Joseph Schumpeter

Joseph Schumpeter (1883-1950) was the leading Austrian-American economist in the first half of the 20th century.

He viewed the entrepreneur as the prime mover of capitalism, and that in seeking profits the entrepreneur creates innovative organizational methods and production techniques. This innovation causes economic growth, but also leads to business cycles, which leads to disfavor of capitalism.

Schumpeter argued that capitalism is constantly re-inventing itself through innovation and improvements for greater efficiency which leads to economic benefits to the wider society as a whole, a process he called creative destruction. Unemployment and worker retraining are downside effects of creative destruction as older industries are replaced by technological improvements, lower costs, and rising living standards in the greater population.

Schumpeter's theory stands in contrast to Marxist economic theory, which focuses on keeping stale, outdated, and stagnant economic industries alive by operating on a thin margin or forbidding profit-making completely, leaving nothing for maintenance, upkeep, improvements, or competitiveness.

Schumpeter saw that occurring, citing the disappearance of the capitalistic institutions that had fostered entrepreneurship in the late 1800s and early 1900s.