Joseph Schumpeter

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This process of Creative Destruction is the essential fact about capitalism.
- Joseph Schumpeter

Joseph Alois Schumpeter (February 8, 1883January 8, 1950) was an economist from Austria and an influential political scientist.


  • Innovation is the market introduction of a technical or organisational novelty, not just its invention.
    • Theorie der wirtschaftlichen Entwicklung, 1911
  • Only a few people possess the quality of leadership the quality of actually introducing and undertaking new combinations which is quite a different thing from inventing them. However, if one or a few have advanced with success, many of the difficulties disappear. Others can then follow these pioneers, as they will clearly do under the stimulus of the success now obtainable. Their success again makes it easier … for more people to follow suit, until finally the innovation becomes familiar and the acceptance of it a matter of free choice. … The successful appearance of an entrepreneur (one who carries out new combinations) is followed by the appearance, not simply of some others, but of ever greater numbers, though progressively less qualified. … Every normal boom starts in one or a few branches of industry and … derives its character from the innovations in the industry where it begins. But the pioneers remove the obstacles for the others, not only in the branch of production in which they first appear, but, owing to the nature of these obstacles, ipso facto in other branches too.
    • The Theory of Economic Development, 1934.
  • 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, History of Economic Analysis, 1945. p. 27
  • Gentlemen, a depression is for capitalism like a good, cold douche.
    • To economics students, recorded by R. L. Heilbroner, The Embarrassment of Economics, 1996

Capitalism, Socialism and Democracy, 1942[edit]

Capitalism, Socialism and Democracy, 1942; Third Edition, 2014.

  • I felt it my duty to take, and to inflict upon the reader, considerable trouble in order to lead up effectively to my paradoxical conclusion: capitalism is being killed by its achievements.
    • Preface, pg.xiv

Part I[edit]

  • However, if Marx had not been more than a purveyor of phraseology, he would be dead by now.
    • Part I, Chapter I, pg.5
  • Geniuses and prophets do not usually excel in professional learning, and their originality, if any, is often due precisely to the fact that they do not.
    • Part I, Chapter III, pg.21
  • As a matter of fact, capitalist economy is not and cannot be stationary. Nor is it merely expanding in a steady manner. It is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure as it exists at any moment.
    • Part I, Chapter III, pg.31
  • For one thing, to predict the advent of big business was considering the conditions of Marx's day an achievement in itself.
    • Part I, Chapter III, pg.34
  • Any existing structures and all the conditions of doing business are always in a process of change. Every situation is being upset before it has had time to work itself out. Economic progress, in a capitalist society, means turmoil.

Part II[edit]

  • As soon as we go into details and inquire into the individual items in which progress was most conspicuous, the trail leads not to the doors of those firms that work under conditions of comparatively free competition but precisely to the door of the large concerns--which, as in the case of agricultural machinery, also account for much of the progress in the competitive sector--and a shocking suspicion dawns upon us that big business may have had more to do with creating that standard of life than with keeping it down.
    • Part II, Chapter VII, pg.82
  • Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers.
    • Part II, Chapter VII, pg.82
  • The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.
    • Part II, Chapter VII, pg.83
  • The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation-if I may use that biological term-that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of [Creative Destruction]] is the essential fact about capitalism.
    • Part II, Chapter VII, pg.83
  • Situations emerge in the process of creative destruction in which many firms may have to perish that nevertheless would be able to live on vigorously and usefully if they could weather a particular storm.
    • Part II, Chapter VIII, pg.90
  • Nothing is so retentive as a nation's memory.
    • Part II, Chapter VIII, pg.100
  • Want and effective demand are not the same thing. If they were, the poorest nations would be the ones to display the most vigorous demand.
    • Part II, Chapter X, pg.114
  • Capitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear; the only success victorious defense can possibly produce is a change in the indictment.
    • Part II, Chapter XIII, pg. 144
  • Capitalism inevitably and by virtue of the very logic of its civilization creates, educates and subsidizes a vested interest in social unrest.
    • Part II, Chapter XIII, Section II, pg. 146

Part III-V[edit]

  • It is quite possible that future generations will look upon arguments about the inferiority of the socialist plan as we look upon Adam Smith's argument about joint stock companies which, also, were simply false.
    • Part III, Chapter XVII, pg.196
  • The capitalist process shapes things and souls for socialism.
    • Part III, Chapter XIX, Section I, pg.220
  • Nothing is so treacherous as the obvious.
    • Part IV, Chapter XX, Section I, pg.235
  • To realize the relative validity of one's convictions and yet stand for them unflinchingly is what distinguishes a civilized man from a barbarian.
    • Part IV, Chapter XX, Section III, pg.243
  • In economic life competition is never completely lacking, but hardly ever is it perfect.
    • Part IV, Chapter XXII, pg 271
  • The trouble with Russia is not that she is socialist but that she is Russia.
    • Part V, Chapter XXVIII, pg.404
  • 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.
    • The March into Socialism, pg.419

Quotes about Schumpeter[edit]

  • Schumpeter always argued that capitalism, as an intrinsically amoral economic system driven by the pursuit of profit, dissolvent of all barriers to market calculation, depended critically on pre-capitalist - in essence nobiliary - values and manners to hold it together as social and political order. But this aristocratic 'under-girding', as he put it, was typically reinforced by a secondary structure of support, in bourgeois milieux confident of the moral dignity of their own calling: subjectively closer to portraits by Mann than Flaubert.
    • Perry Anderson, The Origins of Postmodernity (1999), Ch. 4 : After-effects
  • Contemporary democracy, properly understood, was thus a richer affair than the thin models of it proposed by Schumpeter or Popper, as a mere choice between competing elites for office. It was to be conceived, not in a spirit of minimalism, but one of positively minded realism.
  • The last chapter modeled technological progress as an increase in the number of types of products, N. In this chapter, we allow for improvements in the quality or productivity of each type. This approach has come to be known as the Schumpeterian approach to endogenous growth. We can think of increases in N as basic innovations that amount to dramatically new kinds of goods or methods of production. In contrast, increases in the quality of the existing products involve a continuing series of improvements and refinements of goods and techniques.
    • Robert J. Barro, Xavier Sala-i-Martin, Economic growth 2nd ed. (2004), Ch. 7 : Technological Change: Schumpeterian Models of Quality Ladders
  • The aristocratic and the modern were inextricably combined in Joseph Schumpeter. The paradoxes of this great economist, who also served as minister of finance in the post- World War I government of Austria, are suggested by the fact that at his first teaching post, he challenged the university librarian to a duel to win freer access to books for the students. Perhaps Schumpeter was attracted to the big issues because he himself witnessed drastic changes in society.
    • Samuel Bowles, Richard Edwards, and Frank Roosevelt. Understanding Capitalism: Competition, Command, and Change (3rd ed., 2005)
  • Although democratic ideas often yield rather ambiguous answers to the question of inclusion. Schumpeter was an exception. … Schumpeter’s solution, or rather nonsolution, was to allow a demos to draw any line it chooses between itself and other members. … Schumpeter's solution to the problem of composition of the demos is unacceptable, because it effectively erases the distinction between democracy and a nondemocratic order dominated by a collegial elite.
    • Robert A. Dahl, Democracy and Its Critics (1989), Ch. 9 : The Problem of Inclusion
  • Aside from Yugoslavia, experiments with decentralization did not extend to planning innovation, the greatest weakness of the socialist economies. Even where markets were allowed to exert more influence over current production, the state was still responsible for planning the future. And state socialism provided only weak incentives for innovation. The Schumpeterian pressure that forced capitalist firms to innovate or die was not present in the planned economy.
    • Barry Eichengreen, The European economy since 1945 : coordinated capitalism and beyond, Ch. 5 : Eastern Europe and the Planned Economy
  • We have far more people selling derivatives, index funds and mu tual funds (as we call them) than there is intelligence for the task. I am cautious about prediction; I discovered years ago that my correct predictions are forgotten, the others meticulously remembered. But some things are definite; when you hear it being said that we have entered a new economy of permanent prosperity with prices of financial instruments reflecting that happy fact, you should take cover. This has been the standard justification of speculative excess for several centuries — for a good part of the millennium. My one time Harvard colleague Joseph Schumpeter thought inevitable and even beneficial what he called “creative destruction” — the cyclical process by which the system eliminates the people and institutions which are mentally too vulnerable for useful economic service. Un fortunately the process has larger and less benign effects, including the possibility of painful recession or depression.
  • The developed economies are currently experiencing profound changes. A technological revolution is creating entirely new sectors, based on biotechnology, microprocessors, and telecommunications, whose prod­ucts are transforming business practices across the economy. A wave of managerial innovations has seen companies around the world adopt new forms of supplier-client relations, just-in-time inventory systems, quality control and team production. Economic activity is shifting from the industrial sector into the service sector. Capitalism seems to be in the midst of one of those 'cycles of creative destruction' that Schumpeter (1950) identified.
    • Peter A. Hall and David Soskice. "An introduction to varieties of capitalism." in Varieties of capitalism: The institutional foundations of comparative advantage (2001)
  • That an economist of Professor Schumpeter's standing should thus have fallen into a trap which the ambiguity of the term "datum" sets to the unwary can hardly be explained as a simple error. It suggests rather that there is something fundamentally wrong with an approach which habitually disregards an essential part of the phenomena with which we have to deal: the unavoidable imperfection of man's knowledge and the consequent need for a process by which knowledge is constantly communicated and acquired. Any approach, such as that of much of mathematical economics with its simultaneous equations, which in effect starts from the assumption that people's knowledge corresponds with the objective facts of the situation, systematically leaves out what is our main task to explain.
  • Schumpeter’s attempt to prove his assertion to the layman characteristically begins by assuming that ‘means of production are present in given and, for the moment, unalterable quantities’. He does not explain to whom these quantities are ‘given’, that is, known, nor how much about their various attributes and potentialities anybody knows.
    • Friedrich Hayek, "Two Pages of Fiction: The Impossibility of Socialist Calculation", Economic Affairs (1982)
  • It was probably the influence of Schumpeter’s teaching more than the direct influence of Oskar Lange that has given rise to the growth of an extensive literature of mathematical studies of ‘resource allocation processes’. As far as I can see they deal as irresponsibly with sets of fictitious ‘data’ which are in no way connected with what the acting individuals can learn as any of Lange's.
    • Friedrich Hayek, "Two Pages of Fiction: The Impossibility of Socialist Calculation", Economic Affairs (1982)
  • Schumpeter was the most romantic of economists, and capitalism to his eyes had all the glamor and excitement of a knightly jousting tourney.
  • For Schumpeter, capitalism itself could not possibly make for conquest and war: its spirit was rational, calculating, and therefore averse to risk-taking on the scale implicit in warmaking and in other heroic antics. Interesting as they were as a counterpoint to the various Marxist theories of imperialism, Schumpeter's views evinced less awareness of the knottiness of the problem he was dealing with than those of Adam Ferguson and Tocqueville that have just been recalled. To go back even further: Cardinal de Retz, with his insistence that the passions are not to be counted out in situations where interest-motivated behavior is considered to be the rule, appears to have had the better part of the argument than either Keynes or Schumpeter.
  • Schumpeter’s work, his dynamic view of the entrepreneur and creative destruction has had a great impact on me. He indeed wrote a book, Capitalism, Socialism and Democracy, which intended to give a complex analysis of the two systems. But these two books, and a few others (e.g., some of Mises’s and Hayek’s works) are rather exceptional. A typical American textbook on economic systems is not written with the same ambition about capitalism with which I wrote about socialism. It doesn’t give you a general model of capitalism, including the characterization of the political, ideological, and social spheres.
    • János Kornai, in "An Interview with János Kornai : Interviewed by Olivier Blanchard", Macroeconomic Dynamics, 1999
  • We are far from understanding how to achieve adaptively efficient economies because allocative efficiency and adaptive efficiency may not always be consistent. Allocatively efficient rules would make today's firms and decisions secure - but frequently at the expense of the creative destruction process that Schumpeter had in mind.
    • Douglass C. North, Institutions, institutional change and economic performance (1990) Ch. 9 : Organizations, learning, and institutional change
  • Schumpeter’s approach has an important implication for political behavior. If the constellation of economic interests regularly changes because of innovation and entry, politicians face a fundamentally different world than those in a natural state: open access orders cannot manipulate interests in the same way as natural states do. Too much behavior and formation of interests take place beyond the state’s control. Politicians in both natural states and open access orders want to create rents. Rent-creation at once rewards their supporters and binds their constituents to support them. Because, however, open access orders enable any citizen to form an organization for a wide variety of purposes, rents created by either the political process or economic innovation attract competitors in the form of new organizations. In Schumpeterian terms, political entrepreneurs put together new organizations to compete for the rents and, in so doing, reduce existing rents and struggle to create new ones. As a result, creative destruction reigns in open access politics just as it does in open access economies. Much of the creation of new interests is beyond the control of the state. The creation of new interests and the generation of new sources of rents occur continuously in open access orders.
    • Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders (2009), Ch. 1 : The Conceptual Framework
  • A final aspect of all open access orders is Schumpeter’s notion of creative destruction, one of the most powerful descriptions of a competitive, open access economy. When Schumpeter wrote Capitalism, Socialism, and Democracy in the early 1940s, the economic theory of perfect competition among atomistic firms (i.e., firms too small to have market power) had come under sustained attack as unrealistic. Large and powerful economic organizations dominated the new economy, and their behavior did not match the textbooks. Despite this dominance, the economy produced historically unprecedented, sustained economic development. Schumpeter asked, How could large businesses that were supposed to choke off competition and growth nonetheless generate such spectacular productivity increases in a world that seemed ever more competitive?
    • Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders (2009), Ch. 4 : Open Access Orders
  • Madison or Sieyes would have agreed that the role of representatives is to determine for the people, and sometimes against the people, what is good for them. But here comes the crucial break with the classical tradition: Kelsen, Schumpeter, Bobbio, Dahl, and Downs all agree that nobody and no body can represent the will of all the people. In sharp contradistinction to the classical view, these theorists maintain that political parties represent distinct interests. The theory of democracy based on the assumption of the common good is just incoherent.
    • Adam Przeworski, Democracy and the Limits of Self-Government (2010), Ch. 2 : Self-Government of the People
  • Specifically, it discusses the possibilities for finding a viable alternative to neoclassical economic growth theory, in the form of some combination of Keynesian macroeconomics and evolutionary growth modeling. In this framework, economies are considered as complex adaptive systems which can generate dissipative structures, depending on the underlying knowledge dynamics and the energy throughput. This macroeconomic framework, which integrates short-run Keynesian elements with long-run Schumpeterian thinking, has to be considered as extremely powerful, both intellectually, as it allows for a much more comprehensive understanding of growth processes, as well as politically, as it offers a meaningful alternative to mainstream approaches which failed to predict the current economic and financial crisis and cannot offer meaningful answers how to get out of the crisis.
    • Andreas Pyka and Maria da Graça Derengowski Fonseca, "Introduction" in Catching Up, Spillovers and Innovation Networks in a Schumpeterian Perspective (2011)
  • Now, at the turn of the millennia, when total-factor-productivity has remarkably soared in America and abroad, both fools and sages sing Schumpeter‘s praise. That would have amused and pleased this worldly scholar who in some dark hours of the night used to despair in his German-shorthand diaries of justly deserved praises passing him by. So Keynes was wrong: in the long run not all of us are dead.
  • It is also erroneous to believe that a political position founded on economic superiority is "essentially unwarlike," as Joseph Schumpeter says in his Zur Soziologie der Imperialismen. Essentially unwarlike is the terminology based on the essence of liberal ideology. An imperialism based on pure economic power will naturally attempt to sustain a worldwide condition which enables it to apply and manage, unmolested, its economic means, e.g., terminating credit, embargoing raw materials, destroying the currencies of others, and so on. Every attempt of a people to withdraw itself from the effects of such "peaceful" methods is considered by this imperialism as extra-economic power.
  • Schumpeter argued that the economy was characterized by a process of cre ative destruction. An innovator could, through a new product or lower costs of pro duction, establish a dominant position in a market. But eventually, that dominant position would be destroyed, as another new product or process was invented.
    He worried that the giant corporations he saw being formed during his lifetime would stifle innovation and end this process of creative destruction. His fears, so far, have been unfounded; indeed, many of the largest firms, like IBM, have not been able to manage the innovative process in a way that keeps up with upstart rivals.
    • Joseph E. Stiglitz and Carl E. Walsh, Economics (4th ed) (2006) Ch. 20 : Technological Change
  • Schumpeter emphasizes a “demand-side” explanation for such clustering of innovation. One might also consider a complemen tary “supply-side” explanation: since innovators are, in many cases, working with the same components, it is not surprising to see simultaneous innovation, with several innovators coming up with essentially the same invention at almost the same time. There are many well-known examples, including the electric light, the airplane, the automobile, and the telephone.
    • Hal R. Varian, Part I. "Competition and market power", in The Economics of Information Technology: An Introduction (2004) by Hal R.Varian, Joseph Farrell and Carl Shapiro
  • The term ‘kinship’ correctly suggests the existence not only of contemporary relatives but also of ancestors. Indeed, the recent discussion of dynamic capability was prefigured historically, with a variety of terminology, in a number of sources. Perhaps the most directly relevant example among these earlier contributions is Schumpeter’s discussion of the ‘routinization of innovation’ (Schumpeter 1950). Schumpeter’s argument presented, however, an issue that remains central in contemporary discussion of dynamic capability—the possibly problematic character of the claim that there is such a thing as ‘learned competence’ for doingnew things.
    • Sidney G. Winter, "Dynamic Capability as a Source of Change" in Alexander Ebner, Nikolaus Beck, eds. The Institutions of the Market: Organizations, Social Systems, and Governance (2008)
  • The writings of Joseph Schumpeter contributed an essential part of the broad conceptual framework that now embraces the discussion of dynamic capabilities.
    • Sidney G. Winter, "Dynamic Capability as a Source of Change" in Alexander Ebner, Nikolaus Beck, eds. The Institutions of the Market: Organizations, Social Systems, and Governance (2008)
  • Towards the end of his life, Schumpeter re-painted his picture of capitalist development on an even broader canvas. In Capitalism, Socialism and Democracy (Schumpeter 1950), he offered a complex, multifaceted argument that the type of capitalism he had earlier described might be passing from the historical scene, morphing by small degrees into some variety of socialism.
    • Sidney G. Winter, "Dynamic Capability as a Source of Change" in Alexander Ebner, Nikolaus Beck, eds. The Institutions of the Market: Organizations, Social Systems, and Governance (2008)
  • Maybe we expect too much from democracy. The economist Joseph Schumpeter, one of the great modern thinkers to address the question, certainly thought so. Eighteenth-century optimists believed that there was such a thing as the common good, that people could determine it for themselves, and that they would then elect representatives to carry out their will. This “classical theory of democracy,” as Schumpeter argued in 1942, was more a quasi-religious expression of hope than an actual description of how democracies worked. There is no such thing as the common good, he delighted in pointing out. And even if there were, ordinary citizens, including the more educated among them, would be too irrational in their desires and too easily fooled to know what it might be. In theory democratic citizens raise and decide issues. In practice, “the issues that shape their fate are normally decided for them.”
    • Alan Wolfe, "Democracy Without Accountability" in Does American democracy still work? (2006)

See also[edit]

External links[edit]

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