Prosperity and Depression.pdf

8:z. AnalYsis of Theories Part Ihe says, between additions to our technological knowledge (thatis, inventions which create the possibility of innovations in theproductive processes actually employed) on the one hand and thepractical introduction of the new methods on the other hand.What matters is not the discovery in the laboratory ofa new processbut the actual application of a new technique-it may be, a techniquethe feasibility of which was discovered a long time ago.There is no reason why inventions should not be distributed moreor less evenly in time; but there are good reasons for believingthat, in practice, new methods come into use in a mass. Onlya few business-men have the imaginative power and energysuccessfully to introduce innovations such as new productiveprocesses for the production of goods already on the market orthe introduction of new types of goods, opening-up of newmarkets, improved methods ofmarketing and the like. But, whileonly a few are able to take the lead, many can follow. Oncesomeone has gone ahead and demonstrated the profitability of ace new combination of the factors of production " (as ProfessorSCHUMPETER puts it), others can easily imitate him. Thus,whenever a few successful innovations appear, immediately a hostllistinguishable phases: a movement towards equilibrium called revivaland recession respectively, and a movement away from equilibrium,prosperity (or boom) and depression. Revival and prosperity constitutethe upswing, recession and depression the downswing. The recuperativeforces of adjustment inherent in the economic system are sufficient, soProfessor Schumpeter believes, to lift output and employment from thesubnormal level to which it has been reduced by the vicious spiral ofdeflation during the depression phase ; no special. incentives are neededto explain the lower turning-point. Professor Schumpeter's "genialentrepreneur" and the crowd of imitators who follow him come in laterduring the upswing and prevent the system from settling down for anylength of time at an equilibrium position.Serious objections can be raised against this view. But the idea thatthe system passes through an equilibrium, or at least approaches a normalposition, somewhere between the upper and the lower turning-point seemsto have been vaguely envisaged by many writers. It will be clearlyelaborated in Professor Schumpeter's forthcoming volume on the businesscycle. It may be added that the fact that Professor Hayek starts hisanalysis from an equilibrium position seems to indicate rather a methodologicalprinciple than the proposition that the system actually passesthrough an equilibrium position on its way from the lower to the upperturning-point.