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Joseph Alois Schumpeter (February 8, 1883 –
January 8, 1950) was an Austrian economist (though
not an 'Austrian economist' in the sense of being
a member of the Austrian School of economics) and
a giant in the history of economic thought. 

==Early Life==
Born in Trest (then part of Austria-Hungary, now
in the Czech Republic), he began his career
studying under the great Austrian School|Austrian
capital theorist Eugen von Böhm-Bawerk. He became
a professor of anthropology at the University of
Czernowitz (now Ukraine, then a German-language
university) in 1911, then Graz, where he remained
until the end of World War I. In 1919-1920, he
served as the Austrian Minister of Finance; in
1920-1924, as President of the private Biederman
Bank; both with fairly little success. From
1925-1932, he held a chair at the University of
Bonn, Germany; having to leave central Europe
because of the rise of the Nazis, he moved to
Harvard, where he taught from 1932 to 1950. He
wasn't generally considered to be a very good
classroom teacher because he tried to pack too
much into each lecture, but he acquired a school
of loyal followers.

Although Schumpeter encouraged some young
mathematical economics|mathematical economists and
was even the founding president of the Econometric
Society (1933), Schumpeter was not a mathematician
but rather an economist and tried instead to
integrate sociology|sociological understanding
into his economic theories. From current thought
it has been argued that Schumpeter's ideas on
business cycles and economic development could not
be captured in the mathematics of his day - they
need the language of non-linear dynamical systems
to be partially formalized.

==Most important work==
===The History of Economic Analysis===
Schumpeter's vast erudition is apparent in his
posthumous History of Economic Analysis, although
some of his judgments seem quite idiosyncratic and
sometimes cavalier. For instance, Schumpeter
thought that the greatest 18th century economist
was Anne Robert Jacques Turgot, Baron de
Laune|Turgot, not Adam Smith, as many consider.
Some of these judgments are partly explained by
his opinion that there is one general system of
economic analysis, and Léon Walras found it.
Other economists are rated by how much of Walras'
theory could be read into them. Schumpeter
criticized John Maynard Keynes and
David Ricardo for the "Ricardian vice". According
to Schumpeter, Ricardo and Keynes reasoned in
terms of abstract models, where they would freeze
all but a few variables. Then they could argue
that one caused the other in a simple monotonic
fashion. This led to the belief that one could
easily deduce policy conclusions directly from a
highly abstract theoretical model.

===Business cycles===
Schumpeter's relationships with the ideas of other
economists were quite complex in his most
important contributions to
economic analysis - the theory of business cycles
and development. From the above, the reader might
conclude that Schumpeter followed Walras and that
his analysis shared nothing in common with Keynes.
But this conclusion would be wrong, as illustrated
by Schumpeter's The Theory of Economic
Development. Schumpeter starts with a treatise of
"circular flow" which, excluding any innovations
and innovative activities, leads to a stationary
state. The stationary state is, according to
Schumpeter, described by Walrasian equilibrium.
The hero of his story, though, is, in fine
Austrian fashion, the entrepreneur.

The entrepreneur disturbs this equilibrium and is
the cause of economic development, which proceeds
in cyclic fashion along several time scales. In
fashioning this theory connecting innovations,
cycles, and development, Schumpeter kept alive the
Russian communism|communist Nikolai
Kondratiev|Nikolai Kondratiev's ideas on 50-year
cycles, Kondratieff Waves.

Modern economists have not, however, been able to
empirically confirm the existence of systematic
business cycles and they attribute the major
changes in growth to disturbances of an ad hoc
character.

===Schumpeter and Keynesianism===
So in Schumpeter's theory Walrasian equilibrium is
not adequate to capture the key mechanisms of
economic development. Schumpeter also thought that
the institution enabling the entrepreneur to
purchase the resources needed to realize his or
her vision was a well-developed
capitalism|capitalist financial system, including
a whole range of institutions for granting credit.
One could divide economists among (1) those who
emphasized "real" analysis and regarded money as
merely a "veil" and (2) those who thought monetary
institutions are important and money could be a
separate driving force. Both Schumpeter and Keynes
were among the latter. Nevertheless, Schumpeter,
who was a Conservatism|conservative, rejected
Keynesian economics|Keynesianism. Some have seen
this to be partly due to jealousy - Schumpeter
might have seen that he would be judged by history
as the second-greatest economist of his day, and
he knew who would be first. During his lifetime
and even on his own campus, this certainly was the
case; since the 1980s, however, this is at least
not so clear anymore - the Wall Street Journal has
called him "the most important economist of the
20th century."

===Schumpeter, Capitalism and why it can't work===
Schumpeter's most popular book in English is
probably Capitalism, Socialism, and Democracy.
This book opens with a good
treatment of Karl Marx. Schumpeter is quite
sympathetic to Marx's analysis, although
Schumpeter concludes capitalism will be replaced
by socialism for non-Marxist reasons. It is in
this book that Schumpeter characterizes capitalism
with the famous phrase "creative destruction" in
which old ways of doing things are endogenously
destroyed and replaced by the new.
Schumpeter thinks that the success of capitalism
will lead to a form of corporation and a fostering
of values, especially among intellectuals, of
hostility to capitalism. The intellectual and
social climate needed to allow entrepreneurship to
thrive will not exist in advanced capitalism and
it will be succeeded by socialism of some form or
another. There will not be a revolution, but
merely a trend in parliaments to elect
Social_democratic|social democratic parties of one
stripe or another. Schumpeter emphasizes that he
is analyzing trends, not engaging in political
advocacy. Some have thought John Kenneth Galbraith
was influenced in his The New Industrial State by
Schumpeter's views on corporations.

==His Legacy==
For some time after his death, Schumpeter's views
were most influential among heterodox economists,
especially European, who were interested in
industrial organization, evolution|evolutionary
theory, and economic development, and who tended
to be on the other end of the political spectrum
of Schumpeter and were often also influenced by
Keynes, Karl Marx, and Thorstein Veblen. Today,
Schumpeter is a protagonist of the mainstream, not
(yet) in academic economics ("standard textbook
economics"), but in economic policy, management
studies, industrial policy, and the entire area of
innovation. The European Union's innovation
program, and its main development plan, the Lisbon
Strategy, are based on Schumpeter.

==See also==
*List of Austrians
*List of Austrian Scientists
*Austrian School|Austrian School of Economics

== External links ==
*http://cepa.newschool.edu/het/profiles/schump.htm
*http://www.cpm.ehime-u.ac.jp/akamachomepage/akama
c_e-text_links/Schumpeter.html
*http://www.geocities.com/bcschipper/schumpeter.ht
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*http://www.peterdrucker.at/en/texts/proph_01.html