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Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian political economist. He served briefly as Finance Minister of Austria in 1919. In 1932, he emigrated to the
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
to become a professor at
Harvard University Harvard University is a Private university, private Ivy League research university in Cambridge, Massachusetts, United States. Founded in 1636 and named for its first benefactor, the History of the Puritans in North America, Puritan clergyma ...
, where he remained until the end of his career, and in 1939 obtained American citizenship. Schumpeter was one of the most influential economists of the early 20th century, and popularized
creative destruction Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics that describes a process in which new innovations replace and make obsolete older innovations. The concept is usually identified with the economist Josep ...
, a term coined by
Werner Sombart Werner may refer to: People * Werner (name), origin of the name and people with this name as surname and given name Fictional characters * Werner (comics), a German comic book character * Werner Von Croy, a fictional character in the ''Tomb Rai ...
. His
magnum opus A masterpiece, , or ; ; ) is a creation that has been given much critical praise, especially one that is considered the greatest work of a person's career or a work of outstanding creativity, skill, profundity, or workmanship. Historically, ...
is considered ''
Capitalism, Socialism and Democracy ''Capitalism, Socialism, and Democracy'' is a book on economics, sociology, and history by Joseph Schumpeter, arguably his most famous, controversial, and important work. It is also one of the most famous, controversial, and important books on ...
.''


Early life and education

Schumpeter was born in 1883 in Triesch, Habsburg Moravia (now Třešť in the
Czech Republic The Czech Republic, also known as Czechia, and historically known as Bohemia, is a landlocked country in Central Europe. The country is bordered by Austria to the south, Germany to the west, Poland to the northeast, and Slovakia to the south ...
, then part of
Austria-Hungary Austria-Hungary, also referred to as the Austro-Hungarian Empire, the Dual Monarchy or the Habsburg Monarchy, was a multi-national constitutional monarchy in Central Europe#Before World War I, Central Europe between 1867 and 1918. A military ...
), to German-speaking
Catholic The Catholic Church (), also known as the Roman Catholic Church, is the List of Christian denominations by number of members, largest Christian church, with 1.27 to 1.41 billion baptized Catholics Catholic Church by country, worldwid ...
parents. Though both of his grandmothers were
Czech Czech may refer to: * Anything from or related to the Czech Republic, a country in Europe ** Czech language ** Czechs, the people of the area ** Czech culture ** Czech cuisine * One of three mythical brothers, Lech, Czech, and Rus *Czech (surnam ...
, Schumpeter did not acknowledge his Czech ancestry. His father, who owned a factory, died when Joseph was only four years old. In 1893, Joseph and his mother moved to Vienna. Schumpeter was a loyal supporter of
Franz Joseph I of Austria Franz Joseph I or Francis Joseph I ( ; ; 18 August 1830 – 21 November 1916) was Emperor of Austria, King of Hungary, and the ruler of the Grand title of the emperor of Austria, other states of the Habsburg monarchy from 1848 until his death ...
. Schumpeter was educated at the Theresianum and began his career studying law at the
University of Vienna The University of Vienna (, ) is a public university, public research university in Vienna, Austria. Founded by Rudolf IV, Duke of Austria, Duke Rudolph IV in 1365, it is the oldest university in the German-speaking world and among the largest ...
under Eugen von Böhm-Bawerk, an economic theorist of the
Austrian School The Austrian school is a Heterodox economics, heterodox Schools of economic thought, school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result primarily from the motivat ...
. In 1906, he received his
doctoral degree A doctorate (from Latin ''doctor'', meaning "teacher") or doctoral degree is a postgraduate academic degree awarded by universities and some other educational institutions, derived from the ancient formalism '' licentia docendi'' ("licence to teach ...
from the University of Vienna's faculty of law, with a specialisation in economics. In 1909, after some study trips, he became a professor of economics and government at the University of Czernowitz in modern-day
Ukraine Ukraine is a country in Eastern Europe. It is the List of European countries by area, second-largest country in Europe after Russia, which Russia–Ukraine border, borders it to the east and northeast. Ukraine also borders Belarus to the nor ...
. In 1911, he joined the
University of Graz The University of Graz (, formerly: ''Karl-Franzens-Universität Graz'') is a public university, public research university located in Graz, Austria. It is the largest and oldest university in Styria, as well as the second-largest and second-old ...
, where he remained until
World War I World War I or the First World War (28 July 1914 – 11 November 1918), also known as the Great War, was a World war, global conflict between two coalitions: the Allies of World War I, Allies (or Entente) and the Central Powers. Fighting to ...
. In 1913–1914, Schumpeter taught at
Columbia University Columbia University in the City of New York, commonly referred to as Columbia University, is a Private university, private Ivy League research university in New York City. Established in 1754 as King's College on the grounds of Trinity Churc ...
as an invited professor. This invitation marked, according to Wolfgang Stolper, the "high point of his worldly success". He taught
economic theory Economics () is a behavioral science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
and met
Irving Fisher Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, statistician, inventor, eugenicist and progressive social campaigner. He was one of the earliest American neoclassical economists, though his later work on debt de ...
and Wesley Clair Mitchell. Columbia awarded him an honorary doctorate. In 1918, Schumpeter was a member of the Socialisation Commission established by the
Council of the People's Deputies The Council of the People's Deputies (German: , sometimes translated as "Council of People's Representatives" or "Council of People's Commissars") was the provisional government of Germany during the first part of the German Revolution, from 10 N ...
in Germany. In March 1919, he was invited to take office as Minister of Finance in the
Republic of German-Austria The Republic of German-Austria (, alternatively spelt ), commonly known as German-Austria (), was an unrecognised state that was created following World War I as an initial rump state for areas with a predominantly German-speaking and ethn ...
. He proposed a capital levy as a way to tackle the war debt and opposed the socialization of the Alpine Mountain plant. In 1921, he became president of the private Biedermann Bank. He was also a board member at the Kaufmann Bank. Problems at those banks left Schumpeter in debt. His resignation was a condition of the takeover of the Biedermann Bank in September 1924. From 1925 until 1932, Schumpeter held a chair at the
University of Bonn The University of Bonn, officially the Rhenish Friedrich Wilhelm University of Bonn (), is a public research university in Bonn, North Rhine-Westphalia, Germany. It was founded in its present form as the () on 18 October 1818 by Frederick Willi ...
, Germany. He lectured at
Harvard Harvard University is a private Ivy League research university in Cambridge, Massachusetts, United States. Founded in 1636 and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of higher lear ...
in 1927–1928 and 1930. In 1931, he was a visiting professor at the Tokyo College of Commerce. In 1932, Schumpeter moved to the United States, and soon began what would become extensive efforts to help fellow
central Europe Central Europe is a geographical region of Europe between Eastern Europe, Eastern, Southern Europe, Southern, Western Europe, Western and Northern Europe, Northern Europe. Central Europe is known for its cultural diversity; however, countries in ...
an economists displaced by
Nazism Nazism (), formally named National Socialism (NS; , ), is the far-right totalitarian socio-political ideology and practices associated with Adolf Hitler and the Nazi Party (NSDAP) in Germany. During Hitler's rise to power, it was fre ...
. Schumpeter's last visit to Europe was in 1937. Schumpeter also became known for his opposition to
Marxism Marxism is a political philosophy and method of socioeconomic analysis. It uses a dialectical and materialist interpretation of historical development, better known as historical materialism, to analyse class relations, social conflict, ...
, although he still believed the triumph of socialism to be inevitable in the long run. He also criticized Franklin Roosevelt's
New Deal The New Deal was a series of wide-reaching economic, social, and political reforms enacted by President Franklin D. Roosevelt in the United States between 1933 and 1938, in response to the Great Depression in the United States, Great Depressi ...
. In 1939, Schumpeter became a
US citizen Citizenship of the United States is a citizenship, legal status that entails Americans with specific rights, duties, protections, and benefits in the United States. It serves as a foundation of fundamental rights derived from and protected by ...
. At the beginning of
World War II World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...
, the
FBI The Federal Bureau of Investigation (FBI) is the domestic Intelligence agency, intelligence and Security agency, security service of the United States and Federal law enforcement in the United States, its principal federal law enforcement ag ...
investigated him and his wife, Elizabeth Boody (a prominent scholar of Japanese economics) for
Nazi Nazism (), formally named National Socialism (NS; , ), is the far-right politics, far-right Totalitarianism, totalitarian socio-political ideology and practices associated with Adolf Hitler and the Nazi Party (NSDAP) in Germany. During H ...
sympathies, but found no evidence of such leanings. At Harvard, Schumpeter was considered a memorable character, erudite, and even showy in the classroom. He became known for his heavy teaching load and his personal and painstaking interest in his students. He served as the faculty advisor of the Graduate Economics Club and organized private seminars and discussion groups. Some colleagues thought his views were outdated by
Keynesianism Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomics, macroeconomic theories and Economic model, models of how aggregate demand (total spending in the economy) strongl ...
, which was fashionable; others resented his criticisms, particularly of their failure to offer an assistant professorship to
Paul Samuelson Paul Anthony Samuelson (May 15, 1915 – December 13, 2009) was an American economist who was the first American to win the Nobel Memorial Prize in Economic Sciences. When awarding the prize in 1970, the Swedish Royal Academies stated that he "h ...
, but recanted when they thought him likely to accept a position at
Yale University Yale University is a Private university, private Ivy League research university in New Haven, Connecticut, United States. Founded in 1701, Yale is the List of Colonial Colleges, third-oldest institution of higher education in the United Stat ...
. This period of his life was characterized by hard work and comparatively little recognition of his massive two-volume book ''Business Cycles.'' However, Schumpeter persevered, and in 1942 published what became the most popular of all his works, ''
Capitalism, Socialism and Democracy ''Capitalism, Socialism, and Democracy'' is a book on economics, sociology, and history by Joseph Schumpeter, arguably his most famous, controversial, and important work. It is also one of the most famous, controversial, and important books on ...
'', reprinted many times and in many languages in the following decades, as well as cited thousands of times.


Career


Influences

The source of Schumpeter's dynamic, change-oriented, and innovation-based economics was the
historical school of economics The German historical school of economics was an approach to academic economics and to public administration that emerged in the 19th century in Germany, and held sway there until well into the 20th century. The professors involved compiled massi ...
. Although his writings could be critical of that perspective, Schumpeter's work on the role of innovation and
entrepreneurship Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk (assumed by a traditional business), and potentially involving values besides simply economic ones. An entrepreneu ...
can be seen as a continuation of ideas originated by the historical school, especially the work of
Gustav von Schmoller } Gustav Friedrich (after 1908: von) Schmoller (; 24 June 1838 – 27 June 1917) was the leader of the "younger" German historical school of economics. He was a leading ''Sozialpolitiker'' (more derisively, ''Kathedersozialist'', "Socialist of ...
and
Werner Sombart Werner may refer to: People * Werner (name), origin of the name and people with this name as surname and given name Fictional characters * Werner (comics), a German comic book character * Werner Von Croy, a fictional character in the ''Tomb Rai ...
. Despite being born in Austria and having trained with many of the same economists, some argue he cannot be categorized with the
Austrian School of economics The Austrian school is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result primarily from the motivations and actions of individuals along with their ...
without major qualifications while others maintain the opposite. Schumpeter was also influenced by
Léon Walras Marie-Esprit-Léon Walras (; 16 December 1834 – 5 January 1910) was a French mathematical economics, mathematical economist and Georgist. He formulated the Marginalism, marginal theory of value (independently of William Stanley Jevons and Carl ...
and the
Lausanne School The Lausanne School of economics, sometimes referred to as the Mathematical School, refers to the neoclassical economics school of thought surrounding Léon Walras and Vilfredo Pareto. It is named after the University of Lausanne, at which both W ...
, calling Walras the "greatest of all economists". The Austrian sociologist
Rudolf Goldscheid Rudolf Goldscheid (12 August 1870 – 6 October 1931) was an Austrian writer and sociologist, co-founder of the German Sociological Association, known for his theory of human economy () and for developing the topic of fiscal sociology. He has b ...
's concept of fiscal sociology influenced Schumpeter's analysis of the tax state. A 2012 paper showed that Schumpeter's writings displayed the influence of
Francis Galton Sir Francis Galton (; 16 February 1822 – 17 January 1911) was an English polymath and the originator of eugenics during the Victorian era; his ideas later became the basis of behavioural genetics. Galton produced over 340 papers and b ...
's work.


Evolutionary economics

According to Christopher Freeman (2009), "the central point of his whole life work s that capitalism can only be understood as an evolutionary process of continuous innovation and '
creative destruction Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics that describes a process in which new innovations replace and make obsolete older innovations. The concept is usually identified with the economist Josep ...
'".


''History of Economic Analysis''

Schumpeter's scholarship is apparent in his posthumous ''History of Economic Analysis'', Schumpeter thought that the greatest 18th-century economist was Turgot rather than
Adam Smith Adam Smith (baptised 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the field of political economy and key figure during the Scottish Enlightenment. Seen by some as the "father of economics"——— or ...
, and he considered
Léon Walras Marie-Esprit-Léon Walras (; 16 December 1834 – 5 January 1910) was a French mathematical economics, mathematical economist and Georgist. He formulated the Marginalism, marginal theory of value (independently of William Stanley Jevons and Carl ...
to be the "greatest of all economists", beside whom other economists' theories were "like inadequate attempts to catch some particular aspects of Walrasian truth". Schumpeter criticized
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes ( ; 5 June 1883 – 21 April 1946), was an English economist and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originall ...
and
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist, politician, and member of Parliament. He is recognized as one of the most influential classical economists, alongside figures such as Thomas Malthus, Ada ...
for the "Ricardian vice". According to Schumpeter, both Ricardo and Keynes reasoned in terms of abstract models, where they would freeze all but a few variables. Then they could argue that one caused the other in a simple
monotonic In mathematics, a monotonic function (or monotone function) is a function between ordered sets that preserves or reverses the given order. This concept first arose in calculus, and was later generalized to the more abstract setting of ord ...
fashion. This led to the belief that one could easily deduce policy conclusions directly from a highly abstract theoretical model. In this book, Joseph Schumpeter recognized the implication of a gold monetary standard compared to a fiat monetary standard. In ''History of Economic Analysis'', Schumpeter stated the following: "An 'automatic' gold currency is part and parcel of a
laissez-faire ''Laissez-faire'' ( , from , ) is a type of economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies or regulations). As a system of thought, ''laissez-faire'' ...
and
free-trade Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold economically liberal positions, while economic nationalist political parties general ...
economy. It links every nation's money rates and price levels with the money rates and price levels of all the other nations that are 'on gold.' However, gold is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, in foreign policy, certain policies of taxation, and, in general, precisely all those policies that violate the principles of lassicalliberalism. ''This'' is the reason why gold is so unpopular now and also why it was so popular in a
bourgeois The bourgeoisie ( , ) are a class of business owners, merchants and wealthy people, in general, which emerged in the Late Middle Ages, originally as a "middle class" between the peasantry and Aristocracy (class), aristocracy. They are tradition ...
era."


Business cycles

Schumpeter's relationships with the ideas of other economists were quite complex in his most important contributions to economic analysis – the theory of
business cycle Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...
s and development. Following neither Walras nor Keynes, Schumpeter starts in ''The Theory of Economic Development'' with a treatise of circular flow which, excluding any innovations and innovative activities, leads to a stationary state. The stationary state is, according to Schumpeter, described by
Walrasian equilibrium Competitive equilibrium (also called: Walrasian equilibrium) is a concept of economic equilibrium, introduced by Kenneth Arrow and Gérard Debreu in 1951, appropriate for the analysis of commodity markets with flexible prices and many traders, and ...
. The hero of his story is the entrepreneur. The entrepreneur disturbs this equilibrium and is the prime cause of economic development, which proceeds cyclically along with several time scales. In fashioning this theory connecting innovations, cycles, and development, Schumpeter kept alive the Russian
Nikolai Kondratiev Nikolai Dmitriyevich Kondratiev (; also Kondratieff; Russian: Никола́й Дми́триевич Кондра́тьев; 4 March 1892 – 17 September 1938) was a Russian Soviet economist and proponent of the New Economic Policy (NEP) best ...
's ideas on 50-year cycles, Kondratiev waves. Schumpeter suggested a model in which the four main cycles, Kondratiev (54 years), Kuznets (18 years), Juglar (9 years), and Kitchin (about 4 years) can be added together to form a composite
waveform In electronics, acoustics, and related fields, the waveform of a signal is the shape of its Graph of a function, graph as a function of time, independent of its time and Magnitude (mathematics), magnitude Scale (ratio), scales and of any dis ...
. A Kondratiev wave could consist of three lower-degree Kuznets waves. Each Kuznets wave could, itself, be made up of two Juglar waves. Similarly two (or three) Kitchin waves could form a higher degree Juglar wave. If each of these were in phase; more importantly, if the downward arc of each was simultaneous so that the
nadir The nadir is the direction pointing directly ''below'' a particular location; that is, it is one of two vertical directions at a specified location, orthogonal to a horizontal flat surface. The direction opposite of the nadir is the zenith. Et ...
of each was coincident, it would explain disastrous slumps and consequent depressions. As far as the segmentation of the Kondratiev Wave, Schumpeter never proposed such a fixed model. He saw these cycles varying in time – although in a tight time frame by coincidence – and for each to serve a specific purpose.


Keynesianism

In Schumpeter's theory,
Walrasian equilibrium Competitive equilibrium (also called: Walrasian equilibrium) is a concept of economic equilibrium, introduced by Kenneth Arrow and Gérard Debreu in 1951, appropriate for the analysis of commodity markets with flexible prices and many traders, and ...
is not adequate to capture the key mechanisms of economic development. Schumpeter also thought that the institution enabling the entrepreneur to buy the resources needed to realize his vision was a well-developed
capitalist Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...
financial system, including a whole range of institutions for granting
credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
. One could divide economists among (1) those who emphasized "real" analysis and regarded money as merely a "veil" and (2) those who thought monetary institutions were important and money could be a separate driving force. Both Schumpeter and Keynes were among the latter.


Demise of capitalism

Schumpeter's most popular book in English is probably ''
Capitalism, Socialism and Democracy ''Capitalism, Socialism, and Democracy'' is a book on economics, sociology, and history by Joseph Schumpeter, arguably his most famous, controversial, and important work. It is also one of the most famous, controversial, and important books on ...
''. While he agrees with
Karl Marx Karl Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, political theorist, economist, journalist, and revolutionary socialist. He is best-known for the 1848 pamphlet '' The Communist Manifesto'' (written with Friedrich Engels) ...
that capitalism will collapse and be replaced by
socialism Socialism is an economic ideology, economic and political philosophy encompassing diverse Economic system, economic and social systems characterised by social ownership of the means of production, as opposed to private ownership. It describes ...
, Schumpeter predicts a different way this will come about. While Marx predicted that capitalism would be overthrown by a violent proletarian revolution, which occurred in the least capitalist countries, Schumpeter believed that capitalism would gradually weaken itself and eventually collapse. Specifically, the success of capitalism would lead to
corporatism Corporatism is an ideology and political system of interest representation and policymaking whereby Corporate group (sociology), corporate groups, such as agricultural, labour, military, business, scientific, or guild associations, come toget ...
and to values hostile to capitalism, especially among intellectuals. "Intellectuals" are a social class in a position to critique societal matters for which they are not directly responsible and to stand up for the interests of other classes. Intellectuals tend to have a negative outlook on capitalism, even while relying on it for prestige because their professions rely on antagonism toward it. The growing number of people with higher education is a great advantage of capitalism, according to Schumpeter. Yet,
unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...
and a lack of fulfilling work will lead to intellectual critique, discontent, and protests. Parliaments will increasingly elect
social democratic Social democracy is a Social philosophy, social, Economic ideology, economic, and political philosophy within socialism that supports Democracy, political and economic democracy and a gradualist, reformist, and democratic approach toward achi ...
parties, and democratic majorities will vote for restrictions on entrepreneurship. Increasing
workers' self-management Workers' self-management, also referred to as labor management and organizational self-management, is a form of organizational management based on self-directed work processes on the part of an organization's workforce. Self-managed economy, ...
,
industrial democracy Industrial democracy is an arrangement which involves workers making decisions, sharing responsibility and authority in the workplace. While in participative management organizational designs workers are listened to and take part in the deci ...
and regulatory institutions would evolve non-politically into " liberal capitalism". Thus, the intellectual and social climate needed for thriving
entrepreneurship Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk (assumed by a traditional business), and potentially involving values besides simply economic ones. An entrepreneu ...
will be replaced by some form of " laborism". This will exacerbate "
creative destruction Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics that describes a process in which new innovations replace and make obsolete older innovations. The concept is usually identified with the economist Josep ...
" (a borrowed phrase to denote an
endogenous Endogeny, in biology, refers to the property of originating or developing from within an organism, tissue, or cell. For example, ''endogenous substances'', and ''endogenous processes'' are those that originate within a living system (e.g. an ...
replacement of old ways of doing things by new ways), which will ultimately undermine and destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political
advocacy Advocacy is an Action (philosophy), activity by an individual or advocacy group, group that aims to influence decision making, decisions within political, economic, and social institutions. Advocacy includes activities and publications to infl ...
. William Fellner, in the book ''Schumpeter's Vision: Capitalism, Socialism and Democracy After 40 Years'', noted that Schumpeter saw any political system in which the power was fully monopolized as fascist.


Democratic theory

In the same book, Schumpeter expounded on a theory of democracy that sought to challenge what he called the "classical doctrine". He disputed the idea that democracy was a process by which the electorate identified the common good, and politicians carried this out for them. He argued this was unrealistic, and that people's ignorance and superficiality meant that they were largely manipulated by politicians, who set the agenda. Furthermore, he claimed that even if the common good was possible to find, it would still not make clear the means needed to reach its end, since citizens do not have the requisite knowledge to design government policy. This made a 'rule by the people' concept both unlikely and undesirable. Instead, he advocated a minimalist model, much influenced by
Max Weber Maximilian Carl Emil Weber (; ; 21 April 186414 June 1920) was a German Sociology, sociologist, historian, jurist, and political economy, political economist who was one of the central figures in the development of sociology and the social sc ...
, whereby democracy is the mechanism for competition between leaders, much like a market structure. Although periodic votes by the general public legitimize governments and keep them accountable, the policy program is very much seen as their own and not that of the people, and the participatory role of individuals is usually severely limited. Schumpeter defined democracy as the method by which people elect representatives in competitive elections to carry out their will. This definition has been described as simple, elegant and parsimonious, making it clearer to distinguish political systems that either fulfill or fail these characteristics. This minimalist definition stands in contrast to broader definitions of democracy, which may emphasize aspects such as "representation, accountability, equality, participation, justice, dignity, rationality, security, freedom". Within such a minimalist definition, states which other scholars say have experienced
democratic backsliding Democratic backsliding or autocratization is a process of regime change toward autocracy in which the exercise of political power becomes more arbitrary and repressive. The process typically restricts the space for public contest and politi ...
and which lack civil liberties, a free press, the rule of law and a constrained executive, would still be considered democracies. For Schumpeter, the formation of a government is the endpoint of the democratic process, which means that for the purposes of his democratic theory, he has no comment on what kinds of decisions that the government can take to be a democracy. Schumpeter faced pushback on his theory from other democratic theorists, such as
Robert Dahl Robert Alan Dahl (; December 17, 1915 – February 5, 2014) was an American Political philosophy, political theorist and Sterling Professor, Sterling Professor of Political Science at Yale University. He established the pluralism (political the ...
, who argued that there is more to democracy than simply the formation of government through competitive elections. Schumpeter's view of democracy has been described as " elitist", as he criticizes the rationality and knowledge of voters, and expresses a preference for politicians making decisions. Democracy is therefore in a sense a means to ensure circulation among elites. However, studies by Natasha Piano of the University of Chicago emphasize that Schumpeter had substantial disdain for elites as well.


Entrepreneurship

The field of entrepreneurship theory owed much to Schumpeter's contributions. His fundamental theories are often referred to as Mark I and Mark II. In Mark I, Schumpeter argued that the innovation and technological change of a nation come from entrepreneurs or wild spirits. He coined the word ''Unternehmergeist'', German for "entrepreneur-spirit", and asserted that "... the doing of new things or the doing of things that are already being done in a new way" stemmed directly from the efforts of entrepreneurs. Schumpeter developed Mark II while a professor at
Harvard Harvard University is a private Ivy League research university in Cambridge, Massachusetts, United States. Founded in 1636 and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of higher lear ...
. Many social economists and popular authors of the day argued that large businesses had a negative effect on the standard of living of ordinary people. Contrary to this prevailing opinion, Schumpeter argued that the agents that drive innovation and the economy are large companies that have the capital to invest in
research and development Research and development (R&D or R+D), known in some countries as OKB, experiment and design, is the set of innovative activities undertaken by corporations or governments in developing new services or products. R&D constitutes the first stage ...
of new products and services and to deliver them to customers more cheaply, thus raising their standard of living. In one of his seminal works, ''Capitalism, Socialism and Democracy'', Schumpeter wrote: Mark I and Mark II arguments are considered complementary.


Cycles and long wave theory

Schumpeter was the most influential thinker to argue that long cycles are caused by innovation and are an incident of it. His treatise on how business cycles developed was based on Kondratiev's ideas which attributed the causes very differently. Schumpeter's treatise brought Kondratiev's ideas to the attention of English-speaking economists. Kondratiev fused important elements that Schumpeter missed. Yet, the Schumpeterian variant of the long-cycles hypothesis, stressing the initiating role of innovations, commands the widest attention today.Freeman, Christopher, ed. Long Wave Theory, International Library of Critical Writings in Economics: Edward Elgar, 1996 In Schumpeter's view, technological innovation is the cause of both cyclical instability and economic growth. Fluctuations in innovation cause fluctuations in investment and those cause cycles in economic growth. Schumpeter sees innovations as clustering around certain points in time that he refers to as "neighborhoods of equilibrium" when entrepreneurs perceive that risk and returns warrant innovative commitments. These clusters lead to long cycles by generating periods of acceleration in aggregate growth. The technological view of change needs to demonstrate that changes in the rate of innovation govern changes in the rate of new investments and that the combined impact of innovation clusters takes the form of fluctuation in aggregate output or employment. The process of technological innovation involves extremely complex relations among a set of key variables: inventions, innovations, diffusion paths, and investment activities. The impact of technological innovation on aggregate output is mediated through a succession of relationships that have yet to be explored systematically in the context of the long wave. New inventions are typically primitive, their performance is usually poorer than existing technologies and the cost of their production is high. A production technology may not yet exist, as is often the case in major chemical and pharmaceutical inventions. The speed with which inventions are transformed into innovations and diffused depends on the actual and expected trajectory of performance improvement and cost reduction.


Innovation

Schumpeter identified innovation as the critical dimension of economic change. He argued that economic change revolves around innovation, entrepreneurial activities, and market power. He sought to prove that innovation-originated market power can provide better results than the invisible hand and price competition. He argued that technological innovation often creates temporary monopolies, allowing abnormal profits that would soon be competed away by rivals and imitators. These temporary monopolies were necessary to provide the incentive for firms to develop new products and processes.


Doing Business

The
World Bank The World Bank is an international financial institution that provides loans and Grant (money), grants to the governments of Least developed countries, low- and Developing country, middle-income countries for the purposes of economic development ...
's "Doing Business" report was influenced by Schumpeter's focus on removing impediments to
creative destruction Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics that describes a process in which new innovations replace and make obsolete older innovations. The concept is usually identified with the economist Josep ...
. The creation of the report is credited in part to his work.


Personal life

Schumpeter was married three times. His first wife was Gladys Ricarde Seaver, an Englishwoman nearly 12 years his senior (married 1907, separated 1913, divorced 1925). His best man at his wedding was his friend and Austrian jurist
Hans Kelsen Hans Kelsen (; ; October 11, 1881 – April 19, 1973) was an Austrian and later American jurist, legal philosopher and political philosopher. He is known principally for his theory of law, which he named the " pure theory of law (''Reine Rechts ...
. His second was Anna Reisinger, 20 years his junior and daughter of the
concierge A concierge () is an employee of a multi-tenant building, such as a hotel or apartment building, who receives and helps guests. The concept has been applied more generally to other hospitality settings and to personal concierges who manage the e ...
of the apartment where he grew up. As a divorced man, he and his bride converted to
Lutheranism Lutheranism is a major branch of Protestantism that emerged under the work of Martin Luther, the 16th-century German friar and Protestant Reformers, reformer whose efforts to reform the theology and practices of the Catholic Church launched ...
to marry. They married in 1925, but within a year, she died in childbirth. The loss of his wife and newborn son came only weeks after Schumpeter's mother had died. Five years after arriving in the US, in 1937, at the age of 54, Schumpeter married the American economic historian Dr. Elizabeth Boody (1898–1953), who helped him popularize his work and edited what became their magnum opus, the posthumously published ''History of Economic Analysis''. Elizabeth assisted him with his research and English writing until his death. Schumpeter claimed that he had set himself three goals in life: to be the greatest economist in the world, to be the best horseman in all of Austria, and the greatest lover in all of Vienna. He said he had reached two of his goals, but he never said which two, although he is reported to have said that there were too many fine horsemen in Austria for him to succeed in all his aspirations. Schumpeter died in his home in Taconic, Connecticut, at the age of 66, on the night of January 8, 1950.


Legacy

For some time after his death, Schumpeter's views were most influential among various heterodox economists, especially Europeans, who were interested in industrial organization,
evolution Evolution is the change in the heritable Phenotypic trait, characteristics of biological populations over successive generations. It occurs when evolutionary processes such as natural selection and genetic drift act on genetic variation, re ...
ary theory, and economic development, and who tended to be on the other end of the political spectrum from Schumpeter and were also often influenced by Keynes, Karl Marx, and
Thorstein Veblen Thorstein Bunde Veblen (; July 30, 1857 – August 3, 1929) was an American Economics, economist and Sociology, sociologist who, during his lifetime, emerged as a well-known Criticism of capitalism, critic of capitalism. In his best-known book ...
.
Robert Heilbroner Robert L. Heilbroner (March 24, 1919 – January 4, 2005) was an American economist and historian of economic thought. The author of some two dozen books, Heilbroner was best known for ''The Worldly Philosophers: The Lives, Times and Ideas of th ...
was one of Schumpeter's most renowned pupils, who wrote extensively about him in ''The Worldly Philosophers''. In the journal ''
Monthly Review The ''Monthly Review'' is an independent socialist magazine published monthly in New York City. Established in 1949, the publication is the longest continuously published socialist magazine in the United States. History Establishment Following ...
'', John Bellamy Foster wrote of that journal's founder
Paul Sweezy Paul Marlor Sweezy (April 10, 1910 – February 27, 2004) was a Marxist economist, political activist, publisher, and founding editor of the long-running magazine ''Monthly Review''. He is best remembered for his contributions to economic theory ...
, one of the leading Marxist economists in the United States and a graduate assistant of Schumpeter's at Harvard, that Schumpeter "played a formative role in his development as a thinker". Other outstanding students of Schumpeter's include the economists
Nicholas Georgescu-Roegen Nicholas Georgescu-Roegen (born Nicolae Georgescu, 4 February 1906 – 30 October 1994) was a Romanian mathematician, statistician and economist. He is best known today for his 1971 Masterpiece, magnum opus ''The Entropy Law and the Economic Pr ...
and
Hyman Minsky Hyman Philip Minsky (September 23, 1919 – October 24, 1996) was an American economist and economy professor at Washington University in St. Louis. A distinguished scholar at the Levy Economics Institute of Bard College, his research was inten ...
and
John Kenneth Galbraith John Kenneth Galbraith (October 15, 1908 – April 29, 2006), also known as Ken Galbraith, was a Canadian-American economist, diplomat, public official, and intellectual. His books on economic topics were bestsellers from the 1950s through the ...
and former chairman of the Federal Reserve,
Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He worked as a private adviser and provided consulting for firms through his company, Greenspan Associates L ...
. Future Nobel Laureate
Robert Solow Robert Merton Solow, GCIH (; August 23, 1924 – December 21, 2023) was an American economist who received the 1987 Nobel Memorial Prize in Economic Sciences, and whose work on the theory of economic growth culminated in the exogenous growth ...
was his student at Harvard, and he expanded on Schumpeter's theory. Today, Schumpeter has a following outside standard textbook economics, in areas such as economic policy, management studies, industrial policy, and the study of
innovation Innovation is the practical implementation of ideas that result in the introduction of new goods or service (economics), services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a n ...
. Schumpeter was probably the first scholar to develop theories about
entrepreneurship Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk (assumed by a traditional business), and potentially involving values besides simply economic ones. An entrepreneu ...
. For instance, the European Union's innovation program, and its main development plan, the
Lisbon Strategy The Lisbon Strategy, also known as the Lisbon Agenda or Lisbon Process, was an action and development plan devised in 2000, for the economy of the European Union between 2000 and 2010. A pivotal role in its formulation was played by the Portugue ...
, are influenced by Schumpeter. The International Joseph A. Schumpeter Society awards the Schumpeter Prize. The Schumpeter School of Business and Economics opened in October 2008 at the University of Wuppertal, Germany. According to University President Professor Lambert T. Koch, "Schumpeter will not only be the name of the Faculty of Management and Economics, but this is also a research and teaching programme related to Joseph A. Schumpeter." On September 17, 2009, ''
The Economist ''The Economist'' is a British newspaper published weekly in printed magazine format and daily on Electronic publishing, digital platforms. It publishes stories on topics that include economics, business, geopolitics, technology and culture. M ...
'' inaugurated a column on business and management named "Schumpeter". The publication has a history of naming columns after significant figures or symbols in the covered field, including naming its British affairs column after former editor Walter Bagehot and its European affairs column after
Charlemagne Charlemagne ( ; 2 April 748 – 28 January 814) was List of Frankish kings, King of the Franks from 768, List of kings of the Lombards, King of the Lombards from 774, and Holy Roman Emperor, Emperor of what is now known as the Carolingian ...
. The initial Schumpeter column praised him as a "champion of innovation and entrepreneurship" whose writing showed an understanding of the benefits and dangers of business that proved to be far ahead of its time. Schumpeter's thoughts inspired the economic theory of
Adam Przeworski Adam Przeworski (; born May 5, 1940) is a Polish-American professor of political science specializing in comparative politics. He is Carroll and Milton Professor Emeritus in the Department of Politics of New York University. He is a scholar of dem ...
.


Major works


Books

* * * ::Translated as: Translated by: Bruce A. McDaniel * Pdf of preface by F.A. Hayek and first eight pages. * * * * * Translated from the 1911 original German, ''Theorie der wirtschaftlichen Entwicklung''. * Translated from the 1912 original German, ''Epochen der Dogmen – und Methodengeschichte''
Pdf version.
** Reprinted in hardback as: ** Reprinted in paperback as: * * Reprinted by the University of Michigan Library * ** Reprinted as: * ** Reprinted as * ** Reprinted as: * * ** Reprinted as: * * * * * * * * ** See also the English translation: * * * ** Originally printed as: * * * ** Reprinted as: ** Reprinted as: ** Reprinted as: * * Schumpeter, Joseph A. (1953). ''Aufsätze zur Soziologie''. Tubingen: J. C. B. Mohr. * Edited from a manuscript by Elizabeth Boody Schumpeter. * * ** Originally printed as: Reprinted in 2008. *


Journal articles

* * * * * * * * * * * * Continued on pp. 88–91. ** Reprinted as: * * * * * * * * * * The first 2 chapters of A Treatise on Money * Translated from a speech given in German by Schumpeter, ''Wie studiert man Sozialwissenschaft''.


Memoriams

* * * * *


Reviews

* * * * * * *


See also

* Schumpeterian rent


References


Further reading

* * * * * * * * * * * *


External links

* * * * * * * * * * * * Śledzik, K., Szmelter-Jarosz, A., Schmidt, E. K., Bielawski, K., & Declich, A. (2023)
Are Schumpeter’s Innovations Responsible? A Reflection on the Concept of Responsible (Research and) Innovation from a Neo-Schumpeterian Perspective
Journal of the Knowledge Economy, 14(4), 5065–5085. {{DEFAULTSORT:Schumpeter, Joseph Innovation economists 1883 births 1950 deaths Austrian anti-communists 19th-century Austrian people 20th-century Austrian people 20th-century Austrian economists 20th-century Austrian writers 20th-century Austrian male writers Austrian male writers Austrian academics Austrian emigrants to the United States Austrian people of Czech descent Austrian people of Moravian-German descent Converts to Lutheranism from Roman Catholicism Academic staff of Chernivtsi University Ministers of finance of Austria Government ministers of Austria Historians of economic thought Macroeconomists American development economists People from Austria-Hungary People from Třešť Academic staff of the University of Bonn University of Vienna alumni Fellows of the Econometric Society Presidents of the Econometric Society Presidents of the American Economic Association Austrian expatriates in Germany Austrian expatriates in Japan American people of Moravian-German descent 20th-century American economists Harvard University faculty Columbia University faculty American anti-communists Naturalized citizens of the United States