Life

Joseph Alois Schumpeter (hereafter JAS) was born on 8 February 1883 in the little town of Triesch in Moravia (today Czech Republic) which at that time was part of the Austrian Habsburg Empire.

This was certainly a precondition for his subsequent successful study of economics at the University of Vienna. For students with a certain breadth and depth of educa­tion, this university was an excellent place for the study of economics, even though an official curriculum in economics did not exist at that time; economics was a part of the law curriculum. The professorial staff of the law faculty included the founding fathers of Austrian economics - Carl Menger, Friedrich von Wieser and Eugen von Bohm-Bawerk. The members of this triad of Austrian economics shared some basic tenets, but disagreed on substantial issues, such as the theory of capital and interest. Beyond that, the senior teaching staff was diverse, including not only protagonists of the Austrian School with its emphasis on pure theory, but also scholars such as Eugen von Philippovich (advocating a synthesis of theory and history) and Karl Inama von Sternegg, a statistician with his­torical interests. JAS’s first published essays were written under the supervision of Inama and Sternegg, but soon he turned to theory, benefiting in particular from Wieser and Bohm-Bawerk.

So, JAS found himself in the middle of several fundamental controversies regarding the relations between theory, empirics, history, and politics. From early on, he felt that he had a mission with regard to those controversies. After graduation in 1906, he spent some months in Berlin (where he attended Schmoller’s seminar) and in England, where he met Marshall and Edgeworth and married Gladys Ricarde Seaver. The young couple moved to Cairo, where JAS earned his living as a lawyer and a financial counsellor for an Egyptian princess. He wrote a programmatic and ambitious book (Das Wesen und der Hauptinhalt der theoretischen Nationalokonomie - The Nature and Scope of Theoretical Economics, 1908). There he explained how to make sense of the hits and misses of con­temporary economics, and what had to be done for its future advances. This work of the 25-year old earned him the habilitation at Vienna University and a position as an extraordinary professor at the University of Czernowitz, the capital of the province of Bukowina in the South-East of the Habsburg Empire (today Western Ukraine). In Czernowitz he wrote Theorie der wirtschaftlichen Entwicklung (1912). A substantially revised second edition became available in an English translation (1934, Theory of Economic Development) and became the seminal work for Schumpeterian economics.

During the Graz period he published important works on the history and the method of economics (1914, 1915), and the fiscal sociology of the tax state (1918 [1952]). However, the focus of his attention was shifting to the drama unravelling in the theatre of politics. As a student at Theresianum he had imbibed the spirit of non-partisan civil service, a virtue which is desperately needed to preserve the delicate balances of the complex multilingual order of the Danube monarchy. As the deadly threats posed by growing nationalism are cumulating in World War I, he felt obliged to support that order. JAS was (and remained throughout his live) convinced that no attractive alterna­tive to the values defining that order was available. He wrote several memoranda dealing with political agenda related to inter-ethnic equilibrium in the Habsburg monarchy and pragmatic steps towards peace, with conservative circles as addressees who might con­sider him for a position in the war cabinet. While those hopes were frustrated, he was appointed finance minister in the first government of the Republic of Austria in 1919, established by a coalition between Socialists and Christian-Democrats. His essentially sound proposal of a capital levy in order to deal with the financial consequences of the transition from the war economy was not put into practice. He left office after only seven months on the grounds of fundamental disagreements regarding Austria’s future: against all contemporary currents, JAS favoured an economic federation of the states of the former Habsburg Empire.

Still on leave from Graz, he was engaged in converting the time-honoured Biedermann- Bank into a joint stock company and eventually became its president. His engagement in private business was accompanied by only transitory successes; it culminated in huge private debts amounting to the equivalent of 2 million 2014 euros in 1925 (Peneder and Resch 2015: 19). Apart from the difficult business environment in the aftermath of a major war, hyperinflation, and the downturn of the stock exchange in 1924, three almost simultaneous specific developments contributed to his financial disaster: first, failed private speculations (notably against the French franc) which had been leveraged by money borrowed from his Biedermann-Bank; second, the bankruptcy of a venture capitalist industrial group of industry start-ups, where JAS’s former Theresianum col­league Rudolf-Maria Braun-Stammfest was his partner (JAS again was involved with his private money); third, the heterogeneous shareholder structure and concomitant inconsistent business strategies of the Biedermann-Bank, which went bankrupt in 1926, while JAS had already resigned as president in 1924.

Dealing with his heavy debts, he gave paid lectures to non-academic audiences and wrote articles for the Austrian and German weekly Der Volkswirt (a kind of German- language The Economist) edited by his friend Gustav Stolper (see Schumpeter 1985, 1993). Most fortunately, on the initiative of Arthur Spiethoff he managed to get a chair at Bonn University. From autumn 1926 until 1932, JAS taught in Bonn, where his stu­dents included August Losch, Erich Schneider, Hans Singer, Wolfgang Stolper, and Clare Tisch. Publications of that period included a paper on the instability of capitalism (1928). Moreover, he was concerned with the revision and English translation of Theory of Economic Development and a manuscript on monetary theory, which were not pub­lished in his lifetime (Schumpeter 1970). His time in Bonn was overshadowed by the loss of his beloved second wife Annie who died in childbirth.

Starting in 1927, Frank Taussig (whom JAS had met during his 1913-14 stay in the US as a visiting professor at Columbia) initiated recurrent visits for him to Harvard University, and in 1932 JAS accepted an offer for a permanent position at this institu­tion. However, the 1930s are not an altogether happy decade for JAS: on the positive side was his success in promoting the foundation of the Econometric Society. As a by­product he published an essay on the role of econometrics (1933). He is also successful in shaping Harvard’s recruitment policy by promoting appointments such as the one of Wassily Leontief. Not least due to those efforts, Harvard was on the way to become one of the leading research universities, attracting visiting economists and graduate students from all over the world. The group of JAS’s excellent Harvard students is fascinating not least in its diversity, including Paul Samuelson and James Tobin, Hyman Minsky and Nicolas Georgescu-Roegen, Paul Sweezy, Richard Goodwin, but also the Jesuit Father Bernard Dempsey, with whom he may have had discussions on medieval scholasticism (which he found interesting from early on) and on catholic corporatism, which he began to see as a system suitable to balance over-centralizing forces inherent in modern capital­ist development.

Yet prospects were darkened by political developments at both national and interna­tional levels, in particular by tendencies that were gaining ground inside and outside the economic discipline in the wake of the economic crisis. Of course, JAS worried about the development in Germany, but he also disliked Roosevelt’s New Deal. Above all, he regretted the success of John Maynard Keynes, whose General Theory dealt with phenomena of the business cycle while abstracting from the kind of pervasive change which is the most salient aspect of capitalist development, including its discontinuous nature. Despite this major deficiency, the General Theory carried the day in two respects: as a guide to the economic policy of demand management, and as a starting point for the development of macroeconomic modelling (cf. Keynes 1936; Schumpeter 1952b: 260-91), attracting also the attention of some of JAS’s best Harvard students. By contrast, his own work on business cycles was received with little enthusiasm in the discipline. In particular, neither his own efforts to express his subtle and encompassing reasoning on the complexities of capitalist development by means of theoretical concepts of formalized economics, and to support it by systematized empirical material, nor his cautious encouragement of quantitative elaboration by younger economists were really successful (see, for example, Andersen 2011: chs 9-12).

Apart from his two major publication projects (1942, 1954a), Schumpeter’s work in the 1940s was being reflected by a number of important essays, dealing inter alia with the future of capitalism in the post-war world (1950) and the role of economic history as an integral part of socio-economic research (1949b). The pieces collected in the posthumously published volume Ten Great Economists (1952a) were to a great part written in the 1940s. He was elected President of the Econometric Society in 1942 and of the American Economic Association in 1948. As president-elect of the newly founded International Economic Association he planned to attend its annual meeting in Paris in 1950, which would bring him to Europe for the first time since the war. With important unfinished works on his agenda, he died on 8 January 1950 in Taconic, Connecticut.