Saturday, May 6, 2017

Joseph Schumpeter and innovation

Joseph Schumpeter (1883-1950) is an influential economist best known for his analysis of innovation and business cycles. Economists Joseph Stiglitz and Carl Walsh say in their textbook,
Schumpeter argued that the economy was characterized by a process of creative destruction. An innovator could, through a new product or lower costs of production, establish a dominant position in a market. But eventually, that dominant position would be destroyed, as another new product or process was invented. (Economics 4th edition, 2006)
This post is a collection of quotes from Schumpeter talking about innovation and the business cycle.


"Why do entrepreneurs appear, not continuously, that is singly in every appropriately chosen interval, but in clusters? Exclusively because the appearance of one or a few entrepreneurs facilitates the appearance of others, and these the appearance of more, in ever-increasing numbers." (The Theory of Economic Development, 1934)

"The swarm-like appearance of new combinations easily and necessarily explains the fundamental features of periods of boom." (The Theory of Economic Development, 1934)

"The innovation is hazardous, impossible for most producers. But if someone establishes a business having regard to this source of supply, and everything goes well, then he can produce a unit of product more cheaply, while at first the existing prices substantially continue to exist. He then makes a profit. Again he has contributed nothing but will and action, has done nothing but recombine existing factors. Again he is an entrepreneur, his profit entrepreneurial profit. And again the latter, and also the entrepreneurial function as such, perish in the vortex of the competition which streams after them. The case of the choice of new trade routes belongs here." (The Theory of Economic Development, 1934)

"All knowledge and habit, once acquired, becomes as firmly rooted in ourselves as a railway embanking in the earth." (Quoted in the Worldly Philosophers by Robert Heilbroner)

Business cycle

"...our analysis leads us to believe that recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another crisis ahead." (Depressions: Can we learn from pastexperience? 1934)

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