by Schumpeter
[Front Matter and Table of Contents]: Title page, copyright information, and table of contents for the 1983 Transaction edition of Schumpeter's seminal work. It lists the six primary chapters covering the circular flow, economic development, credit, profit, interest, and the business cycle. [Translator’s Note]: Redvers Opie explains the translation process from the German original 'Theorie der wirtschaftlichen Entwicklung'. He justifies the use of the term 'circular flow' for 'Kreislauf' and notes Schumpeter's personal involvement in refining the English text. [Introduction to the Transaction Edition: Part I - Schumpeter's Life and Vision]: John E. Elliott provides a biographical and intellectual overview of Joseph Schumpeter, comparing him to Marx and Keynes. He discusses Schumpeter's concept of 'vision' and 'technique' in theoretical work, highlighting that Schumpeter's most creative foundations were laid in his twenties, leading to his classic works on economic theory and development. [Introduction to the Transaction Edition: Part II - Historical Context of Economic Thought]: Elliott contextualizes Schumpeter's work within the three great periods of economic thought: the classical era (Smith, Ricardo, Marx), the marginalist revolution (Jevons, Walras, Menger), and the 'high theory' of the 1920s-30s. He explains the shift from dynamic development to static resource allocation and the eventual return to dynamic concerns. [Introduction to the Transaction Edition: Part III - The Circular Flow and Innovation]: This section analyzes Schumpeter's distinction between the 'circular flow' (stationary equilibrium) and 'economic development' (dynamic change). Elliott explains the role of the entrepreneur as the agent of innovation and 'creative destruction,' and the necessity of bank credit to finance new combinations that disrupt the routine flow. [Introduction to the Transaction Edition: Part IV - Business Cycles and Comparative Systems]: Elliott explores Schumpeter's theory of business cycles as the form development takes, distinguishing between primary and secondary waves and different cycle lengths (Kitchen, Juglar, Kondratieff). He then compares Schumpeter's 'economic sociology' with the systems of Marx and Keynes, defending Schumpeter's view that monopoly and inequality can be creative forces in a developing economy. [Introduction to the Transaction Edition: Part V - Critical Reception and Legacy]: The final part of the introduction discusses the critical reception of Schumpeter's work, particularly the controversy over his theory of zero interest in a stationary state. Elliott argues that Schumpeter's true legacy is his evolutionary methodology, which remains a challenge to the static models of mainstream neoclassical economics. [Notes on Economic Theory and Intellectual Influences (Notes 20-29)]: This segment contains detailed endnotes discussing the distinction between static and stationary economic processes, the influence of J.B. Clark and Leon Walras on Schumpeter's thought, and the definition of the entrepreneur in a state of stationary equilibrium where no surplus or profit accrues. [Methodology and the Nature of Innovation (Notes 29-41)]: Notes exploring Schumpeter's view of capitalism as an evolutionary process of 'creative destruction' and the methodological rigor of his static analysis. It distinguishes innovation from invention, discusses the non-hedonistic motivation of entrepreneurs, and contrasts competitive capitalism with 'trustified' capitalism where progress becomes automatized. [Business Cycles and Sociological Perspectives (Notes 42-55)]: References and commentary regarding Schumpeter's business cycle theory and his sociological contributions. It cites major economists like Hansen and Haberler, and links Schumpeter's work to institutionalist perspectives and his own essays on imperialism and social classes. [Schumpeter's Critique of Marx and Keynes (Notes 56-66)]: A substantive set of notes comparing Schumpeter with Marx and Keynes. It details Schumpeter's intellectual and personal critique of Keynesianism—specifically the focus on short-run policy over long-run analysis—and acknowledges the overlap between Marxian and Schumpeterian views on the instability of capitalism. [Notes and Citations for Introduction]: A collection of bibliographic notes and citations (67-111) referencing key economic thinkers and works that inform Schumpeter's theory, including references to Marx, Keynes, Veblen, and the Austrian School. [Preface to the English Edition]: Schumpeter provides historical context for the English translation of his work, originally published in 1911. He discusses his refusal to update the text despite evolving views on business cycles (specifically the Juglar wave), his pedagogical philosophy, and the relationship between factual and theoretical research. [Chapter I: The Circular Flow of Economic Life as Conditioned by Given Circumstances]: This chapter establishes the baseline of 'static' economic theory, describing the circular flow of economic life in a state of equilibrium. Schumpeter defines economic conduct, the role of experience in stabilizing markets, and the fundamental factors of production (land and labor). He introduces the imputation theory, explaining how value is derived from the satisfaction of wants and how, in a perfectly competitive equilibrium, costs equal receipts, leaving no room for net profit or entrepreneurial leadership in the traditional sense. [Chapter I: Notes]: Detailed explanatory notes for Chapter I, providing intellectual lineage for concepts like the circular flow, the national dividend, and the role of money. It references major theorists including Marshall, Walras, and the Austrian School. [Chapter II: The Fundamental Phenomenon of Economic Development]: Schumpeter defines 'development' as spontaneous and discontinuous change arising from within the economic system, distinct from mere growth or adaptation to external data. He introduces the 'entrepreneur' as the individual who carries out 'new combinations' (new products, methods, markets, sources, or organizations). He argues that development requires the withdrawal of resources from the circular flow, facilitated by credit and the creation of purchasing power. The chapter also explores the psychology of the entrepreneur, contrasting their non-hedonistic motives (the will to conquer, the joy of creating) with the routine-bound behavior of managers in the circular flow. [Chapter II: Notes]: Explanatory notes for Chapter II, clarifying the distinction between statics and dynamics, the role of the entrepreneur, and the historical mechanism of change. It contrasts Schumpeter's view with those of Marx, Clark, and the classical economists. [Chapter III: Credit and Capital]: This chapter analyzes the nature of credit and capital as essential levers of development. Schumpeter argues that credit is primarily the creation of new purchasing power for entrepreneurs to redirect resources, rather than just the transfer of existing savings. He defines capital as the sum of means of payment available for this purpose. The 'money market' is described as the headquarters of the capitalist system, where the fate of new combinations is decided through the exchange of present for future purchasing power. He also addresses the temporary inflationary effect of credit creation and its subsequent 'redemption' through the increased flow of goods. [Notes on Credit and the Money Market]: Concluding notes on the relationship between credit creation and price levels. It distinguishes between the capital market for long-term purchasing power and the money market for short-term loans, referencing Hahn and Spiethoff. [Chapter IV: Entrepreneurial Profit]: Schumpeter defines entrepreneurial profit as a surplus over costs arising from the carrying out of 'new combinations' (innovations). He argues that in a stationary circular flow, profit does not exist; it only emerges when an entrepreneur reorganizes production goods more advantageously. The segment analyzes various forms of innovation—new machinery, new markets, new sources of supply—and explains how competition eventually eliminates these temporary surpluses as the innovation becomes part of the routine circular flow. Crucially, he distinguishes the entrepreneur from the risk-bearer (the capitalist) and explores how profit/surplus value would manifest even in non-exchange (communist) societies as a result of leadership and the withdrawal of resources from customary uses. [Notes and Observations on Profit and Wealth]: A discussion on the determination of the size of profit and its social implications. Schumpeter notes that profit is the primary vehicle for social mobility in the capitalist world, creating a 'circulation of elites' where the upper strata are like hotels, constantly filled with changing people. He also touches on the 'automatisation' of development in rationalized societies. [Chapter IV: Footnotes]: Footnotes for Chapter IV, providing citations and brief elaborations on theories of profit, the role of force in development, and the distinction between profit and interest. [Chapter V: Interest on Capital - Preliminary Remarks]: Schumpeter introduces his theory of interest, defining it as a premium on present over future purchasing power. He argues that 'productive interest' is an offshoot of entrepreneurial profit and would not exist in a 'static' circular flow without development. He positions his work in relation to Böhm-Bawerk, accepting some premises while rejecting the 'roundabout methods' as a source of permanent net income in a stationary state. [Chapter V: The Problem and Nature of Interest]: This extensive section details the central problem of interest: how a permanent net income can exist when competition and imputation should theoretically drive the value of products down to the cost of original factors (labor and land). Schumpeter critiques existing theories—abstinence, productivity, and time-preference—arguing they fail to explain interest as a permanent flow. He asserts that interest is a monetary phenomenon, specifically a premium on present purchasing power used to control production goods in the context of development. He explains 'capitalization' of land and permanent returns as a derivative of the interest rate established in the money market. The section concludes by linking interest to the 'swarms' of entrepreneurial activity and the resulting profit, describing interest as a 'tax' on that profit. [Chapter V: Footnotes]: Footnotes for Chapter V, clarifying technical points on the use theory of interest, the valuation of land, and the distinction between interest and entrepreneurial profit. [Chapter VI: The Business Cycle - Preliminary Remarks]: Schumpeter introduces his theory of business fluctuations, responding to critics like Loewe and Lederer. He argues that cycles are the form economic development takes in capitalism, caused by entrepreneurs appearing in 'swarms' rather than continuously. He compares his approach to Spiethoff's, agreeing on iron consumption as an index but differing on the cause of the turning point. [Chapter VI: The Mechanism of the Cycle]: This section provides a comprehensive theory of the business cycle. Schumpeter argues that booms are caused by the discontinuous, swarm-like appearance of entrepreneurs carrying out new combinations. This 'primary wave' triggers a 'secondary wave' of general prosperity and rising prices. The depression is defined as the system's struggle toward a new equilibrium as it absorbs the innovations and adapts to the altered data. He explains the turning point through the appearance of new products (which lowers prices) and the repayment of debts (which causes deflation). The segment also distinguishes between 'normal' liquidation and 'abnormal' crisis phenomena like panics, and discusses the impact of the cycle on wages and employment. [Chapter VI: Distributional Effects and Policy]: Schumpeter analyzes the effects of the cycle on different social classes, noting that workers often gain in the boom and that depression eventually diffuses the fruits of innovation to the whole society. He critiques purely monetary theories of the cycle (Keynes, Fisher) and discusses the possibility of a 'therapy' for crises through better prognosis and selective credit policy, while maintaining that the rise and fall of firms is an inherent part of capitalist development. [Notes on Depression Effects and Statistical Verification of Wage Theories]: Schumpeter discusses the varying impact of depression across different industries and addresses the difficulties in statistically verifying his theory of real wages. He examines historical data on wages and employment, referencing works by Wood, Bowley, and Hansen, noting that while some data seems to contradict his theory, the discrepancy is resolved when secular price rises are eliminated. He concludes that real wages typically fall during depressions but retain a portion of the gains made during the preceding boom. [Notes on Inflation, Demand, and the Dynamics of Economic Collapse]: This section clarifies concepts regarding relative inflation and demand for labor, emphasizing real changes over nominal ones. Schumpeter also provides a detailed analysis of why bankruptcies often occur late in a depression or even during the subsequent recovery, arguing that this lag does not invalidate his theory of primary causes. He further explores how increasing foresight, the shift toward economic calculation, and trustification serve to mitigate the intensity of cyclical movements without eliminating their fundamental causes.
Title page, copyright information, and table of contents for the 1983 Transaction edition of Schumpeter's seminal work. It lists the six primary chapters covering the circular flow, economic development, credit, profit, interest, and the business cycle.
Read full textRedvers Opie explains the translation process from the German original 'Theorie der wirtschaftlichen Entwicklung'. He justifies the use of the term 'circular flow' for 'Kreislauf' and notes Schumpeter's personal involvement in refining the English text.
Read full textJohn E. Elliott provides a biographical and intellectual overview of Joseph Schumpeter, comparing him to Marx and Keynes. He discusses Schumpeter's concept of 'vision' and 'technique' in theoretical work, highlighting that Schumpeter's most creative foundations were laid in his twenties, leading to his classic works on economic theory and development.
Read full textElliott contextualizes Schumpeter's work within the three great periods of economic thought: the classical era (Smith, Ricardo, Marx), the marginalist revolution (Jevons, Walras, Menger), and the 'high theory' of the 1920s-30s. He explains the shift from dynamic development to static resource allocation and the eventual return to dynamic concerns.
Read full textThis section analyzes Schumpeter's distinction between the 'circular flow' (stationary equilibrium) and 'economic development' (dynamic change). Elliott explains the role of the entrepreneur as the agent of innovation and 'creative destruction,' and the necessity of bank credit to finance new combinations that disrupt the routine flow.
Read full textElliott explores Schumpeter's theory of business cycles as the form development takes, distinguishing between primary and secondary waves and different cycle lengths (Kitchen, Juglar, Kondratieff). He then compares Schumpeter's 'economic sociology' with the systems of Marx and Keynes, defending Schumpeter's view that monopoly and inequality can be creative forces in a developing economy.
Read full textThe final part of the introduction discusses the critical reception of Schumpeter's work, particularly the controversy over his theory of zero interest in a stationary state. Elliott argues that Schumpeter's true legacy is his evolutionary methodology, which remains a challenge to the static models of mainstream neoclassical economics.
Read full textThis segment contains detailed endnotes discussing the distinction between static and stationary economic processes, the influence of J.B. Clark and Leon Walras on Schumpeter's thought, and the definition of the entrepreneur in a state of stationary equilibrium where no surplus or profit accrues.
Read full textNotes exploring Schumpeter's view of capitalism as an evolutionary process of 'creative destruction' and the methodological rigor of his static analysis. It distinguishes innovation from invention, discusses the non-hedonistic motivation of entrepreneurs, and contrasts competitive capitalism with 'trustified' capitalism where progress becomes automatized.
Read full textReferences and commentary regarding Schumpeter's business cycle theory and his sociological contributions. It cites major economists like Hansen and Haberler, and links Schumpeter's work to institutionalist perspectives and his own essays on imperialism and social classes.
Read full textA substantive set of notes comparing Schumpeter with Marx and Keynes. It details Schumpeter's intellectual and personal critique of Keynesianism—specifically the focus on short-run policy over long-run analysis—and acknowledges the overlap between Marxian and Schumpeterian views on the instability of capitalism.
Read full textA collection of bibliographic notes and citations (67-111) referencing key economic thinkers and works that inform Schumpeter's theory, including references to Marx, Keynes, Veblen, and the Austrian School.
Read full textSchumpeter provides historical context for the English translation of his work, originally published in 1911. He discusses his refusal to update the text despite evolving views on business cycles (specifically the Juglar wave), his pedagogical philosophy, and the relationship between factual and theoretical research.
Read full textThis chapter establishes the baseline of 'static' economic theory, describing the circular flow of economic life in a state of equilibrium. Schumpeter defines economic conduct, the role of experience in stabilizing markets, and the fundamental factors of production (land and labor). He introduces the imputation theory, explaining how value is derived from the satisfaction of wants and how, in a perfectly competitive equilibrium, costs equal receipts, leaving no room for net profit or entrepreneurial leadership in the traditional sense.
Read full textDetailed explanatory notes for Chapter I, providing intellectual lineage for concepts like the circular flow, the national dividend, and the role of money. It references major theorists including Marshall, Walras, and the Austrian School.
Read full textSchumpeter defines 'development' as spontaneous and discontinuous change arising from within the economic system, distinct from mere growth or adaptation to external data. He introduces the 'entrepreneur' as the individual who carries out 'new combinations' (new products, methods, markets, sources, or organizations). He argues that development requires the withdrawal of resources from the circular flow, facilitated by credit and the creation of purchasing power. The chapter also explores the psychology of the entrepreneur, contrasting their non-hedonistic motives (the will to conquer, the joy of creating) with the routine-bound behavior of managers in the circular flow.
Read full textExplanatory notes for Chapter II, clarifying the distinction between statics and dynamics, the role of the entrepreneur, and the historical mechanism of change. It contrasts Schumpeter's view with those of Marx, Clark, and the classical economists.
Read full textThis chapter analyzes the nature of credit and capital as essential levers of development. Schumpeter argues that credit is primarily the creation of new purchasing power for entrepreneurs to redirect resources, rather than just the transfer of existing savings. He defines capital as the sum of means of payment available for this purpose. The 'money market' is described as the headquarters of the capitalist system, where the fate of new combinations is decided through the exchange of present for future purchasing power. He also addresses the temporary inflationary effect of credit creation and its subsequent 'redemption' through the increased flow of goods.
Read full textConcluding notes on the relationship between credit creation and price levels. It distinguishes between the capital market for long-term purchasing power and the money market for short-term loans, referencing Hahn and Spiethoff.
Read full textSchumpeter defines entrepreneurial profit as a surplus over costs arising from the carrying out of 'new combinations' (innovations). He argues that in a stationary circular flow, profit does not exist; it only emerges when an entrepreneur reorganizes production goods more advantageously. The segment analyzes various forms of innovation—new machinery, new markets, new sources of supply—and explains how competition eventually eliminates these temporary surpluses as the innovation becomes part of the routine circular flow. Crucially, he distinguishes the entrepreneur from the risk-bearer (the capitalist) and explores how profit/surplus value would manifest even in non-exchange (communist) societies as a result of leadership and the withdrawal of resources from customary uses.
Read full textA discussion on the determination of the size of profit and its social implications. Schumpeter notes that profit is the primary vehicle for social mobility in the capitalist world, creating a 'circulation of elites' where the upper strata are like hotels, constantly filled with changing people. He also touches on the 'automatisation' of development in rationalized societies.
Read full textFootnotes for Chapter IV, providing citations and brief elaborations on theories of profit, the role of force in development, and the distinction between profit and interest.
Read full textSchumpeter introduces his theory of interest, defining it as a premium on present over future purchasing power. He argues that 'productive interest' is an offshoot of entrepreneurial profit and would not exist in a 'static' circular flow without development. He positions his work in relation to Böhm-Bawerk, accepting some premises while rejecting the 'roundabout methods' as a source of permanent net income in a stationary state.
Read full textThis extensive section details the central problem of interest: how a permanent net income can exist when competition and imputation should theoretically drive the value of products down to the cost of original factors (labor and land). Schumpeter critiques existing theories—abstinence, productivity, and time-preference—arguing they fail to explain interest as a permanent flow. He asserts that interest is a monetary phenomenon, specifically a premium on present purchasing power used to control production goods in the context of development. He explains 'capitalization' of land and permanent returns as a derivative of the interest rate established in the money market. The section concludes by linking interest to the 'swarms' of entrepreneurial activity and the resulting profit, describing interest as a 'tax' on that profit.
Read full textFootnotes for Chapter V, clarifying technical points on the use theory of interest, the valuation of land, and the distinction between interest and entrepreneurial profit.
Read full textSchumpeter introduces his theory of business fluctuations, responding to critics like Loewe and Lederer. He argues that cycles are the form economic development takes in capitalism, caused by entrepreneurs appearing in 'swarms' rather than continuously. He compares his approach to Spiethoff's, agreeing on iron consumption as an index but differing on the cause of the turning point.
Read full textThis section provides a comprehensive theory of the business cycle. Schumpeter argues that booms are caused by the discontinuous, swarm-like appearance of entrepreneurs carrying out new combinations. This 'primary wave' triggers a 'secondary wave' of general prosperity and rising prices. The depression is defined as the system's struggle toward a new equilibrium as it absorbs the innovations and adapts to the altered data. He explains the turning point through the appearance of new products (which lowers prices) and the repayment of debts (which causes deflation). The segment also distinguishes between 'normal' liquidation and 'abnormal' crisis phenomena like panics, and discusses the impact of the cycle on wages and employment.
Read full textSchumpeter analyzes the effects of the cycle on different social classes, noting that workers often gain in the boom and that depression eventually diffuses the fruits of innovation to the whole society. He critiques purely monetary theories of the cycle (Keynes, Fisher) and discusses the possibility of a 'therapy' for crises through better prognosis and selective credit policy, while maintaining that the rise and fall of firms is an inherent part of capitalist development.
Read full textSchumpeter discusses the varying impact of depression across different industries and addresses the difficulties in statistically verifying his theory of real wages. He examines historical data on wages and employment, referencing works by Wood, Bowley, and Hansen, noting that while some data seems to contradict his theory, the discrepancy is resolved when secular price rises are eliminated. He concludes that real wages typically fall during depressions but retain a portion of the gains made during the preceding boom.
Read full textThis section clarifies concepts regarding relative inflation and demand for labor, emphasizing real changes over nominal ones. Schumpeter also provides a detailed analysis of why bankruptcies often occur late in a depression or even during the subsequent recovery, arguing that this lag does not invalidate his theory of primary causes. He further explores how increasing foresight, the shift toward economic calculation, and trustification serve to mitigate the intensity of cyclical movements without eliminating their fundamental causes.
Read full text