American business cycles and innovation
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Economists have long studied innovation and its effects on business cycles. Economist Joseph Alois Schumpeter (1883-1950) was the first economist to thoroughly discuss these ideas in his Theorie der wirtschaftlichen Entwicklung, published in 1911 (English translation: The Theory of Economic Development, 1934). This paper focuses on three issues: defining innovation, defining and identifying business cycles, and determining which innovations caused which business cycles. The first section introduces the concepts of innovation and invention. The second section discusses the business cycles and highlights general causes of business cycles. The final section details the history of the iron, steel, aluminum, and pharmaceutical industries and incorporates the available business and economic data (output, productivity, inventories, and capital investment) required to answer the central question: which innovations caused which business cycles? The iron industry, examined over the sixteenth and seventeenth centuries, reveals that its relationship to the business cycle is likely significant but was difficult to quantify because of limited data. An examination of the steel industry from the post-Civil War period to the early twentieth century follows. The steel industry had a significant effect on the business cycle and seemed to direct the business cycle during the growth in railroad mileage. Steel was a huge and indispensable industry for most of the 20[th] century so it makes a very important case to study. The aluminum industry is relevant to examine because the process for making aluminum has remained the same since the American inventor, Charles Hall, patented his method in 1889. The contribution of aluminum was significant because of the introduction of the large-scale electrical generators needed to produce aluminum. Finally, the paper focuses on the contribution of the pharmaceutical industry to the business cycle. The pharmaceutical industry is important to this study because it has already proved to be a major source of innovation and is an industry that will continue to play a significant role in the American economy. The findings reveal the contribution from this industry was most significant in the post-World War II era of research and development. The paper concludes with suggestions for improving and expanding this innovation and business cycle study.
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Includes bibliographical references (leaves 34-36).
Hood, Michael (2004). American business cycles and innovation. Texas A&M University. Available electronically from