Joseph Alois Schumpeter
Schumpeter, Joseph Alois
Schumpeter, Joseph Alois 1883-1950
Joseph Alois Schumpeter was born in Triesch, Moravia (now the Czech Republic), on February 8, 1883, an only child of a textile manufacturer. After his father’s premature death his mother married a high-ranking officer in the Austro-Hungarian army. Young Schumpeter enjoyed a typically aristocratic education—strong on the humanities, weak on mathematics and science—at the Theresianum in Vienna.
As a law student at the University of Vienna Schumpeter took courses in economics from Friedrich von Wieser (1851–1926) and participated in Eugen Böhm von Bawerk’s (1851–1914) seminars, joining other budding economists such as Ludwig von Mises (1881–1973) and Austro-Marxists Otto Bauer (1881–1938) and Rudolf Hilferding (1877–1941). He received his doctorate in 1906 and published his first book, Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie (1908; still untranslated), a methodological treatise on economic theory. In 1909 he was offered a position as an associate professor in Czernowitz, capital of the southeastern crownland of the Austro-Hungarian Empire (now in Ukraine). In 1911 he was appointed to the chair of political economy at the University of Graz. By the outbreak of World War I he had already established an international reputation as an economist of the first rank: at the age of thirty he was awarded an honorary degree by Columbia University.
After unsuccessful excursions into politics and banking following World War I—he had served as secretary of state for finance for seven months in 1919 in the new republican Austrian government, and in 1921 he assumed directorship of the Biedermann Bank in Vienna—he returned to academia for good in 1925 as professor of public finance at the University of Bonn in Germany.
His sojourn in Bonn was overshadowed by the deaths of his beloved second wife and shortly afterward of his mother, blows from which he never recovered. Schumpeter’s permanent tenure at Harvard University began on September 1, 1932, and he was connected with the university continuously, except for two sabbatical leaves, until his death on January 8, 1950. Schumpeter was a founding member of the Econometric Society, and served as its president from 1937 to 1941. In 1948 he was elected, as the first European, president of the American Economic Association.
Schumpeter was an encyclopedic scholar, equally versed in history, sociology, and economics, with a stupendous knowledge in the history of economic thought. More than any other economist before him, with the possible exception of German social philosopher Karl Marx (1818–1883), Schumpeter highlighted the role of innovation for the performance of market capitalism. By innovation he meant the introduction of new production technologies and new goods, the conquest of a new supply of raw materials, the setting up of new organizations of industries, and the opening up of new markets. For Schumpeter entrepreneurial action conceived as innovation is the central feature of capitalism, and it forms the backdrop to his theories of credit, interest, capital, profit, and the business cycle. In Schumpeter’s scheme the entrepreneur as an agent of innovative change is a revolutionary, overturning tried and tested ways, departing from routine, resisting inertia, and producing novelty by putting extant resources to new uses. The carrying out of new combinations in production is the essence of “creative destruction,” a task accomplished by entrepreneurs.
Such bold and confident ways represent a distinct economic function. It is distinct from that of the inventor, the imitator, the capitalist, the banker, the manager, the landowner, and the worker. The entrepreneur may be any or all of these things, but if so it would be by coincidence rather than by nature of function. Neither is the entrepreneurial function necessarily tied to possession of wealth although it may be helpful, nor do entrepreneurs form a class in a sociological sense. It is not money per se that motivates entrepreneurs but rather the dream to found a private empire and the joy of getting things done against the odds.
The results of the entrepreneurially fueled innovation process being inherently uncertain, it is refractory to reduce them to mere calculation. The knowledge buttressing innovation need not be new, it is usually available knowledge that has not been deployed before at all, or else it is utilized in new ways. According to Schumpeter innovation is above all an act of will, depending on leadership, and should not be confused with scientific (or otherwise) invention. Schumpeter broke with tradition by denying that profit is a return to risk. Schumpeter argued that risk falls on the capitalist, not on the entrepreneur as entrepreneur, the latter as such being bereft of capital.
Schumpeter’s final great work published during his lifetime, Capitalism, Socialism, and Democracy (1942), focused on sociological aspects of capitalism, in particular the institutional structure of capitalist society. The paradoxical message emanating from his most popular book is that capitalism is doomed, not by its economic failure (as Marx averred) but by its success. Writing in the early 1940s, Schumpeter pointed to concrete tendencies within advanced capitalist society that he perceived as depleting its moral capital. He singled out the resentment capitalism breeds among intellectuals. According to Schumpeter capitalism had been disfigured by various historical tendencies to such an extent that it should really be called “socialism.” The transformations included the growth of interventionist governments, the advent of a managerial bureaucracy within both the public and private sectors, and the rise of a professional middle class with a mind-set completely at odds with that of the classic capitalist. These developments had been accelerated by economic depression and war. According to Schumpeter, socialism is merely the acknowledgment that they have taken place.
Among economists Schumpeter has been interpreted (rightly or wrongly) as saying that with the advent of large corporations and their generously funded research and development departments entrepreneurship and innovation would become increasingly routinized. The withering away of entrepreneurship would amount to innovation being reduced to a decision-making process amenable to rational calculation. This is precisely how the Soviet economy and its Eastern European satellites had set up their innovation systems (with disastrous consequences), on the assumption that innovation, being mere routine business, is plannable. Such a rationalistic approach to the innovation process would be incompatible with capitalist institutions.
In recent decades Schumpeter’s ideas on capitalism as “a method of evolutionary change” have instigated a renaissance in research on technological change led by economists, such as Richard N. Nelson and Sidney G. Winter (1982), favoring an evolutionary approach to economics. Indeed Schumpeterian economics is one of the main sources of evolutionary economics.
SEE ALSO Austro-Marxism; Capitalism; Entrepreneurship; Great Depression; Hilferding, Rudolf; Marx, Karl; Mises, Ludwig Edler von; Socialism; Technological Progress, Economic Growth
Allen, Robert Loring. 1991. Opening Doors: The Life and Work of Joseph Schumpeter. 2 vols. New Brunswick, NJ: Transaction.
Dopfer, Kurt, ed. 2005. The Evolutionary Foundations of Economics. Cambridge, U.K.: Cambridge University Press.
Nelson, Richard R., and Sidney G. Winter. 1982. An Evolutionary Theory of Change. Cambridge, MA: Belknap Press of Harvard University Press.
Schumpeter, Joseph A. 1934. The Theory of Economic Development: An Inquiry into Profits, Credit, Interest, and the Business Cycle. Trans. Redvers Opie. Cambridge, MA: Harvard University. Translation of the second German edition published in 1926.
Schumpeter, Joseph A. 1942. Capitalism, Socialism, and Democracy. New York: Harper and Brothers.
Schumpeter, Joseph A. 1954. History of Economic Analysis. Ed. Elizabeth Boody Schumpeter. New York: Oxford University Press.
Swedberg, Richard. 1991. Joseph A. Schumpeter: His Life and Work. Cambridge, U.K.: Polity Press.
Schumpeter, Joseph Alois
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
Allen, Robert Loring. Opening Doors: The Life and Work of Joseph Schumpeter. New Brunswick: Transaction Publishers, 1991.
Joseph Alois Schumpeter
Joseph Alois Schumpeter
Joseph Alois Schumpeter (1883-1950) was an Austrian economist who advocated the view that business cycles are an integral part of the process of economic development in a capitalist economy.
Joseph Schumpeter was born in Triesch in Moravia (now Czechoslovakia) on Feb. 8, 1883, the only son of Alois Schumpeter, a clothing manufacturer who died when Joseph was 4 years old. Because of his mother's remarriage 7 years later to the commanding general of all Austrian troops in Vienna, Schumpeter was raised in the manner traditional to the Austrian aristocracy. In 1901 he graduated with high honors from the Theresianum, a school distinguished for its classical education.
From 1901 to 1906 he studied law and economics at the University of Vienna, where he attended the seminars of Eugen Philippović, Friedrich von Wieser, and Eugen Böhm-Bawerk. He received the degree of doctor of law in 1906 and spent a brief period visiting England and practicing law in Egypt. In 1909 he returned to Austria, where he accepted a professorship in economics at the University of Chernovtsy. In 1911 he joined the faculty at the University of Graz, where, except for the academic year 1913/1914, he remained until 1918. During this period he had written his first major article and three important books and had established his preeminence in economic theory.
During World War I Schumpeter took part in the intrigues to negotiate a separate peace for Austria and in putting forward proposals for economic reconstruction. In 1919 he became finance minister in the coalition government of the Austrian Republic but was forced to resign before even presenting his financial proposals to Parliament.
Next, Schumpeter became president of a private bank in Vienna which, because of economic conditions and the dishonesty of some of his associates, failed in 1924. He returned to academic life, accepting a professorship at the University of Bonn in 1925. He visited Harvard in the following year and again in 1930 and, in 1932, moved there permanently. During his years at Harvard he produced several more major books, the last of which was in rough manuscript at his death and was edited and published by his wife, Elizabeth Boody Schumpeter. Schumpeter died in his sleep, of a cerebral hemorrhage, on Jan. 8, 1950.
Schumpeter's work, published in 15 books and pamphlets, over 200 articles, book reviews, and review articles, defies classification by school of thought or by methodology. Although his Theory of Economic Development (1912) is a classic in the abstract-deductive tradition of Léon Walras and Böhm-Bawerk, many of his articles and his Business Cycles (1939) demonstrate his interest in and capacity for statistical and econometric research. Finally, his writings on socialism, Imperialism and Social Classes (1951) and Capitalism, Socialism and Democracy (1942), and on the history of economic theory, Economic Doctrine and Method (1914) and History of Economic Analysis (1954), reveal an insight into the broad sweep of sociological and historical forces on economic ideas and events that can be compared only to that of Marx.
Seymour E. Harris, ed., Schumpeter, Social Scientist (1951), contains a number of excellent essays about Schumpeter's life and work. Richard V. Clemence and Francis S. Doddy, The Schumpeterian System (1950), is a study of his system of economic analysis. His career is discussed briefly in Joseph Dorfman, The Economic Mind in American Civilization (5 vols., 1946-1959), and Ben B. Seligman, Main Currents in Modern Economics: Economic Thought since 1870 (1962).
Allen, Robert Loring, Opening doors: the life and work of Joseph Schumpeter, New Brunswick, N.J.: Transaction Publishers, 1991.
Schneider, Erich, Joseph A. Schumpeter: life and work of a great social scientist, Lincoln: Bureau of Business Research, University of Nebraska-Lincoln, 1975.
Stolper, Wolfgang F., Joseph Alois Schumpeter: the public life of a private man, Princeton, N.J.: Princeton University Press, 1994.
Swedberg, Richard, Joseph A. Schumpeter: his life and work, Cambridge, UK: Polity Press, 1991.
Swedberg, Richard, Schumpeter: a biography, Princeton, N.J.:Princeton University Press, 1991. □
Like both Karl Marx and Max Weber, Schumpeter was interested in the origins and development of the capitalist system, and attached similar importance to the profit-generating and risk-taking entrepreneurs who pioneered new products and techniques. This, together with his interest in the links between business cycle theory and capital formation, are characteristic features of the Austrian School of Economics—of which Schumpeter can therefore be seen as a direct descendant. His books included Theory of Economic Development (1912), Business Cycles (1939), and the best-selling Capitalism, Socialism and Democracy (1942). In the last of these, Schumpeter warned against both the tendency for entrepreneurs to be replaced by a more conservative class of industrial administrators, and the necessity of economic planning to encourage socialism. See also IMPERIALISM.