Money and banking in the process of change: Schumpeter and Robertson

The chapter is devoted to considering Schumpeter’s and Robertson’s contributions to the analysis of credit. They were not particularly interested in the analysis of the general price level per se and focused on the role of credit and banks as fundamental factors in capitalist processes of change. Schumpeter was concerned with both growth generated by innovation and economic fluctuations, phenomena that cannot be understood without taking banks and credit into account. Banks create money ex nihilo through credit to firms to finance investment for innovative change. Robertson attracted most attention for his attempt to clarify the interrelation between credit creation, capital formation and saving in a process of change. Banks ‘force’ the economy to create all the saving necessary to finance the investment that firms want to make. For both Schumpeter and Robertson, however, banks are not the prime movers of change. Growth and economic fluctuations are driven by real factors.