Schumpeter, Joseph A(lois) (1883–1950)

Austrian-born US economist, sociologist, and historian of economic thought. Schumpeter was one of the giants of 20th-century economics, whose majestic vision of the entire economic process can rank with that of Scottish economist Adam Smith or German philosopher and economist Karl Marx. In 1942 he produced what has ever since come to be regarded as his masterpiece: Capitalism, Socialism and Democracy, a book which was as much addressed to intelligent laypeople as to his fellow economists. In this work, he paradoxically rejected the Marxian diagnosis of the imminent breakdown of capitalism and, at the same time, predicted the almost inevitable arrival of socialism as a result of the betrayal of capitalist values by the intellectuals of the western world.

In an astonishing book, Theory of Economic Development (1912), written at the early age of 28, he replaced Marx's greedy capitalist with the dynamic innovating entrepreneur as the lynchpin of the capitalist system, responsible not just for technical progress but the very existence of a positive rate of profit on capital. Distinguishing between ‘inventions’ and ‘innovations’, he stressed the fact that scientific and technical inventions amount to nothing unless they are adopted, which calls for as much daring and imagination as the original act of discovery by the scientist or engineer. Furthermore, the ‘innovations’ that count for economic progress consist of much more than the new machines that capture popular attention: they take the form of new products, new sources of supply, new forms of industrial and financial organization, just as much as of new methods of production.

Born and educated in Austria, and briefly minister of finance of Austria in the years following World War I, Schumpeter emigrated to the USA in 1932, where he established a new career for himself. A prominent member of the department of economics at Harvard University in its golden decade of the 1930s, he published a massive two-volume study of Business Cycles (1939), which was one of his least successful books: it struck many of his colleagues as being too glib and, moreover, moved too quickly over the cause of the then prevailing economic depression.

After the publication of Capitalism, Socialism and Democracy, Schumpeter spent much of the remainder of his life converting a youthful book on the history of economic thought into a History of Economic Analysis (1954), which was published posthumously. He was founding member and president of the Econometric Society in 1938 and president of the American Economic Association in 1948.