Prophet of Innovation: Joseph Schumpeter and Creative Destruction (review)

It took several decades after Joseph Schumpeter's death in 1950 before biographies started to appear. The reason is not all that clear, but one guess is that since his time was split between Europe (1883–1934) and the United States (1934–50), there was a tendency for experts on his life to concentrate on one or the other of these two periods. In any case, around 1990 this situation started to change and today we have several biographies of Schumpeter—most recently Thomas McCraw's Prophet of Innovation.

McCraw's book is well written and interesting to read, and it is to be warmly recommended to anyone interested in knowing the full story of a man who competes with John Maynard Keynes in being the most fascinating economist of the twentieth century. McCraw states that he intends only to present an account of Schumpeter's life and passions, including his passion to understand capitalism. It is only fair, however, to add that McCraw also does a very fine job of outlining the main ideas in Schumpeter's various works.

McCraw starts in the beginning, which in this case means Schumpeter's birth in 1883 in a small town in what is today part of the Czech Republic. At an early age, Schumpeter's father died in an accident, something that made his mother take her young son and look for a better life elsewhere. Some years after his father's death we thus find the young Schumpeter as a student in an exclusive private school in Vienna, the capital of the Austro-Hungarian Empire.

Vienna, as luck would have it, was at the time one of the world's leading centers for economics, and Schumpeter had early decided that he wanted to be an economist. He quickly got a doctorate and tried to show that he was an academic star, primarily by writing three books when he was still in his 20s. One of these, The Theory of Economic Development (1911; Engl. trans. 1934), was the first major work by an economist that was devoted entirely to entrepreneurship. It became a classic and by far Schumpeter's most influential economic work.

Schumpeter had ambitions to be more than just a brilliant economist, however, and for a few years after World War I he pursued first a political career and then a career as an investor and financier. Both of these excursions into the world beyond academe ended in failure. After a brief period as finance minister, Schumpeter was fired, and after a few years of successful investing, he went bankrupt. Around this time, he also had to confront two personal tragedies: first his mother died and then his wife.

A few years later, in a mood of resignation, Schumpeter decided to move to the United States, where he would work at Harvard for the next fifteen years. He remarried, but his first concern seems to have been to complete his work as an economist. He did this by writing three books: Business Cycles (1939), Capitalism, Socialism, and Democracy (1942), and History of Economic Analysis (published posthumously in 1954).

Of these three works, Schumpeter valued Business Cycles by far the most, and he had high hopes that it would revolutionize modern economics. But it did nothing of the kind, instead being totally overshadowed by Keynes's General Theory (1936). It was also passed over in silence by his fellow economists, much to Schumpeter's secret sorrow. Capitalism, Socialism, and Democracy, in contrast, soon became a success and is still Schumpeter's best-known and best-loved book.

Schumpeter's last years were not particularly happy. Modern economics had been developing in a very different direction from that of Schumpeter's work; and the postwar United States was not a very pleasurable place to live for someone who longed for the aristocratic world of the Austro-Hungarian Empire. Schumpeter died in his sleep in early January 1950, far away from...