As Time Goes By From the Industrial Revolutions to the Information Revolution CHRIS FREEMAN AND FRANCISCO LOUGA eta FRANCISCO LOUGA OXFORD ‘UNIVERSITY FRESSOXFORD Great Clarendon Street, Oxford OX2 6DP ‘Oxford University Press is a depatent ofthe University of Oxford ‘chara the Unig ablee of xelenne tran schlaship, ‘and elation by publishing worldwide in A 4 Oxford New York Auckland Cape Town Dares Salaam Hong Kong Karachi Kuale Lumpur Madrid Melbourne Mexico Cty Nalcbi New Deli Shanghai Tsipel Toronto : mse Hy B OO aie meee a pe ane Ge ‘Guatemala Hungary Italy Japan South Korea Poland Portugal PSC ta a Ee Ch pened de akon Unger crete et tet ae Published inthe United States by Osford University Press Inc, New York © C. Freeman and F.Lougi 2001 eee Database right Oxford University Press (maker) First published 2001 Published new as paperback 2002 Allrights reserved. No part ofthis publication may be reproduced stored ina retinal system oF transmit, in any form orb , "wthout te prior permission in writing of Oxford Univerity Press, ores expresy permed by ey or under terms syed withthe appropriate reprographics rights organization, Enquiries concerning reproduction ome the scape ofthe sbove shouldbe sent fo the Rights Depa ‘Osford University Press, at the address above ‘You must not circulate ths book in any other binding or cover ‘and you must impose tis same condition on any aoquier British Library Cataloguing in Publication Data ata available Library of Congress Cataloging in Publication Data Freeman, Chri Astimes gos by the information eoltion ad the industrial revolution in ical perspective / Chris Freeman and Francisco Lousa Incas bgp rene and inde, 1. Long waves (Fconomics)-listory. 2 Information technology History. 3. Industral revolution. I Lougd, Francisco. Tl. Tie HB3729.F38 2001 338.5°4-de21 00-049109 ISBN 0-19-824107-4 (hbk) ISBN 0-19-825105-3 (pbk) 57910864 Typeset by J&L Comporiton La, Hey, North Yoshie Print in Grated ite Lis Kings a os tment, FOREWORD frtually all economic historians are in agreement that the sustained growth of per worker productivity and per capita incomes that has brought a good portion of the world to high living standards is a relatively recent pheno- ‘enon. Economic growth in this sense emerged first in the United Kingdom in the last part of the eighteenth century, and then spread to continental Western Europe and the United States, and to other overseas offspring ~ economies of Western European civilization, then to Japan toward the end of the nineteenth century, and still later more broadly. Economic growth, however, has been highly uneven across nations. The disparities in living © standards today are particularly dramatic, but they were clearly evident ‘even in the early days of modern economic growth. Quite naturally, under- standing economic growth, and cross-national differences, was of central interest to the economic scholars of that era, from Adam Smith to Thomas ‘Malthus, to Friedrich List and Karl Marx. ‘All of these economists had a broad and deep empirical knowledge of the actual processes and institutions involved in economic growth. Their theo- retical explanations of growth reflected their understandings of the complex phenomena involved. And in their analyses, the economic growth of a nation was integrally connected with the economic, social, and political institutions of the nation more generally. “Towards the end of the nineteenth century, economic growth moved from the centre to the periphery of the writings of mainstream economic analysts. ‘While economists like Joseph Schumpeter had a central interest in economic growth, the core interests of most economists of that generation were else- where. Understanding the prevailing structure of prices and outputs within a context of general equilibrium theory came to define the agenda of what Jater came to be called microeconomic analysis. Understanding fluctuations {in overall price levels and business cycles more generally came to define ‘what came to be called macroeconomics. Both bodies of theorizing repressed ‘or ignored phenomena associated with long-run economic growth. When in the 1950s economic growth returned as a focal topic, there were three strik- ing differences from the older body of research and theorizing. First, there were many more, and much better, bodies of quantitative data that could be used to study growth. The new gross national product (GNP) statistics were "especially important in the new research; indeed, economic growth came virtually to be defined in terms of growth of GNP, or GNP per worker or per person in the population. Second, the new growth theory was lean and abstract, much more so than the growth theories articulated by the great nineteenth-century economists. Third, while there are some exceptions to this proposition, the new study of economic growth and the forces driving,A Foreword it tended to define a body of theorizi ini izing and empirical research that wa somewhat separate from the work of economists stucyi : ccna ts a s studying economic struc- 3 early body of empirical and theoretical research within this new para- digm was vinuly unanimous in highlighting the importance of techno. logical advance as a factor in economic growth. Older scholars of economic growth, suchas Adam Smith and Ker Mars would not have been surprised, is theme of course was central in Schumpeter’s work, But the new research appeared to place this old conception on a much more solid and rig- ‘orous empirical and theoretical basis. One consequence was the birth and flowering of a number of bodies of research by economists that focused explity on trying to understand technological avance, an the cconomic seek proces fed by tcl vance ea young schol par thpating in this esearch endeavour it con became evident to me that a ‘The well travelled path was beaten out b i i Ee ete pee ‘measuring outputs, inputs, and their changes over time, and who also embraced the theoreti! “crienatoneaf the new reacasiod growth theory, which was very parsimonious regarding the institutions considered as important, andl which saw economic growth as a process of moving com- petitive equilibrium. The economists who bogan to define the other path incsesingly were pulling away from all ofthese presumptions, On the ore hand, hile rcogizing the valve of and making us ofthe rew quanta tive measures, ths ner group of econo increasingly was proposing numbers provided only a partial picture of economic growth and its sources, and therefore needed to be augmented by richer qualitative description of the character of technological change, and the economic growth processes that fed on technological change. Several within this group came to fcuson the rich ray of institutions bearing on economic growth, to which neoclassical growth theory was blind, and also to argue that, unlike the characterization in neoclassical growth theory, economic rowth needed ‘understood as an evolutionary process involving disequilibrium i fundamental way. Of course, this latter eps ean ey funeral point had been argued earlier by The group of scholars at the Science Policy Research Unit : rch Unit at the Universi of Sussex, under the leadership of Christopher Freem: mt f Sussex, under the leade fan, were prominent pioneers in establishing this second path, which increasingly diverged fom the mainstream in economics. A numberof distinguished economists have bes ®t : at SPRU, and now are principal articulators of this other point view. Francisco Louga is on isting of view Prandsco Lou sone ofthe mest distinguished ofthe young sho- Freeman and Loucl long have been concemed with aspects : 5 aspects ofthe hi of ecnomic thought cured above. Freeman has done interesting work leting on the Methodenstreit ofthe early twentieth century which raged — Foreword ‘German economists of the ‘historical school’, who argued that each cera and each coristellation of economic events was, to a consider le extent, unique, and German economists, who stressed the role of ‘general ory and argued thatthe principal task of economic analysis was specii- aly to identify laws of economic behaviour that held across eras and parti- ‘has done fascinating workstudyingand analysing, “battle among American economic historians that raged halfa century later sieen the Cliometricians, who argued that the principal use of historical alysis in economics was as a testing ground for general economic theory, ‘he more institutionally oriented economic historians, who stressed the ince of understanding the complexity of the factors that shape impor- tai economic developments. In this book, Freeman and Louga use these two | approaches very effectively as a basis for laying out their own perceptions of “what’a useful theory about economic growth would be like. Snalysis of economic growth developed in this book is organized auind the concept of Tong waves’. The long-wave theory espoused by the thors does not argue for any tight regularity of timing and duration. ther, the central argument is that economic growth as we ave experi miced it needs to be understood in terms of a sequence of eras. Each era if trarked by a cluster of technologies, whose progressive development drives Kperienced economic growth. The argument is not one of technological + determinism. In the long wave theory espoused by the authors, the effective “evelopment and implementation of the particular technologies that are ; central in an era require an appropriate and supportive structure of institu- i goes back at least as far as Marx; and was early jeveloped in its present form by Carlota Perez. The authors see the economic institutions of a country as having ot "|, integrity of their own, but also as being intertwined with other major social | subsystems and institutions: those concerned ‘with technology, science, poli- ‘es, and culture more broadly. The authors develop the argument that the 2 supporting overall structure for the key fechnologies than was the case of “ institutions in other countries. «The succession of different economic eras generates ‘long waves’, the ‘authors argue, because progress based on the core technologies of one ere operating under ther suited institutions sooner of later runs into mini. __ ing returns, and economic progress based on those technologies inevitably = Jews down. The resumption of rapid economic growth then requires the we of a new set of driving core technologies, and the reformation of futitetional structures to suit the new needs. As the authors stress, the ‘change from one era to another very often has been associated with a change in the locus of economic leadership. The description and analyses of the various economic erasare rich and per- - guasive. The authors intend this ‘reasoned history’ as a theory of economicviii Foreword growth, and certainly their description and analysis sheds light on pheno ‘mena of central importance to the economic growth we have experienced that ‘more standard economic growth theory does not even see. Their analysis of the particular institutional requirements for the effective advancement and exploitation of the different core technologies that marked the different eras, and their discussion of why certain countries were the leaders there, is especially interesting. "The purpose St aforeword is to whet the readers appetite, not to sum- marize the book that lies ahead, and certainly not to pre-empt the authors’ main arguments. Readers of this book have a fascinating adventure in store for them. ‘ Columbie University Ricaxp R. NeLson ‘New York City ACKNOWLEDGEMENTS ‘We want to express our deep gratitude to the colleagues who participated at different stages of this project, discussing some of the draft chapters, attend- ing and commenting on seminars on these topics, investigating particular "subjects, or just submitting the whole idea to a rigorous scrutiny: __ Giovanni(Doa)) Asli Gok, EricHobsbawm, David Landes,M. J. Lewis, Roger " Uloyd-Jones, Roy MacLeod, Sandro Mendonca, Richard ‘Nelson Keith Pavitt, Carlota Pérez) Angelo Reati, Jan Reijaders, Gerald Silverberg, Luc ‘S62%y, Nick von Tunzelmann, Andrew Tylecote, and four anonymous ref- @F8% for the publishers. We would also like to thank the Portuguese ‘Foundation for Science and Technology (FCT) for a grant supporting this research. Finally, we wish especially to thank Susan Lees in SPRU, without whose patient and thorough work the book could never have been completed. CE EL.CONTENTS tof Tables xiv y Part I: History and Economics Introduction: The Fundamental Things Apply 3 Restless Clio: A Story of the Economic Historians’ Assessment of story in Economics 9 2 2 Schumpeter’s Plea for Reasoned History 93, 123 Part Il: Successive Industrial Revolutions duction: Technical Change and Long Waves in Economic elopment 139 ‘The British Industrial Revolution: The Age of Cotton, Iron, and 153 188 "8 The Fourth Kondratiev Wave: The Great Depression and the Age © of Oil, Automobiles, Motorization, and Mass Production 257 9. The Emergence of a New Techno-economic Paradigm: The Age of Information and Communication Technology (ICT) 301 ‘Conclusions to Part I: Recurrent Phenomena of the Long Waves of Capitalist Development 336 an 373 397List of Figures “The comparative evolution of profits in relation to assets forthe metal «oil chemical, and office equipment industries, 1963-1997 7 The comparative evolution of profits in relation to sales for the metal, [cil-chemical, and office equipment industries, 1963-1997 | Evolution ofthe weight of sectors inthe total asets ofthe 200 firms S The historical profile of the profit rate and its trend, 1869-1989 LIST OF FIGURES C3. The largest US firms, 1917-1997, by the percentage of firms entering the population 11 Time necessary to double the level of production, 1700-1860 2 12 Aradicel shift wend growth in ‘aiebals ‘production during the 4 Strikers and strike days for five countries (Britain, USA, France, Italy, Industrial Revolution, 1700-1900 2B Germany) in two long waves, 1880-1985 34 DyAvenel’s series for the price of wheat in France, 1200-1800, as represented by Frisch (1927) a 5.1 Accelerated growth of iron as a core iaput: pig iron production in England, 1740-1839 19 52 Price of iron: English merchant bar at Liverpool, 1806-1845 161 53 Transport and socal overhead capital, 1750-1850 168 61 Passenger trafic in Britain, 1840-1870 189 62 Railway zevenue from various types of passenger traffic in Britain, 1842-1870 19 63 Revenue per ton and million rain miles of freight caried, Britain, 1856-1885 191 64 Steam ships and safling ships: tonnage registered in Britain, 1790-1988 205, 65 UK exports by commodity class, 1820-1938 207 7 The share of the different types of energy engines in the annual 4 installed total number of energy engines (9-yearly moving averages) ’ in Antwerp, 1870-1990 28 72 Electrification in the United States, 1890-1960 20 73 Chronology of the electrification of industry Bt 74 Penetration of steel, USA, 1860-1950 23 75 Wholesale price of copper, Lake, New York City, 1860-1912 mai 81 Shares of world motor-vehicle production by region, 1900-1980 260 82 Market shares of US automobile producers, 1909-1985 264 8.3(2) Variation of oil price index in relation fo the wholesale price index, USA, 1860-1973 282, 830) Variation of ol price index in relation to the wholesale price index, USA, 1870-1975 22 84 — USproductivity growth, whole economy, 1960-1999 27 9.1 Intel microprocessor evolution, 1970-2000 303 92 Parallel decreases illustrate how costs of computers depend on costs, of semiconductors 304 93 International submarine cable eapecty and cost 320 C1 Accumulated patent stocks historically for mechanical technologies 343 2 Accumulated patent stocks historically for electrical /electronic technologies 344 C3 Thelargest US firms, 1917-1997, by the frequency of their presence in the toplist 348 CA The largest US firms, 1917-1997, average rank according to the frequency oftheir presence 34 97 72 74 75 76 27 78 79 8A 32 83 LIST OF TABLES Growth of seal output, 1700-1913 Labour and output in Britain, 1700-1840 ‘Main works by Kondratiev Dating of long waves ‘The main constellations of methodologies in the research programme Condensed summary of the Kondratiev waves Sectoral growth of real industrial output in Britain, 1700-1760 to 1811-1821, Labour productivity in cotton: operative hours to process 100 pounds of cotton ‘Technical changes in cotton spinning, 1780-1890 Patents for various capital goods in eighteenth-century Britain Investments in canals and railways in the eighteenth and nineteenth centuries Structural changes in the first Kondratiev Relative shares of world manufacturing output, 1750-1900 Per capita levels of industralization, 1750-1900 ‘Major events in the development of stearn power, 1642-1845 Fast growth constellation: annual percentage growth of output and ‘exports, 1837-1845 to 1866-1874 Railway building in the early industrializers, 1830-1850 Coal prices in Britain by region, 1800-1850 Exports from the United Kingdom, 1830-1938 Coal consumption in various types of steam engine in manufacturing applications Relative productivity levels, various countries, 1870-1950 ‘Comparative levels of capital-labour ratios, various countries, 1870-1950 Science and technology in the evolution of electric power and its main applications, 1800-1910 Price of stee! rails in the United States, 1870-1930 ‘World production of nonferrous metals, 1850-1900 Sales of major German and American electrical companies, 1893-1913, Employment in the German electrical industry, 1895 and 1925 Relative shares of world manufacturing output, 1880-1938 ‘Capital formation as a percentage of national product ‘German and UK foreign investment as a percentage of total net capital formation Long wave upswing and downswing growth rates and industrial production, USA and Europe Tariffs on passenger cars, 1913-1983 Share of automotive consumption in total consumption of selected products, USA, 1929 and 1938 ‘Old’ and ‘new’ production of the capitalist world, 1905/13-1933/6 . List of Tables employment levels as a percentage ofthe labour force, 1929-1935 ects of the Great Depression: movement of industrial outpat in the “ee rciuction versus mass proton inthe assembly hal, 1913 and 1914 West sutomatile production and exports, 1929-1980 old erude ol production 1939-1991 a8 Si of the productivity ofthe Burton and Hi cracking Kner production inthe 1980, by country US iemibes owing various appliances, 1900-1970 Hiccaholds possessing specified conveniences, by country, 1960 Short Guglar) business cycles in long (Kondratiev) waves, ‘annual growth rates of gross domestic product, 1670-1980 1 growth rates of labour productivity, 1670-1980 integration of components per chip, 19505-1990s Leading semiconductor manufacturers world-wide, 1988-1989 Wosld-wride top ten merchant semiconductor suppliers, 1991-1994 ‘Technical progress in computers, from valves to microelectronics Tncrease in computing power over time, 1944198) 5 Comparison of IBM 650 (1955) and Fairchild F-8 microcomputer (49705) 5 National telecommunications and other indicators, various countries, 197 | verage annual growth rates of labour productivity, 1870-1980 [formation services potentially available to households as envisaged in the 1970s. : ‘Changes in the techno-economie paradigm Persistent giants in the United States ‘Major strike waves in five countries ‘Trade union membership in the United States, 1993-1997PART I HISTORY AND ECONOMICS‘Quand on a dit que le temps passe, dit histoire, on a tout dit’ ‘Charles Péguy, Clio, 1932; p. 96 mie is as mysterious as life: some thousands of years of efforts by science { philosophy have not been sufficient to unveil its secrets and enable us ferstend its nature and motion. But, occasionally, wise men and omen have been able to circumvent their perplexities and to accept the ge of time. Walter Inge, the Dean of St Paul’s Cathedral, was one such son. He is supposed to have written as early as 1229 a remarkable narra- ive of this mystery: ‘When our first parents were driven out of Paradise, Adam is believed to have remarked to Eve: “My dear, we live in an age of *”” (Antonelli 1992: 1), How right he was. ‘subject of this book is precisely the age of transition in which we live, dispensing with some of the intonations of certainty of previous ‘And there are substantial reasons for prudence. The very notion of e and to assess, in contrast with permanence, continuity, linearity, ‘but history is transition, and societies and their economies ly in time. This is why we prefer to take a clear stance on a crucial the definition of our science: economics is meaningless outside the ‘Kf history, since economies are historical by nature. Economics is ‘of transition. Consequently, the acceptance of the impertinent per- sé of evolution is a criterion that distinguishes economics as a tool for Estaniding from sheer playometrics. h the subject, some scientists take for granted that, contrary to the pace, time is unitary. Yet, its unity has been understood and following at least two contradictory visions. Ancient Greece, as he Asian cultures, conceived nature as evolving cyclically. It was a iterpretation of sensory experience, which imposed the quite rm of our calendars, arranged in three cycles: the rotation of the it itself established the day; the rotation of the Moon around the the month; and the ellipse of the Earth around the Sun set nd'day, month, and year repeat like the seasons, the harvests, and nt nature is cyclical. Yet, no day repeats the previous one, and no ‘And, since change is permanent and irreversible, time repeats ting. nw4 History and Economics ‘Time is movement, therefore: irreversible movement, glory and decay, birth and death, creation and end—and this is the second vision of time. In particular, it gained momentum with the emergence of a new culture and Palgion, Judaism, then followed by Christianity. The Bible, in particular the Doak of Revelation, brought about that concept of change in time, but also __ added a fundamental transcendental myth: that time flows linearly towards ) destiny: The concept of time as an arrow is a recent one in the history of Givilizations, but it soon dominated imagery and religious reflection: srithout a supposed end to history, the emptiness of the meaning of daily life would deprive humankind of transcendence. Yet it was not because of ancient religion, but rather because of contem: porary myths, that the arrow of time associated with the idea of destiny has Brevailed up till now. It was science, and the powerful movement of mod- eenvzation since the Enlightenment, that provided a new departure for the Confident assumption of the benefits of the labour of time. This was inau- ggurated by Leibriz at the end of the seventeenth century, with is notion of | progress; simultancously, Newton confirmed the magnificent possibilities of Elie new science, which was able to scrutinize everything and to uncover the Jaws of nature, We now know that Newton was the ‘last sorcerer’, as Keynes, put it (in relation to his alchemy enquiries), as much as he was the first rider scientist. This new wisdom was then reinvented by positivism and to triumphed in the nineteenth century. The triumph was proclaimed by Lord Kelvin at the British Royal Society’s end-of-century celebration, when he said that physics had completed the edifice of its knowledge and that «only minor refinements would occur in the future. Auguste Comte called if \\ the “positivist religion’, and he knew what he was talking about. Alfred | Walluce, the co-author of the theory of evolution, wrote at that time a book in praise of the new inventions of modernity—the trains, phones, ‘the Modern science was built on the conviction that everything can be kno measured, defined, and controlled. General laws, or some equivalents of cet tainty, have been the legitimate form of expression for this Laplacean dres given the initial conditions ofthe system, the whole past can be recalled the future can be foreseen. Science is domination. ‘But no more than a couple of years after Kelvin’s proclamation, theory and quantum mechanics challenged classical physics and science emerged, challenging these positivistic assumptions. Tt from perplexities about time—always about time—such as from the s of geological and astronomical depth: by the end of the nineteenth en Scientists understood that the age of the universe had to be measured no! thousands of years but rather by thousands of millions. Humankind dominated only in the last fractions of this period, and became clear that creation proceeded through distinctive paths tha rational deterministic history could justify. Evolution was therefore ur 4 Stood as an open process, marked by surprise, change, mutation, bifurca Introduction 5 { teedbac, and crises. And, defyi ictabl 7 . And, defying the positivist criterion, i Strict determinism flied in biology, not beense the arow Or ne Was aal _ SSsognized, but because it became obvious that the armow could change tcetion, Evolution evlves but acces. no destiny. e — frameworks even inore difficult to encapsulate in the positivist, _ gira Becnus sci] evolution adds to this fit level of complety—the _Grenual mutations inthe genetic endowment and the proces of adaptation fp he natural environment second level of organizational complexity rposed by the antocatalytic process of formation of cies, states, technolo. _ fis sca lations and conics It shares the same basic ‘characteristics of a inacy, but adds a new dimension of intenti “choice: societies are livelier than life, si ihc sructues een an ie ince hey ad omespecic sutures is about how societies and economies evol about he : Ive throuigh time. I that their evolution has reangnizable pattern, depending the iat even technological innovation, socal structure, economic develop- ittonal femework, and cultural standards. In particular, sss modem industrial capialit economies how they change, how nge, and how these patterns of change configure term fluctuation, known to economics as long waves ot Kondratiey the begining of the twenty-first century hardly a day passes without reference tothe ‘Internet Revolution’ or the ‘Computer Revolution’ he masive structural changes that ae taking place in telecomumunica- i ia, software business, and so forth. The so-called ‘New any, as represented by the NASDAQ stock markot index, was in a mpesiuous growth, producing a dangerous bubble’ while the dow Jones) economy languished, Later this situation was reversed, at poral. Similar phenomena oooured inthe past with ach great cal revolution —woterpowered mechanization, steam-powered », electrification, and motorization. Part I of this book € pfeface this discussion in the first part of the book with a critique ietrcs’, including the attempts of this ism 2 tury Cllometrcs attempted to redefine economic history a8 a da ied with | the help of mechanical tools, and to relegate tional and qualitative change to the status of an ‘unscien- ee spproach. Like Landes, Mathias, and other ‘old’ historians, we ithe fundamentals still apply, as time goes by. The ‘new’ economic5 6 History and Economics history, as some cliometricians like to regard it, in trying to provide ‘counter- | factual’ accounts of the Industrial Revolution, cannot actually avoid con- firming much of the ‘old’ interpretation; ie,, there was indeed a profound | | structural change triggered by a constellation of technical and organizational * innovations. Chapters 2-4 present an appreciative critique of the work of some economists who did recognize the historic significance of those peri- odic structural transformations. Chapter 2 deals with the work of one of the most paradoxical of twentieth-century economists, Joseph Schumpeter. | Although he stressed the great importance of ‘successive industrial revolu- tions’ and of ‘reasoned history’, he never quite escaped from the heritage of Leon Walras. He appreciated the work of Kondratiev on long cycles in eco- nomic growth, which is described in Chapter 3, and, like other leading econo- mists, he supported Kondratiev’s membership of the Econometrics Society as a Founding Fellow. However, although he realized some of the limitations of standard econometrics, neither he nor Kondratiev succeeded in present, ing a satisfactory alternative theory of history. Keynes in his debates with ‘Tinbergen pointed out the vital importance of ‘semi-autonomous’ variables | in growth theory, ie. social and political changes that are not captured in purely quantitative econometric models, but he was almost alone in that However, all of these economists recognized the great importance of busi? ness cycles for economic theory and for economic history. They all urged that the study of these fluctuations, whether long or short, must be at the heart economics and not relegated to the fringe. ‘Some of this tradition was continued by a wide variety of other economists and historians, following the pioneering work of Schumpeter and Kondrat Although later repudiated by both mainstream and ‘official’ Marxist o doxy, at the time they included prominent neoclassical economists as well a variety of Marxists, Many of the debates were dominated by a d ‘of appropriate statistical and econometric techniques, as indeed Kondratiev’s own debates with his colleagues and critics, described Chapter 3. In Chapter 4 we trace these prolonged controversies and, in light ofthis discussion, explain why we ourselves reject the purely economel ric analysis of fluctuations in the economy and of ‘trends’ in aggregate GDI In particulas, we reject the various attempts at ‘decomposition’ of s “trend from cyclical movements. Like Keynes, we believe that some techniques arein danger of embracing a reductionist view of history, which ignores qual tative changes in politics, in culture, and in technology. It is these chang fundamentals of our science. Economics was originally, and must cor be,a historical science, since its subject matter is nal only os con In particular, this book argues that the inquiry into economic fluctuations. structural change must be immersed in time. | Introduction the late 1990s, as in the late 1920s, voices were raised arguing that ies may no longer suffer from oscillations. Events have already fal “unwise predictions, engendered by irrational stock market exuber- had experienced a clear deceleration of their rates of growth for ‘decades compared with the earlier post-war period. With the burst- the internet dot.com bubble the United States, as well as Japan and pe, now confronted further deep problems. As this indicates comp: vith the past is an important feature of the discussion of the present: as iods of structural change, it is prosperity that generates ion. Clément Juglar understood this in his first theory of business and so did Karl Marx, Nikolai Kondratiev, and Joseph Schumpeter. juently, in order to study the dynamics of long periods of expansion pression, we go back to the fundamentals: to the nature of our science, pose of classical political economy, to the mutual fertilization of al and statistical methods. mie of those with a very close knowledge of the movements of the ‘economy in the recent past have been the most sceptical about the 2s to abolish the business cycle. Among many examples is the follow- encwer of Robert Rubin, who was for several years responsible for 6 economic policy, to his interviewer from Newsweek, on the perma- “As you know, there are people who believe that new technology and tion have repealed the business cycle. There are people who believe that, and it may tum out thet that’s ‘is another posefbiity, whichis that ll of human history may turn out 10 ead, And you just have to decide which you think is more likely. Special issue, December 1999-February 2000, p. 61)