Joseph Schumpeter And The Great Depression

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The Great Depression was an economic degradation that was experienced worldwide and lasted from 1929 to the early 1940s. As reported, nearly half of the national banks failed since the investors and depositors withdrew their savings (Robbins, 2011). The supply of money and investments were subsequently reduced and retarded. The governments of the time worsened the situation by trying to seek alternative ways to reverse the situation. For instance, the governments decided to increase taxes, trade tariffs as well as increased wage and price controls. Many factors have contributed to the depression in the economy of the United States. The socialists blame the free market system for the depression while the free market advocates are for the idea …show more content…
Schumpeter was for the fact that capitalism is driven by entrepreneurs whose innovations replace outdated business models. This way creative destruction took place and the system continued. Schumpeter’s ideas regarding the free market are that the growth system involves loss of jobs, diminishing of both industries and companies. Ideally, what is important is for us to recognize what is presented from the diminishing world order that previously existed. Societies diminish and just like evolution theory, new forms emerge. Schumpeter’s analysis illustrates the case of the Great Depression and the reasons why depressions occur. It is explained that they offer an avenue for more concrete and practical strategies to be erected. Over time, creative destruction takes over in the economy of the society. The production and wealth of such societies ultimately increases. The citizens of such societies enjoy the benefits achieved through the production of improved products. A good example is the improvement of their living standards (Schumpeter, 2013). All the characteristics denote the current status quo of the United …show more content…
They will eventually topple if no innovations are adopted. The wavy movement demonstrates the phases through which a company undergoes. In his book Business Cycles, Joseph Schumpeter proposed a long wave model highlighting that each curve would not have a uniform shape in a span of 50 years. Over time, the curves would get shorter due to increase in innovations. The model proposed by Joseph Schumpeter is shown below, courtesy of The Natural Edge Project

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