Schumpeter Live Blog

Tag: Schumpeter Live Blog

Schumpeter Turns 130

Happy Birthday (posthumously, of course) to Joseph Schumpeter (a.k.a., Jozsi, Schum, Schumy, Schump, Go-Go, and probably some less flattering names as well), born on February 8, 1883.

We’ve had a lot of fun with Schumpter over the past few years, including several iterations of Schumptoberfest (see here, here, and here), as well as an entire reading group built around him.  Let’s hope that we can instill just a little bit of this into our student body:

Economists are at long last emerging from the stage in which price competition was all they saw. As soon as quality competition and sales effort are admitted into the sacred precincts of theory, the price variable is ousted from its dominant position… But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance)–competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. (Capitalism, Socialism, and Democracy, 84).

We’ll see you for Schumptoberfest 2013.

Schumpeter and Business Cycles

In the paragraphs below, I attempt to both summarize McGraw’s description of Schumpeter’s contribution to business cycles and add a few comments  as to where his reasoning might help us interpret a post 1950 world.

For many years, Schumpeter focused his scholarly attention on understanding the ups and downs in the economy known as business cycles.  He viewed these ups and downs as part and parcel of the dynamics of capitalism, which could not be understood without paying specific attention to the institutions through which capital flowed.  The two volume 1,095 page magnum opus entitled Business Cycles captures Schumpeter’s look into virtually every nook and cranny of the dynamics of capitalism in the U.S., the U.K. and Germany.  Although he apparently left few stones unturned in this voluminous study, many reviewers concluded that he was not very successful in distinguishing between the forest (of cyclical dynamics) and the trees (of specific institutions in particular countries.)

One Schumpeterian conclusion, however, did come through with incredible clarity: “…theoretical equipment, if uncomplemented by a thorough grounding in the history of the economic process, is worse than no theory at all (254).”  Although Schumpeter would approve of the mathematical precision that modern economics has sought as well as of the empirical confirmation or rejection offered by econometric techniques, he would be aghast at economic analysis without either capitalists or entrepreneurs.  For him, both economic growth and business cycles – which must be closely linked in the study of capitalism – required the entrepreneur as innovator whether it be through new processes (including physical and virtual factories), new forms of organization (such as corporations and partnerships) and new forms of financing (including well developed bond markets, seller financed purchases, and a vibrant market for venture capital.) Continue reading Schumpeter and Business Cycles

The Sage, Part 1

Before I catalog my notes on the last section of the book, The Sage,  I’d like to simply point out some excellent resources that have helped me to put Schumpeter’s work in context.   Indeed, that is one of the main challenges for economists today, I think, is what was genuinely important about Schumpeter’s work and what wasn’t.

Certainly, McCraw is a strong partisan of Capitalism, Socialism, and Democracy as being the seminal piece.   Before you tuck that away as Gospel, you might wan to check out Robert Solow’s review of the book for the New Republic.   Solow is a central figure in economic growth and development over the past half century (help me out here, Professor Finkler) and also took courses with Schumpeter at Harvard.   He wasn’t so impressed with Schumpeter’s entrepreneur, and consequently the famous Solow growth model doesn’t draw heavily on these ideas.   What could have been?

Another interesting perspective on the emergence and persistence of managerial capitalism is Deidre McCloskey’s piece, Creative Destruction versus The New Industrial State,” comparing Schumpeter to John Kenneth Galbraith;  Schumpeter being the face of Harvard economics for the first half of the century and Galbraith for the second.  McCloskey is an important thinker and a brilliant writer, and her piece is excellent.

Then, of course, there is the Keynes versus Schumpeter rivalry.   This being a pro-Schumpeter crowd, let’s start with management uber-guru Peter Drucker’s thoughts.   Certainly, this territory is covered in the text.

I’ll post more on The Sage as we move toward our meeting date.

The Adult

This is a continuing live blog for the Innovation & Entrepreneurship Reading Group‘s discussion of Thomas McCraw’s Prophet of Innovation.  You can see previous entries by clicking on the “Schumpeter Live Blog” tag below.

The second section of the book covers Schumpeter’s life between 1925 and 1940, following the death of his beloved mother and his beloved wife, who died in childbirth of his son, who also died.  McCraw emphasizes that this had a rather profound impact on Schumpeter as he straddled time between Bonn and Harvard, all the while repaying the massive debts he accumulated during his vaunt into the private sector. The capstone of this section is that he, indeed, settled into Harvard permanently and reluctantly married for a third time.  These events set the stage for the final act of his life as The Sage, as McCraw puts it.

Given the tragedy in his life and his need to pay off his massive debts, it is not surprising that this was not the most productive period for his scholarship.  Two pieces jumped out at me as worth discussing — “Social Classes in an Ethnically Homogeneous Environment” and “The Instability of Capitalism.”  Continue reading The Adult

L’Enfant Terrible

Welcome to the Innovation & Entrpreneurship Reading Group’s Live Blog of Thomas McCraw’s Prophet of Innovation: Joseph Schumpeter and Creative Destruction.  The theme of the book is Schumpeter’s emphasis on capitalism as a process of creative destruction.  That is, entrepreneurship and innovation creates value and is the engine of the capitalist economy, but those that win at the game (successful entrepreneurs) leave a “gale of creative destruction” in their paths.  Hence, he sees capitalism as a positive-sum game, but not necessarily as making everyone better off.   Just ask any horse and buggy dealer.

The first chunk of the book, L’Enfant Terrible, covers the first 42 years of Schumpter’s life.  During that time, he had him traveling from Austria to England to Cairo to the United States, serving as a lawyer, a minister of finance, a businessman, and a scholar.   In the scholarship realm, depending on whom you believe, he wrote what was perhaps his defining work — The Theory of Economic Development.*

David Hounshell provides some context for this early work and Schumpeter’s entrepreneur, mark 1.

The entrepreneur is the innovator in Schumpeter’s conception. His original word for the entrepreneur was der Unternehmer, literally undertaker—not in the sense of mortician but from the French verb, entreprendre, to undertake. Schumpeter identifies the entrepreneur as the person who makes new combinations and carries them out. Entrepreneurs are change agents; they create the basis for economic growth.

Continue reading L’Enfant Terrible

I&E Reading Group, Prophet of Innovation

I’m sure that I am not the only member of the I&E Reading Group plodding through Thomas McCraw’s enthralling Prophet of Innovation this week.  I will also start in on the “live blog,” as promised.

The book is a linear progression through both his life and his thinking about economics.  One of the clear messages, and, indeed, a clear message of virtually any history of thought book, is that the thinker is shaped by his or her environment (see, for example, The Worldly Philosophers and New Ideas from Dead Economists).   McCraw certainly paints Schumpeter (a.k.a., Jozsi, Schum, Schumy, Schump, Go-Go) as a product of his environment.   From his mother’s social climbing (Chapter 2 Summary:  Jozsi was something of a mama’s boy) to the horror and devastation of World War I to his spectacular failure as an investment banker, each of these experiences is linked to Schumpeter’s intellectual and professional trajectories.

McCraw divides this world up into three parts: L’Enfant TerribleThe Adult, and The Sage.  By the time he’s 40, he’s already “played many parts — boy genius, Austrian aristocrat, English gentleman, Cairo attorney, Viennese economist, university professor, minister of finance, investment banker, socialite, and free-spirited Casanova” (124). Not to mention, triumphant swordsman in a duel with an uncooperative librarian (I’m looking at you, Mr. Gilbert).  That’s quite a whirlwind.  Not incidentally, he had also written some defining pieces, including The Theory of Economic Development and “The Crisis of the Tax State,” which made him almost world famous.

So, this week and next, I will be “live blogging” the book.  Rather than recounting the fascinating details of Schumpeter’s life in the “live” blog, I am simply going to offer up some thoughts and topics for discussion that I have carved out and that other members of the group have provided me.   I will likely have my first post up later tonight.

You can get a listing of our progress by clicking on the tag “live blog” below.   I hope it’s helpful.