WEBVTT NOTE 12. Joseph A. Schumpeter: Maverick and Enigma 1 00:00:00.000 --> 00:00:10.200 Chapter XII. Joseph R. Schumpeter, Maverick and Enigma. Schumpeter's ancestors, Moravian 2 00:00:10.200 --> 00:00:16.640 cloth manufacturers from Driesch to Detrest, Czech Republic, were of German origin, Catholic 3 00:00:16.640 --> 00:00:24.840 and very popular on account of their charity toward others. Joseph Alois was born in 1883. 4 00:00:24.840 --> 00:00:30.760 After the early death of his father, his mother moved to Graz, where in 1893 she married Lieutenant 5 00:00:30.760 --> 00:00:37.560 Field Marshal Siegismund von Kehler, 32 years her senior, and moved to Vienna. Kehler's 6 00:00:37.560 --> 00:00:43.520 excellent connections enabled Yoshi to attend the Theresianum, a high school primarily reserved 7 00:00:43.520 --> 00:00:49.320 for the aristocracy. This played a significant part in shaping his character. A lifelong 8 00:00:49.320 --> 00:00:54.680 Schumpeter, a young friend and fellow student, would describe Schumpeter later in this way. 9 00:00:54.680 --> 00:01:00.600 He never seemed to take anything in life seriously. He had been educated in Theresianum, where 10 00:01:00.600 --> 00:01:05.840 the pupils were taught to stick to the issue. One should know the rules of all parties and 11 00:01:05.840 --> 00:01:12.600 ideologies, but not belong to any party or believe in any one opinion. After graduating 12 00:01:12.600 --> 00:01:18.420 with honours, Schumpeter began studying law. He shifted his focus to economics, however, 13 00:01:18.420 --> 00:01:23.740 After the influence of Menger's pupils, Friedrich von Mises, Eugen von Boehm-Bawerk and Eugen 14 00:01:23.740 --> 00:01:29.740 von Wille-Powitz, a colleague remembers that he, in seminars, attracted general attention 15 00:01:29.740 --> 00:01:35.060 through his cool scientific detachment and had a playful manner in which he took part 16 00:01:35.060 --> 00:01:40.500 in the discussion. He went to the London School of Economics and also to the universities 17 00:01:40.500 --> 00:01:45.420 of Oxford and Cambridge after graduating. He complemented his Austrian education with 18 00:01:45.420 --> 00:02:14.940 Schumpeter's employment with an Italian attorney took him to Egypt in 1907. 19 00:02:14.940 --> 00:02:20.260 He drafted his first monograph in the evenings after work, Das Wesen und der Hauptinhalt 20 00:02:20.260 --> 00:02:27.040 der theoretischen nationalökonomie, 1908, The Nature and Essence of Theoretical Economics. 21 00:02:27.040 --> 00:02:33.200 For this balanced account of the Methodenstreit and a forthright plea for methodological individualism, 22 00:02:33.200 --> 00:02:39.620 he received his habilitation in the same year. In 1909, he took on a non-tenured professorship 23 00:02:39.620 --> 00:02:46.020 by Ivan Chernovitz in present-day Ukraine. In 1911, at the age of 28, he was appointed 24 00:02:46.020 --> 00:02:51.460 as Professor to the Chair of Political Economy at the University of Graz, the youngest professor 25 00:02:51.460 --> 00:02:57.580 in all of the empire. He published his Theorie der wirtschaftlichen Entwicklung, 1912, The 26 00:02:57.580 --> 00:03:02.240 Theory of Economic Development, to at the end of the same year. Its publication date 27 00:03:02.240 --> 00:03:07.840 was erroneously given as 1912. This work quickly found international recognition and would 28 00:03:07.840 --> 00:03:16.620 Before the outbreak of the First World War and at Max Weber's 1844-1919 suggestion, 29 00:03:16.620 --> 00:03:24.280 he described in Epochen der Dogmen und Methodengeschichte, 1914, Economic Doctrine and Method and Historical 30 00:03:24.280 --> 00:03:30.560 Sketch, the economic phenomena with help of related social sciences. Schumpeter accepted 31 00:03:30.560 --> 00:03:36.000 a guest professorship at Columbia University in New York and delivered 17 lectures at other 32 00:03:36.000 --> 00:03:48.400 Schumpeter thought of himself as a scientist first and foremost. 33 00:03:48.400 --> 00:03:53.020 He emphasized over and over that he wished to refrain from making any political judgments 34 00:03:53.020 --> 00:03:58.160 and on economic policy measures wanted to offer his help if at all only where theoretical 35 00:03:58.160 --> 00:04:00.100 decision-making was concerned. 36 00:04:00.100 --> 00:04:05.380 He nevertheless assumed political posts and functions because he feared an economic takeover 37 00:04:05.380 --> 00:04:09.660 Schumpeter from Germany during the First World War, he tried, with several memoranda, to 38 00:04:09.660 --> 00:04:15.740 prevent a planned customs union with the German Reich. He joined the German Sozialisierungskommission 39 00:04:15.740 --> 00:04:20.980 – Socialisation Commission – immediately after the war, solicited by friends with Marxist 40 00:04:20.980 --> 00:04:27.220 leanings. To everyone's astonishment, Schumpeter advocated the complete and immediate nationalisation 41 00:04:27.220 --> 00:04:32.460 of the coal mining industry, whereupon the Viennese author, cultural critic and journalist 42 00:04:32.460 --> 00:04:39.620 Professor Karl Kaus, 1874-1936, derided him as an exchange professor as opposed to exchange 43 00:04:39.620 --> 00:04:45.260 student in terms of convictions and added with biting irony that Schumpeter had more 44 00:04:45.260 --> 00:04:49.140 different views than were necessary for his advancement. 45 00:04:49.140 --> 00:04:54.820 In 1919 Schumpeter was even appointed as finance minister under the socialist regime, but after 46 00:04:54.820 --> 00:05:00.380 seven months he had to resign, his budget had been completely rejected and he was accused 47 00:05:00.380 --> 00:05:06.660 of Having thwarted a nationalisation programme and thus of counteracting government policy. 48 00:05:06.660 --> 00:05:11.320 When it came to the economic independence of the young republic, Schumpeter spoke up with 49 00:05:11.320 --> 00:05:17.180 optimism at every opportunity. In contrast to this Otto Bauer, State Secretary for Foreign 50 00:05:17.180 --> 00:05:22.080 Affairs, pursued the goal of unification with Germany and argued its case on the basis of 51 00:05:22.080 --> 00:05:29.020 economic necessity. At the peace negotiations in Saint-Germain, Chancellor Karl Renner emphasised 52 00:05:29.020 --> 00:05:34.260 as well as the economic nonviability of the radically shrunken Austria. 53 00:05:34.260 --> 00:05:39.400 With Schumpeter allowing himself a noble riding horse, paid for out of his politician's salary 54 00:05:39.400 --> 00:05:44.620 while the Viennese were going hungry, and appearing in public accompanied by prostitutes, 55 00:05:44.620 --> 00:05:48.660 his political reputation was soon effectively destroyed. 56 00:05:48.660 --> 00:05:52.760 Many months later he was appointed president of the Viennese Biedermann Bank. 57 00:05:52.760 --> 00:05:55.100 The bank went bust within three years. 58 00:05:55.100 --> 00:05:58.900 He was dismissed in disgrace and with a mountain of debt. 59 00:05:58.900 --> 00:06:04.240 Schumpeter had reached the low point of his life, without capital, with a miserable reputation 60 00:06:04.240 --> 00:06:08.540 as a businessman, and without political renown. 61 00:06:08.540 --> 00:06:14.580 In 1925 Bonn made Schumpeter an offer he accepted immediately. His tenured professorship in political 62 00:06:14.580 --> 00:06:19.540 economy was a sensation from the start. For the first time in decades, theory was being 63 00:06:19.540 --> 00:06:24.500 taught at a German university. Bonn became the meeting place for economists from all over 64 00:06:24.500 --> 00:06:25.500 of the World. 65 00:06:25.500 --> 00:06:30.620 Moreover, his lectures in the areas of finance, monetary theory, history of economic theory 66 00:06:30.620 --> 00:06:37.060 and sociology were judged as flamboyant and unconventional, as one former student remembers. 67 00:06:37.060 --> 00:06:41.580 He was very relaxed as he began his lectures, always without notes. 68 00:06:41.580 --> 00:06:46.100 He had a clear and agreeable Viennese way of talking that was slightly playful, but 69 00:06:46.100 --> 00:06:49.440 nevertheless very measured and emphatic. 70 00:06:49.440 --> 00:06:54.020 He did not skimp on his gestures when he spoke, from all sides of the lectern, usually leaning 71 00:06:54.020 --> 00:07:22.640 Schumpeter also suffered staggering blows of fate in Bonn. 72 00:07:22.640 --> 00:07:28.800 In 1926 his mother Johanna passed away. His newborn son died a month later, as did Annie, 73 00:07:28.800 --> 00:07:34.160 his second wife, and the infant's mother, who had been stricken with puerperal fever. 74 00:07:34.160 --> 00:07:38.520 The daughter of the janitor of his parents' tenements, Annie, had fallen deeply in love 75 00:07:38.520 --> 00:07:43.840 with her Shumi at just 17. They moved into a grand villa in Bonn after their wedding 76 00:07:43.840 --> 00:07:50.680 in 1925 and threw many lavish parties. Schumpeter was devastated by the loss. Everyone who knew 77 00:07:50.680 --> 00:07:55.340 Schumpeter knew him, noticed a radical change in his personality. For years he left Annie's 78 00:07:55.340 --> 00:08:01.140 clothes untouched, made daily trips to the cemetery, and developed an out-and-out religious 79 00:08:01.140 --> 00:08:06.400 cult around her death. In 1932 Schumpeter quit teaching in Germany 80 00:08:06.400 --> 00:08:11.740 and went to Harvard University in Cambridge, Massachusetts. As he had in Bonn, he was able 81 00:08:11.740 --> 00:08:17.020 to gather around himself an illustrious circle of enthusiastic students and young researchers, 82 00:08:17.020 --> 00:08:23.820 For example, the future Nobel Prize winners Paul A. Samuelson, 1915-2009, Vasily Leontyev, 83 00:08:23.820 --> 00:08:31.420 1905-1999, and James Tobin, 1918-2002, the Austrians Gottfried Habeler and Fritz Machlup, 84 00:08:31.420 --> 00:08:39.620 and also socialists like Oskar Lange, 1904-1965, Paul Sweezy, 1910-2004, and Richard M. Goodwin, 85 00:08:39.620 --> 00:08:40.620 1913-1996. 86 00:08:40.620 --> 00:08:46.140 in 1996. He made a crucial contribution to the golden age of economics. His works on 87 00:08:46.140 --> 00:08:50.700 entrepreneur theory, as well as capitalism, made him the most recognised economist in 88 00:08:50.700 --> 00:08:56.760 the US. In 1947 he became the first foreigner to be elected president of the renowned American 89 00:08:56.760 --> 00:09:01.720 Economic Association. One year later he even took over the chair of the International Economic 90 00:09:01.720 --> 00:09:08.740 Association, which at the time had a membership of 5,300 worldwide. Among all of the ambitious 91 00:09:08.740 --> 00:09:37.820 The story goes that Schumpeter once said he had three goals in life, to be the world's 92 00:09:37.820 --> 00:09:43.220 America's Greatest Economist, Austria's Greatest Horseman and Vienna's Greatest Lover. 93 00:09:43.220 --> 00:09:48.340 It became increasingly clear to him in the 1930s that these goals were probably out of 94 00:09:48.340 --> 00:09:54.220 his reach, at least when it came to economics. With a treatise on money, 1930, Britain John 95 00:09:54.220 --> 00:09:59.860 Maynard Keynes plunged the ambitious and egotistical Schumpeter, his exact contemporary, into a 96 00:09:59.860 --> 00:10:05.300 deep creative crisis. Schumpeter had just written a manuscript on monetary theory and 97 00:10:05.300 --> 00:10:10.780 was getting it ready for printing. Schumpeter could hardly bear the excitement of his students 98 00:10:10.780 --> 00:10:15.420 as they looked forward to the latest works by Keynes. Although Schumpeter was always 99 00:10:15.420 --> 00:10:20.980 able to fascinate colleagues, students and audiences with his polyglot education, his 100 00:10:20.980 --> 00:10:26.600 skillful storytelling and his tremendous intellectual flexibility, he never managed to build up 101 00:10:26.600 --> 00:10:33.060 a following of students for very long. Self-critical, he blamed his lack of leadership and conviction 102 00:10:33.060 --> 00:10:40.060 and noted in his diary I have no garments that I could not remove. Relativism runs in 103 00:10:40.060 --> 00:10:45.740 my blood. This is one of the reasons I can't win, not in the long run. 104 00:10:45.740 --> 00:10:50.300 In terms of politics Schumpeter revealed his most disagreeable side during the Second World 105 00:10:50.300 --> 00:10:56.500 War. Time and again he ranted against Slavs and Jews and sympathized with Adolf Hitler. 106 00:10:56.500 --> 00:11:00.360 At the same time, however, he lent his help to many of the refugees arriving in the United 107 00:11:00.360 --> 00:11:04.980 States After 1945 he spoke of a Jewish victory and 108 00:11:04.980 --> 00:11:07.800 questioned the Nuremberg War Tribunal. 109 00:11:07.800 --> 00:11:14.360 Schumpeter, restless and driven, always seeking stability and often beset with despair, depression 110 00:11:14.360 --> 00:11:19.360 and premonitions of death, wrote several times in his diary that he considered his life to 111 00:11:19.360 --> 00:11:24.760 be a failure and that he wished nothing more for himself than a gentle death. 112 00:11:24.760 --> 00:11:30.960 When American President Franklin Roosevelt, 1882-1945, died suddenly of a brain hemorrhage, 113 00:11:30.960 --> 00:11:36.720 Schumpeter, who had been unhappy all of his life, remarked in an obituary, a lucky man 114 00:11:36.720 --> 00:11:42.860 to die in fullness of power. Schumpeter himself passed away in his sleep of a brain hemorrhage 115 00:11:42.860 --> 00:11:47.260 at Windy Hill, his summer house in Taconic, Connecticut in 1950.