Schumpeters Theory Of Economic Evolution example essay topic

'Can capitalism survive? No, I don't think it can. ' This quote opens the prologue to a section of Joseph Alois Schumpeters book 'Capitalism, Socialism, and Democracy. ' (1) On the basis of this one may assume that Joseph Alois Schumpeter was a Marxist, Schumpeters reasoning differed very much from Karl Marx's.

Schumpeter believed that capitalism would destroy its successes whereas Karl Marx believed that capitalism would be destroyed by its enemies (the proletariat). (2) Schumpeter did not relish the destruction of capitalism. Schumpeter, however, did believe that capitalism would spawn a large intellectual class. He believed that this class would make its living by attacking the very bourgeois system of private property and freedom. Which in contrary would be necessary for this intellectual class's existence. A political theory-Marxism, which came as the thinkings of Karl Marx.

Karl Marx was a German living in London; he was trained in the Hegelian philosophy. He produced an exceedingly complex theory consisting of at least three interrelated elements: a theory of economics, a theory of social class, and a theory of history. Karl Marx argued that things happen not by accident; everything has a cause. He argued that there would be a depression so big that that the capitalist system will collapse. (3) Schumpeter viewed capitalism as a dynamic engine of progress. In his view, mature economic systems find a regular and stable routine of supply, demand, and exchange; Schumpeter called this the "circular flow".

(4) Schumpeter believed that capitalism by nature is a form or method of economic change and never is nor ever can be stationary. This evolutionary character of capitalism was first outlined during the fall of 1911 when he wrote his 'Theory of Economic Evolution. ' In Schumpeters 'Theory of Economic Evolution' he wrote his theory of entrepreneurship. He believed that capitalism sparked entrepreneurship. Schumpeter pointed out that entrepreneurs innovate.

He stated that they innovate and not just by figuring out how to use invention. He argued that entrepreneurs introduced new means of production, new products, and new forms of organization. Schumpeter pointed out that innovation takes just as much skill and daring as does the process of invention. He argued that those daring spirits, entrepreneurs, created technical and financial innovations in the face of competition and falling profits. (5) Schumpeter led to gales of 'creative destruction.

' He believed that innovations caused old inventories, ideas, technologies, skills and equipment to become obsolete. This creative destruction, he believed, caused continuous progress and improved standards of living for everyone. He believed that these entrepreneurs interrupted this 'circular flow' with their creative destruction. Schumpeter argued that 'perfect competition' was the way to maximize economic well being. 'In capitalist reality as distinguished from its text book picture, it is not that kind of competition which counts but the competition from new commodity, the new technology, the new source of supply, the new type of organization. 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 lives.

' (6) He argued that it was this type of competition, this 'perfect competition' all firms in an industry produced the same good, sold it for the same price and had access to the same technology. He saw this type of competition as relatively unimportant. He argued on this basis that some degree of monopoly was preferable to perfect competition. Competition from innovations, he argued, was an ever-present threat that disciplines before its attacks. Consequently Schumpeter is given the honor of founding 'evolutionary economics. ' (7) II.

Joseph A. Schumpeter was born in Austria to parents who owned a textile factory. With his parents being business owners he had a head start in business when he started his studies. He began his studies of law and economics at the University of Vienna. He was one of the most prominent students of Eugen von Bohm-Bawerk and Fredrich von Weiser. As a student of Eugen von Bohm-Bawerk and Fredrich von Weiser he was able to publish his first book.

He published the famous Theory of Economic Development at the young age of 28, although his first publication was at the age of 22. During 1911 he gained a professorship in economics at the University at Graz. When at the University of Graz he finished his second book the Theorie der wirtschaftlichen Entwicklung. This book was published as WWI broke out, which Schumpeter was very opposed to. The first English edition of this book appeared during 1934. Schumpeter actually wrote three editions of this book over a period of 33 years.

(8) As he made new editions many passages were modified, rewritten or even omitted. In the second edition he actually revised the second chapter and omitted the 7th chapter. There were substantial differences among these editions. He had actually evolved his emphasis from the explanation of economic change in terms of the evolutionary process to being more itself, to being more appealed to discontinuities associated with the entrepreneurs' energetic activities as the source of economic change.

There has been much question as to why he had revised this book 3 times. Schumpeter's personal and professional life was very eventful in the period between 1911 and 1926. Schumpeter ventured into politics, serving as a member of the German Goal Socialization Commission 1 n 1918. He was the Austrian Minister of Finance during 1919. After being there for a short 7 months he was forced to leave. He later became Chairman of the Board of the Biedermann Bank of Vienna; this was one of his ventures into the business world, which failed miserably in 1924.

This failure left him with heavy personal debts. (9) After these disappointing experiences Schumpeter re-entered academia at the University of Bonn in 1925 after a number of prestigious universities refusing to appoint him. Therefore his second edition was revised when he was going through a certain degree of turmoil and his professional situation was very different. During this time period Schumpeter's personal life was shattered with misfortune as well. During November 1925, Schumpeter had married the love of his life Anna "Annie" Josefina Reisimger.

In June 1926, Anna had died in childbirth, her and unborn child. "Mother and child died in child birth, and their death followed by only a few months death of his mother, to whom he had been greatly attached. This triple blow fate, coming after the collapse of his beloved Double Monarchy, the loss of his private fortune, and a constant attacks on his honor, was the final blow which turned Schumpeter from a man of immense vitality into a depressed emotionally depressed man". (10) Apparently Schumpeter's disappointments as a leader (Minister of Finance and Chairman of the Biederman Bank) also had some influence on the revision with respect to the role of the entrepreneur.

Whereas the entrepreneur of 1911 in Schumpeter's eyes was a powerful, towering leader, the entrepreneur of 1926 is a much weaker individual. So looking at this situation for what it is we must ask our selves, did Schumpeter lose faith in the leader figure after his personal experiences? In addition to the dramatic events in Schumpeter's personal life, there were significant changes in the economic and social order associated with World War I. Some critic's say that Schumpeter might well believed that the edition of 1911 addressed the wrong audience, perhaps an audience of past times. With the rise of World War II and Hitler Schumpeter left Europe in 1932. (11) Schumpeter immigrated to the United States. In 1932, Schumpeter took up a position at Harvard.

Schumpeter ruled Harvard during the period of the 'depression generation" of the 1930's and the 1940's. Schumpeter excelled as a teacher above everything. Nether less Schumpeter completed Business Cycles, Capitalism, Socialism and Democracy, and History of Economics Analysis while teaching at Harvard. During 1948 Schumpeter became president of the American Economic Association. When at Harvard he introduced mathematical economics. (12) He stayed with Harvard as a teacher until his retirement in 1949.

Joseph Schumpeter passed away in 1950. (13) If interested in some of Schumpeter's readings you may read some of the following: The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle (translated by Red vers Opie, with a special preface by the author). Cambridge Mass: Harvard University Press, 1934. Second Printing 1936; third printing 1949. Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process. New York and London: McGraw-Hill Book Co., Inc., 1939.1st ed., 2 vols.

Capitalism, Socialism and Democracy. New York: Harper & Bothers, 1942. Revised 2nd Edition, 1947. Enlarged 3rd edition, 1950. Rudimentary Mathematics for Economists and Statisticians (with W.L. Crum). New York; Mcgraw Hill Book Co., Inc., 1946.

Essays of J.A. Schumpeter. Edited and introduced by. R.V. Clemency, Cambridge, 1951 Imperialism and Social Classes. New York, Edited and introduced by P.M. Sweeny, New York, A.M. Kelly, Oxford, Blackwell, 1951. Ten Great Economists, from Marx to Keynes. Edited and introduced by E. Body Schumpeter, Oxford University Press, New York, 1951 Allen and Unwin, London 1952. Economic Doctrine and Method: An Historical Sketch.

Trans by R. Aris. New York: Oxford University Press; London Allen and Unwin, 1954. Articles "Rudolph Auspitz", Economic Journal, Vol. XVI (June 1906), pp. 309-311. "On the Concept of value", Quarterly Journal of Economics, Vol XX (February 1909), pp. 213-32. "G.F. Knapp", Economic Journal, Vol VI (September 1926), pp 512-14 "Friedrich vs. Wiese r", Economic Journal, Vol. VII (June 1927), pp 328-30.

"The Explanation of the Business Cycles", Economica, Vol. VII (December 1927), pp 286-311. "The Instability of Capitalism", Economic Journal, Vol. V (September 1928), pp 361-68. "International Cartels and their Relation to World trade", In America as a Creditor Nation, edited by Parker Moon, New York, 1928. "Mitchell's Business Cycles", Quarterly Journal of Economics, Vol.

XLV (November 1930), pp. 150-72. "Rudolph Auspitz", and "Eugen vs. Bohm-Bawerk", Encyclopedia of the Social Sciences, Vol. II, p. 317 and p. 618. Preface to F. Zeu then, Problems of Monopoly and Economic Warfare, London 1930.

"The Present World Depression", American Economic Review, Vol. XLV, Vol XXI (Supplement, March 1931), pp. 179-83. "The Common Sense of Econometrics", Econometrica, Vol I. (January 1933), pp. 5-12. "Depressions", in The Theory of the Recovery Program, New York and London: Whittlesey House, McGraw-Hill Book Co., pp 3-21.

"The Nature and Necessity of a Price System", Economic Reconstruction, Report of the Columbia University Commission. New York: Columbia University Press, pp. 170-176. "The Analysis of Economic Change", Review of Economic Statistics, Vol. XVII (May 1935), pp 2-10. Reprinted as Chapter 1 of Part I of Readings in Business Cycle, Philadelphia, 1944.

"Allyn n Abbott Young", Encyclopedia of the Social Sciences, Vol. XV, pp. 514-15. "A Theorist's Comment on the Current Business Cycle", Journal of the American Statistical Association, Vol. (Supplement, March 1935), pp. 167-68. "Professor Taussig on Wages and Capital", in Explorations in Economics: Notes and Essays Contribution in Honor of F.W. Taussig, New York, pp. 213-222.

"The Influence of Protective Tariffs on the Industrial Development of United States", Proceedings of Academy of Political Science, Vol. XIX (May 1940), pp 2-7. "Alfred Marshall's Principles: A Semi-Centennial Appraisal", American Economic Review, Vol. I (June 1941), pp 236-48. "Frank William Taussig", Quarterly Journal of Economics, Vol. LV (May 1941), pp. 337-63.

(With A.H. Cole and E.S. Mason.) "A German View: Depression and Franco-German Economic Relations", Lloyds Bank Limited Monthly Review, March 1932, pp. 14-35. "Depressions", in the Economics of the Recovery Program, Vol. XVII, New York and London: Whittlesey House, McGraw-Hill Book Co., pp 3-21. New York: Columbia University, pp. 170-176. Reprinted as Chapter 1 of Part I of Readings in Business Cycle Theory, Philadelphia, 1944. "Allyn Abbott Young", Encyclopedia of Social Sciences, Vol.

XV, pp. 514-15. "Professor Taussig on Wages and Capital", in Explorations in Economics: Notes and Essays Contributed in Honor of F.W. Taussig, New York, pp. 213-222. "The Influence of Protective Tariffs on the Industrial Development of the United States", Proceedings of Academy of Political Science, Vol. XIX (May 1940), pp. 2-7. LV (May 1941), pp. 337-63 (With A.H. Cole and E.S. Mason.) "Capitalism in the Postwar World", in Postwar Economic Problems, Seymour E. Harris, ed., New York: McGraw-Hill, 1943, pp. 113-126. Preface to Bernard W. Dempsey, Interest and Usury, Washington, D.C. : American Council on Public Affairs, 233 pp.

"Capitalism", in Encyclopedia Britannica, 1946, Vol. IV, pp. 801-07. "Keynes and Statistics", in "Keynes' Contributions to Economics- Four Views", Review of Economic Statistics, Vol. XXV (November 1946), pp. 194-96. "The Decade of the Twenties", in "The American Economy in the Interwar Period", American Economic Review, Proceedings, Vol.

VI (May 1946), pp. 1-10. "John Maynard Keynes: 1883-1946", American Economic Review, Vol. VI (September 1946), pp. 495-518. "Keynes, the Economist", in The New Economies: Keynes' Influence on Theory and Public Policy, Seymour Harris, ed., New York: A.A. Knopf, 1947, pp. 73-101.

"Comments on a Plan for the Study of Entrepreneurship", Widener Library, HUH 755, January 13, 1947. "The Creative Response in Economic History", Journal of Economic History, Vol. VII (November 1947), pp. 149-159. "Theoretical Problems of Economic Growth", Journal of Economic History, Vol.

VII (November 1947), pp. 1-9. "There is Still Time to Stop Inflation", Nation's Business, Vol. VI (June 1948), pp. 33-35, 88-91. "Irving Fischer's Econometrics", Econometrica, Vol. XVI (July 1948), pp 219-31. "Economic Theory and Entrepreneurial History", in Change and the Entrepreneur.

Prepared by the Research Center in Entrepreneurial History, Harvard University, Cambridge, Mass: Harvard University Press, pp. 63-84. "English Economists and the State-Managed Economy", Journal of Political Economy, Vol. LVII (October 1949), pp. 371-382. "Science and Ideology", American Economic Review, Vol.

IX (March 1949), pp. 345-59. "Vilfredo Pareto (1948-1920)", Quarterly Journal of Economics, Vol. LX (May 1949), pp. 147-73. "The Communist Manifesto in Sociology and Economics", Journal of Political Economy, Vol. LVII (June 1949), pp. 199-212. "The Historical Approach to the Analysis of Business Cycles", Universities-National Bureau Conference on Business Cycle Research, New York, November 25-27, 1949.

"Wesley Clair Mitchell (1874-1948)", Quarterly Journal of Economics, Vol. LXIV (February 1950), pp. 139-55. "March into Socialism", American Economic Review, Vol. XL (May 1950), pp. 446-56. Political Science: An Introduction Eight Edition, Michael G. Rosin, Robert L. Cord, James A. Medeiros, Walter S. Jones. Joseph A, .

Schumpeter -time line web The Concise Encyclopedia of Economics web Joseph A. Schumpeter web Joseph A. Schumpeter page web Joseph A. Schumpeter, "Creative Destruction" Capitalism, Socialism and Democracy, New York Harper, 1975 [org. pub. 1942] pp 82-85 Great Economic Thinkers: Joseph Schumpeter and Dynamic Economic Change Quarterly Journal of Economics, volume 23, 1908-9, pp 213-232 'On the Concept of Social Value' Capitalism, Socialism and Democracy, 5th Edition, 1976.