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Thomas K. McCraw | Schumpeter’s Business Cycles as Business History

“Schumpeter chose the title Business Cycles not only because the topic was then fashionable (it was the central economic puzzle of the time, and had been even before the Great Depression), but also because he wanted to emphasize the economic ebb and flow that defines capitalism. “Cycles,” he writes in his preface, “are not, like tonsils, separable things that might be treated by themselves, but are, like the beat of the heart, of the essence of the organism that displays them.”

This may be true enough, but here Schumpeter extends the theme of cycles into something like a determinate paradigm. He attempts the hopeless task of fitting historical patterns of business booms and busts into predictable wave periods of standard lengths. “Barring very few cases in which difficulties arise,” he writes, “it is possible to count off, historically as well as statistically, six Juglars [eight- to ten-year cycles] to a Kondratieff [fifty to sixty years] and three Kitchins [forty months] to a Juglar—not as an average but in every individual case.”

Clement Juglar, Joseph Kitchin, and Nikolai Kondratieff were prominent business-cycle theorists. References to their work appear hundreds of times in the text of Schumpeter’s book, and make it extremely difficult to read. Here is a representative sentence: “Both crises [the downturns of 1826 and 1836] occurred when, taking the Juglar and the Kondratieff phase together, we should be prepared to find major dips in prices and values: a Juglar recession on a Kondratieff depression forms the background of the one, and a Juglar depression on a Kondratieff revival, the background of the other.” Schumpeter’s student Paul Samuelson later commented that the book’s arguments “began to smack of Pythagorean moonshine.”

Schumpeter himself had ambivalent feelings about his framework. As he told Wesley Clair Mitchell, “I must repeat again, lest misunder- standing arise, that I file no theoretical claims for the three-cycle scheme. It is primarily a descriptive device which I have found useful.” In the text of Business Cycles, he admits that it “is indeed difficult to see” why boom-and-bust patterns might occur at such determinate intervals. Indeed it is, and Schumpeter’s own stance is guarded and empirically in- formed. As he said to Mitchell, “Any such diagnosis stands and falls with the historical evidence on which it rests.” Theory is indispensable to understanding business cycles and capitalism itself. But detailed historical analysis is no less so.”

Thomas K. McCraw
Schumpeter’s Business Cycles as Business History


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