The Theory of Economic Development

Abstract

In this important book Schumpeter explains the ECONOMIC origins of business cycles. In a convincing way Schumpeter argues that business cycles are inevitable in a developing economy.This does not mean that there are no other causes of business fluctuations such as changes in commercial policy, wars, inflationary government finance or panics. But these constitute non-economic data and cannot be explained by economic theory.Conventional macroeconomic theory tends to explain business cycles by some kind of error and focus on correcting this error either by active policy or by advocating a hands-off policy. In this view business cycles have no function.In a stationary ,non-developing economy (i.e. absence of innovations) there would be very little uncertainty. If you and your competitors have been selling essentially the same product in the same market year in year out and if this were to apply to all products and services would there be any economic risk (fires, epidemics and tax increases are non-economic data) left ? Were there any true economic causes, i.e. causes that economics can explain, of business cycles in the Dark Ages ?