Monday, December 29, 2008

William Rees-Mogg: A credit crunch is the first step to revolution

One may reject Marxism as crude oversimplification of the complexity of the historic process. Nevertheless, these major revolutions do have some things in common. They were preceded by periods of economic stress.

If one took the French Revolution as a pattern for revolution itself, the 1780s were a decade of worsening economic crisis in which the unfortunate king, Louis XVI, made increasingly desperate attempts to avert the bankruptcy of the French monarchy. He eventually summoned parliament, a fatal move. England's Charles I had to summon the Parliament of 1642, which destroyed him.

Patterns of power have to reflect underlying changes in economic production. Economic failures, such as the crises in France in the 1780s or England in the early 1640s, are a normal prelude to political change. That much of Marxism seems to be valid.

The economic cycle is somewhat clearer than the cycle of revolutions. Economists have tended to divide the economic cycles into three groups: short-term or accidental, medium-term and long-term.

These three types were named by Joseph Schumpeter, the early 20th Century economist, as Kitchins, Juglars and Kondratievs, after the economists who first proposed them.

Joseph Kitchin was an American, Clement Juglar was French, Nikolai Kondratiev was Russian. Indeed, Kondratiev was probably the most original economist Russia has produced; Stalin murdered him.

The periods of these crises are approximately four years for Kitchins, ten years for Juglars and 50 years for Kondratievs.

How do these three types of economic crisis influence political power? A Kitchin is simply part of the short- term rhythm of economic life. The global economy adjusts to it.

A Juglar is more significant. It is strong enough to have decided General Elections; in 1960 the downturn in the ten-year cycle may have decided the election of John F. Kennedy to the White House.

Juglar claimed that his economic cycle influenced the revenues of 19th Century railways, tramways, theatres and even the figures for marriages. Most of us have survived several tenyear economic crises without disaster.

The Kondratiev has an impact that goes far beyond railway revenues or marriages; it affects the structure of the global economy.

Every 50 years or so, the big wave comes along. It can be delayed but when it comes it shakes every structure and knocks down the houses that have been built on sand.

Some economists think these cyclical crises rise from the nature of human psychology, some have thought that they are caused by climate, some deny that they even exist at all.

The Kondratievs are the big economic crises that occur perhaps twice a century. They are more intense and last longer than ordinary recessions. They cause serious unemployment. They can also cause revolutions.

In the very long course of history, revolutions can serve a positive purpose; by pulling down obsolete structures, they open up new opportunities.

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