The Explanation of the Business Cycle Joseph Schumpeter Economica, No. 21 (Dec., 1927), 286-311. Stable URL hitp:/flinks.jstor-org/sicisici=0013-0427% 281927 12%291%3A0%3A21%3C286%3ATEOTBC%3E2.0,CO%3B2-5 Economica is currently published by The London School of Economies and Political Science, Your use of the ISTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at hup:/www,jstororglabout/terms.hml. ISTOR’s Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. 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The childhood of every science is characterised by the pre- valence of “ schools,” of bodies of men, that is, who swear by bodies of doctrine, which differ tofo callo from each other as to philosophic background and fundamentals of methods, and aim at preaching different “systems” and, if possible, different results in every particular—each claiming to be in exclusive possession of Truth and to fight for absolute light against absolute darkness. But when a science has “ gained man’s estate,” these things, whilst never ceasing to exist, fend to lose importance : the ‘common ground expands, merits and ranges of “ standpoints” and “‘ methods” become matter of communis opinio doctorum, fundamental differences shade off into each other; and what differences remain are confined within clear-cut questions of fact and of analytic machinery, and capable of being settled by exact Proof. Our science is past its childhood, but has not reached its man- hood yet. On the one hand, our patience is still being tried by the phraseology of ‘ schools” and “ -isms,”” and there is still plenty of scope and shelter for the products of bad workmanship passing themselves off as new departures ; but, on the other hand, the really living part of our science shows hopeful signs of, if I may say $0, that convergence of ojfort, which is the necessary and sufficient condition of serious achievement. Those economists ‘who really count do not differ so much as most people believe ; they start from much the same premises; problems present themselves to them in much the same light ; they attack them with much the same tools; and, although some of them havea way of laying more stress on points of difference than of points of agreement, their results mostly point towards common goals. This is not only true of fundamentals of fact and machinery, but also of what is going on within the precincts of every one of our time-honoured problems. ‘The problem of the business cycle is a case in point. It pre~ 2861927] THE EXPLANATION OF THE BUSINESS CYCLE 287 sented itself to the economists of the classic period and their immediate successors in the aspect of the striking fact of recurring “crises.” Two first results were speedily established. The one, negative only but of the greatest “' diagnostic ” importance, was that there can be no such thing as a general glut. The other, that crises are—I really ought to say that it is extremely probable that crises are—an essential element of the capitalistic process and not merely occasional breakdowns to be individually explained by accidents different in each case—just breakdowns which happen if anything of sufficient importance goes wrong. But barring these two points, discussion went to pieces on fundamental differ- ences in the views about the capitalistic process, each author drawing different conclusions from different fundamentals; and finally languished in an atmosphere of theoretic hopelessness. Then came the great impulse due to the genius of Clément Juglar. He, first, by showing that crises are only elements of a much wider ‘and deeper cyclical movement, unearthed the real problem ; he, second, succeeded in describing empirically this cyclical movement ; and, third, he contributed substantially towards its explanation. Few only were his immediate successors, such as Des Essars. But later on set in the great torrent of descriptive studies of the eycle which is one of the characteristic features of modern economics and which—not perhaps consciously inspired by Juglar, but still flowing from his source, by virtue of the logic of the scientific, situation—permits us to see, where our predecessors had to guess. ‘This torrent does not, by itself, supply us with a solution of the problem. Part of its waters are, besides, more useful in helping us to understand'the peculiar features of individual cycles than in answering the great question: Why there are such things as cycles at all. But it gives endless opportunities to the analyst— ‘whose own tools have been much improved meantime—for finding explanations and verifying them. And so we have reached a stage, pethaps for the first time, where facts and problems are before all of us in a clear and in the same light, and where analysis and description can co-operate in something like the spirit of physical science, snatict te tor near au things happening to we a aloes ‘an be atttibuted without any flating absurdity. All we cam say in (1) That from our knowledge of the phenomenon we gatier strong impression that its Catses are more than castal and that they operate from within the system ad fot from without on thesystem. (2) That if we find, by analyas, a enuse adequate {o ‘produce the phenomenon wichout extraneots infuences—though such ine ‘achces may be Operating fn each caso—we are justified im accepting this cause as'an explanation of what we may call the “enence’" or" nature” of the Phenomenon,