joseph alois schumpeter 1883 1950 was an austrian trained economist economic historian and author he is regarded as one of the 20th century s greatest intellectuals schumpeter is best known for his theories on business cycles and the development of capitalist economies and for introducing the concept of entrepreneurship for schumpeter the entrepreneur was the cornerstone of capitalism the source of innovation which is the vital force driving a capitalist economy 
investopedia alison czinkotaearly life and educationschumpeter was born in moravia now the czech republic in 1883 to german parents he studied economics from the progenitors of the austrian school tradition including friedrich von wieser and eugen von bohm bawerk schumpeter served as minister of finance in the austrian government the president of a private bank and a university professor from 1925 to 1932 schumpeter held a chair at the university of bonn 1uncomfortable at the rise of the nazi party he moved to the united states to teach at harvard in 1932 fifteen years later in 1947 he became the first immigrant to be elected president of the american economic association 1by the early 20th century economic science in the united states and great britain had developed alongside static and mathematically oriented general equilibrium models schumpeter s work differed at times typifying the continental european approach more nuanced and less hypothetical although some of his theories were drawn from walrasian general equilibrium as well notable accomplishments and theoriesschumpeter made many contributions to economic science and political theory but he is best known for his 1942 book capitalism socialism and democracy which outlines the theory of dynamic economic growth known as creative destruction 2 he is also credited with the first german and english references to methodological individualism in economics schumpeter s most enduring legacy came from a six page chapter in capitalism socialism and democracy entitled the process of creative destruction 2in this chapter schumpeter offered a new unique insight into how economies grow sharply deviating from the traditional economic dictums of his day which held that markets passively tend toward equilibrium until profit margins are wiped out instead schumpeter argued economic progress is not gradual and peaceful but rather disjointed abrupt and sometimes unpleasant the economist used the term creative destruction to describe the dismantling of long standing practices in order to make way for new technologies new kinds of products new methods of production and new means of distribution existing companies must quickly adapt to a new environment or fail if it sounds somewhat darwinian it is schumpeter intimated a 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 as he wrote thisprocess of creative destruction is the essential fact about capitalism in many respects schumpeter saw capitalism as a sort of ongoing revolution that disrupts the current social and economic hierarchy and within this system the entrepreneur becomes the revolutionary upsetting the established order to create dynamic change schumpeter is believed to be the first scholar to introduce the world to the concept or at least the economic significance of entrepreneurship he came up with the german word unternehmergeist meaning entrepreneur spirit adding that these individuals controlled the economy because they are responsible for delivering innovation and technological change entrepreneurs are often the guiding force behind creative destruction because they advance the new products technology and or production methods that provide an impulse for change entrepreneurial innovation and experimentation constantly destroy the status quo and introduce new equilibria making possible higher standards of living these theories tie in with schumpeter s belief in the presence of business cycles in schumpeter s analysis the history of capitalism has been punctuated by long and short waves a long wave is prompted by a new set of technologies and industries coming into existence according to this theory major advances in innovation can be predicted to occur every 50 or 100 years barring very few cases in which difficulties arise it is possible to count off historically as well as statistically six juglars 8 10 year business cycles to a kondratieff 50 60 years and three kitchins 40 months to a juglar not as an average but in every individual case wrote schumpeter in his book the theory of economic development published in 1911 whenever an entrepreneur disrupts an existing industry it is likely that existing workers businesses or even entire sectors can be temporarily thrown into loss he said these cycles are tolerated he explained because it allows resources to be freed up for other more productive uses example of schumpetarian theorythe internet is one of the best examples of creative destruction the term that schumpeter coined to describe the dismantling of long standing practices in order to make way for new technologies new kinds of products new methods of production and new means of distribution existing companies must quickly adapt to a new environment or fail the advent of the internet rendered many products methods of production and means of distribution obsolete it also caused a drastic curtailing of many jobs including the roles of bank tellers secretaries travel agents and retail store employees with the rise of mobile internet technology publishers of printed material everything from magazines to maps also suffered the internet in addition to other innovations in the field of information technology the microprocessor the laser fiber optics and satellite technologies have all fundamentally altered the way that business is conducted joseph schumpeter vs john maynard keynesover his many years in public life schumpeter developed informal rivalries with the other great economic thinkers of the west including john maynard keynes irving fisher ludwig von mises and friedrich hayek his work initially was overshadowed by some of these contemporaries especially keynes although they were born just a few months apart the pair had radically different views in his early career schumpeter derided the use of statistical aggregates in economic theory likely a shot at keynes in favor of focusing on individual choice and action keynes viewed the economy as healthy when in static equilibrium schumpeter rejected this theory claiming that equilibrium is not healthy and that innovation is the driver of the economy both had contrasting views on government intervention too keynes believed that a permanent equilibrium of prosperity could be achieved by central bank monetary policies schumpeter argued that government intervention increased inflation destroying the economy the internet is one of the best examples of creative destruction the term that schumpeter coined to describe the dismantling of long standing practices in order to make way for new technologies new kinds of products new methods of production and new means of distribution existing companies must quickly adapt to a new environment or fail the advent of the internet rendered many products methods of production and means of distribution obsolete it also caused a drastic curtailing of many jobs including the roles of bank tellers secretaries travel agents and retail store employees with the rise of mobile internet technology publishers of printed material everything from magazines to maps also suffered the internet in addition to other innovations in the field of information technology the microprocessor the laser fiber optics and satellite technologies have all fundamentally altered the way that business is conducted 