Joseph A. Schumpeter: Preface to the Japanese Edition of Theorie der wirtschaftlichen Entwicklung

Schumpeter’s authorial preface, dated June 1937, offers a retrospective account of his theory of economic development and its relationship to subsequent advances in economics. Written to introduce the Japanese translation by I. Nakayama and S. Tobata, it moves from an acknowledgment of their intellectual distinction to a statement of the book’s purpose, a comparison with Walras and Marx, and an assessment of newer analytical methods. Its central claim is that economic theory must explain how the economic system generates its own transformations, rather than merely describe its adjustment to changes originating elsewhere.

The opening situates translation within an international exchange of economic ideas. Schumpeter welcomes the possibility that his book might contribute to Japanese theoretical debate, including by provoking criticism. His praise of the translators is pointed: he had formed so high an opinion of their abilities during their visits to Bonn that he would have hesitated to recommend their devoting time to another economist’s work. This acknowledgment leads into an explanation of what readers should seek in the book: an account of the internal sources of economic change.

I felt very strongly that this was wrong, and that there was a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained.

The position rejected here is not equilibrium analysis itself. Schumpeter explicitly identifies Walras as his greatest intellectual influence, crediting him with an apparatus capable of expressing the interdependence of economic quantities. His objection concerns the restriction of that apparatus to a stationary process. The distinction between a method of analysis and the character of the process being analyzed is essential to the preface’s argument.

A static theory is simply a statement of the conditions of equilibrium and of the way in which equilibrium tends to re-establish itself after every small disturbance.

Such a theory, Schumpeter insists, can illuminate realities that are themselves disequilibrated. A stationary process means something different: an economy that does not change through its own initiative, but reproduces constant rates of real income unless acted upon from outside. In his account of Walras’s position, economic life passively accommodates natural and social influences. Even population growth and increased savings alter the system’s data without introducing a distinct explanation of economic transformation. Schumpeter therefore seeks to supplement the analysis of interdependence with an explanation of internally generated disruption. He claims that this approach makes capitalist instability, especially the business cycle, more intelligible than the Walrasian or Marshallian apparatus alone.

Marx enters as a predecessor in defining this explanatory problem, rather than as the source of Schumpeter’s methods or conclusions.

In fact, what distinguishes him from the economists of his own time and those who preceded him, was precisely a vision of economic evolution as a distinct process generated by the economic system itself.

Schumpeter locates Marx’s originality in this vision of evolution, distinguishing it from his adaptation of Ricardian economics and treating its Hegelian setting as inessential. The comparison also clarifies the limits of intellectual affinity. Schumpeter notes a parallel between his claim that interest would disappear in perfect equilibrium and Marx’s proposition that constant capital produces no surplus value. Yet he emphasizes that differences in method and general outlook make such parallels inadequate grounds for identifying their theories. The reference instead gives Marxian readers a point of entry into his argument while preserving the independence of his account.

The final section considers whether later theoretical developments require a revision of the book’s central conception. Schumpeter distinguishes three advances. Improvements in general-equilibrium theory, represented especially by Pareto and the elimination of utility from the system, increase elegance and rigor. A systematic reformulation would need to incorporate these and developments concerning production functions and costs, but would not thereby abandon the underlying argument. Imperfect-competition theory has a more direct explanatory use: innovation, particularly the introduction of a new commodity, initially creates conditions describable as monopolistic competition. Its concepts can thus help specify entrepreneurial behavior and the system’s response.

The third development—formal analysis of lags, expectations, and reactions to rates of change—poses the strongest apparent challenge. Such techniques can generate many kinds of wave-like movement, seemingly allowing business cycles to be explained without innovation. Schumpeter welcomes their analytical power but distinguishes the propagation of movement from the force initiating it.

They describe repercussions and propagations without saying anything about the forces or causes that set them into motion.

This distinction supplies the preface’s concluding conceptual move. Dynamic techniques can explain how a system responds to an impulse without establishing what produces that impulse. They therefore neither replace nor independently validate innovation as the operative cause. The preface’s relevance lies in this separation of analytical tools from causal explanation: equilibrium theory, imperfect competition, and mathematical dynamics can refine Schumpeter’s account, while the question of how an economy generates transformative change remains its organizing problem.