Discovering the true Schumpeter: New insights into the finance and growth nexus

Please cite the paper as:
Peter Bofinger, Lisa Geißendörfer, Thomas Haas and Fabian Mayer, (2024), Discovering the true Schumpeter: New insights into the finance and growth nexus, World Economics Association (WEA) Conferences, No. 1 2024, Capitalism, Socialism and Democracy 80 years later, Looking at capitalism today in light of its past and possible future


Joseph A. Schumpeter is one of the most famous economists of the 20th century and the ‘patron saint’ of the finance and growth literature. We have discovered that the prevailing literature has, however, misinterpreted Schumpeter, which leads to puzzling empirical results and difficulties in explaining even fundamental relationships. We argue that this is due to a misrepresentation of the role of banks and liquidity creation and the role of household saving. After a critical discussion of the literature, we provide our own empirical analysis using a panel of 43 countries to explore the relationships between the important variables of the finance and growth literature. Our empirical analysis above all supports Schumpeter’s view that credit growth supports GDP growth while saving is irrelevant for credit growth and GDP growth. In sum, a correct interpretation of Schumpeter helps to overcome the theoretical and empirical challenges which confront the prevailing literature.

3 comment

  • Conference administrator says:

    Dear Authors,

    I highly appreciat readi gyour paper as it is also a cirtique of the real- monetary dichotomy is still part of mainstream economics.
    The findings of your panel research can be summarised as follows: there appears to be a highly considerable connection between dynamic credit variables, specifically the growth of private bank lending, and the increase in GDP per capita. Moreover, It is possible to observe the existence of this connection in economies that are less developed as well as in economies that are more developed. While non-bank credit has been more substantial in developed nations over the past two decades, the evidence suggests that bank credit has lost its impact in developed economies. This is despite the fact that non-bank credit has become more significant.

    In the framework of the research into the function that financial expansion plays in  GDP growth, I wonder why you did not put a focus on the relation between innovations and credit in the reading of the “True Schumpeter”. As an additional question, I would like to clarify about the role that credit shocks play within the framework of the cyclical process of  creative destruction. 

    Maria Alejandra

  • William Kingston says:

    This paper adds to the evidence that we are using a flawed measure for economic development. This is the system of national accounts originated during World War 2 by Simon Kuznets and his team, which lacks any qualitative element. In financial terms, which is all it can measure, a method of packaging sub-prime property loans may come into these accounts at the same value as a new plant variety. But whereas the former will contribute to an eventual financial crash, as we know from 2009, the plant may continue to help feed populations indefinitely. This is why President Sarkozy of France commissioned a search for a better measure than GNP/GDP etc., see

  • Arturo Hermann says:

    I appreciate your analysis. There are in fact two sides of Schumpeter’s analysis, that are however rather split in his interpretation of capitalism. The first is contained in his first early and important work, “The Theory of Economic Development” (TED) where he analyses the central role of credit creation, through its effects on effective demand and profits, in the development of capitalism. That theory can be considered as a forerunner of Keynesian and post Keynesian economics and of Modern Monetary Theory. In TED he was essentially speaking of the individual entrepreneur financed by the banks. These banks, altough often privately owned, need to be guaranteed by central banks and the state for credit creation. However, this interesting analysis was put aside in Capitalism, Socialism and Democracy. Probably, this is because Schumpeter was little Keynesian, and little role is left in his analysis to the macroeconomic imbalances. For instance, the structural tendency of effective demand to lag behind the supply of full employment and the central role of credit creation (and public spending) in supplementing that demand. This is one of the reason that explains – along with other contradictions of the neoliberal turn such as low wages and job insecurity – that the ratio of private debt on GDP has constantly risen over the latest decades to values around of 200%-300% for almost all OECD countries (OECD). So, it would be very interesting to bring together these aspects of Schumpeter’s analysis, also considering that a large part of credit creation goes directly or indirectly to big firms. Relatedly, it would be interesting to analyse the role of credit creation and monetary policies in building a socialist economy.

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