The topics of this re-lecture are the market economy and entrepreneurship.
Today the most commonly used metaphor from economics (apart from Adam Smith’s "invisible hand") is "creative destruction"(1). This concept was introduced by Joseph A. Schumpeter. The idea of creative destruction is essential to the theory of a market economy.(2) Two practical examples of creative destruction are the development of microelectronics since the 1970s and the subsequent widespread digitization of the economy and the associated widespread destruction of large parts of the mechanical and electrical engineering industries. Many more creative and disruptive digital applications have also emerged or are in the pipeline. Another example is the lighting industry (which is also undergoing a further revolution, 120 years after Thomas Edison) with electric filament and discharge light bulbs now being replaced by LED (light-emitting diodes), which are based upon semiconductor technology. Creative destruction goes hand-in-hand with innovation. Schumpeter was the first economist to comprehensively analyze and clearly describe the transformational function of innovation in a market economy together with the key human factor, the entrepreneur.
An unusual life – and an incredibly productive one
Joseph A. Schumpeter (1883-1950) was – one is inclined to say – a man with an extraordinary creative drive. This found its initial expression in his epochal treatise (over 600 pages) The Nature and Essence of Economic Theory 1908(3) which was his first work to attract the attention of fellow economists. The final expression of this creativity was another seminal work, the momentous History of Economic Analysis (4), an encyclopedia of economic thought, which was published posthumously in 1954.
Schumpeter was born into a family of industrialists in Moravia (then part of the Austro-Hungarian Empire, now Czech Republic). After growing up in aristocratic surroundings he benefited from a humanist education at the elite Theresianum high school in Vienna. As was obligatory at that time for an economist in Austria, he studied law, politics and then economics. Among his teachers, whom he regarded most highly, were Carl Menger (1840-1929), Friedrich von Mises (1851-1926) and Eugen von Böhm-Bawerk (1851-1914). During and after university he was in regular contact with "Socialist School" economists (Otto Bauer, Emil Lederer, Rudolf Hilferding), later economists of the "German Historical School" during his time in Berlin, and the "Neoclassical School" while working in Britain.
As an economics wunderkind he was the youngest professor in the Danubian monarchy, at first in Czernowitz(6), and then in Graz. Later for a while he was research professor at Columbia University, New York. The First World War, a major catastrophe for Europe, also disrupted Schumpeter’s academic career. Having identified closely with the super-national Habsburg state(7) and with a pacifist outlook, Schumpeter was opposed to the forced dissolution of the Austro-Hungarian economic area and continued to support the idea of a Danubian federation. During 1919, a turbulent year in Austrian history, Schumpeter was briefly finance minister during the First Austrian Republic under the Social Democratic chancellor Karl Renner. He soon moved the private sector as president of the Biedermann & Co. bank, which failed during the economic crisis at that time. As a consequence, Schumpeter was to lose all his savings. He spent several years repaying his debts by employing his talents as publisher and lecturer. Afterwards, during his time as professor in Bonn (1924-1932) he gained an understanding of the "mixed" economy, the nature of cartels and the coexistence of public corporations and family businesses.(8) The death of his wife and child during that time dealt him a fateful blow, which affected his general attitude for the rest of his life.
At Harvard (1932), Joseph A. Schumpeter was a pioneer of "scientific" economics. He was a joint founder of econometrics and collaborated with Wassily Leontief, an outstanding mathematician-economist. As a charismatic and dedicated teacher, he attracted a circle of exceptional students, including Paul Samuelson, James Tobin, Paul Sweezy(10) and Kenneth Galbraith(11). Although Schumpeter helped Harvard to its reputation as a top address for economics, his relationship with the university remained an uneasy one.
More than an economist – an all-round social scientist
Not only was Schumpeter the economist of his generation with the widest range – his principle fields of research were money, fiscal policy, business cycles and systems of economic governance – he also demonstrated a firm sociological understanding of capitalism and he stands in line with Max Weber and Karl Marx. His comprehensive education, numerous languages (12), cosmopolitan outlook, and tireless researches into political economics together with a lucid style of writing equipped him, more than others, to become the foremost historiography of economic ideas. His way of thinking (historical, sociological and theoretical) is exceptional among economists and social scientists, today even more so than during his lifetime.(13)
Joseph Schumpeter was a practitioner of "methodological individualism", which argues that economic and social behavior should be considered an aggregate of more or less intended actions of individuals.(14) Although he acknowledged the Austrian approach (Austrian School of Economics) he is not generally counted as a member of that school, both because of his unconventional approach and also his keen interest in a socio-economic subject: entrepreneur/entrepreneurship. Schumpeter was always independently minded. To become a member of a group or school was alien to him. However, he did later regret being unable to establish his way of thinking as a school of economics in the same way as Alfred Marshall, Gustav von Schmoller (Historical School) and John M. Keynes.(15)
Unlike Keynes, Schumpeter advocated the long-term view and avoided the propagation of politico-economic advice. He was a fierce critic of the so-called "symbol economy" in contrast to the "real" value-creating economy.(16) Joseph A. Schumpeter was always a researcher, dialectical, and a critic who relied upon factual arguments. He was fitted out with much irony but also a healthy dose of self-doubt. Life’s lessons taught him to be a rather pragmatic economist, who criticized attempts to save old industries, but also approve the selective granting of loans to growth sectors or would approve of temporary cartels to protect infant industries. His approach was practical, analytical and based upon the assumption that dynamic change was a constant factor underlying economic processes. Equilibrium and perfect competition were therefore not to be regarded as the normal state of affairs, but as exceptional cases and abstract models. In other words: Schumpeter thought more in terms of business and society, and less in terms of quasi-deterministic processes or abstractions.
As an economist he often devoted his investigations and analyses to technical progress and constant change. Politically he was a thinking liberal conservative. Because social structures are not lifeless, Schumpeter believed that transformational structural economic change should be accompanied, wherever necessary, by transitional social support; within economic life we should abide by and not abandon our human ethical values. The economy should not be value-free. Schumpeter did not follow trends of thought, which are also found in the academic world; instead he followed his own self-directed course. His major works expose a deep understanding and an abundance of facts and references. They are the hallmark of a great, holistic, synthesizing and analytical thinker. It was never his objective to construct an all-embracing, complete, universal theory but instead to penetrate, illuminate and explain real economic and social phenomena.
During his eventful life in the turbulent first half of the 20th century he resided in nine cities in five countries. Joseph A. Schumpeter also experienced moments of lasting and great recognition. A pinnacle was reached when, shortly before his death, he received a standing ovation for his keynote speech as President of the American Economic Association. In that speech he critically analyzed the subjectivity of economists.(18) More recently, Schumpeter, who in younger years had dreamed of becoming the best economist, was awarded a special honor: he was declared as Economist of the 21st Century.(19)
The market economy – unremitting change
Schumpeter believed that stasis (equilibrium) in the market economy is a contradiction. Stasis or equilibrium would mean that the market economy had lost its intrinsic strength and dynamism, and instead reverted to a different type of economy, namely a socialist centrally planned and collective economy.(20) The essence of the market economy is its constant endogenous renewal; in other words, innovation is intrinsic to the system and technical progress is endemic. The market economy possesses an incessant drive toward expansion,(21) as clearly demonstrate by its penetration of almost all the former centrally planned economies, above all China, something considered inconceivable a few decades ago.
Schumpeter emphasized the "creativity of the market", which repeatedly generates new combinations of goods and services(22) and constantly disturbs existing economic relations, also due to the unpredictable behavior of its numerous players, which in turn causes ruptures in the market structure: so-called "disruptive innovations" (Clayton Christensen). Such innovations can also create opportunities for temporary monopolies with extraordinary profits as a reward for opening up new economic spheres. Schumpeter revived the concept of innovation and gave it a central role as the factor which propels growth in the market economy.
Enterprises are forced to constantly improve and innovate. Businesses that do not or can not follow this Schumpeterian maxim are sooner or later commercially sidelined. Schumpeter recognized very soon that innovations can arise in many shapes and forms: as products, manufacturing methods, markets, different methods and sources of procurement, or even new business models. Competition can take place through technology, procurement, organization and products, and not just by price competition. As he perceived it, any unique advantage gained through innovation will usually not last very long, because other suppliers will attempt to replicate successful new products and in doing so will eliminate any monopoly.
Such unremitting change in a market economy will also lead to serial disturbances or cycles. Joseph Schumpeter also turned his attention to this phenomenon, above all in his work Business Cycles, where he explains the "process of endogenous economic change". In 1939, he named these cycles "Kondratiew Cycles" in honor of the great Russian economist who had discovered these long- term waves of innovation (long-term cycles over fifty-years). These cycles of technical innovation are virtually self-evident (23) when you consider previous waves of scientific research and technological change which gave rise to electricity, polymer chemistry, the railways and motor vehicles – as well as the entrepreneurs who turned them into economic reality. A dynamic economy is qualitatively different from an economy in which stability is considered the normal state. It is easy to see why Schumpeter attached importance to such volatile characteristics of the market system, unlike economists such as Keynes, who set himself the objective of re-establishing ‘normal’ aggregative economic equilibrium.
According to Schumpeter, the market economy is more than a self-regulating system: it is a "cultural form", because it affects so many aspects of life and – in both good and bad ways – will influence human beings and society. It is recognized, and not only by its critics, that the market economy is aggressive, efficient and value-free. A contemporary negative aspect is the virulent economization of society, (24) which in turn leads to alienation, with excess value extraction instead of value creation and anonymous property ownership via capital markets; share certificates metamorphose into speculative betting slips; property ownership is devalued without responsibility and accountability. And at work there is no place for loyalty in a value-free zone.(25) An unregulated market economy will destroy personal relationships(26), when money is preferred to morality the bonds that hold civil society together will be soon broken. This attitude can gradually displace traditional values such as those instilled by a humanist and religious education (moral edification), including diligence, prudence and charity.
Joseph A. Schumpeter considered the decline of the market economy/capitalism as a distinct possibility. He believed that capitalism could be destroyed by its own success. In other words, the market economy could carry the seeds of its own destruction. (27) He believed the main causes of this gradual decline – he reckoned with 50 to 100 years – would be its rejection by intellectuals, who would increasingly criticize the satisfaction of ‘mere’ material wants (consumer society) and secondly due to managers who would usurp the power of major public corporations: value-free functionaries in place of responsible and accountable owners and entrepreneurs.
The market economy depends upon the preconditions which have been created for it: a legally protected right to private property, an effective competitive framework, ethical values (to a certain degree). If these preconditions do not (or no longer) exist then irreparable structural faults will appear and cause the system to collapse. (28) Schumpeter regarded the racketeering he witnessed in the business world to be an attack on the market economy system.
It is less well known that he strongly advocated the Roman Catholic Social Encyclicals(29), an economic order with corporatist characteristics and that he also supported the social market economy which was successfully introduced by Ludwig Erhard in post-war Germany.(30) He regarded the social market system as the third way between unregulated free-market capitalism, whose perceived inequality reduces the acceptance of capitalism(31), and socialism with dictated equality which eventually turns into totalitarianism. Schumpeter believed the conflict of interest between workers and companies was fomented by political parties with negative consequences. He argued that both sides had a common interest in optimizing utility. He also believed that the growing prosperity of workers and their widespread social elevation into the bourgeoisie class indisputably contradicted Marx’s theory of the impoverishment of the masses. However, he did perceive a lasting conflict of interest between two other groups: between those who live only for today, and those who prudently provide for the future.
Schumpeter and the market economy today
On the whole, Schumpeter saw no good reason for reliance upon the state. State power will always tend to grow because the "tax state" will never limit its expenditure (it is not in the interest of politicians to do so) and so the state will regularly and frequently raise its level of indebtedness. Deficit spending has no useful function in the long-run and short-term state spending programs will have damaging side-effects, such as encouraging free-riding or enabling a society to avoid introducing essential but painful structural reforms. Instead, he believed that the downward phase of the business cycle, by removing uncompetitive enterprises (zombie firms) from the market, was not only unavoidable but also useful and essential.(32)
The rapid digitization of the economy over the past ten years will lead to more than basic or cross-sectoral innovation, as we have experienced so far. It will also transform the market economy. According to experts, the digital economy will open the door to a different quality of industrialization and completely overhaul the services sector from top to bottom. It would be well worth our while to obtain a clearer picture of the digital divide and its impact on society and whether the anti-competitive practices of internet monopolists and oligopolists (Apple, Google, Facebook, Uber) by dominating markets and locking-in customers (hard to regulate against) may seriously damage the market economy and even hollow-out democracy; if so, decisions are imminent what action is appropriate to make such social disruption bearable. It is not far-fetched to conclude that the market economy could be undermined by the internet, due to its “innovative” business models and rules unlike any in previous phases of industrialization,(33) and bearing in mind that so far the response of governments has been too weak and too slow.(34)
As a sociologist, Schumpeter identified individualization as a grave social issue, which could eventually undermine communities and society as a whole.(35) Innovation focused on value creation that is intelligent and conserves natural resources is the most promising route for a market economy to take. On the other hand, the economization and commodification of society by "financial capitalism" (as opposed to value-creating "industrial capitalism") can threaten the mutually beneficial coexistence.
Economic theory (and business administration/management studies), it is increasingly argued, should take a more evolutionary and reality-oriented approach that also includes human psychology and group behavior. Overly sophisticated econometric models and strictly scientific and clinical experiments on economic behavior are more likely to distract us from undertaking a thorough holistic analysis of social and economic phenomena. Relevance is often sacrificed for what is claimed to be scientific rigor. It was not careless exaggeration when Schumpeter denounced the direction being taken by economics and the social sciences, the cumulating underhand dealings in the financial sector, and the rise of managerism (characterized by short-termism, obsession with growth rates, group egoism and liability avoidance strategies) as the two main symptoms of a declining market economy.
There is another fundamental point to consider: economic systems inevitably change over time and the market economy is no exception. As soon as a certain level of material satiation is reached, further marginal increases become less attractive according to the "Maslovian hierarchy of needs" and the theory of marginal utility. The market economy, which focuses on maximizing the satisfaction of ever-more artificially created material wants, is, in its present form, in danger of invalidating itself (being no longer fit-for-purpose). Human needs beyond the material, namely the various manifestations of personal, collective and social development, will inevitably require us to push back the economization of society and to tame the capital markets. This does not necessarily mean adopting an alternative economic system, but it does call to change course and set new boundaries.
The ‘discovery’ of the entrepreneur
Economic activity is the result of human action, above all that of entrepreneurs, and not the result of planning.
(Schumpeter’s variation on "History is the result of human action, but not of human design" by Adam Ferguson (1723-1817).
The market economy depends upon the entrepreneur to spur on progress. Unlike merchants or brokers, who exploit differences in price or value, the entrepreneur actually creates value by successfully innovating in the market.(37) Entrepreneurs create their own customers and markets. There is a fundamental difference between this and earlier mechanistic Marxist explanations which assume that the economy and commerce are an endogenous process.
As far back as 1911, Joseph A. Schumpeter, in his major work The theory of economic development: an inquiry into profits, capital, credit, interest, and the business cycle identified the entrepreneur as an actor who starts and forms an enterprise, and even regards that entity as their life’s work, and therefore will do whatever is necessary to overcome or clear obstacles that stand in their way.(38) In his days in many cases entrepreneurs will aim to build industrial dynasties to pass on their inheritance.
Entrepreneurs are risk-takers and hungry for success, they are not mere managers, they are the real ‘makers and shakers’; even if they are not the actual inventors of the products or processes. The prime motive of the entrepreneur is, as they often say so themselves, not money and wealth, but the desire to create and shape things, which means they must have the courage to break rules, to throw traditional business models overboard, and successfully compete ("will to conquer... seeks out difficulties, changes in order to change, delights in ventures")(39). The entrepreneur is a self-appointed destabilizer of the market, who may be well rewarded if successful, but suffers often painful consequences in the event of failure.
Joseph A. Schumpeter drew particular attention to the role of the entrepreneur in creating demand for credit, which they require to establish and grow a business. Entrepreneurs depend upon banks as a source and dispenser of risk capital (another Schumpeterian concept). The interaction between banks/financiers and entrepreneurs also involves a competitive struggle by entrepreneurs to obtain scarce capital. The critical role of banks in selecting suitable investments (the role of the entrepreneur is not linked to wealth) is generally overlooked; as is the role of banks in creating money; and the geographic concentration of capital lenders in urban centers. While entrepreneurs will produce goods and services, the financier will "produce" (at least as a classical merchant banker) money and credit. Schumpeter attaches great significance to "entrepreneurial bankers".(40) It is only when experience, an insight into human nature, and far-sightedness are available in sufficient measure that money can be successfully invested in promising business ventures. By the way: Schumpeter’s description of how credit is granted is not unlike how contemporary venture capital financing works.
Joseph Schumpeter noticed how innovation is increasingly practiced by major corporations, and how entire R&D departments can devote long-term efforts to specific innovation topics. However, as the history of industrial corporations demonstrates, the ability and desire to innovate often declines the bigger a company gets. Schumpeter did not see the function of entrepreneur restricted exclusively to privately owned businesses; instead he recognized that "entrepreneurial managers" would also eventually play an increasingly important role within major corporations.
The role of the entrepreneur in the economy is a complex area: entrepreneurs are factors of production (input) like labor or capital, but they are also endogenous drivers and individuals. The real impact of entrepreneurs – although self-evident, when you think of Steve Jobs, Bill Gates, Gordon Moore or Werner von Siemens, Robert Bosch and Hasso Plattner– is difficult to aggregate, and even harder to quantify within an econometric model. This explains why for the entrepreneur as a "human factor" is still a marginal figure in mainstream mathematical economics, (41) whereas entrepreneurship is recently gained in significance in business management studies.
Schumpeter and entrepreneurs today
The purpose of the market economy is, primarily, to create value of benefit to human beings. And this necessitates continual innovation. Entrepreneurs and innovative managers ensure that this "creative process" is sustained. Dynamic economies will have access to many entrepreneurs, while stagnating economies will have none, or their activities will be restricted. The entrepreneurially inclined should be offered sufficient space to develop their talents and also be rewarded with social recognition for their efforts.(4) The greater part of the population in a welfare state will accept the role of employee or civil servant and many, as studies show, will lack the entrepreneurial spirit or motivation. This could be a block on economic development, especially in Europe with an aging population. After all it is those who are entrepreneurially talented and spirited who must establish the startups, the small to medium-sized businesses, and privately-owned businesses of tomorrow. Major corporations should develop decentralized structures, offer greater autonomy, and delegate more responsibility to create the space for "entrepreneurial managers". This calls for radical new steps, such as breaking up and spinning off corporate divisions into independent businesses. A further point on this topic: the idea of an economic entity being too big to fail would be totally unacceptable for Schumpeter.
Joseph A. Schumpeter regarded intellectuals who are skeptical of material prosperity as a potential threat to the market economy and capitalism. In our day, another group is proving to be even more dangerous: I refer to them as managerists. They believe themselves to be the executive agents of shareholder value and yet in reality they abuse their position for personal gain. Over the past 20-30 years these executive employees, without in any real sense ever being made liable for their actions, have seriously damaged the social acceptance of capitalism; but they are not alone in this. The racketeering and high-risk practices of executives in the financial industry, with the cooperation or even collusion and tolerance of supervisory bodies and politicians, have also gravely discredited the market economy and the financial sector. The systematic extraction of wealth by managerists in the form of disproportionate and intransparent remuneration packages has hurt any residual spirit and ethic of loyalty in workforces and, especially when unjustified by any apparent entrepreneurial risk-taking; these are a source of annoyance to large sections of the community. This misbehavior places private businesses in opposition to civil society. Managerist remuneration also exacerbates inequality. This and their intentional ignorance of social responsibilities have created a lack of trust in the market system. To put it more drastically: those who are supposed to be trustees are, above all else, merely serving their own private interests and betray the trust placed in them. Schumpeter considered banks to be financiers of enterprises and partners of the real economy. He could not have predicted the excesses of today’s nominal economy with massive, ultra-fast transactions, the extreme leveraging of cheap third-party capital, and excessive anticipatory bonus packages: all of which bear no relation to real value-creating activity.
In short: a worst-case scenario has arisen and has yet to be resolved. As an economist, sociologist, historian and business pragmatist, Joseph A. Schumpeter was a proponent of a social and entrepreneurial market economy. He wished to prevent a "slow march toward Socialism" caused by people turning their backs on the "entrepreneurial market economy". Nevertheless, in reality he believed that this slow march toward socialism would be likely and even unavoidable. This dismal forecast has turned out to be true, to some extent as managerists have taken over the financial sector and parts of the industrial and services sectors, especially the big public corporations. Investment funds, in particular hedge funds and private equity firms, as anonymous depositories for capital, have emerged as influential, powerful corporate governors who are focused on the extraction of shareholder value.
The market economy has become a heterogeneous system of global dimensions; a mixtum compositum of privately owned and managed enterprises, think German mittelstand, together with mega-corporations run by and for their executive managers and largest shareholders (the investment funds), these are joined by state-capitalist corporations of Chinese and other types. This is repeated in the financial sector, where ownership is even more distant, with incredibly low levels of equity capital. In this way, it is not only the entrepreneurial landscape which has assumed unmistakable "socialist" characteristics; at the state level this is clearly apparent in the expansion of state activity and the disempowerment of private citizens.
A highly productive economy in an industrialized country will eventually come up against limits of material growth due to its consumption of finite resources and the satiation of material needs. If the market economy is to progress further (which is not the same as advocating rapid economic growth), these economies must become more entrepreneurial and open to innovation, and adhere to fair rules. The Social Market Economy offers a promising alternative to the present state of affairs: but not in the present alimentary forms of a welfare state, but as a new reformed economic system that enables and encourage individuals to develop and express their talents, which will benefit the wider community and society as a whole.
Literature
- Chandler, Alfred, D.: Scale and Scope, Harvard University Press, MA, 1990.
- Drucker, Peter, F.: Innovation and Entrepreneurship - Practice and Principles, Harper & Row, New York, 1985.
- Heilbroner, Robert, L.: The Worldly Philosophers, Simon & Schuster, New York, 1976.
- Hoefle, Manfred, J.: Managerismus, Wiley-VCH, Weinheim, Germany, 2010.
- Johnston, William, M.: Österreichische Kultur- und Geistesgeschichte – Gesellschaft und Ideen im Donauraum 1848-1938, Böhlau, Graz 1974. (Originalausgabe: The Austrian Mind – An Intellectual and Social History 1848-1938; University of California Press 1972).
- Kurz, Heinz D. (ed.): Klassiker des ökonomischen Denkens, Volume 2, Beck, Munich, Germany, 2009.
- McCraw, Thomas, K.: Prophet of Innovation: Joseph Schumpeter and Creative Destruction, Belknap Press of Harvard University Press, Cambridge, MA/London, 2007.
- Swedberg, Richard: Joseph A. Schumpeter. Eine Biographie, Klett-Cotta, Stuttgart, Germany, 1994.
- Encyclopedia Britannica (Capitalism by Joseph A. Schumpeter), Economist (In praise of entrepreneurs), Wikipedia.
Key publications of Joseph A. Schumpeter:
- Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie, Duncker & Humblot, Leipzig 1908. Republished: Verlag Wirtschaft und Finanzen, Düsseldorf, 34th edition 1991.
- Theorie der wirtschaftlichen Entwicklung: an investigation into company profits, capital, credit, interest and the business cycle, Duncker & Humblot, Leipzig 1912. Neuauflage: unveränderter Nachdruck der 4. Aufl. 1934, Leipzig, 369 S., Hamburg 1993. English: Theory of Economic Development. An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Harvard University Press, Cambridge, MA 1934.
- Business Cycles. A Theoretical, Historical and Statistical Analysis of the Capitalist Process, MacGraw-Hill, New York, 1939.
- Kapitalismus, Sozialismus und Demokratie, Francke, Berne, Switzerland,1946.
- Geschichte der ökonomischen Analyse, Vandenhoeck & Ruprecht, Göttingen, Germany, 1965.
Comment
In the Schumpeterian sense, the market economy and capitalism mean the same. However, nowadays the term "capitalism" is also used in a negative political sense.
Notes
(1) The phrase "perennial gale of creative destruction" appeared for the first time in Capitalism, Socialism and Democracy, p. 139.
(2) In the social sciences, capitalism and the market economy are used interchangeably; this practice is retained in this Managerism essay.
(3) Later translated into numerous languages; Schumpeter’s habilitation treatise at the University of Vienna.
(4) The History of Economic Analysis covers the entire history of economic thought, from the beginning with Plato until Keynes. The scope of this work, which took more than 10 years to research and write, was physically and mentally exhausting and corresponds to roughly eight standard books. This work was published by his wife, Elisabeth Boody Schumpeter, an expert in her own right, in 1954.
(5) The legal training of members of the Austrian School of Economics is reflected in their wide-ranging analyses and clarity of expression.
(6) Until 1914 the capital city of Bukowina, today west Ukraine.
(7) Throughout his life Schumpeter retained a strong affection for the former Austrian empire.
(8) A renowned Bonn student was Erich Schneider, Ordinarius at Christian-Albrechts University of Kiel, and President of the Institute for the World Economy and Chair of the Verein für Socialpolitik.
(9) Together with the Norwegian economist and statistician Ragnar Frisch, who was awarded the first Alfred Nobel Memorial Prize for Economics in 1973.
(10) Son of a banker, US American economist, Marxist publisher.
(11) The wide-range (liberal and Marxist) and excellent quality (two Nobel prizewinners: Samuelson and Tobin) is impressive.
(12) In his younger years, Schumpeter read the entire literature in the original languages: beginning with the Greek of Aristotle and Latin of the Scholastics, the French of Léon Walras, Jean Baptiste Say, Baron de Turgot and Frédéric Bastiat, the Italian of Vilfredo Pareto, the Spanish of Fernández Navarrete, as well as Dutch and Swedish, and finally English, his main language for the last 20 years of his life.
(13) Schumpeter regarded an understanding of history as an essential counterweight to ideological prejudice and a key starting point for the construction of economic models.
(14) This is a clear differentiation from the (contemporary) collective mainstream, which considered itself holistic.
(15) Schumpeter accused himself of weak leadership. Notable "neo-Schumpeterians" were William Baumol, Stanley J. Metcalfe (Evolutionary Economics and Creative Destruction) and Nathan Rosenberg.
(16) Keynes distinguished between the "real economy" (goods and services) and the "symbol economy", by which he meant the nominal economy (money and credit).
(17) He shared this point of view with the "Austrians" Ludwig von Mises, Friedrich A. von Hayek, Gottfried von Haberler and Fritz Machlup. John K. Galbraith one called him "the most sophisticated conservative of this century".
(18) The title is Science and Ideology (American Economic Review 29 (March 1949), pp. 345-359. He was no longer able to take up the appointment as President of the International Economic Association (1950).
(19) Keynes, however, due to his advocacy of the state and deficit spending is currently regarded as the leading economist of the previous century.
(20) See "Marsch in den Sozialismus" (in Jahrbuch für Sozialwissenschaft, Bd. 1 (1950), H2, S. 101-112).
(21) In Schumpeter’s own words, "Without innovations, no entrepreneurs, without entrepreneurial achievement, no capitalist returns and no capitalist propulsion. The atmosphere of industrial revolutions - of "progress" - is the only one in which capitalism can survive." (From Business Cycles, 1939, p. 127)
(22) Unlike August von Hayek, who emphasized knowledge and "spontaneous order", and Ludwig von Mises, who idealized the self-regulating power of markets and therefore vociferously opposed any form of intervention.
(23) Schumpeter attempted to precisely identify (the occurrence and scope) of these waves. He was convinced that he was able to do so (the indetermination of economic development).
(24) More recently on this topic, What Money Can’t Buy – The Moral Limits of Markets, Michael J. Sandel (US philosopher and representative of the communitarian movement of Robert L. Phillips (economist and leading Keynes biographer) as well as Robert and Edward Skidelsky (economist and philosopher), How much is enough?: Money and the Good Life. The question of happiness, prosperity and satisfaction has increasingly concerned social economists. Schumpeter consciously avoided making any statements on the issue of whether people in the Middle Ages were happier or more satisfied than people of his day.
(25) Schumpeter: "Indem der kapitalistische Prozess ein bloßes Aktienpaket den Mauern und Maschinen substituiert, entfernt er das Leben aus der Idee des Eigentums" (Theorie der wirtschaftlichen Entwicklung, S. 176)
(26) A fitting characterization is, "free to make a mess of their lives ", 1954, p. 129.
(27) "The patient is dying of a psychotic ailment; not cancer but neurosis is his complaint; filled with self-hate, he has lost his will to live". (Capitalism, Socialism and Democracy, 1942. p. 415).
(28) This is similar to the dictum of the political scientist Ernst-Wolfgang Böckenförde: "The free, secular state depends upon preconditions which it cannot itself guarantee." (Staat, Gesellschaft, Freiheit; 1976, S. 60)
(29) Quadrogesimo Anno by Pope Pius XI (1931) and Rerum Novarum by Leo XII (1891).
(30) Schumpeter in Capitalism, Socialism and Democracy, 2nd. ed., pp. 387ff.
(31) Unacceptable damage is caused above all by what are considered to be the unjustified remuneration of top executives and finance managers.
(32) Hyman P. Minsky (1919-1996), US economist (post-Keynesian), student of Schumpeter, developed a scarcely noticed theory of the susceptibility of capitalism to rogue credit financing ("Minsky moment/paradox") in 2007.
(33) Low barriers to entry, wide-ranging access to publicly financed scientific preliminaries, highly modularized R&D processes, massive marketing investment in scaling-up for rapid internationalization, the extraction of user information to lock-in customers: all this was hard to imagine five years ago.
(34) Schumpeter paid particular attention to radical change caused by the railway and motor vehicle.
(35) The sociologist Daniel Bell (1919-2011) in The Cultural Contradictions of Capitalism (1976) identified a looming crisis in market-oriented and satiated consumer societies, due to the inherent contradiction of consumption as a necessary driving force of the economy, which is, however, itself permanently weakened by such consumption.
(36) Unlike Schumpeter, Israel M. Kirzner, using the same approach as von Mises, sees the entrepreneur as the actor who utilizes available resources to clear the market through arbitrage.
(37) The term entrepreneur goes back to the banker and economist Richard Cantillon (1680-1734). Jean-Baptiste Say (1767-1832) later distinguished between the capitalist and the entrepreneur. Alfred Marshall (1842 - 1924), influential English economist, adopted the term as he could find no better English word to describe someone who is prepared to take risks to launch a commercial venture.
(38) The great teacher of management theory Peter F. Drucker (1909-2005) repeatedly highlighted the exceptional achievement of J.A. Schumpeter, "… Schumpeter broke with the traditional economics - far more radically than John Maynard Keynes was to do twenty years later. He postulated that dynamic disequilibrium brought on by the innovating entrepreneur,... . 1986/1993, p. 27. Drucker also introduced the concept of entrepreneurship, as well as management, to the non-profit-sector (health and education). Today the term social entrepreneur is also widely used: a sure sign that positive concepts such as leadership and entrepreneurship have also been hijacked by management consultants.
(39) Schumpeter in Theorie der wirtschaftlichen Entwicklung; 1912/1934/1961, pp. 93-94.
(40) In the mid-1980s, investment firms, such as Chemical Bank, would position themselves (PR) in business magazines by placing photos of corporate leaders or project leaders next to financial consultants together with their names and functions.
(41) Today the economy is incredibly "dehumanized" or "anonymous", although economic activity still depends upon the decisions and actions of human beings. Representatives of entrepreneurial/managerial economics such as Edmund Phelps and David Audretsch are rare.
(42) During the age of industrialization (mid to late 19th century) and 1950s/60s (Wirtschaftswunder), entrepreneurs were highly regarded in Germany.