Schumpeter’s Contribution to Price Theory*

Schumpeter distinguishes between the circular flow of economic activity and economic development. The former is characterised by equilibrium, while the latter involves discontinuous change. The price theory that Schumpeter associates with the circular flow is the well established Walrasian price system. However, the price theory which Schumpeter proposes for economic development is only partially developed in writings and has been largely ignored since. Yet, it is the analysis of economic development that constitutes Schumpeter’s enduring contribution to economic thought. This paper provides a critical examination of Schumpeter’s price theory as it applies when there is economic development and provides some suggestions for further development of the theory. *Financial support from the Australian Research Council Discovery Projects scheme is gratefully acknowledged. A preliminary version of this paper was presented to the 22 Conference of the History of Economic Thought Society of Australia held at the University of Notre Dame, Fremantle, Australia 14-17 July 2009. Helpful comments and suggestions from the audience are gratefully acknowledged.