LAUSR

this book he also offers a number of historical examples of entrepreneurs who triggered economic development by introducing radical innovations. In his famous Capitalism, Socialism and Democracy (1942), Schumpeter again elaborates intensively on the role of entrepreneurship for the long-term development of an economy. It is here where he stresses the challenge of innovation for established firms and industries that he characterizes as ‘creative destruction’. In the ‘lost’ seventh chapter of the 1911 first edition of Schumpeter’s book that he excluded from the second German edition later on, Schumpeter expands on his ideas about using a dynamic perspective to explain growth, and describes the role played by entrepreneurship and radical innovation in creating structural change (latter known as ‘creative destruction’) (Schumpeter, 2002). The chapter delves into aspects of psychology and sociology to explore human motivations and the role of ‘milieu’ or ‘culture’ that are today increasingly recognized as being important for explaining economic development. It is possible that the reason Schumpeter decided to drop this chapter from the second German edition was because he felt that this important widening of the perspective was too far away from the economic mainstream of his times. Even today, such arguments are not widespread among economists. One of the most important contributions of Schumpeter’s early masterpiece is that he was one of the first economists to identify the importance of innovation, in a broad sense, as a key source of economic growth. Second, and maybe even more important, is that Schumpeter draws attention to the role of entrepreneurial leadership in the introduction and establishment of significant innovations. Third, he emphatically states that explaining economic development requires a dynamic approach, thereby laying the grounds for what is today labelled ‘evolutionary theory’. Fourth, Schumpeter pioneered a socio-economic approach that accounts for factors that are outside of economic theory in a narrow sense, such as individual motivations, personality, cultures and historical circumstances. Fifth, and probably not least, in directing our attention to the complex interplay of economic and non-economic factors he laid the foundation for a variety of systems approaches, such as innovation systems or systems of entrepreneurship. Many of the ideas presented in Schumpeter’s more than 100-year-old book are still quite relevant today. Especially the second chapter, perhaps the most influential one, can be highly recommended to anyone interested in economic development. Viewed from today’s perspective, there are of course some weaknesses. One of these is his rather narrow definition of entrepreneurship. Recent empirical research has shown that it is not only the introduction of radical innovations that encourage growth, but that regular, non-high-tech entries may also considerably spur growth processes (Fritsch, 2013). Investigating the effects of different types of entrepreneurship in this wider sense is a key issue on today’s research agenda. Another limitation is that Schumpeter largely ignores the role of knowledge and the generation of knowledge in developing the available set of entrepreneurial opportunities and, more specifically, the importance of knowledge for innovative entrepreneurship. Despite these weaknesses, The Theory of Economic Development – An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle is a visionary book that still speaks to us today. It is Schumpeter’s great distinction that he not only stressed the role played by innovation and entrepreneurship in triggering economic growth, but also shed light on critical issues concerning research methodology that social scientists struggle with even today.