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Weekly Commentary: Schumpeter’s Business Cycle Analysis

May 11, 2020

Weekly Commentary: Schumpeter’s Business Cycle Analysis

The work of the great economist Joseph Schumpeter (1883-1950) has always resonated. When I ponder analytical frameworks pertinent to these extraordinary times, none are more germane than Schumpeter’s Business Cycle Analysis. Best known for “creative destruction,” Schumpeter’s seminal work materialized after experiencing the spectacular “Roaring Twenties” boom collapse into the Great Depression.

Contrary to Milton Friedman and Ben Bernanke, Schumpeter didn’t view the twenties as the “golden age of Capitalism.” Depression was a consequence of egregious boom-time excess rather than the result of the Fed’s post-crash failure to print sufficient money. Schumpeter possessed a deep understanding of Credit; he keenly appreciated the roles entrepreneurship and risk-taking played during booms. Schumpeter also understood Capitalism’s vulnerabilities.

“Whenever a new production function has been set up successfully and the trade beholds the new thing done and its major problems solved, it becomes much easier for other people to do the same thing and even to improve upon it. In fact, they are driven to copying it if they can, and some people will do so forthwith. It should be observed that it becomes easier not only to do the same thing, but also to do similar things in similar lines… This seems to offer perfectly simple and realistic interpretations of two outstanding facts of observation: First, that innovations do not remain isolated events, and are not evenly distributed in time, but that on the contrary they tend to cluster, to come about in bunches, simply because first some, and then most, firms follow in the wake of successful innovation; second, that innovations are not at any time distributed over the whole economic system at random, but tend to concentrate in certain sectors and their surroundings.” Joseph A. Schumpeter, Business Cycles, 1939

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The Apex Predator That Will Take Down Wall Street (And K Street)

January 14, 2019

The Apex Predator That Will Take Down Wall Street (And K Street)

Grant Williams grabbed our vote for the top Alt-Finance presentation of 2017 for A World of Pure Imagination , which highlighted global stock, bond and real estate bubbles that are now showing signs of imploding.

The co-founder of RealVision TV excelled again during 2018 for Cry Wolf, an encomium for a gold-backed currency, which Williams argues would act as an “apex predator” to check government policies that have enticed Americans to borrow themselves into near-bankruptcy.

“In gold’s absence, bankers have multiplied precipitously, creating new variations on the same theme: credit,” says Williams, who likens the process to the proliferation of deer in Yellowstone National Park following extermination of wolves in the 1930s. “They have grazed the financial landscape to virtually nothing.”

Williams’ arguments are well-understood in the precious metals community, where he has taken on a growing role as a Yoda of sorts—a lonely voice arguing cogently for financial sanity.

However, Williams’ ideas are essentially unknown to ordinary investors and the general public, in part because (ironically, for what many describe as a capitalist economy) free market thinkers are essentially banned from governments, universities, and the mainstream media.

Hence the importance of Cry Wolf, which dramatically illustrates the role of what Joseph Schumpeter called “creative destruction,” whose effects Williams likens to the reintroduction of wolves in Yellowstone in 1995.

Destructive preservation: rewarding the inefficient

Right now, the U.S. economy is (in many ways) the opposite of a free market.

Much of this is directly tied to the gradual banning of gold-backed currencies, which has enabled governments to print money and distribute it to favored interest groups, often in secret, without taxpayer approval.

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