Schumpeter distinguishes between the circular flow of economic activity and economic development. The former is characterised by equilibrium, while the latter involves discontinuous change. The price theory associated with the circular flow is the well established Walrasian price system, while the price theory associated with economic development is only partially developed in Schumpeter’s own writings. Yet, it is the analysis of economic development that constitutes Schumpeter’s enduring contribution to economic thought.

This paper provides a critical examination of Schumpeter’s price theory as it applies when there is economic development. Chapter 8 of Business Cycles, contains a section, “the theory of the price level”, which is followed in Chapter 10 by a discussion of the variation in prices of individual commodities. These provide macro and meso (industry-level) analyses of pricing, respectively. The supporting micro analysis is drawn from Schumpeter’s other writings on entrepreneurship and creative destruction