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Schumpeter, Business Cycles and Co-evolution

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  • William Kingston

Abstract

In Business Cycles (1939) Schumpeter took up empirical data which had been produced by Kondratieff, and made the “clustering” of innovations into the actual cause of long economic cycles. The book was a failure, largely due to negative reviews which stressed the poor quality of its statistical analysis. In fact, an even more serious fault in it is its reflection of a near-total blind spot in Schumpeter's perspective about the part played by law in economic life. He thought that “It is entirely immaterial whether or not [changes in the institutional framework] are embodied in, or recognized by, legislation.” The reality is that the concept of co-evolution of technology and ways of doing business, on the one hand, and legal changes which affect the conditions for investment in them, on the other, explain long cycles much more persuasively than Schumpeter's approach. It suggests that the first Kondratieff cycle was made possible by the availability of “full” property rights, the second by general limited liability law (which Schumpeter thought was “of comparatively small importance”) and the third by new patent legislation which made corporate investment in R&D attractive. Schumpeter only discussed three cycles, but a co-evolutionary perspective makes it possible to envisage a fourth cycle as dependent upon the trademark laws which sustain advertising and mass markets, and a fifth one, in which the entertainment and information industries have been similarly underwritten by copyright law. The most plausible reason why Schumpeter undervalued laws was his attraction to the economic interpretation of history. According to this, laws, like ideas, are no more than reflections on a psychic level of social and economic realities, and have little or no power to shape these. For Keynes, in contrast, “it is ideas, not vested interests, that are dangerous for good or ill”. There was consequently no place for co-evolution in Schumpeter's thought. But what made him publish a book which he described as “a house which is not finished and furnished”, when he did? It could be that the stimulus was evidence of the huge fame which Keynes's General Theory was already winning.

Suggested Citation

  • William Kingston, 2006. "Schumpeter, Business Cycles and Co-evolution," Industry and Innovation, Taylor & Francis Journals, vol. 13(1), pages 97-106.
  • Handle: RePEc:taf:indinn:v:13:y:2006:i:1:p:97-106
    DOI: 10.1080/13662710500513474
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    References listed on IDEAS

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    1. Freeman, Chris & Louca, Francisco, 2002. "As Time Goes By: From the Industrial Revolutions to the Information Revolution," OUP Catalogue, Oxford University Press, number 9780199251056.
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    Cited by:

    1. William Kingston, 2014. "Schumpeter and the end of Western Capitalism," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 449-477, July.
    2. Tim Cochrane & James Maclaurin, 2012. "Evolvability and progress in evolutionary economics," Journal of Bioeconomics, Springer, vol. 14(2), pages 101-114, July.
    3. Seo, Takashi, 2021. "Schumpeter's paradox reconsidered: The need for a theory of circular flow," MPRA Paper 106802, University Library of Munich, Germany.

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