Prophet of Innovation: Joseph Schumpeter and Creative Destruction [Hardcover]

Thomas K. McCraw (Author)

Book Description

ISBN-10: 0674025237 | ISBN-13: 978-0674025233 | Publication Date: April 30, 2007 | Edition: annotated edition

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Pan Am, Gimbel's, Pullman, Douglas Aircraft, Digital Equipment Corporation, British Leyland--all once as strong as dinosaurs, all now just as extinct. Destruction of businesses, fortunes, products, and careers is the price of progress toward a better material life. No one understood this bedrock economic principle better than Joseph A. Schumpeter. "Creative destruction," he said, is the driving force of capitalism.

Described by John Kenneth Galbraith as "the most sophisticated conservative" of the twentieth century, Schumpeter made his mark as the prophet of incessant change. His vision was stark: Nearly all businesses fail, victims of innovation by their competitors. Businesspeople ignore this lesson at their peril--to survive, they must be entrepreneurial and think strategically. Yet in Schumpeter's view, the general prosperity produced by the "capitalist engine" far outweighs the wreckage it leaves behind.

During a tumultuous life spanning two world wars, the Great Depression, and the early Cold War, Schumpeter reinvented himself many times. From boy wonder in turn-of-the-century Vienna to captivating Harvard professor, he was stalked by tragedy and haunted by the specter of his rival, John Maynard Keynes. By 1983--the centennial of the birth of both men--Forbes christened Schumpeter, not Keynes, the best navigator through the turbulent seas of globalization. Time has proved that assessment accurate.

Prophet of Innovation is also the private story of a man rescued repeatedly by women who loved him and put his well-being above their own. Without them, he would likely have perished, so fierce were the conflicts between his reason and his emotions. Drawing on all of Schumpeter's writings, including many intimate diaries and letters never before used, this biography paints the full portrait of a magnetic figure who aspired to become the world's greatest economist, lover, and horseman--and admitted to failure only with the horses.

(20070401)

Editorial Reviews

From The New Yorker

In 1939, the economist Joseph Schumpeter wrote that "the history of capitalism is studded with violent bursts and catastrophes" that, while ultimately bettering society, seem "like a series of explosions." He called this process "creative destruction," a phrase that, McCraw writes, aptly describes Schumpeter’s own course. After a series of dramatic turns (including stints as Austrian finance secretary and investment adviser to an Egyptian princess, and a tragic, arguably bigamous marriage), Schumpeter landed in the dubious sanctuary of Harvard ("despicable playground of despicable little tyrants," he wrote), where he turned out several key texts in twentieth-century political economics. McCraw doesn’t get lost in the baroque details of Schumpeter’s story—how many economists ever fought a duel?—or in the arcana of his theories, achieving a balance that his brilliant and restless subject rarely did in life
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Review

This well-paced and beautifully written book explains not only Schumpeter's work but also the fast-changing phenomenon of modern capitalism. McCraw brings out Schumpeter's energy and charisma as well as the power of his ideas, quite skillfully linking the economist's colorful and adventurous personal life with the development of his views. This book is a fine tribute to a great thinker.
--Harold James, Princeton University (20070422)

A welcome book--a truly penetrating biography of the most influential theorist of finance capitalism.
--Edmund S. Phelps, 2006 Nobel Laureate in Economics (20070428)

A most compelling portrait of a complex man who has had a profound influence on how we think about entrepreneurship.
--Amar Bhidé, Columbia University (20070504)

[Schumpeter's] private life was no less fascinating than his public message. In Prophet of Innovation, Thomas McCraw--emeritus professor of history at the Harvard Business School--artfully weaves the two together.
--Dan Seligman (Wall Street Journal 20070401)

In this biography, Pulitzer Prize winner McCraw neatly divides his emphasis between Schumpeter's professional and personal life. He portrays his subject as a somewhat self-absorbed insatiable scholar not entirely comfortable with his contemporaries, which might explain marriages and affairs with much older and younger women, as well as his affinity with students and often-strained relations with colleagues of his own generation. McGraw lucidly addresses Schumpeter's economic theories through an examination of his letters, lectures, addresses, articles, and major works...[An] insightful and highly readable biography.
--Lawrence R. Maxted (Library Journal (starred review) 20070709)

[A] persuasive and eloquent biography.
--Jay Hancock (Baltimore Sun 20070719)

Much honored as an economic prophet, Joseph Schumpeter has had to wait half a century after his death for this splendid full-dress biography covering his ideas, life, and times...[This is] a fat, learned biography by Thomas McCraw, one of America's most respected business historians, the author of a Pulitzer prize-winning history of the rise of regulation. He has found the perfect subject in Schumpeter. He succeeds in getting inside the economist's head, explaining not just what he thought but why he thought it. Beyond this, he also succeeds in painting a portrait of his times. Fin de siècle Vienna, Weimar Germany, Harvard University before and after the first world war: all come to life on these pages. (The Economist 20070730)

Prophet of Innovation: Joseph Schumpeter and Creative Destruction is a well-written and entrancing look at one of the twentieth century's most important economic and political thinkers. McCraw's book may rightly take its place as one of the two or three best biographies of an economist ever written...[It] is so splendid because it succeeds on so many different levels. If the book were simply an account of the Harvard economics department, it would stand as a lasting and significant contribution to the history of economic thought. Alternatively, it is one of the best treatments of what it was like for European intellectuals to migrate to the United States. Or are you interested in why Austria fell apart during the 1920s, and how someone with as little real world experience as Schumpeter became Minister of Finance? The book is also a love story, and an account of how a possibly dysfunctional man can nonetheless find romantic happiness after repeated failures and tragedies. Last but not least it is an intellectual history...Every year there are three or four non-fiction books that have to be read, and this is one of them.
--Tyler Cowen (American.com 20070716)

McCraw...frames his narrative confidently and writes beautifully...Best of all, McCraw is an extremely good interpreter of Schumpeter's published work.
--David Warsh (economicprincipals.com 20070528)

An extraordinary new biography. Prophet of Innovation by Thomas K. McCraw chronicles the life of one of the 20th century's most original and insightful scholars...Like his contemporary and frequent rival John Maynard Keynes, Schumpeter makes for a rich biographical subject. Keynes received the treatment he deserved from Lord Robert Skidelsky's magisterial multi-volume biography. McCraw's effort, similarly, is worthy of Schumpeter.
--Nick Schulz (National Review 20070604)

McCraw's triumph is to tell...readers quite as much as we need to know about Schumpeter in a lucid and well-paced narrative, while also supplying, for more rigorous scholars, no fewer than two hundred pages of endnotes...McCraw successfully passes off the life of a professor of economics as a story that fully complements its undoubted intellectual significance with a tantalizing human interest.
--Peter Clarke (London Review of Books 20070708)

McCraw doesn't get lost in the baroque details of Schumpeter's story--how many economists ever fought a duel?--or in the arcana of his theories, achieving a balance that his brilliant and restless subject rarely did in life. (New Yorker 20070701)

A thinker as multifaceted as Schumpeter demands much of a biographer, and in Prophet of Innovation: Joseph Schumpeter and Creative Destruction, Thomas McCraw delivers...McCraw not only excels at conveying the innovation and excitement in Schumpeter's work, he keeps readers riveted to the story of the economist's life, and some of the twists are almost novelistic...[An] outstanding biography.
--Daniel McCarthy (American Conservative 20070924)

It's no small feat to make a jaunty read out of the life of an economist dead more than 50 years, and Thomas K. McCraw has done just that in his impressive new biography of Joseph Schumpeter.
--Kevin R. Kosar (Weekly Standard 20070901)

[Schumpeter] deserves more recognition and McCraw's book is to be welcomed on that account.
--Pat McArdle (Irish Times 20071001)

Prophet of Innovation is an immensely entertaining read.
--Marisa Morrison (Washington Times 20081006)

Although Schumpeter died in 1950, McCraw is right to insist that his contributions to our understanding of the economies in which we live are still vital today.
--Peter Timlin (Harvard Magazine 20081201)

Books on the lives of the great economists might not, at first blush, set the blood coursing. Yet Robert Skidelsky's masterly three-volume biography of John Maynard Keynes proved how engrossing such a life could be. It is high praise to say that Thomas McCraw's biography of Joseph Schumpeter, Prophet of Innovation, has some of the same quality and appeal...McCraw, who has written the definitive biography of his subject, supplies many testimonials to Schumpeter's genius and influence from both his day and our own.
--Robin Blackburn (The Nation 20100504)

[McGraw] has written an impressive and thoughtful biography of one of the most significant economists of the 20th century. Although widely regarded as a man of no small ego, Schumpeter can justifiably lay claim to effecting considerable scholarly debate in a wide range of academic backgrounds. Schumpeter’s analysis of economic development and business cycles, his notion of the process and significance of creative destruction, and his views on entrepreneurial activities continue to influence generations of economists and social scientists. McGraw’s thorough, insightful biography draws on an array of public and private papers to explain Schumpeter’s scholarly development and increasing sway, from his early years in Vienna to Bonn and later to his tenure at Harvard. This engaging scholarly work provides substance and context and is well worth a close read by both students and faculty.
--T.E. Sullivan (Choice 20100601)

McCraw’s book on Schumpeter is an absorbing read, with short chapters, lots of personal detail and historical scene setting, and an important anti-Galbraithian economic theme.
--Deirdre McCloskey (Reason )

An excellent, thorough and smoothly written biography of Joseph Schumpeter, the greatest economist of the 20th century. Too bad most politicos--and economists--don't fully grasp his insights.
--Steve Forbes (Forbes )

Those seeking some escape from the deluge of "Keynes the Comeback Kid" will enjoy a refresher on that other brilliant economist of his generation, Joseph Schumpeter. Thomas K. McCraw's brilliant biography of the economist who best understood the turbulence of markets and "creative destruction" is all the more relevant as a credit crisis-induced recession unfolds. This biography is the clearest and most comprehensive guide to Schumpeter's life and work and the turbulence of his time which has, like the classic business cycle, come round again.
--Bill Jamieson (The Spectator )

It's the lively and penetrating prose of the book itself that make its appearance in paperback a cause for rejoicing. Reading it is certainly time well-invested.
--Abraham Benrubi (openlettersmonthly.com )

Although he died 60 years ago, Schumpeter's ideas about capitalism still resonate, including the belief that no business, no matter how successful, should assume it will be around forever. (Worth )

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Product Details

• Hardcover: 736 pages
• Publisher: Belknap Press of Harvard University Press; annotated edition edition (April 30, 2007)
• Language: English
• ISBN-10: 0674025237
• ISBN-13: 978-0674025233
• Product Dimensions: 9.1 x 7 x 1.8 inches
• Shipping Weight: 2.5 pounds
• Average Customer Review: 4.5 out of 5 stars  See all reviews (33 customer reviews)
• Amazon Best Sellers Rank: #285,724 in Books (See Top 100 in Books)

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45 of 52 people found the following review helpful:

5.0 out of 5 stars The Basic Paradox of Capitalism, April 23, 2007

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Robert Morris (Dallas, Texas) - See all my reviews
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This review is from: Prophet of Innovation: Joseph Schumpeter and Creative Destruction (Hardcover)

As I recently read Thomas K. McCraw's brilliant biography of Joseph Schumpeter (1883-1950), I was intrigued by the evolution of his career after he earned a Ph.D. at the University of Vienna (1906). At age 24, he served as a secretary of state for finance in the new Austrian republic (1919-1920), and later became chairman and president of a Vienna-based Biederman Bank (1920-1924) that collapsed. As a result of that and several substantial investments in companies which also failed, Schumpeter suffered major financial setbacks (both professional and personal) but eventually repaid his debts, then taught at the University of Bonn (1925-1932) before accepting an offer to join the Harvard faculty as a professor of economics where he continued to teach until his death in 1950. McCraw also examines Schumpeter's personal life that, understandably, reflected the successes and failures in his career. For example, Schumpeter fell deeply in love with Anna Josifina Reisinger and married her in 1925. The next year, his beloved mother died and within a month, his wife died in childbirth, as did their son. McCraw suggests that Schumpeter never fully recovered from these personal losses.

Of greatest interest to me is the context or frame-of-reference the biographical material provides for one of Schumpeter's most influential business concepts, "creative destruction," which he introduced in his most popular book, Capitalism, Socialism, and Democracy," first published in 1942. Scholars have divided opinions as to the influences on Schumpeter's development of this concept. They probably include Karl Marx, Friedrich Nietzsche, and Werner Sombart.

According to Schumpeter, there is a "process of industrial mutation-if I may use that biological term-that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in." He goes on to explain, "The first thing to go is the traditional conception of the modus operandi of competition. Economists are at long last emerging from the stage in which price competition was all they saw. As soon as quality competition and sales effort are admitted into the sacred precincts of theory, the price variable is ousted from its dominant position. However, it is still competition within a rigid pattern of invariant conditions, methods of production and forms of industrial organization in particular, that practically monopolizes attention. But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance) - competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives." (from "The Process of Creative Destruction," 1942) There are countless examples of applications of this concept, notably Jack Welch's determination to "blow up" GE after he succeeded Reginald Jones as CEO.

In his own review of Prophet of Innovation in the Wall Street Journal, Dan Seligman includes Schumpeter's widely quoted question-and-answer sequence: "Can capitalism survive? No, I do not think it can." Seligman then suggests that that answer "is hedged in later passages [in Capitalism, Socialism, and Democracy]. Even so, it will seem wildly counterintuitive to readers who have read Schumpeter on capitalism's huge successes." I agree. In fact, I presume to suggest that, from Schumpeter's perspective, no form of capitalism can survive and that continuous replacement of one form of capitalism by another confirms the enduring reality of creative destruction. Without it, there can be no innovation. In essence, that is the basic paradox of capitalism.

68 of 81 people found the following review helpful:

4.0 out of 5 stars BEST WRITTEN RECENT BIOGRAPHY; BUT TENOUS WHEN IT MOVES FROM HISTORY TO ECONOMICS, April 30, 2007

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Sanford "Sanford" (New York) - See all my reviews

This review is from: Prophet of Innovation: Joseph Schumpeter and Creative Destruction (Hardcover)

Thomas McCraw is one of the best business historians in the world and with this output, late in his career (he is an emeritus professor at Harvard now), he can lay claim to being one of the best historians in the world, not just a business historian. It is hard to imagine a political biography in recent years that comes close to matching the lucid style, perfect prose, excellent quotes and commentary about life as this book.

The subject is one of the most famous economists of the twentieth century, someone who along with Frederick Hayek, Ludwig Mises and others from the Austrian School came to anchor the philosophical basis for the success of economic and political freedom. The book covers in detail the personal life of Schumpeter, including a lot of material not commonly available. His biography of the deaths of his daughter mother and wife within months is an excellent if tragic basis to delineate the first part of Schumpeter's life, which the author suggests made him an Enfant Terrible, from the second, which the author calls made him an adult. The final segment is his becoming a Sage. Peppered throughout the book are some of the best quotations from some of the most famous persons in history, including legendary poets, yet ones the reader would never have read before.

For all those reasons, Thomas McCraw has delivered a book that is filling like a all-you-can-eat buffet, yet with each dish of the same quality as fine dining. IT IS A TOUR DE FORCE.

Yet there is a contextual flaw which weighs down the narrative. From the very first pages it is clear that Thomas McCraw is attempting to also make a comparative evaluation of economic systems, a task that quickly appears tenous, and to do that while crowning Schumpeter as the king of economics, past and present, at which point the narrative makes one cringe. Here is why this brilliant history turns into tenous economic analysis.

Firstly, as Thomas McCraw's colleagues across the Charles River should tell him, Schumpeter was his best not so much as a pure AUstrian-School economist but as a chronicler of the economy, almost a contemporary historian of the subject. In that sense he shared much with Karl Marx, who he studied extensively, for both really shined with words not with mathematics. So the author's repeated references to Schumpeter as a mathematical genius, or as a competitor in that regard with John Keynes, fails and fails obviously. Schumpeter was the least mathematical of all the great economists of the twentieth century.

Secondly, McCraw makes the error common to passionate biographers to make a sage out of their subject. Here too the book overreaches, for Schumpeter was among the worst at foretelling the future. Here again it was because he was more a historian, and less an economist. He predicted capitalism would collapse, a prediction that the author just glosses over. Yet the author pillories Karl Marx for the same error without realizing that Karl Marx wrote without the full benefit of the technological revolution, the telegraph and railroad barely underway by the 1840s. Yet by Schumpeter's time, not only were those revolutions done, but so was the telephone, electricity, the internal combustion engine and the airplane. As such, Schumpeter's pessimism was unforgivable while Karl Marx's was fully understandable.

Third, McCraw makes a shocking mistake by glossing over Schumpeter's lobbying for heavy reparations on the Germans after WW I. He did so by offering calculations that the German economy would easily recover, and therefore could support reparations. The point was fully opposed by John Keynes, who resigned as representative of Britain when the Schumpeterian perspective was used to devastate the Germans with debt burdens. If McCraw had not been at Harvard, or of such fame, it would easily have been a career ending mistake. After all, it is well known that those reparations led to Adolf Hitler and WW II, a point so well understood by 1945 that John Keynes was made the head of the entire postwar economic decisionmaking, precisely why he got to build the World Bank, IMF and Bretton Woods. Schumpeter by contrast was thoroughly discredited.

Fourth, for a business historian of unmatched credibility, McCraw makes a surprising contextual error with regard to Schumpeter's life. He seems to ignore the inevitability of progress, of the drivers of American growth in the early 20th century and absolute irrelevance of Schumpeter to that growth. Perhaps it is his bias as a biographer, or to make the layman buy the book, but it is fatal to the book. Here again, I point to the prior point that Schumpeter was more an economic historian than an economist in the sense that HAD SCHUMPETER NOT LIVED, NONE OF THE GREAT ECONOMIC ADVANCES OF THE 20TH CENTURY, INCLUDING THE VENTURE CAPITAL BUSINESS, WOULD HAVE BEEN HAMPERED. By contrast, without John Keynes, recovery after Sept. 11th, after WW II (when defense spending collapsed and social spending and reconstruction was increased to avoid a collapse of the economy) or in the midst of the Great Depression would have been hard to imagine. Precisely why comparative economic analysis undertaken by McCraw takes the tinge of conservative talk show simplicity. Harvard's economics department would likely have little of his business history about Schumpeter.

Finally, the book would have been a lot stronger had it left the idolization of Schumpeter to the jacket flaps and in the introduction. But repeated compliments only make the reader notice that the author has it wrong, especially when he summarily dismisses karl Marx or John Keynes the way a conservative talk show host would. All Schumpeter was was an immensely readable subject, and an inspiring prosaists who hungered for fame, and whose economic history was impressive, all reasons why you must buy the book and keep it prominently on your book shelf, but he was a flawed economist driven to the wrong conclusions (from reparations to the sustainability of capitalism). His grandiosity was Churchillian, as was his sense of history and society, but unlike Winston Churchill, fate never gave Schumpeter the chance to correct for a lifetime of grandiose errors.

14 of 14 people found the following review helpful:

5.0 out of 5 stars Review of McCraw's book on Schumpeter, May 30, 2007

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R. I. Harris (Glasgow) - See all my reviews
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This review is from: Prophet of Innovation: Joseph Schumpeter and Creative Destruction (Hardcover)

I have been impressed by this book, which is a good mix of the 'history' of Joseph Schumpeter and his ideas and contributions to economics. I think the author has obtained a very good balance between trying to understand this great economist, and presenting his work to the informed lay-person. Economists and non-economists alike will find a lot here, which is very relevant to today (perhaps even more so to economists working in academia!). Some of Schumpeter's major works (like Business Cycles published in 1939) are not easy to digest; but this book brings out enough to capture the essentials. Overall, this is the best book on Schumpeter I have seen.