Joseph Schumpeter
Austrian political economist who popularized creative destruction
Joseph Alois Schumpeter (February 8, 1883 – January 8, 1950) was an Austrian political economist. He briefly served as Austria’s finance minister in 1919, emigrated to the United States in 1932 to become a Harvard professor, and became a U.S. citizen in 1939. A major figure in early-20th-century economics, he helped spread the idea of “creative destruction,” a phrase first used by Werner Sombart. His best-known work is *Capitalism, Socialism and Democracy*.
Schumpeter was born in Triesch, Moravia (then part of Austria-Hungary, now Třešť, Czech Republic), to German-speaking Catholic parents. Both his grandmothers were Czech, but he did not acknowledge that heritage. His father, a factory owner, died when Schumpeter was four. In 1893, he and his mother moved to Vienna. He was a loyal supporter of Emperor Franz Joseph I.
He attended the Theresianum and studied law at the University of Vienna under Eugen von Böhm-Bawerk, an Austrian School economist. He earned his law doctorate in 1906, specializing in economics. After study trips, he became a professor of economics and government at the University of Czernowitz (now in Ukraine) in 1909. In 1911, he moved to the University of Graz, staying until World War I.
In 1913–1914, Schumpeter taught at Columbia University as an invited professor—a period Wolfgang Stolper called the “high point of his worldly success.” There he met Irving Fisher and Wesley Clair Mitchell, and Columbia gave him an honorary doctorate.
In 1918, Schumpeter served on Germany’s Socialisation Commission. In March 1919, he became finance minister of the Republic of German-Austria, where he proposed a capital levy to address war debt and opposed nationalizing the Alpine Mountain plant. In 1921, he became president of the private Biedermann Bank and also sat on the board of the Kaufmann Bank. Troubles at these banks left him in debt; his resignation was required for the Biedermann Bank’s takeover in September 1924.
From 1925 to 1932, he held a chair at the University of Bonn. He lectured at Harvard in 1927–1928 and 1930, and in 1931 was a visiting professor at the Tokyo College of Commerce. After moving to the U.S. in 1932, he worked extensively to help fellow central European economists displaced by Nazism. His last European visit was in 1937. Schumpeter opposed Marxism but believed socialism would inevitably triumph in the long run. He also criticized Franklin Roosevelt’s New Deal. In 1939, he became a U.S. citizen. At the start of World War II, the FBI investigated him and his wife, Elizabeth Boody (a noted scholar of Japanese economics), for Nazi sympathies but found no evidence. Schumpeter held antisemitic views, as reported by his Harvard student and protégé Paul Samuelson.
At Harvard, Schumpeter was seen as a memorable, erudite, and even showy teacher. He took on a heavy teaching load and gave his students careful, personal attention. He advised the Graduate Economics Club and organized private seminars and discussion groups. Some colleagues considered his views outdated by the fashionable Keynesianism; others resented his criticisms, especially regarding the failure to offer Paul Samuelson an assistant professorship—though they relented when they thought he might go to Yale. This period was marked by hard work and little recognition for his two-volume *Business Cycles*. Still, he persisted, and in 1942 published his most popular work, *Capitalism, Socialism and Democracy*, which was reprinted many times and in many languages and cited thousands of times.
Schumpeter’s dynamic, innovation-focused economics drew from the historical school, especially Gustav von Schmoller and Werner Sombart, though he sometimes criticized that perspective. Whether he belongs to the Austrian School is debated. He was also influenced by Léon Walras, whom he called the “greatest of all economists,” and by the Lausanne School. Rudolf Goldscheid’s concept of fiscal sociology shaped his analysis of the tax state, and a 2012 paper noted the influence of Francis Galton’s work on his writings.
According to Christopher Freeman (2009), the central point of Schumpeter’s life work was that capitalism can only be understood as an evolutionary process of continuous innovation and creative destruction. His posthumous *History of Economic Analysis* shows his scholarship; he considered Turgot the greatest 18th-century economist, not Adam Smith, and held Walras above all others, viewing other theories as inadequate attempts to grasp parts of Walrasian truth.
- born
- February 8, 1883, Triesch, Habsburg Moravia (now Třešť, Czech Republic)
- died
- January 8, 1950
- field
- Political economy
- nationality
- Austrian; later American (1939)
- known_for
- Creative destruction, theory of business cycles, entrepreneurship
Lore & Background
Schumpeter was born in 1883 in Triesch, Habsburg Moravia (now Třešť in the Czech Republic, then part of Austria-Hungary), to German-speaking Catholic parents. Though both of his grandmothers were Czech, Schumpeter did not acknowledge his Czech ancestry. His father died when Joseph was only four years old. In 1893, Joseph and his mother moved to Vienna. Schumpeter was a loyal supporter of Emperor Franz Joseph I. He was educated at the Theresianum and studied law at the University of Vienna under Eugen von Böhm-Bawerk. In 1906, he received his doctoral degree from the University of Vienna's faculty of law, with a specialisation in economics. In 1909, he became a professor of economics and government at the University of Czernowitz. In 1911, he joined the University of Graz, where he remained until World War I. In 1913–1914, he taught at Columbia University as an invited professor, and Columbia awarded him an honorary doctorate. In 1918, he was a member of the Socialisation Commission in Germany. In March 1919, he became Minister of Finance in the Republic of German-Austria. He proposed a capital levy and opposed the socialization of the Alpine Mountain plant. In 1921, he became president of the private Biedermann Bank and was also a board member at the Kaufmann Bank. Problems at those banks left him in debt; his resignation was a condition of the takeover of the Biedermann Bank in September 1924. From 1925 until 1932, he held a chair at the University of Bonn. He lectured at Harvard in 1927–1928 and 1930. In 1931, he was a visiting professor at the Tokyo College of Commerce. In 1932, he moved to the United States and began efforts to help fellow central European economists displaced by Nazism. His last visit to Europe was in 1937. He criticized Franklin Roosevelt's New Deal. In 1939, he became a US citizen. At the beginning of World War II, the FBI investigated him and his wife for Nazi sympathies, but found no evidence. Schumpeter harbored antisemitic views. At Harvard, he was considered a memorable character, erudite, and showy in the classroom. He served as the faculty advisor of the Graduate Economics Club and organized private seminars. In 1942, he published Capitalism, Socialism and Democracy.
Reader's Guide
Schumpeter's dynamic, change-oriented, and innovation-based economics was influenced by the historical school of economics, especially Gustav von Schmoller and Werner Sombart. He was also influenced by Léon Walras, calling Walras the 'greatest of all economists'. The Austrian sociologist Rudolf Goldscheid's concept of fiscal sociology influenced his analysis of the tax state. His work displayed the influence of Francis Galton. According to Christopher Freeman, the central point of his life's work is that capitalism can only be understood as an evolutionary process of continuous innovation and 'creative destruction'. In his posthumous History of Economic Analysis, Schumpeter thought the greatest 18th-century economist was Turgot rather than Adam Smith, and considered Walras the greatest of all economists. He criticized John Maynard Keynes and David Ricardo for the 'Ricardian vice'. He recognized the implications of a gold monetary standard versus a fiat standard. In his theory of business cycles, he started with a stationary state described by Walrasian equilibrium, with the entrepreneur as the prime cause of economic development. He kept alive Nikolai Kondratiev's ideas on 50-year cycles (Kondratiev waves) and suggested a model combining Kondratiev (54 years), Kuznets (18 years), Juglar (9 years), and Kitchin (about 4 years) cycles.
Did You Know?
- Schumpeter popularized the term 'creative destruction', which was coined by Werner Sombart.
- He served as Finance Minister of Austria for a brief period in 1919.
- Schumpeter was investigated by the FBI for Nazi sympathies during World War II, but no evidence was found.
- His magnum opus, Capitalism, Socialism and Democracy, was published in 1942.
Notable Quotes (Wikiquote)
"Joseph Alois Schumpeter (February 8, 1883 – January 8, 1950) was an economist from Austria and an influential political scientist." — Joseph Schumpeter "Economists have never allowed their analysis to be influenced by psychologists of their time, but have always framed for themselves such assumptions about psychical processes as they have thought it desirable to make." — Joseph Schumpeter "The first thing a man will do for his ideals is lie." — Joseph Schumpeter "This civilization is rapidly passing away, however. Let us rejoice or else lament the fact as much as everyone of us likes; but do not let us shut our eyes to it." — Joseph Schumpeter
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