SOME of the ideas submitted in this book go back as far as 1907; all of them had been worked out by 1909, when the general framework of this analysis of the purely economic features of capitalistic society took the shape which has remained substantially unaltered ever since. The book was published for the first time, in German, in the fall of 1911. When, after it had been out of print for ten years, I consented, not without some reluctance, to a second edition, I omitted the seventh chapter, rewrote the second and the sixth, and shortened and added here and there. This was in 1926. The third German edition is merely a reprint of the second, from which also the present English version has been made.
I should be passing a very damaging verdict on what I have done and thought since the book first appeared, if I were to say that my failure to make alterations of other than expository consequence was caused by a belief that it is satisfactory in every detail. Although I do consider both the outlines — what might be termed the “vision” — and the results as correct in the main, there are many points on which I now have another opinion. To mention but one by way of example: when the theory of the business cycle, which the reader finds in the sixth chapter, was first worked out, I took it for granted that there was a single wave-like movement, viz. that discovered by Juglar. I am convinced now that there are at least three such movements, probably more, and that the most important problem which at present faces theorists of the cycle consists precisely in isolating them and in describing the phenomena incident to their interaction. But this element has not been introduced into the later editions. For books, like children, become independent beings when once they leave the parents’ home. They lead their own lives, while the authors lead their own also. It will not do to interfere with those who have become strangers to the house. This book has fought its own way, and rightly or wrongly has won its place in the German literature of its time and field. It had seemed to me best to leave it undisturbed as much as possible. I should hardly have thought of an English translation but for the suggestion and encouragement of my eminent friend Professor Taussig.
For similar reasons, I have not followed the example of my great teacher Böhm-Bawerk, who with infinite care took notice of every objection or critique and embodied his own comments in his later editions. It is not any want of respect towards those who did me the honor of careful criticism of my argument that leads me to limit controversy to the minimum. I have to confess, however, that I have never come across an objection on essential points which carried conviction to my mind.
In aim and method, this book is frankly “theoretical.” This is no place for a professio fidei on method. Perhaps I think somewhat differently now about the relation between “factual” and “theoretical” research than I did in 1911. But my conviction stands that our science cannot, any more than others, dispense with that refined common-sense which we call “theory” and which provides us with the tools for approaching both facts and practical problems. However important may be the bearing of new masses of unanalysed, especially statistical, facts upon our theoretic apparatus — and undoubtedly increasing wealth of factual material must continually suggest new theoretical patterns, and thereby currently and silently improve any existing theoretical structure — at any given stage some theoretical knowledge is a prerequisite to dealing with new facts, that is with facts not already embodied in existing theorems. If this knowledge remains rudimentary and subconscious, it may be bad theory but it will not cease to be theory. I have not been able to convince myself, for example, that such questions as the source of interest are either unimportant or uninteresting. They could be made so, at all events, only by the fault of the author. I hope, however, to supply before long the detailed material which is here missing by more “realistic” studies in money and credit, interest, and cycles.
The argument of the book forms one connected whole. This is not due to any preconceived plan. When I began to work on the theories of interest and of the cycle, nearly a quarter of a century ago, I did not suspect that these subjects would link up with each other and prove closely related to entrepreneurs’ profits, money, credit, and the like, in precisely the way in which the current of the argument led me. But it soon became clear that all these phenomena — and many secondary ones — were but incidents of a distinct process, and that certain simple principles which would explain them would explain also that process itself. The conclusion suggested itself that this body of theory might usefully be contrasted with the theory of equilibrium, which explicitly or implicitly always has been and still is the centre of traditional theory. I at first used the terms “statics” and “dynamics” for these two structures, but have now (in deference to Professor Frisch) definitively ceased to use them in this sense. They have been replaced by others, which are perhaps clumsy. But I keep to the distinction, having repeatedly found it helpful in my current work. This has proved to be so even beyond the boundaries of economics, in what may be called the theory of cultural evolution, which in important points presents striking analogies with the economic theory of this book. The distinction itself has met with much adverse criticism. But is it really untrue to life or artificial to keep separate the phenomena incidental to running a firm and the phenomena incidental to creating a new one? And has it necessarily anything to do with a “mechanical analogy”? Those who have a taste for delving into the history of terms should rather, if they feel so inclined, speak of a zoological analogy; for the terms static and dynamic were, although in a different sense, introduced into economics by John Stuart Mill. Mill probably had them from Comte, who, in turn, tells us that he borrowed them from the zoologist de Blainville.
My cordial thanks are due to my friend Dr. Redvers Opie, who with unparalleled kindness undertook the arduous task of translating a text which proved very refractory to the operation. We have decided to omit the two appendices to Chapters I and III of the original, and also passages or paragraphs here and there. In some places, the exposition has been modified and a number of pages have been rewritten. As the argument itself has nowhere been altered, I think it superfluous to give a list of the changes.
JOSEPH A. SCHUMPETER
CAMBRIDGE, MASSACHUSETTS
March, 1934