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  5. Retrospectives: Do Productive Recessions Show the Recuperative Powers of Capitalism? Schumpeter's Analysis of the Cleansing Effect

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

Retrospectives: Do Productive Recessions Show the Recuperative Powers of Capitalism? Schumpeter's Analysis of the Cleansing Effect

  • Muriel Dal Pont Legrand
  • Harald Hagemann
Journal of Economic Perspectives
vol. 31, no. 1, Winter 2017
(pp. 245–56)
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Abstract

Schumpeter has often been interpreted as a "liquidationist," someone who is convinced that economic crises are necessary and unavoidable, and thus that government nonintervention is a sound policy in such crises. 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 believed firmly in what he described as the "recuperative powers of capitalism." However, when a depression becomes "pathological," 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. 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.

Citation

Dal Pont Legrand, Muriel, and Harald Hagemann. 2017. "Retrospectives: Do Productive Recessions Show the Recuperative Powers of Capitalism? Schumpeter's Analysis of the Cleansing Effect." Journal of Economic Perspectives 31 (1): 245–56. DOI: 10.1257/jep.31.1.245

Additional Materials

JEL Classification

  • B31 History of Economic Thought: Individuals
  • E22 Investment; Capital; Intangible Capital; Capacity
  • E32 Business Fluctuations; Cycles
  • P10 Capitalist Systems: General