Schumpeterian Profits and the Alchemist Fallacy

27 Pages Posted: 5 Oct 2005  

William D. Nordhaus

Yale University - Department of Economics; Cowles Foundation, Yale University; National Bureau of Economic Research (NBER)

Date Written: April 2, 2005

Abstract

The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. The paper derives the underlying equations for Schumpeterian profits. It then estimates the value of these profits for the non-farm business economy and for major industries. It concludes that only a miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers. These results indicate that the bubble of new-economy stocks in the 1990s resulted from the alchemist fallacy.

Keywords: Schumpeter, profits, innovation

JEL Classification: O30, O31, O4

Suggested Citation

Nordhaus, William D., Schumpeterian Profits and the Alchemist Fallacy (April 2, 2005). Yale Economic Applications and Policy Discussion Paper No. 6. Available at SSRN: https://ssrn.com/abstract=820309

William D. Nordhaus (Contact Author)

Yale University - Department of Economics ( email )

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New Haven, CT 06520-8268
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203-432-3598 (Phone)
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Cowles Foundation, Yale University ( email )

Box 208281
New Haven, CT 06520-8281
United States

National Bureau of Economic Research (NBER)

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