Long-wave Rhythms in Economic Development and Political Behavior.

Although it strays from the conventional subject matter, this book may best be described as an attempt to build a general theory of the macro economy, one that is not restricted to a particular historical period or to a specific point of the cycle. Whereas much of the macro literature has been developed in response to a particular policy problem which appears as novel to the theorist--whether it be the persistence of stagnation in the 1930s |Hansen, 1938~ or the first flutters of stagflation |Weintraub, 1978~--Berry argues that there is a deeper, more ordered structure to the time path of the macro economy. The process at work is a cyclical one, but because the time frame involved for the completion of a single sequence is longer than an individual's working lifetime, individuals perceive as new and uniquely different what are, in fact, recurrent phases in a long-lived process. One's vision of the cyclical process is further obstructed by the fact that the technological changes which drive the process appear in the form of unique innovations, even though the underlying process and the timing of innovations is shaped by the cyclical forces at work.

I. Cycles, Innovation, and Schumpeter

The author really sees two, interrelated cycles at work in market economies, the longer (55 year) cycle relating to prices and the shorter (20-30 year) cycle reflecting changes in the growth rate. During the upswing of the price cycle, growth accelerates and then declines, ending the first growth cycle. The downswing of the price cycle is accompanied by a second growth cycle, which ends in a depression. Innovations, motivated by supply constraints, cluster during the expansion phase of the second growth cycle. Those innovations are not completely diffused until the favorable conditions which occur during the expansion phase of the growth cycle, which accompany the succeeding upswing in prices.

Berry begins with a discussion of the Kondrativ cycle, which he associates with the "long wave" of prices. He acknowledges that these long-term fluctuations are confined mainly to movements in prices, but he relates them to the shorter lived fluctuations in real activity described above. The periodicity of fluctuations in real output, which are identified with the Kuznets cycle, is about half that of prices. The story told--and the presentation is very much a narrative rather than a formal model--sees the interaction of real and nominal variables as imparting an underlying dynamic to a system which also responds in the short run to a host of disturbances to both demand and supply conditions. Berry's analysis is not limited to merely listing and describing various types of cycles. One of the intriguing aspects of his argument is his effort to explain the linkages between growth and price cycles in terms of items such as the interaction of financial conditions and waves of innovations.

In a stylized version of a long-wave, and beginning arbitrarily in the stagflation crisis, Berry sees a wave of innovations leading to a period of supply-augmenting, deflationary growth. The tendency for innovations to cluster grows out of the incentives created by the shortages that developed in the …