Economic development theory

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The Theory of Economic Development is an economic work by the Austrian-German-American economist Joseph Schumpeter . It was first published in 1911. The work is one of the best-known works of economics of the 20th century. Schumpeter published the work at the age of 28 as a professor in Graz . It received a lot of recognition and made the young author known in the professional world.

In 1926 a revised and abridged edition appeared, which has been reissued several times to this day. Here the important second chapter has been completely revised and the seventh chapter The Overall Picture of the Economy has been deleted. The title has been expanded, primarily with the aim of counteracting the misunderstanding that it is a book on economic history.

Core idea

In contrast to the economic mainstream, which was primarily concerned with market equilibria, Schumpeter saw capitalist markets in principle in imbalance and, like Marx , whose scientific achievement Schumpeter valued highly throughout his life, he explained the dynamics of capitalist development out of himself.

The essence of the book, the description of the nature and importance of entrepreneurial innovation as the implementation of new combinations of production factors, is often taken up and quoted . The key role in economic dynamism is played by the pioneering entrepreneurs who are looking for new combinations and implementing them - even against resistance ("dynamic entrepreneurs").

Schumpeter distinguishes five cases of new combinations:

  • Production of a new good or a new quality of a good,
  • Introduction of a new production method,
  • Development of a new sales market,
  • Conquering new sources of supply of raw materials or semi-finished products,
  • Reorganization of the market position, e.g. B. Creation or breaking of a monopoly.

“New combinations” (later it is called “innovations”) can include a “different use of the national economy's resources of production resources”, that is, different or different production and distribution. Schumpeter later referred to this process of enforcing new combinations as " creative destruction " with a view to suppressing established practices .

According to Schumpeter, an entrepreneur is only someone who implements a new combination (innovation). The entrepreneur's profit represents the premium for the innovation. The innovative entrepreneur initially achieves a monopoly profit, which calls imitators onto the scene, so that the profit margin falls victim to competition over time. If he wants to remain an entrepreneur, he has to keep looking for new combinations. The function of the capitalist, on the other hand, is to make capital available in the form of credit for which he receives an interest on capital; he also bears the financial risk. Schumpeter distinguishes the “landlord poorly” from the dynamic entrepreneur; this is the entrepreneur who operates in the traditional way, without enforcing “new combinations”, with a normal competitive profit.

When describing the entrepreneur's motivation, Schumpeter uses psychological rather than economic categories. The dream and the will to found a private empire , the will to win and the joy of creating drove the entrepreneur, not the satisfaction of needs, the calculation of benefits or greed.

Contents of the book

While in the first chapter Schumpeter describes economic life as a static equilibrium or cycle - “year in and year out essentially the same path”, in the second chapter he deals with the phenomenon and the consequences of economic development, by which Schumpeter understands real innovations. Development means breaking out of familiar paths, spontaneous and discontinuous changes that are not due to external impulses or result from quantitative changes.

These innovations take shape in new products, new production methods or business models, the development of new sales markets or raw material sources as well as new forms of organization. According to Schumpeter, it is not the ideas and concepts themselves that are decisive, but the implementation of the new combination of means of production. Three things are important here: the right “look”, intuition, as there are no existing data or rules of action for the new, then the inner freedom and energy to push away from the familiar, and finally the ability to overcome a wide variety of resistances. These abilities and their effect on others, but not the mere ownership status, the corresponding risk assumption or the authority for Schumpeter, constitute the entrepreneur (as well as leadership in general). Overall, the entrepreneurial function is “the real basic phenomenon of economic development”.

As Schumpeter explains in the further course of the work, these relationships result in further aspects and factors such as credit and capital (Chapter 3), entrepreneurial profit or surplus value (Chapter 4), the interest rate on capital (Chapter 5) and the cycle of the economy (Chapter 6), but also “the lift and fall of the capitalist world”, which Schumpeter made the subject of his book Capitalism, Socialism and Democracy .

Explanation of the business cycle

Schumpeter explains the business cycle as the imbalance being disrupted by the number of innovative entrepreneurs (in an upswing, successful pioneering entrepreneurs lead to others). In the course of this, this leads to the consumption of entrepreneurial profits. A downturn occurs, that is, the economy adjusts to the new with falling prices and credit deflation, and finally a new equilibrium.

reception

Today Schumpeter's book is considered a classic; the contemporary reception, however, was mainly critical. Schumpeter's teacher Eugen von Böhm-Bawerk criticized the definition of the terminology as "contradicting wide and narrow again as required," rejected capital theory and, in particular, the interest theory represented in the book. Schumpeter's view of the existence of “interest-free phases” in the economic process has been empirically refuted, the idea of ​​interest as the product of entrepreneurial profits is wrong. Nevertheless, in his review, Böhm-Bawerk described Schumpeter as a “fine theoretical head”.

expenditure

  • Theory of Economic Development , Berlin 1911; New edition hrgg. by Jochen Röpke and Olaf Stiller, Berlin 2006.
  • Second, abridged and revised edition 1926 under the title Theory of Economic Development. A study of entrepreneurial profits, capital, credit, interest and the business cycle

literature

  • Jesko Dahlmann: Innovative entrepreneurship in the sense of Schumpeter: theory and economic history. Metropolis Verlag, Marburg 2017, ISBN 978-3-7316-1269-8 .
  • Herbert Matis: The “entrepreneur” as a dynamic element in the economic process. Schumpeter's contribution to the theory of entrepreneurial behavior (lecture at Vienna City Hall on November 27, 2000) , Picus Verlag, Vienna 2002, ISBN 978-3-8545-2388-8 .
  • Allen Oakley: Schumpeter's Theory of Capitalist Motion. A Critical Exposition and Reassessment. , Edward Elgar Publishing, Aldershot 1990. ISBN 1-85278-055-X .

Footnotes

  1. ↑ Harald Hagemann:  Schumpeter, Joseph Alois. In: New German Biography (NDB). Volume 23, Duncker & Humblot, Berlin 2007, ISBN 978-3-428-11204-3 , pp. 755 f. ( Digitized version ).
  2. ↑ Theory of Economic Development. An investigation into entrepreneurial profit , capital, credit, interest and the business cycle , Berlin 1987, p. 132ff.
  3. ↑ Theory of Economic Development. A study of entrepreneurial profits, capital, credit, interest and the business cycle , Berlin 1987, p. 93
  4. ↑ Theory of Economic Development. A study of entrepreneurial profits, capital, credit, interest and the business cycle , Berlin 1987, p. 110
  5. ↑ Theory of Economic Development. A study of entrepreneurial profits, capital, credit, interest and the business cycle , Berlin 1987, p. 122
  6. ↑ Heinz D. Kurz / Richard Sturn: Schumpeter for everyone. From the restlessness of capitalism. Frankfurter Allgemeine Buch, Frankfurt / Main 2012 ISBN 978-3-89981-260-2 , pp. 161ff.