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.”  Each of these pieces seems to get at the fundamentally disruptive nature of capitalism.  For me, one of the provocative ideas is that there could be a peculiarly American flavor to Schumpeterian entrepreneurship. One of my favorite empirical pieces to discuss in class is Alesina, Glaeser and Sacerdote “Why Doesn’t the United States Have a European-Style Welfare State?” A key conclusion of that piece, even today, is that Americans tend to buy into the idea of economic and social mobility more than Europeans do (irrespective of whether we actually are more mobile).  This belief helps to explain why we don’t pony up more to build a social net.

On the subject of physical mobility, it was certainly horrifying to read and contemplate the massive social displacements and economic distresses here and especially abroad. I wonder to what extent the US academy benefited from the number of European immigrants that came to our shores following Hitler’s rise to power?

With respect to our own thinking about innovation, Schumpeter gets at the idea of different types of entrepreneurs — certainly, the classic characterization is the entrepreneurial start up. He also gets at the idea that there are entrepreneurs even within the emergent giant corporations, men who evaluate and act upon suggestions from specialists within the firm. Indeed, this is the idea of the internal capital market and a signal of a shift from entrepreneurial to managerial capitalism.

He also continued to struggle vis-a-via (his would-be rival) John Maynard Keynes. While Keynes pushed out a treatise on money and his opus, The General Theory, Schumpeter failed to make ground on these matters. Again, this interview with Thomas McCraw lays out some personal differences between the men that may account for their differing perspectives.