Schumpeter has often been interpreted, especially, but not only, by modern economists (such as De Long 1990; Caballero 2008) as a ”liquidationist.” The term does not have a precise definition, but liquidationists are usually considered in the literature as convinced that economic crises are necessary and unavoidable and thus that government noninterventionism in such crises is a sound policy. As one example of a complaint of this nature levied against Schumpeter, Paul Samuelson (2015, p. 33) wrote that Schumpeter “was such a bad depression macroeconomist. … At the prime age of 51, in the ludicrous book by several Harvard senior professors Schumpeter praised the great depression as a ‘healthy catharsis’ of the economic system. This was a garish ‘uncreative’ version of what 1942 Schumpeter later called ‘creative destruction.’ ”
The first two sections of this paper discuss Schumpeter’s views in greater detail, and suggest that categorizing him as a “liquidationist” is an oversimplification and as an unrepentant “noninterventionist” is incorrect. Although Schumpeter was certainly not a strong supporter of public interventions, he did see a role for public expenditure programs in particular circumstances. During periods of recession, Schumpeter (1934b [1989 p. 110]) believed firmly in what he described as the “recuperative powers of capitalism.” However, when a depression becomes “pathological” (Schumpeter 1941, pp. 349–50), there could be a role for government to intervene. In order to understand the overall picture of Schumpeter’s message, we will first try to explain Schumpeter’s analysis of recessions, depressions, and the other stages of business cycles. We will also discuss how Schumpeter perceived the recuperative powers of capitalism, a core concept in Schumpeter’s analysis that allows him to distinguish between physiological and pathological recessions.
We then investigate the similarities and differences between Schumpeter’s analysis and modern contributions on these issues. In the 1990s, an active line of research examined the possibility that recessions may have a productive character along with their more obvious negative outcomes, because recessions in some way might hasten the process of reallocating economic recourses from slower-growth to faster-growth sectors. Such models were sometimes referred to as “neo-Schumpeterian,” but given our analysis of Schumpeter’s work, we will question whether this label is appropriate.
Dal Pont Legrand, Muriel, and Harald Hagemann. “Retrospectives: Do Productive Recessions Show the Recuperative Powers of Capitalism? Schumpeter’s Analysis of the Cleansing Effect.” Journal of Economic Perspectives 31.1 (2017): 245-56.
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