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

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  • Muriel Dal Pont Legrand
  • Harald Hagemann

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.

Suggested Citation

  • Muriel Dal Pont Legrand & Harald Hagemann, 2017. "Retrospectives: Do Productive Recessions Show the Recuperative Powers of Capitalism? Schumpeter's Analysis of the Cleansing Effect," Journal of Economic Perspectives, American Economic Association, vol. 31(1), pages 245-256, Winter.
  • Handle: RePEc:aea:jecper:v:31:y:2017:i:1:p:245-56
    Note: DOI: 10.1257/jep.31.1.245
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    References listed on IDEAS

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    1. Philippe Aghion & Gilles Saint-Paul, 1998. "Uncovering Some Causal Relationships Between Productivity Growth and the Structure of Economic Fluctuations: A Tentative Survey," LABOUR, CEIS, vol. 12(2), pages 279-303, July.
    2. Aghion, Philippe & Saint-Paul, Gilles, 1998. "VIRTUES OF BAD TIMES Interaction Between Productivity Growth and Economic Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 2(03), pages 322-344, September.
    3. Aghion, Philippe & Saint-Paul, Gilles, 1991. "On the Virtue of Bad Times: An Analysis of the Interaction between Economic Fluctuations and Productivity Growth," CEPR Discussion Papers 578, C.E.P.R. Discussion Papers.
    4. Philippe Aghion & Peter Howitt, 1997. "Endogenous Growth Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011662, January.
    5. repec:hrv:faseco:30752799 is not listed on IDEAS
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    More about this item

    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • P10 - Economic Systems - - Capitalist Systems - - - General

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