4 - Advance of Total Factor Productivity from Entrepreneurial Innovations

Summary

Joseph Schumpeter (1883–1950), my Harvard mentor, won early fame for his 1911 Theory of Economic Development. However, during the fifteen years I was his Cambridge neighbor, it was Maynard Keynes (1883–1946) who, by general agreement, earned the reputation of being the greatest economist of the twentieth century. The primary reason for this was that the great global depression of 1929–1935 desperately needed a new macro paradigm like Keynes's 1936 General Theory.

I believe there was a grain of truth in the innuendo that Schumpeter experienced some scholarly jealousy of Keynes's celebrity. Like the entrepreneurs he praised, Schumpeter possessed a competitive personality. Because the Muse of History has an ironic sense of humor, now in the twenty-first century, Schumpeter's fame (and his citation frequency) exceeds anything he enjoyed during his lifetime, including my colleagues here who cite him authoritatively in their explorations of entrepreneurship.

It would be useful for the few surviving members of the Schumpeter Circle to record the evolutionary nuances of change in Schumpeter's own late-in-life thinking. For example, when first in September 1935 I entered his Harvard Yard graduate classroom, Schumpeter was still stressing youthful innovators. He then seemed to doubt that a General Electric or a Bell System Laboratory could succeed in staying at the frontier of technical and know-how discovery. But later, contemporary economic history converted him to the view that the great oligopolies of the Fortune 500 corporations deserved most credit for progress in mid-twentieth-century total factor productivity.