Monday, 19 March 2012 08:35

Joseph Schumpeter: Men of Ideas

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Joseph Schumpeter (1883-1950) was a Moravian economist and political scientist.  His major contribution to economic discourse is his work on Business cycles (developed in his book, The Theory of Economic Development).

Schumpeter talked about the absence of innovations and circular flow which ultimately leads to stagnation of economic activities (sort of like negative equilibrium) until the business entrepreneur enters the picture with his new ideas on how to do things and jump starts the economy. The entrepreneurial businesses disturb the equilibrium and generate business development in the economy.

Each business cycle allegedly lasts for about fifty years before stagnation sets in; subsequently new innovations are found to grow the economy.

The idea of business cycles is conjectural though in the real world there appear to be periods of great economic activity followed by periods of less economic activity. Clearly, when new innovations enter the market they tend to increase economic activity.

For example, the findings of physics, especially general relativity and quantum mechanics, have let to increases in technological improvements (in the areas of computers, Internet, Email, telecommunication, wireless telephones, Fax machines, Video machines, microwave cookers, stereos, radio, television, automobiles airplanes  and so on).  However, since the 1960s physics appear in sleep and is not really generating new ideas (Superstrings hypothesis seem a dud) and the effect on the economy is lack of real innovations.

Improvements in science and technology increases the generation of new products. The Internet was developed in the 1960s.  The lack of new products could be considered the end of a business cycle until new innovations come to disturb the stagnation.

In his book Capitalism, Socialism and Democracy, Schumpeter seems to suggest that the triumph of capitalism would lead to a form of corporatism which would bode poorly for democracy.

In his final address to the nation before leaving office, President Dwight Eisenhower warned the nation of the danger of the Military Industrial Complex; he was echoing Schumpeter’s perception of threat to our civil liberties by the successful marriage of big business and the state.

Schumpeter talked about the threat of socialism.  In socialist organizations officials rule. Those with more information tend to hoard it, for information is power. Possessing more information than their so-called comrades these officials proceed to tell those with less information what to do.

This phenomenon is not unique to communist organizations; they appear to operate in most bureaucratic organizations.

In our technocratic world those with more information than others rule those with less information. We have entered the age of the technocrats and they may threaten democracy.

Schumpeter wrote many well received works but none of them rose to the level of Keynesian economics.


Joseph Schumpeter.  The Instability of Capitalism. (1928).

Joseph Schumpeter. The Historical Approach to the Analysis of Business Cycles. (1949).

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Ozodi Osuji Ph.D

Ozodi Thomas Osuji is from Imo State, Nigeria. He obtained his PhD from UCLA. He taught at a couple of Universities and decided to go back to school and study psychology. Thereafter, he worked in the mental health field and was the Executive Director of two mental health agencies. He subsequently left the mental health environment with the goal of being less influenced by others perspectives, so as to be able to think for himself and synthesize Western, Asian and African perspectives on phenomena. Dr Osuji’s goal is to provide us with a unique perspective, one that is not strictly Western or African but a synthesis of both. Dr Osuji teaches, writes and consults on leadership, management, politics, psychology and religions. Dr Osuji is married and has three children; he lives at Anchorage, Alaska, USA.

He can be reached at: (907) 310-8176