Sunday, May 20, 2007

"Prophet of Innovation"

Thomas K. McCraw, a Pulitzer Prize-winning historian, is the Isidor Straus Professor of Business History, Emeritus at the Harvard Business School.

He applied the "page 69 test" to his new book, Prophet of Innovation: Joseph Schumpeter and Creative Destruction. The test fails the book, so McCraw drew from other pages and reported the following:

Because most of p. 69 is a photograph, I've picked excerpts from p. 6 and p. 9:

Like nearly everyone who has thought deeply about capitalism, Schumpeter came away with mixed feelings. He regarded himself as a conservative and planned to write a book on the meaning of conservatism. But, as he told his fellow economist John Kenneth Galbraith, "I am pretty sure that no conservative I have ever met would recognize himself in the picture I am going to draw." Schumpeter abhorred some of the banalities of business culture and revered the artistic attainments of the Old World....

Capitalism has a dreadful reputation for robbing the poor to profit the rich, and it has never achieved what most people regard as a fair distribution of its bounties. In some countries it still represents a curse to be resisted and overcome. Even its fortunate beneficiaries in rich countries often have a guilty feeling that capitalism is an unworthy pursuit -- something to be accepted but not celebrated. As Schumpeter himself put it, "The stock exchange is a poor substitute for the Holy Grail."

[Yet in the end he favored capitalism.] At a high tide of anti-capitalist feeling just after the Great Depression, Schumpeter wrote: "It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievement of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings [in the 16th century]. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort ... the capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses."

But capitalism is not the natural state of human existence. If it were, it would have emerged much earlier in history and would now prevail almost everywhere. Instead, it is an uncommonly difficult system to construct and sustain.... Without constant promotion by entrepreneurs and careful monitoring by regulators (a necessity much underestimated by many advocates of the free market, including Schumpeter himself), it cannot achieve or maintain its full potential. Like the actual engines that loom so large in creative destruction -- steam, electric, diesel, gasoline, jet -- the capitalist engine can slow down, sputter, overheat, explode, or die.
This excerpt expresses Schumpeter's ideas pretty well, but it conveys none of the high drama of his personality and his life. One of the tremendous joys of writing this book was in rediscovering that life, through a trove of private letters, diary entries, and character sketches by about a dozen of his friends and students, including three Nobel Prize winners; and in visiting most of the seven countries in which he lived.

Starting as a boy wonder, Schumpeter astonished his teachers with seminal books he wrote during his twenties. Then he interrupted a brilliant academic career to serve as the first Finance Minister of the
Republic of Austria. Just after that, he made and lost a fortune as an investment banker. An irresistible conversationalist, he liked to say that he aspired to be the world's greatest economist, horseman, and lover. He would then pause before delivering his punch line: things weren't working out well with the horses. Schumpeter had affairs with scores of women, but at the same time he was an obsessive scholar who devoted five decades to figuring out the essence of capitalism.

Like many geniuses, he held himself to impossibly high standards, and gave himself numerical grades each day for his intellectual "performance," as he put it. His system ranged from zero for no accomplishment to one for good achievement. He gave himself many zeroes (on one occasion for 98 consecutive days, even though he was working hard), and almost no ones. Benjamin Franklin had a similar grading system for himself, and Schumpeter, like
Franklin, is one of those historical figures that you'd love to have dinner with. You couldn't possibly come away without feeling somehow enriched by the experience. Throughout his life, which had much more than the usual share of personal tragedies (he lost his 23-year-old wife in childbirth, and his newborn son four hours later), he battled persistent melancholy. But he always presented an upbeat, cheerful exterior.

I've written about dozens of historical figures, but never one as interesting or as intellectually challenging as Joseph Schumpeter.

Read an excerpt and learn more about Prophet of Innovation at the Harvard University Press website.

--Marshal Zeringue