Capitalism, Socialism, and Democracy | Study Guide

Joseph A. Schumpeter

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Joseph A. Schumpeter | Biography


Education and Major Life Events

Joseph Alois Schumpeter was born in Triesch, Moravia, (now the Czech Republic) on February 8, 1883. Schumpeter's father owned a textile factory but died when Joseph was only four years old. Subsequently, Schumpeter moved with his mother to live in Austria. He attended the University of Vienna, where he studied economics and law and completed a PhD. While at the university, he was a student of Eugen von Böhm-Bawerk (1851–1914), a leading member of the Austrian School of Economics and an early critic of German economist and social thinker Karl Marx (1818–83). In 1907 Schumpeter married an Englishwoman, Gladys Seaver, but the couple was together for only a few months. After completing his graduate studies, in 1911 Schumpeter became a professor of economics at the University of Graz, Austria. By 1913 he and Seaver had separated.

The conclusion of World War I (1914–18) and of the socialist revolutions in Germany and Austria-Hungary (1918–20) plunged the young Schumpeter directly into the efforts to build new societies from the wreckage of the old. After the regime of German Kaiser Wilhelm II (1859–1941) was overthrown in the aftermath of Germany's November Revolution (1918–19), Schumpeter was a part of the Council of People's Deputies' Socialization Commission, set up to establish the socialization of industry. Then, after the breakup of Austria-Hungary as a result of World War I, Schumpeter served as the minister of finance for the short-lived Republic of German-Austria in 1919.

Schumpeter left public service to take up a position as the chairman of the M.L. Biederman and Company Bank in 1921. However, because of problems at the bank, Schumpeter was forced to resign in 1924, heavily in debt. His financial situation was worsened by the atmosphere of political and economic upheaval that dominated Europe in the 1920s, as well as his reputation for extravagant living over responsible business practices. In 1925 he married his second wife, Anna Reisinger, with whom he had maintained a relationship since 1920. Sadly, she died in childbirth, along with the child, within a year of the wedding.

In 1925 Schumpeter returned to academic life, taking up a post as a professor at the University of Bonn, Germany. He held this position until 1932. As the German Republic slid further into crisis, coinciding with the rise of Adolf Hitler's Nazi Party, Schumpeter decided to leave Europe for the United States. He took up a post at Harvard University in 1932, which he held until his retirement in 1949. He married again, this time to American economic historian Elizabeth Boody in 1937, and became a U.S. citizen in 1939.

Writing Career

Schumpeter had a keen mind and an argumentative nature, and his published work earned him a reputation for insightful arguments, broad reading habits, and unorthodox conclusions. His most famous work is Capitalism, Socialism, and Democracy (1942). Writing just before and during World War II (1939–45), Schumpeter addressed one of the major questions of the age with a sweeping text that combined historical analysis and economic theory. His analysis of capitalism stressed the centrality of "creative destruction," the positive effects of business failure, unemployment, and recessions in providing fuel and opportunity for inventions and innovations. He also discussed the economic role of entrepreneurs, risk-takers who drove capitalist progress by working to find new solutions and bring new products and methods to market.

At that time, the social and economic systems of capitalism and socialism were in political and ideological confrontation, especially after the Russian Revolution of 1917 and the socialist revolutions in Germany and Austria-Hungary in 1918–20. Schumpeter argued that capitalism would fall to socialism because capitalism would inadvertently destroy the circumstances that had made it possible in the first place. Schumpeter's final work, History of Economic Analysis, was published posthumously in 1954. A work of economic history, it includes a number of Schumpeter's typically unorthodox opinions, including a famous dismissal of Scottish philosopher Adam Smith (1723–90).


Schumpeter has a mixed reputation as an economist, owing largely to his passion for unorthodox positions. The predictions he made in Capitalism, Socialism, and Democracy about the inevitable triumph of socialism did not come to pass. (Schumpeter would have been glad to see he was wrong.) Further, theories of perfect competition and equilibrium still dominate economics teaching today, despite Schumpeter's objections to them. Even though Schumpeter proved incorrect in those ways, the book is still considered an outstanding contribution to economics and society. Particularly significant is his work on theorizing the role of entrepreneurs and innovation in capitalist economics. This theory has been especially influential in some 21st-century economic policies, such as those of the European Union, which intend to promote entrepreneurism.

Schumpeter is remembered as a diligent teacher and colorful character in addition to being an economist. He was said to have remarked that he wished to be the greatest economist in the world, the finest horseman in Austria, and the greatest lover in Vienna. He claimed to have succeeded at two of those goals, complaining bitterly about a horse that had let him down. Schumpeter died at his home in Connecticut on January 8, 1950, at age 66.

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