such stagnation as the normal condition of ‘monopoly capitalism’. Monopoly results in monopoly pricing & monopoly profits, which the monopolists have no incentive in reinvesting, as to increase production would risk their very monopoly prices & profits. Hence they claimed that Marx’s TRPF doesn’t apply under monopoly capital.
In 1934 Roosevelt’s devalued the $ from $20.67 to $35 (by 40%).
Prices in terms of gold were 50% lower in 1933 compared to 1929, & below the level on the eve of WWI.
WWII & The Post-War Boom
The recovery began in the USA in mid-1938.
Hence the conditions were very different to the eve of WWI when the cycle was at a peak & recession beckoned.
Then prices were above values, on the eve of WWII they were below.
Interest rates were now low & profit rates high – the balance of forces favoured industrial capitalists over financial capitalists.
After WWII the USA occupied Europe militarily.
NATO was set up to control Europe.
Gold Production
1840-44: 146 metric tons
1855-59: 1,011 (due to gold discoveries)
1895-99: 1,851
1905-09: 3,154
1910-14: 3,340
1924-29: 3,021
1930-34: 3,730
1935-39: 5,387
Could the production of the money material, gold, be the basis for a Long Cycle?
The depletion of existing gold mines leads to a rise in the value of gold relative to commodities. The resulting series of depression-dominated industrial cycles would be non-cyclical.
British Price Index
1849: 86
1873: 130
1896: 72
1913: 100
During all this time Britain was on the gold standard.
Prices rose, then fell.
The Cycle?
High prices relative to underlying labour values undermine capitalist prosperity in two ways:
1. Everything else remaining equal, the higher the general price level the lower will be the quantity of monetary gold in terms of purchasing power. That is, if prices doubled, everything else remaining unchanged, this would have the same effect as reducing the quantity of monetary gold by half.
2. When prices rise above the values of commodities, gold production declines and with it the rate of growth in terms of weight—not purchasing power—of monetary gold. Such a situation when combined with expanded capitalist reproduction sooner or later leads to a severe economic crisis of overproduction—or series of crises—that again lowers prices. Prices will fall once again to—and for a awhile below—the price level that would directly express commodity values.
Prices that are below the values of commodities affect the capitalist economy conversely:
1. Lower prices increase the purchasing power of the existing quantity of monetary gold. A drop of prices by 50 percent, for example, will have the same effect in terms of purchasing power as doubling the quantity of gold.
2. Lower prices in terms of gold mean higher profits for the gold mining industry, both absolutely and relative to the average rate of profit. This encourages an increase of production of gold. The purchasing power of the total quantity of gold money rises both due to an increase in its purchasing power brought about by lower prices and, over time, a rise in the quantity of gold in terms of weight due to increased production.