Schumpeter's paradox reconsidered: The need for a theory of circular flow

Takashi Seo

MPRA Paper from University Library of Munich, Germany

Abstract: This study focuses on the well-known theme of Schumpeter’s system of economic theory. Specifically, the study discusses Schumpeter’s paradoxical stance on Walras’ general equilibrium theory, which Louçã (1997) called Schumpeter’s paradox. We reconsider the significance of the notion of circular flow in business cycle theory, after recognising the continuity from static to dynamic theory, and then to business cycle theory that integrates these theories. In doing so, we focus on the fact that Schumpeter called the equilibrium in the cyclical process a circular flow or a stationary process and proposed his own concept of neighbourhoods of equilibrium, which was not found in Walras’ general equilibrium theory. Through such an analysis, we propose that Schumpeter’s paradox is eased to some degree and that the theory of circular flow should be explored further.

Keywords: Schumpeter; Walras; Kuznets; Business cycles; Circular flow; General equilibrium; Neighbourhood of equilibrium (search for similar items in EconPapers)
JEL-codes: B25 B31 B41 E32 (search for similar items in EconPapers)
Date: 2021-03-25
New Economics Papers: this item is included in nep-his, nep-hpe, nep-mac and nep-pke
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:106802

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