‘There is a woman behind this!’

Peter Clarke

  • Prophet of Innovation: Joseph Schumpeter and Creative Destruction by Thomas K. McCraw
    Harvard, 719 pp, £22.95, May 2007, ISBN 978 0 674 02523 3

The two most influential economists of the 20th century must surely be Keynes and Schumpeter. Influential, at any rate, in the English-speaking world, where Keynes fine-tuned his rhetoric with a good ear for what would carry with his different audiences (though he sometimes lapsed in appearing to patronise Americans, from President Roosevelt down). It was, too, primarily among anglophones that the thinking of the polyglot polymath Schumpeter eventually made such an impression, especially when his posthumous History of Economic Analysis, weighing in at 800,000 words, deployed scholarship in a dozen languages, with his own English prose now as well honed as his native German. But when we consider the popular reception of their ideas, a rather obvious point is often overlooked: an intellectual version of Gresham’s law often operates, debasing the currency in ideas and traducing their concepts in the process.

By 1983, the centenary of the birth of both John Maynard Keynes (died 1946) and Joseph Alois Schumpeter (died 1950), it was the less dirigiste Schumpeter, so economists were saying, who spoke to the needs of the hour. The Age of Keynes thus gave way to the Age of Schumpeter, as can be confirmed by searching their respective names on electronic databases. In the long run, it seems, Schumpeter triumphed over his great contemporary and rival, whose fame had so often galled him in his lifetime.

This sort of narrative certainly gives both these intellectual giants their due. First, Keynes told us that macroeconomic policies are necessary and beneficial in managing the economy; that their effect must be symmetrical, notably in stimulating investment in slump conditions and restraining consumption in boom conditions; and that government needs to supply a pragmatic guidance we can’t rely on the market to find unaided. Then, Schumpeter (or his ghost) persuasively disclosed that the sheer energy of market forces had been underestimated, and that we needed to harness, though not to harass, the entrepreneurial spirit of innovation; that a process of ‘creative destruction’ was inherent in reshaping the material world; and that its consequential inequities were petty compared with its vast power to enrich the whole community.

What such a narrative does not capture, however, is what happened when the big ideas became the stuff of politics and policy. It was a problem that had, in different ways, fascinated both economists. Keynes talked about it in terms of the power of ideas as against vested interests; Schumpeter talked about it as the influence of ideology in science. Neither should therefore have been surprised that their own insights were subject to a process of reception which vulgarised and often distorted them, to this extent mocking their title to be the two economists who exerted most practical influence in the decades after their own demise. Instead the messages that successively hit the street had a demotic potency: the secret of prosperity is to spend, spend, spend; everything would be fine if only government got off our backs; greed is good; taxes can be cut while military spending is piled high, and those deficits – hey, who cares any more?

Totemic fame has its price. Eponymous labels can be misleading. Economists who have never actually read any of the works of Keynes and Schumpeter nonetheless confidently invoke their names in identifying stylised concepts; and it is pointless to complain about this sort of professional shorthand. For those who like longhand, however, there is more to be said; and more to be read. In Prophet of Innovation, Thomas McCraw has written a big book by almost anyone’s standards, except those of its subject, who would perhaps have regarded its five hundred pages of text as barely adequate for a full scholarly exposition of his life’s work.

McCraw’s triumph is to tell less exacting readers quite as much as we need to know about Schumpeter in a lucid and well-paced narrative, while also supplying, for more rigorous scholars, no fewer than two hundred pages of endnotes. These are not just references or indications of further bibliographical sources on technical matters, but sometimes amount to short essays in themselves. It is a rather unusual format for a book, but I have to report that my initial literary conservatism – all that fumbling at the back of the book for items that interested me – succumbed to the author’s method, which leaves his text uncluttered with the paraphernalia for which historians of economic doctrine have their own relish. McCraw successfully passes off the life of a professor of economics as a story that fully complements its undoubted intellectual significance with a tantalising human interest.

Yes, that does include sex. Charming and debonair as well as clever, Schumpeter made the most of his circumstances (which were rarely quite as grand as he made out). When he once drew up a list of seven distractions that had prevented him from accomplishing more work, ‘money (business)’ was in seventh place, just below ‘travel’ in sixth. In ascending order, ‘politics (public career)’ came next (he had briefly been state secretary of finance in the barely viable Austria carved out of the old Habsburg Empire after the First World War), but ‘science (and philosophy)’ had held him back even more, though not quite as much as ‘sport (and horses)’ which in turn were less culpable than ‘art (and architecture)’. But all other dalliances faded in comparison to ‘1. Women’.

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