Schumpeter’s insights for monetary macroeconomics and the theory of financial crises

The purpose of this paper is to show that Schumpeter can offer important insights for macroeconomic theory today. This applies especially to his distinction between a “real analysis” and a “monetary analysis,” as he calls it, and its implications for monetary macroeconomics, especially the theories of financial crises at the national and the global levels. The main problem of the “real analysis” is the identity of the financial sphere with the real sphere. The consequence of this narrow view is the inability to understand the dynamics of a monetary economy, which is the main cause for financial crises. The flaws of the real analysis manifest themselves also at the global level. The Feldstein–Horioka puzzle and the Lucas paradox are obvious “anomalies” of this paradigm. Models based on the real analysis are unable to explain the extent and even direction of international capital flows. Thus, the economics profession was unable to see the risks that were accumulating in the international financial system before the outbreak of the Great Financial Crisis.