ABSTRACT
The importance Schumpeter ascribes to credit and banking is well known, if only because he devotes an entire chapter of The Theory of Economic Development (TED) to credit and capital. Development, he explains, would not take place should banks fail to finance innovators’ projects. Numerous passages of Business Cycles (BC) echo this analysis, in particular those where Schumpeter insists on how important it is for banks to have full knowledge of the use borrowers make of the loans they are granted. Thus, banks need to appraise, select and follow up investment projects. Moreover, they must respect certain professional norms. These ideas are familiar to specialists of modern banking theory, as they are cited by Diamond (1984), who traces the insight that banks have a role to play in the monitoring of borrowers’ behaviour back to Schumpeter.
