Schumpeter, Joseph Alois

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SCHUMPETER, JOSEPH ALOIS

Joseph Alois Schumpeter (1883–1950) was an Austrian economist who significantly shaped the development of economic theory in Europe. He taught economics at various universities in the Austro-Hungarian Empire and later at Harvard University in the United States. His many publications furthered the public's understanding of business cycles, the role of the entrepreneur, capitalist development, and the use of mathematics in economics.

Schumpeter was born in Triesch, Moravia (present-day Czech Republic), on February 8, 1883. He was the only son of Alois Schumpeter, a clothing manufacturer who died when Joseph was four years old. His mother, Joanna Gruner, later married an Austrian general. The family moved to Vienna and Joseph was raised in a traditional, aristocratic manner. In 1891 Schumpeter graduated with honors from the Theresianum, a distinguished boys' school. He then studied law and economics at the University of Vienna.

In 1906 Schumpeter completed his law degree and went to England where he spent a year doing research at the London School of Economics and the British Museum. He spent the following year in Cairo practicing law at the International Mixed Court of Egypt. It was there that he wrote his first book, a study of economic methodology entitled The Nature and Essence of Theoretical Economics. In this book Schumpeter tried to paint a picture of the field of theoretical economics for a German audience because he felt that they were not really familiar with the workings of "pure economics." Economic theory was not even taught at German universities at the time.

Schumpeter obtained a position teaching economics at the University of Czernowitz (present-day Chernovtsy, Ukraine) in 1908 at the age of 26, making him the youngest professor in the Austro-Hungarian empire. In 1911 he joined the faculty at the University of Graz where he published The Theory of Economic Development (1912), which is often regarded as his most important work. In this book Schumpeter first argued that the entrepreneur was key to stimulating the business cycle, an idea that he would later expand.

During the 1913–1914 academic year Schumpeter went to Columbia University in New York as a visiting professor. Apart from that visit, Schumpeter remained at the University of Graz until 1918. His third major book was published in 1914 and was titled Economic Doctrine and Method: A Historical Sketch. This book was written as part of a handbook in economics and therefore was not as provocative as his first two publications. Nonetheless, the historical aspect of economics greatly interested Schumpeter and he would return to this topic later in life.

At the end of World War I (1914–1918) the Austro-Hungarian empire was broken up and Austria became a small republic. At this point Schumpeter left academic life to pursue a career in finance and to dabble in politics. Schumpeter briefly served as the secretary of finance in the new socialist government, but was forced to resign even before presenting his financial proposals to the parliament. Schumpeter's next career move was becoming president of a private bank in Vienna. When the bank failed in 1924, Schumpeter went bankrupt and returned to academic life.

The 1920s were a difficult decade for Schumpeter in all aspects of his life. His professional exploits outside of academia had failed. Though he was able to find employment again, he found it difficult to produce another book for quite a while. To make matters worse his mother, his new wife, and his newborn child all suddenly died, leaving Schumpeter depressed for many years.

In 1924 Schumpeter was appointed professor of public finance at the University of Bonn in Germany. He visited Harvard University in 1927 and again in 1930. At Harvard he helped found the Econometric Society, which focused on using statistics and mathematics in economic analyses. In the early 1930s Schumpeter was passed over for the position of economic theory department chair at the University of Berlin, Germany's most prestigious university. He was bitterly disappointed and decided to leave Europe.

While this period had not been especially creative for Schumpeter, he did produce more than 70 articles between 1919 and 1932. In 1932 Schumpeter finally accepted a permanent position at Harvard as a professor of economics where he remained for the rest of his life, becoming a U.S. citizen in 1939.

In 1939 Schumpeter published his next book, Business Cycles, a theoretical, historical, and statistical analysis of the capitalist process. In this two-volume study Schumpeter argued that innovation was the chief agent of social change and that business cycles were a product of innovation. In 1942 Schumpeter published his next major work, Capitalism, Socialism, and Democracy, which was highly regarded by critics. In it Schumpeter maintained that capitalism would eventually become a victim of its own successes and die away. As business grew, it would become conservative in the worst sense of the word, thus eliminating risk-taking, innovative entrepreneurs from the decisionmaking process. Business would stagnate, and growing unrest among the people would lead to the triumph of socialism. In fact, his last book was on socialism, which he titled Imperialism and Social Classes (1951). When Schumpeter died of a cerebral hemorrhage in 1950, he left an unfinished manuscript behind him, History of Economic Analysis. This, his final work, was edited and published in 1954 by his third wife, Elizabeth Boody Schumpeter.

Schumpeter was a prolific writer; throughout his career he authored 15 books and pamphlets and over 200 articles, book reviews, and review articles. He also left hundreds of aphorisms in his private papers. Although he suffered from bouts of depression most of his life, Schumpeter was able to focus his energy on what he loved best and made a great contribution to the field of economics.

See also: Business Cycle, Capitalism, Entrepreneurship, Joseph Schumpeter, Socialism