Joseph Alois Schumpeter (February 8, 1883 – January 8, 1950) was an Austrian Economist (but not a member of the Austrian School of economists) and political scientist, who is best known for his idea of innovation as creative destruction. He is generally seen as one of the most influential economists of the 20th century. In the desperate period after the first world warin 1919 he was briefly Minister of finance of Austria.
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Life Course[Edit][]
Youth[Edit][]
Schumpeter was born in 1883 in Triesch, Moravia, then part of Austria-Hungary, but now is in the Czech Republic . His parents were Josef Schumpeter and Johanna Grüner of German descent and Catholic. His father owned a drapery in Třešť. He died when Joseph was four years old following a hunting accident. [1] In 1893 moved Joseph and his mother, who had remarried in the meantime with a much older General, to Vienna. [2]. through the connections of his stepfather he could visit the Theresianum in Vienna, an elite school for the Austro-Hungarian nobility.
Study[Edit][]
In 1901 he left the Theresianum with a very good final exam. He immediately began his studies at the University of Vienna. His interest went out to economy, that at the time, however, only in the framework of a law could be studied. Schumpeter studied with Friedrich von Wieser and Eugen von Philippovich, as well as from 1904 in Eugen von Böhm-Bawerk. He stood in these years in contact with Ludwig von Mises, Emil Lederer, Felix Somary, Otto Bauer and Rudolf Hilferding. In this way, he was not only familiar with theMethodenstreit between Carl Menger and Gustav Schmoller, but also with the Böhm-Bawerk/Hilferding-controversy over the labour value- and Karl Marx's distribution theory . In 1906 he was awarded a PhD in Eugen von Böhm-Bawerk.
First marriage and stay in Egypt[Edit][]
After his promotion in the right he first visited Berlin, where he visited the seminars of Schmollers . Afterwards, he spent a year at the London School of Economics and the universities of Oxford and Cambridge. At the end of 1907 he married the English Gladys Ricarde Seaver, which he probably in the circles of the Fabian Society had met. The pair would split up in 1913. Schumpeter had urgently need money to continue to pay for his lavish lifestyle. To arrive there in 1907-1908 he practiced to the International Court of Justice in Cairo. There he wrote the work, with which he established his name, Wesen und Hauptinhalt der theoretischen Nationalökonomie (The nature and essence of the theoretical Economics).
Professor in Czernowitz and Graz[Edit][]
After some study trips in 1909 he was appointed professor of Economics and public administration at the University of Czernowitz (this town was in Austria-Hungary, but now in the Ukraine). After two years he moved to the University of Graz, where he worked until the beginning of the first world war remained.
Minister of Finance of Austria[Edit][]
In the chaotic and desperate year 1919 he served seven months as Austrian Minister of finance. On 15 March 1919 he was, although he was politically independent party, Minister of finance in the Government Rider II. Schumpeter quickly came into conflict with both coalition partners, the Social Democrats and the Christian-soci eels, but also with its former study friend Otto Bauer, the Minister of Foreign Affairs, in particular over the question of whether Germany itself or not at Austria should join (Schumpeter was against) and on the sale of the Alpine Montan AG to Fiat. On 17 October 1919 the Government was Rider II by a decree of the constituent National Assembly succeeded by the Government Rider III. Schumpeter did not return in the new Government Rider III.
Banker[Edit][]
Despite that he had made many enemies in politics, he also had the necessary still friends. In 1920, he was one of the few to a banking license in hands. He knew this as president-to be appointed Director of the Biedermann Bank. This bank could in 1924 as a result of the economic depression of the early 1920s, however, no longer meet its obligations and tanked. For Schumpeter, this meant also private bankruptcy.
Second marriage and professorship at Bonn[Edit][]
In the period 1925-1932, he held a Chair at the University of Bonn, Germany. After the divorce of his first wife he married in 1925 in the marriage with Anna Reisinger, the twenty years younger daughter of the caretaker of the apartment where his mother lived. 1926 was a catastrophic year for Schumpeter. Anna died in Bonn the childbirth together with his newborn son. Two months earlier was his mother, where he was closely connected throughout his life, in Vienna died.
Period in the United States, third marriage[Edit][]
During the rise of Nazism , he moved to Harvard, where he had earlier, in 1927-1928 and 1930, college had given. He would become of 1932 to the year of his death in 1950 teaching. During his years at Harvard, he was not generally considered a good teacher, but he acquired a school of loyal followers. In 1937 he performed for the third time in the marriage with the American Elizabeth Boody. She possessed a PhD in English and in business cycle theory. Boody helped him at popularizing his work. [3]
His prestige among his colleagues wasn't very big, because his views seemed outdated and clashed with the then-fashionable Keynesianism. This period of his life was marked by hard work, but little recognition for his fundamental ideas.
Creative destruction[Edit][]
Under creative destruction (English: ' creative destruction ') means Schumpeter a process of continuous innovation, with successful applications of new techniques destroy the old. Schumpeter includes technical innovation for the only true source of economic growth. Successful innovation provides temporary market power, that the profits and market shares of companies based on previous techniques affects them. In a never ending process of rise and fall are old companies destroyed by new. There technical innovation according to Schumpeter is the only way which can increase prosperity, he sees nothing in measures setting unfocused is pumped money into the economy to growth.
Most important works[Edit][]
The history of the economic analysis[Edit][]
Schumpeter's great knowledge is reflected in his posthumous history of economic analysis. Some of his judgments are remarkable, such as his view that not Adam Smith, but Turgot was the most important 18th century Economist. Schumpeter criticized John Maynard Keynes and David Ricardo for the "Ricardian sin". According to Schumpeter, Ricardo and Keynes reasoned with abstract models where they were frozen and so all variables into account, except those few variables, with which they wanted to prove something, after which they could then easily demonstrate that one variable would cause the other. This led to the belief that according to Schumpeter unwholesome easy policy conclusions could pull off abstract theoretical economic models.
Schumpeter and Keynesianism[Edit][]
In Schumpeter's theory not Walrasian equilibrium theory is sufficient to describe the main mechanisms of economic development. Schumpeter believed that a well developed financial system, with a series of institutions for credit growth, it is an "entrepreneur" allows to realize his "ideas" by all the necessary "means of production" in to buy.
One can distinguish between economists who focus on the "real" world and that money regarded as no more than a lubricant to keep the whole thing running and economists that monetary authorities consider important, because monetary derailments also have implications in the "real" world. Both Schumpeter and Keynes fall into the latter category. Nevertheless, Schumpeter rejected classical liberal was, the Keynesian economics.
Schumpeter and capitalism's demise[Edit][]
Schumpeter's most read book is probably Capitalism, Socialism, and Democracy (capitalism, socialism and democracy), in which he discusses the theories of Karl Marx . Schumpeter is sympathetic to Marx's analysis, but contends that capitalism will be replaced by socialism for reasons other than Marx think. In this book presents Schumpeter also its famous concept of creative destruction, which means that old ways of working time be replaced by new and old structures.
Schumpeter and democratic theory[Edit][]
In the same book Schumpeter put forth a theory of the democracy , which sought, that what he called the "classic leather", to challenge. He disputed the idea that democracy is a process, in which the voters identify with the public interest, and that politicians then this general interest performed on behalf of the voters. He argued that this was unrealistic, and that ignorance and superficiality of the people meant that they in fact to a large extent would be manipulated by politicians. The politicians determined the agenda. This made a ' Government by the people ' concept in his view both unlikely as junk. Instead, Schumpeter argued, strongly influenced by Max Weber, a minimalist model, where democracy is a mechanism for competition between leaders, similar to a market structure. Although periodic elections, where everyone voting keep, legitimize Governments and responsible, it is not a matter for the Government policy programme and of the people. The participatory role of individuals is usually severely restricted.
Schumpeter and entrepreneurship[Edit][]
The investigation of entrepreneurship owes much to the contributions of Schumpeter. He was probably the first scientist who developed theories about entrepreneurship. He gave two theories. In the first variant Schumpeter suggested that innovation and technological change within a nation of entrepreneurs, or the "wild spirits", comes. He also coined the word Unternehmergeist, in Dutch known as the entrepreneurial spirit.He believed that the entrepreneurs are the people who keep the economy of a country in progress. In the second variant, which he as a professor at the Harvard University elaborated further, he suggested that the actors, who propel the innovation and the economy are big companies . They have the resources and capital to invest in research and development . Both variants are today regarded as complementary.
Schumpeter and innovation[Edit][]
Schumpeter identified innovation as the critical dimension of economic change[4]. He suggested that economic change to innovation, entrepreneurial activities and market power running. He tried to prove that market power based on innovations offered better results than the invisible hand and price competition. He suggested that technological innovation creates temporary monopolies, often causing temporary abnormal profits arise. That, however, soon disappear again by behavior of rivals and imitators. Schumpeter said that this temporary monopolies were necessary to give the necessary incentive for companies to develop new products and processes. [4]
His legacy[Edit][]
Although Schumpeter encouraged some young mathematical economists and even some time President of the Econometric Society (1940–41), Schumpeter was not a mathematician but rather an economist, which tried to sociological concepts to integrate into his economic theories. From current perspective it has been argued that Schumpeter's ideas on the business cycle and economic development could not be caught in the mathematics of his day-to formalize them partially, the then not yet existing conceptual framework of non-linear dynamic systems needed.
The first time after his death Schumpeter's influence limited mainly to various heterodoxeconomists, especially European, who were interested in industrial organization, evolutionary theory and economic development, and that is usually on the other side of the political spectrum than Schumpeter itself. Often they were influenced by Keynes, Karl Marx and Thorstein Veblen. Robert Heilbroner was one of Schumpeter's most renowned students. Heilbroner has extensively written about him in his work The Worldly Philosophers.
Other famous students of Schumpeter, the Economist Nicholas Georgescu-Roegen, the former President of the Federal Reserve System Alan Greenspan,[5] and winner of the Nobel Prize for Economics Robert Solowwho studied with him during his time at Harvard and that Schumpeter's theory has expanded later. [1].
Today, Schumpeter has a following at in areas outside the standard economy of the textbooks, such as economic policy, management studies, industrial policy and the search for innovation. Schumpeter was probably the first researcher who developed theories about entrepreneurship . The innovative program of the European Union and the main realization of this, the Lisbon strategy, for example, is influenced by Schumpeter.