Economics Dictionary of ArgumentsHome
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| Economic cycle: Economic cycles are recurrent fluctuations in economic activity characterized by alternating periods of expansion and contraction. These cycles include phases of growth (expansions) and decline (contractions), encompassing fluctuations in production, employment, investment, and consumer spending. See also Economy, Markets, Consumption. _____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Joseph A. Schumpeter on Economic Cycle - Dictionary of Arguments
Rothbard III 854 Business cycle/Schumpeter/Rothbard: Joseph Schumpeter's business cycle theory is one of the very few that attempts to integrate an explanation of the business cycle with an analysis of the entire economic system. The theory was presented in essence in his Theory of Economic Development, published in 1912. This analysis formed the basis for the "first approximation" of his more elaborate doctrine, presented in the two-volume Business cycles, published in 1939.(1) Rothbard: The latter volume, however, was a distinct retrogression from the former, for it attempted to explain the business cycle by postulating three superimposed cycles (each of which was explainable according to his "first approximation"). Periodicity: Each of these cycles is supposed to be roughly periodic in length. They are alleged by Schumpeter to be - the three-year "Kitchin" cycle; - the nine-year "Juglar"; and - the very long (50-year) "Kondratieff." These cycles are conceived as independent entities, combining in various ways to yield the aggregate cyclical pattern.(2) RothbardVsSchumpeter: Any such "multicyclic" approach must be set down as a mystical adoption of the fallacy of conceptual realism. Cf. >Conceptual realism. Rothbard III 855 Economic cycles: Rothbard: There is no reality or meaning to the allegedly independent sets of "cycles." The market is one interdependent unit, and the more developed it is, the greater the interrelations among market elements. It is therefore impossible for several or numerous independent cycles to coexist as self-contained units. It is precisely the characteristic of a business cycle that it permeates all market activities. Clycles/Economic theories: Many theorists have assumed the existence of periodic cycles, where the length of each successive cycle is uniform, even down to the precise number of months. T RothbardVsEconomic cycles: the quest for periodicity is a chimerical hankering after the laws of physics; in human action there are no quantitative constants. Praxeological laws can be only qualitative in nature. Therefore, there will be no periodicity in the length of business cycles. It is best, then, to discard Schumpeter's multicyclical schema entirely and to consider his more interesting one-cycle "approximation" (as presented in his earlier book), which he attempts to derive from his general economic analysis. Circular flow equilibrium: Schumpeter begins his study with the economy in a state of "circular flow" equilibrium, i.e., what amounts to a picture of an evenly rotating economy. Rothbard: This is proper, since it is only by hypothetically investigating the disturbances of an imaginary state of equilibrium that we can mentally isolate the causal factors of the business cycle. First, Schumpeter describes the ERE (Evenly Rotating Economy), where all anticipations are fulfilled, every individual and economic element is in equilibrium, profits and losses are zero - all based on given values and resources. >Evenly Rotating Economy/Rothbard. Changes: Then, asks Schumpeter, what can impel changes in this setup? Demand: First, there are possible changes in consumer tastes and demands. This is cavalierly dismissed by Schumpeter as there are possible changes in population and therefore in the labor supply; but these are gradual, and entrepreneurs can readily adapt to them. Saving/investment: (…) there can be new saving and investment. Wisely, Schumpeter sees that changes in saving-investment rates imply no business cycle; new saving will cause continuous growth. Sudden changes in the rate of saving, when unanticipated by the market, can cause dislocations, of course, as may any sudden, unanticipated change. But there is nothing cyclic or mysterious about these effects. (…) Rothbard III 856 Innovation: Schumpeter turned to a fourth element, which for him was the generator of all growth as well as of business cycles - innovation in productive techniques. >Technology, >Inventions, >Progress. Innovations/RothbardVsSchumpeter: (…) innovations cannot be considered the prime mover of the economy, since innovations can work their effects only through saving and investment and since there are always a great many investments that could improve techniques within the corpus of existing knowledge, but which are not made for lack of adequate savings. This consideration alone is enough to invalidate Schumpeter's business-cycle theory. >Innovations/Rothbard. Clusters of innovation: Finally, Schumpeter's explanation of innovations as the trigger for the business cycle necessarily assumes that there is a recurrent cluster of innovations that takes Place in each boom period. Why should there be such a cluster of innovations? Why are innovations not more or less continuous, as we would expect? Schumpeter cannot answer this question satisfactorily. The fact that a bold few begin innovating and that they are followed by imitators does not yield a cluster, for this process could be continuous, with new innovators arriving on the scene. Schumpeter offers two explanations for the slackening of innovatory activity toward the end of the boom (a slackening essential to his theory). On the one hand, the release of new products yielded by the new investments creates diffculties for Old producers and leads to a period of uncertainty and need for „rest“. >Innovations/Schumpeter. 1. Joseph A. Schumpeter, The Theory of Economic Development (Cambridge: Harvard University Press, 193 6), and idem, Business Cycles (New York: McGraw-Hill, 1939). Reprinted by Porcupine Press, 1982. 2. Warren and Pearson, as well as Dewey and Dakin, conceive of the business cycle as made up of superimposed, independent, periodic cycles from eachfield of production activity. See George F. Warren and Frank A. Pearson, Prices (New York: John Wiley and Sons, 193 3); E.R. Dewey and E.F. Dakin, cycles: The Science of Prediction (New York: Holt, 1949)._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconSchum I Joseph A. Schumpeter The Theory of Economic Development An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge/MA 1934 German Edition: Theorie der wirtschaftlichen Entwicklung Leipzig 1912 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Schumpeter
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