In Theorie der wirtschaftlichen Entwicklung (1912) Schumpeter wrote that “the armor of methodological commentaries I renounce completely” (1934, 4) and referred the reader to his previous book, Wesen, for methodology. Nevertheless, this chapter will examine not only the substance of his dynamic theory but also its methodological nature.

The nature and substance of Theorie der wirtschaftlichen Entwicklung

Schumpeter began to study economic crises in 1905, but he soon realized that the problems of economic crises were related to the total problems of capitalist economic development and therefore to the entire field of economic theory (1912, viii). As an introduction to Entwicklung, it is useful to consider his article on “Über das Wesen der Wirtschaftskrisen” (1910b), written just before the publication of Entwicklung. This essay is a summary of well-developed thought claiming nine propositions:

1. Economic phenomena are classified into two distinct categories: static phenomena and dynamic phenomena.

2. Dynamic phenomena relate to purely economic development, the changes in an economy that originate from within the economy and are generated by the creation of new combinations (innovations) by entrepreneurs with uncommon talents and energy.

3. Economic development is essentially the disturbance of a static economic equilibrium.

4. This disturbance evokes reactions that eventually lead the economy to a new equilibrium.

5. […]