Oskar Morgenstern on Schumpeter’s Business Cycles (June 1940)

Oskar Morgenstern’s book review assesses Schumpeter’s two-volume Business Cycles as an ambitious integration of economic theory, historical interpretation, and statistical evidence. Its central judgment combines strong recognition of the work’s scientific importance with reservations about its empirical execution. Morgenstern moves from the theory’s earlier formulation to the new book’s historical and statistical apparatus, ending with an endorsement that leaves substantial questions open.

The review locates the theory’s origins at least as far back as 1911 and recalls the abbreviated English publication of The Theory of Economic Development in 1934. Its explanatory mechanism is stated succinctly:

This theory bases its explanation of the cycle upon periodic introduction of innovations into the system by a "cluster" of new entrepreneurs with the aid of credit-expansion.

Innovation, entrepreneurial clustering, and expanding credit thus form the causal nexus through which Schumpeter explains cyclical movement. Morgenstern presents the new book as an effort to substantiate this earlier account, not to supersede it entirely. Schumpeter himself sometimes refers readers back to the earlier work for a more precise and closely reasoned exposition. The later book’s distinctive contribution is its wider empirical background and its treatment of theoretical and statistical questions that had not previously been ready for examination.

Morgenstern particularly values the connection between historical description and economic explanation:

Large parts of the work are of a descriptive-historical character, but this history is written with constant reference to its theoretical significance, hence goes well beyond mere faithful account of economic change since 1787.

History here supplies more than a chronological record: economic change is continually examined for its bearing on the theory. Statistical graphs embedded in that history draw on major available series for the United States, Great Britain, and Germany. Yet the integration of evidence and argument remains uneven. Morgenstern objects that Schumpeter has not applied the specialized measurements developed for business-cycle analysis, citing the National Bureau of Economic Research and League of Nations studies as points of comparison.

Therefore, while they have the agreeable character of more or less helpful illustrations, it is to be doubted whether they have independent importance.

This distinction between illustration and independently significant evidence is the review’s sharpest methodological criticism. Graphs also frequently omit scales and index bases, making interpretation difficult. Detailed appendices partly offset these shortcomings by permitting fuller use of valuable computations. Morgenstern nevertheless singles out Chapter V, on time series and their normal, as exceptionally interesting for statisticians, and commends Schumpeter’s treatment of waves other than the conventionally understood business cycle.

The closing appraisal places the book among the field’s outstanding publications. Its scope exceeds business-cycle analysis, and its problems deserve sustained scientific attention. Morgenstern does not treat disagreement as grounds for dismissal: the abundance of debatable issues reflects questions requiring prolonged collaboration among the best minds. The review’s lasting relevance lies in that balanced standard—admiration for theoretical and historical ambition without relaxing the demand for analytically usable statistical evidence.