Economic Insights

FEDERAL RESERVE BANK OF DALLAS VOLUME 6, NUMBER 3 SCHUMPETER In His Own Words

This article illustrates the thought Born in Czechoslovakia in 1883, in 1942. All totaled, he penned more process and writing of the economist economist Joseph Schumpeter was far than 8,400 pages of insightful reading. ahead of his time. More clearly than No review short of a tome could possi- who probably best understood capital- any other economist past or present, bly give adequate credit to his life’s ism and its evolutionary development. Schumpeter understood and articulated work. And thus the following sampling Joseph Schumpeter is remembered the dynamics of the capitalist economic of quotes should be viewed as merely today for his concept of capitalism’s process. Although perhaps best known this author’s favorites, cut twice by half tendency for “creative destruction.” for his theory of “creative destruction,” to fit the space constraints of this pub- Schumpeter also offered many valuable lication. But as Mike Cox demonstrates with insights into other areas of economics: this collection of quotes, Schumpeter’s innovation, economic growth, business Capitalism writings tackled a number of com- cycles, unemployment, saving, income Capitalism is an economic system plex topics, many of which remain distribution, monopoly, political econ- based on private property rights, pur- omy and more. Only in the past two suit of self-interest, freedom to choose controversial. decades or so, as economists back away and ability to borrow. It is a method of Schumpeter was not an idle theo- from the teachings of John Maynard economic change guided by individual rist who wrote solely for his fellow Keynes and face the failure of macro- needs and wants and financed by credit economists. Rather, he was one of the economic theory to adequately explain (obtained through debt and equity). Far economic growth, has Schumpeter’s from the popular image of a haven for last grandly knowledgeable—and pro- genius received due recognition. “corporate fat cats,” a capitalist econ- foundly insightful—social theorists of Schumpeter graduated from the omy crowns the consumer as king, and the 20th century. And one certainly University of Vienna in 1904, began the system provides for the well-being can’t claim to understand capitalism teaching in 1909 at the University of of the masses. without having been introduced to Czernowitz and then moved to the University of Graz in Austria. He first We have to define that word which Schumpeter’s keen observations about visited the United States in 1924, re- good economists always try to avoid: the market process and ideas about its turning to Europe in 1925 as a profes- capitalism is that form of private probable future evolutionary path. We sor at the University of Bonn. With property economy in which innova- hope this introduction to his work will Hitler’s rise in 1932, Schumpeter left tions are carried out by means of bor- Europe to take a position at Harvard rowed money. BC, 223. not only enlighten you but perhaps University, where he remained until his also inspire you to seek out his many death in 1950. He was a founding We must always start from the satis- important contributions to economics. member of the Econometric Society in faction of wants, since they are the It will be time well spent. 1930 and later served as its president. end of all production. TED, 65. He was also president of the American — Bob McTeer Economic Association in 1948. Consumers’ satisfaction supplies the President Schumpeter was prolific, with 21 social meaning for all [capitalist] eco- Federal Reserve Bank of Dallas books and pamphlets, 127 articles and nomic activity. BC, 73. numerous other works to his name. He is best known for his book Capitalism, The fundamental impulse that sets Socialism, and Democracy, published and keeps the capitalist engine in areas, making whole new industries Capitalism possible or economically feasible. Tech- nology spillovers—unintended conse- “We have to define that word which good economists always try to avoid: quences—are the alchemy of the capi- talist macroeconomic system. Doom- capitalism is that form of private property economy in which innovations saying in the capitalist economy is a are carried out by means of borrowed money.” losing proposition. The essential point to grasp is that in dealing with capitalism we are deal- ing with an evolutionary process. motion comes from the new con- Capitalism…is by nature a form or CSD, 82. sumers’ goods, the new methods of method of economic change and not production or transportation, the new only never is but never can be sta- The changes in the economic process markets, the new forms of industrial tionary. CSD, 82. brought about by innovation, together organization that capitalist enterprise with all their effects, and the re- creates. CSD, 83. [Capitalism is]…the perennial gale of sponse to them by the economic sys- creative destruction. CSD, 84. tem, we shall designate by the term These spontaneous and discontinu- Economic Evolution. BC, 86. ous changes…appear in the sphere of Economic Growth industrial and commercial life, not in Economies don’t grow, they evolve. Economists are at long last emerging the sphere of the wants of the con- The dictionary defines growth as an from the stage in which price compe- sumers….Assume tastes as “given.” increase in quantity or size. If an econ- tition was all they saw.…In capitalist TED, 65. omy were to literally grow, it would reality…it is not that kind of com- have more or bigger companies hiring petition which counts but the compe- The opening up of new markets, more of the same kinds of workers and tition from the new commodity, the foreign or domestic, and the organi- producing more of the same goods and new technology, the new source of zational development from the craft services. Evolution, in contrast, is a supply, the new type of organization… shop and factory to such concerns process of continuous change, leading competition which…strikes…existing as U.S. Steel illustrate the same to a higher, more complex and better firms…at their foundations and their process of industrial mutation—if I state. Capitalist economies evolve, and very lives. This kind of competition may use that biological term—that their evolution is endogenous, arising is…much more effective than the incessantly revolutionizes the eco- spontaneously from the ingredients of other…and [is]…the powerful lever nomic structure from within, in- the capitalist economic system. The that in the long run expands output. cessantly destroying the old one, competition to innovate (so as to gain CSD, 84 –85. incessantly creating a new one. This market share or simply survive) pushes process of Creative Destruction is living standards forever onward and Whenever…a given quantity of out- the essential fact about capitalism. upward like a perpetual-motion ma- put costs less to produce than… It is what capitalism consists in and chine. Moreover, there is no reason to before, we may be sure, if prices what every capitalist concern has got believe that progress will slow over have not fallen, that there has been to live in [Schumpeter’s emphasis]. time; indeed, it may even speed up as innovation somewhere. It need not CSD, 83. new technologies spill over into other necessarily have occurred in the industry under observation, which may only be applying, or benefitting from, an innovation that has occurred Economic Growth in another. BC, 88–89, footnote 1. The changes in the economic process brought about by innovation, We are just now in the downgrade of a wave of enterprise that created the together with all their effects, and the response to them by the economic electrical power plant, the electrical industry, the electrified farm and system, we shall designate by the term Economic Evolution. home and the motorcar. We find all that very marvelous, [yet]…we cannot for our lives see where opportunities lap of the gods may be more or less phenomena, difficulties, and prob- of comparable importance are to productive than any that have thus far lems of economic life in capitalist come from. As a matter of fact, how- come within our range of observa- society. BC, 87. ever,…the mere utilization of the tion….There is no reason to expect achievement of the age of electric- slackening of the rate of output Individual innovations imply, by ity…would suffice to provide invest- through exhaustion of technological virtue of their nature, a “big” step and ment opportunities for quite a time to possibilities. CSD, 118. a “big” change. A railroad through come. CSD, 117–18. new country, i.e., country not yet Innovation and the Business Cycle served by railroads, as soon as it gets Those writers [Thomas Malthus, Competition drives innovation, and into working order upsets all condi- James Mill, David Ricardo] lived at the innovation drives progress, but not tions of location, all cost calculations, threshold of the most spectacular without a corresponding economic all production functions within its economic developments ever wit- churn—out with the old and in with radius of influence; and hardly any nessed. Vast possibilities matured into the new. Schumpeter certainly under- “ways of doing things” which have realities under their very eyes. stood that progress, by nature, is un- been optimal before remain so after- Nevertheless, they saw nothing but settling, but he likely would have ward. BC, 101. cramped economies, struggling with laughed at the adage “I’m in favor of ever-decreasing success for their daily progress; it’s all the changes I don’t It is by no means farfetched or para- bread. They were convinced that like.” He saw innovation as the root doxical to say that “progress” unstabi- technological improvement…would… cause of most business cycles yet not a lizes the economic world, or that it is fail to counteract the fateful law of cause for grieving—even during reces- by virtue of its mechanism a cyclical decreasing returns…and that a sta- sion—since it is through economic process [Schumpeter’s emphasis]. BC, tionary state of the economic process churn that the interests of the consumer 138. was near at hand. HEA, 571. are ultimately served. Technological in- novation sometimes causes a long It is, after all, only common sense to Most of us seem here to commit a wave of economic activity—a tsunami realize that, but for the fact that eco- mistake in handling the concept of —during which normal waves all but nomic life is in a process of incessant decreasing returns….It applies to disappear. internal change, the business cycle, as given production functions and we know it, would not exist. BC, 138. generally stationary conditions…. Innovation is the outstanding fact [However, as] a law of decreasing in the economic history of capitalist All we can thus far say about the returns from successive innova- society or in what is purely economic duration of the units of [the business tions…the statement is entirely in that history, and also it is largely cycle] and of each of [its] two phases unwarranted….The world of possible responsible for most of what we is that it will depend on the nature of innovation cannot be mapped out. would at first sight attribute to other the particular innovations that BC, 499 –500. factors. BC, 86. carry a given cycle [Emphasis added]. BC, 143. Technological possibilities are an Surely, nothing can be more plain or uncharted sea. We may survey a geo- even more trite common sense than These revolutions periodically re- graphical region and appraise… the proposition that innovation…is shape the existing structure of indus- that the best plots are first taken into at the center of practically all the try by introducing new methods of cultivation, after them the next best ones and so on. At any given time during this process it is only relatively inferior plots that remain to be exploited in the future. But we can- Innovation and the Business Cycle not reason in this fashion about the future possibilities of technological It is by no means farfetched or paradoxical to say that “progress” advance. From the fact that some of them have been exploited before oth- unstabilizes the economic world, or that it is by virtue of its mechanism ers, it cannot be inferred that the for- mer were more productive than the a cyclical process. latter. And those that are still in the production—the mechanized factory, thing else. Each of them consists of cisely their inability to keep up the the electrified factory, chemical syn- an “industrial revolution” and the pace in innovating which they them- thesis and the like; new commodities, absorption of its effects. CSD, 67. selves had been instrumental in set- such as railroad service, motorcars, ting in the time of their vigor. BC, electrical appliances; new forms of The Firm, Innovation and Profit 94 –95. organization. CSD, 68. Firms—particularly new ones— are the means by which innovation It is not the owner of stage-coaches Those revolutions are not strictly enters the economy. Firms have a life who builds railways. TED, 66. incessant; they occur in discrete cycle that begins with the introduction rushes which are separated from each of a new, better or cheaper product Profit…is the premium put upon suc- other by spans of comparative quiet. and ends likewise (with a competitor’s cessful innovation in capitalist society The process as a whole works inces- introduction elsewhere). Firms tend to and is temporary by nature: it will santly however, in the sense that be the most profitable when young, vanish in the subsequent process of there always is either revolution or before competitors have had the time competition and adaptation. BC, 105. absorption of the results of revolu- to enter the market with a cheaper, bet- tion, both together forming what are ter alternative. Economic development That is why, as Adam Smith ob- known as business cycles. CSD, 83, flows from innovation, and innovation served, new industries are as a rule footnote 2. requires anticipated profit, but profit more profitable than old ones. BC, sows the seeds of its own demise by 95, footnote 2. Our model…does not give to pros- beckoning other suppliers (even out- perity and recession…the welfare con- right copiers). Patent laws, in this Practically every enterprise [is] threat- notations which public opinion [typi- regard, can help to preserve profit and ened and put on the defensive as cally] attaches to them. Commonly, thus stimulate innovation. But over the soon as it comes into existence. BC, prosperity is associated with social long term, the law of the corporate jun- 107. well-being, and recession with a falling gle is clear: mutate or die. standard of life. In our picture they For profits to emerge it is essential are not, and there is even an implica- Most new firms are founded with an that the “suicidal stimulus of profits” tion to the contrary. BC, 142. idea and for a definite purpose. The should not act instantaneously. BC, 105. life goes out of them when that idea Times of innovation…are times of or purpose has been fulfilled or Without development there is no effort and sacrifice, of work for the has become obsolete or even if, with- profit, without profit no develop- future, while the harvest comes out having become obsolete, it has ment. TED, 154. after.…The harvest is gathered under ceased to be new. That is the funda- recessive symptoms and with more mental reason why firms do not exist Patent legislation is one of the few anxiety than rejoicing.…[During] forever. Many of them are, of course, instances of legal recognition of the recession…much dead wood disap- failures from the start. Like human social functions of profit in capitalist pears. BC, 143. beings, firms are constantly being society. BC, 107, footnote 1. born that cannot live. Others may If we glance at those long waves in meet…death from accident or illness. Saving economic activity, analysis…reveals Still others die a “natural” death, as You can’t save your way to wealth the nature and mechanism of the men die of old age. And the “natural” —either personally or as a nation. True capitalist process better than any- cause, in the case of firms, is pre- wealth accrues mainly through innova- tion. Individual fortunes are built that way, as is the commonwealth.

The Firm, Innovation and Profit The classical writers…clearly per- ceived, though they may have exag- Profit…is the premium put upon successful innovation in capitalist gerated, the role of saving and accu- mulation [as]…they linked saving to society and is temporary by nature: it will vanish in the subsequent the rate of “progress.” CSD, 76. process of competition and adaptation. Savings is obviously an important factor in explaining the course of economic history through the cen- turies, but it is completely overshad- Monopoly owed by the fact that development consists primarily in employing exist- Pure cases of long-run monopoly must be of the rarest occurrence ing resources in a different way…. Different methods of employment, [because]…the power to exploit at pleasure a given pattern of demand and not saving…have changed the face of the economic world in the last …can under the conditions of intact capitalism hardly persist for a fifty years. TED, 68. period long enough to matter.

The bulk of private fortunes is, in capitalist society,…the result of the process of which innovation is the “prime mover.”…Saving, consistently rations in the United States were run journalists, and politicians in this carried on through generations, could at a loss, at zero profits, or at profits country obviously love the word be- not have been nearly so successful as which, if they had been foreseen, cause it…is sure to rouse the public’s it was if there had not been surpluses, would have been inadequate to call hostility. CSD, 99 –100. due to innovation, from which to forth the effort and expenditure save. BC, 106. involved. CSD, 90. Credit and Capital The capitalist engine runs on Monopoly There is no general case for indis- credit. Every new venture requires Firms bring new goods to market criminate “trust-busting” or for the funding—either through borrowing precisely with the hope that they can prosecution of everything that quali- (debt) or ownership (equity)—because attain some noncompetitive advantage fies as a restraint of trade. Rational as the people with new ideas (the innova- —say, a monopoly—and exploit what distinguished from vindictive regula- tors) and those best able to market they create for profit. Laws that seek to tion by public authority turns out to them (the entrepreneurs) aren’t gen- immediately destroy monopoly, there- be an extremely delicate problem erally those who are flush with cash fore, will slow progress. Private monopo- which not every government agency, (the capitalists). Without credit, the lies (though not public ones) tend to be particularly when in full cry against economic system would yield as little short-lived as the capitalist economy is big business, can be trusted to solve. fruit as were there no new ideas or constantly searching for better ways to CSD, 91. people to sell them. Strong new firms satisfy people’s wants and needs. The choke out old weak ones, in part, by more oppressive the monopoly, the Pure cases of long-run monopoly raising the cost of credit everywhere. quicker it summons its own death by must be of the rarest occurrence inviting a new and better product. [because]…the power to exploit at Capitalism is that form of private pleasure a given pattern of demand property economy in which innova- Enterprise would in most cases be …can under the conditions of intact tions are carried out by means of impossible if it were not known from capitalism hardly persist for a period borrowed money…[that is,] credit the outset that exceptionally favor- long enough to matter. CSD, 99. creation….Most of the features…of able situations are likely to arise capitalism would be absent from the which if exploited by price, quality Why then all this talk about monop- economic and…cultural process of a and quantity manipulation will pro- oly?…Economists, government agents, society without credit creation…. duce profits adequate to tide over exceptionally unfavorable situations. CSD, 89 –90. Credit and Capital [Large profits are] the baits that lure capital on to untried trails. Their pres- For actions which consist in carrying out innovations we reserve ence explains in part how it is possi- ble for so large a section of the capi- the term Enterprise; the individuals who carry them out we call talist world to work for nothing: in the midst of the prosperous twenties Entrepreneurs. just about half of the business corpo- prosper under capitalism, you must Living Standards of the Masses and the make your product affordable to the masses—get rich raising the general Distribution of Income welfare. The opportunity to prosper is itself open to the general masses, mak- The capitalist engine is first and last an engine of mass production which ing upward income mobility and a fluid unavoidably means also production for the masses. income distribution the norm of the capitalist system.

The capitalist process, not by coinci- Therefore, we shall date capitalism as Enterprise; the individuals who carry dence but by virtue of its mechanism, far back as the element of credit cre- them out we call Entrepreneurs. BC, progressively raises the standard of ation. BC, 223–24. 102. life of the masses. It does so through a sequence of vicissitudes, the sever- Credit creation [is] the monetary com- The entrepreneur may, but need not, ity of which is proportional to the plement of innovation. This relation be the “inventor” of the good or speed of the advance. But it does …is at the bottom of all the problems process he introduces. Also, the entre- so effectively. One problem after of money and credit. BC, 111. preneur may, but need not, be the per- another of the supply of commodities son who furnishes the capital. BC, 103. to the masses has been successfully The carrying into effect of an innova- solved by being brought within the tion involves, not primarily an Risk bearing is no part of the reach of the methods of capitalist increase in existing factors of pro- entrepreneurial function. It is the production. CSD, 68. duction, but the shifting of existing capitalist who bears the risk. The factors from old to new uses….If entrepreneur does so only to the The capitalist engine is first and last innovation is financed by credit cre- extent…he loses other people’s an engine of mass production which ation, the shifting of the factors is money. BC, 104. unavoidably means also production effected not by the withdrawal of for the masses. CSD, 67. funds—“canceling the old order”— The only realistic definition of stock- from the old firms, but by the re- holders is that they are the creditors Electric lighting is no great boon to duction of the purchasing power of (capitalists) who forego part of the anyone who has money enough to existing funds which are left with the legal protection usually extended to buy a sufficient number of candles old firms while newly created funds creditors, in exchange for the right to and to pay servants to attend them. are put at the disposal of entrepre- participate in profits. BC, 104. It is the cheap cloth, the cheap cotton neurs: the new “order to the factors” and rayon fabric, boots, motorcars comes, as it were, on top of the old Living Standards of the Masses and so on that are the typical one, which is not thereby canceled. and the Distribution of Income achievements of capitalist produc- BC, 111–12. Capitalism’s greatest accomplish- tion, and not as a rule improve- ment is that it progressively raises the ments that would mean much to a For actions which consist in carrying living standards of the masses. Nobody rich man. Queen Elizabeth owned out innovations we reserve the term ever got rich selling just to the rich. To silk stockings. The capitalist achieve- ment does not typically consist in providing more silk stockings for queens but in bringing them within Employment, Unemployment, Jobs and Labor the reach of factory girls in return for steadily decreasing amounts of I do not think that unemployment is among those evils which, like effort. CSD, 67. poverty, capitalist evolution could ever eliminate of itself. I also do not The water-tight division between people who (together with their de- think that there is any tendency for the unemployment percentage to scendants) are supposed to be capi- increase in the long run. talists once for all and others who… are supposed to be proletarians once for all is not only…utterly unrealistic but it misses the salient point about Only in a minority of cases will work- put labor to better use elsewhere. social classes—the incessant rise and men be able to recognize the techno- Despite this simple truth, layoffs and fall of individual families into and out logical change responsible for their firings will still always sting, as if the of the upper strata. CSD, 18. dismissal. For this it would be neces- invisible hand of free enterprise has sary that machines be introduced in slapped workers in the face. Unsettling Employment, Unemployment, an existent plant under the eyes of by nature, capitalism’s churn gives rise Jobs and Labor the workmen and that dismissal be to a labor movement designed to pro- Most layoffs stem not from the fail- effected immediately after. BC, 514, tect workers from job loss. That move- ure of the worker or the firm or the footnote 1. ment is fed emotionally by displaced capitalist economic system, but—to workers and others who blame the the contrary—owe to the success of I do not think that unemployment is capitalist system for their troubles, but someone somewhere else who has among those evils which, like it is led psychologically by a whole invented a new, better or cheaper poverty, capitalist evolution could other type of person—the intellectual. product and, in doing so, lessened the ever eliminate of itself. I also do not Intellectuals—with little to do owing to demand for existing ones. Still, labor think that there is any tendency for the success of the capitalist economic will never see it that way and will seek the unemployment percentage to system but with an intense desire to be laws designed to protect existing jobs increase in the long run. CSD, 69. seen as caretakers of society’s general or provide for unemployment. Only well-being—anoint themselves as lead- through allowing capitalism’s creative But whether lasting or temporary, ers of the labor movement. They object destruction to work unfettered can getting worse or not, unemployment to capitalism on moralistic grounds and society fully enjoy the higher levels of undoubtedly is and always has been seek its destruction and replacement consumption, shorter work week and a scourge….The real tragedy is not by another system—socialism—which better working conditions that the unemployment per se, but unem- places them center stage. mechanism brings. ployment plus the impossibility of providing adequately for the unem- I felt it my duty…to inflict upon the It is obvious…that in the case of ployed without impairing the condi- reader…my paradoxical conclusion: replacement of a carriage by motor- tions of further economic development capitalism is being killed by its car, the coachman will be technolog- [Schumpeter’s emphasis]. CSD, 70. achievements. CSD, xiv. ically unemployed…in the narrow sense, although no machine drives Finally, we should take account of Capitalism inevitably…educates and his horses henceforth, or that it does variations in the amount of voluntary subsidizes a vested interest in social not make any difference whether a leisure, which…undoubtedly often is unrest. CSD, 146. bookkeeping clerk becomes unem- one form of taking increased real ployed because of the introduction income….In this sense the reduction One of the most important features of of a calculating machine or another of working hours is one of the most the later stages of capitalist civiliza- rationalizing device, or whether a significant “products” of economic tion is the vigorous expansion of the cotton picker becomes unemployed evolution. BC, 497–98. educational apparatus and particu- because of the introduction of a larly of the facilities for higher educa- cotton-picking machine or because Capitalism’s Greatest Enemy: tion. CSD, 152. cotton is being eliminated by the The Intellectual competition of the standard fiber. The proper role of a healthily func- The man who has gone through a BC, 514–15. tioning economy is to destroy jobs and college or university easily becomes

Technological Unemployment. This term…cover[s]…displacement of work- men by machinery…[and by] indus- Capitalism’s Greatest Enemy: The Intellectual tries that introduce new production functions. Questionnaires devised to I felt it my duty…to inflict upon the reader…my paradoxical find out from workmen reasons for their dismissal can, therefore, never conclusion: capitalism is being killed by [one of ] its achievements… bring out the phenomenon we mean and will always yield results that [the] swell [in] the host of intellectuals. understate it. BC, 514. psychically unemployable in manual writing as it intertwines with his life occupations without necessarily ac- Schumpeter’s prognosis experience says much. We must not quiring employability in, say, pro- ignore the fact that it was in 1942—fol- fessional work. CSD, 152. of the death of capitalism lowing a decade at Harvard—that Schumpeter proffered (in Capitalism, All those who are unemployed or has not been borne out, Socialism, and Democracy) his tren- unsatisfactorily employed or unem- perhaps in part because chant indictment of the intellectual ployable drift into the vocations in establishment whose swell he saw as which standards are least defi- of his brilliant exposure the greatest threat to capitalism’s future. nite.…They swell the host of intellec- Like a prophet who alters the course of tuals…whose numbers hence in- of capitalism’s enemies history by revealing its possible future crease disproportionately. They enter and the treachery they plot. path, Schumpeter perhaps even sought it in a thoroughly discontented frame to fight and win the intellectual battle of mind. Discontent breeds resent- with capitalism’s enemies yet unborn. ment….righteous indignation about the wrongs of capitalism. CSD, 153. policy grows more and more hostile —W. Michael Cox to capitalist interests. Intellectuals Senior Vice President The hostility of the intellectual rarely enter professional politics and and Chief Economist group—amounting to moral dis- still more rarely conquer responsible approval of the capitalist order—is office. But they staff political bureaus, References one thing, and the general hostile write party pamphlets and speeches, BC: Schumpeter, Joseph A. (1939), Business atmosphere which surrounds the act as secretaries and advisers, make Cycles: A Theoretical, Historical, and Statistical capitalist engine is another thing. the…politician’s…reputation….In Analysis of the Capitalist Process (New York: CSD, 153. doing these things they…impress McGraw-Hill). their mentality on almost everything Capitalist evolution produces a labor that is being done. CSD, 153–54. CSD: ——— (1950), Capitalism, Socialism, movement which obviously is not the and Democracy, 3rd ed. (New York: Harper creation of the intellectual group. But Capitalism stands its trial before and Brothers), orig. pub. 1942. it is not surprising that such an judges who have the sentence of opportunity and the intellectual demi- death in their pockets….The only suc- HEA: ——— (1954), The History of Economic urge should find each other. Labor cess victorious defense can possibly Analysis (New York: Oxford University Press). never craved intellectual leadership produce is a change in the indict- but intellectuals invaded labor poli- ment. CSD, 144. TED: ——— (1936), The Theory of Economic tics. They had an important contribu- Development: An Inquiry into Profits, Capital, tion to make: they verbalized the Schumpeter’s prognosis of the death Credit, Interest, and the Business Cycle movement, supplied theories and slo- of capitalism has not been borne out, (Cambridge, Mass.: Harvard University Press). gans for it—class war is an excellent perhaps in part because of his brilliant example—made it conscious of exposure of capitalism’s enemies and itself….They naturally radicalized it, the treachery they plot. Herein lie both Economic Insights is a publication of the eventually imparting a revolutionary the paradox and the promise. We must Federal Reserve Bank of Dallas. The views bias to the most bourgeois trade- remember that Schumpeter was him- expressed are those of the author and should union practices….Having no genuine self an intellectual, who surely enjoyed not be attributed to the Federal Reserve Bank authority and feeling always in dan- winning intellectual battles. No doubt of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that ger of being unceremoniously told to he sought to defeat socialism’s most the source is credited and a copy is provided mind his own business,…[the intel- formidable intellectual, Karl Marx. But to the Public Affairs Department of the Federal lectual] must flatter, promise and having fled Europe in 1932 upon Reserve Bank of Dallas. incite, nurse left wings…appeal to the rise of Hitler’s totalitarian state, Economic Insights is available free of fringe ends.…Thus, though intellectu- Schumpeter took up berth in Harvard’s charge by writing the Public Affairs Depart- ment, Federal Reserve Bank of Dallas, P.O. Box als have not created the labor move- department of economics and once 655906, Dallas, TX 75265-5906, or by tele- ment, they have yet worked it up into again, paradoxically, found himself phoning (214) 922-5254. something that differs substantially immersed in a sea of anticapitalists: This publication is available on the from what it would be without university professors. Internet at www.dallasfed.org. them….[This]…explains why public The chronology of Schumpeter’s