Knowledge that Transforms

C ONCEPTS and terms, in every-day use as 'A well as in scientific use, have often peculiar histories. A concept is usually an adaptation of an old one which suggests itself to observers of a phenomenon as they attempt its interpretation. If the new concept is still unnamed, they name it after some other idea that appears to them as an appropriate simile or metaphor. The chosen name, however, may suggest to others some slightly different associations and, therefore, altered concepts. Moreover, changes of the frame of reference, or of the angle from which the phenomenon is looked upon, may require remodeling of a concept. But the remodeled concept may still pass under the old name. Other observers come along, dislike the name, and suggest different ones. Synonyms develop. Most or all of the terms which are then used for the growing family of concepts have had previous uses, and many of the terms are again put to new uses. Homonyms and equivocations grow in number. Makers of dictionaries must list more and more meanings under each name and must give more and more synonyms for each meaning. To complain about the continuous change of concepts and terms, about the conversion of ideas and names, is to misunderstand the nature of growth of a body of knowledge at least in the social sciences. Attempts to halt the development (for example, through the establishment of committees on nomenclature and terminology) are in vain and often deplorable. To be sure, wilful innovators sometimes suggest change merely for the sake of change. If concepts and terms shift like women's fashions, the change may confuse discussion and become a nuisance.' But otherwise. we must accept it as a fact that new problems and new treatments of old problems may require changes in concepts and in terms. When the family of related concepts related by meaning or by name or both is large, an occasional examination of the family record and a probing of the relationships is helpful. Old confusions may be clarified, and new confusions avoided, through such an examination. And better understanding of the concepts usually results in better understanding of the phenomena whose explanation they are to serve. This article will survey and briefly analyze the various concepts connoted by the term forced saving, and the various terms assigned to its basic idea.

REFERRING to Moore's Laws of Wages, Professor Schumpeter wrote in I 9 I 6, great idea of investigating the relationship between wage differences and differences in ability opens a vast perspective. The new trail is steep and stony, but it must be followed.' Little systematic investigation has been undertaken since M\oore's work was published in I9II. The present paper, first, offers a critical review of the major theories which have been put forth on the relation between people's incomes and their abilities; second, attempts to shed further light on the dependence of labor incomes upon abilities; and, finally, sketches the elements of a theory of the skewness in the distribution of labor incomes.

U NTIL now, much of dynamical economic analysis has been concerned with the business cycle. This may seem so natural as to be hardly worthy of explicit comment. Nevertheless, it was not inevitable; and if in the future the business cycle, as we have known it, should undergo extreme modifications, a need for dynamical analysis in connection with many economic problems would still exist. Thus, we should still need a theory of the path by which a given market approaches its equilibrium position, not for sake of the theory alone, but for the information that such knowledge throws upon the direction of displacement of the new equilibrium position as well.' In comparatively recent times, significant advances have been made in analytical dynamics. A rigorous differentiation between statics and stationariness, between dynamics and history, is now possible. The present essay attempts, first, to elucidate the nature of these concepts and to contrast them with some other prevalent usages of the terms; and, second, by means of the concepts to go back to analyze the very important notion of the circular flowo. In doing so, I am not attempting to improve upon what I consider a logically consistent argument, but rather am endeavoring to amplify the discussion at critical points where confusion has arisen.

CAN statistical inference based on probability theory be applied to economic time series? Textbooks on business cycles often answer this question in the negative, after some superficial remarks about the difficulties of interdependence between observations, nonrandom behavior of time series, etc. In his Business Cycles Professor Schumpeter has tried to dig much deeper.' His analysis gives us for the first time, I believe -some real clues toward understanding why these problems have been and remain the constant worry of economists. The present writer has had the opportunity of discussing these problems at length with Professor Schumpeter himself. The brief analyses and comments presented below are, I might say, a direct outgrowth of those interesting discussions. But this, I should add, does not imply a conformity of opinions on all points.

PROFESSOR Schumpeter is known primarily as a business-cycle theorist, but his fundamental interest is much broader than this reputation would suggest. A careful reading of his works clearly shows that objective is nothing less than to lay bare anatomy of economic change in a capitalist society. English and American economics, on other hand, has traditionally been content to confine its attention to what may be called normal functioning of capitalist economy. Such an approach, of course, does not exclude treatment of business cycle, but it does exclude larger problems of change and development, which are customarily regarded as lying within province of economic historian. The most important part of Professor Schumpeter's theory of economic development which falls within traditional scope of Anglo-American economics is that which is concerned with business cycles. Now I do not mean to suggest that there is any objection to regarding Professor Schumpeter as a business-cycle theorist, for he is certainly one of most distinguished contributors to this branch of economics; but circumstance should not be allowed, as it too frequently has, to obscure his no less distinguished and important achievements in clarifying processes of economic change. In this paper I shall ignore business-cycle problems and attempt to bring into sharp relief Professor Schumpeter's views on mechanism of economic change in capitalist economy. Professor Schumpeter's starting point is an economy from which change (though not growth) is assumed to be absent.' In other words, specific factor that causes change is abstracted. The resulting economic system is called because it is found to run on, year in and year out, in essentially same channels. The circular flow is in no sense conceived as an unrealistic construction; rather, it is an abstract construction which is intended to portray consequences of a limited number of very real economic forces. From this point, procedure is comprised of three steps: first, causative factor of change entrepreneur or innovator is analyzed as a pure type in abstraction from its economic environment; second, factor of change is inserted into model of circular flow; and third, interaction of innovator with forces at work in circular flow is subjected to exhaustive analysis. What emerges is a process of development which displays specific wave-like form of business cycle. This simplified version of Professor Schumpeter's method is intended to focus attention upon certain questions which are of crucial importance in any final evaluation of his theory. Has he really isolated and abstracted for analysis primum mobile of change? Is picture of circular flow fully satisfactory? Is result of joining two elements a correct representation of essentials of capitalist reality? The causative factor in according to Professor Schumpeter, is innovation, which is defined as doing things differently in realm of economic life. 2 If this were interpreted to mean no more than that the cause of change is change, it would, of course, be a mere petitio principii; but such an interpretation would be a misreading of Professor Schumpeter's meaning. Innovation is activity or function of a particular set of individuals called entrepreneurs. The entrepreneur is a sociological type that can be isolated and investigated independently of consequences which follow from actions of entrepreneur. Hence any suspicion of circular reasoning is unfounded. What are characteristics of entrepreneur? First, of course, ability to appreciate possibilities of an innovation; whether or not he is also discoverer or inventor of innovation is a matter of minor consequence. But even more 1 For distinction between change (or development) and growth, see J. A. Schumpeter, The Theory of Economic Development (Cambridge, Mass., I934), Ch. ii. 2J. A. Schumpeter, Business Cycles (New York, I939), Vol. i, p. 84.