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Joseph Schumpeter
Austrian School
Birth 8 February 1883(1883-02-08)
Třešť, Moravia, Austria–Hungary (now Czech Republic)
Death 8 January 1950 (aged 66)
Taconic, Connecticut, U.S.
Institution Harvard University 1932-50
University of Bonn 1925-32
Biedermann Bank 1921-24
University of Graz 1912-14
University of Czernowitz 1909-11
Field Economics
Alma mater University of Vienna
Influences Böhm-Bawerk, Wieser, Menger, Walras, Juglar
Influenced Friedman, Samuelson, Tobin, Williams, Bergson, Georgescu-Roegen, Heilbroner, Schiff
Contributions Business cycles
Economic development
Evolutionary economics

Joseph Alois Schumpeter (8 February 1883 – 8 January 1950)[1] was an economist and political scientist born in Moravia, then Austria-Hungary, now Czech Republic. He popularized the term "creative destruction" in economics.[2]



Born in Třešť, Moravia, Schumpeter was a brilliant student praised by his teachers. He began his career studying law at the University of Vienna under the Austrian capital theorist Eugen von Böhm-Bawerk, taking his PhD in 1906. In 1909, after some study trips, he became a professor of economics and government at the University of Czernowitz. In 1911 he joined the University of Graz, where he remained until World War I. In 1919-1920, he served as the Austrian Minister of Finance, with some success, and in 1920-1924, as President of the private Biedermann Bank. That bank, as great part of that regional economy, collapsed in 1924 leaving Schumpeter bankrupt.

From 1925-1932, he held a chair at the University of Bonn, Germany. He lectured at Harvard in 1927-1928 and 1930. Due to the rise of Nazism in Germany he moved to the United States where he would teach from 1932 until his death in 1950.

During his Harvard years he was not generally considered a good classroom teacher, but he acquired a school of loyal followers. His prestige among colleagues was likewise not very high because his views seemed outdated and not in synch with the then-fashionable Keynesianism. This period of his life was characterized by hard work but little recognition of his core ideas.

Although Schumpeter encouraged some young mathematical economists and was even the president of the Econometric Society (1940-41), Schumpeter was not a mathematician but rather an economist and tried instead to integrate sociological understanding into his economic theories. From current thought it has been argued that Schumpeter's ideas on business cycles and economic development could not be captured in the mathematics of his day - they need the language of non-linear dynamical systems to be partially formalized.

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.[3][4]

Most important work

History of economic analysis

Schumpeter's scholarship is apparent in his posthumous History of Economic Analysis, although some of his judgments seem idiosyncratic and sometimes cavalier. For instance, Schumpeter thought that the greatest 18th century economist was Turgot, not Adam Smith, as many consider, and he considered Léon Walras to be the "greatest of all economists", beside whom other economists' theories were "like inadequate attempts to catch some particular aspects of Walrasian truth".[5] Schumpeter criticized John Maynard Keynes and David Ricardo for the "Ricardian vice." According to Schumpeter, 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 fashion. This led to the belief that one could easily deduce policy conclusions directly from a highly abstract theoretical model.

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 cycles and development. Following neither Walras nor Keynes, Schumpeter starts in The Theory of Economic Development[6] 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. The hero of his story, though, is, in fine Austrian fashion, the entrepreneur.

Economic Waves series

(see Business cycles)

Cycle/Wave Name Years
Kitchin inventory 3–5
Juglar fixed investment 7–11
Kuznets infrastructural investment 15–25
Kondratiev wave 45–60

The entrepreneur disturbs this equilibrium and is the prime cause of economic development, which proceeds in cyclic fashion along several time scales. In fashioning this theory connecting innovations, cycles, and development, Schumpeter kept alive the Russian Nikolai Kondratiev'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. (Actually there was considerable professional rivalry between Schumpeter and Kuznets. The wave form suggested here did not include the Kuznets Cycle simply because Schumpeter did not recognize it as a valid cycle. See "Business Cycle" for further information.) A Kondratiev wave could consist of three lower degree Kuznets waves[7]. 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 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)

Schumpeter and Keynesianism

Unlike Keynes, in Schumpeter's theory, Walrasian equilibrium is not adequate to capture the key mechanisms of economic development. Schumpeter also thought that the institution enabling the entrepreneur to purchase the resources needed to realize his or her vision was a well-developed capitalist financial system, including a whole range of institutions for granting credit. 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 are important and money could be a separate driving force. Both Schumpeter and Keynes were among the latter. Nevertheless, Schumpeter, who was a classical liberal, rejected Keynesianism.[citation needed]

Schumpeter and capitalism's demise

Schumpeter's most popular book in English is probably Capitalism, Socialism and Democracy. This book opens with a treatment of Karl Marx. While he is sympathetic to Marx's theory that capitalism will collapse and will be replaced by socialism, Schumpeter concludes that this will not come about in the way Marx predicted. To describe it he borrowed the phrase "creative destruction," and made it famous by using it to describe a process in which the old ways of doing things are endogenously destroyed and replaced by new ways.

Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong. One of the great advantages of capitalism, he argues, is that as compared with pre-capitalist periods, when education was a privilege of the few, more and more people acquire (higher) education. The availability of fulfilling work is however limited and this, coupled with the experience of unemployment, produces discontent. The intellectual class is then able to organise protest and develop critical ideas.

Schumpeter and democratic theory

In the same book, Schumpeter expounded a theory of democracy which 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 in fact they were largely manipulated by politicians, who set the agenda. This made a 'rule by the people' concept both unlikely and undesirable. Instead he advocated a minimalist model, much influenced by Max Weber, 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 for individuals is usually severely limited.

Schumpeter and entrepreneurship

The research of entrepreneurship owes a lot to his contributions. He was probably the first scholar to develop its theories. He gave two theories, sometimes called Mark I and Mark II. In the first one, the early one, Schumpeter argued that the innovation and technological change of a nation comes from the entrepreneurs, or wild spirits. He coined the word Unternehmergeist, German for entrepreneur-spirit. He believed that these individuals are the ones who make things work in the economy of the country. In Mark II, developed later as professor at Harvard, he asserted that the actors that drive innovation and the economy are big companies which have the resources and capital to invest in research and development. Both arguments might be complementary today.

The English literature uses the term entrepreneurship, from the French "entreprise". When studying entrepreneurship and Schumpeter, it is helpful to keep in mind he used the German term (Unternehmergeist), acknowledging these "fiery souls" or "spirits".

Schumpeter and the Gold Standard

Joseph Schumpeter recognized the implication of a gold monetary standard compared to a fiat monetary standard. In History of Economic Analysis he stated the following:

An ‘automatic’ gold currency is part and parcel of a laissez-faire and free-trade 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.’ It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation, and, in general, to precisely all those policies that violate the principles of [classical] liberalism. This is the reason why gold is so unpopular now and also why it was so popular in a bourgeois era. It imposes restrictions upon governments or bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom—of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense. From this standpoint a man may quite rationally fight for it, even if fully convinced of the validity of all that has ever been urged against it on economic grounds. From the standpoint of etatisme and planning, a man may not less rationally condemn it, even if fully convinced of the validity of all that has ever been urged for it on economic grounds.[8](italics in original)

Evolutionary economics

His legacy

For some time after his death, Schumpeter's views were most influential among various heterodox economists, especially European, who were interested in industrial organization, evolutionary 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. Robert Heilbroner was one of Schumpeter's most renowned pupils, who wrote extensively about him in The Worldly Philosophers. Schumpeter "played a formative role in his development as a thinker" of Paul Sweezy, one of the leading Marxist economists in the United States and a founder of Monthly Review; Sweezy was a graduate assistant of Schumpeter's at Harvard.[9] Other outstanding students of Schumpeter's include the economist Nicholas Georgescu-Roegen and former chairman of the Federal Reserve, Alan Greenspan[10]. Robert Solow, Nobel Prize in Economics, was his student at Harvard, and he expanded on Schumpeter's theory.[11]

Today, Schumpeter has a following outside of standard textbook economics, in areas such as in economic policy, management studies, industrial policy, and the study of innovation. Schumpeter was probably the first scholar to develop theories about entrepreneurship. For instance, the European Union's innovation program, and its main development plan, the Lisbon Strategy, are influenced by Schumpeter. The International Joseph A. Schumpeter Society awards the Schumpeter Prize.

On 17 September 2009, The Economist inaugurated a column on business and management named "Schumpeter."[12] 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. 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 far ahead of its time.

Major works

  • "Über die mathematische Methode der theoretischen Ökonomie", 1906, ZfVSV.
  • "Das Rentenprinzip in der Verteilungslehre", 1907, Schmollers Jahrbuch
  • Wesen und Hauptinhalt der theoretischen Nationalökonomie (transl. The Nature and Essence of Theoretical Economics), 1908.
  • "Methodological Individualism", 1908, [1]
  • "On the Concept of Social Value", 1909, QJE
  • Wie studiert man Sozialwissenschaft, 1910 (transl. by J.Z. Muller, "How to Study Social Science", Society, 2003)
  • "Marie Esprit Leon Walras", 1910, ZfVSV.
  • "Über das Wesen der Wirtschaftskrisen", 1910, ZfVSV
  • Theorie der wirtschaftlichen Entwicklung (transl. 1934, The Theory of Economic Development: An inquiry into profits, capital, credit, interest and the business cycle) 1911.
  • Economic Doctrine and Method: An historical sketch, 1914. [2]
  • "Das wissenschaftliche Lebenswerk Eugen von Böhm-Bawerks", 1914, ZfVSV.
  • Vergangenkeit und Zukunft der Sozialwissenschaft, 1915.
  • The Crisis of the Tax State, 1918.
  • "The Sociology of Imperialisms", 1919, Archiv für Sozialwissenschaft und Sozialpolitik [3]
  • "Max Weber's Work", 1920, Der österreichische Volkswirt
  • "Carl Menger", 1921, ZfVS.
  • "The Explanation of the Business Cycle", 1927, Economica
  • "Social Classes in an Ethnically Homogeneous Environment", 1927, Archiv für Sozialwissenschaft und Sozialpolitik. [4]
  • "The Instability of Capitalism", 1928, EJ
  • Das deutsche Finanzproblem, 1928.
  • "Mitchell's Business Cycles", 1930, QJE
  • "The Present World Depression: A tentative diagnosis", 1931, AER.
  • "The Common Sense of Econometrics", 1933, Econometrica
  • "Depressions: Can we learn from past experience?", 1934, in Economics of the Recovery Program
  • "The Nature and Necessity of a Price System", 1934, Economic Reconstruction.
  • "Review of Robinson's Economics of Imperfect Competition", 1934, JPE
  • "The Analysis of Economic Change", 1935, REStat.
  • "Professor Taussig on Wages and Capital", 1936, Explorations in Economics.
  • "Review of Keynes's General Theory", 1936, JASA
  • Business Cycles: A theoretical, historical and statistical analysis of the Capitalist process, 1939.
  • "The Influence of Protective Tariffs on the Industrial Development of the United States", 1940, Proceedings of AAPS
  • "Alfred Marshall's Principles: A semi-centennial appraisal", 1941, AER.
  • "Frank William Taussig", 1941, QJE.
  • Capitalism, Socialism and Democracy, 1942.
  • "Capitalism in the Postwar World", 1943, Postwar Economic Problems.
  • "John Maynard Keynes", 1946, AER.
  • "The Future of Private Enterprise in the Face of Modern Socialistic Tendencies", 1946, Comment sauvegarder l'entreprise privée
  • Rudimentary Mathematics for Economists and Statisticians, with W.L.Crum, 1946.
  • "Capitalism", 1946, Encyclopaedia Britannica.
  • "The Decade of the Twenties", 1946, AER
  • "The Creative Response in Economic History", 1947, JEH
  • "Theoretical Problems of Economic Growth", 1947, JEH
  • "Irving Fisher's Econometrics", 1948, Econometrica.
  • "There is Still Time to Stop Inflation", 1948, Nation's Business.
  • "Science and Ideology", 1949, AER.
  • "Vilfredo Pareto", 1949, QJE.
  • "Economic Theory and Entrepreneurial History", 1949, Change and the Entrepreneur
  • "The Communist Manifesto in Sociology and Economics", 1949, JPE
  • "English Economists and the State-Managed Economy", 1949, JPE
  • "The Historical Approach to the Analysis of Business Cycles", 1949, NBER Conference on Business Cycle Research.
  • "Wesley Clair Mitchell", 1950, QJE.
  • "March into Socialism", 1950, AER.
  • Ten Great Economists: From Marx to Keynes, 1951. [5]
  • Imperialism and Social Classes, 1951 (reprints of 1919, 1927)
  • Essays on Economic Topics, 1951.
  • "Review of the Troops", 1951, QJE.
  • History of Economic Analysis, (published posthumously, ed. Elisabeth Boody Schumpeter), 1954.
  • "American Institutions and Economic Progress", 1983, Zeitschrift fur die gesamte Staatswissenschaft
  • "The Meaning of Rationality in the Social Sciences", 1984, Zeitschrift fur die gesamte Staatswissenschaft
  • "Money and Currency", 1991, Social Research.
  • Economics and Sociology of Capitalism, 1991.

See also


  1. ^ Joseph Alois Schumpeter: Biography
  2. ^ "$200 Laptops Break a Business Model". New York Times. January 25, 2009. Retrieved 2009-01-27. "Indeed, Silicon Valley may be one of the few places where businesses are still aware of the ideas of Joseph Schumpeter, an Austrian economist who wrote about business cycles during the first half of the last century. He said the lifeblood of capitalism was “creative destruction.” Companies rising and falling would unleash innovation and in the end make the economy stronger." 
  3. ^ George Viksnins. Professor of Economics. Georgetown University. Economic Systems in Historical Perspective.
  4. ^ Schumpeter#s Diary as quoted in "Prophet of Innovation" by Thomas McCraw. page 4. see,+Teacher,+Politician&ei=ra6FS4PhE4KUMsuSsJEM&cd=1#v=onepage&q=horseman&f=false
  5. ^
  6. ^ Schumpeter, J.A. The theory of economic development : an inquiry into profits, capital, credit, interest, and the business cycle / translated from the German by Redvers Opie (1961) New York: OUP
  7. ^ Recent research suggests that the Kuznets swing could be regarded as the third harmonic of the Kondratiev wave - see Korotayev, Andrey V., & Tsirel, Sergey V. A Spectral Analysis of World GDP Dynamics: Kondratieff Waves, Kuznets Swings, Juglar and Kitchin Cycles in Global Economic Development, and the 2008–2009 Economic Crisis. Structure and Dynamics. 2010. Vol.4. #1. P.3-57.
  8. ^ Richard Timberlake (August 2005). "Gold Standards and the Real Bills Doctrine in U.S. Monetary Policy". Econ Journal Watch. 
  9. ^ John Bellamy Foster (May 2008). "Sweezy in Perspective". Monthly Review. 
  10. ^ "I've watched the process [creative destruction] at work through my entire career," p. 48, Greenspan, Alan The Age of Turbulance : Adventures in a New World (2007) New York: Penguin Press
  11. ^ Robert Solow on Joseph Schumpeter
  12. ^ "Taking Flight". The Economist. 17 September 2009. 

Further reading

  • "The Theory of Economic Development: An Inquiry into Profits, Capital , Credit, Interest, and the Business Cycle". Was firstly published in German in 1911. See major works above
  • Cheung, Edward "Baby Boomers, Generation X and Social Cycles" "The latest findings on Schumpeter's Creative Destruction."
  • Harris, S. E. (ed.), 1951. Schumpeter: Social Scientist. Harvard University Press.
  • Robbins, L. C., 1955, "Schumpeter's History of Economic Analysis," Quarterly Journal of Economics 69: 1-22.
  • Muller, Jerry Z., 2002. The Mind and the Market: Capitalism in Western Thought. Anchor Books.
  • Groenewegen, Peter, 2003. Classics and Moderns in Economics: Essays on Nineteenth And Twentieth Century Economic Thought: Vol. 2. Routledge. Chpt. 22, pp 203+.
  • McCraw, Thomas K., 2007. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Belknap Press.
  • Carayannis, E. G. and Ziemnowicz, C., 2007. Rediscovering Schumpeter. Palgrave Mcmillan. ISBN 978-1403942418.
  • Harry Dahms 1995. "From Creative Action to the Social Rationalization of the Economy: Joseph A. Schumpeter's Social Theory." Sociological Theory 13 (1): 1-13.
  • Richard Swedberg, Schumpeter: A Biography. Princeton: Princeton Uni Press, 1991.
  • Michaelides, P. and Milios, J. (2005), Did Hilferding Influence Schumpeter?, History of Economics Review, Vol. 41, Winter, pp. 98–125.
  • Michaelides, P. and Milios, J. (2004), Hilferding’s Influence on Schumpeter: A First Discussion, European Association for Evolutionary Political Economy Proceedings of the 16th Annual International Conference, Crete, Greece, 28-31 October (CD-ROM).
  • Michaelides, P., Milios, J. and Vouldis, A. (2007), Schumpeter and Lederer on Economic Growth, Technology and Credit, European Association for Evolutionary Political Economy, Proceedings of the 19th Annual International Conference, Porto, 2007, 1-3 November (CD-ROM)...

External links


Up to date as of January 14, 2010

From Wikiquote

Joseph Alois Schumpeter (February 8, 1883January 8, 1950) was an economist from Austria and an influential political scientist.



  • Gentlemen, a depression is for capitalism like a good, cold douche. (To economics students, recorded by RL Heilbroner, The Embarrassment of Economics, 1996)[1]
  • Innovation is the market introduction of a technical or organisational novelty, not just its invention. (Theorie der wirtschaftlichen Entwicklung, 1911)

Capitalism Socialism and Democracy (Third Edition)

  • I felt it my duty to take,and to inflict upon the reader, considerable trouble in order to lead up effectively to my paradoxical conclusion: capitalism is being killed by its achievements.
    • Preface, pg.xiv
  • However, if Marx had not been more than a purveyor of phraseology, he would be dead by now.
    • Part I, Chapter I, pg.5
  • Geniuses and prophets do not usually excel in professional learning, and their originality, if any, is often due precisely to the fact that they do not.
    • Part I, Chapter III, pg.21
  • As a matter of fact, capitalist economy is not and cannot be stationary. Nor is it merely expanding in a steady manner. It is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure as it exists at any moment.
    • Part I, Chapter III, pg.31
  • For one thing, to predict the advent of big business was considering the conditions of Marx's day an achievement in itself.
    • Part I, Chapter III, pg.34
  • The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation-if I may use that biological term-that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.
    • Part II, Chapter VII, pg.83
  • Situations emerge in the process of creative destruction in which many firms may have to perish that nevertheless would be able to live on vigorously and usefully if they could weather a particular storm.
    • Part II, Chapter VIII, pg.90
  • Nothing is so retentive as a nation's memory.
    • Part II, Chapter VIII, pg.100
  • Want and effective demand are not the same thing. If they were, the poorest nations would be the ones to display the most vigorous demand.
    • Part II, Chapter X, pg.114
  • It is quite possible that future generations will look upon arguments about the inferiority of the socialist plan as we look upon Adam Smith's argument about joint stock companies which, also, were simply false.
    • Part III, Chapter XVII, pg.196
  • The capitalist process shapes things and souls for socialism.
    • Part III, Chapter XIX, Section I, pg.220
  • Nothing is so treacherous as the obvious.
    • Part IV, Chapter XX, Section I, pg.235
  • To realize the relative validity of one's convictions and yet stand for them unflinchingly is what distinguishes a civilized man from a barbarian.
    • Part IV, Chapter XX, Section III, pg.243
  • In economic life competition is never completely lacking, but hardly ever is it perfect.
    • Part IV, Chapter XXII, pg 271
  • The trouble with Russia is not that she is socialist but that she is Russia.
    • Part V, Chapter XXVIII, pg.404
  • This civilization is rapidly passing away, however. Let us rejoice or else lament the fact as much as everyone of us likes; but do not let us shut our eyes to it.
    • The March into Socialism, pg.419


Quotes About Joseph Schumpeter





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Joseph Schumpeter
BornFebruary 8, 1883(1883-02-08)
Triesch, Moravia, formerly Austria–Hungary (now Czech Republic)

Joseph Alois Schumpeter (February 8, 1883 – January 8, 1950) was a researcher in economics and political science. He studied the theory of Marxism and capitalism. In his view, capitalism cannot work because of what he called creative destruction. This term was originally used by Karl Marx to describe the capitalist system, but Schumpeter used it differently: He says that each time innovation occurs, it must (also) change what already exists. In this context, certain structures that already exist will also be destroyed. A current example of this is that digital photography has made the instant camera, such as Polaroid almost disappear.

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