Thursday, January 8, 2009

What Would Jozsi Do?

schumpeter.jpg I've just finished Prophet of Innovation, Thomas McCraw's biography of Joseph Schumpeter (who, as a boy, was called "Jozsi" by his family).

The most compelling parts are the chapters that focus on Schumpeter's economic philosophy, which champions entrepreneurs and accurately asseses the barriers put in place by established business structures to hinder their progress. Most importantly, Schumpeter's writing describes and celebrates the recursive process of innovation he would eventually famously call "creative destruction".

So if he were alive today, what would Jozsi do?

Schumpeter's prescription for the American economy during the Great Depression was a combination of credit creation and private-sector innovation. Here he falls between the dogmatic extremes of massive Keynesian deficit spending and the laissez-faire Austrian school. Just yesterday, Google's Chief Economist (and Berkeley economics professor) Hal Varian wrote an op-ed in the Wall Street Journal calling for a similar approach to today's crisis.

Were he alive today, Joseph Schumpeter would surely call for programs to support the flow of credit (including venture capital) to "New Men"—entrepreneurs. He would look to innovation, not infrastructure, to pull the economy out of its current state. And he would recognize that the "destruction" is already at hand—what's needed is to accelerate the "creative" half of the process.


Thomas said...

This was a super book, well written and well researched. You might like Buchholz's New Ideas From Dead Economists too

Charlie said...

Thanks, Thomas. I've added it to my Amazon Wish List.