Abstract
Although Schumpeter is widely acknowledged as a pioneer of the economic analysis of innovation and although the patent system occupies an important place today in this field of research, Schumpeter did not see patents as playing a key role for fostering innovation. He mentioned them only a couple of times, in passing, and never developed any scientific analysis of the patent system. In this paper, we propose an explanation of this blind spot based on three characteristics of Schumpeter’s thought: first, entrepreneurs are largely motivated by non-monetary elements; second, they enjoy a first-mover advantage because imitation is difficult; third, Schumpeter viewed the innovation process as a relentless race in which firms are doomed to innovate in order to avoid disappearing. The Schumpeterian view of the economic process therefore largely reduces the economic importance of patents.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Change history
29 August 2019
The original version of this paper unfortunately contained error. The names of the authors are inadvertently inverted. The correct names are already corrected in this paper.
Notes
The minor role given to patents is all the more puzzling as Schumpeter did place market power at the heart of the innovation dynamics (Gilbert 2006). In line with the tradition of the classical economists, Schumpeter, for a long time, used the concept of free competition rather than the marginalist concept of perfect competition. In a famous citation he claimed that: “perfect competition is not only impossible but inferior and has no title to being set up as a model of ideal efficiency” (1942, p. 106).
As Blaug (2005) mentions, Bentham, Adam Smith, McCulloch, John Stuart Mill and later Sidgwick and Pigou in Britain and Jean-Baptiste Say, Bastiat, Dupuit and Walras in France all participated in this debate.
It is interesting to mention that incentives in general were not a central economic concern for Schumpeter. As Laffont and Martimort noted (2002, p. 11): “It is surprising to observe that Schumpeter (1954) does not mention the word of incentives in his monumental history of economic thought. How is it possible when today, for many economists, economics is to a large extent a matter of incentives”. We interpret this as evidence that the issue of incentives emerged in economics mostly in the 1970s and 1980s, with the rise of the economics of information.
In his well-known study “An economics review of the patent system”, submitted to the United States Senate in 1958, Machlup writes: “That society should protect, and thereby stimulate, investment in innovation -not just invention- has been held by many; hut few were as consistent in their conclusions as Joseph A. Schumpeter, who on these grounds favored permitting monopolistic practices of various sorts. He argued that temporary security from competition, through cartels, patents, or other restraints, would encourage firms to put more venture capital into innovating investment” (Machlup 1958, p. 9).
He writes: “The main value to a concern of a single seller position that is secured by patent or monopolistic strategy does not consist so much in the opportunity to behave temporarily according to the monopolist schema, as in the protection it affords against temporary disorganization of the market and the space it secures for long-range planning” (Schumpeter 1942, p. 103).
“Walras would have said (and as a matter of fact he did say it to me the only time that I had the opportunity to converse with him) that of course economic life is essentially passive and merely adapts itself to the natural and social influences which may be acting on it, so that the theory of a stationary process constitutes really the whole of theoretical economics and that as economic theorists we cannot say much about the factors that account for historical change […] I felt very strongly that this was wrong and that there was a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained” (Schumpeter 1937, p. 166).
This can also be observed in Schumpeter’s parallels between economics and art. Schumpeter was indeed deeply interested in the history of art, particularly about how and why artistic evolutions occur in society. As for the economy, he observes that a minority of not necessarily profit-minded individuals drive changes in art.
For example, he wrote: “Economic history of capitalism would be different from what it is if new ideas had been currently and smoothly adopted, as a matter of course, by all firms to whose business they were relevant. However, they were not. It is in most cases only one man or a few men who see the new possibility and are able to cope with the resistances and difficulties” (Schumpeter 1947, p. 152).
On patents, Hayek wrote: “It seems to me beyond doubt that in these fields a slavish application of the concept of property as it has been developed for material things has done a great deal to foster the growth of monopoly and that here drastic reforms may be required if competition is to be made to work. […] Patents, in particular, are specially interesting from our point of view because they provide so clear an illustration of how it is necessary in all such instances not to apply a ready-made formula but to go back to the rationale of the market system and to decide for each class what the precise rights are to be which the government ought to protect.” (1948, p. 114).
References
Andersen ES (2009) Schumpeter’s evolutionary economics: a theoretical. Anthem Press, Historical and Statistical Analysis of the engine of capitalism
Antonelli C (2015) Innovation as a creative response. A reappraisal of the Schumpeterian legacy. HEI 23(2):99–118
Arrow K (1962) Economic welfare and the allocation of resources for inventions. In: Nelson R (ed) The rate and direction of inventive activity. Princeton University Press, Princeton, pp 609–626
Baumol WJ (2002) The free market innovation machine: Analysing the growth miracle of capitalism Princeton University Press
Blaug M (2005) Why did Schumpeter neglect intellectual property rights? Review of Economic Research on Copyright Issues 2(1):69–74
Gilbert R (2006) Looking for Mr Schumpeter: where are we in the competition-innovation debate?, in Jaffe, Lerner, Stern ed., Innovation Policy and the Economy (vol 6)
Hayek FA (1948) Individualism and economic order. The University of Chicago Press, Chicago
Laffont JJ, Martimort D (2002) The theory of incentives: the principal-agent model. Princeton University Press, Princeton
Machlup F (1958) An economic review of the patent system. U.S. Government Printing Office
Machlup F., Penrose E. (1950) The patent controversy in the nineteenth century. J Econ Hist, X(1); 1-29. Reprinted in Towse and Holzhauer (2002) Vol. II; 8-37
McCraw TK (2007) Prophet of innovation: Joseph Schumpeter and creative destruction. Belknap Press, Cambridge
Metcalfe JS (2010) Complexity and emergence in economics: the road from smith to Hayek (via Marshall and Schumpeter). HEI 20:19–45
Schumpeter JA (1911) English edition from 1934), Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle, Havard University Press, third edition: 1949
Schumpeter J. A. (1937), Preface to the Japanese edition of Theorie der Wirtschaftlichen Entwicklung
Schumpeter JA (1942) Capitalism, socialism and democracy. New Ed London: Routledge 1994
Schumpeter JA (1947) The creative response in economic history. J Econ Hist 7(2):149–159
Schumpeter J. A. (1954), History of economic analysis, Edited by Elizabeth Boody Schumpeter. Revised edition. New York: Oxford University Press, 1996
Wieser F. (1914), Social economics, trad. A. F. Hinrichs, New York: A M Kelley, 1967
Acknowledgements
We thank Professor Mark S. Knell for his useful suggestions and remarks during the EMAEE 2017 conference.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
The authors declare that they have no conflict of interest.
Additional information
Publisher’s note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
The original version of this article was revised. The names of both authors are inverted and is now corrected.
Rights and permissions
About this article
Cite this article
Guichardaz, R., Pénin, J. Why was Schumpeter not more concerned with patents?. J Evol Econ 29, 1361–1369 (2019). https://doi.org/10.1007/s00191-019-00633-y
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00191-019-00633-y