Schumpeter: Social Scientist

154 Pages·1951·12.917 MB·English

by  Seymour E. Harris (ed)

SCHUMPETER
SOCIAL SCIENTIST
EDITED BY SEYMOUR E. HARRIS
HARVARD UNIVERSITY PRESS CAMBRIDGE, MASSACHUSETTS
1951
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COPYRIGHT, 1951
BY THE PRESIDENT AND FELLOWS OF HARVA RD COLLEGE
DISTRIBUTED IN GREAT BRITAIN BY
GEOFFREY CUMBERLEGE
OXFORD UNIVERSITY PRESS
LONDON
PRINTED AT THE HARV ARD UNIVERSITY PRINTING OFFICE
CAMBRIDGE, MASSACHUSETTS, U.S.A.
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PREFATORY NOTE
T HIS volume is published under the auspices of the Review
of Economics and Statistics. Of the twenty essays in
cluded in this volume, fifteen were published in the May 1951
issue of the Review of Economics and Statistics. Eighteen dis
tinguished social scientists here have tried to evaluate the works
of a great social scientist, Joseph Alois Schumpeter, and to give
the highlights of his life.
Professors Haberler, Hansen, and Mason helped in the plan
ning of this volume. Mrs. Joseph Schumpeter kindly provided
the photographs. The responsibility for this volume, however,
rests with the editor. Miss Dorothy Wescott, Mrs. Daniel
Cheever, and Miss Lillian Buller helped greatly in various
editorial and secretarial capacities. My wife helped with the
manuscript and proofs.
SEYMOUR E. HARRIS
September 1, 19 5 1
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CONTENTS
Professor Joseph A. Schumpeter: Minute, Faculty of Arts and Sciences,
Harvard University
Messrs. Haberler, Harris, Leontief, and Mason ix
Part I. Introductory
Introductory Remarks Seymour E. Harris 1
Part II. The Man and His Works
Some Personal Reminiscences on a Great Man Ragnar Frisch 8
Memorial: Joseph Alois Schump~ter, 1883-1950 Arthur Smithies 11
Joseph Alois Schumpeter, 1883-1950 . Gottfried H aberler 24
Schumpeter as a Teacher and Economic Theorist Paul A. Samuelson 48
Part Ill. Schumpeter's Economics
Schumpeter's Early German Work, 1906-1917 Erich Schneider 54
Schumpeter and Quantitative Research in Economics ]. Tinbergen 59
The Monetary Aspects of the Schumpeterian System Arthur W. Marget 62
Schumpeter's Theory of Interest Gottfried H aberler 72
Schumpeter's Contribution to Business Cycle Theory Alvin H. Hansen 79
The Impact of Recent Monopoly Theory on the Schumpeterian
System . Edward H. Chamberlin 83
Schumpeter on Monopoly and the Large Firm Edward S. Mason 89
Schumpeter's Economic Methodology Fritz Machlup 95
Reflections on Schumpeter's Writings Wolfgang F. Stolper 102
Part IV. Broader Aspeds
Joseph A. Schumpeter as a Sociologist Herbert von Beckerath 110
Schumpeter on Imperialism and Social Classes. Paul M. Sweezy 119
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viii CONTENTS
Historical Implications of the Theory of Economic
Development A. P. Usher 125
Schumpeter's Political Philosophy . David McCord Wright 130
Part V. Two Great Economists
Schumpeter and Keynes Arthur Smithies 136
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Joseph Alois Schumpeter
1947
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PROFESSOR JOSEPH A. SCHUMPETER
T HE following minute was placed upon the the publication in 1908 of his Das W esen und
records of the Faculty of Arts and Sci Hauptinhalt der theoretischen Nationaloko
ences, Harvard University, at the meeting of nomie. This book, appearing when he was
February 7, 1950: barely twenty-five, immediately established his
Joseph Alois Schumpeter, who died on Jan reputation as the ablest among the younger
uary 8, 1950, in Taconic, Connecticut, was one group of Austrian economists and led to his
of the three or four leading economists of his appointment as professor at the University of
generation and one of the great figures of this Czernowitz.
University. His erudition was immense and Czernowitz, in Bukovina - now Russian
his interests and achievements were by no territory - was the easternmost of the uni
means limited to economics. The eighteen versities of Austria-Hungary. Apparently
years he spent at Harvard were years of in Czernowitz was eastern, indeed, and Schum
tense intellectual activity which have left a peter's Harvard colleagues were later enter
permanent impress on his colleagues, on hun tained by stories of extra-curricular activities
dreds of students, and on his chosen field of that might well have come out of the Arabian
study. Nights. In 1911, he was called to the Univer
Schumpeter was born in Triesch, Moravia, sity of Graz, where he spent the years of the
now part of Czechoslovakia, in 1883. His first World War. His famous T heorie der
father died shortly after his birth and Schum wirtschaftlichen Entwicklung was published in
peter spent his boyhood in Vienna. He there 1912.
attended the Theresianum, the famous prepara Schumpeter's earlier work had developed and
tory school favored by the Austrian aristoc refined economic analysis mainly on the basis
racy, and went on to take his law degree in of static assumptions. The Theory of Economic
1906 at the University of Vienna. In the clos Development was a path-breaking study of the
ing years of the Hapsburg Empire, Vienna process of economic change. Later Schum
must have been one of the pleasantest places peter was frequently wont to observe that the
on earth, especially for those fortunate enough whole of a man's intellectual work is usually
to have been properly born and properly en foreshadowed by what he had done by the age
dowed. Schumpeter was so born and so en of thirty; a somewhat dismal reflection for
dowed and by all accounts he made the most those of his colleagues less precocious than he.
of his opportunities. Although he became one Schumpeter was twenty-nine when he pub
of the most cosmopolitan of men, the experi lished the Theory of Economic Development
ence of those early years in Vienna never really and much of his great work since that date
left him. He remained to the end the culti represents an elaboration and development of
vated Austrian gentleman of the old school ideas which he had by then already sketched
who had seen everything but who found in the out. His conception of the entrepreneur as the
succession of events from 1914 onward no innovator, the agent of economic change, his
very striking evidence of progress. brilliant but disputed theory of interest, his
As is customary in continental universities, view of business cycles as the product of inno
economics was taught in Vienna in the Faculty vation and of the relation of innovation to the
of Law. At the turn of the century, Vienna process of economic development, even his
was, perhaps, the leading center in the world view of the rise and prospective decline of cap
for the study of economics, and Schumpeter italism, are either stated or foreshadowed in
had as his teachers Menger and Bohm-Bawerk, his early work.
two of the most eminent contemporary figures. In 1913, Schumpeter made his first visit to
Although he practised law in Cairo at the inter the United States, as Austrian Exchange Pro
national Mixed Court of Egypt for two years fessor at Columbia University, from which he
after graduation, Schumpeter early indicated received an honorary degree. He returned to
his choice of economics as his field of study by his native country just before the outbreak
[ix]
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X MINUTE OF THE FACULTY
of the first World War. During the war, twenty-five years, was his second period of
though he took no active part in politics, Schum incredible productivity. Every year a succes
peter's sentiments favored the minority anti sion of articles flowed from his pen. He used
German group in the Austrian government and the English language with a verve and pun
in circles around the imperial court. This was gency that few of his colleagues could equal.
typical; throughout his life he was usually to In 1939, there appeared his monumental two
be found in the minority, particularly on issues volume work on Business Cycles; in 1942, his
concerning which the majority view might be suggestive and influential Capitalism, Socialism,
considered to be nationalistic or chauvinistic. and Democracy. By the time of his death he
In 1928, when one of the writers of this Minute had nearly completed a history of economic
visited Schumpeter in Bonn, he was surprised thought that his colleagues believe will for long
to hear him declare quite openly that the ad be the outstanding work in this field. His wife,
ministration of Rhine cities by the French - Elizabeth Boody Schumpeter - an econ
during their occupation was the best adminis omist in her own right - who during the twelve
tration these cities had received within mem years of their married life by her understand
ory - an opinion which could hardly have been ing and loving care has greatly contributed to
popular in that neighborhood. World War II his achievements in teaching and in scholar
again found him in the minority, this time with ship, expects to rescue much more of Schum
respect to the national policies of his adopted peter's unpublished work.
country. The years of the second World War His life at Harvard was that of a scholar
must have been among the most somber and of international fame whose views were sought
depressing of his life. Out of sympathy with by colleagues and students at home and abroad.
the policies of this country and out of touch He was one of the founders of the Econometric
with many of his friends, Schumpeter buried Society, its president from 1937 to 1941, and a
himself in his professional work, unhappily powerful supporter of the use of exact methods
watching the decline of much that he consid in economics. In 1948 he became president
ered valuable in the western world. of the American Economic Association, and,
Most of Schumpeter's life was wholly de just before his death, he had been chosen as
voted to teaching and scholarship. But there the first president of the newly formed Inter
had occurred immediately after World War I national Economic Association.
a short foray into politics, first as consultant Gifted with apparently boundless energy,
to the Socialization Commission in Berlin and Schumpeter expended it lavishly. He was al
then as Minister of Finance in Austria's first ways available for consultation by students and
Republican government. One has the impres devoted a great amount of time to advising
sion that Schumpeter liked neither political and guiding young scholars in all parts of the
life nor his political colleagues. Indeed, much world. His intemperance in the giving of him
later, in writing of Lord Keynes' political asso self to others may well have contributed to his
ciates, he used the phrase "that intractable death. Returning to his country house in Con
wild beast the politician." His incursion into necticut from meetings of the Economic Asso
politics was followed by an unhappy business ciation in New York, he was in the course of
venture during the period when currency in preparing a series of lectures to be given at
flation in Austria was destroying more than. the University of Chicago when he died peace
financial values. fully in his sleep. But neither he nor his friends
Schumpeter was called back to academic would have wished him to live differently.
life by his appointment in 1925 as Professor of Vitality was part of him and the lavish expen
Economics at Bonn on the Rhine. In 1927, diture of it his characteristic way of life.
he came to Harvard for a year as Visiting Pro
G. HABERLER
fessor, repeated his visit in 1931, and in 1932, s.
became a permanent officer of this University. E. HARRIS
The time from the beginning of his professor W. W. LEONTIEF
ship at Bonn until his death, a period covering E. S. MASON, Chairman
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PART I. INTRODUCTORY
INTRODUCTORY REMARKS
Seymour E. Harris
ON January 8, r950, a great economist theory of the origins, functioning, and decline
died. Though the economists have a of capitalism, blossomed out into a theory of
prior claim on him, historians and sociologists cycles and capitalism and socialism and largely
also can include him as one of their stars. In colored his theory of money.2
his departure, the country of his adoption, the Innovation is the catalyst in the whole sys
social sciences, and Harvard University, all tem; innovation by the gifted few accounts for
lost an outstanding scholar, teacher, and per concentration and bunching of investments -
sonality. As a social scientist, as a colleague in not merely new discoveries but also new com
the Department of Economics, and as an edi binations of factors of production. In tum,
tor of the Review of Economics and Statistics this pressure upon limited resources and sav
to whom we of ten turned for advice and help, ings accounts for inflationary pressures and
Schumpeter richly earned the tribute we pay expansion in the supply of money. (Here is
him in this volume. The contributors are pres an ultra-modern theory of the inflation process
ent and former colleagues at Harvard, scholars introduced even before Robertson's great book,
both here and in Europe, and former students. the Banking Policy and the Price Level.8 Soon
)
I should perhaps not distinguish students from the innovators are joined by the numerous imi
colleagues, for I doubt that Schumpeter's for tators, with the resultant excess of investment
mal students learned as much from him as his and strains on the monetary system."'
colleagues. In other aspects of the Schumpeterian sys
In this introductory essay, I suggest very tem this emphasis on th~ gifted few also stands
briefly the contents of this volume; and include out. Monopoly gains are the result of the con
a little biographical material. tributions of the innovators; and correct mo
nopoly policy would not deny these monopolists
an excess of price over short-run marginal costs,
II
for this is a necessary cost of economic prog
Schumpeter was convinced that great abili ress. In any case these gains, in a dynamic
ties reside in the relatively few. His adherence economy, cannot be long-lived, since the proc
to this theory of the elite explains in no small ess of "creative destruction" continuously
part Schumpeter's system. Thus, among his levels existing monopoly positions while creat
most important contributions was his analysis ing new ones. The growth of a trustified soci
of the development process - the origins, ety, by making innovation the automatic and
growth, and decline of capitalism, the evalua largely impersonal contribution of a few large
tion of the importance of the static and dy corporations, tends, as Mason emphasizes, to
namic for the understanding of economic phe weaken the role assigned by Schumpeter to the
nomenon. (Indeed, his static state was in some capitalist elite. But such eclipse as the capi
respects narrower than the models of others, talist elite might suffer is only a prelude to the
since he excluded interest, profits, and in some domination of society by another elite.
respects monopoly, for example; and in some Schumpeter's support of the elite is also
ways, broader since he allowed increases of
• A discussion of the origins and decline of capitalism
popuJation.1) will be found in Paul Sweezy's essay. For a discussion of
Schumpeter's theory of economic develop the theory of money, see Marget's essay below.
• Cf. Marget and Haberler below on the monetary as
ment, which in its larger manifestation was a
pects of this problem.
'Cf., below, Hansen on the cyclical analysis of Schum
1 On his use of static and dynamic, see especially the peter (and especially on the debts he owed to Wicksell,
essays by Machlup, Smithies, Chamberlin, and Stolper, Spiethoff, Cassel, Tugan-Baranowsky), and Schneider, on
below. his debts to J. B. Clark, Irving Fisher, and others.
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2 PART I: INTRODUCTORY
evident in Wright's essay. Schumpeter's con early Essay on Population and his later vo
cept of democracy was a mechanistic, not an luminous work. It was not always clear (cf.
ethical, one; he had no penchant for theories Smithies) to what extent the masses of sta
of equality. As Smithies suggests, Schumpeter tistical and institutional materials used in the
urged that the gains of business should not be two-volume Business Cycles were mobilized to
jeopardized by high taxation, the welfare state, prove or to test Schumpeter's earlier cyclical
and the like; the masses would profit from the theories.
much larger output attainable if government Even more striking was his Das W esen und
did not put tax sands into the gears of the eco H auptinhalt der theoretischen N ationaloko
nomic machine. Similarly, Schumpeter warned nomie (Nature and Principal Content of Theo
against anti-monopoly policies dictated by the retical Economics), published in 1908 at the
politicians apparently favoring the masses age of 2 5: "The book, nevertheless, touches on
against the few, for he was distrustful of the all the central problems of theory and fore
politicians. In his debate with Keynes, both shadows the approaches toward their solution
oral and written, he emphasized the difference which Schumpeter elaborated in his later
between the theory of full employment (asso works. Even the first outline contains nearly
ciated with the scribbling of the intellectuals, all the thoughts that only later came to full
hostile to business, and writing without re maturity. The concepts of statics and dynamics,
sponsibility) and the public policy likely to the imputation problem, questions of price the
emerge. Even in his prognosis pointing to ory, the distribution theory, the principles of the
ward socialism as the ultimate system, he hoped theory of money, the method of variations, in
the way would be prepared by the training of terest as a phenomenon in economic develop
the planners, managers, etc.; and he objected ment - all these are found in this work."
to the premature laboristic socialism currently (Schneider)
in vogue.5 Perhaps the most relevant tribute to Schum
peter's precociousness is a statement by his
former colleague, Professor Spiethoff: "One
III
scarcely knows which is the more amazing,
Schumpeter, like so many other great men, that a man of 2 5 and 2 7 should shape the very
made his important contributions when he was foundations of his science, or that a man of 30
young, in the "sacred fertile third decade," as should write the history of that discipline." 7
he sometimes referred to the youthful twenties. I am interested here in Schumpeter's pre
In a moving tribute to Schumpeter, Paul cociousness in part because I believe it illumi
and Alan Sweezy reveal what Schumpeter meant nates some of his weakness as well as strength.
to those in their twenties.6 Schumpeter had con It is symptomatic that Schumpeter did not
tributed importantly by the time he was 25, share or utilize effectively the most important
and had made his significant advances by the advances of the last generation: Keynesian
time he was around 30. From 1906, when he economics, the theory of monopolistic com
was 23, to 1917, when he was 34, he had, as petition, and econometrics. (Samuelson's ex
Schneider demonstrates, developed his major planation below, that "he was too self-con
contributions. In his Business Cycles and in scious an artist to let old age clutter up the
his Capitalism, Socialism and Democracy, he aesthetic life-line laid down by the genius of
built on his earlier works. As Hansen points youth," is suggestive and charitable but not
out, the parallel of his early work on cycles, adequate.) These developments all came sub
which presented brilliantly the broad outlines stantially after Schumpeter had evolved his
of his theory in summary form, and his mas own system. (The reader should, however,
sive two volumes on Business Cycles, replete compare the essays below by Marget and Stol
with historical statements, sociological and in per, who are more generous concerning Schum
stitutional materials, is suggestive of Malthus' peter's later absorptive qualities.)
• Cf. Smithies and Mason, below. 7 Arthur Spiethoff, "Josef Schumpeter in Memoriam,"
• See the esssay by Paul Sweezy. Kyklos, m, No. 4 (1949).
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