Joseph A. Schumpeter: Joint Review of Ryner, England, and Taylor (1909)

Schumpeter’s review assesses three studies of crises and prosperity, moving from a brief endorsement of historical research to an extended critical appraisal of W. G. Longworthy Taylor’s The Kinetic Theory of Economic Crises. Ira Ryner’s study of the crises of 1837, 1847, and 1857 and Minnie Throop England’s account of speculation and prosperity in 1897–1902 receive praise for their synoptic presentation of events. Their significance is methodological: a usable theory of crises must pass through the collection and synthesis of facts.

Solche Tatsachensammlungen und Tatsachenzusammenfassungen sind immer wertvoll, besonders nötig aber auf diesem Gebiete, da nur durch sie hindurch der Weg zu einer brauchbaren Krisentheorie führt.

English translation: Such collections and summaries of facts are always valuable, but they are especially necessary in this field, since only through them does the road to a serviceable theory of crises lead.

Taylor supplies the theoretical focus. Schumpeter follows his argument from an opening critique of statistical economics through accounts of the material and psychic “environments” to the explanation of crises in the sixth and seventh sections. The material environment comprises mutually determining economic elements; the psychic environment encompasses dispositions, habits of thought, cultural conditions, and institutions. Taylor distinguishes enduring tendencies toward equilibrium from irregular, short-term disturbances that alter valuations and calculations, subsequently transforming the material economy.

Schumpeter identifies the separation of possessions from valuations as Taylor’s most important conceptual move. Their correspondence in a static system does not mean that changes in valuation must originate in changes in the stock of goods. Inventions and new forms of organization can reshape economic intentions and expectations.

Und die wirtschaftliche Entwicklung geht nun viel mehr als von der Seite der konkreten Güter von der Änderung der Wertschätzungen und Wollungen der wirtschaftenden Menschen aus.

English translation: And economic development now proceeds far more from the change in the valuations and volitions of economizing men than from the side of concrete goods.

This claim gives the review its broader relevance to nonstatic economics. Schumpeter argues that treating capital simply as concrete goods, or credit merely as a claim on existing goods, is inadequate. The economy’s future system of values has real present significance. Yet he questions Taylor’s reliance on numerous small, partly accidental disturbances: such events may not explain the scale and direction of economic development.

Vielleicht gibt es doch, statt der vielen kleinen, eine große Ursache für die großartige Bewegung, die wir in jeder Volkswirtschaft sehen!

English translation: Perhaps there is after all, instead of the many small ones, one great cause for the magnificent movement which we see in every national economy!

Schumpeter presents this as an unresolved challenge, without supplying an alternative cause. He then reconstructs Taylor’s crisis mechanism. Economic agents experimentally find their way toward a new economic level; successful attempts endure, while others disappear through selection. Progress increasingly conflicts with inherited material arrangements and valuations, until a crisis effects their readjustment.

Der Prozeß der Readjustierung ist dann die Krise, die danach ein notwendiges Element der Entwicklung ist und jedesmal eintritt, wenn jene Diskrepanz eine gewisse Größe erreicht hat.

English translation: The process of readjustment is then the crisis, which accordingly is a necessary element of development and sets in every time that discrepancy has reached a certain magnitude.

The strength of this account is its integration of crisis into development itself. Schumpeter also commends Taylor’s historical examples, comments on competing theories, partial connection with Böhm-Bawerk, and treatment of credit. His decisive objection, however, concerns the transition from continuous adjustment to acute disruption. If progress and economic selection operate gradually, why must readjustment become sudden and general? A growing discrepancy alone does not adequately explain the periodic release of accumulated tension. Taylor addresses the question, but Schumpeter finds his answer neither novel nor satisfactory.

The review thus combines strong approval of an economics centered on changing valuations with a precise demand for a theory of crisis timing and discontinuity. Despite that explanatory gap, Schumpeter judges Taylor’s study among the best works written on the subject.