Shelby Jasso

Dr. Pluta
February 25, 2014
ECON 4336
Joseph Schumpeter: His Life and Work
Joseph Schumpeter was an Austrian economist most notably recognized for his coining of the
term creative destruction and how that pertained to the evolution of capitalism. Schumpeters
upbringing and adult life would have a major influence on his economic views and contributions to the
field.
Born in 1883 into a German-speaking, Catholic, upper-middle class family, Joseph Schumpeters
childhood greatly influenced his economic thought. Both his fraternal great-grandfather and grandfather
served as mayor in the small town of Triesch, Moravia were Schumpeter was born and lived until he was
five. Because he was from a German-speaking Catholic family, his relatives enjoyed the best jobs and
enjoyed disproportionate voting power because they owned property, (McCraw 12). This instilled at an
early age the importance of status and image in young Schumpeters mind. When Schumpeters father
died in 1887, his mother, Johanna, uprooted herself and five year old Schumpeter moving to Graz,
Austria in hopes of finding better opportunities for her and her son. Graz was home to one of the
Empires few universities and the German-speaking provinces of Austria had better educational
systems than most other parts of Europe, (McCraw 12). Johanna greatly wanted Schumpeter to have
access to these opportunities so in 1893 thirty-two year old Johanna married sixty-five year old General
Sigmund von Keler. This marriage, although odd, would serve Johannas motives as Schumpeter would
now be eligible to attend better schools and reach higher social circles because of his new step-fathers
social status.
Schumpeter excelled at school finishing gymnasium, which is the equivalent of an American
prep school, and went on to study at Theresianum. Theresianum, located in the heart of the city, was
named after the empress Maria Theresa and was one of the best and most demanding schools of its
kind anywhere, (McCraw 13). The school was originally created for the high class aristocrats; however,
Schumpeter was permitted to attend due to his step-fathers status. Here he would learn how to feel at
home in an aristocratic environment which may have led him to a rudimentary version of his
evolutionary theory, (Andersen 29). Upon graduation from Theresianum, Schumpeter enrolled in the
University of Vienna where he would learn how to emulate the abstract thinking of the ancient Greeks
and Romans, and learn the importance of networking and social status (McCraaw 15). Through his
realization of the importance of political connections and the status of the university, Schumpeter
developed a sense of allegiance to the emperor and felt economics was an important calling,
(Medearis 6). One can see again and again how Schumpeters efforts to gain higher and higher social
status would have an effect on his contributions to evolutionary economics. It was at University of
Vienna Schumpeter would come under the teachings of Eugen von Bohm-Bawerk, the most famous of
the economics professors during Schumpeters years at the university, (Medearis 6). One seminar in
particular had an important influence over young Schumpeter. The seminar presented by Bohm-Bawerk
had two groups of students against each other, those who supported capitalism and those who
supported socialism. It would be this seminar where Schumpeter would begin to show his views on
economic thinking; siding with the socialist side, not for sympathy, but rather he thought Marxism had
powerful points on the weakness of marginalism, especially its neglect of dynamism and historical
change, (Medearis 7,8).
Upon graduating from the University of Vienna with a degree in law, Schumpeter travelled
throughout Europe attending seminars on political economy, meeting renowned economists, primarily
those of the historical school, researching at the London School of Economics and eventually meeting
Gladys Ricarde Seaver, whom he married. The seminars he attended shaped his view on economics;
Schumpeter would eventually adopt a very historical approach to understanding the economy which
he gained from the many contacts he had from the historical school such as Gustav Schmoller
(Medearis 8). Shortly after his wedding, Schumpeter and Gladys moved to Cairo where Schumpeter
worked as a lawyer and economic adviser to the Egyptian princess, (Blokland 117). Again this high
status of working for royalty showed Schumpeters way of evolving and moving up in status. During his
time in Cairo, Schumpeter finished his first dissertation, which led to the first of many jobs teaching at
the university level. It was during this time when Schumpeter was appointed different teaching positions
that he published Die Theorie der wirtschaftlichen Entwicklung, which strengthened his reputation as an
economist on a more international level. It is in Die Theorie that Schumpeter shows the impact of having
entrepreneurs for parents and growing up with the mindset his mother instilled in him of always
achieving more and pushing himself higher through his views of a forceful entrepreneur that would
continually show up throughout his lifes work (Blokland 117). Die Theorie would be the first time
Schumpeter would introduce his theory of economic evolution as driven by innovative entrepreneurs,
(Andersen 33,34). His theory would become a synthesis between neoclassical economics and the
historical schools as well as the starting point for a general theory of social evolution, (Andersen 34).
Because of Die Theorie Schumpeter established his credentials as a prominent economist
internationally.
It is through his education and career path up until early-adulthood that has a profound effect
on Schumpeter and the career and life choices he would make. Growing up with a mother who
constantly did whatever it took to raise her and her sons social status, attending an aristocratic school
system, and eventually accepting a position at the University of Graz, Schumpeter was on the path
towards a political career, which he thoroughly wanted to partake in. However, his plans to advance
through the political and educational ranks took a halt as Europe was plagued with World War I.
Throughout the war Schumpeter would write letters and memos to Heinrich Lammasch that displayed
his political and economic thinking at the time; his writings would be about, not only economic policy,
but also politics. Schumpeter stressed his views about economic policy should be seen through a more
traditional lens of classical views, especially relating to politics and the future of the Austrian monarchy.
The war had a great effect on Schumpeters view of economics, including his views on the customs
union between Germany and Austria and how that would affect the Austrian economy. It was because
of these views that Schumpeter encouraged a Tory Democracy or rather a conservative political party
run by the Austrian aristocrats. Again one can see Schumpeters evolution into aristocracy, pushing to
keep the traditional way of thinking and ruling.
In 1919 as the war had just ended, Schumpeters conservative point of view led him to follow in
the footsteps of his teacher, Bohm-Bawerk to the position of minister of finance appointed to him by
the social democrats who were in control of Austria (Skousen 426). It was under the socialist regime that
Schumpeter most likely gained insight into socialism and how it affected the Austrian economy. Soon
after his appointment, Schumpeter returned to his old ways, taught to him by his mother, of living a life
of extravagance and high social class. Schumpeter was let go after only a year as minister of finance but
quickly found employment as a board chairman to a new bank in Austria. Schumpeter shows the effect
his mother had on his image and character with the outlandish lifestyle of an aristocrat that she
constantly pushed him towards. While working at the bank, Schumpeter, whom listed himself as
unmarried after not seeing Gladys throughout the war, would publically show off his outlandish love
life parading prostitutes down the main street, it was these types of actions that led to Schumpeter
being let go from the bank in 1924 in response to a severe economic crisis (Skousen 426). Shortly after
he was fired, Schumpeter was able to find work as the chair of public finance at the University of Bonn.
That same year Schumpeter would marry a second time to Annie Reisinger, although he never officially
divorced Gladys. Schumpeters early life of devotion to his mother carried over to his new wife Annie;
however, tragedy struck in 1926 when both Johanna, Schumpeters mother, and Annie died. This would
greatly affect Schumpeter, both mentally and physically, and the direction his life would take from
there.
In 1932 Schumpeter was offered a position at Harvard University. Upon taking the position,
offered to him by Frank Taussig, he left Germany for the United States where he remained for the
remainder of his life (Skousen 427). One can attribute his aversion to and desperation in leaving Europe
to the deaths of the two women he cared most for, which would influence his economic thought and
achievements. By 1935, Schumpeter was a professor in graduate economics courses at Harvard. Harvard
would soon become the center for Keynesian economics which drastically impacted Schumpeter, as
his jealousy and dislike continued to grow for Keynes (Skousen 428). It was this aversion to Keynes that
impacted Schumpeters efforts to produce new work, as his previous study Business Cycles was not as
well received as he had hoped.
Due to his work being overshadowed by Keynes and the loss of his wife and mother,
Schumpeter fell into a depressive state during the 1940s; however, it was during this time that he
published his most notable work of his career. In 1942 Schumpeter published Capitalism, Socialism and
Democracy which would become an international bestseller and skyrocket Schumpeters status in the
economic world. Throughout his book, you can see the different influences Schumpeters life had on his
economic thought, theories, and ideas. It was in Capitalism, Socialism and Democracy Schumpeter first
coined the phrase creative destruction, a term his is most noted for. In his view modern economy
and society are inherently unbalanced, tension ridden and therefore dynamic, constantly disrupted by
innovations, pushed by the winds of creative destruction (Pakulski 19). Again Schumpeter would
reference the innovative entrepreneur, just as he did in Die Theorie (Pakulski 19). This concept of the
entrepreneur causing the acceleration of change could be linked to his upbringing, from his familys
occupation to his mothers entrepreneur-like advancement through Austrian social classes. For
Schumpeter, the entrepreneur-like mindset had allowed him to evolve from a small boy from Triesch
to a world-renowned economist. It was through the innovative entrepreneur that Schumpeter
described how those entrepreneurs major innovationsdisrupt the economy, (Perelman 48). To
explain his evolutionary economics, Schumpeter used