Joseph Schumpeter Competition and Growth

Joseph Alois Schumpeter: Competition, Dynamics and Growth

Schumpeter Economics Theory

Joseph Schumpeter was a third-generation Austrian economist who rose to promi­nence as finance minister of the Austrian government. A student of Bohm-Bawerk's at the University of Vienna, he later emigrated to the United States in order to avoid Hitler's onslaught. Although steeped in the Austrian tradition, Schumpeter reopened a classic line of economic inquiry—the subject of economic development. In 1911, he published his Theory of Economic Development, a book that won critical acclaim but made little impact on English-speaking economists until it was translated into English in 1934. His second major work, Business Cycles, followed in 1939.

Schumpeter blended ideas from Marx, Walras, and the German historian and so­ciologist, Max Weber, with insights from his Austrian forebearers, Menger, Wieser, and his teacher, Bbhm-Bawerk. Like Marx, for whom he professed great admiration, Schumpeter was no mere imitator—he borrowed ideas from his intellectual heroes but melded them into something uniquely his own. He shared Marx's view that eco­nomic processes are organic and that change comes from within the economic sys­tem, not merely from without. He admired the blend of sociology and economics that comprised the theories of both Marx and Weber. From Walras he borrowed the notion of the entrepreneur, but in place of the passive figure of Walras's general-equilibrium system, Schumpeter substituted an active agent of economic progress. Reflecting the Austrian economists' interest in disequilibrium processes, Schumpeter made the entrepreneur the chief agent who causes disequilibrium (i.e., change) in a competitive economy.

To Shumpeter, development is a dynamic process, a disturbing of the economic status quo. He looked upon economic progress not as a mere adjunct to the central body of orthodox economic theory, but as the basis for reinterpreting a vital process that had been crowded out of mainstream economic analysis by the static, general-equilibrium approach. The entrepreneur is a key figure for Schumpeter because, quite simply, he is the persona causa of economic development.