Hi, this is my first post ever. I am writing my uni thesis on the effect of banking centralization on UK's spatial inequalities. One paragraph of it will be on Schumpeter's theory of economic development and especially on the role of credit in his system.
One thing I dont fully grasp is how the system deals with deflation (especially in the long period). After the entrepreneur arrives at the end of the cycle of production through the new combination financed through new purchasing power (banking credit), they repay their debt plus interest to the bank. The result is that the new purchasing power generated remains in circulation as a claim to the new social dividend, but the point is that the production – as per Schumpeter – will exceed the initial credit. Then how do you deal, in theory and in practice, with the deflationary push of the new products with the set amount of money.
I dont know if this is the right subreddit, but if you could help me out or point me to some useful literature, I would be forever grateful!
How does Schumpeter's Idea of "abnormal" credit deal with deflation?
byu/Connect_Fee_5663 inAskEconomics
Posted by Connect_Fee_5663