Originally published in Flourishing Jan/Feb 2013
Joseph Alois Schumpeter believed that capitalism would be destroyed by its successes. He predicted that by its unparalleled economic output, capitalism would spawn a large intellectual class that made its living by attacking the system of economic freedom that made its own existence possible. But, unlike Karl Marx, Schumpeter didn’t take pleasure in his predicted destruction of capitalism.
In his most famous book, Capitalism, Socialism, and Democracy1, Schumpeter defended capitalism, primarily for nurturing entrepreneurship. Indeed, he was among the first to distinguish entrepreneurship from inventing and inventions, pointing out that entrepreneurs also innovate by creating new uses for old products, new markets, and new forms of business organization and management. The question he said is not “how capitalism administers existing structures, … [but] how it creates and destroys them.” This “creative destruction” is what causes continuous economic progress and improvements in the standard of living for everyone.
Schumpeter was also a giant in the history of economic thought. His magnum opus, History of Economic Analysis2, was edited by his third wife, Elizabeth Boody, who had a PhD. in English; and published posthumously in 1954.
Joseph Schumpeter was born on February 8, 1883 in Třešť, Habsburg Moravia, then part of Austria-Hungary, where his parents owned a textile factory.
Though his father died when Joseph was just four years old, he was very familiar with business when he entered the University of Vienna to study economics and law. While there, he was one of the more promising students of the great Austrian economist, Eugen von Böhm-Bawerk. He earned a PhD. in 1906, and at the age of twenty-eight he published his first major work, Theory of Economic Development3.
After serving in several teaching appointments throughout Europe, and a brief stint as Finance Minister of Austria; Schumpeter immigrated to the United States in 1932, accepting a permanent position at Harvard. He remained at Harvard until his retirement in 1949.
Joseph Alois Schumpeter died at his home in Connecticut on January 7, 1950.
1. 1942. Capitalism, Socialism and Democracy.New York: Harper and Brothers. 5th ed. London, George Allen and Unwin, 1976.
2. 1954. History of Economic Analysis. Edited by E. Boody. New York, OxfordUniversity Press.
3. 1912. The Theory of Economic Development. Leipzig: Duncker and Humblot. Translated by R. Opie. Cambridge: HarvardUniversity Press, 1934. Reprint. New York, OxfordUniversity Press, 1961.