The Contribution of Joseph Schumpeter to Economics: Economic Development and Institutional Change (review)

This volume is a collection of essays by a dozen scholars on some selected aspects of the contribution of Joseph A. Schumpeter. A reading of the preface and the introduction by the editors makes one expect the book to be a product of a well-organized research project and a clear editorial principle. And although the editors do not discuss the making of the volume, the striking fact that most of the contributors are affiliated with a single French institution also leads one to infer the existence of research leadership and the commitment of the group members to it.

The mission of the volume is to resist the currently dominant interpretation of Schumpeter: that he established an evolutionary theory of entrepreneurship and competition on the basis of the key concept of creative destruction. According to the editors, this "evolutionary interpretation," although supported by the rise of modern evolutionary economics in recent decades, overlooks Schumpeter's wide-ranging contribution, which can only be grasped as an attempt at economic sociology that challenges the relationship between "economic development and institutional change." Thus we see the crucial message in the subtitle of this volume. As Richard Swedberg (1991) and I myself (1997) tried to demonstrate, this view of Schumpeter's contribution, or what the editors call the "institutionalist interpretation," is welcomed and should be examined with respect to specific topics developed in this volume.

The book consists of five parts and is fairly well organized by this "overarching theme" except for the part on the history of economics. The three chapters in part 1 on the history of economics deal with Schumpeter's critical treatment of three big names in neoclassical economics, Menger, Walras, and Marshall. Although undoubtedly of interest to some experts, these chapters have little to do with the "institutionalist interpretation" of Schumpeter. If the authors of those three chapters had really wanted to shed light on the institutionalist interpretation of Schumpeter and therefore on his economic sociology, they should have discussed not Menger, Walras, and Marshall, but a different group of economists altogether: Comte, Marx, Pareto, and Weber, among others, as I argued elsewhere (2001). The arena of doctrinal history provides a golden opportunity to connect interpretatively Schumpeter's positive as well as negative appraisal of prominent figures in history with his own substantive research work.

In part 2 on methodology, a chapter on the "retrospective and prospective models" of time, each of which is attributed to the circular flow and economic development respectively, is particularly illuminating in itself and promising for coordinating related issues. In the process of development, while innovation leads to the discontinuities and uncertainties in economic life, an agent's response to innovation invokes equilibrating forces so as to produce the cyclical process. This means that cycles are theoretically characterized by an interaction of the two abstract time categories, retrospective time and prospective time. How, then, are the phases of business cycles explained in the historical time dimension? The author convincingly argues that the analysis of the economic process in theoretical time provides a framework to interpret the sequence of events in historical time on the presumption of a particular institutional and sociological background. It is further suggested that business cycles provide a broad framework for the institutional interpretation, in which economic sociology or the analysis of institutions is an intermediary between theory and history.

Against the time framework of business cycles, the component topics of the institutional interpretation are discussed in detail in part 3 on economic development, in part 4 on entrepreneurship, and in part 5 on money. As is well known, Schumpeter's theory of economic development has three key notions: innovation, entrepreneurship, and bank credit. It is remarkable that the implications of these notions are successively challenged by the contributors from the common perspective of economic...