A Marxist Guide to Capitalist Crises
“A Marxist Guide to Capitalist Crises,” an eBook created from the key posts on the Critique of Crisis Theory blog, is currently in production. We’ll be sharing the completed chapters between our regular postings.
Chapter 23: The Long Semi-Cycles of Ernest Mandel
We have seen that most economic historians and economists, both bourgeois and Marxist, agree that the concrete history of the capitalist mode of production shows alternating periods of rapid expansion lasting for several decades, followed by periods of much slower growth or semi-stagnation of varying lengths. There has been much dispute about whether these alternations represent cyclical forces operating from within the capitalist economy or are caused by changes of a non-cyclical nature in the “external environment.”
Among the Marxists, we saw that men as different as the U.S. socialist economist Paul Sweezy and the Russian revolutionary leader Leon Trotsky agreed that the alternations between rapid growth and semi-stagnation are non-cyclical. If these alternations in long-term growth are non-cyclical, this would be in contrast to the 10-year industrial cycle and the shorter, less-well-defined “Kitchin cycle,” where each stage in the cycle necessarily leads to the next stage.
Ernest Mandel led a faction of the “Trotskyist” current of Marxists. During the 1960s, Mandel was attracted to the view that capitalism is characterized by long cycles. At that time, Mandel suggested that the prosperity following the Depression and World War II resulted from an upswing in the 50-year Kondratiev long cycle. Since the postwar prosperity was approaching its 25th anniversary at that time, Mandel believed that a new downward movement of the Kondratiev cycle would soon replace the rising phase. The Kondratiev “downturn” would mark the end of postwar prosperity.
Mandel was somewhat embarrassed when rival Trotskyists pointed out that Trotsky had explicitly rejected Kondratiev’s long-cycle theory. Retreating slightly in the face of this criticism, Mandel chose to call the long periods of alternating faster and slower growth “long waves of capitalist development” rather than “cycles.”
But a wave — for example, a sine wave — implies a cyclical process. For example, scientists use sine waves to build mathematical models of cyclical processes. To some extent, Mandel was simply playing with words when he replaced “cycle” with “wave.” For our part, we will grant Mandel the right to disagree with Trotsky.
Mandel’s developed views on “long waves” are best expressed in his short book “Long Waves of Capitalist Development.”
“Marxists generally should not accept,” Mandel wrote, “a Kondratieff type of theory of long cycles in economic development, in which there is, in the economy itself, a built-in mechanism through which an expansive long cycle of perhaps twenty-five years leads to a stagnating cycle of the same length, which leads automatically to another expansive long cycle.”
After duly acknowledging Trotsky’s criticism of Kondratiev, Mandel laid out his views on the subject: “To state it more clearly, although the internal logic of capitalist laws of motion can explain the cumulative nature of each long wave once it is initiated [Mandel’s emphasis] and although it can also explain the transition from an expansionist long wave to a stagnating long wave, it cannot explain the turn from the latter to the former.”
Mandel, therefore, ended up — though he didn’t use the term — with a theory of long semi-cycles. Once the capitalist economy enters into a period of accelerated long-term growth — such as after the revolutions of 1848 or after World War II, to give two historical examples — forces are unleashed that bring the period of accelerated growth to an end after about 25 years, give or take a few years. To this extent, in contrast to the views of Trotsky and Sweezy, Mandel’s theory was indeed cyclical.
But once the long wave of accelerated growth gives way to a period of much slower growth or semi-stagnation, there is no cyclical mechanism that pulls the capitalist economy out of that state. This is in contrast to the cyclical forces that produce the 10-year industrial cycle or the short “Kitchin” inventory cycle.
Therefore, according to Mandel, there is no reason why a “wave with an undertone of stagnation” couldn’t last until the end of the capitalist mode of production. This would be true even if a workers’ revolution were not to occur for centuries. Therefore, expansionary “long waves” are historical accidents that may or may not happen in the future. Here, Mandel rejects a cyclical analysis of alternating long periods of more rapid and slower capitalist economic growth.
The tendency of the rate of profit to fall and Mandel’s long semi-cycles
When we investigated the various crisis theories proposed by Marxists, one we examined attributes the 10-year industrial cycle directly to the law of the tendency of the rate of profit to fall. This theory holds that the upswing in the industrial cycle brings with it a rise in the organic composition of capital, which in turn causes the rate of profit to fall. Eventually, the rate of profit falls so much that the industrial capitalists reduce their investments, and the economy falls into recession. Mandel applied the same analysis to explain the transition from a wave of rapid growth of about 25 years to a semi-stagnant wave of indeterminate duration.
When non-cyclical factors initiate an acceleration of economic growth, the rising tide leads to an increase in the demand for the commodity labor power. This makes it increasingly difficult for industrial capitalists to increase the rate of surplus value — the main method used by capital to resist the tendency of the rate of profit to fall — as labor market conditions swing in favor of working-class sellers of labor power.
The industrial capitalists then turn increasingly to machinery in an attempt to keep their cost prices down. The workers are pitted against machines. As a result, the constant capital — factory buildings, machinery, raw and auxiliary materials — in value terms grow faster than the variable capital, purchased labor power. Or, what comes to the same thing, the organic composition of capital rises.
Since only the variable capital — labor power — produces surplus value, the rate of profit will fall as the constant capital grows faster than the variable capital, assuming a fixed rate of surplus value and turnover of variable capital. Since demand for labor power is high during the long-wave upswing, the capitalists will, as a rule, not be able to increase the rate of surplus value sufficiently to offset the fall in the rate of profit brought on by the rise in the organic composition of capital. The rate of profit will therefore decline as long as the period of accelerated growth lasts.
But since capitalist production is driven by profit, sooner or later, the falling rate of profit will put an end to the expansionary long wave. In practice, this takes about 25 years. After that, the expansionary wave is replaced by a long wave “with an undertone of stagnation.” The transition from an expansionary to a more or less stagnating long wave is, therefore, cyclical since the expansionary long wave sets in motion the forces that must bring it to an end.
Mandel versus Schumpeter on innovation
Mandel, as a Marxist, agreed with the bourgeois long-cycle theorist Joseph Schumpeter that innovations — the introduction of new technologies and the rise of whole new industries — play an important role during the long waves of accelerated growth. The difference between Mandel and Schumpeter is that Schumpeter saw accelerated innovation as the cause of an expansionary long cycle, while Mandel saw the rate of innovation as the result of the expansionary long wave. Or, more precisely, Mandel saw the acceleration of innovation as the result of a preexisting rise in the rate of profit, which brings the expansionary long wave into being in the first place.
Inventions are, after all, only the raw material of innovations. For inventions to become innovations under the capitalist system, there must be investment. According to Mandel, the level of investment is driven not by the rate of innovation, as Schumpeter and many other bourgeois economists believe, but rather by the rate of profit. Schumpeter, who as a modern marginalist economist did not accept Marx’s theory of surplus value, believed that profits are produced by innovations. The relatively low rate of investment during a long-wave downturn occurs, in Mandel’s words, because “profit expectations are mediocre,” and profit expectations are mediocre because, relative to the existing organic composition of capital, the rate of surplus value is “too low.”
Therefore, according to Mandel, during “long waves marked by an undertone of stagnation,” there is an increasing backlog of either unused or at least severely under-utilized inventions that represent the “raw material” of capitalist “innovations.” The raw material of “innovation” — inventions — pile up unused or used only to a limited extent, much like idle labor power, excess capacity, and hoarded money do. Therefore, a “long wave with an undertone of stagnation” won’t be replaced by an expansionary long wave unless or until some external non-cyclical force increases the rate of profit. But if something does raise the rate of profit sharply, an era of rapid innovations follows. Then we see not only a sharp rise in the quantity of the productive forces but also a rapid growth in their quality.
Indeed, one such major innovation, the steam engine, ushered in the Industrial Revolution and industrial capitalism itself. Other epoch-making innovations include the railroad, the automobile, and, more recently, the computer. These innovations created whole new industries.
However, under capitalism, the development of new industries requires investment by the industrial capitalists to build the factories that produce the latest types of commodities. This is true whether these new commodities consist of new items of consumption, like an automobile or new types of means of production, such as the steam engine or electric motor. Under the capitalist system, major and risky investments are undertaken only when there are real prospects of a high rate and mass of profit.
Mandel, as a Marxist, in contrast to the bourgeois marginalist Schumpeter, understood that profit — surplus value — arises from the unpaid labor of the working class. No invention, whether of the steam engine, electric motor, automobile, computer, microchip, or cell phone, or today’s machine-based Artificial Intelligence, can produce an atom of surplus value.
Indeed, if the new inventions involve the creation of more powerful means of production, such as the steam engine or, later, the electric motor, the opposite will be the case. When new types of labor-saving means of production that replace human labor become innovations applied to actual industrial production, constant capital replaces variable capital. All else remaining equal, this leads to a fall, not a rise, in the rate of profit.
When Mandel developed his theory of semi-cycles, he emphasized the difficulties of producing surplus value as opposed to the difficulties of realizing surplus value. In his semi-cyclical long-wave theory, Mandel stood closer to Marxists like Henryk Grossman and Paul Mattick, who emphasized the difficulties of producing a sufficient amount of surplus value to prevent what for capitalism would be a disastrous fall in the rate of profit — as opposed to those like Rosa Luxemburg and Paul Sweezy who emphasized the problems of realizing surplus value.
Mandel on effective demand and long waves
In contrast, however, to the Grossman-Mattick school, which holds that if the rate of surplus value is high enough, there will be no difficulties in the realization of surplus value, Mandel did concede that difficulties in realizing surplus value might have a role to play in the long waves of accelerated growth and the following capitalist semi-stagnation. He noted in the final chapter of “Long Waves,” entitled “New Issues, New Clarifications,” included in the 1995 edition, that “from a Marxist point of view (which considers growth [expanded reproduction] as the unity of a process of surplus value production and a process of surplus value realization, the first by no means guaranteeing the second [emphasis added —SW] a study of the fluctuations of ‘aggregate demand’ during long waves is a necessary and hitherto neglected component of long wave analysis.”
Changes in the level of gold production and long waves
This would have been a natural place to raise the question of what role changes in the value of money (gold) and the production levels of money material play in the proposed “long waves.” However, Mandel did not do this and ignored this question in “New Issues, New Clarifications.”
However, he did discuss this question in the first chapter of “Long Waves.”
“The correlation between fluctuations in gold production and long waves of economic development has fascinated many economic historians,” he wrote. Mandel knew that “gold production fluctuates in a ‘counter-cyclic’ manner in response to the ups and downs of the capitalist economy.”
This raises the question: could the sharp increases in gold production that have occurred periodically throughout the capitalist mode of production be a factor, perhaps even the main factor, in the transition from a stagnating long wave to an expansionary long wave? Since Mandel himself points out the “counter-cyclical” tendencies of gold production — implying that the level of gold production is (counter)-cyclical, could this be the “missing” material basis for the proposed long cycle?
Indeed, in his book “Late Capitalism,” Mandel attributes to the Dutch Marxist J. van Gelderen — who Mandel considers after Parvus to be the founder of long-wave theory — the view that an expansionary long wave “is typically preceded by a major increase in gold production” [not a direct quote of van Gelderen but a paraphrase by Mandel].
Mandel, however, though he is enthusiastic about van Gelderen’s support of the long-wave concept, does not seem to think much of his linking of expansionary long waves to rises in gold production: “He [van Gelderen —SW] failed to realize that 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.”
Here it is Mandel who is confused. Before surplus value contained in a commodity can be transformed into capital — be accumulated — it must first be transformed into profit. Remember, the definition of profit is surplus value realized in the form of money that must always be measured in terms of he use value of the money commodity. The importance of this can never be underestimated. Surplus value that is not realized in the form of money is not profit. Unrealized surplus value cannot, under the capitalist mode of production, be accumulated in the form of new capital.
In the final chapter of the 1995 edition of “Long Waves,” Mandel did seem to partially correct the mistake he made in his criticism of van Gelderen. But in this chapter, Mandel ignored the whole question of the role that gold and gold production play in the realization of the value of commodities in general, including the portion of the value that represents surplus value.
Overall, Mandel, to the end of his days, continued to play down the role of changes in the level of gold production in the replacement of eras of rapid capitalist expansion with eras of semi-stagnant capitalism and the converse replacement of periods of semi-stagnant capitalism with periods of rapidly expanding capitalism.
This is true even though — unlike so many of our modern Marxists, as well as some Marxists from the era of the pre-World War I Second International, such as, for example, Rudolph Hilferding — Mandel did not accept the claim that gold in its role as “real money” — the commodity that in its use value measures the values of all other commodities — has been or can be replaced by “non-commodity” money under the capitalist mode of production.
In “Long Waves,” Mandel is quite explicit about this.
Mandel wrote: “A Soviet author has followed the opinion of many American and international economists and technocrats concerning the possibility of ‘demonetizing’ gold, defending the idea that ‘credit money’ (bank credit) represents ‘real money’ which can play the same role as gold.”
Mandel explained quite correctly that such notions of non-commodity money are in contradiction to Marx’s “labor theory of value but also of what has been observed during recent years in the world market.”
If he had lived longer, Mandel might have paid more attention to the role that the ups and downs of gold production have played in long waves. He was the product of an era — the period that followed the Great Depression — when bourgeois “neo-Keynesians” as well as well-meaning “post-Keynesian” radical economists were claiming that “business cycles” could be tamed if gold money was replaced by non-commodity money by abolishing the gold standard.
The argument went that if non-commodity money replaced gold as the basis of the international monetary system, new money could always be created in quantities sufficient to either greatly weaken crises or abolish them altogether. As long as there is unemployed labor and/or excess capacity, the Keynesians claim, the government can always create whatever additional demand is necessary to achieve “full employment” through deficit financing.
If there is already enough idle money hoarded in the banks to finance the necessary deficit spending, well and good. And if there is a shortage of money, as long as unemployment and excess capacity exist, the government and its “monetary authority” can simply print whatever additional money is necessary without risking inflation. According to the Keynesian economists, inflation only becomes a problem when “full employment” is reached, making a further rise in “output” in the short term impossible. But by definition, under these conditions, there is no shortage of monetarily effective demand.
Because of their analysis, the Keynesians and progressive advocates of “full employment policies” under capitalism hate gold passionately. If the quantity of money — in terms of purchasing power, that the government and its monetary authority can create — is ultimately tied to the quantity of gold, there will be no guarantee that there will be sufficient money to fully finance the deficit spending that might prove necessary to achieve “full employment.” Instead, the ability of the government and the monetary authority to create “monetarily effective demand” will be limited and may well be insufficient to create “full employment” of either workers or machines.
Therefore, the role of gold as the only real money was — and still is — strongly denied among the great majority of bourgeois economists — whether pro-capitalist neo-Keynesians, radical “post-Keynesians,” or even some reactionary neoliberal economists such as Milton Friedman — who claim that crises can be abolished without abolishing the capitalist system that breeds them.
In examining the existence of a “Kitchin cycle” somewhat separate from the 10-year industrial cycle, I noted that this cycle seems to be governed by the movement of commodity capital — inventories — while the 10-year industrial cycle seems to be governed by the movement of fixed capital. Could the long cycle be governed by the movement of the production and accumulation of money capital in the form of gold bullion?
We have already seen that the basic cycle of capitalist production is M—C—P—C’—M’.
M appears at both the beginning and the end of the cycle. Money, therefore, forms both the “alpha and the omega” of capitalist reproduction at the starting and endpoints. Since capitalist production is not a system of simple reproduction but of expanded reproduction, the algebraic quantities represented by the letters — representing quantities of abstract human labor measured in terms of time — must become larger with each successive turnover cycle. Therefore, both the M and the M’, just like the other terms in the formula, must get larger with each turnover cycle.
It is true that surplus M in the form of idle hoards of money may and indeed must exist if capitalism is to function “normally.” During periods of expansion, the idle monetary hoards that are, as a rule, held in the banks are gradually drawn down. But over time, the amount of money in existence must grow if the succession of turnover cycles — each involving greater amounts of capital in the form of money capital, constant capital, variable capital, commodity capital, and at the end of each turnover cycle, money capital once again — is to continue.
Each successive turnover cycle, therefore, begins with a sum of money capital and ends with a larger sum of money capital. If M at the beginning of the cycle is not present in sufficient quantities, the turnover cycle is stymied from the very start. If M at the end of the cycle is insufficient, the surplus value cannot be fully realized, holding in check the ability of the next turnover cycle to represent continued reproduction.
As I demonstrated in the chapters on money, the expansion of the total quantity of token and credit money — though these forms of money can and do replace gold itself in circulation — is itself ultimately dependent on the quantity of monetary gold in existence in a given country and on the world market as a whole. Neither legal tender token money nor credit money created by the capitalist banking system can replace gold — or some other monetary commodity — as the universal equivalent that, in terms of its use value, measures the value of all other commodities.
Likewise, legal tender token money can only function as a means of accumulation or hoarding to the extent that it represents actual existing gold. If legal tender token money is created by the monetary authority in quantities in excess of the actual growth in the quantity of money material, it will depreciate sooner or later. Credit money, in turn, must be redeemable in some other more basic form of money, whether gold — money material directly — or token legal-tender paper money.
A checking account, for example, is worthless unless it can be redeemed for actual cash by its owner. This is why an industry that produces money material is absolutely necessary for the continued existence of the capitalist mode of production. After all, notwithstanding the teaching of the economists, the gold mining and refining industries are showing no signs of going away.
As we know, bourgeois economists and perhaps most Marxists today assume that the M term in the turnover cycle merely constitutes a technical issue involving a monetary authority. As far as a sufficient quantity of money is concerned, as long as the monetary authority keeps the “money supply” growing at the rate appropriate for expanded reproduction, everything should proceed smoothly.
However, to believe this is to fail to understand the nature of the law of value that regulates capitalist production. Marx proved that value — abstract human labor embodied in commodities — must take the form of exchange value, where the value of commodities is measured in the use value of an equivalent commodity. As commodity production developed, one or at most a few commodities emerged as universal equivalents. Therefore, the widely accepted view that commodity money can be rendered superfluous under the capitalist mode of production by abolishing the gold standard or any other monetary reform is radically incorrect.
As we noted above, if the monetary authority attempts to create money in the absence of an adequate amount of actually produced money material, the result will be the depreciation of the currency. And if the monetary authority persists, soaring inflation and rising interest rates relative to the rate of profit will eventually swallow up the profit of enterprise and destroy the very incentive to produce surplus value. This is more than just a matter of theory, as the history of the 1970s and early 1980s shows.
The capitalist economy has mechanisms that, in the long run, show that a sufficient quantity of money material is produced to meet the needs of expanded capitalist reproduction. At the center of this mechanism is the periodic fall in prices measured in terms of the use value of money material — gold — associated with crises. Mandel himself notes the “counter-cyclical” nature of gold production. But I don’t think he fully grasped that it is precisely crises that are the mechanism that the capitalist economy employs to see to it that money material is produced in sufficient quantities to maintain capitalist expanded reproduction in the long run..
Since crises are capitalism’s mechanism that sees to it that money material is produced in adequate quantities to sustain expanded reproduction, we see that crises are not just accidents in the process of capitalist reproduction but are essential to it.
But how long is the long run? Is it one 10-year industrial cycle, or is it many industrial cycles? In our earlier examination of the “ideal cycle,” I assumed for purposes of simplification that the period over which the quantity of money material is brought into line with the needs of capitalist expanded reproduction is exactly one 10-year industrial cycle. But is it? We will examine this question in the coming chapters.
If it could be shown that gold production moves in cycles considerably longer than the 10-year industrial cycle, corresponding to long cycles, then a material basis for a long cycle would be established. Using the three cycles recognized by Schumpeter, the Kitchin cycle involves the accumulation of commodity capital, the 10-year industrial cycle involves the accumulation of fixed capital, while Schumpeter’s “Kondratiev cycle” would involve the accumulation of money capital in the form of money material (gold).
If this hypothesis is correct, and assuming that changes in the level of gold production involve cyclical forces, this would remove the objections of Trotsky and Sweezy that there is no mechanism for a long cycle as opposed to the shorter 10-year cycle and, in Sweezy’s case, the “Kitchin” cycle as well. Cyclical fluctuations in gold production would then provide a mechanism not only for the transition from the long-cycle boom to long-cycle “recession” — though a different one than that proposed by Mandel — but also a mechanism for a transition from the long-cycle “recession” back to a long-cycle boom.
Is gold production cyclical?
Assuming that the level of gold production is indeed the main, if not the only, factor governing the transition from semi-stagnating capitalism to periods of flourishing capitalism and back again to semi-stagnant capitalism, that is still insufficient to prove the cyclical character of these transitions. To prove this, it would be necessary to show that the swings in gold production were themselves of a mainly cyclical character. But are they?
“But chance discoveries such as the rich bonanzas of California, Australia, the Transvaal,” “are obviously exogenous factors that cannot be explained … by what occurred during the previous long wave of capitalist development,” Mandel wrote in “Long Waves,”
This is correct. The discovery of rich new gold mines in California, Australia, and later the Transvaal in South Africa did not represent a cyclical process arising from within the capitalist economy but factors external to capitalist expanded reproduction, such as, in this case, geographic discoveries. Also, the longer the cycle of gold production is, the more likely the level of gold production will be influenced by non-cyclical factors, if only because it allows more time for the action of non-cyclical factors to appear. These non-cyclical factors include the depletion of existing mines, the discovery of new ones, and technological revolutions in the mining and refining of gold.
It is not hard to show that the production of gold and money material, in general, is only partially determined by cyclical movements of prices and relative rates of profits. If the long waves are governed primarily by changes in the level of gold production, this would imply that they would combine a cyclical element with non-cyclical elements. Such long waves would be expected to be far less regular and predictable than the 10-year industrial cycles or the 40- to 48-month inventory cycles.
Assuming, therefore, that gold production is only partially governed by cyclical forces — which I think is pretty obviously the case — how do the non-cyclical changes in gold production affect the process of capitalist expanded reproduction? Can these non-cyclical changes in gold production produce, at times, huge accelerations in the process of expanded capitalist reproduction and, at other times, throw a monkey wrench into the process that capitalist production uses to see to it that sufficient money material is available over the long run?
Since Mandel, despite a few hints, did not develop this line of investigation in either his book “Long Waves” or any other work, this is not the place to examine this question, which must, after all, concentrate on the line of investigation that Mandel did develop. We must therefore leave the question of the effects of changes in the level of gold production on long waves to future chapters.
The biggest problem that Mandel faced in the theory he presented is how a stagnating long wave is transformed into an expansionary long wave. If the stagnating waves reflect the long-term downward trend in the rate of profit, why shouldn’t capitalism remain in a gradually deepening semi-stagnant state as the rate of profit declines until the working class finally overthrows it?
Mandel gave different reasons for each period of accelerated growth that occurred since the middle of the 19th century. For the first expansionary wave, which lasted from 1848 to 1873 — sometimes called by historians the “mid-Victorian boom” — he did point to the huge expansion of gold production caused by the California and Australian gold discoveries and the consequent expansion of the world market. Here, Mandel did realize the crucial role that the production of gold as money material plays in the expansion of the market.
He attributed the 1896-1913 upswing in the long wave to the explosion of European, U.S., and Japanese colonization — the enslavement of the peoples of whole continents and the stealing of their natural resources — that occurred during the final decades of the 19th centuryHere Mandel seems to be echoing a view that was popular in the Second International in the opening years of the 20th century. The thriving condition of the world capitalist economy that had replaced the late-19th-century “long depression” was attributed by Karl Kautsky, the leading theoretician of the Second International, to the annexation of agricultural hinterlands by the imperialist “industrial countries,” though in some of his writings, Kautsky also emphasized the role of rising gold production.
Later, Rosa Luxemburg developed this view in her “Accumulation of Capital,” a theory that held that capitalist expanded reproduction is impossible in a purely capitalist society — consisting only of capitalists and their hangers-on on one side and productive workers on the other — because, according to Luxemburg, it would be impossible to realize the produced surplus value. Only the penetration by capitalist production into pre-capitalist countries, Luxemburg claimed, where simple commodity production rather than capitalist relations dominate, allows expanded capitalist reproduction to proceed.
We will examine Rosa Luxemburg’s views in a later chapter dealing with the breakdown theory — the branch of Marxist economic theory that explores the ultimate limits of capitalist production. Mandel did not support Luxemburg’s theory that expanded reproduction is impossible in a purely capitalist society, so examining Luxemburg’s views does not belong here.
Mandel attributed the expansionary long wave that followed World War II to the historic defeat of the European working-class movement at the hands of fascism — the victory of Mussolini, Hitler, Franco, and the other capitalist dictatorships that arose in Europe after World War I. According to Mandel, this widespread smashing of the workers’ organizations led to a large increase in the rate of surplus value, which temporarily reversed the fall in the rate of profit brought on by the rise in the organic composition of capital.
The consequent rise in the rate of profit, Mandel reasoned, set off a new investment boom and technological revolution as inventions that were made during the stagnant years between the two world wars were finally put into production after World War II. The result was the post-World War II expansionary long wave, whose end Mandel dated to around 1967. Mandel — who died in 1995, about midway through the “Great Moderation” — believed at that time that the stagnating wave was continuing with no end in sight.
Jefferies’ application of Mandel’s theory
Basing himself on Mandel’s theory, the British Marxist Bill Jefferies has argued that the collapse of the Soviet Union and its allies in Eastern Europe, combined with the opening up of China to renewed capitalist exploitation under Deng Xiaoping and his successors, combined with the defeats that the workers suffered in the imperialist countries from the 1980s onward, represented a defeat for the world working class comparable to those that the European working class experienced during the fascist era of the 1920s through the 1940s.
Can the origins of the Great Moderation of 1983-2007 be found in such political events as the emergence of Deng Xiaoping as China’s “paramount leader” in 1978, the election of Margaret Thatcher as British prime minister in 1979, followed by the rise of Ronald Reagan to the U.S. presidency in 1980, and finally the election of Mikhail Gorbachev as general secretary of the Central Committee of the Soviet Communist Party in 1985?
Deng, Thatcher, Reagan, and Gorbachev are all associated, each in their own way, with pro-capitalist, anti-working class “free market reforms.” Such a conclusion would be well in accord with Mandel’s theory of long waves. If Mandel’s follower Jefferies is right, we will have to look to the sphere of politics rather than economics to find the roots of the Great Moderation or a renewed long-wave upswing beginning in the 1980s, which Jefferies believes is continuing as of this writing (2012) despite the Great Recession of 2007-09 and its aftermath.
Mandel’s final views
Mandel did live to see the overthrow of the Soviet Union and its socialist Eastern European allies and the sharp turn toward capitalist development in China under Deng Xiaoping, as well as the assault on basic labor rights by U.S. and European governments that accelerated under Thatcher and Reagan. But Mandel continued to deny until his death in 1995 that the world working class in the closing years of the 20th century had suffered a defeat on the scale of the fascist era of the 1920s through the 1940s, though he did acknowledge that setbacks had occurred.
Indeed, despite these “setbacks,” Mandel wrote in the 1995 edition of “Long Waves” that “there will be no ‘soft landing’ from the long depression, only business cycle upturns followed by new recessions, with a steady increase in unemployment and long-term average rates of growth much lower than those of the ‘post-war boom.’”
The rate of growth in most capitalist countries, especially the imperialist countries of North America and Western Europe, but also many but not all “developing” capitalist countries as well, was indeed lower during the Great Moderation of 1983-2007 than it was during the postwar boom of the 1950s and especially the 1960s. Anyone attempting to apply long-wave or long-cycle theory to the post-1945 years must keep this in mind.
However, official unemployment rates did slowly trend downward during the years of the Great Moderation in the imperialist countries in contradiction to Mandel’s prediction that there would be a “steady increase in unemployment,” though they generally remained well above the levels of the postwar boom. Only with the Great Recession of 2007-08 did official unemployment rates begin to rise again.
Therefore, did the long wave with an undertone of stagnation that Mandel claims began around 1967 continue right through the Great Moderation? Perhaps the Great Moderation — which, after all, was not a “Great Boom” such as those that occurred between 1848 and 1873, 1896 and 1913, and 1945 and 1967-8 — represented only a “moderation” within a continuing “long wave with an undertone of stagnation” that has lasted into the 21st century. If so, it would represent the longest-lived wave since at least the middle of the 19th century, lasting right up to the COVID shutdowns of 2020.. If we count from 1967, this would be about 53 years of stagnation.. But as we have seen, such a protracted long wave with an undertone of stagnation is perfectly possible according to Mandel’s semi-cycle long-wave theory.
A Critique of Crisis Theory 