ABSTRACT
This chapter presents an overview of Schumpeter's concept of the theoretical norm in the context of an economy undergoing development and, hence, subject to the disturbing influence of innovation, followed by a discussion of Schumpeter's exposition of his theory of the business cycle as a series of the approximations. Schumpeter's use of the Walrasian equilibrium from the circular flow as defining the theoretical norm of the values of economic magnitudes has been subjected to sharp criticism. A trend with economic meaning for time series is identified by Schumpeter from the proposition that innovations occur in swarms and that these swarms begin when the economy is in the neighbourhood of equilibrium after recovery from the preceding cycle. The chapter provides commentary, including criticisms of aspects of the business cycle theory, and identifies issues that require further consideration in building on the foundations of Schumpeter's theory.
