Five ways out of depressionN: 19/20th century experience and 21st century prospects

Economic theory has hitherto discussed five ways in which an economy can emerge from a depression. This paper presents a brief review of the performance of these five ways out of depression during the 19th and 20th centuries, and prognosticates their future in the 21st century. Innovations appear as the most effective way to overcome depressions. This leads to an analysis of Schumpeter's typology of innovations and to a discussion of the claim of endogenous growth theory that innovations are no longer the result of the activity of entrepreneurs, but have become a built-in feature of market capitalist economies. The paper concludes with a consideration of the sustai nability of the flow of innovations in the future, in view of the phenomena of population stabilisation and the reduction in available natural resources, which will very probably characterise the evolution of the world economy. We argue that different types of innovations are likely to play quite different roles in the future of the world economy.