Entrepreneurship, knowledge and employment

Money and banking in the process of change: Schumpeter and Robertson

Ingrao Bruna, Sapienza University of Rome
Sardoni Claudio, Sapienza University of Rome

In the paper, we look at the contributions of Schumpeter and Robertson, who devoted a significant amount of their theoretical attention to the banking system and its role in processes of economic change. Schumpeter was concerned both with the process of growth generated by innovation and with economic fluctuations. Robert- son mainly focused on fluctuations which, however, are seen as inherently connected to innovation and growth. For them, these crucial processes of change that char- acterize modern market economies cannot be properly understood without taking banks and their role seriously into account. Some important analytical similarities between Schumpeter and Robertson emerge: • Banks are not mere intermediaries between savers and borrowers. They create additional money ex nihilo through credit and this is of key importance in processes of change. • Without bank loans, firms that, in a way or another, promote growth could not obtain the necessary means to finance the required amounts of circulating and fixed capital. • Banks, however, operate in such a way that they exacerbate the ‘natural’, so to speak, proceeding of the economy. It is so for a number of reasons such as excessive optimism or pessimism, imperfect information, herd behavior, etc. • Despite the importance of banks, they cannot be regarded as the prime movers of change. The fundamental factors in the processes of growth and economic fluctuations are indisputably real.

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Keywords: Banking system, growth, business cycles, Schumpeter, Robertson

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