Teoria Do Desenvolvimento Economico

NEW TRANSLATIONS
Theorie der wirtschaftlichen Entwicklung

By DR. JOSEPH SCHUMPETER
Leipzig, Verlag von Duncker & Humblot.*
1911
Translated by
Markus C. Becker and Thorbjrn Knudsen
The Fundamental Phenomenon of Economic Development
Chapter 2, pp. 103107
Based on the exposition of the first chapter, we approach the problem
of economic development. By development we shall understand
only such changes in economic life as are not forced upon it from
without, but arise by its own initiative from within.
1
Should it turn out
that there are no such changes arising in the economic sphere itself,
and that the phenomenon that we call economic development is in
practice simply founded upon the fact that the data change and that
the economy continuously adapts itself to them, then we should say
that there is no economic development.
2
By this we should mean that
economic development is not a phenomenon to be explained econom-
ically, but that the economy, in itself without development, is dragged
along by the changes in the surrounding world, that the causes and
hence the explanation of development must be sought outside the
group of facts which are described by economic theory. This might
suffice as a preliminary introduction of the notion of development.
What follows will gradually add further content to this notion while
American Journal of Economics and Sociology, Vol. 61, No. 2 (April, 2002).
2002 American Journal of Economics and Sociology, Inc.
*The authors are very grateful to Duncker & Humblot for their kind help and the
permission to print the selected passages of Schumpeters (1911) Theorie der
wirtschaftlichen Entwicklung.
the last chapter [Chapter 7] returns to an overview of economic devel-
opment as a whole.
It should be noted in passing that neither will the mere growth of
the economy, as shown by the growth of population and wealth, be
designated here as a process of development. For it calls forth no
qualitatively new phenomena, but only processes of adaptation of the
same kind as the changes in the natural data.
3
Since we wish to direct
our attention to other phenomena, we shall regard such increases as
changes in data.
4
Of course this requires justification. This is provided
in detail in the following. For the time being I ask the reader to note
this proposition and refrain from passing judgement until later.
So far, we have described the economic process as determined by
given circumstances. That is, we have made clear how economic be-
haviour appears when people draw the consequences of given cir-
cumstances, aiming at the best possible satisfaction of their wants. The
economy would thus be unchanging if its data were unchanging. Now
I would like to present a second type of economic behaviour describ-
ing a new and independent agens in the economy, namely creative
construction in the economic sphere.
5
Passively drawing conse-
quences is not the only possible economic behaviour. You can also
try and change the given circumstances. If you do that, you do some-
thing not yet contained in our representation of Reality, something
that must bring about distinct phenomena.
6
To state it right away,
striving for the satisfaction of wants, however, is not the only goal of
economic behaviour, not its only motive. There is also another mo-
tive. If true, phenomena will appear that so far are missing in our rep-
resentation. We will see that both elements are united in one type of
economic behaviour, the investigation of which provides the explana-
tion of the particular phenomena missing in our picture.
7
What we are about to face now is a discussion of fundamental im-
portance to us. To facilitate this and get a clear and sharp focus on our
chosen subject matter, we want to maintain the static assumptions in
any other respect. In general, we start from a static economy and then
introduce our new agens, so that it stands out in all its aspects.
8
We
will assume that population as well as political and social organisation
etc. is constant, i.e., the lack of all changes apart from those we are
concerned with at any point in time. Only at the end of our journey
406 American Journal of Economics and Sociology
[Chapter 7] will these changes be included in our considerations.
Taking a different course would quite needlessly complicate our de-
scription. For this reason we will start out by excluding extra-eco-
nomic elements, as defined above, from our considerations. And this
is the purpose of our assumptions.
Yet another important point should be emphasized right away, al-
though it can only be shown in its true light later. Every event in the
social world is a cause of effects in the most diverse directions. It af-
fects all elements of social life, some more than others, however. A
war, for instance, leaves its marks on all social and economic circum-
stances. This is so, also if we limit our attention to the sphere of eco-
nomic life. The change of one price will in principle also lead to
changes of all other prices, even if some of the changes might be so
insignificant that they are practically impossible to detect. In turn, all
these counter-effects have effects similar to the ones causing them in
the first place.
9
That is, the counter-effects react back upon the origi-
nal causes. In the social sciences, we always encounter a tangle of
causes, interdependencies and counter-effects, so we easily lose the
thread leading us from causes to effects. For the sake of greater accu-
racy we now make this clear once and for all: We speak of cause and
effect only in the case of irreversible causal connections. In this sense
we say that commodities use value is the cause of their exchange
value. However, we do not speak of cause and effect when two
groups of facts are interdependent, like for instance class formation
and of the distribution of wealth. Even if someones wealth may actu-
ally establish his membership of a particular class, that does not suf-
fice to demonstrate a causal relation according to our argument, just as
it does not suffice when a change in the exchange value of some good
causes a change in its use value, which could indeed happen.
10
You
see what I mean: For economic phenomena only the explanatory
principle, disclosing the nature of the phenomena, can be designated
as a cause. Further, in principle we distinguish between effects and
the counter-effects of an impulse. Accordingly, we will indicate a par-
ticular explanatory principle for the development of the economy.
Those effects arising out of the essence of the explanatory principle it-
self we will call effects of development. Other phenomena not di-
rectly arising from this explanatory principle, but regularly following
Theorie der wirtschaftlichen Entwicklung 407
in its train we will call counter-effects of development. This term de-
scribes phenomena that can be understood on the basis of alternative
explanatory principles, although in the end these phenomena are
caused by development.
11
As will become clear in the following, this
distinction of development phenomena into two classes is very impor-
tant. Otherwise you would regard these phenomena as equivalent,
but as we will see, they can be decomposed into primary and second-
ary phenomena according to their nature. In recognizing this, one
comes closer to understanding the phenomenon of development.
It does not make sense to get into a more detailed exposition of this
point here, since it will become evident later. I would however like to
point to another issue. Every concrete process of development rests
upon preceding development.
12
But in order to see the essence of the
thing clearly, we shall abstract from this and allow the development to
arise out of a position without development. Every process of devel-
opment creates the prerequisites for the following. Thereby the form
of the latter is altered, and things will turn differently from what they
would if every concrete phase of development would be compelled
first to create its own conditions. However, if we wish to get at the
root of the matter, we may not include in the data of our explanation
elements of what is to be explained. But if we do not do this, we shall
create an apparent discrepancy between fact and theory, which may
constitute an important difficulty for the reader. Both of these two
points are of fundamental importance for our description.
13
I will
therefore tenaciously point them out. Here, I can only express general
caution in not confusing the cause of development for what is just the
effect of presently manifest, or past development.
14
Chapter 2, pp. 156164
Let us now take a further step in the analysis of the economic facts
that are inaccessible to static theory. The new type that we sought to
carve out represents the basic principle of what follows.
15
In itself,
however, this would not tell us much. Even if it would be of great in-
terest to develop a more precise specification of this new type, this
would not lead to substantial economic insights. It seems as if our the-
ory cannot produce a single statement about the most glittering phe-
nomena of economic lifeand that indeed is the communis opinio.
This is so since our result is indeed merely negative: Many, and in par-
ticular the strongest individuals, would behave different from what the
theorems of statics lead us to assume. But how? They will create
something new and destroy the old thing, conceive and carry out bold
plans, which, whatever their nature, seem to ridicule any attempt of
being grasped. The strongest individuals will subjugate their fellow
citizens to their rule, they might influence the national politics and or-
ganisation, change the natural course of the economy through legiti-
mate and illegitimate means, and in any case through other means
than merely exchange etc. In the face of this, what can we possibly
do? Surely, we cannot provide a brief summary of all this. It is natural,
however, to narrow down our focus, not only to expressions of ener-
getic will in the economic sphere, but also expressions that come
about solely by economic means. Any acts of violence, as for example
revolutions, should of course be excluded from this description. This
does not in any way imply a distortion of Reality, merely that we sin-
gle out one group of all the facts found here, a group of facts we be-
lieve can be mastered and fortunately is of particular interest. In any
event, I will not endeavour to develop a completely exact theory in
the present book. This is not possible in a first effort, and doing so
right away would only be detrimental. Instead, I will limit my descrip-
tion to some general insightsbeyond doubt not entirely cor-
rectconcerning sufficiently regular and frequent facts, which can
add to our insight and forthwith bear a theoretical harvest worth our
while, even if they do not give everything.
With this caveat, we easily find a useful positive answer to the es-
sential question of what this non-static energy is used for. One can un-
derstand all applications of this energy as changes of the given
circumstances assumed by static theory. And those applications of the
non-static energy, examined in more detail here, amount to the carry-
ing out of new combinations of the existing economic possibilities.
Let us elaborate. Something new has to be created and for the time
being, i.e., until its success is realized, it consists in nothing but the
new ways of using existing means. New here denotes a new
kind.
16
In some sense every new jacket is something new. But this is
not what we mean. The emphasis lies on the creation of something
not yet being created on a regular basis in the static state of the econ-
omy from where we begin; something that, first of all, by being
strange to the value system of statics will oppose it, and subsequently
will have to be gradually assimilated by it so it changes more or less.
In a strictly static state, production and consumption move, as de-
scribed, in the same well-trodden tracks. Always the same goods
and always in the same quantitiesare always produced and con-
sumed by the same people. Should this, as an exception, not happen,
there will be a tendency to rectify this. Now it is very important to
clearly bear in mind this unrealistic picture because it offers a contrast
against which our phenomena are easier to recognize. Our man of ac-
tion withdraws part of the goods existing in the static economy, our
starting point, from the previous static uses they commonly served or
were produced to fulfil, and then proceeds to use them in a different
manner. This is what we understand as the carrying out of new combi-
nations. This interpretation reveals itself as very fruitful, and because it
is only an aid for description, there is no reason to launch an attack on
grounds of principle before the results are known.
The most obvious example is the production of a hitherto unknown
good. In a static state of the economy in which no industrial reserve
army exists and all other means of production are also fully occupied,
the means of production for this new good will have to be withdrawn
from the existing ones.
17
Of course, the introduction of a new quality of
a good, or a new use of an already known good, are on the same level.
But also a new production method for one of the goods hitherto pro-
duced should be understood as a new combination, which is easily
seen when taking into account that this also leads to a Virement of pro-
ductive forces and values.
18
The same is true of the opening up of a new
market, which is self-evident, and finally it is also unproblematic to rec-
ognize the same principle in the change of economic organisation, e.g.,
in founding a trust, establishing a large corporation, etc.
19
The most typ-
ical case representing all the different possibilities and all the different
sides of the matter, the organisational, commercial, technical side, etc. is
the founding of a new enterprise.
20
Therefore, we would generally pre-
fer to consider this example and make clear that we interpret a process
of the mentioned type
21
as being in some degree a new founding pro-
cess when it originates from an old enterprise.
22
This interpretation fits
the matter quite well, as in both cases
23
taking a new path is the decisive
moment, and the interpretation serves no other purpose than simplify-
ing the mode of expression and evoking a more solid, vigorous image.
Thus, our second fundamental principle presents itself as follows:
In the normal circular flow of the static economic process, all actual
events and all existing productive forces of labour and soil appear as
predetermined combinations. The actual productive forces of labour
and soil are combined in predetermined products in a predetermined
way. The behaviour of each economic subject within the natural and
social limits, but also within these habitual combinations, can be ex-
plained by the aim to achieve the greatest possible satisfaction of
needs.
24
All these combinations that in every instance express the way
of life and the way of running the economy of a people can never be
the absolute best of all possibilities. It is decisive and sound to say that
under given combinations the economic subject will organise itself in
the best possible way. It is impossible, however, that such combina-
tions would be the best the natural and social circumstances allow.
Within a predetermined natural and social milieu and even within a
certain level of technical-scientific knowledge, the processes of tech-
nical and mercantile production can be improved almost without lim-
its. It will never happen that all possibilities are realized, and if they
were, new ones would open up right away. A relative best state exists
solely with respect to a predetermined way of production, but not
without it. One is easily convinced of that, considering that the oppo-
site implies it is impossible to act in a different manner in the eco-
nomic sector; that an ideal would have been attained. The ideal of the
static equilibrium state is in principle attainable, since it simply in-
volves the balancing of two opposed forces, benefits and costs, for
each given use of the means of production. It is not possible however
to establish the ideal employment of the means of production, be-
cause in any case still more ideal ones exist: If I produce spirits and
bread from my grain, then a relationship of quantities exists that must
be maintained if I do not want to find myself with either too little spir-
its in relation to bread, or too little bread in relation to spirits. If I pro-
duce bread or spirits in a better way than before, however, this
regulator is missing: I can always produce bread or spirits in better
and better ways without being impeded by the established way of
production. When I produce a third consumption good from my stock
of grain, the quantity of this good will be determined in a static man-
ner. Should it be the case that I always perceive new advantageous
opportunities for the use of my grain, I will, without any conceivable
limit, continue to use it in new ways. You seein the case of given
combinations every quantity of goods has limits. The combinations
themselves, however, have none. All the time and all over the econ-
omy changes and improvements appear, and we are not any closer to
exhaust the possible combinations than we were in the Stone Age.
We can only speak of an equilibrium state and an economy at rest,
assuming that all combinations are predetermined. In fact, economic
theory has generally made this assumption, even if it usually avoids do-
ing so explicitlythis assumption is already implied by the inclusion of
technique in the economic sphereand has almost exclusively allo-
cated attention to examine the laws of the economic circular flow in
the case of given combinations. It was possible to make that assump-
tion because the combinations are indeed remarkably constant, the
economic subjects do not perceive the new possibilities, or the possi-
bilities are not promptly realized even if they do so. The condition re-
sponsible for the economy not being static lies in the carrying out of
new combinations, it encompasses the nature and content of develop-
ment. The nature of development, however, lies not in the static
growth of the economy, e.g., in the increase of population or capital.
This negative proof will be provided in the last chapter [Chapter 7].
Now we must relate this interpretation to our first fundamental prin-
ciple. The question arises: How does the new thing manifest itself in
the economy? We have a strictly static equilibrium state of any econ-
omy and countless possible new combinations that in no way are en-
dowed with material existence. Where do the latter exist? In the
psyche of a small group of economic subjects.
25
Most people do not
see the new combinations. They do not exist to them. Most people
tend to their usual daily business and have enough to do at that. Most
of the time such people are on slippery ground and the effort to stand
straight exhausts their energies and suppresses all appetite for further
exploration. They simply do not want to perish, they want to earn
their daily bread in the proven way. They do not have the disposition
to experiment with something new. Even when it occasionally hap-
pens that they have an idea that this or that might be done much
better or easierthey lack the moral courage to try. They do not have
the force and the leisure to think the matter through, they cannot risk
the basis they have established for their existence. The daily work
keeps them down, organisation as well as the influence of their col-
leagues inflict untearable chains on them.
This is the masses. A minority of people with a sharper intelligence
and with a more agile imagination perceive countless new combina-
tions. They look at everyday events with more open eyes and a wealth
of ideas suggests themselves on their own. Many people belonging to
this minority rescue enough freshness from the daily routine, allowing
them to further pursue some of those ideas and give them concrete
form. But that is not enough. Similar obstacles also exist to these peo-
ple, they too have to dedicate their energy to the chosen path in order
to avoid ending up paying for their ideas with their economic exis-
tence. Should they not do so, nothing ever happens and such insights
will have no more practical implications than dreams in the realm of
fairies. And even very carefully elaborated ideas are so worthless for
practice that the practitioner in most cases has but a smile left for
them, and excessive contriving of plans is considered a mental defect.
Not without justification. Often, the only implication is that the static
activity of such conjurers of plans is suffering. But at least they estab-
lish the preliminaries, the fruits of which, however, they hardly ever
will enjoy.
26
Then there is an even smaller minorityand this one acts. It does
not matter whether they have conceived the plan of their activity
themselves or have picked up one of the many plans that the just
mentioned type is incessantly producing.
27
You can always have the
new combinations, but what is indispensable and decisive is the act
and the force to act. It is this mental constitution we sought to charac-
terize earlier. It is this type that scorns the hedonic equilibrium and
faces risk without timidity. He does not consider the implications a
failure will inflict upon him, or care whether everybody depending
upon him will lose their keep for old age. He does not care at all what
his equals and superiors have to say about his enterprise, and his daily
work has not left him without force and courage. And whatever his
situation, whether he urgently needs further employment, or can
abundantly satisfy all his needshe is tempted by the act. The deci-
sive moment is therefore energy and not merely the insight. The lat-
ter is much more frequent, without leading to even the most simple
act. What matters is the disposition to act. It is the ability to subjugate
others and to utilize them for his purposes, to order and to prevail that
leads to successful deedseven without particularly brilliant intelli-
gence.
The View of the Economy as a Whole
28
Chapter 7: pp. 525548
Not only with regard to the economy, but also socially the entrepre-
neur must be on top of the pyramid of society. This is so because in a
non-capitalistic economy the entrepreneurial office presumes wide-
ranging authority, and no one in want of this authority could possibly
qualify as an entrepreneur in our sense. For example, in primitive
stages of civilization he must be the chieftain, or in a communist soci-
ety, the central agency. Like the military leader, his superordination is
furnished by the nature of the matter and by the necessities of organi-
zation. In the capitalist economy, the entrepreneur rises to a similar
position which in this instance, however, he does not possess from
the beginning. His contours forcefully rise above the crowd. In the eye
of the public, his action is conquering a larger share of attention to the
economyand thus also to his personality.
29
Much depends on him
and many depend on him. There is unending reason for being occu-
pied with him, to discuss him. His success is impressive and fascinat-
ing. It elevates him above the social position given to him by
organisational necessity. Whereas the primitive leader per se had a
more or less universal position in society, the leader of the capitalist
economy gradually achieves a similar position. Economic success will,
as success in general, assure him influence also in other sectors. His
voice is heard in political matters. It is inevitable: You must yield to
the weight of his personality. Not for long can he be excluded from
the leadership of processes that increasingly steer themselves toward
his interest, and that of the people in his immediate command. Thus,
he becomes a political and social power. Arts and literaturealto-
gether, the entirety of social lifeact in response to him, like they
acted in response to the knight in the Middle Ages. Whether they cele-
brate or fight him, they work with his type and the circumstances he
created. The social life adjusts itself to his needs and directions.
30
The
features of his way of life gain some sort of universality. Amongst oth-
ers, a different form of social appraisal of economic activity generally
becomes established. Accumulation of money quite generally be-
comes a profession possessing its own romantic, and a profession to
be wished for also because of the yearning for social distinction.
31
The
possession of money becomes an index of social position. To a certain
degree, a way of living and a trend in tastes shaped by the conditions
of the entrepreneurial function become an ideal. What the leaders
value always becomes the value of the masses.
This ought to be discerned from the direct power of money and the
immediate power of the entrepreneur over customers, workers, etc.
Evidently such power is very helpful to bring his influence to bear.
However, you cannot explain the position of the leader in the capital-
ist economy based on the immediate power of his money, as you can-
not explain the command of state authority over the citizens by the
power of bayonets. Just as a sovereign cannot place a policeman be-
hind every citizen, the entrepreneur cannot pay everyone in social
and political life whose cooperation he requires. Yet a further element
must be discerned from the effect of success on the psyche of society.
As I said above, the cultural life has got to feel the influence of the
personalities that sway the national economy by their social weight
alone. Even if an entrepreneur never built a house and decorated it ac-
cording to his taste, the general impression of the entrepreneurs ac-
tions and thoughts would still influence the architecture of their time.
At the very least they do this. They unfold a demand for consumption
goods of certain categories and types, and supply quickly follows de-
mand. And in doing so they immediately intervene in the cultural life
of their nation.
These are all mere tendencies. We would not expect to find the en-
trepreneur alone at the top of the social pyramid. There are other
leaders of national life besides him. We will have more to say about
that later. As a matter of fact, were it not the case, however, the entre-
preneurs would as a matter of fact have to occupy this position. This is
also the case in economies with an absent or insignificant pre-capital-
ist past. In all other economies, the social power-relations of previous
periods continue to have effect. Hence, the social pyramid does not
consist in one piece, but of a historically given basis and a new struc-
ture, which continually carries it into effect.
32
In the beginning the
capitalist development only sets in motion in a small part of the econ-
omy. For a long time, the mass of the economy remains unaffected,
and with it, the social position of its peaks and lows. Along these
lines, the individual static economic subjects preserve their position
also in the capitalist economyas often happens to large landowners.
Often, they only experience a relative decline. Finally, the feelings of
the masses twining around the social organisation are barely chang-
ing. Not anything changes as hard as ideas and dispositions. Even a
completely dispossessed feudal aristocracy would conserve their so-
cial prestige for a very long time although, as often happens, its lead-
ing role in other sectors would not be maintained. The firmly joined
value system of theirs, however, holds a power on all sectors, a power
to be overcome only very slowly. For a long time it assimilates the
mentality of the upstarts.
When considering these circumstances, however, you see with suf-
ficient clearness how the traces of steel in the entrepreneur-type ap-
pear in the social structures. Not only an economic, but also a social
process of reorganisation emanate from him. Generally speaking,
though, not every part of our scheme of the production process sim-
ply spans a corresponding social circle. The social pyramid does not
consist of economic building blocks. From an economic point of view
a successful physician is to be classified as a worker. Socially, how-
ever, he does not simply belong to the working class. From the eco-
nomic point of view, workers and landowners are very much alike in
being suppliers of means of production and in being static economic
subjects. Even common interests are not entirely missing. That, how-
ever, does not make them a social class. Of course, it is not impossible
to discover a certain parallelism between our economic types and the
social classes, and to speak of a working-, landowner-, and in particu-
lar a capitalist-class. But this parallelism does not go very far and loses
its content as we take a closer look. Besides, the instance of similarity
at the economic level does not offer very much.
33
Surely, mutual un-
derstanding and sympathy are indispensable for a group of economic
subjects in order to appear as a class, socially, and politically in partic-
ular. Such understanding and sympathy is much facilitated by similar
habits of life which in turn require, and partly are brought about by,
some similarity at the economic level.
34
In this case, however, the de-
cisive explanatory element is the mutual sympathy and not the eco-
nomic situation per se, which in most cases is but one of the many
circumstances to be considered. The social class is a complicated,
surely not exclusively economic, and perhaps not even a uniform
phenomenon at all. Thus, when we speak of a social structure of the
capitalist economy, we do not imply that the economic organization
right away explains the social organization from top to bottom. We are
merely implying a surface phenomenon whose existence no one de-
nies and whose general features should be sufficiently well known to
the reader without further explanation.
In order to understand the social structure of the capitalist econ-
omy, it is essential to take into consideration that all the social posi-
tions, which the capitalist development (as understood here) allots to
the entrepreneurs, are resting on personal achievements. They are not
necessarily resting upon labour in the most narrow and technical
sense. Nor do they rest upon the employment of an already existing
means of production. The entrepreneur uses his personality and noth-
ing but his personality. His position as entrepreneur is tied to his
achievements and does not reach beyond his vigour. It is in essence
just temporary. That is to say, it is not inheritable: the social position
slips through the fingers of the successor who, along with the prey,
did not inherit the claw of the lion. The firm, and the goods contained
in it, are simply a dead shroud of the driving force. Its transfer, for in-
stance during nationalization, is not the transfer of a lasting source of
incomeunless it is a monopoly, and disregarding land and soil. For
it is not possible to nationalize the brain of the creator of the firm. This
changes the entire social nature of the entrepreneurs position. We al-
ways find new persons in this position, a perpetual social ascend, and
a perpetual descending. It is not possible to speak of an entrepreneur-
ial class in the same sense as you can speak of such groups in which
the same people and their descendants remain over a long period of
time. Nor can you ascribe the selfsame social phenomena to it. Surely,
all entrepreneurs will at some point in time experience a situation that
is sufficiently common to allow action in parallel and for obvious rea-
sons suggest conscious cooperation. This is the case to a much lesser
degree, however, and leads to the formation of common dispositions
and of a common moral and general cultural milieu in much fewer in-
stances than it would in the case of other classes. Hence, because in-
dustry does not represent an enduring source of income, even the
abstract notion of the socialization of industry is an altogether differ-
ent matter than for instance the socialization of land and soil.
If all produced means of productionin general, all goods, exclud-
ing the most necessary means to uphold a living for some period of
timewould disappear, and should there only remain the natural
possibilities and the organisation of the economy, the misfortune
would not be as great as one could believe. If the leaders maintained
their authority, and if every person and factor in the devastated area
would proceed to their work in the best order, the traces of the catas-
trophe would soon be effaced. The reason is the stock of produced
goods is of no great importance. Much more important is the hierar-
chy, the system of super- and subordination of the members of an
economy, their disposition to act and their energy and aims. No mon-
strous paradox lies in our statement. It is verified by the fact that wars
and other catastrophes do not leave long-lasting traces in case they do
not result in the break down of the economic organisation. Rather, in
this case all consequences of such devastations actually disappear sur-
prisingly fast. J. St. Mill has mentioned something similar in the sev-
enth paragraph of the fifth chapter of his first book, a paragraph that
has the title Why countries recover rapidly from a state of devasta-
tionexcept that he provides an altogether unsatisfying reason for
this observation.
35
The existing goods, the buildings and machines of the firms are no
more than the shells of industry. Hereof follows immediately how
skewed a conception it is to consider them the economic basis for the
existence of the higher strata of industrial society. We now slide past a
whole heap of prejudices that have their roots in this conception.
Were I pursuing outward success, and should I be willing to hold the
boundaries of science in contempt for this purpose, it would not be
very difficult to express far-reaching absolute statements and to let my
words dazzle and thunder in the region of the big questions of our
time. I do not want this, however, and my remarks are deliberately
and on purpose kept short and just so indeterminate as are the facts.
Insofar inheritable and more or less enduring social positions have
arisen from development, such positions can only be based on quasi
rents, increases in income due to counter-effects of development and
interest from realised and invested entrepreneurial profits and savings.
Indeed, these contributions to income are the beams supporting a
genuine social stratum, a genuine capitalist class, wherein particular,
distinctly capitalist interests, life forms, and schools of ideas of the
character of traditions, will build up. However, partly for economic,
and partly for other reasons not to be discussed here the individual el-
ements of this class are not very enduring. Nonetheless, the above
contributions to income establish the economic basis for that part of
society, which is usually designated as unemployed in the economic
sense of the term, and to which common beliefs in the idleness of the
higher strata of society are associated in the first place.
36
The above
contributions to income serve this function along with the less consid-
ered monopoly profits and the much more important contributions to
income from natural means of production (mostly increasing during
development).
37
It would be going too far, however, to here develop
a complete theory of these experts in the creation of new forms of
(tradition in) social life.
38
After what has been stated so far, we will not expect our description
of the economy to by now be a description of social life, which can
dissolve the social relations into economic conflicts of interests, and
economic communities of interest. Surely the tissue of economic rela-
tions is so dense that almost every social commonality also corre-
sponds to a community of interest, and every social conflict also to a
conflict of interests. But we cannot specify a priori what communities
of interest will result in class-formation, and what conflict of interests
must lead to social conflict. You cannot, solely from an economic
point of view, determine the positions of the parties taking part in the
social struggle.
39
It often happens that the crucial relation could just as
well be one or the other, whether it is a friendly or a hostile one. Ob-
viously, it is further the case that most of the social antagonisms are
fought for economical reasons. Resolving the concrete question, upon
which victory or defeat become dependent, is as little decisive for the
essence and the deepest causes of the social struggle, as are the con-
crete chain of hills that two armies are fighting over. As they must fight
for a particular battlefield, the parties in the social conflict must fight
over practical questions. But neither the possession of the battlefield,
nor the resolution of the concrete question is the aim and the cause of
the bipartition reached by the two parties.
40
Altogether, it would be difficult to accurately identify large
class-conflicts of an economic nature, or even to define what should
be termed an economic class-conflict, as opposed toin a certain
sensethe universal conflict of individual interests. In itself the eco-
nomic conflicts do not comprise any aspect of class whatsoever. The
working class would surely benefit if a share of income were given to
it by way of transferring the ground rent and the standing of landown-
ers. But any group of landowners would likewise benefit if the ground
rent of the rest of the landowners were given to it; and any group of
workers would benefit, when it were given the wage of the rest of the
workers. So far, therefore, every individual member and every group
belonging to these classes will oppose his class-comrades in a way
that is no different from the way he opposes members belonging to
the other class. And if the social relation among landowners and
among workers should not be closer than the relation to members of
the other class, they would be just as inclined to consider expropriat-
ing their fellow landowners and fellow workers, as they do of op-
pressing workers and expropriating landowners, respectively.
41
This
would be the case provided everyone was reassured that the expro-
priation of the others could not lead to his own expropriation.
42
In de-
fiance of this, it is of course not impossible to arrive at a version of the
concept of economic conflict that can prove to be a useful analytical
instrument. Without further ado, however, the theoretical description
of the economic events will not yield such a version. At this point we
content ourselves with this designation. There is no reason to burden
our description with investigations in this direction, which at the end
of our path would lead us even further astray.
Just one more thing: How insignificant economic elements are in
providing a complete explanation of the social position is not shown
with more clearness than in the relation between entrepreneurs and
workers. A more violent battle is fought nowhere else in the social
world. Nevertheless, we saw that the economic conflict of interests be-
tween the two parties is not very intense at all. It exists. But it is
merely in the nature of conflicting interests between two parties to an
exchange. And the real community of interests existing along with this
conflict is impossible to overlook.
43
Both parties are typical enemies
of the given distribution of property rights to the existing goods.
44
In a
great deal of cases, both gain and lose together. The entrepreneurs are
the best customers of the workers. A continuous improvement of the
workers situation is emanating from them. This side of the matter be-
ing entirely inconspicuous, and the other totally conspicuous clearly
shows that something apart from economic elements must be at work
here. As far as a conflict of interests exists, it is not larger than the con-
flict of interests between entrepreneur and capitalist: The entrepre-
neur is no less interested in a low wage than he is in low rates of
interest. Should his behaviour in the concrete case very often be detri-
mental to the temporary interest of workers, this is the case also with
respect to the interest of the capitalists. Even so, a social struggle is not
arrived at in this instance. We can immediately apprehend where the
intensity of the conflict between entrepreneurs and workers origi-
nates, however. It originates from the relationship of superordination
and subordination, from the daily frictions that this relationship brings
along with it. The workers movement is much less aimed at the eco-
nomic function of the entrepreneur than at the absolute monarch of
the firm, who could treat the individual worker as bad as it pleased
him, and rob the worker of part of his personal freedom.
45
The moral atmosphere of the capitalist economy is flowing from
similar sources. Here, too, we have to contribute something negative
to the understanding of things: this atmosphere is not simply explain-
ing itself by way of real economic processes. The reason is that the
moral atmosphere to a very large extent is under the influence of the
declassing process, which we have described.
46
Only to a small de-
gree could the moral atmosphere be under such influence if it were a
mere imprint of the economic reality.
47
In this instance, however, the
moral atmosphere would necessarily be much lighter.
48
But the
declassing process is not only an economic, but also a socio-psychic
phenomenon, and as such it extends much further. Not just they, who
at the moment is being crushed to death, or at least injured, react un-
favourably to the capitalist development. So, too, will everyone whose
economic importance declines in relative terms, even if his situation is
not worsening in absolute termsand everyone whose social position
suffers from the appearance of new elements.
49
The owner of a fac-
tory entering the static circular flow as well as the capitalist of the
older type look critically upon the new men and their actions. In do-
ing so, they completely forget that every development phase has its
economic stage of adolescence. Even if the feudal landowner might
owe his wealth to developmentin particular if his property lies in a
cityhe will nonetheless look upon the entrepreneur with aversion
and disapproval. The worker might be heaved onto a stage of civiliza-
tion that makes him a different being, but he will nevertheless con-
sider the profit of the entrepreneur as robbing him of what is his, in
particular because he, as most people, does not readily understand its
substance and origin. Thus, a dull rumble accompanies the course of
development in almost all social strata. In addition, the new man is
not surrounded by the blinding glitter of old associations, and the pro-
tecting wall of habit sanctioned by time does not gird his actions.
From time immemorial, the feudal lord rises high above his environ-
ment. The entrepreneur is not in a position to defend even his much
more modest position.
Every person will forever approach the new thing with bequeathed,
firmly shaped standards of values, standards that were created by past
circumstances. In particular, this will be the case of social phenom-
ena.
50
Unconscious to us the past always judges the present. And it is
the most biased, subjective judge. Therefore, the new thing will not
easily get far, not in case of the acting and fighting manthis is obvi-
ousnor in the case of the observer who considers himself cold and
impartial. This concerns the specific phenomena of each individual
wave of development, but presently also the categories and general
processes of the capitalistic economy.
For the processes of development portrayed so far, there exist, as
previously emphasized in chapter two, remarkable analogies to other
sectors of social life. Most importantly, these analogies can contribute
to further illuminate our understanding, and to show that existence
and activity in these other sectors can be grasped with a perspective
parallel to ours. What are these other sectors? Well, for instance the
sectors of politics, art, science, society, or moral opinions, etc. It is not
necessary to produce a complete list, or a closer analysis here. But
what right do we have to distinguish the different sectors from one an-
other? It must be noted here that the distinction of such different sec-
tors of social life is not only representing an abstraction. Everyone is
also an economic subject, but as good as no one is merely an eco-
nomic subject. All the indicated interests affect everybody to some de-
gree, but on almost no occasion will any single one of them
completely fulfill a person. Despite this, our distinction is not merely
representing the examination of phenomena that are in fact homoge-
nous, for the following two reasons. First, in each of these sectors we
find people whose main activity lies in it. In the economic sector we
thus find the members of the economic professions in the original
sense, those people, whose job it is to run the economy. That is,
workers, industrialists, merchants, peasants, etc. They who write an
economic history come upon these people first, that is clear. The de-
scription of any individual state of the economy primarily consists of
the representation of their situation, and their behaviour. In the sector
of arts you also find concrete individuals whose doings comprise the
development and every concrete state of the arts. Practically in each
and every case one knows what is to be understood under the term
artist. The same holds in the sector of politics. Here again, we find
persons whose main interestwe can say, their professional inter-
esthas its roots in this sector, and who are characterized precisely by
such an interest.
51
Even such people that for instance have chosen to
represent the economic policy of one interested party as the field of
their activity do not have to be members of the circle of economic
subjects with such interests, and much less do they have to be of
equal importance, for example, within the industry in question, as
they happen to be in politics. It would be easy to develop this in more
depth. But enough. What we want to say is that, as previously indi-
cated, real and usually also distinct groups of people do correspond to
the sectors discriminated by us. And even if the industrialist, for exam-
ple, lets himself be led by political or the artist by economic motives,
the concrete proceeding of the first is not explained as solely political
thereby, and that of the latter not as solely economic. A machine is not
built according to political principles and a painting is not painted ac-
cording to the law of marginal utility. Different groups of people and
processes that are to be grasped in different ways characterize the sec-
tors discriminated by us.
Even in those cases in which one and the same individual is active
in different sectors, this distinction is not a mere abstraction. Although
he might disclose traces of his activity in one sector when he is active
in another one, both activities are in fact sufficiently independent to
justify our distinction. The unity provided by personality is not even
strong enough to exclude contradictions between the behaviour of
one and the same individual in various sectors. In any case it is clear
that conceptually, the behaviour of a merchant in his office and the
behaviour of the same merchant as a lover of art can be distinguished
without difficulty. Now it is these elements, the partial diversity of hu-
man beings who are active in various directions, and the diversity of
these directions themselves, which allow us for our purposes to juxta-
pose the abovementioned other sectors and that of the economy.
Now, the analogy we want to get at is this: At each point in time,
each of the sectors of social life is under the shaping influence of data
analogous to those, which according to the static perspective deter-
mine an economy at each point in time. This insight represented the
dawn of the scientific understanding of human affairs. Today, it has
become a common goodand a commonplace. The problem to be
solved, however, is to show this link again in each individual case,
and then to specify the general type of this link precisely. The first is a
historical problem, the second a theoretical one. Presently, it is solved
in a satisfying way only for the sector of economics, as to the other
sectors we have made little progress beyond this insight. This is
enough for our purposes, though. To choose an example: The art of a
period is the child of that period. The geographical environment, the
circumstances called the national character or something like that, the
social structure, the economic situation, the prevailing opinions about
what is good and desirable, what is low and wrongthese elements
shape art at each point in time. The modern historian endeavours to
trace this in detail. And the level of artistic life can be explained by
such elements, which simultaneously provide the tasks and the means
and conditions. The explanation is not entirely exact, thoughbut ev-
eryone feels that a considerable truth lies therein. If one is satisfied
with that and considers matters from a sufficient distance and sub spe-
cie aeternitatis,
52
we can say that also for the sector of artistic activity
there is a statics, an interpretation that explains artistic activity in a
similar way as economics explains economic life.
This is one analogyat any given point in time, scientifically you
can view any aspect of social life as the result of given data. And that
is indeed the first step towards Reality and yields much. But the anal-
ogy appears to go further than that. In the example chosen, it is even
more obvious than in the discussion of economic life that a develop-
ment theory of art on such a basis would be completely insuffi-
cienthowever, by no means absolutely wrong. Nor can you attain
an overall understanding of all sectors of social life in this way. This is
becauseregarding the first point
53
it immediately catches the eye
that particular forces are at work in the sector of artistic activity itself,
that artistic life is not just passively taken in tow by external circum-
stances and not just carried along by changes in the milieu. This sector
also has its own kind of development, of the same relative independ-
ence as economic development. And just like in the case of economic
development we will further say that even the indisputable influence
of external changes does not predetermine the shape of artistic life di-
rectly but only applies by providing opportunity and conditions for
the behaviour of factors existing in this sector, and of the kind particu-
lar to this sector. What are the final effects of the external influences,
depends on the ways and means of the behaviour of these factors. Ev-
eryone knows that. In the analysis of social life, everyone combines
the two big real facts of dependence and relative independence in his
own way. Also the historian does it. He bases the description of social
situations primarily on arguments that correspond to a scheme of stat-
ics, although most often they are not entirely theoretical in nature.
And in the description of development he grants full rightand often
more than thatto the factors of development particular to each sec-
tor. Seen from this angle, one can understand the indeterminism often
characterizing historians: This tendency or disposition is based on the
conscious or unconscious insight that not everything can be explained
by external data, but rather that in all sectors some very important
phenomena expose a curious independence. As long as the causes of
this independence cannot be specified exactly, for methodological
reasons such indeterminism is also required by those people who in
principle are convinced that also for such things there exist universally
specifiable rulescompletely apart from the fact that outside the sec-
tor of economics the static explanation itself is still in its infancy. Thus,
what we add to this insight is just a more precise specification, just the
specification of where the explanation by external causes fails, namely
in explaining the phenomenon of development.
54
And this is neces-
sarily so, since in the concrete case you have insufficient overview of
the situation despite often proceeding correctly, and when you talk
about the situation in terms of principles, you are most of the time de-
scribing it incorrectly. Sometimes you establish a programme of deter-
minism, sometimes a programme of indeterminism, and you always
tend to trace this difference back to metaphysical ideas and to defend
it with half-philosophic arguments. Our considerations, however,
seem to show that doing so is superfluous, that this is not at all where
the nature of the matter lies. Rather, that it is possible to understand
both interpretations as methodological guidelines for different groups
of facts and in this way get a much clearer view.
55
There are thus two different problems, not only for the theory of
economic life, but also for the investigation of all other sectors to be
distinguished in the life of a nation: That of the explanation of a state
and that of development. More precisely: It is one problem to specify
how the matters of each of the sectors take shape under given circum-
stances, that is, in which way a certain environment necessitates a cer-
tain shape of a sector. The other problem is that of the mechanism of
development, as we can say for short. Both these problems corre-
spond to different groups of facts, and their solution completes the
task of a mental reconstruction of real life.
Also with regard to the second pointthe holistic understanding of
social life and social sufferingthe method we have called the first
success of scientific thinking is unsatisfactory.
56
This is easy to under-
stand. The essence of this method lies in understanding the states of
each sector as the results of data assumed to be unchangeable. The
states of all other sectors of social life are also among these data. As
mentioned, the causal chain generated thus proves to be fruitful as a
beginning. However, the general explanatory value of this causal
chain is much discounted by the fact that one can apply it to all these
sectors and in particular also reverse it. For example, once you have
explained the economy of a certain period from the data in which the
social structure of society is situated, you can also in a similar way ex-
plain the social structure of society from the data the economic stra-
tum is situated in, which in this case is assumed unchangeable. You
will understand that we say this fact discounts the causal chain men-
tioned above to a functional relationship. Indeed, the next step in pro-
viding insight is to substitute an understanding based on causal
chains by the element of general interdependence.
57,58
To the the-
ory of static facts this is an undiluted advantage, a decisive progress.
The understanding of the holistic state of social life as the result of the
holistic state at the point in time preceding the one under consider-
ation substitutes for the understanding of every sector as the result of
the others. And that means an extension of our theoretical horizon.
But the theory of development loses the ground beneath its feet. Be-
cause the transition from one state to another can only take place ac-
cording to static rules and such rules refer exclusively to facts that
have the character of adaptation phenomena, only interventions from
without and changes in the natural data remain as explanatory causes
of the social life of a people. While in the understanding based on
causal chains we could assume that the states of the sectors not cur-
rently under consideration somehow might come into existence, i.e.,
also in a non-static way, this does not work any more if we want to
have a static overview of them all, resulting in a development theory
that neglected the key phenomena.
The understanding based on causal chains therefore is insufficient
also concerning this point.
59
And now we come to the last step on our
path. There is yet another analogy between what we initially have de-
scribed for the sector of economics and the processes in the other
sectors of social life. This analogy concerns the mechanism of devel-
opment, the relatively independent development, which is specific to
each sector of social life. Each of these sectors, we have said, is char-
acterized by a real group of individuals whose main activity is dedi-
cated to this sector, although at the same time these individuals might
also be active in other sectors. For example, members of the economic
professions might also be politicians or lovers of art, or politicians and
artists might also be economic subjects. Furthermore, these groups
also include people whose main interests lie elsewhere, which does
not prevent us from considering them under the aspect of being mem-
bers of each individual group, as if they were not members of any
other group.
60
To us, the artistic public is the artistic public, whatever
the individuals, collectively denominated by this term, might addition-
ally be. Thus, in each sector we face a concrete, real mass of people,
no matter whether the masses in other sectors completely or partially
consist of the same individuals.
Now, in each sector these two groups can be decomposed into two
clearly distinguishable sections, just like the subjects engaged in eco-
nomic activity.
61
We already hinted at that.
62
In each sector there are
statically disposed individuals and there are leaders. Statically dis-
posed individuals are characterized by essentially doing what they
have learnt, by moving within the received boundaries and by having
in a determining way their opinion, dispositions and behaviour influ-
enced by the given data of their sector. Leaders are characterized by
perceiving new things, by changing the received boundaries to their
behaviour and by changing the given data of their sector. Let us briefly
note that everywhere we meet the same difficulties in the distinction
between the two types as in the investigation of economic life, diffi-
culties, however, which are not able to shake the fundaments of the
difference between the two types that is so real. In arts, science, and
politics we observe this difference, everywhere it manifests itself with
the same clarity. Everywhere these types are set apart by the same
strong contour lines that make those spirits stand out who create
63
new lines of art, new schools, and new parties, from those spirits
who are created
64
by the lines of art, schools, and parties. We al-
ways find this analogy between on the one hand the procedure of the
majority in these sectors and in the sector of the economy, adopting,
accepting and adjusting to a given situation of material and ideal na-
ture, and on the other hand the procedure of a minority in such sec-
tors like those of the economy, characterized by changing the given
situation itself.
65
Our analogy is discernible also in the way in which new things are
carried out. The bare new thought alone is not enough and is never
carried out by itself, i.e., so it would readily be taken into serious
consideration and accepted in free decision by those involved. In a
drastic manner, the history of science is evidence of that. The usual
process is rather that the new thought is taken up by a powerful per-
sonality and is implemented by his influence. This personality does
not have to be the creator of the thought, just as the entrepreneur
need not have invented the new production method he is introducing.
What characterizes the leaderhere like everywhere elseis the en-
ergy of action and not the energy of thought. And this function is es-
sential for development in all sectors. The virtually defenceless new
thought would almost never be noticed. It would remain unknown or
at least not understoodbecause for adopting something new, a pro-
cess of reconsideration is required from all people moving along in
static channelsand it would meet with rejection, or at most only
with that kind of opaque, vague type of agreement that can never lead
to real fruitfulness.
66
Without the activity of a leader, a new thought
would hardly ever be perceived a Reality, a Reality that one must take
into consideration, acknowledge, adapt to. It would get lost in the
static workday, it would never reach lively activity, it would never ap-
peal lively and forcefully to consciousness when action is called for; at
the most it would attain the role of a toy for leisure hours, the role of
some nice utopia. This is because only what you have often seen
working is perceived as realthat is, generally speaking the complex
of static events and ideas. Although known to fairly wide circles, a
new combination can lead an unfruitful existence in the shadows for
centuries without having any effect on the outside.
The leader personality wrests it from its existence in the shadows.
And in all sectors he does so in a manner very analogous to that in
which something new is carried out in the economy. It never takes
place as a reaction to existing or articulated wants. It is always an im-
position of the new thing, which just a little earlier was still derided or
rejected, or just neglected. Coercion is exerted on the reluctant mass
which basically does not want to know anything of the new, often
does not know what it is all about. Without a doubt, each sector of so-
cial life has its own means and levers for carrying new things into ef-
fect. The analogy is not to be exaggerated. But the basic character is
the same. Although purely personal influence on the one hand, or ex-
ternal force on the other hand play different roles in different sectors,
these elements are never missing. The leader is gathering followers
around himself, sometimes only by his personal energy, sometimes
more by other means. He somehow forms a school, a party organisa-
tion whose weight subsequently realizes his objectives. It is the per-
sonality that carries itself out and only in second place the new thing
that it represents. The new tendency, itself becoming a power only in
the armour of the school or the party, can demand attention, discus-
sion and finally victorycan become a Reality that you have to accept
and to integrate into the other empirical facts.
67
That will suffice for our purpose. In his own sector, everyone will
find enough examples to verify and illustrate what has been stated so
far. We say then that each sector of social life has its own development,
and that the mechanism of these developments is identical everywhere
in certain basic characteristics. Only one question remains. How come,
in spite of this relative independence of all individual sectors, that it is a
great truth, a truth, however, which we can feel, more than prove
strictly, that each element of each sector in each point in time is con-
nected to each element of each other sector, that all situations in all
sectors determine each other and belong together? If we call the en-
tirety of these sectors the social culture of a people and the epitome of
all its developments socio-cultural development, then we can ask: How
do we explain, in line with our understanding, that the social culture of
a people in each point in time is a unity, and the development of the
social culture of each people always has a uniform tendency?
This explanation of the organic unity of the culture of a
timewhich thus has to be added to our analysistranspires easily. If
we draw on the understanding that provided us with essential services
in the analysis of economic life, and if we take a static state, in the de-
fined sense, of the social culture of a people as a starting point, then
all developments originating from this state initially have the point of
contact starting from one and the same level, the unity of which, how-
ever, we can understand statically. This is so, because we have seen
that in a static state the processes and circumstances in each sector of
social life are codetermined by the processes and circumstances in
each other sector. For one, there are data common to all sectorsgeo-
graphical milieu, etc.and further, the situation in each sector is the
result of the situations in all others, due to the general interdepen-
dence between them. This interpretation should contain the solution
to the problem of the static stage of civilization. This is the theoretical
formulation of the insight that we have just mentioned, namely the in-
sight that all elements belonging to the stage of civilization of a time
are mutually dependent, and belong together.
Initially, however, the developments in the individual sectors of so-
cial life are not a unity, but according to our understanding they have
a relative independence that is based on the fact that the leading
groups in each circle consist of different people, whose activity to a
certain extent is not necessarily pointing in the same direction, but can
rather vary according to each their character. I think this also corre-
sponds perfectly well to experience. We consciously know of the
static unity of the stage of civilization, and further, that there is an un-
explained something, the existence of which implies that static unity
does not capture the entirety of social life.
68
Rather, as mentioned pre-
viously, in each concrete case all these individual developments start
from one uniform level, and this level contains the conditions for all
individual developments. And then everything occurring in the indi-
vidual sectors acts on all other sectors and contributes something to
the formation of a new uniform stage of civilization. We have already
seen that the economic development also entails social changes of a
non-economic type. That, however, is just one instance of a general
phenomenon. Success in any sector will more or less affect the other
sectors. Success in any sector initially affects social organisation by el-
evating the position of the successful leader and by affording him, to
a greater or lesser extent, a social power base. Success in any sector
influences the social values in general, what is drawing attention,
what is being considered good or desirable. And in this way achieve-
ments in any sector of social activity will end up having a shaping ef-
fect across all sectors of social life, and change the preconditions and
conditions of human behaviour in all sectors. The art of a period has
its political influence, like politics has its artistic influence, and in this
way, through the joint effects of relatively independent developments
something emerges that seen from sufficient distance, looks like a uni-
form cultural development. We thereby untie things from rigid causal
chains and give them back their life. And in this holistic understanding
of cultural development the economy also has its particular place.
We will not endeavour a further analysis of the phenomenon of cul-
ture. In particular we cannot say anything about the drivers of cultural
development, about its last causes. However, only this much is clear:
we must not locate these drivers in one of its individual sectors, as has
repeatedly been done. Also, an exact derivation of a cultural situation
out of the preceding one is impossible, or will at the very least not be
all-encompassing. This would require assuming some kind of latent
energies in the preceding situation, which would only make sense if
we knew anything about these energies, i.e., if measurement were
possible. Since the opposite is the case, we undoubtedly have to con-
tent ourselves with an indeterministic interpretation. But at least we
can specify in which aspects determinacy, and in which indeterminacy
exists, and subsequently, in which manner the process of develop-
ment proceeds. That much is certain, simple causal chains will not
work here. We have shown to which extent they are fruitful and
where and why they fail. Another advantage of our interpretation is
that on the one hand it is based on tangible facts and not the mere
force of ideas, and on the other such elements whose working prin-
ciple cannot be traced in detail. But above all, the motive for all the
elaborations on the last pages is that they represent the last element in
a train of thought, which in every step is based on facts, and whose
basic elements are on the one hand anchored in simple, commonly
known and accepted experiences, and on the other in scientifically
long since understood theorems. This circumstance provides a basis
for connecting facts, as just attempted which otherwise is largely miss-
ing from research in the philosophy of history. Our interpretation is no
catchword, neither the result of ad hoc deliberations, but the result of
an already proven method.
Notes
1. Apart from the last two sentences, the passages in the present section
are found on page 63 in the English translation of 1934. These passages are
used in unabridged form. These passages appearing at the very beginning of
the original Chapter 2 of the 1911 edition are preserved in almost unaltered
form in the English translation of 1934.
2. We have added emphasis to the term then.
3. The term qualitatively does not appear in the 1911 edition but in the
English translation of 1934.
4. This, as well as the preceding sentence (beginning from the mere . . .),
appear on page 63 in the English translation of 1934.
5. The German term is schpferisches Gestalten. Gestalten refers to cre-
ative manifestation, expression and form, all rolled in one. We have chosen
the term construction as a translation for Gestalten because it captures
these properties, and because it gives a nice symmetry to creative destruc-
tion. It must be emphasised, however, that the term construction as used in
the present context does not in any way imply the presence of a constructor,
but surely refers to the process of constructing.
6. We write Reality with a capital R since Schumpeter does so in the
English translation of 1934.
7. The two elements mentioned are goal and motive. The term element
was chosen because this is the term consistently used by Schumpeter in the
English translation of 1934. The German term is moment.
8. Following conventions, throughout the text we have put foreign lan-
guage terms in italics.
9. In the English translation of 1934, the term Rckwirkung is consis-
tently translated by the two terms counter-effect or reaction. Note here that
the use of the term reaction by Schumpeter in no way implies any form of
neutralizing effect.
10. We have inserted to demonstrate a causal relation. The original text
leaves no doubt about the meaning.
11. We have interpreted the term verdanken as caused. A direct transla-
tion would have verdanken as: owe their existence to or are due to.
12. This and the following passages in this section, apart from the last three
(until: Both of these two points are of fundamental), appear on p. 64 of
the English translation of 1934.
13. We believe the two points that Schumpeter refers to are (1) a distinction
between two classes of development processes (later referred to as static and
dynamic), and (2) providing the defining criterion of real development pro-
cesses as those processes that establish the preconditions for the following
processes. That is, Schumpeter defines economic development as path-de-
pendent processes. It must also be noted that this sentence was present in the
German 1926 edition but subsequently omitted in the English 1934 edition.
14. This sentence was omitted from the German 1926 edition. Nor does it
appear in the English 1934 edition.
15. The new type refers to the type of agent associated with economic de-
velopment.
16. The term in the German text is neuartig.
17. Schumpeters original note i. This interpretation is quite fundamental to
our construction. One could object that natural increases in the productive
forces are available for new productions. However, first we argue that these
increases are simply consequences of development, and second, our interpre-
tation would also be applicable in this case: such natural increases would be
withdrawn from the uses to which they were allocated if nothing new were
created and they had to be used in a static way.
18. Virement is a French term found in the original German. In modern
French, it denotes a transfer of funds from one bank account to another.
19. In the English 1934 translation, Schumpeter uses the expression great
combines referring to what we now call large corporations.
20. Emphasis added.
21. I.e., a process requiring the withdrawal of productive means from exist-
ing uses.
22. The same examples are found in the English translation of 1934 (p. 66),
as is the emphasis (p. 67) that the carrying out of new combinations takes
place by employing unused means of production.
23. The two cases referred to are founding a new enterprise and withdraw-
ing productive means from existing uses.
24. In the English translation of 1934, Schumpeter consistently uses the ex-
pression economic subject.
25. Schumpeters original note ii. The reader can see what I am aiming at:
Like the carrying out of new combinations is the form and content of develop-
ment, the activity of the leader is its driving force. Should all economic subjects
possess identical vision and energy, then our picture of the economy would of
course look different. Since this is not so, we think that gradual differences of
personalities, which are in principle irrelevant for the simple logic of the econ-
omy, become essential explanatory principles of economic activity.
26. In the English translation of 1934, Schumpeter emphasizes that leader-
ship is a function whose role is to conquer the tendency to social conformity
by overcoming social inertia or opposition. Therefore, the majority of people
do not function promptly by themselves and require help from a minority
(Schumpeter 1934:87).
27. And in the original text is here substituted by or. We believe that the
original text may contain a typographic error here.
28. In the 1911 edition, the title of Chapter 7, Das Gesamtbild der
Volkswirtschaft, is not easy to translate. We thank Richard Swedberg for help-
ing us arrive at the translation used here. As he reminded us, the famous
opening sentence of Chapter 1 of the English edition of 1934 uses the term
whole as translation for the German term Gesamt-. So we chose the term
whole and not, for example, entire or complete. We also pondered an-
other alternative: The View of the Whole Economy. This alternative, how-
ever, shifts the emphasis of the original German translation. Also Schumpeter
himself used the turn of phrase: That it is society as a whole which sets value
on things . . . in his article On the Concept of Social Value published in the
Quarterly Journal of Economics in 1909 and reprinted in Clemence (2000:6).
29. In the English translation of 1934, Schumpeter seems to have reversed
his opinion: The entrepreneurial kind of leadership, as distinguished from
other kinds of economic leadership such as we should expect to find in a
primitive tribe or a communist society, is of course colored by the conditions
peculiar to it. It has none of that glamour which characterises other kinds of
leadership (1934:89).
30. In the German original, work with has a double meaning: (1) working
together with (cooperating), and (2) forming, or shaping a person.
31. The sentence has been cut in two for better readability.
32. The expression carrying into effect is used by Schumpeter himself, for
example in his article The Analysis of Economic Change published in the
Review of Economic Statistics 1935 and reprinted in Clemence (2000:141). We
use it here to improve readability. In the English translation of 1934,
Schumpeter uses the expression carrying out of new combinations. We
stand by the English translation and mainly use the expression carrying out of
new combinations.
33. It is clear from the English translation of 1934 that level must be under-
stood as a stratum.
34. The sentence has been cut in two for better readability.
35. Schumpeters original note iii. But still a more correct one than
Chalmers, from whom he apparently has the idea. Chalmersin turn refer-
ring to Malthusexplains the matter by the doctrine of beneficial effects of
unproductive consumption.
36. We have inserted of the term and as explained in the following note
have cut the original sentence in two.
37. We have cut the original sentence in two. In the latter of the two new
sentences, we have inserted The above contributions to income serve this
function. We have also placed the fragment mostly increasing during devel-
opment in parentheses. This fragment is placed between commas in the 1911
edition.
38. The mentioned experts are members of the capitalist class. Unfortu-
nately, we are at loss to find an adequate English translation of the term
Lebensformung used in the 1911 edition. The meaning of Lebensformung
is to form life. Schumpeter here refers to members of the capitalist class as
experts in forming life. From the text it appears that the forms of life he is re-
ferring to are forms of (tradition in) social life. We have therefore translated
experts in Lebensformung as experts in the creation of new forms of (tradi-
tion in) social life.
39. We have inserted taking part.
40. The bipartition referred to is the division of the battlefield, or the settle-
ment of an economic question between two struggling parties. To make this
meaning clear, we have inserted reached by the two parties.
41. We have inserted their fellow. A direct translation of the original sen-
tence turns out rather cryptic. For that reason we have also cut the original
sentence in two.
42. We have inserted This would be the case.
43. We have inserted this conflict as a substitute for it.
44. We have inserted parties.
45. We have inserted the worker as a substitute for him.
46. We have inserted the moral atmosphere as a substitute for it.
47. Also here have we inserted the moral atmosphere as a substitute for
it. And under such influence has been inserted as a substitute for this.
48. And again, we have inserted the moral atmosphere as a substitue for
it.
49. We have cut the original sentence in two and inserted a hyphen.
50. The termstandard is used to translate the German termMassstab. A di-
rect translation would be measure. In the 1934 English edition, Schumpeter
uses the term standard to denote measure. In turn he uses standard as a
standard of value (see, for example, the English edition, p. 24).
51. We have inserted in this sector as a substitute for there.
52. The literal meaning of the Latin expression is under the perspective of
eternity. In the present context, it means given unlimited time.
53. The point referred to is that at any given point in time, you can scien-
tifically view any one aspect of social life as the result of given data.
54. The insight referred to is that not everything can be explained by exter-
nal data and that there are independent factors.
55. We have cut this sentence in two for better readability.
56. The success referred to is explaining a situation as the result of given
data.
57. Schumpeters original note iv. On a small scale you can see this develop-
ment in the history of price theory, cf. Wesen, book II.
58. The crucial term in the expression general interdependence is general.
It is clear from the text that general interdependence refers to what we today
call interaction effects in the sense that outcomes in each sector are
codetermined by outcomes in all other sectors.
59. We have added the emphasis of also for better readability.
60. We have cut this sentence in two for better readability.
61. The two groups referred to are the group of the statically disposed indi-
viduals and the group of the leaders.
62. Schumpeters original note v. Cf. the second chapter of the present
book.
63. We have added the emphasis of create for better readability.
64. We have added the emphasis of are created for better readability.
65. Ideal here does not carry the meaning or connotation perfect. Ger-
man language allows making the distinction between ideal (perfect) and
ideell (of ideas, mental), a distinction that gets lost in English.
66. Schumpeters original note vi. The logical proof of the correctness of a
sentence is quite meaningless, as everyone knows who ever followed a scien-
tific controversy.
67. Schumpeters original note vii. We could suspect that this process has
analogies with economic crises and that such developments, too, do not take
place continuously, but discontinuously, and are followed by periods of relax-
ation. The facts confirm this.
68. The term we consciously know is our translation for in unserem
Bewusstsein findet sich, which literally means in our consciousness we find.

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Theorie der wirtschaftlichen Entwicklung

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