Editor's Introduction

RENDIGS Fels
Vanderbilt University

"The younger generation of economists should look upon this book merely as something to shoot at and start from—as a motivated program for further research."'—Joseph A. Schumpeter, Preface to Business Cycles, 1939 edition, p. v.

Schumpeter had bad luck with Business Cycles. [1] The most ambitious work of the trilogy setting forth "the Schumpeterian system," it has attracted less attention than his Theory of Economic Development [2] or his Capitalism, Socialism, and Democracy. [3] It is true that a reference to Business Cycles can occasionally be found in a footnote, but the text to which the footnote is appended rarely contains a discriminating discussion of its ideas. Clemence and Doody accorded it its proper place in The Schumpeterian System, but they preferred defending their former teacher against criticism to paying him the higher com­pliment of building on his work. [4]

The publication date of Business Cycles proved singularly unfortunate. Had it appeared three years before Keynes's General Theory sent economists scurrying off in other directions instead of three years' afterwards, it would have gained from the enormous interest everyone had in business cycles in 1933 and might have been accorded a reception second only to that later received by the General Theory itself.

 [5] Instead, it appeared just as the outbreak of World War II raised economic problems to which Keynes's tools, but not Schumpeter's, could be readily adapted. But Business Cycles lost almost as much from appearing six years too soon as from appearing six years too late. Given a different title, it might in 1945 have profited from the growing interest in economic development, for its theme is as much how the present industrial nations developed as the themes indicated by its title and subtitle. Modern scholars can hardly be blamed if they turn for Schumpeter's ideas on the subject that currently fascinates them to a book called The Theory of Economic Development rather than to a book called Business Cycles.

They might have done so even if the titles had been reversed; they might well prefer the shorter, more finished account to the longer, less polished one. The kind of fault that contributed to the success of Keynes's General Theory added to the neglect of Schumpeter's Business Cycles. Both would have been better books had their authors spent another year improving them. Whereas the shortcomings of the General Theory stimulated other economists to lay bare and refine and apply the model half-concealed in it, incidentally making Keynesians of them, the similar need to clarify and improve and use the Schumpeterian model repelled them. There are no Schumpeterians. One need not take issue with Schumpeter's criticism of Marshall for lavishing too much time on the eight editions of the Principles to hold that he himself made the opposite error. [6]

Though a quarter of a century has elapsed since the first edition of Business Cycles, the opportunities it opened up for further research remain largely unexploited. The chief exception is Schumpeter's own Capitalism, Socialism, and Democracy. Much has been published on innovation and entrepreneurship, usually with a nod in Schumpeter's direction but no more. Even a work like Yusif A. Sayigh's Entrepreneurs of Lebanon, which ostensibly takes Schumpeter's concepts as its starting point, actually deals with entrepreneurs as people—their education, religion, opinions, even the number of their children—to the neglect of what was central to Schumpeter's analysis, innovating activity and its impact. [7]

At the time Business Cycles was written, work on Kuznets cycles—the long swings of fifteen to twenty years—was still at an early stage. Since then a large amount of statistical and a small amount of analytical work has gone forward. Those who have made the principal efforts to explain Kuznets cycles, Matthews and Abramovitz, have not seen fit to draw on Schumpeter's work but have resorted to an incomplete and essentially aggregative tool, the capital-stock adjustment principle.

 [8] (It is ironic that a generation of economists that tegards disaggregation as a shining virtue has underestimated the theory of such a staunch opponent of aggregation as Schumpeter. In our heart of hearts, we prefer the aggregates of Keynes, Harrod, Domar, etc.; despite Walras's earlier and better claim to a general theory, we permitted Keynes to take over the term, Schumpeter's objections notwithstanding. Our cant about disaggregation means only that we have guilty consciences.) Yet Schumpeter's concept of recesssion could be exceedingly helpful in interpreting the 1870s, a period which raises a problem ignored by Matthews and Abramovitz in the works cited in the footnote above. Their most telling evidence for the existence of Kuznets cycles consists of two circumstances, swings in the rate of growth of real GNP that average fifteen to twenty years, and the recurrence of deep depressions at similar intervals—there was one in the 1870s, one in the 1890s, there would (or might) have been one in the 1910s but for World War I, and there was one in the 1930s. Including 1873-78 in the category of deep depressions at first sight seems reasonable enough, since it is generally considered not only the longest but also one of the worst business contractions on record. But Abramovitz shows a "tentative" peak in the rate of growth of real GNP, after eliminating the effects of business cycles, which he dates 1874.25.9 This means that the average annual rate of growth between the complete business cycle with peaks in 1869 and 1873 and the complete business cycle with peaks in 1873 and 1882 was higher than for neighboring pairs of cycles—in fact it was the highest on record for any successive pairs of cycles, in spite of the fact that the contraction included in the 1873-82 period is rated a deep depression, whereas the contraction phase of the preceding cycle was very mild. Thus the statistical finding about the rate of growth of real GNP collides with the judgment that 1873-78 was a deep depression; furthermore, it plays hob with Abramovitz's analysis of the way Kuznets cycles unfold, in which deep depressions and troughs in growth rates go together. How can the paradox of a rapid rate of growth in a period encompassing deep depression be resolved? Schumpeter's concept of recession could illuminate it: previous innovation must have made possible a great increase in output that imposed hardship—symptoms of depression—on all parts of the economy unable to adapt to the new conditions. Not that one can turn to Schumpeter's own account of the 1870s for a ready-made explanation of the facts Matthews and Abramovitz have wrestled with; it is rather that today's economists are missing an opportunity to build on Schumpeter's work.

The importance of a book is judged by what it leads to. By this test, it is doubtful if Schumpeter's Business Cycles would merit rescue from the limbo of "out of print." The first reason for the present edition lies in the conviction that it can yet stimulate significant research. Why an abridged edition? Ordinarily, I deplore abridgements, but in the present case there is every reason to believe that a shorter version will prove more useful, especially since the longer one will always be available in libraries. Eliminating digressions and the less valuable parts of the original two volumes, which ran to more than a thousand pages, will enable the reader, I hope, to spend his time more profitably. Having myself spent a great deal of labor trying to master the original edition, I have nothing but sympathy for economists who felt that it was not worth the effort

In the work of abridgement, my first concern has been to preserve a complete statement of the theory, since less thorough accounts are readily available elsewhere. This has meant retaining most of Chapters II, HI, and IV and parts of Chapters I and V. Even in Chapters II-IV, however, I have not hesitated to cut footnotes, paragraphs, and whole pages where the discussion seemed to go pretty far afield, as well as deleting superfluous sentences and phrases. Although I hope that what remains is somewhat more readable than the original, it is still hard going, and I would have liked to add as an appendix a summary of Schumpeter's theory that I prepared for my own use many years ago. But it seemed better to save the space for Schumpeter's own words. Besides, an excellent summary of Schumpeter's theory is already available in Clemence and Doody's The Schumpeterian System. [9]

My second concern was to retain a full account of the interpretation of the cyclical history of one country, in preference to partial accounts of the three countries that Schumpeter discussed at length. The nature of the theory, which includes a Kondratieff cycle sixty years in duration, calls for a long sweep of history. That the country chosen should be the United States rather than England or Germany reflects more than the national origins of editor and publisher. The United States was the country Schum­peter devoted most attention to and, particularly in the discussion of the 1930s, is the one that best illustrates the working of his model.

The decisions to keep fairly complete accounts of the theory and of its application to one country dictated omitting virtually all the statistical analysis (Chapters VIH-XIÏÏ and a long section of Chapter XIV of the original edition). One of the reviews that appeared not long after the 1939 edition was published criticized it for not having a serviceable statistical technique. The criticism was just, and omitting the statistical chapters may be deemed no great loss. Perhaps it would have been desirable to have cut them heavily, retaining the parts most useful for throwing light on the implications of the theory, but the abridged edition is quite long enough as it is.

I have regularly deleted references to sources of information. Since Schumpeter's sources ace now obsolescent, if not obsolete, very few readers would be interested in them.

Schumpeter's style ran not only to frequent digressions, which I have tried to eliminate, but also to surplus words, to stating what is already implied, to burdening the reader with phrases that distract his attention. In such a sentence as, "It is surely not too much to ask economists to realize that behavior in human societies differs from behavior in animal societies or in physical systems" (p. 1046 of the 1939 edition), I have deleted the italicized words without using dots to so indicate. Occasionally it was convenient to alter the punctuation. I have generally resisted the temptation to substitute a word or two of my own, even where doing so could have saved a good deal of space, on grounds that my words would have to be in square brackets which would distract the reader; but I have, on rare occasions, taken the liberty of rearranging Schumpeter's own words. To give an extreme example, a passage on p. 31 of the first edition reads, "We cannot enter here into the epistemological problem of the relation between 'theory' and 'facts.' But it must be emphasized that what will be said in this chapter and those following is, in part, nothing but a generalized formulation of some of the facts presented later. Therefore the term verification does not accurately describe that relation." Wanting to omit the first sentence, I transposed a few words from it to the last, which in this edition reads, "Therefore, the term verification does not accurately describe the relation between 'theory' and 'facts.' "

There are severe limits to what an editor may properly do. I wish Schumpeter were still alive to do the rewriting the book cries out for. Since that is not possible, McGraw-Hill is to be commended for deciding on its own initiative to publish an abridged edition.

RENDIGS Fels - Vanderbilt University [10]