What about the supposed Kondratieff cycles, successive waves of upswings and downswings of almost fixed duration? Kondratieff suggested that his K-waves lasted 54 years. If so, since the economy hit rock bottom in 1933, it should have risen for 27 years until 1960 and then declined until another low point of 1987, and then boomed to peak in 2014. It doesn’t feel like an upswing today! Those following in his footsteps have dated cycles in two different ways according to whether they are measuring swings in prices or production volumes. Some see 1972–1973 as the beginning of an upswing (since prices rose), others the beginning of a downswing (actually production did not fall but its rate of growth slowed—at least in the West). The two world wars produced further disagreements: did an upswing end in 1913 or 1929, and did another upswing begin in 1938 or 1945? There is little agreement about such cycles, which makes us doubt their regularity.
Wallerstein has his own version of K-waves. He says the last upswing (in production) began in 1945 and peaked in 1967–1973. That seems true of the Western part of the economy, but this was less the product of a cycle internal to capitalism than of the end of World War II, which had provided an extraneous economic stimulus. A globally regulated capitalism agreed upon initially by Britain and the United States and then agreed to by all US allies was established, and it could thrive on pent-up consumer demand, forcibly restrained during the war, combining with wartime technological improvements to generate an unprecedented “golden age,” with growth greater than ever seen before and spreading across almost the whole world. Following this period the economy in the West remained fairly stagnant from about 1973 until 2000, when the upswing should have begun. It hasn’t yet, a decade later. But note that for large parts of the world the boom continued after the West faltered and is still continuing for some countries. First Japan, then East Asian countries and China, then India, then the other BRICs have all experienced booms. K-waves are controversial even among economists studying the West, but for much of the Rest they seem irrelevant.
Upswings and downswings are inevitable in capitalism and it may be that after a long up-swing actors become overconfident and head for a harder fall. Certainly bankers and home buyers did in the first decade of the twenty-first century. But any precise, regular patterning seems elusive, while truly global patterns are rare. Yet it may be possible that past crises might give us some kind of guide to a future crisis of capitalism. So, being a believer that theories must be based on detailed empirical study, I turn to the two most severe, best-evidenced crises in the history of capitalism, the Great Depression and the present Great Recession.[1]
THE GREAT DEPRESSION
Both crises had multiple causes. Most of these were predominantly internal economic causes, as we might expect since these were economic events and capitalism does have a degree of “internal” logic. But some causes came from outside the economy, and some were rather contingent. In both cases crisis began with one serious problem which then turned by stages into something greater as it “found out” and exacerbated other weaknesses, hitherto overlooked, some economic, some not. The whole process might easily have gone otherwise. It also hit unevenly across the world, leaving some national economies virtually unscathed, while some countries escaped quite quickly through effective policies. All these are reasons for doubting that there is a single systemic logic at work. Unfortunately they also lessen the chances of predicting economic crises in the future.
The Great Depression began with overproduction in agriculture (partly due to World War I) and was then racheted upward by a gold standard no longer maintained (as in the prewar period) neither by cooperation between the central banks of the Great Powers nor by British hegemony, as Barry Eichengreen has shown. Individual countries returned after the war to the gold standard in an ad hoc way, mostly at unrealistic levels driven by ideologies of national pride and honor more than by pragmatic economic analysis. Also contributing were geopolitical tensions between Germany and Austria, on the one hand, and France and Britain on the other. France and America hoarded gold. There was ideological attachment by old regimes to laissez-faire economics, a stock market bubble, and an uncompleted transition from old to new forms of manufacturing, all of which lowered the employment potential of the economy. In America, the eye of the storm, grave policy mistakes were also made by Congress and by the Federal Reserve Board rooted in the market fundamentalism of this period which reached its ghastly climax in what was called “liquidationism”–the pursuit of austerity measures in order to destroy inefficient firms, industries, investors, and workers. Absent any two or three of these varied causes cascading on top of each other and we would have been labeling this a cyclical recession. But the cascade was by no means inevitable.
The Depression is often treated as being global but it struck unevenly. It struck Western Europe and the Anglophone countries hard, though even in these zones the United States, Canada, and Germany lost six times as much per capita income as Britain did, and three times as much as France did. But after the first dip the Depression barely affected large swaths of the world. China was only slightly affected, while the Soviet Union, Japan, its colonies Korea and Taiwan, and Eastern Europe continued to grow through the Depression. So the Depression was in reality less than global. Perhaps we should really label it the Great White Depression, for the white race was the worst affected. Some countries then got out of the Depression relatively quickly by leaving the gold standard and reflating their economies. The United States eventually did this, but the Roosevelt administration’s overconfidence that recovery was underway led it to deflate in 1937, which produced a “double-dip” recession. In fact, only the enhanced industrial demand of World War II enabled a full recovery in the United States.
It is obvious from all this that noneconomic causes were quite important. As an example, I pick out the role of military power relations in the crisis. World War I had significant influences on the Depression. During the war many poorer countries had been able to greatly increase their agricultural exports. When agriculture in the combatant countries came back onstream after the war, this generated overproduction and so there were serious price falls. But the war had also destroyed the consensual gold standard, and the failure of the peace treaties to solve geopolitical rivalries made international cooperation over political economy more difficult. Crisis was not the necessary outcome of multipower geopolitics, for these had produced economic stability before the war; it was a consequence of the geopolitical legacy of a particularly terrible war.
The systemic argument could be supported if the war had been caused by either capitalism or declining British hegemony, but neither was the case. Europe had for centuries before the arrival of capitalism been an unusually warlike continent, war was still the default mode of diplomacy, and this war, like many previous wars in the continent, was started when major powers went to the defense of their minor clients (now Serbia and Belgium). Militarism was a European tradition (see my The Sources of Social Power Volume 3, Chapters 2 and 5). In the Great Depression different causal chains came together like tributaries swelling into a great river, with various minicrises cascading into a deeper crisis as they “found out” further weaknesses; that the different shocks kept coming had not been anticipated by anyone.
THE GREAT RECESSION, 2008
The vital question here is whether the present recession will continue, worsen, and even perhaps set in motion forces which might bring down capitalism. However, let me first briefly analyze its causes. We also find a cascade pattern here. The recession began as primarily an American crisis with several causal chains coming together. First, American hegemony and consequent global imbalances enabled the government and ordinary Americans to borrow vast sums of money from abroad at negligible interest rates, building up debts that eventually proved unsustainable. Second, the consequent increase in interest rates burst the mortgage bubble and this triggered the first actual shock. However, this causal sequence also required input from politicians’ ideological commitment to creating a “property-owning democracy,” a nation of home-buyers. The third main cause was that this occurred after a demolition of financial regulation; and the fourth was grossly widening inequality in the United States. Both of these last two were inspired by the conjunction of neoliberal ideology and bankers’ and top managers’ power within the American political system. This can be partly attributed to an American shift from manufacturing to financial services which helped make short-term “shareholder value” the main corporate goal. Similar causes operated in the United Kingdom, for finance capital and neoliberalism were dominant in both countries. These causes were not so pronounced in most other countries, though the German phobia concerning inflation (caused by the historical myth that inflation had caused the rise of Hitler) was compatible with the policies urged by neoliberals, and German economic power within Europe transmitted this fiscal conservatism across the continent. Military power did not matter in the Great Recession, but ideological power did, in the form of neoliberalism and inflation phobia.
1
I discuss them much more intensively in the last two volumes of my