Economics Dictionary of ArgumentsHome
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| Innovation: Innovation is the introduction of new ideas or processes that create new value. See also Progress, Creativity, History, Historiography, Technology, Science. _____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Joseph A. Schumpeter on Innovation - Dictionary of Arguments
Rothbard III 856 Innovation/Schumpeter/Rothbard : [In his theory of business cycles] Schumpeter turned to a fourth element, which for him was the generator of all growth as well as of business cycles - innovation in productive techniques. >Business cylcles/Schumpeter. Innovations/RothbardVsSchumpeter: (…) innovations cannot be considered the prime mover of the economy, since innovations can work their effects only through saving and investment and since there are always a great many investments that could improve techniques within the corpus of existing knowledge, but which are not made for lack of adequate savings. This consideration alone is enough to invalidate Schumpeter's business-cycle theory. >Innovations/Rothbard. Clusters of innovation: Finally, Schumpeter's explanation of innovations as the trigger for the business cycle necessarily assumes that there is a recurrent cluster of innovations that takes Place in each boom period. Why should there be such a cluster of innovations? Why are innovations not more or less continuous, as we would expect? Schumpeter cannot answer this question satisfactorily. The fact that a bold few begin innovating and that they are followed by imitators does not yield a cluster, for this process could be continuous, with new innovators arriving on the scene. Schumpeter offers two explanations for the slackening of innovatory activity toward the end of the boom (a slackening essential to his theory). On the one hand, the release of new products yielded by the new investments creates diffculties for old producers and leads to a period of uncertainty and need for „rest“. Hansen stagnation thesis: Schumpeter's second explanation is that innovations cluster in only one or a few industries and that these innovation opportunities are therefore limited. After a while they become exhausted, and the cluster of innovations ceases. This is obviously related to the Hansen stagnation thesis, in the sense that there are alleged to be a certain limited number of "investment opportunities" - here innovation opportunities - at any time, and that once these are exhausted there is temporarily no further room for investments or innovations. Opportunity/RothbardVsSchumpeter: The whole concept of "opportunity" in this connection, however, is meaningless. There is no limit on "opportunity" as long as wants remain unfulfilled. The only other limit on investment or innovation is saved capital available to embark on the projects. But this has nothing to do with vaguely available opportunities which become "exhausted"; the existence of saved capital is a continuing factor. As for innovations, there is no reason why innovations cannot be continuous or take Place in many industries, or Why the innovatory pace has to slacken. KuznetsVsSchumpeter: As Kuznets has shown, a cluster of innovation must assume a cluster of entrepreneurial ability as well, and this is clearly unwarranted. VsVs: Clemence and Doody, Schumpeterian disciples, countered that entrepreneurial ability is exhausted in the act of founding a new firm.(1) But to View entrepreneurship as simply the founding of new firms is completely invalid. Entrepreneurship is not just the founding of new firms, it is not merely innovation; it is adjustment: adjustment to the uncertain, changing conditions of the future.(2) This adjustment takes Place, perforce, all the time and is not exhausted in any ssingle act of investment. 1. S.S. Kuznets, "Schumpeter's Business Cycles," American Economic Review, June, 1940, pp. 262- 63; and Richard V. Clemence and Francis S. Doody, The Schumpeterian System (Cambridge: Addison-Wesley Press, 1950), pp. 52 ff 2. In so far as innovation is a regularized business procedure of research and development, rents from innovations will accrue to the research and development workers in firms, rather than to entrepreneurial profits. Cf. Carolyn Shaw Solo, "Innovation in the Capitalist Process: A Critique of the Schumpeterian Theory," Quarterly Journal of Economics, August, 1951, pp. 417-28. - - - Sobel I 9 Invention/Innovation/Schumpeter/Sobel/Clemens: While invention is the creation or discovery of a new product or process, innovation is the successful introduction and adoption of a new product or process in the commercial marketplace. Innovation is basically the economic application of inventions. while Henry Ford did not invent the automobile, his innovation was the use of the assembly line and large-scale manufacturing that brought the price of the automobile within reach of the average family. In each of these cases, the innovator is different from the inventor, and it is the innovator’s role with which Schumpeter is concerned. Perhaps an even more important factor in distinguishing invention from innovation is that most inventions never turn into innovations - that is, not all inventions are profitable business ideas. Incentives/Schumpeter: According to Schumpeter in his later, and perhaps most famous, book Capitalism, Socialism, and Democracy (CSD)(1), “[i]n some cases, however, it is so successful as to yield profits far above what is necessary in order to induce the corresponding investment. These cases then provide the baits that lure capital on to untried trails” (CSD(1): 90). That is, the lure of profits is the incentive for entrepreneurial discovery and capital investment. This is one reason that government policies that reduce the rewards from innovation can be harmful to economic growth and prosperity. Taxation/innovation/Schumpeter: When regulations or taxes reduce the potential profitability of future innovations, fewer attempts are made to discover them. As Schumpeter notes in his book The Economics of Sociology and Capitalism (ESC)(2): Entrepreneurial profit proper … arises in the capitalist economy wherever a new method of production, a new commercial combination, or a new form or organization is successfully introduced. It is the premium which capitalism attaches to innovation … If this profit were taxed away, that element of the economic process would be lacking which at present is by far the most important individual motive for work toward industrial progress. Sobel I 10 Even if taxation merely reduced this profit substantially, industrial development would process considerably more slowly, as the fate of Austria plainly shows … there is a limit to the taxation of entrepreneurial profit beyond which tax pressure cannot go without first damaging and then destroying the tax object. (ESC(2): 113–114) Sobel I 11 Innovation/economicy/Sobel/Clemens: A growing, vibrant economy depends not only on entrepreneurs discovering, evaluating, and exploiting opportunities to create new goods and services, but also on the speed at which ideas are labeled as successes or failures by the profit-and-loss system. >Business failure/Schumpeter. Innovation/Schumpeter: „Yet innovations in the economic system do not as a rule take place in such a way that first new wants arise spontaneously in consumers and then the productive apparatus swings round through their pressure. We do not deny the presence of this nexus. It is, however, the producer who as a rule initiates economic change, and consumers are educated by him if necessary; they are, as it were, taught to want new things, or things which differ in some respect or other from those which they have been in the habit of using.“ (TED(3): 65) „To produce means to combine material and forces within our reach … To produce other things, or the same things by a different method, means to combine these materials and forces differently. In so far as the “new combination” may in time grow out of the old by continuous adjustment in small steps, there is certainly change, possibly growth, by neither a new phenomenon nor development in our sense. In so far as this is not the case, and the new combinations appear discontinuously, then the phenomenon characterizing development emerges. For reasons of expository convenience, henceforth, we shall only mean the latter case when we speak of new combinations of productive means. Development in our sense is then defined by the carrying out of new combinations.“ (TED(3): 65–66) 1. Schumpeter, Joseph A. (1942). Capitalism, Socialism, and Democracy [CSD]. Harper & Brothers. 2. Schumpeter, Joseph A. (1991). The Economics of Sociology and Capitalism [ECS]. Edited by Richard Swedberg. Princeton University Press. 3. Schumpeter, Joseph A. (1934). The Theory of Economic Development [TED]. Harvard University Press._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconSchum I Joseph A. Schumpeter The Theory of Economic Development An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Cambridge/MA 1934 German Edition: Theorie der wirtschaftlichen Entwicklung Leipzig 1912 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 Sobel I Russell S. Sobel Jason Clemens The Essential Joseph Schumpeter Vancouver 2020 |
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