Soviet economist Nikolai Kondratiev conceived his 'long waves' theory somewhere in the 1920s. Kondratiev waves (or long waves) are, presumably, waves that last fifty to sixty years. Many of the theory’s advocates argue that waves come in '4 seasons:' called the proverbial spring, summer, autumn and winter. The driving force behind this cycle is a new (technological) innovation, causing an enormous growth in productivity in the upcoming, approximately, thirty years. After that, thirty years of stagnation follow.

When Kondratiev’s work was translated into German somewhere in the 1920s, there was little interest in the theory. That is, until Nikolai’s work was also translated to English in the 1930s. It received some attention at that time, but it took until the 1970s for the theory to make a 'comeback.' Today, according to what Jaap van Duijn says, the theory is more popular than ever. As many economists did not understand the Great Depression of the 1930s, the Kondratiev waves were quoted as the 'cause' of the recession: we are currently in a Kondratiev dip, what else could we have expected?

In the 1970s, the same thing happened: even though the models of many Keynesian economists implied that high inflation and a recession couldn’t happen simultaneously, it nevertheless did. After the stagflation of the 1970s (economic stagnation with high inflation), many economists were lost for words once more. And once again the Kondratiev cycle was pushed forward as the magical explanation: weren’t we simply going through a Kondratiev dip?

People have always wanted to know what the future brings. And where there is demand, there is supply. A sling of market gurus and quacks relentlessly try to benefit from this human need. We all know the soothsayers and astrologists that try to profit from this strong desire to predict the future.

The main problem with the Kondratiev waves? There is no reason to assume that it is a real economic phenomenon, or that it has any predictive value whatsoever.

The theory’s advocates are very competent at ignoring any events that do not fit into Kondratiev’s supercycles, while spending plenty of attention on the events that do fit into it:

• How can the period from 1920 to 1929 be considered one of the Kondratiev depressions while it was one of the most prosperous times in global history?
• How do all the 19^th century depressions fit in? The theory stipulates this period was a 'Kondratiev summer.'
• Why did the Kondratiev summer wave following the Great Depression suddenly last 54 years (in place of the approximate thirty years)?
• Why was there no deflation in the 1970s, while, according to the Kondratiev cycles, there should have been a deflationary depression?
• Why are the 1987 market crash, the periodical high unemployment levels and crises between 1980 and 2000, and the dotcom bubble, all ignored? How come it is interpreted by the theory as a period of never-ending prosperity?

And I could keep going on and on with examples that contradict the Kondratiev theory. Its advocates are experts at ignoring data that contradicts the theory, while generalizing data that 'confirms' the theory.

There is no other 'underlying' cycle (like Kondratiev’s cycle) in addition to the business cycle (a cycle of booms and recessions) we’re all already familiar with. There is no reason to assume that such cycles exist, given the complete lack of theoretical foundation, while the empirical data is also doubtful at the very least. Data is made to fit the model, while data less suited is simply ignored. Kondratiev cycles only exist because of a lack of alternatives.

Last week, we launched the Dutch translation of Ludwig von Mises’s magnum opus Human Action: A Treatise on Economics (on sale here). In his masterpiece, Mises expresses strong criticism on the naive assumptions of empirical economists. For example, Milton Friedman (a staunch advocate of empirical economics) argued, in the article The Methodology of Positive Economics (1966), that it 'doesn’t matter at all what the assumptions of a theory are,' as long as the theory 'fits the data.' This is one of the reasons why the economic science is currently in crisis.

The biggest problem with this line of reasoning? As Mises has shown, theory always logically precedes empirical experience, as merely selecting (and manipulating) empirical data already entails certain assumptions (and thereby a theory). In his own words:

The experience with which the sciences of human action have to deal is always an experience of complex phenomena. No laboratory experiments can be performed with regard to human action. We are never in a position to observe the change in one element only, all other conditions of the event remaining unchanged. Historical experience as an experience of complex phenomena does not provide us with facts in the sense in which the natural sciences employ this term to signify isolated events tested in experiments. The information conveyed by historical experience cannot be used as building material for the construction of theories and the prediction of future events. Every historical experience is open to various interpretations, and is in fact interpreted in different ways.

Complex phenomena in the production of which various causal chains are interlaced cannot test any theory. Such phenomena, on the contrary, become intelligible only through an interpretation in terms of theories previously developed from other sources. In the case of natural phenomena the interpretation of an event must not be at variance with the theories satisfactorily verified by experiments. In the case of historical events there is no such restriction. Commentators would be free to resort to quite arbitrary explanations. Where there is something to explain, the human mind has never been at a loss to invent ad hoc some imaginary theories, lacking any logic al justification.

Given that an economy is so complex and hard to understand, it is always possible to make reality fit the Kondratiev model.

Kondratiev or Mises? Mises, period.