Book Review: The Theory of Economic Development by Joseph Schumpeter

Joseph Schumpeter is known as the “Prophet of Innovation” and published his work The Theory of Economic Development at 28 years of age (1). As an economist he didn’t receive much attention because he wasn’t in alignment with the popular Keynesian Economics of the time (2).  His greatest achievement being the meshing of sociology with economics to make a system of development.

The chapters of the book are:

(I) The Circular Flow of Economic Life as Conditioned by Given Circumstances;

(II) The Fundamental Phenomenon of Economic Development;

(III) Credit and Capital;

(IV) Entrepreneurial Profit;

(V) Interest on Capital;

(IV) The Business Cycle.

Schumpeter believed in a perfect equilibrium where there are no profits, no savings, no new products, no voluntary unemployment, or need. It is a system of economic flow where there is no need to adapt, adjust, or change because everything is running smoothly. This perfect equilibrium either never existed or only exists for a short time before the system changes again.

The economic system is forever in constant flux. It is being destroyed and rebuilt to adapt to new situations. Combinations occur to help solve economic problems through the use of innovation. As a system adjusts it must then readjust through innovation. This innovation pushes the system to new heights.

Entrepreneurs are the catalyst to change. When they innovate a new product or service it forces the system to adjust again. Entrepreneurs rely on credit and must be productive to pay that credit effectively. Their production encourages copycat adaptations not only in the field in which the product was produced but also in other fields as well leading to wider innovations that further the system.

As products become adapted they will naturally experience a reduction of value as the market becomes saturated. This saturation offers a lower return on investment and in turn forces companies to innovate the product again. Failure to innovate the product means that companies cannot pay their loans or earn profits. Capital must be available to start anew.

In this book I find three main concepts of significant importance 1.) Sociology as part of the economic system, 2.) A flow of interconnected elements and 3.) Combinations. To me economics is about fulfillment of human need and when it fails to fulfill human need the economic system collapses and changes. Schumpeter touched upon the wider impact of disruptive technology that forces related components to adjust and reshape themselves within the market. Finally, combinations is literally the combination of one idea to the next even though it is seen in the Schumpeterian model as the combination of physical elements to create new products.

Beyond Schumpeter we find that societies are contracts between the governed and those doing the governing. All systems must allow for the manifestation of knowledge and motivation for maximum growth. When political, economic, or legal systems block that effort the system starts a slow decline. That system should encourage effort among the masses to speed up the economic elements and allow for the combinations of thought to be realized as the combinations of physical elements in the creation of new products and services. Maximum freedom in human effort should be encouraged beyond that which is necessary to protect the system, the people within the system or the environment in which they live.

Book Review: Stats and Curiosities: From Harvard Business Review

If you ever took a college course on stats you are likely to recall counting ceiling tiles as more exciting. However, stats can provide all types of useful and interesting information that can spark the imagination. Within the book Stats and Curiosities you will learn about the human brain, business behavior, health, gender relations, and the economy. It provides tid bits of knowledge and insight into some of the most common things we do but have no idea were doing them. 

Did you know that 19% of high status people believe that others smile at them more? It may not actually be true but how people view themselves has an impact on what they see in the environment. Even more interesting powerful people actually believe they are 6 inches taller.  None of it may be true but it seems to pay psychologically to think yourself high status and powerful.

Of course some statistics have large implications for business. Thirty percent of financial professionals feel pressure to either violate ethics or break the law. That coincides with self-reported ethical people earning 3.4% less than their peers who do not report following high ethical standards. When money is the only goal there is natural pressure and punishment to earn more at all costs. Ethical people are internally driven to resist environmental urges.

What is so special about interacting with others? Social participation gives the same mental boost as a big raise helping employees feel positive. Despite the nearly free employee satisfaction push many organizations have not adjusted their environment to maximize the social benefits that develop a sense of community and positive interaction that raises workplace productivity.

Some of the statistics could help improve your sales and customer satisfaction. Helping consumers feel special also helps them make more purchases. By telling someone they were randomly selected to receive a discount they are 3X more likely to buy the product. The way in which our customer service and sales strategies align help in improving sales revenue.

Statistics are a natural part of our lives and scientists take great pains to ensure that their statistics are actually measuring what they say they are measuring. Despite their tedious nature statistics can provide some great insight into human behavior. The book doesn’t talk about how statistics work or the methodology behind such statistics but does provide a lot of interesting trivia information that can be useful for your life and your business.

O’connell, A. (2013). Stats and Curiosities: From Harvard Business Review. Boston, MA: Harvard Business School Publishing 978-1-4221-9631-1

Book Review: Edgar Allan Poe: Complete Tales and Poems.

Edgar Allen Poe is known as one of the first detective writers but is also known for being a literary critic and theoretician. He was part scientist and part creative writer. Many of his most famous works are The Tell-Tale Heart, The Fall of the House of Usher, and The Raven. Even though he eventually achieved stardom upon death he lived a great portion of his life writing unpaid works and scrubbing out an existence looking for employment. 

Poe’s life was not easy and he struggled nearly every step of the way (1). Originally born into a group of traveling actors in 1809 he started in the artistic and nomadic lifestyle.  Even though both parents died a few years after his birth he was taken in by the wealthy tobacco merchant John Allan and raised to be a gentleman. 

In considerable debt from attending University of Virginia and tried to make up the difference through gambling which left him more in debt. As a poet and military oriented person Poe went to West Point (2). Beyond this he suffered a humiliating poverty, a fiancée who married someone else, and a love of his life who died like his parents with tuberculosis. 

He spent time harshly criticizing other’s works which often put him in precarious positions against his employer and members of the literary community. He worked for the Literary Messenger, Burton’s Gentleman’s Magazine, Graham’s Magazine, and Broadway Journal at different times (3). Poe wasn’t particularly well known at his time but gained fame and changed the literary world in ways that still have an impact today. 

You can purchase over 100 works in one book called the Edgar Allan Poe: Complete Tales and Poems. The book is published by Maplewood Books and can be purchased electronically under $1 for your cell phone and under $8.00 in hardcopy format. 

You can read an example of one of his works in The City in the Sea:

      Lo! Death has reared himself a throne

      In a strange city lying alone

      Far down within the dim West,

      Where the good and the bad and the worst and the best

      Have gone to their eternal rest.

      There shrines and palaces and towers

      (Time-eaten towers that tremble not!)

      Resemble nothing that is ours.

      Around, by lifting winds forgot,

      Resignedly beneath the sky

      The melancholy waters lie.

      No rays from the holy heaven come down

      On the long night-time of that town;

      But light from out the lurid sea

      Streams up the turrets silently-

      Gleams up the pinnacles far and free-

      Up domes- up spires- up kingly halls-

      Up fanes- up Babylon-like walls-

      Up shadowy long-forgotten bowers

      Of sculptured ivy and stone flowers-

      Up many and many a marvellous shrine

      Whose wreathed friezes intertwine

      The viol, the violet, and the vine.

      Resignedly beneath the sky

      The melancholy waters lie.

      So blend the turrets and shadows there

      That all seem pendulous in air,

      While from a proud tower in the town

      Death looks gigantically down.

      There open fanes and gaping graves

      Yawn level with the luminous waves;

      But not the riches there that lie

      In each idol's diamond eye-

      Not the gaily-jewelled dead

      Tempt the waters from their bed;

      For no ripples curl, alas!

      Along that wilderness of glass-

      No swellings tell that winds may be

      Upon some far-off happier sea-

      No heavings hint that winds have been

      On seas less hideously serene.

      But lo, a stir is in the air!

      The wave- there is a movement there!

      As if the towers had thrust aside,

      In slightly sinking, the dull tide-

      As if their tops had feebly given

      A void within the filmy Heaven.

      The waves have now a redder glow-

      The hours are breathing faint and low-

      And when, amid no earthly moans,

      Down, down that town shall settle hence,

      Hell, rising from a thousand thrones,

      Shall do it reverence.