¹ The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle (1911; translation into English by Opie, Redvers, Cambridge, Mass., 1934)Google Scholar.

² Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (New York, 1939Google Scholar). Schumpeter to Mitchell, 6 May 1937; Schumpeter to Oscar Lange, 24 Feb. 1937, both in Joseph A. Schumpeter: Briefe/Letters, eds. Hedtke, Ulrich and Swedberg, Richard (Tübingen, 2000) (hereafter cited as Briefe), 295, 301, 303Google Scholar.

³ Committee on Research in the Social Sciences, Directors' correspondence, letter, Schumpeter to Committee (16 June 1937), in box 4 (P–Z), UAV 737.18, Harvard University Archives. Department of Economics, correspondence and records, 1930–61, letter, Schumpeter to Burbank (17 Jan. 1938), in box Robertson-Schumpeter, UAV 349.11, Harvard University Archives.

⁴ Tobin, James, foreword to März, Eduard, Schumpeter: Scholar, Teacher, Politician (New Haven, 1991), ixGoogle Scholar. Most reviews of Business Cycles were favorable. See E. Rothbarth of Cambridge, Economic Journal 52 (June–Sept. 1942): 223–29CrossRefGoogle Scholar; J. Marschak of the New School, Journal of Political Economy 48 (Dec. 1940): 889–94CrossRefGoogle Scholar; and Oscar Lange of the University of Chicago, Review of Economic Statistics 23 (Nov. 1941): 190–93CrossRefGoogle Scholar. Hans Neisser of the University of Pennsylvania noted several problems with Schumpeter's argument, but conceded that “it will always be a marvel that such a book could be written by one man.” Hans Rosenberg of Brooklyn College wrote, “This work cannot be merely read; it must be studied.” Neisser, , Annals of the American Academy 208 (March 1940): 205–6CrossRefGoogle Scholar; Rosenberg, , American Historical Review 46 (Oct. 1940): 96–99CrossRefGoogle Scholar.

Simon Kuznets, a business-cycle theorist, pioneering macroeconomist, and future Nobel Laureate then based at the Wharton School, wrote the longest and most important critique. He praised Schumpeter for having written a “monumental treatise” that raised all the right questions, but he argued that cycles are quantitative phenomena, and instead of robust numbers Schumpeter had presented “an intellectual diary.” He had told of his “journey through the realm of business cycles and capitalist evolution,” disclosing “his encounters there with numerous hypotheses, diverse historical facts, and statistical experiments.” These efforts were praiseworthy, but they could not substitute for tight quantitative analysis. See Kuznets, , American Economic Review 30 (June 1940): 257, 266–71Google Scholar. A response came from Nicholas Mirkowich of the University of California, who pointed out that the book is not about cycles alone, but is a more general theory of economic development, extending the work Schumpeter had begun in his first two books; and contending that readers should not throw out the baby with the bathwater. See Mirkowich, , American Economic Review 30 (Sept. 1940): 580Google Scholar.

⁵ Including Business Cycles, Schumpeter's published work for the remainder of his career totals about two million words. Of this work, Nathan Rosenberg has argued, “The fact is that most of what Schumpeter wrote qualifies as history, both economic and intellectual…. More than this, the very subject matter of economics, in Schumpeter's view, is history.” Rosenberg, “Joseph Schumpeter: Radical Economist,” in Shionoya, Yuichi and Perlman, Mark, eds., Schumpeter in the History of Ideas (Ann Arbor, Mich., 1994), 56Google Scholar. In his book Schumpeter and the Endogeneity of Technology: Some American Perspectives (New York, 2000)Google Scholar, Rosenberg makes a thorough case that Schumpeter was fundamentally an economic historian.

⁶ Business Cycles, vol. 1, v. This was by no means the first time Schumpeter had made such an argument. See Schumpeter, , “Über das Wesen der Wirtschaftskrisen,” Zeitschrift für Volkswirtschaft, Socialpolitik und Verwaltung 19 (1910): 271–325Google Scholar; and Hagemann, Harald, “Schumpeter's Early Contributions on Crises Theory and Business-Cycle Theory,” History of Economic Ideas 11 (2003): 47–67Google Scholar.

⁷ Business Cycles, vol. 1, 169, 173–74. Schumpeter would likely have been better advised to focus on the basic Juglar cycle, which for his purposes was the most plausible and important of the three. At times in the book he wrote not just of three cycles but of five, and in fact there could be many more than that, as innumerable stock-market analysts have tried to show. But the overall point was the one he made in his preface: cycles are of the essence in capitalism; and it follows that depressions are an inescapable and even beneficial phase in its evolution. In a letter to the prominent American scholar Paul Homan, Schumpeter elaborated a bit: “For if one thinks of business cycles as the typical form of capitalistic evolution and if one looks upon those long time movements, which are sometimes called industrial revolutions, as one species of business cycles, it is but natural to link up with the cyclical phenomenon practically the whole of the economics and sociology of capitalist society.” Schumpeter to Homan, 2 Apr. 1938, in Hedtke and Swedberg, eds., Briefe, 309.

⁸ Business Cycles, vol. 1, 299; Samuelson, , “Joseph A. Schumpeter,” Dictionary of American Biography, suppl.4 1946-1950 (New York, 1974), 723Google Scholar. This is not to say that the threecycle scheme has no value at all. See, for example, Oakley, Allen, Schumpeter's Theory of Capitalist Motion: A Critical Exposition and Reassessment (Aldershot, U.K., 1990)Google Scholar; Christopher Freeman, “Schumpeter's Business Cycles Revisited,” in Heertje, Arnold and Perlman, Mark, eds., Evolving Technology and Market Structure: Studies in Schumpeterian Economics (Ann Arbor, 1990), 17–38Google Scholar; Brouwer, Maria, Schumpeterian Puzzles: Technological Competition and Economic Evolution (New York, 1991), esp. ch. 1CrossRefGoogle Scholar; and Keklik, Mümtaz, Schumpeter, Innovation and Growth: Long-cycle Dynamics in the Post-WWII American Manufacturing Industries (Aldershot, U.K., 2003)Google Scholar.

⁹ Business Cycles, 174, 224. If, for example, a war or natural calamity interrupted a period's prosperity, Schumpeter still counted that period as prosperous in his cyclical schema. Otherwise, he wrote, it would “be inadmissible for a doctor to say: ‘Organically this man is perfectly sound. If he is dying that is due to a brick which has fallen on his head.’ I strongly feel that we must get thoroughly rid of the prejudice that our [cyclical] phenomena are simple and can be directly handled by simple methods either theoretical or statistical.” Schumpeter to Mitchell, 6 May 1937, in Hedtke and Swedberg, eds., Briefe, 301, 303.

¹⁰ Schumpeter sent Keynes a copy of Business Cycles, and received a cordial reply. He then wrote in a letter to Keynes, “I cannot visualize you really wading through those two vols—or else I should apologize, not only for my egotistical concentration on my own tale (which you so generously forgive) but also that terrible size due to my wish to deal fully, historically and statistically, with 16 units of what I call the Juglar cycle, pointing laboriously in every instance to where my schema fits the facts and where it doesn't.” Schumpeter to Keynes, 3 Oct. 1939, in Hedtke and Swedberg, eds., Briefe, 319–20.

¹¹ On the composition, publication, and reception of The General Theory, see Skidelsky, Robert, John Maynard Keynes: The Economist as Savior, 1920-1937 (New York, 1992), chs. 14–16Google Scholar.

¹² In the acknowledgments to Business Cycles, Schumpeter thanks a few research assistants and, briefly, two of his Harvard colleagues, Seymour Harris and W. L. Crum, as well as “Professor Gordon, now of the University of California, and Dr. Clausing of the University of Bonn,” but not the many other friends and colleagues who could have given him useful advice—not even his wife Elizabeth Boody Schumpeter, herself a very capable economist (vol. 1, pp. vii-viii).

¹³ Schumpeter, review of The General Theory of Employment, Interest and Money, in Journal of the American Statistical Association 31 (Dec. 1936): 794–95Google Scholar. In The General Theory, Keynes names dozens of economists and describes their ideas in detail—often very critical detail. He takes no note of Schumpeter, and little of other European business-cycle theorists. Keynes did not read German easily, and he paid insufficient homage to the giants of either the German tradition of economics or the Austrian: to the Germans Gustav Schmoller, Werner Sombart, Max Weber, Arthur Spiethoff, and Adolph Löwe; to the Austrians Carl Menger, Friedrich von Wieser, Eugen von Böhm-Bawerk, Ludwig von Mises, and Friedrich von Hayek. Many distinguished economists besides Schumpeter wrote negative reviews of The General Theory, among them Frank Knight, Jacob Viner, A. C. Pigou, Dennis Robertson, and Alvin Hansen, who later changed his mind and became an ardent supporter of Keynes.

¹⁴ Business Cycles, vol. 1, vi. Schumpeter goes on to say that he wishes “to make it clear that my analysis lends no support to any general principle of laisser faire.”

¹⁵ Ibid., v–vi.

¹⁶ Perkins also edited most of the work of F. Scott Fitzgerald and Ernest Hemingway. In addition to condensing Look Homeward, Angel, he cut Wolfe's Of Time and the River by about half. See Donald, David Herbert, Look Homeward: A Life of Thomas Wolfe (New York, 1987), 202, 294–303Google Scholar; and the long discussion on pp. 464-84 of the controversial work of another editor, Edward Aswell, on Wolfe's posthumously published novels.

¹⁷ In 1964, the economist Rendigs Fels of Vanderbilt, a former student of Schumpeter's, condensed Business Cycles by about 50 percent, though not in the pattern I have described here. McGraw-Hill, the original publisher, brought out this abridged edition. It was not very successful.

¹⁸ See, for example, “The Creative Response in Economic History,” Journal of Economic History 7 (Nov. 1947): 149–59CrossRefGoogle Scholar; “The Historical Approach to the Analysis of Business Cycles,” in Universities-National Bureau Conference on Business Cycle Research, Conference on Business Cycles (New York, 1949), 149–62Google Scholar; “Economic Theory and Entrepreneurial History,” in Change and the Entrepreneur (Cambridge, Mass., 1949): 63–84Google Scholar; and History of Economic Analysis (New York, 1954)Google Scholar.

One of the most significant early signs of Schumpeter's movement toward a greater appreciation of history (and sociology) was his appreciative reconsideration of the leader of the German Historical School. See Schumpeter, , “Gustav v. Schmoller und die Probleme von heute,” Schmollers Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft im Deustchen Reich 50 (1926), vol. 1, 337–88Google Scholar. For a discussion of the importance of this piece, see Swedberg, Richard, Schumpeter: A Biography (Princeton, N.J., 1991), 82–89Google Scholar. On the whole, however, Schumpeter's turn toward history as represented in Business Cycles does not signal a revival of the German Historical School. As is well known, Carl Menger and other leaders of the heavily theoretical Austrian School in which Schumpeter had trained at the University of Vienna engaged in a long and bitter Methodenstreit (struggle over methods) with the German Historical School. Schumpeter lamented the Methodenstreit and respected the Historical School; but he regarded it, on the whole, as handicapped in constructing the kinds of comparative histories that would inform theory.

¹⁹ Business Cycles, vol. 1, 72–73, 84–102. Here Schumpeter recurs to his categorization of innovation first set forth in The Theory of Economic Development (1911). He also anticipates his article, “The Creative Response in Economic History,” which had a significant impact on business historians.

²⁰ Business Cycles, vol. 1, 100–2.

²¹ Ibid., 102, 103. Schumpeter adds, “The outlines of an economic and sociological analysis of both types and both functions” appear in The Theory of Economic Development, chs. 2 and 4.

²² Business Cycles, vol. 1, 103–4.

²³ Ibid., 104. Among many examples of his preoccupation with class, see Schumpeter, , “Die Tendenzen unserer sozialen Struktur,” Die Chemische Industrie, 51/52 (24 Dec. 1928)Google Scholar, reprinted in Schumpeter, Aufsätze zur Tagespolitik, eds. Christian Seidl and Wolfgang F. Stolper (Tübingen, 1993), 177–93; and “Social Classes in an Ethnically Homogeneous Environment,” originally published in 1927, reprinted in Imperialism, Social Classes: Two Essays by Joseph Schumpeter (New York, 1955), transl. by Heinz Norden, intro. by Bert Hoselitz.

²⁴ Business Cycles, vol. 1, 104–7.

²⁵ Ibid., 105–8, 291.

²⁶ Ibid., 240–41. Schumpeter does not give it sufficient emphasis, but the use of the clock was a vital innovation in the industrial revolution. Rather than using sun time and toiling sporadically at home, workers gathered in one place and labored together under a rigid schedule. Outside the factory, the clock changed the way people thought about life in general. See Landes, David S., Revolution in Time: Clocks and the Making of the Modern World (Cambridge, Mass., 1983)Google Scholar.

²⁷ Business Cycles, vol. 1, 242. For elaborations of the advantages of cotton over wool, see Landes, David S., The Wealth and Poverty of Nations (New York, 2001)Google Scholar.

²⁸ Business Cycles, vol. 1, 242.

²⁹ Ibid., 240–43.

³⁰ Ibid., 243, 244.

³¹ Ibid., 240, 241, 244.

³² Schumpeter, Ibid., 243. In The Theory of Economic Development (p. 65), Schumpeter had written that companies had to teach consumers to “want new things.”

³³ Business Cycles, vol. 2, 1035. On the importance of marketing, advertising, and selling in the American economy, see Strasser, Susan, Satisfaction Guaranteed: The Making of the American Mass Market (New York, 1989)Google Scholar; Tedlow, Richard S., New and Improved: The Story of Mass Marketing in America (New York, 1990)Google Scholar; Pope, Daniel, The Making of Modern Advertising (New York, 1983)Google Scholar; Marchand, Roland, Advertising the American Dream: Making Way for Modernity, 1920–1940 (Berkeley, 1985)Google Scholar; Laird, Pamela Walker, Advertising Progress: American Business and the Rise of Consumer Marketing (Baltimore, 1998)Google Scholar; and Friedman, Walter A., Birth of a Salesman: The Transformation of Selling in America (Cambridge, Mass., 2004)Google Scholar.

³⁴ Business Cycles, vol. 1, 270–71. The word “calico” is a corruption of “Calcutta”; and the British later began to suppress production in India as a means of assisting exports of cloth from the mother country. The industry in India did not recover until the twentieth century.

³⁵ Ibid., 271.

³⁶ Ibid., 271–72.

³⁷ In analyzing economic development, “only confusion can result” from focusing on inventions instead of innovations. Ibid., 84–85, 271–72. Schumpeter had made this point before, as early as in The Theory of Economic Development. In later years this distinction became a foundation stone in the subdiscipline of the history of technology, as is evident in the perusal of almost any issue of the journal Technology and Culture. Two of the best books that treat the subject (among others) are Landes, David S., The Unbound Prometheus: Technological Change and Industrial Development in Europe from 1750 to the Present (Cambridge, U.K., 1969)Google Scholar; and Mokyr, Joel, The Lever of Riches: Technological Creativity and Economic Progress (New York, 1990)Google Scholar. Mokyr's book contains a particularly effective (and explicit) delineation of the Schumpeterian perspective on technology.

³⁸ Business Cycles, vol. 1, 272.

³⁹ Ibid. The burgeoning demand for cotton made the American Eli Whitney's gin (1793) one of the most important inventions in history. This was true in many senses, because Whitney's breakthrough induced a tremendous expansion of slavery, which had been in decline on tobacco and rice plantations.

⁴⁰ Many scholars have analyzed this process. See, for example, Lazonick, William, Competitive Advantage on the Shop Floor (Cambridge, Mass., 1990), chs. 3–5, and the notes to those chaptersGoogle Scholar.

⁴¹ Business Cycles, vol. 1, 375–76. As noted, an immense literature on the evolution of the British textile industry, and particularly cotton, developed both before and after Schumpeter wrote this analysis.

⁴² Ibid., 357.

⁴³ Ibid., 433–34.

⁴⁴ Ibid., 435. As it turned out, of course, rayon was only the first of a long list of synthetic fibers that emerged from the chemical industry. The most important was nylon, developed during the 1930s even as Schumpeter was writing Business Cycles. Afterward, there came a flood of other new synthetics, all produced either by chemical firms (especially DuPont), or by petrochemical subsidiaries of oil companies. The rise of rayon and nylon, and then of a vast array of other synthetics (orlon, dacron, polyesters), completely transformed the “old” textile industry. And, in every case, identifiable entrepreneurs led the way—New Men, but in this case working in established science-based companies. In the latter half of the twentieth century, petroleum-based synthetic materials ramified through the economies of all industrialized nations. They generated hundreds of new plastics and other products that replaced natural leather, rubber, wood, metals, paints, and adhesives. The petrochemical revolution was so pervasive that it invites comparison with the steam engine and the electric generator. It not only created disturbances in a group of industries but it also cut wide swaths through entire economies. In the large literature on this subject, see especially Hounshell, David A. and Smith, John Kenly, Science and Corporate Strategy: Du Pont R &D, 1902–1980 (Cambridge, U.K., 1988)Google Scholar; Spitz, Peter H., Petrochemicals: The Rise of an Industry (New York, 1988)Google Scholar; and Chandler, Alfred D. Jr., Shaping the Industrial Century: The Remarkable Story of the Evolution of the Modern Chemical and Pharmaceutical Industries (Cambridge, Mass., 2005)CrossRefGoogle Scholar.

⁴⁵ Business Cycles, vol. 1, 289–92, 325, 383. Schumpeter does not, of course, explore the full social history of American railroads.

⁴⁶ Ibid., 327. Schumpeter mentions the telegraph elsewhere in the book, but gives too little attention to it.

⁴⁷ Ibid., 383–88. Schumpeter does not mention all the cities, nor all the companies, listed here.

⁴⁸ Ibid., 291.

⁴⁹ Ibid., 339–41.

⁵⁰ Ibid., 328–30. Schumpeter here takes the trouble to note that what he is saying is not controversial and “has often been emphasized and never been contested” by other scholars. His overall point was the vital importance of credit creation, which he often identified as one of the defining traits of capitalism.

⁵¹ Ibid., 338–39, 383.

⁵² Ibid., 303–4.

⁵³ Ibid., 245–47.

⁵⁴ Ibid., 244–47.

⁵⁵ Ibid., 244–47, 280, 307.

⁵⁶ Schumpeter does not go into every detail covered here. All were well known by students of the corporate form. While he was composing Business Cycles, he wrote a fellow scholar who had studied joint-stock companies that statistical time series were very helpful, but not sufficient. “Therefore we must turn to industrial and financial history in order to find out what has actually happened in the economic organism year by year, and it is only when we have done this that the true meaning of the fluctuations displayed by the time series reveals itself. This is why I think economic history of such paramount importance for the understanding of the business cycle and even of the most practical contemporaneous problems.” Schumpeter papers, general correspondence, letter, Schumpeter to Bishop C. Hunt (13 June 1935), in box 1, HUG (FP) 4.8, Harvard University Archives.

⁵⁷ Business Cycles, vol. 1, 402–3. The literature on American railroads is, of course, enormous. Good starting points are the old works by Stover, John F., American Railroads (Chicago, 1961)Google Scholar; and Chandler, Alfred D. Jr., ed., The Railroads: The Nation's First Big Business (New York, 1965)Google Scholar.

⁵⁸ Business Cycles, vol. 1, 403–4. Schumpeter lays heavy emphasis on the merger movement, but he does not give many statistics. From 1897 through 1904,4,227 American companies merged into 257 large entities, many of whose names are still familiar today. On merger waves, see Markham, Jesse, “Survey of the Evidence and Findings on Mergers,” in Business Concentration and Price Policy (Princeton, N.J., 1955), esp. 157Google Scholar; Nelson, Ralph, Merger Movements in American Industry, 1895–1956 (Princeton, N.J., 1959)Google Scholar; McCraw, Thomas K., Prophets of Regulation (Cambridge, Mass., 1984)Google Scholar; and Lamoreaux, Naomi R., The Great Merger Movement in American Business, 1895–1904 (Cambridge, U.K., 1985)CrossRefGoogle Scholar.

Many scholars have debated over whether Schumpeter believed innovation to be helped or hindered by the rise of big business; and, much more critically, about the facts of the proposition. The answer to the first question is that Schumpeter was himself inconsistent; but beginning with some of his articles written during the late 1920s, more so in Business Cycles, then explicitly in Capitalism, Socialism and Democracy and several articles that appeared during the 1940s, he usually argued that size in and of itself does not preclude innovation, and can promote it in ways that would not occur in small business. On the second question, about two dozen useful articles have been published on the somewhat misnamed “Schumpeter hypothesis” that large firm size is advantageous to innovation. Two of the best are Scherer, F. M., “Schumpeter and Plausible Capitalism,” Journal of Economic Literature 30 (Sept. 1992): 1416–33Google Scholar; and Nicholas, Tom, “Why Schumpeter Was Right: Innovation, Market Power, and Creative Destruction in 1920s America,” Journal of Economic History 63 (Dec. 2003): 1023–58CrossRefGoogle Scholar.

⁵⁹ This argument pervades many of Schumpeter's writings and is implicit throughout the text of Business Cycles. On page 405 of volume 1, for example, he speaks of the “traveling salesman who turned into a promoter of combinations.” In many of his articles written in German during the 1920s, as in Business Cycles, he insists that entrepreneurs come from all social classes. And in Capitalism, Socialism and Democracy, he mounts a pointed attack on Americans' denunciations of big businesses as “monopolies.” He was especially annoyed with what he regarded as his fellow economists' misunderstanding of the issue. Against their prejudices, as he said in his presidential address to the American Economic Association in 1948, “no argument avails about the performance of largest-scale business, about the inevitability of its emergence, about the social costs involved in destroying existing structures, about the futility of the hallowed ideal of pure competition—or in fact ever elicits any response other than the most obviously sincere indignation.” Schumpeter, , “Science and Ideology,” American Economic Review 39 (Mar. 1949): 345–59Google Scholar.

⁶⁰ Business Cycles, vol. 1, 415–16. See, for the statistics and details, James J. Flink, “Automobile,” in Porter, Glenn, ed., Encyclopedia of American Economic History (New York, 1980), 1168–93Google Scholar; and Chandler, Alfred D. Jr., ed., Giant Enterprise: Ford, General Motors, and the Automobile Industry: Sources and Readings (New York, 1964), 1–2Google Scholar, and various pages. The standard history of mass production in the United States, which contains much material on the automobile industry, is Hounshell, David A., From the American System to Mass Production, 1800–1932: The Development of Manufacturing Technology in the United States (Baltimore, 1984)Google Scholar.

⁶¹ Business Cycles, vol. 1, 415. For details, see Sloan, Alfred P. Jr., My Years at General Motors (New York, 1964), ch. 9Google Scholar; Richard S. Tedlow, New and Improved: The Story of Mass Marketing in America, ch. 3; Kuhn, Arthur J., GM Passes Ford: Designing the General Motors Performance-Control System (University Park, Penn., 1986)Google Scholar; and Raff, Daniel M. G., “Making Cars and Making Money in the Interwar Automobile Industry: Economies of Scale and Scope and the Manufacturing behind the Marketing,” Business History Review 65 (Winter 1991)CrossRefGoogle Scholar.

⁶² Business Cycles, vol. 1, 416n.

⁶³ Ibid., 372.

⁶⁴ Ibid., 372–73.

⁶⁵ Ibid., 373.

⁶⁶ Ibid., 388; for details, see Livesay, Harold C., Andrew Carnegie and the Rise of Big Business (Boston, 1975)Google Scholar.

⁶⁷ Business Cycles, vol. 1, 397, 398, 412.

⁶⁸ Ibid., 412–13.

⁶⁹ Ibid., vol. 1, 412; vol. 2, 771–72.

⁷⁰ Ibid., vol. 1, 413. For a detailed overview, see Chandler, Alfred D. Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990), 212–21Google Scholar, and Appendix A.1, 642.

⁷¹ Business Cycles, vol. 1, 439–40. The authoritative comparative history of electrification in the U.S., Germany, and Britain is Hughes, Thomas Parke, Networks of Power: Electrification in Western Society, 1880–1930 (Baltimore, 1983)Google Scholar.

⁷² Business Cycles, vol. 1, 440.

⁷³ Ibid., 440–41. See Chandler, Scale and Scope, 463–74, and Appendix C.1, 703. The rankings are by assets.

⁷⁴ Business Cycles, vol. 2, 757–58. Subsequent research confirmed Schumpeter's argument here. Whereas three of the top six German industrial firms made these products, and two of the top seventeen American firms, the largest British electrical manufacturing firm ranked number fifty among the nation's industrial companies, and the second largest ranked number fifty-four. Neither produced much heavy equipment, specializing instead in lightbulbs and other small items. The three next largest “British” electrical companies were local subsidiaries of the German and American giants. At the beginning of World War I, two-thirds of the output of electrical equipment in Britain came from subsidiaries of General Electric, Westinghouse, and the Siemens companies. After the disruption of trading patterns during World War I, British companies did somewhat better. But they did not catch up with the American and German giants. See Chandler, Scale and Scope, 276, and Appendix B.1, 671.

⁷⁵ If an existing capitalist system did somehow stabilize, Schumpeter went on to say, “There would be increasing reluctance to invest or even reinvest, a tendency to ‘live on capital,’ to hold on to balances, to recreate vanishing returns by all the shifts open to a class which, though by then economically functionless, yet would, like its feudal predecessor, for a time retain the powers acquired by and associated with the functions previously filled. Maladjustments, unemployment and underutilization of resources—though now of a different nature—and neutral, unstable, and subnormal equilibria might hence well stay with a nonexpanding world.” This statement, unlike much of the rest of Business Cycles, accords with Keynes's argument in The General Theory. But Schumpeter believed that “stabilized capitalism is a contradiction in terms.” Business Cycles, vol. 2, 907, 1033.

⁷⁶ Marschak, J., Journal of Political Economy 48 (Dec. 1940), 893Google Scholar; Schumpeter, , Business Cycles, vol. 1, vGoogle Scholar.

⁷⁷ I am generalizing broadly here, and several exceptions come to mind: the work of members of the German Historical School, who produced numerous studies of industries and firms; and N. S. B. Gras and Henrietta Larson of Harvard Business School. Still, in these examples, the kind of theoretical rigor characteristic of Schumpeter's work was largely absent. In the United States, the empirical work of a few economists senior to Schumpeter, such as William Z. Ripley, Charles Van Hise, John R. Commons, Arthur Hadley, and Frank Taussig, was theoretically well grounded. But it would be a stretch to characterize their work as business history.

⁷⁸ Both books were published in New York in 1939.

⁷⁹ I have found no correspondence between Schumpeter and Gras in the private papers of either man, nor other evidence of personal contact. On Gras, Larson, and their approaches to business history, see Boothman, Barry E. C., “A Theme Worthy of Epic Treatment: N. S. B. Gras and the Emergence of American Business History,” Journal of Macromarketing 2 (June 2001): 61–73CrossRefGoogle Scholar; and Yeager's, Mary A. analysis of the work of Larson: “Mavericks and Mavens of Business History: Miriam Beard and Henrietta Larson,” Enterprise and Society 2 (Dec. 2001): 687–768CrossRefGoogle Scholar.

⁸⁰ The principal leaders of the Center were Cole, the sociologist Leland Jenks, the historian Thomas C. Cochran, and the European polymath Fritz Redlich. The list of young scholars who participated in the Center's activities reads like an all-star team of historians over the next generation: Alfred D. Chandler Jr., Bernard Bailyn, David S. Landes, Hugh G. C. Aitken, Douglass North, Henry Rosovsky, and John Sawyer, among others. See Sass, Steven A., Entrepreneurial Historians and History: Leadership and Rationality in American Economic Historiography, 1940–1960 (New York, 1986)Google Scholar; Aitken, Hugh G. C., ed., Explorations in Enterprise (Cambridge, Mass., 1965), esp. pp. 8–11 and 24–26CrossRefGoogle Scholar, which describe Schumpeter's role; and Crandall, Ruth, The Research Center in Entrepreneurial History at Harvard University, 1948–1958: A Historical Sketch (Cambridge, Mass., 1960)Google Scholar.

Schumpeter's main paper, presented in furtherance of the establishment and the intellectual life of the Center, is “Comments on a Plan for the Study of Entrepreneurship,” likely written in 1946, and printed in Swedberg, Richard A., ed., Joseph A. Schumpeter: The Economics and Sociology of Capitalism (Princeton, N.J., 1991): 406–28Google Scholar. Here, among a rich menu of arguments, Schumpeter calls for a comparative analysis of industries and companies through standard sets of questions—a method that came to characterize Chandler's work (see pp. 422–24 in particular). Among existing studies, Schumpeter especially praises Redlich's, FritzHistory of American Business Leaders: A Series of Studies (Ann Arbor, 1940-1951)Google Scholar; and Cole, Arthur C. and Williamson, Harold F., The American Carpet Manufacturers: A History and an Analysis (Cambridge, Mass., 1941Google Scholar) as exemplars of entrepreneurial history. A condensed version of the paper was published in 1947 as “The Creative Response in Economic History.” On 2 Jan. 1947, Arthur Cole reported that, after a conference in December 1946, Schumpeter had composed “a vigorous polemic in favor of continued research in the area [of entrepreneurship] and particularly for the establishment of a central coordinating bureau or institute” (Crandall, The Research Center, 8). Once the Center was established, Schumpeter, on 7 Oct. 1948, delivered its second paper (Cole had given the first), titled “Economic Theory and Entrepreneurial History,” published by the Center itself in Change and the Entrepreneur: Postulates and Patterns in Entrepreneurial History (Cambridge, Mass., 1949): 63–84Google Scholar.

⁸¹ Chandler, personal communication; Chandler has no recollection of reading Business Cycles, and there is no particular reason why he should have done so. On Chandler's career and influence, see McCraw, Thomas K., “The Intellectual Odyssey of Alfred D. Chandler, Jr.,” in McCraw, , ed., The Essential Alfred Chandler: Essays Toward a Historical Theory of Big Business (Boston, 1988)Google Scholar; and John, Richard R. Jr., “Elaborations, Revisions, Dissents: Alfred D. Chandler's The Visible Hand after Twenty Years,” Business History Review 71 (Summer 1997)CrossRefGoogle Scholar. On the rich potential of Parsons's work for business history, see Galambos, Louis, “Parsonian Sociology and Post-Progressive History,” Social Science Quarterly 50 (June 1969): 25–45Google Scholar.

⁸² Among Schumpeter's other contributions, he may have introduced the phrase “business strategy,” which occurs not in Business Cycles but in Capitalism, Socialism and Democracy, 83–84: “Every piece of business strategy acquires its true significance only against the background of that process [of creative destruction] and within the situation created by it.” The idea of strategy is irrelevant in models based on perfect competition and small firms, because such firms cannot affect the behavior of their industries. I do not believe Schumpeter would have written in this way had he not done so much research on large companies for Business Cycles.

Some other writer may have used “business strategy” earlier, but I have not yet encountered one. The phrase “strategic factors” occurs in Barnard's, Chester important book, The Functions of the Executive (Cambridge, Mass., 1938), 204–5Google Scholar, a work with which Schumpeter was familiar. So was Chandler, who, to the best of his recollection, first began to think of “strategy” in response to Barnard's book, which was one of the central texts at the Research Center on Entrepreneurial History (personal communication).

In the years after Capitalism, Socialism and Democracy appeared, “business strategy” and “corporate strategy” gained extremely wide currency in business, the popular press, and especially in consulting firms and business schools, many of which now have entire departments called “Strategy” or one of its cognates. For an illuminating survey, see Ghemawat, Pankaj, “Competition and Business Strategy in Historical Perspective,” Business History Review 76 (Spring 2002): 37–74CrossRefGoogle Scholar.

⁸³ Skidelsky, John Maynard Keynes: The Economist as Savior, 1920–1937, 704. It should also be remembered that from 1921 to 1925, during the interval between the publication of the two books, Schumpeter earned and lost a fortune as a banker in Vienna, thus gaining the kind of first-hand business experience most scholars lack.

⁸⁴ The intellectual connections between the work of Schumpeter and Chandler (and other scholars as well, including Marx) are discussed in Lazonick, William, Business Organization and the Myth of the Market Economy (Cambridge, Mass., 1991), ch. 4Google Scholar. The quotation from Schumpeter is in a letter to Edna Lonegan, a student at Brooklyn College, dated 1 Feb. 1942, in Hedtke and Swedberg, eds., Briefe, 339–40.

One of the first scholars to make a connection between Business Cycles and the subdiscipline of business history was Wolfson, Robert J., in “The Economic Dynamics of Joseph Schumpeter,” Economic Development and Cultural Change 7 (Oct. 1958), 52n4CrossRefGoogle Scholar: “In addition to this work of [Fritz] Redlich, the whole field of business history which has grown up during the last ten years or so is clearly traceable to Schumpeter.” Among other significant commentaries, see Shionoya, Yuichi, Schumpeter and the Idea of Social Science: A Metatheoretical Study (Cambridge, U.K., 1997)CrossRefGoogle Scholar; and the more critical analysis by Moura, Mário da Graça, “Schumpeter on the Integration of Theory and History,” European Journal of the History of Economic Thought 10 (Summer 2003): 279–301CrossRefGoogle Scholar.

⁸⁵ Schumpeter, History of Economic Analysis, 12. Some economists doubted the validity of Schumpeter's declaration: Simon Kuznets, for example, then of Hopkins, Johns, wrote in the Journal of Economic History 15 (Sept. 1955): 325Google Scholar, “We need not take too seriously Schumpeter's statement that economic history would be his choice if he had to choose only one among economic history, statistics, and theory. Yet I do believe that Schumpeter was essentially a historian and social philosopher.”