What I'm Reading

Not too long ago, I finished reading Prophet of Innovation: Joseph Schumpeter and Creative Destruction by Thomas McCraw. I must say it was one of the more interesting books I've read in a long time. And in my view, it had the additional benefit of being written by a eminent historian with a sound understanding of economics.

Biographies of economists tend to go one of two ways. Either they get tied up in the psycho-social aspects of the subject, which may offer insights to the thinker, but does little to explain what she or he thought; or they spend so much time explaining the ideas, that the biography becomes an defense of the economist rather than a journey into what made the economist and what made the work important. McCraw travels both roads and, in doing so, avoids the problems of each.

Joseph Schumpeter is perhaps best known among non-economists by his phrase "creative destruction." In fact, that is all many people know about him. But many who study the history of economic thought would rank Schumpeter among the top two or three economists of the 20th century. So why don't more people know about him? As McCraw makes clear, much is due to Schumpeter's own personality and views about the profession. Schumpeter actively sought the spotlight while being intensely focused on his teaching and research. The latter (along with an unsuccessful stint as Minister of Finance in post World War I Austria) caused him to avoid policy positions in favor of working the fields of academia. He taught and taught with a number of luminaries in the field - von Weiser, Bohm-Bawerk, Fisher, Galbraith, Leontief, Samuelson and Tobin. Additionally, while stressing the need for a more mathematically-based science (he was one of the founders of the journal Econometrica), he felt that economics often ignored the longer, historical view - much to its loss.

He also had the misfortune to advocate a number of ideas which, unpopular at the time, would later prove correct. During the Great Depression, he saw the much of the process of government intervention as more hindrance than help. This, of course, ran counter to the more widely-accepted ideas espoused by John Maynard Keynes.

He also saw the socialism of the Soviet Union as a greater threat than the socialism of fascism - not a popular view given our alliance against Germany. And while many rightly saw the threat that was Germany, just as many chose to ignore the potential threat posed by our ally. This last, combined with his marriage to a brilliant economist known for her research and admiration of the Japanese economy, gained more suspicion than renown during the early 1940s, as one might expect.

But it was Schumpeter's understanding of the history and process of economics that was his greatest achievement. An unrelenting supporter of capitalism, he saw it as a process of ongoing evolution and improvement, rather than a system of institutions and beliefs. And his greatest works Business Cycles and Capitalism, Socialism and Democracy, as well his History of Economic Analysis (finished posthumously by his wife) are testaments to this view.

Anyone who teaches economics would be well served to read this book. While its 700+ page size is imposing, one can gain comfort that almost 200 of those pages are notes in this well-researched work. If you would gain some insights about the true nature of capitalism (as opposed to the popular and/or political version), I would recommend you spend some time with McCraw's book. And if you are just interested in the conflict inherent in the mind and experience of genius and how it is manifested in the works of the genius, you will also find much of interest.

I will actually be blogging from time to time on the many quotes and excerpts I ran across in this work. There was much that can be of use in the classroom.

For an additional review, I direct you to this one by economist Robert Solow.
For an interesting interview with the author, Thomas McCraw, and discussion of Schumpeter and his impact on economics, I direct you to this podcast.

Please feel free to share your thoughts about the book, Joseph Schumpeter, and his ideas.