His timeless phrase describing the entrepreneurial process as one of “creative destruction” is likely second only to Adam Smith’s “invisible hand” in its daily use in popular tweets, blog posts, speeches, and articles. Renowned Chicago economist Jacob Viner praised Schumpeter’s History of Economic Analysis as “by a wide margin … the most brilliant contribution to the history of analytical phases of our discipline which has ever been made”. However, it is Schumpeter’s Capitalism, Socialism and Democracy, in which Schumpeter describes the mechanisms—entrepreneurs, innovation, and capital reallocation—that drive the “incessant” recreation of capitalism that is by far his most popular and successful work.

During the 1980s there was a pronounced increase in scholarly interest in Schumpeter’s work as evidenced by the number of citations of his work surpassing citations of Keynes. This volume in the Essential Scholars series explores several of Joseph Schumpeter’s most important insights into entrepreneurship, business cycles, economic development, and the democratic process.

Joseph Schumpeter was born in 1883 to a prominent family in Triesch, a small town south of Prague. After he lost his father when he was four years old, his mother, Johanna, married Sigmund von Keler and the family moved to Vienna. At the time, the radical political and economic changes occurring throughout the Habsburg Empire were largely concentrated in Vienna—an environment very formative for the young Schumpeter. In 1901, he entered the University of Vienna where he was heavily influenced by Friedrich von Wieser and Eugen von Bohm-Bawerk, both students of Carl Menger, a founding member of the Austrian School of Economics. Nevertheless, unlike Ludwig von Mises, a fellow student, Schumpeter described himself not as an “Austrian” but a conservative in his brand of political economics and openly acknowledged his admiration for Edmund Burke’s “good order is the foundation of all good things”.

Schumpeter graduated in 1906 from the University of Vienna and in 1908 returned for the studies necessary to secure employment as a professor. Based on his already published book, The Nature and Content of Theoretical Economics, coupled with lectures and additional scholarship, Schumpeter was quickly certified to teach. He secured a position at the University of Czernowitz where he wrote a break-through book, The Theory of Economic Development, in which he introduced the central role of the entrepreneur in explaining economic progress. In 1911, Schumpeter left for the University of Graz and two years later was invited to guest-lecture at Columbia University.

In 1921, Schumpeter resigned from the University of Graz and began a new phase of his working career as a banker and professional investor. He became a partner with Artur Klein, head of the Biedermann Bank. He was successful in his investments but, when the Vienna stock market crashed, lost much of his personal wealth.

In 1925, Schumpeter returned to academics, accepting a position at the University of Bonn in Germany. He moved to Harvard University in 1932 and, while there, wrote three books: Business Cycles (1939), Capitalism, Socialism and Democracy (1942), and History of Economic Analysis, published posthumously in 1954. Schumpeter was elected president of the American Economics Association in 1947. He died January 8, 1950 in Taconic, Connecticut, USA.

When John Locke was born on August 29, 1632, in Wrington, Somerset, England, he entered a world riven by intense religious and political conflict. This conflict reached its greatest intensity in the Civil Wars of 1641–1649 and the rump Parliament’s trial and execution of Charles I in January 1649. It re-emerged in the political and conspiratorial challenges to Charles II from the mid-1670s to mid-1680s and continued through the Glorious Revolution of 1688. Locke studied at the prestigious Westminster School and Christ Church, Oxford. From the late 1660s into the early 1680s he was physician and intellectual aide in the household of the Earl of Shaftesbury, who became the leader of the political forces opposed to the authoritarian tendencies of Charles II.

The Two Treatises of Government were drafted around 1680 in support of Shaftesbury’s attempts to limit monarchical authority. Locke fled to Holland in 1683 after the Rye House plot to assassinate Charles II and his brother James was discovered. A Letter Concerning Toleration was written while Locke was in Holland and probably working to support continued resistance in England to the rule of James II (who had succeeded Charles II in 1685). Both works were published toward the end of 1689 after Locke returned to England following the Glorious Revolution of 1688.

Throughout the 17th century, there was profound conflict across Britain about which religious doctrines and practices were to be mandated by state authority. Most of the parties to disputes concerning religion and the state accepted the premise that the head of state had the right to decree what religion his or her subjects would follow—as long as the sovereign chose the true religion. The only question among these disputants was which religion was the true one that should be imposed by the sovereign. However, further disputes arose between those who accepted the premise that rulers have the right to enforce religious uniformity and advocates of principles of toleration who maintained that rulers must respect the liberty of conscience of their subjects. Britain was also convulsed by a parallel but more general dispute about who possessed ultimate political authority. Was it the monarch? Or was it Parliament? Or was authority somehow divided among different political bodies? Most of the parties to these disputes shared the premise that whoever has political authority has absolute, unlimited political authority.

However, the premise that political authority must be unlimited in its scope came under attack as theorists developed or refined the idea that political authority exists only for certain limited purposes and that when rulers pursue other purposes their actions transgress those limits. Not surprisingly, the contention that the scope of political authority is limited was opposed by defenders of the idea that all sovereigns must have unlimited authority. Locke’s political philosophy fundamentally rejects the doctrine of unlimited, unchecked, political authority as put forward, especially, by Robert Filmer (1588–1653) and Thomas Hobbes (1588–1679). In his Second Treatise of Government and his A Letter Concerning Toleration, Locke synthesizes the arguments for religious toleration and the more general contention that toleration must be extended to all peaceful activities. Locke argued that liberty and not authoritarian control is the basis for a peaceful and prosperous society. As The Essential John Locke explains, the ultimate ground for Locke’s anti-authoritarian advocacy of toleration and liberty is his affirmation of each individual’s possession of natural rights that all other persons—especially political sovereigns—are obligated to respect.

The political conflicts and philosophical disputes that raged in Britain throughout most of the 17th century were, of course, different in their details from the conflicts and disputes of our early 21st-century world. Yet, the fundamental issues are remarkably similar. They include the nature and sanctity of human freedom, the relationship between respect for freedom and the maintenance of social order, the basis and scope of justified toleration, the justifying purpose of government, and the fundamental limits (if any) on governmental authority. Locke’s classical liberal political philosophy speaks to each of these issues (and more).

Classical liberalism is the view that the primary political principle is that individual liberty is to be respected and protected. Individual liberty ranges across both “personal” and “economic” choices. It includes the liberty to decide for oneself what religion one will follow, what aesthetic or cultural values one will prize and pursue, and what personal interactions one will enter into with others (who also choose those interactions). Individual liberty also includes one’s liberty to develop one’s economic capacities as one chooses, to pursue a career of one’s choice, to acquire property as a means of carrying out one’s life plans, and to use one’s acquired property as one chooses—again with the proviso that one’s actions do not deprive others of their like liberties.

Classical liberalism sees each individual as having a moral sovereignty over his or her own life that no individual or group may properly invade or nullify. This does not mean that classical liberalism celebrates a world in which everyone lives in splendid isolation. Rather, it celebrates society as a voluntary association of individuals each of whom is free—singly, but much more likely, in cooperation with others—to pursue his or her own chosen ends in his or her own chosen, albeit liberty respecting, ways. A key component of classical liberalism is the view that individual liberty is at the least the primary source of desirable social and economic order. Desirable social and economic order arises from the ground up. Since ground-up order will reflect the diverse desires, ambitions, knowledge, and capacities of the individuals who make up such an order, such order will necessarily be more complex, vibrant, and dynamic than any order that might be imposed from the top down by social engineers and state planners.

Coercion is the great enemy of liberty and of the benefits of freely chosen cooperative endeavours. From the classical liberal perspective, the only acceptable coercion is coercion that is provoked by and directed against unprovoked coercion. Coercion—especially understood as the use of physical force or the threat of such use—may be employed only in defence of the liberty of individuals and the associations they voluntarily form. The distinctive feature of political institutions, that is, of governments, is their possession and use of coercive power. Hence, the classical liberal’s endorsement of respect for and protection of individual liberty as the primary political principle yields a demand for radical limits on state power and action.

Locke never married and during his later years lived with the family of Lady Damaris Cudworth Masham at Oates in High Laver, Essex. He died on October 28, 1704 and was buried in the churchyard of the village of High Laver.

He demonstrated the power of committing oneself to a few simple assumptions about human behaviour and then relentlessly pursuing their logical implications. He developed and taught new ways of interpreting data, testing his theories by their ability to explain multiple disparate phenomena. His successes were spectacular and his techniques were widely emulated.

In several cases, Friedman’s methods inspired the creation of entire new subfields including the economic analysis of law, the quantitative approach to economic history, the economics of crime and punishment, the economics of family relationships, and the economic approach to finance—leading to multiple Nobel prizes for Friedman’s acolytes.

But Friedman’s influence extended beyond economists. To the public at large, he was the world’s foremost advocate for economic and personal freedom. Through his writings and his media appearances, he educated millions about how markets work and how governments often fail. He restored the respectability of classical liberal notions that had fallen into disfavour, and he did so not by artful propaganda but by conveying a deep and lasting understanding of the ideas themselves.

And he influenced policymakers. In the United States, he helped to end the military draft, to broaden educational choice, and to change the regulatory climate. Worldwide, almost all central banks now follow policies that are grounded in Friedman’s insights and recommendations (updated, of course, for the changed world we now live in), and have thereby made the world a richer and more stable place, largely delivered from the sort of disastrous policy errors that were once routine. When the Soviet Union collapsed, Friedman’s writings inspired the design of new institutions in several former Communist countries, and those that adopted this course were rewarded with prosperity and freedom.

After an early flirtation with statistics (where he developed the “Friedman Test” to interpret disagreements among judges in, say, a skating competition), Friedman moved on to study economics, writing a 1946 doctoral dissertation on, among other things, the effects of occupational licensing, a subject to which he frequently returned. The next year, he accepted a job at the University of Chicago, where he did most of his groundbreaking academic work on consumption behaviour, monetary theory, and monetary history, and served as the undisputed intellectual leader of the economics department for 30 years. In 1976, he was awarded the Nobel Prize.

The public became acquainted with Friedman through his 1962 bestseller Capitalism and Freedom and his subsequent series of approximately 300 columns in Newsweek Magazine, along with his increasing presence as an advisor to policymakers. After his retirement in 1977, Friedman moved to the Hoover Institution at Stanford University and, in collaboration with his wife Rose and the television producer Robert Chitester, created the television series Free to Choose and an accompanying book by the same title. Both the TV series and the book drew huge audiences and cemented Friedman’s worldwide celebrity. Several Eastern European leaders specifically cited Free to Choose as a major inspiration for their new economic policies after the fall of the Soviet Union.

It would take several large volumes to do justice to Friedman’s extraordinary contributions to economic theory, economic practice, economic policy, and economic literacy. The few brief chapters that follow will give an overview of what those volumes might contain.

Adam Smith was born in 1723 in Kirkcaldy, Scotland. Smith was one of the principals of a period of astonishing learning that has become known as the Scottish Enlightenment, which included groundbreaking innovations in everything from medicine to geology to chemistry to philosophy to economics. Smith is the author of two published books: The Theory of Moral Sentiments (TMS), in 1759, and An Inquiry into the Nature and Causes of the Wealth of Nations (WN), in 1776. TMS brought Smith considerable acclaim during his lifetime and was soon considered one of the great works of moral theory—impressing, for example, Charles Darwin (1809–82), who in his 1871 Descent of Man endorsed and accepted several of Smith’s “striking” conclusions. And TMS went through fully six revised editions during Smith’s lifetime. Yet since the nineteenth century, Smith’s fame has largely rested on his second book, which, whether judged by its influence or its greatness, must be considered one of the most important works of the second millennium.

Not many details of Smith’s boyhood are known. He was born on the 5th of June and was an only child. His father, also named Adam Smith, died shortly before he was born. In his 1793 Account of the Life and Writings of Adam Smith, LL.D., Smith’s student Dugald Stewart reports that Smith’s “constitution during infancy was infirm and sickly, and required all the tender solicitude of his surviving parent. She was blamed for treating him with an unlimited indulgence; but it produced no unfavourable effects on his temper or his dispositions” (Smith, 1982a: 269). Perhaps one anecdote from Smith’s childhood bears repeating. Margaret, Smith’s mother, would regularly take him to Strathenry, about seven miles northwest of Kirkaldy, to visit her brother, Smith’s uncle. On one visit, when the wee Smith was but three years old, he was playing in front of his uncle’s house and was kidnapped by a passing group of “gypsies.” The alarm was raised and the kidnappers were discovered and overtaken in the nearby Leslie wood, whereupon the wailing toddler was safely returned to his family. Stewart writes that Smith’s uncle, who recovered Smith, “was the happy instrument of preserving to the world a genius, which was destined, not only to extend the boundaries of science, but to enlighten and reform the commercial policy of Europe” (Smith, 1982: 270).

Smith matriculated at the University of Glasgow in 1737 at the age of fourteen and in 1740 was elected as a Snell exhibitioner at Balliol College, Oxford. Smith was apparently not impressed with the quality of instruction at Oxford, however. As he wrote years later in WN, “In the university of Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching” (WN: 761). Smith was able to make good use of the libraries at Oxford, however, studying widely in English, French, Greek, and Latin literature. He left Oxford and returned to Kirkcaldy in 1746.

In 1748, at the invitation of Henry Home Lord Kames (1696–1782), Smith began giving in Edinburgh “Lectures on Rhetoric and the Belles Lettres,” focusing on literary criticism and the arts of speaking and writing well. It was during this time that Smith met and befriended the great Scottish philosopher David Hume (1711–76), who was to become Smith’s closest confidant and greatest philosophical influence. Smith left Edinburgh to become Professor of Logic at the University of Glasgow in 1751, and then Professor of Moral Philosophy in 1752. The lectures he gave at Glasgow eventually crystallized into The Theory of Moral Sentiments, which was published to great acclaim in 1759.

In 1763 Smith resigned his post at Glasgow to become the personal tutor of Henry Scott, the Third Duke of Buccleuch, whom Smith then accompanied on an eighteen-month tour of France and Switzerland. During these travels with the young Duke, Smith met Voltaire (1694–1778), on whom Smith apparently made quite an impression: Voltaire later wrote, “This Smith is an excellent man! We have nothing to compare with him, and I am embarrassed for my dear compatriots” (Muller, 1993: 15). Smith also met François Quesnay (1694–1774), Jacques Turgot (1727–81), and others among the so-called French Physiocrats, who were arguing for a relaxation of trade barriers and generally laissez-faire economic policies. Although Smith had already been developing his own similar ideas, conversations with the Physiocrats no doubt helped him refine and sharpen them. In 1767, Smith returned to Kirkcaldy to care for his ailing mother and to continue work on what would become his Wealth of Nations. During this time he was supported by a generous pension from the Duke of Buccleuch, enabling him to focus on his scholarly work. It was widely known that the celebrated author of TMS was working furiously on a new book, and the ten years he labored on it raised expectations high indeed. Finally, at long last, Smith’s magnum opus was published on March 9, 1776.

Smith remained in Kirkcaldy until 1778, when he became Commissioner of Customs in Edinburgh. During the decade or so that he spent in Kirkcaldy, and then thereafter when he was in Edinburgh, Smith spent a great deal of time visiting with and entertaining friends, among whom he counted Irish Catholic philosopher and statesman Edmund Burke (1729–97), the chemist Joseph Black (1728–99), the geologist James Hutton (1726–97), the mechanical engineer James Watt (1736–1819), Prime Minister Frederick (Lord) North (1732–92), and Prime Minister William Pitt the Younger (1759–1806). He also took active roles in learned organizations like the Oyster Club, the Poker Club, and the Select Society, the last of which included among its members William Robertson (1721–1793), David Hume, James Burnett Lord Monboddo (1714–99), Adam Ferguson (1723–1816), and Lord Kames. In 1783, Smith was a founding member of the Royal Society of Edinburgh, which exists still today as Scotland’s premier national academy of science and letters. Having previously served as the University of Glasgow’s Dean of Arts (1760) and Vice-Rector (1761–63), in 1787 he was elected Lord Rector of the university, a post he held until 1789.

During his years in Edinburgh, Smith extensively revised both TMS and WN for new editions. In 1785, he wrote to Le Duc de La Rochefoucauld that “I [Smith] have likewise two other great works upon the anvil; the one is a sort of Philosophical History of all the different branches of Literature, of Philosophy, Poetry and Eloquence; the other is a sort of theory and History of Law and Government” (Smith, 1987: 248). Neither of these projects was ever published, however. In the days before he died, Smith summoned his friends Black and Hutton to his quarters and asked that they burn his unpublished manuscripts, a request they had resisted on previous occasions. This time Smith insisted. They reluctantly complied, destroying sixteen volumes of manuscripts. It is probable that Smith’s philosophical history of literature, philosophy, poetry, and eloquence, and his theory and history of law and government were among the works that perished in that tragic loss.

Adam Smith died in Edinburgh on 17 July 1790 and is buried in the Canongate cemetery off High Street in Edinburgh.

Born in Vienna on May 8, 1899, Friedrich A. Hayek moved to England in 1931. While teaching and researching at the London School of Economics, Hayek became one of the world’s most renowned economists even though he was still only in his mid-30s. His fame grew from his research into the causes of what were then called “trade cycles,” what we today call booms and recessions.

In the greatly depressed 1930s, of course, such research was especially important. And Hayek wasn’t alone in researching the causes of booms and recessions. Another economist studying the same matter was John Maynard Keynes (pronounced “canes”). Yet Keynes’s theory of booms and recessions was totally different from Hayek’s. Not only were the two accounts of booms and recessions very different from each other at the purely theoretical level, they also differed in the implications they offered for government policies to deal with economic slumps. Keynes’s theory promised that recessions, even deep ones like the Great Depression, can easily be cured by greater government spending. Hayek’s theory, on the other hand, offered no hope that a slumping economy can be cured by any such easy fix.

Among professional economists, Hayek’s theory went quickly from being celebrated to being scorned. Keynes’s theory won the day.

Whatever the reasons for Keynes’s victory over Hayek, that victory was total. Keynesian economics came to all but completely dominate the economics profession for the next 40 years and to win widespread acceptance among policy-makers. By the early 1940s Hayek was largely forgotten.

Hayek’s time in the shadows, however, was brief. In 1944 he published a book that became a surprise best-seller on both sides of the Atlantic: The Road to Serfdom. In this now-classic volume, Hayek warned that attempts to centrally plan an economy, or even to protect citizens from the downsides of economic change, pave a “road to serfdom.” Hayek showed that if government plans or regulates the economy in as much detail and as heavily as many of the intellectuals and politicians of the day were demanding, government must also regiment citizens and strip them of many cherished freedoms.

Hayek did not say (as he is often mistakenly accused of saying) that the slightest bit of government regulation inevitably leads to socialism and tyranny. Rather, his point was that the more intent government is on socializing an economy and regulating it in great detail, the greater are the number of individual freedoms that must be crushed in the process.

Although informed by Hayek’s economic brilliance, The Road to Serfdom is not an economics book. It is instead a work of political philosophy, and it marks Hayek’s turning away from writing exclusively about economics for professional economists, to writing about the nature of society for broader audiences. And the audience for The Road to Serfdom was vast. In the United States, the popular magazine Reader’s Digest ran an abridged version of the book in 1945, which proved to be surprisingly successful. (The Road to Serfdom remains relevant and popular. Sixty-five years after its best-selling success with Reader’s Digest, American television and radio host Glenn Beck praised The Road to Serfdom on his Fox News channel program. As a result, in June 2010 Hayek’s 1944 book shot up to a number-one ranking on Amazon.com, where it stayed for a week.)

Along with his change from narrow economist to broad social scientist, Hayek moved in 1950 to the University of Chicago. During his 12 years at that institution, he was not a professor in the Department of Economics but, instead, in the Committee for Social Thought. While at Chicago Hayek wrote a second and more extensive book in defence of a free society: The Constitution of Liberty, which was published in 1960.

In subsequent decades, two more such “big think” books would flow from Hayek’s pen: the three-volume Law, Legislation, and Liberty (published in the 1970s) and Hayek’s final book, The Fatal Conceit (published in 1988). Law, Legislation, and Liberty shows Hayek at his most bold and pioneering. Volume I brilliantly explains the differences between unplanned orders (such as languages and market economies) and planned organizations (such as business firms and centrally planned economies). Volume II explains why the popular idea of “social justice” is meaningless. Volume III contains Hayek’s most ambitious attempt to describe in detail what the legal and political structure of his ideal society would look like.

The greatest contribution of Law, Legislation, and Liberty, however, is Hayek’s explanation of the fundamental difference between law and legislation. Influenced by the Italian legal scholar Bruno Leoni, Hayek argued that law is that set of rules that emerges “spontaneously,” unplanned and undesigned. Law forms out of the countless interactions of ordinary people as they go about their daily lives. Legislation, in contrast, is a set of rules and commands that government consciously designs and imposes. Hayek believed that every good society must use a combination of law and legislation, but that much mischief is caused when the two are confused.

While still working on volumes II and III of Law, Legislation, and Liberty, Hayek was awarded the 1974 Nobel Prize in Economic Science. Sharing this award with the Swedish economist Gunnar Myrdal, Hayek finally was accorded the professional acclaim that he’d lost since his refusal, four decades earlier, to jump onto and ride the Keynesian bandwagon. Hayek’s close friends tell how this award renewed his vigour to work.

He would live for nearly 18 more years and for much of that time he remained as creative and as productive as ever. His last book, The Fatal Conceit, published in 1988, deepens his insights into the potential creative powers of a society governed by evolved rules rather than by the discretion of political officials or of democratic majorities.