The Impact of New-Product R&D on the Circular Flow

James McClure and David Chandler Thomas

The American Economist, 2019, vol. 64, issue 1, 45-59

Abstract: Closed-system circular flow models have been ubiquitous in economics for at least half a century. Because these models account for neither new-product R&D, nor the attendant leakages and injections, they obscure understanding of (a) the distinction between new-product and process R&D, (b) the circular flow leakages and injections attending new-product R&D, and (c) Schumpeterian “creative destruction†and “swarming.†To shed light upon these matters, we present an open-system circular flow model and a price theoretic explanation of the swarming overinvestment that characterizes business cycle downturns. JEL Classifications : B20, O31, E30

Keywords: circular flow; new-product R&D; process R&D; leakages; injections; Hayek; Keynes; Knight (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:sae:amerec:v:64:y:2019:i:1:p:45-59

DOI: 10.1177/0569434518774774

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