QUICK FACTS All You Need to Know About Joseph Schumpeter
- creative destruction: replacing obsolete objects with innovative, better ones
- free market believer
- capitalism will eventually turn into socialism
- likes the idea of capitalism because it produces economic efficiency and innovation due to the competition
- first to promote the ideas of entrepreneurship, innovation, business cycles, evolutionary economics, and economic development
- free market believer
- capitalism will eventually turn into socialism
- likes the idea of capitalism because it produces economic efficiency and innovation due to the competition
- first to promote the ideas of entrepreneurship, innovation, business cycles, evolutionary economics, and economic development
"Entrepreneurial profit is the expression of the value of what the entrepreneur contributes to production."
Joseph Schumpeter’s Life and Influences
Joseph Schumpeter was born on Feb. 8, 1883, in Triesch, Moravia (now Czechoslovakia). He was the only son of Alois Schumpeter, a clothing manufacturer who died when Joseph was at the age of four. Seven years later, his mom married an Austrian commanding general in Vienna, thus, he was raised in the manner traditional to the Austrian aristocracy. In 1901, Joseph graduated with high honors from Theresianum, a school that was prestigious in its classical education.
From 1901 to 1906, he went to the University of Vienna to study law and economics. He attended seminiars of Eugen Philippović, Friedrich von Wieser, and Eugen Böhm-Bawerk. He received his doctor degree in law in 1906, and spent a brief period of time practicing law in Egypt. In 1909, he returned to Austria to teach economics at the University of Chernovtsy. Later in 1911, he joined the faculty at the Universty of Graz, where he remained until 1918, except for the academic year 1913/1914. During that period of time, he wrote his first major article, three major books, and had established his pre-eminence in economic theory.
During WW1, Joseph Schumpeter took part in the negotiation for Austria and put forward proposals for economic reconstruction. In 1919, he became the finance minister in the coalition government of the Austrian Republic, but later he was forced to resign.
Joseph Schumpeter became the present of a private back in Vienna, but because of dishonesty of some of his associates, the bank failed in 1924. He returned back to academic life and started teaching at the University of Bonn in 1925. In 1932, Joseph permanently moved into Harvard, and started to produce several more major books. In Jan 8, 1950, Joseph Schumpeter died in his sleep due to cerebral haemorrhage.
Throughout his life time, Joseph published 15 books and pamphlets, over 200 articles, book reviews, and review articles. His writings such as Imperialism and Social Classes (1951), Capitalism, Socialism and Democracy (1942), Economic Doctrine and Method (1914) and History of Economic Analysis (1954), reveal an insight about sociological and historical forces on economic ideas and events that can be compared only to that of Marx.
Capitalism, Socialism, and Democracy
(1942)
Schumpeter has three major principles:
· The essence of capitalism is innovation (“creative destruction”).
· The virtues of capitalism: 1) Its steady but gradual pattern of growth are long run and difficult to be seen, and its inequality and monopoly are short-run and conspicuously visible.
· It is dangerous for economists to prescribe “general” recipes or formulas because political and social circumstances are always changing.
Joseph Schumpeter was among the first to lay out a clear concept of entrepreneurship. In his book, he wrote about how capitalism sparks entrepreneurship by point out that entrepreneurs innovate not just by figuring out how to use inventions, but also by introducing new means or production, new products, and new forms of organization (land, labor, and capital). He argues that innovation take just as much skills and courage as does the process of invention.
In his book, Joseph wrote about how innovation leads to “creative destruction”. It is because innovations cause old inventories, ideas, skills, technologies, and equipment to become obsolete and useless. However, he believed that this creative destruction causes continuous progress and improves the standards of living for the people.
Joseph also argued that “perfect” competition can help maximize the economic well-being because all firms in nan industry can produce the same goods, sell them for the same price, and have access to the same resources and technologies. However he saw this “perfect” competition as unimportant because in his book, he wrote “[What counts is] competition from the new commodity, the new technology, the new source of SUPPLY, the new type of organization ... competition which ... strikes not at the margins of the PROFITS and the outputs of the existing firms but at their foundations and their very lives.”
Joseph Schumpeter VS Karl Marx
“Can capitalism survive? No I do not think it can.”
- (Opening of Joseph Schumpeter’s prologue of Capitalism, Socialism and Democracy)
People might think that Schumpeter was a Marxist, but analysis tells that both Joseph and Marx had different conclusions. Marx believed that capitalism would be destroyed by the proletariat (the working class), however Joseph believed that capitalism would be destroyed by its successes that would produce a class of people who benefited from capitalism but was opposed to the characteristics of wealth production, saving, and allocating resources to production. Unlike Marx, Schumpeter did not take pleasure in the destruction of capitalism. In his book, Capitalism, Socialism, and Democracy, he wrote “If a doctor predicts that his patient will die presently, this does not mean that he desires it.”
Schumpeter on Why GOLD! Makes Some People Freak Out
In his book History of Economic Analysis, Joseph recognized the implication of a gold monetary standard compared to a fiat monetary standard (money that has value only because of government regulation or law).
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 (middle class 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.
~LEGACY~
Although Joseph Schumpeter was not well received when he initially published his work, he was described as “today’s hottest economist,” in a 2000 issue of Business Week. Schumpeter has become a protagonist of the mainstream in economic policy, industrial policy, management studies, and the entire area of innovation. In fact, without Joseph Schumpeter, the concept of entrepreneurship might not be fully understood.
Although Joseph Schumpeter was not well received when he initially published his work, he was described as “today’s hottest economist,” in a 2000 issue of Business Week. Schumpeter has become a protagonist of the mainstream in economic policy, industrial policy, management studies, and the entire area of innovation. In fact, without Joseph Schumpeter, the concept of entrepreneurship might not be fully understood.