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Schumpeter, Joseph Alois (1883–1950)

In 1919 he was appointed Professor of Economics at Czernowitz, subsequently moving to Graz. He was appointed Minister of Finance in the Austrian Republic for a short period after the First World War. From 1925 until 1932 he held the Chair of Public Finance at Bonn. From 1932 until his death he was at Harvard University. His major publications include Theory of Eco­nomic Development (1912), Business Cycles (1939), Capitalism, Social­ism and Democracy (1942) and History of Economic Analysis, which appeared posthumously and unfinished in 1954. He built up a theory of the trade cycle which was based on three time periods: (a) short, (b) medium and (c) long, to each ofwhich he attributed different causes. He tested his theory against actual fluctuations from the eighteenth to the twentieth century. Although it was reasonably successful, he was doubtful of the predictive efficiency of his theory for future periods. He attempted to work out a theory of economic growth and fluctuation around an explicit recognition of the contribution of technical innovation. He tried to argue that, without the latter, an economy would reach a static equilibrium position of a ‘circular flow’ of goods with no net growth. He emphasized the evolutionary nature of the capitalist system. He argued that under monopoly capitalism, firms would place less emphasis on price competition, but would increasingly compete in technical and organizational innovation, thus sending ‘gales of creative destruction’ through the economic system. He predicted that capitalism would evolve gradually into socialism.

Reference: The Penguin Dictionary of Economics, 3rd edt.