Bio: (1883-1950) Austrian-American economist. Josef Schumpeter received his doctorate in economics from the University of Vienna, at a time when the most prominent representatives of the Austrian School of Economics were teaching there. After that, Schumpeter taught at the universities of Czernowitz, Graz, and Bonn, and in 1932 he moved to the United States, where he taught at Harvard University for the rest of his life. His work covers many areas: economics, the history of economic thought, sociology, philosophy of science, and political science. Schumpeter's economic theories are a synthesis of the Austrian School of Economics, German Historical Economics, and Marx's economic theory. Schumpeter wanted to build a bridge between economics and sociology, and he saw economic sociology as a science that studies all the complexities of economic history. He believes that, on the one hand, the development of economy and society, and on the other hand, thought and science, represent two aspects of the same evolutionary process. Economic dynamics and the development of science thus form two related processes in the development of society. The concept of institution is crucial for his synthesis of theoretical and historical approaches to society because institutions form a bridge between the generality of theory and the specifics of history. He applied Ernst Mach's philosophy of science to economics in order to develop an instrumental method.

                                     Economic Development

In the book The Theory of Economic Development (1934, in German 1912), he introduces the thesis that the basis of economic development is the actions of entrepreneurs whose main role is to be leaders in introducing innovations. Innovations introduced by entrepreneurs can be very different: new technologies, new goods, new raw materials, new markets, different organization of production, etc. Such entrepreneurial innovations deviate from established ways of producing and doing business, using new methods or an innovative combination of old methods, doing what Schumpeter calls "creative destruction" in order to create a new, better economic system. It distinguishes economic innovations made by entrepreneurs from technological inventions. In that sense, entrepreneurs differ from inventors, capitalists, bankers, managers, landowners, and workers, because only entrepreneurs introduce real innovations into the economy. Although entrepreneurs may, at the same time, have other functions (those mentioned above), they are primarily driven by the desire to innovate and take risks, and not the desire for profit or earnings. Entrepreneurial activities thus represent the basis of capitalism and its development, and in Schumpeter's theory, their activity is crucial for understanding his theories of credit, profit, capital, and economic cycles.

                   Classes in Ethnically Homogeneous Environment

Schumpeter studied classes in the article "Social Classes in an Ethnically Homogeneous Environment" (1927), where he developed the theory of social classes in which classes represent a place of mediation between economic and non-economic areas. He wants to connect the idea of ​​entrepreneurship and leadership in different areas of social life with the concept of class. He also emphasizes that the difference is that classes are used in economics as simple economic categories, and in sociology, classes are viewed as real-life subjects. In his book The Crisis of the Tax State (1918) and the article "The Instability of Capitalism" (1928), he makes negative predictions about capitalism and fiscal policy. Citizens are demanding increasing state expenditures, and they are not willing to pay them through taxes, and on the other hand, the capitalist economy is undermining its own foundations and striving to turn into socialism.

                          Capitalism, Socialism and Democracy

Schumpeter's most famous work is the book Capitalism, Socialism and Democracy (1942), written during his work in the United States. In this book, he emphasizes the importance of the institutional arrangement of the capitalist state. In the part of the book that refers to capitalism, he reiterates the thesis that capitalism is in crisis, not because it has failed, but because it is too successful. The different historical tendencies of the development of capitalism and the state leading to the transition of capitalism to socialism are: the rise of interventionism, the development of managerial bureaucracy in the public and private sectors, and the rise of the middle class whose interests and values ​​differ from the capitalist class. Innovation and entrepreneurship are increasingly becoming routine within large corporations, which reduces innovation. All these tendencies undermine classical capitalism.

In the part of the book that refers to democracy, the author discusses the classical theories of democracy and develops a critique of such views. He believes that the core of classical theories of democracy is that democracy is an institutional system in which citizens elect representatives who will pursue general interests in elections. In this view of democracy, politicians do not fight for their own interests but only serve as intermediaries between the will of the citizens and the realization of their needs. Schumpeter believes that traditional theories of democracy are wrong, so he introduces his theory of democracy, according to which democracy is an institutional system in which politicians fight for power by fighting for the votes of citizens in elections. He also criticizes the classical view of democracy in which voters are rational and able to understand the general interests of society, and, in addition, he disputes the existence of some idealized concept of the common good.

Modern societies are complex and differentiated, different groups have different interests around which they fight, so the common good can't exist in those societies. Different groups, in modern democratic societies, are fighting for power and votes, and at the same time, they are carrying out political propaganda to which ordinary citizens are very susceptible. Topics and solutions that are the subject of political controversy were imposed on voters by politicians and not the other way around. In that sense, the popular sovereignty and rationality of the voters are a complete illusion. There is great political inequality between ordinary citizens and those with political and economic power - capitalists and corporations have economic power, politicians have their organizations and propaganda, unions have the power to lobby and negotiate, state bureaucracy controls the work and goals of state bodies, and the like. On the other hand, ordinary citizens have neither power, nor influence, nor enough information and rationality, and the only thing they have is the right to vote. In Schumpeter's view of democracy, this system becomes only an institutionally regulated procedure for electing political leadership.

Main works

Das Wesen und der Haupt inhalt der theoretischen Nationalökonomie (1908);

Epochen der dogmen – und Methodengeschichte (1912a);

Theorie der wirtschaftlichen Entwicklung  (1912b); 

Die Krise des Steuerstaates (1918);

„Die sozialen Klassen in ethnish homogenen Milieu”, in Archiv für Sozialwissenschaft und Sozialpolitik  (1927);

"The Instability of Capitalism", u The Economic Journal (1928);

The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle (1934);

Business Cycles (1939);

Capitalism, Socialism, and Democracy (1942);

Can Capitalism Survive? (1942);

History of Economic Analysis (1954);

Das wesen des geldes (1970);

Essays: On Entrepreneurs, Innovations, Business Cycles and the Evolution of Capitalism (2017). 

Works translated into English:

The Nature and Essence of Economic Theory (2017, in German 1908);

 Economic Doctrine and Method (2014, in German 1912a); 

"The Crisis of the Tax State", in Swedberg, Richard (ed.), The Economics and Sociology of Capitalism (1991, in German 1918);

Treatise on Money (2014, in German 1970);

Imperialism and the Social Classes (2013, in German 1919).