The document summarizes Joseph Schumpeter's theory of economic development. Schumpeter believed that economic development results from innovations introduced by entrepreneurs seeking profits. In a state of stationary equilibrium, the economy experiences a circular flow where the same goods and services are produced each year. Entrepreneurs disrupt this equilibrium through innovations in the form of new products or improvements. This "creative destruction" leads to economic development as profits drive further innovations until they become widespread. The document also outlines Schumpeter's view of the entrepreneur as an innovator motivated to find commercial success and prove superiority through creating and exercising their ingenuity.

1. REGENT UNIVERSITY COLLEGE OF SCIENCE
AND TECHNOLOGY, ACCRA
SCHUMPETERIAN THEORY
BY
NAME: KALIO SOYE ROBBIE
INDEX: 01530112
PROGRAM: INFORMATION SYSTEMSCIENCE
LEVEL: 400
26TH JANUARY 2016

2. SCHUMPETERIAN
Joseph Alois Schumpeter; (8 February 1883 – 8 January 1950) was an Austrian-born American
economist and political scientist. He briefly served as Finance Minister of Austria in 1919. In 1932
he became a professor at Harvard University where he remained until the end of his career. One
of the most influential economists of the 20th century, Schumpeter popularized the term "creative
destruction" in economics. According to Schumpeter, “it is the introduction of new product and
the continual improvements in the existing ones that lead to development”.
 Schumpeter adopts a perfectly competitive economy which is in stationary equilibrium. In
such a stationary state, there is perfect competitive equilibrium. No profits, no interest rates,
no savings, no investments and no involuntary unemployment. This equilibrium is
characterized by the term “circular flow”, continues to repeat itself every year. In the
circular flow, the same products are produced every year in same manner.
 According to him, economic development “is spontaneous and discontinuous change in the
channels of the circular flow, disturbance of equilibrium, which forever alters and displaces
the equilibrium state previously existing”.
 Development consists in the carrying out of new combinations for which possibilities exist
in the stationary state. New combinations come about in the form of INNOVATIONS.
 The function of the entrepreneur in this theory was the person who innovates or makes new
combinations of production possible.
 Schumpeter assigns the role of an innovator not to the capitalist but to the entrepreneur.
The entrepreneur is not a man of ordinary managerial ability, but one who introduces
something entirely new. The entrepreneur is motivated by:
a) The desire to find a private commercial kingdom
b) The will to conquer an prove his superiority
c) The joy of creating, of getting things done, or simply of exercising one’s energy and
ingenuity
 According to Schumpeter, under competitive equilibrium the price of each product just
equals its cost of production and there no profits. Profits arise due to dynamic changes
resulting from an innovation. They continue to exist till the innovation becomes general.

3.  Schumpeter’s model starts with the breaking up of the circular flow with an innovation in
the form of a new product by an entrepreneur for the purpose of earning profit.
Conclusion: The entire process of Schumpeter's theory is based on the Innovator whom he regards
as an ideal person. He also believes that the Economic Development is the result of the cyclical
process and the cyclical changes due to innovation is not correct. Schumpeter regards innovation
as the main cause of economic development. Schumpeter also thinks that eventually the capitalism
will come to an end and it will be replaced by Socialism.

4. REFERENCE
[1] Jeroen P.J. de Jong and Orietta Marsili (2010) “Schumpeter versus Kirzner: An empirical
investigation of opportunity types” EIM Research Reports. Pp 4-7.
[2] Cory Taylor Cromer et al (2011). “A Study of Schumpterian (Radical) vs. Kirznerian
(Incremental) Innovations in Knowledge Intensive Industries” Journal of Strategic
Innovation and Sustainability vol. 7(1).