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Book Review
| Thomas K. McCraw, Prophet of Innovation: Joseph Schumpeter and Creative Destruction, Cambridge: Harvard University Press, 2007. Pp. 717. $35.00 (ISBN 978-0-674-02523-3).
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| I am not a biographies person. I did not expect to enjoy the lengthy biography of an economist. But I enjoyed this book immensely. |
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A must for a good biography is an interesting subject and Schumpeter's life story amply provides this. In 1907, the twenty-five-year-old recent graduate of the University of Vienna took a grand tour of European universities, meeting the greatest economists of the time in Berlin, Paris, London, Oxford, and Cambridge. In London he spent time in the British Museum (consciously following Marx) and the Inns of Court, but also charmed his way into parties and country houses and with the ladies. There he unexpectedly married a thirty-six-year-old upper-class lady, went with her to Cairo to take a semi-legal job and a few months later back to Vienna. There in 1908, he published his first 626–page book that aimed at no less than reconciling the German Historical School with the Austrian Marginalism School of economics. Quite a year for a young would-be scholar. |
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Schumpeter had a fast-track academic career: the University of Czernowitz in 1909, Graz in 1911, a two-term visit at Columbia in 1913, a five-month-long coast-to-coast trip in the U.S. during which he gave lectures at seventeen American universities. By the time he was thirty-two (in 1915), he had already written three significant books, twenty articles published in four countries, and over sixty book reviews. In 1919, the conservative and politically powerless Schumpeter unexpectedly became Finance Minister in newly formed and socialist governed Austria. This and his next adventure as a banker and investor ended up in fiasco. In 1925, without bothering to divorce or even notify his fifty-four-year-old Anglican wife, he married Anna Reisinger, the daughter of the concierge of the apartment building in Vienna in which he grew up. She was a twenty-two-year-old Lutheran, he was a forty-two-year-old Catholic. Within weeks in the summer of 1926, Schumpeter lost his beloved mother, his newly wedded wife, and his new born son. The tragedy dominated the rest of his life. |
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Between 1927 and 1932, he divided his time between the universities of Bonn and Harvard. With the rise of Hitler, he stopped visiting Germany, yet dismissed the Nazi phenomenon as short term and insignificant, while developing real concern over the Soviet threat to Europe and assisting Jewish émigrés fleeing Germany to get positions in American universities. During this time, he corresponded with his secretary cum mistress in Bonn. This emotional correspondence is an invaluable source both for Schumpeter's mindset and for everyday life in Hitler's Germany. In 1940, feeling that he was not respected by his Harvard colleagues and overburdened with teaching, he came very close to accepting an offer from Yale. During the war, under Hoover's personal instructions, he was questioned by the FBI as a potential German sympathizer. His third wife, economist Elizabeth Boody Schumpeter, was questioned as a suspected Japanese collaborator. In 1947, he became the president of the American Economic Association and was widely considered the eminent economist of the time. He died in 1950 at the peak of his fame. |
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Schumpeter's life definitely makes for a fascinating biography. Several have already been written. What McCraw does tremendously well in the current book is to combine the personal, the academic, and the intellectual aspects of Schumpeter's life and connect them to the general historical context. He identifies the various intellectual influences that shaped Schumpeter as a young student: the German Historical School, the Austrian School in economics, Alfred Marshall's neo-classical synthesis, Karl Marx, Max Weber, Gustav von Schmoller, Werner Sombart. He identifies Schumpeter's complex cultural affinity with German scholarship, as an Austrian, and his Anglophile bent that coexisted with his fascination with American economic development in general and big business in particular. He exposes one of Schumpeter's less noticed enigmas, his aspiration to make the discipline of economics precise, objective, positivist, non-political, and generally based on a scientific paradigm (he was a founder of the econometric society). He describes his life-long struggle with mathematics, the scarcity of formal models and quantitative analysis in his writing, and his massive reliance on historical narrations and rhetorical manipulations. McCraw depicts the intellectual tension between John Maynard Keynes and Schumpeter. Keynes offered precise, mathematical, well-focused macro-economic analysis that provided highly useful policy recommendations just in time to address the calamities of the Great Depression. Schumpeter's great book, Business Cycles, appeared only in 1939 and was overshadowed by Keynes's and the outbreak of the war. Nevertheless Schumpeter refused to follow the Keynesian mathematical, static, and scientific model. His last and most successful books, Capitalism, Socialism and Democracy (1942) and History of Economic Analysis (1954), were written in the tradition of Marx and Weber as grand syntheses of economics, sociology, and history. McCraw masterfully presents the contradictions, tensions, and frustrations of Schumpeter's intellectual project. |
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What can a legal historian learn from Schumpeter's books and from McCraw's biography? Schumpeter is one of the most penetrating scholars of the dynamics of capitalism. He shows why big business and monopoly cannot remain static for long and why capitalism is doomed to constantly innovate and evolve. He questions the ability of the capitalist system to preserve itself but precludes the ability of a socialist system to replace it and points to the linkage between capitalism and democracy. For many legal historians, capitalism is the context in which they study the development of modern law and its encounters. Entrepreneurship and innovation, money and credit, creative destruction and business cycles are major themes in Schumpeter's work. Legal historians of contracts and corporations, of banking and bankruptcy, of regulation, antitrust, and privatization, can benefit directly from Schumpeter's work. |
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All historians can learn from McCraw's account of Schumpeter's constant attempt, continuing from one book to the next, to combine history and theory. Every academic can benefit from McCraw's observations and insights about the hesitations, decisions, frustrations, achievements, and gratifications experienced by Schumpeter in each of his moves and books and by the upheavals of his career as a whole. Each of us experiences them, but on a mundane scale. Few intellectuals experience them as intensely as Schumpeter. McCraw met the challenge of Schumpeter's personal and intellectual life and produced a book that should be read, despite its length, by academics of all disciplines. |
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| Ron Harris
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| Tel Aviv University Law School |
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