Schumpeter, History of Economic Analysis.

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PART III FROM 1790 TO 1870





































































There is, as we shall see, much in this book which is redundant, irrelevant, cryptic, strongly biased, paradoxical, or otherwise unhelpful or even harmful to understanding. When all this is set aside, there still remains enough to constitute, by a wide margin, the most constructive, the most original, the most learned, and the most brilliant contribution to the history of the analytical phases of our discipline which has ever been made. (Viner 1954, pp. 894–5).



1.1 Schumpeter was a man of many interests as well as talents. Beyond that he had, certainly as a young man, monumental ambitions. It is not appropriate in this essay to devote much space to the journey of his life; fortunately there are now available not only the 1950 insightful memorials by his colleagues, particularly the one by Gottfried Haberler,1 a massive as well as a magnificent piece of bibliographical scholarship on what he wrote, who wrote about him, and with whom was he most frequently compared by Massimo M.Augello (1990),2 but also three recent (1991) and assuredly major biographies of the man. Schumpeter, A Biography by Richard Swedberg contains a particularly carefully balanced, scholarly assessment of


Thanks are owed to several friends who have read and corrected the manuscript: Professors A.W.Coats, Warren Samuels, Yuichi Shionoya, Richard Swedberg and Shigeto Tsuro, and Dr Charles McCann.


This essay appeared originally in the Quarterly Journal of Economics. It was reprinted in Seymour Harris’s edited volume, Schumpeter, Social Scientist (Harris, 1951) and again in Haberler (1993). The 1951 volume also contained essays by 16 leading economists, including inter alia Ragnar Frisch, Arthur Smithies, Paul A.Samuelson, Jan Tinbergen, and Fritz Machlup.


Augello cites 260 works (including articles and books translated into languages other than the original) by Schumpeter and 1916 works on Schumpeter. Augello’s own generalizations or findings are in a comprehensive 93-page essay, replete with valuational (that is, Augello’s straightforward evaluations) notes. I am not aware of a comparable task done recently by any economist on an economist.


decades of Schumpeter’s life and work, and if he attempts to explain the man, he does so only by inference.

The second biography is different. Opening Doors: The Life and Work of Joseph Schumpeter by Robert Loring Allen has more of the characteristics of James Boswell’s The Life of Samuel Johnson, LL.D. or Samuel Pepys’ Diary (1815). Benefitting greatly from the massive, scholarly, even daunting3 task of deciphering Schumpeter’s personal diaries undertaken by Mrs Erica Mattschnigg Gershenkron,4 Allen interpreted the often elliptical, if not actually obscure, materials. Unlike Swedberg (a sociologist), Allen (an economist) was a much-impressed, even overwhelmed, Schumpeter student. Allen documents much of what Swedberg could do no more than infer.

The third biography, Joseph Schumpeter: Scholar, Teacher, and Politician by Edward März, a Viennese Marxian historian, eschews not only discussion of Schumpeter, the idiosyncratic individual, but virtually all mention of Schumpeter’s historico-cultural-epistemological interests. März’s effort is to fit Schumpeter into the ranks of latter-day Marxians, an interesting effort but one hardly germane to what we are interested in. For that reason, what follows is based in large measure on the memorials and the other two studies.

1.2 I believe that Schumpeter’s intellectual efforts centered on five (possibly four and a half) major projects. I would classify the first burst of effort (including three books) as at least two major projects, one involving the nature of economic theory and economic science and the other concentrating on the nature and sources of economic development. The first surfaced in the 1908 Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie (The Nature and Essence of Theoretical Economics) and to a lesser degree in the 1914 Der Dogmen- und Methodengeschichte (Economic Method and Doctrine: An Historical Sketch)5; the second in the 1911 Theorie der wirtschaftlichen Entwicklung (The Theory of Economic Development).

His next (I would term it the third) major effort involved a book on money (partly written but never published by him although it did appear in 1970 as Das Wesen des Geldes6) and his 1939 two-volume Business Cycles. This generally unsuccessful effort paralleled Maynard Keynes’s 1930 abortive Treatise on Money and his thoroughly successful 1936 General Theory of Employment, Interest, and Money.

Schumpeter did not think that his Capitalism, Socialism, and Democracy was a major effort; indeed he ‘often called it a “pot-boiler”’ (Allen, 1992, II, p. 133). Others have not shared that assessment, and it may well be termed Effort ‘Three and a Half’ or even Four.


The task was daunting because much was written, even scribbled, in an archaic German shorthand.


I am indebted to Professor Yuichi Shionoya for this information and other points, too.


This book was essentially the basis for the last effort. However, as Schumpeter thought all study of economic theory involves knowledge of its origins, at the time (pre-World War I) he linked the two.



und Methodengeschichte (translated later as Economic Doctrine and Method: An Historical Sketch) and was unfinished when he died, but the outline of the corpus appeared as History of Economic Analysis (1954). I would also include in this fifth effort another posthumous collection, Ten Great Economists (1954), which contains polished essays.

1.3 The unfinished History of Economic Analysis (HEA) is the most significant part of the fifth and last of Schumpeter’s great projects. To some, its development represents the somber reflections of an older scholar, one embittered by personal, career, and character tragedies. To others, it is the quintessential, if uncompleted, final great professional tour d’horizon of the leading practiced academic professional economics visionary of the twentieth century. And for still others it is the wisest compendium of names and titles ever published in English (and possibly in all other languages) in the long history of the discipline.

1.4 In the past there have been many treatments of the history of the discipline employed as explanations of the development of economic theory. Indeed, one way to explain the emergence of the Smithian and Ricardian virtual hegemony was simply to recount how Smith had fused earlier writings, rejected some, and made others canon. Ricardo, referring to Smith’s 1776 economics masterpiece,7 offered a tighter type of reasoning, and thus it seemed classical economics was assembled, if not actually born.8 The official ‘registry of birth,’ as seen by the British, was undoubtedly John Ramsay McCulloch’s The Literature of Political Economy (1840), just as Jérôme-Adolphe Blanqui’s Histoire de l’économie politique en Europe9 (1838) could be said to have been an even earlier French claim—of course making McCulloch’s either a collateral, if lesser, relative or simply a Pretender.

There is a German lineage, as well. Wilhelm Georg Friedrich Roscher first brought out his Geschichte der Englishen Volkswirtshaftslehre (1851) and then later in 1874 his Geschichte der Nationalökonomie in Deutchsland, and his student, Gyula Kautz, published in 1860 Die Geschichtliche Entwicklung der Nationalökonomie und Ihrer Literatur. One could go on, but it suffices to indicate that not only Marx treated the history of economics in Das Kapital (particularly in Volume One, 1867) but that object of Marxian scorn, Eugen Karl Dühring, published a positivist Kritische Geschichte der Nationalökonomie und der Sozialismus in 1871.

From a more ‘modern’ standpoint, I am tempted first to point to William Stanley Jevons’ decision to commission a translation of Luigi Cossa’s Guido allo Studio dell’Economia Politica (1875) as our ‘cornerstone.’ Cossa was so pleased with Jevons’ request that he expanded and partially rewrote his first edition for that translation. So it


The earlier (1759) masterpiece was the more carefully written, The Theory of Moral Sentiments.


A more properly systematic approach is to refer to that collector’s ‘gem of a servant,’ The History

of Economic Thought and Analysis (1973) by Emma Fundaburk, to consider the wealth of efforts at

synthesizing the various approaches.

9 This book went through several successive editions. The fifth French edition is dated 1882, and


economics texts which followed.

Until Schumpeter’s 1954 History of Economic Analysis appeared, American (and presumably British) economics graduate students generally referred to several ‘old standbys:’ Eric Roll’s strange mixture of pro- and then a-Marxian (to coin a neologism) A History of Economic Thought (particularly the post-World War II 2nd [1946] and 3rd [1954] editions) and Charles Gide and Charles Rist A History of Economic Doctrines from the Time of the Physiocrats until the Present Day (translated into English in 1948 from the several [2nd, 6th, and 7th] French editions). More recently, that is, within the last 20 years, Mark Blaug’s Economic Theory in Retrospect and The New Palgrave have been the principal authorities for graduate students. For economics undergraduate students there was Alexander Gray’s excellently composed The Development of Economic Doctrine: An Introductory Survey (1931) and Henry W.Spiegel’s The Growth of Economic Thought (1971). More advanced scholars relied on monographs on writers, schools, periods, and sub-sets of the topic (e.g. monetary theory, etc.). None of the foregoing, however, is, in my view, magisterial—none attempts to synthesize a vision.

Since the appearance of the History of Economic Analysis two other particularly authoritative works have appeared: Wesley Clair Mitchell’s Types of Economic Theory: From Mercantilism to Institutionalism as edited by Joseph Dorfman (1967, 1969)11 and Karl Pribram’s A History of Economic Reasoning (1983). Neither attempted to synthesize a vision, although each sought to present an organizing theme, itself a ‘Whiggish’ interpretation (I would not consider such interpretations really to be visions). I shall compare their major approaches below.

The most important thing about Schumpeter’s History of Economic Analysis is its impact on the profession. Unfinished and published with obvious and identified lacunae, it can not serve as a good reference guide. Yet, reference is regularly made to it. Why? Although I will expand on this point later, let me say here only that it offers a complex but not-quite-idiosyncratic vision of economics.

Schumpeter knew Continental sources, with which most British- and American- and often imaginatively. Most of all, he escaped the usual constraints of having been educated within the bounds of British Utilitarianism, and even though for much of his life he apparently had a weakness for the effortless superiority of the English gentleman-scholar, he was in the important sense an intellectually superbly equipped outsider.

1.5 In sum, then, the importance of the book is that it gives a vision of the development of the economics discipline, a vision created by an unusually well-read ‘outsider’ (from the standpoint of most British and American-trained professional economists) at a time when he shunned most professional company and was driven by a personal ambition work ethic to complete a monumental effort explaining the relationship


The well-known text by Charles Gide and Charles Rist, A History of Economic Doctrines, was not published until 1915.


The basic manuscript was the result of a student’s shorthand notes; in that form it was sold in 1949 by Augustus Kelley, Bookseller (New York) with Mrs Mitchell’s permission (extended to a very limited number of sets) as Lecture Notes on Types of Economic Theory: From Mercantilism to


the author’s sudden death), there is, nonetheless, nothing else like it in the English language; and even when one turns to other cultures, nothing has appeared which has its appeal, if not its scope. Most of all, it is the product of an imaginative mind embittered by a World War in which his adopted country, perhaps misled by an ubiquitous Anglo-Saxon cultural penumbra (which he came to despise), was seemingly fighting the wrong enemy. The book stands as a challenge (perhaps if it had been finished it would have been as a rejection) to the way Anglo-American economists were accustomed to looking at themselves and their craft.



2.1 Just why Schumpeter undertook to write the 1914 Der Dogmen—und Methodengeschichte seems to me to be less of a mystery than is the slant of its contents. He was at the time a young man, perceived both by the world and by himself as a Wunderkind. It was part of his judgement as well, perhaps, of his conceit, that he wanted to lay out a schema for the understanding of the development of the economics discipline, both as a science and as practiced as an art. Assertive in tone, it reflects an intellectual confidence that was as yet essentially untouched by any serious career failures. But, if Schumpeter was unscarred, he certainly was aware that others had been. Of them, according to Swedberg (1991, pp. 91–3), he was greatly concerned about the opinions of Max Weber, whose efforts to combine an overly abstract theoretical science of economics with a comparably over-detailed history of events and policies had resulted in a new ‘discipline,’—Sozialökonomie.

Opportunity came to please him in the form of a request from Weber, himself, to prepare a history of the subject of economic theory. Weber was undertaking the organization and publication of a deliberately important collective handbook, Grundriss der Sozialökonomie. The other selected authors were two eminent older scholars, Karl Bücher and Friedrich von Wieser. Their presence, plus his own desire to ingratiate himself with Weber12, doubtless affected the rhetoric in the book. And while it retains a nominal tolerance for a kind of historical approach, it seems to me to be clear that this was a concession to Weber’s feelings and was more of a courtesy than a fully sincere opinion. At that time, Schumpeter was generally putting his chips on abstract theory.


It succeeded: Weber became a strong admirer and a supporter when it came to Schumpeter’s applying for chairs. Swedberg reports, however, that the two once avoided coming to blows only by Weber’s stomping out of a coffee house. What caused such violence? Schumpeter was fascinated by what was going on in the Soviet Union, and seemingly endorsed Leninism, as practiced. Weber, incensed by Schumpeter’s indifference to human cruelty, could not restrain himself (Swedberg, 1991, pp. 92–3).


most of the history of economics aficionados of the inter-Wars period, its existence and (for those who could read German, its contents) assured Schumpeter of an extra degree of professional standing. Yet, Schumpeter himself seems to have regarded it as evidence of an unfinished product. Space limitations do not permit much dwelling on its contents (cf. Perlman, 1982), but at the time he wrote it he was intent upon (1) drawing a distinction between scientific economics and political economy; (2) showing how British classical economics was giving way to ‘schools of economic thought;’ (3) indicating that the future of economic analysis lay in the tradition of Walrasian general equilibrium analysis, albeit in a ‘dynamic rather than a static form;’ and (4) insisting that the filiation of ideas as well as economic policy rested best in the minds and hands of a disinterested cultural elite.

2.2 By the 1940s Schumpeter was estranged from many of his Harvard colleagues. It is popularly believed that this breach came about because of World War II and the alliance between the Western democracies and Stalin’s Soviet Union. More than fifty years after the event, it is hard to reconstruct the many feelings influencing the situation. Loring Allen suggests that the alienation may have had an earlier source in Schumpeter’s ambivalence regarding anti-Semitism and the Nazis; but many of Allen’s judgements seem to me to be facile and too easily based on hearsay as well as post hoc, ergo propter hoc assessments. But, whatever the cause, Schumpeter withdrew from Cambridge and concentrated on reformulating his ideas about the historical development of the discipline. When the war ended, Schumpeter reemerged from his cocoon, but he was never the caterpillar, much less the butterfly, he had been as a young man. He wrote brilliant essays on Irving Fisher and Maynard Keynes; both of them were published posthumously in Ten Great Economists (TGE), surpassing his analysis in the HEA. He served as President of the American Economic Association in 1948 and in that capacity delivered an address on ‘Science and Ideology’. More to our point, he was asked to deliver, inter alia, a eulogy of Wesley Clair Mitchell just after the latter’s death (in 1950). It was a

strange, idiosyncratic performance but, for the record, the written essay, finished just before Schumpeter’s own death, if effusive is also wise. The History of Economic Analysis seems to have been largely the product of the bitter years leading to and during the War. Swedberg relates how Schumpeter proposed the volume to the Oxford University Press, and from the first it was conceived as a vision, a massive treatment of the emergence of the scientific discipline. But, like many last great works of artists and other writers, it seems to have been cursed by an evil star. What was written was done so by a depressed author. It was unfinished when he died, and his devoted student and third wife, Elizabeth Boody Schumpeter, who had brought out of chaos what order there had been during the years from around 1938 onwards, sought to polish the manuscript as best she could and to integrate as much as possible.

The task was extremely difficult. Schumpeter’s writing method was disordered. Major bits and large pieces were to be found in three different studies, and it was not always clear which had been written first and which later. Much was written in an archaic German shorthand. However, she persevered.


out. Several Harvard colleagues did what they could to complete her task, but committees rarely can do as well as a single individual and, as I have indicated, Elizabeth Schumpeter’s own knowledge of the vision, surely greater than anyone else’s, was far greater than theirs.

Elizabeth Schumpeter also proposed the printing of a collection of his essentially obituary essays on key economists, essays running from 1914 until no less than a fortnight before his death. Her selection (TGE) combines a judgement regarding market taste (which may explain the lengthy essay on Marx coming first) and one reflecting Schumpeter’s regard for the eminence of the ten ‘greats’ (Marx, Walras, Carl Menger, Marshall, Pareto, von Böhm Bawerk, Taussig, Fisher, Mitchell, and Keynes) plus three appended short pieces on Knapp, von Wieser, and von Bortkiewicz.

Ten Great Economists I find is worth noting particularly because of its lengthy analysis of Pareto’s work. It is canon that Schumpeter thought Walras the greatest economist in the history of the profession. I suggest that a less conventional view is also worth considering. In the end he admired Pareto as much or more. At the very ‘least,’ Pareto was the worldly St Paul to Walras’s spiritual Jesus.


3.1 In the HEA Schumpeter sets out to explain how the discipline should be perceived. Part I (3.7 percent of the pages) as it appears seems to me to be the most important. In his 1914 study, Der Dogmen—und Methodengeschichte, which was long on self-conscious organization,13 Schumpeter’s themes involve a distinction between ‘science’ (e.g. scientific economics) and econo-political programs (political economy), and contrast the roles played by disinterested ‘consultant administrators’ as distinct from venal pamphleteers (cf. Perlman, 1983). The older Schumpeter set out in the HEA to do something far more sophisticated. He sought to explain economics in terms of the dynamics of the sociology of knowledge rather than under the more usual rubric, classical epistemology. I feel that his exposition would possibly have been pedagogically easier had he chosen to tie his thoughts to Pareto’s Trattato di Sociologia Generale, with its distinction between rational and non-rational systems. But their goals involving theory as a means to understanding human meanings were similar and Schumpeter, in explaining ultimately what shaped economics (and by economics he clearly meant economic theorizing), stated quite flatly that first one had to know



economic history and statistical display and analysis. Given that background, one was then ready to study theory. Schumpeter took pains to explain that much writing passing for theory was irrelevant and even jejune; theorists poisoned their own well by making foolish condemnations of empirical details and extravagant claims relating to their own progress and prowess. Many theorists were intentionally ignorant of the fact that the best theorists (like Newton) were skeptical (with reason) of being classified by theorists as theorists.

Nonetheless, Schumpeter’s rule of thumb was that abstract rules were to be derived from and then tested against observed data. Although he refers to Marshall as a leader in the practice of ‘scientific economics’ (1954, p. 21), it is also even more true that Schumpeter abhorred the tendency of Marshall and the Marshallians to bend their analysis in the name of ideologies such as free trade, utilitarianism, and so forth.

In a significant sense, Part I of the History of Economic Analysis seems to have been laid out as a major contribution. However, as it was unfinished, it suffers seriously from omissions. What Schumpeter had to say about his bugaboo—ideology—and his Golden Fleece—a scientific economics—can be inferred from the written version of his 1948 Presidential Address. But what he had meant to say about his coming to grips with the meaning of Weber’s Sozialökonomie is not adequately specified, and in his conscious eschewing of Pareto’s sociological system (as we will note below, his long essay on Pareto was written during the last months of his life) his views are left for me, at least— up in the air.

3.2 Part II reflects Schumpeter’s greatest relative strengths. It involves about a quarter of the book’s pages, and it takes up ad seriatim first the contrasting seminal contributions of Plato and Aristotle and the amazing lack of analytical material associated with Republican and Imperial Rome before turning to a splendid survey of the Christian and Natural Law writers. The third chapter of this part is a reprise of his 1914 theme of the consultant administrators and the pamphleteers—the former groped for a vision, the latter for reward. His treatment of Smith is insightful but, nonetheless, harsh. Praise, such as he gave it in this chapter to the English, was reserved for Josiah Child.

The fourth chapter is more generous in tone; in it Schumpeter’s identification of the qualities of the hero becomes apparent. What impressed him most was the hero’s ability to build an original system rather than merely to introduce a mechanism of thought. Taking up William Petty and his associates, Boisguillebert, Cantillon, Quesnay and his


Swedberg notes the influence of Max Weber (Swedberg 1991, p. 184).


Schumpeter’s view was similar to Lord Kelvin’s; science involved measurement, even if it was not measurement, itself. Schumpeter, alert to Hayek’s disparagement of scientism, was amenable to every discipline developing its own ordering of knowledge (not learning), and specifically physics (Schumpeter 1954, pp. 16–18).



There follow three chapters focussed on specific topics and subtopics; suffice it here to list only the topics: (5) Population, Returns, Wages, and Employment; (6) Value and Money, and (7) The ‘Mercantilist’ Literature. They contain much informative information—names, titles, dates, and, most of all, the tracing of the filiation of ideas, but they are mostly descriptive. Schumpeter, quite naturally, ‘graded’ the names—among those getting ‘firsts’ or ‘very high seconds’ were Botero, Serra and Misselden, Steuart, and perhaps Hume. For many, the most useful thing about this part is the integration of Continental names (with what is for many readers limited to English) the British names.

3.3 Part III covers economics between 1790 and 1870. The initial three chapters cover the plan of the analysis, a bird’s-eye view of the economic history of the period, and a marvelous survey of the dominant idea-sets of that era. Again, Schumpeter ‘reviews the troops’ (his phrase), and identifies his heroes, including Longfield and von Thünen, Cournot, J.S.Mill, Say, and Sismondi. Schumpeter then devotes most of a chapter (5) to J.S.Mill. In chapter 6 Schumpeter synthesizes British Classical Economics, using Senior’s four postulates (rational maximization, the Malthusian Law, diminishing returns in agriculture, and increasing returns in industry) as a convenient reference point or point of intellectual departure. From there he continues in the integration of Ricardian and Marxian thinking, Say’s Law of Markets, and the concern with production and distribution. Both chapter 6 and its sequel (7), ‘Money, Credit, and Cycles’ are English-experience oriented.

Schumpeter’s treatment of British Utilitarianism is worth specific mention. He accepts its centrality in the development of the Brtish classical system, but he does not accept its validity. Accordingly, it should come as no surprise that neither Mandeville17 nor Bentham has a tablet, much less a memorial, in his Pantheon.

3.4 Whereas it took three chapters of about 84 pages in Part III to introduce the intellectual background (the sociology of ideas) for the period 1790 to 1870, it took four chapters but fewer pages (about 74) to introduce the intellectual background for the period ‘From 1870 to 1914 and later’ in Part IV. Even so, this Part is the one giving full geographical sweep. Taking up developments in theory in Britain (he concentrates far more on Marshall than on Jevons or Edgeworth), France, Germany and Austria, Italy, the Netherlands and Scandinavia, the United States, and finally in ‘Marxism’ (if not a land, certainly a ‘cloud’ of its own), he sets the stage for what he really wants to discuss. Chapter 6 is on the Marshallian system; chapter 7 is on the evolution of equilibrium analysis (partial equilibrium being seen as the product of Cournot and Marshall; general equilibrium, albeit static, as principally the product of Walras). Chapter 8 takes up applications as seen in the treatment of Money, Credit, and Cycles.


Schumpeter thought the word, Econometrics, philologically ignorant, ‘…it ought to be either Ecometrics or Economometrics’ (Schumpeter 1954, p. 209).


Hardly mentioned (two slim references). Hayek, by way of contrast, makes Mandeville’s role seminal in the development of individualism, utilitarianism, and even in the self-regulating market. (See Hayek, 1967, Perlman, 1990, and 5.6 below.)


Mitchell get short shrift. Irving Fisher (on balance) is treated with qualified enthusiasm and at some, if limited, length.21 Instead, he sets out to glorify Walras, and as I have mentioned earlier and will mention again below, he eschewed most but not all lengthy discussion of Pareto. As Schumpeter was a man hardly consumed with modesty, false or otherwise, it is puzzling why he did not mention any of his own contributions; perhaps that was to be left to the last.

In my judgement, Part 4—because it was to lay the foundations for an understanding of the meaning of dynamic general equilibrium analysis—needed much more work. My guess is that, given the time, Schumpeter could have greatly expanded and improved its exposition. But, I also believe that given the state of mathematics during the period before 1960 and his own reluctance to get involved in further studies in mathematics, this section was bound to have been limited.

3.5 Part V was to be ‘A Sketch of Modern Developments.’ As the manuscript was left, it had a truncated statement of his plan, a comparison of the Marshallian-Wicksellian (an essentially partial equilibrium analysis) approach, a discussion of ‘totalitarian economics’ (Germany, Italy, and Russia), some thoughts about dynamics and business-cycle research, and a slightly polished assessment of Keynes’s impact on the profession.22 This Part, clearly intended to be ultimately no more than a ‘sketch’, is too unfinished to be of concern to anyone but those interested only in very preliminary drawings.



4.0 The appearance of the book about four years after Schumpeter’s death may

have affected its reception, but we know for a fact that it produced a number of unusually long book review essays. Virtually everyone thought it monumental—in its purpose, if


Schumpeter’s treatment of Keynes, always something of a touchy subject, is most conscientiously handled in a critical but yet balanced manner in Ten Great Economists (Schumpeter, 1951, pp. 260–91).


See 2.2, above for reference to a much more thorough assessment of Mitchell.


Mitchell paired Schumpeter and Pareto in his lectures. Even so, the topic was not one of Mitchell’s ‘favorites’ (Mitchell, 1969, chapter 15).


Again, duty overcame the sequence of writing discipline. In Ten Great Economists there is a generous memorial essay on Mitchell, written just before Schumpeter’s own death.



assessment of the development of economics should be. Most reviewers did not hesitate to assess it relatively passionately—the reviews appeared for the most part long after Schumpeter’s death and the book was considered so important that no attention was paid to te nil nisi bonum rule.

Briefly put, all of the reviewers were in some senses impressed, even awed, by the vision and the massive detail (however imperfect it was left). But many of the reviewers were put off by Schumpeter’s evident anti-British (usually meaning anti-Utilitarianism) judgements. Most reviewers swallowed hard his lauding of his Continental heroes, but most of them, lacking his first-hand familiarity with the texts, were in no strong position really to complain. One reviewer, Ronald Meek (1957), took him to task for oversimplifying, indeed bending, the Marxian concept of the institutional nature of social value (social mores) creation.

4.1 George Stigler’s review in the Journal of Political Economy was unusual in that he was led to question from the first why anyone should want to ‘write on such a scale’ (p. 344). While Stigler expressed his amazement at Schumpeter’s obvious erudition, he also thought that many of Schumpeter’s derived generalizations (e.g. economists are slow to embrace new ideas) were clearly wrong (ibid.). He found the exposition so truncated that he often could not really understand just what Schumpeter had in mind.25 His criticisms were even more directed to the vision than they were to the execution.

But, Stigler also had rare praise for Schumpeter:

There is splendor in Schumpeter’s contempt for those who explain and appraise theories by the venal motives that their authors conceivably nurtured. There is intellectual chivalry in his attempts to divorce the quality of the analyses from the policies to which they were married. There is magnanimity and generosity in the treatment of almost every minor economist, and of course these are the ones who need such treatment. And there is wit…

(p. 345) 4.2 Another Chicago economist, Frank Knight (himself no mean historian of economic thought) had what seem to me to be among the most trenchant criticisms of the book. Although he ended his lengthy essay with a sort of ‘if-cats-can-look-at-kings’ apology, his review, appearing in the Southern Economic Journal, was clearly admonitory on several grounds. He took care to notice that if Schumpeter was willing to start with the Babylonians, albeit with only a brief reference, he surely should have been


The Economic Journal, for instance, promised to review it, but I cannot find the review in the journal, Loring Allen’s reference to the contrary notwithstanding (1991, pp. 215, 218).


Economica, by way of contrast, turned to the then very young A.W.Coats to write a review. He did a discerning job.


‘When Mill’s fundamental propositions on capital or Böhm-Bawerk’s three grounds for the emergence of interest are disposed of in a page or two, not even the expert can claim a full understanding of Schumpeter’s position’ (p. 344).


economic thinking, but that even there, Schumpeter failed a real test.

Like several others, Knight noted the anti-British feeling in Schumpeter’s mindset. Unlike all the others, however, he noted strongly Schumpeter’s clear neglect of the Protestant (and explicitly the Old Testament) impact on economic thinking. He explicitly distrusted Schumpeter’s sense of hero-worship—Schumpeter scored individuals on scales of originality and personal endowment—of course, absent personal moral qualities. Knight chose to soften that criticism by adding the paradox that if he had to trust anyone’s judgements, Schumpeter’s would have been among the more reliable.

Most interesting to me, however, was Knight’s observation relating to Schumpeter’s limited appreciation of the fact that different societies had different ‘utility functions’ (to employ an accepted neologism). Individualism emerges late in the historical game. And:

Primitive ideas were, necessarily, oriented to order, not to Freedom and Progress. But under primitive conditions the activities of the money-lender (even the merchant) can be profoundly disturbing, disastrous. And medieval society had powerful additional ‘reasons’ in a theory of society centered on ‘salvation,’ to be achieved through an orthodox creed and ritual in the custody of a divinely commissioned absolute authority.

(p. 267, emphasis in the original)

4.3 Three English writers sought to target his anti-British judgements and their implications. I turn first to I.M.D.Little, then to Lionel Robbins, and finally to Mark Blaug, whose assessment of the book is probably the most carefully reasoned.

While Little’s principal interest seems to lie in criticizing Schumpeter’s discomfort with welfare economics, I thought his strongest criticism was reserved for Schumpeter’s virtually total neglect of the influence of Thomas Hobbes on whatever came afterwards. Hobbes, Little believes (and I share this view), offered economists along with others the paradigmatical problem; the efforts of most English theorists sought either to deny or to resolve that problem. From Hobbes comes the streams of thought emerging as individualism, empiricism, and eventually utilitarianism. But, as Schumpeter’s interpretation does not stress the Hobbes connection, Schumpeter would have little or no reason to employ Hobbes as the hinge between the medieval traditions and what I tend to call the modern.

Lionel Robbins first took pains to indicate how beautifully prepared Schumpeter had been by his connections and training in Vienna (then bathed in intellectual sunshine) to undertake the task of writing a massive (too massive, in Robbins’ opinion (Robbins, 1955, p. 4)) treatise on the whole subject of economics. After the usual bows in the direction of some personal nil nisi bonum rule, Robbins got down to his task.

Robbins, like Schumpeter, was a man of great culture, wide reading, and many friendships. Unlike Schumpeter, Robbins harbored virtually no religious sympathies, Instead, he was a Common Sense Englishman with faith in the perfectibility of man through study and the uses of reason; in short, he embraced British Utilitarianism, something which Schumpeter did not accept either as a workable philosophy or, even less, as a substitute for religious convictions. Thus, much of Schumpeter’s erudition,


In general, Robbins thought that Schumpeter’s bias against classical economics reflected the feelings of someone outside the ‘true’ Utilitarian tradition. Robbins wrote that Schumpeter’s perception of the influence of Bentham’s and James Mills’ Utilitarianism was distorted; most English writers were more balanced in their assumptions of the meaning and consequence of that doctrine.

However, it is when Robbins sets out to demolish Schumpeter’s scaler system of hero ratings that he scores his truest hits. Robbins’s approach is to attack first the textual validity of Schumpeter’s assertions (1) of Smith’s place in the scheme of things, (2) of Ricardo’s influence, (3) of Cournot’s analytical skills, and (4) of Marshall’s writings and influence, and second to demonstrate that Schumpeter’s treatment of Walras was biased in the other direction. Schumpeter, according to Robbins, clearly did not apply the same rigor in assessing Walras as he did elsewhere (Robbins 1955, pp. 4–5).

Clearly what Robbins dismissed was the basic Schumpeterian schema, which separated what went earlier from the economics of the British classical school-giving to the former the split between real philosopher/theologians and mere pamphleteers. The main casualty was Adam Smith’s reputation: put against such philosopher/theologians as Plato, Aristotle, and Aquinas, Smith becomes a small potato. Schumpeter’s implication (never really stated) that Ricardo had a good bit of the pamphleteer in his writings, tended further to denigrate his opinion of the majesty of the British contribution. But it would be an error to conclude that the thoughtful Robbins was unimpressed with what Schumpeter had to say in 400 pages about the classical British tradition.

Robbins lauded Schumpeter’s treatment of economics since 1870, but noted rather trenchantly that in contrast to Schumpeter’s rule, individual writers, not the schools of thought, are what is to be judged. It is in this sense that Robbins thought that Schumpeter clearly underrated Marshall and treated a supposed neglect by Marshall of Jevons, of von Thünen, and of Cournot and Dupuit with scorn. He thought that Schumpeter’s treatment of Walras was designed so as to protect both himself and Walras from criticisms that Edgeworth and Marshall were Walras’s betters both with regard to vision and to technical detail.26

While Robbins chose to end his essay with a pastoral reminiscence of his last meeting with Schumpeter, the important thing is the thrust of an Englishman against someone who may have been an Anglophile in his youth (prior to World War I), but who was very different in his maturity and old age.27

26 Later, when Lionel Robbins (1955) was to suggest that he disputed Schumpeter’s ranking Walras ahead of Ricardo, I think that Lord Robbins missed the underlying point. Ricardo’s substance was based squarely on a Benthamite pedestal displaying at best only one limited aspect of human frailty-cum-choice, while Walras’s substance was based on the greater foundation of mathematical logic and the Cartesian perception of cosmic system.

27 The pastoral reference is to the last time when Schumpeter and Robbins met; it was ‘a lovely day in June [in the middle 1930s]…and, as we glided down the Thames between Twickenham and Datchet, I can still see him, cheerfully ensconced in the prow of our ship, surrounded by the eager spirits of the day, Nicky Kaldor, Abba Lerner, Victor Edelberg, Ursala Hicks-Webb, as she then


Somewhat later on, Mark Blaug was to put this line of criticism in a different way, but with much more precision and clearly more bite. In his authoritative statement-cum-textbook (1962, etc.), Blaug takes most of Schumpeter’s assertions about what he set out to do and then measures them against what he actually did. Of course, it was the same with Schumpeter as with many others: the reach was greater than the grasp. Most importantly, Blaug struck at Schumpeter’s belief that ideology could be separated from science. But Blaug’s blow, unlike Ronald Meek’s (to which we will come shortly), was not aimed with the view that one’s directions are shaped by one’s environment; rather, where Schumpeter asserted that in the making of theory, particularly when it dealt with statistical factual observation, one could strip from the science one’s ideological commitments, Blaug asserts that the stripping occurs when one sees the results of the true scientific applications only after testing the constructs under differing conditions. Blaug, something of a Popperian, is also something of a logician; and between the two, Blaug fashions his measuring rod. Blaug, like Schumpeter, does not suffer from observable doubt; nonetheless, in my judgement, he offers, scattered throughout his book, the most penetrating, detailed analyses of Schumpeter’s treatise.

4.4 Another critical attack came, as one might expect, from the Marxian corner, in the person of Ronald Meek. Published in the Scottish Journal of Political Economy in 1957, Meek’s essay, ‘Is Economics Biased? A Heretical View of a Leading Thesis in Schumpeter’s History,’ attacks frontally Schumpeter’s problem of separating science and ideology, and in so doing turns to the thorny issue of whether the filiation of ideas invariably leads to progress. Meek understands Schumpeter’s fascination with Marxism, but insists that it was so endowed with a visceral distaste for Marx that Schumpeter was rendered unreliable in making his judgements. Marx had argued that economics was making scientific progress until the 1830s and then went off on a bourgeois kick.

Marxians argue, writes Meek, that during the Patristic-Scholastic phase the writings tended to identify what prices ought to be; during the Neo-Scholastic-Mercantilist phase the writings tended to explain why things sold at the prices they did, and in the classical stage the writings tended to identify the competitive equilibrium and the amount of labor power consumed in the manufacture of goods. Schumpeter, by contrast, thought that the Patristic-Scholastic writers had developed a theory of utility and scarcity. What emerged afterwards contained much side-tracking as well as clear error.

Meek’s argument is most clearly appreciated when it comes to consideration of marginal analysis, something which Schumpeter thought was real science and ideologically neutral. Meek thinks that marginal analysis reflects the nexus between men (the producers) and goods, whereas the earlier classical analysis reflected the nexus between men (the workers) and the owners. Consequently, there was no great advance with the advent of marginal analysis; if anything, it led to the examination of things other than what was important—namely social relationships and the production process.



It is when Schumpeter is dealing with authors whose analytical quality he rates highly and whose economic analysis constituted a complex and coordinated system that he rises to his highest level in his book. His reports of these systems are magnificent feats of summarization. In outlining the analytical framework of these systems, moreover, he brings clearly into the light the fullness of their achievement and enables us to read these authors henceforth with deeper understanding and appreciation. It is the substantial portions of the book which he devotes to exposition, appraisal, and praise of the economic analysis of Cantillon, Quesnay, Marx, Jevons, Menger and Böhm-Bawerk, Cournot, and Walras—and less enthusiastically, Adam Smith, Marshall, and Fisher—which constitute its most valuable contribution. Nowhere else, I think, in the literature of our discipline, can one find, within comparable limitations of space, as brilliant, and as self-effacing, exposition by one economist, himself a master, of the analytical achievements of other economists.

(p. 899, emphasis added). The foregoing is not presented as though Viner did not have major disagreements, which are presented logically and comprehensively. I still find Viner’s case against Schumpeter’s treatment of Ricardo the best yet.

4.6 Limitations of space preclude any more than the merest reference to O.H. Taylor’s (Schumpeter’s colleague who regularly had taught the History of Economic Thought at Harvard) generally laudatory review in the Review of Economics and Statistics, or G.B.Richardson’s critical and laudatory essay in the Oxford Economic Papers, or of a 1956 general review essay (containing other books as well) by V.W.Bladen in the Canadian Journal of Economics and Political Science.

I am left, however, to report just one additional criticism, to be found in Arnold Heertje’s biography of Schumpeter in The New Palgrave.

Reading Schumpeter, one realizes that his lasting significance stems from historical description and non-mathematical theoretical analysis. His inability to put his ideas about the development of economic life into a mathematical form may eventually change our assessment of him. But whatever the final evaluation of Schumpeter may be, it cannot be denied that he gave new direction to the development of economic science by posing some entirely new questions. Schumpeter’s preoccupation with the dynamics of economic life broke the spell of the static approach to economic problems.

Throughout his life Schumpeter was an enfant terrible, who was always ready to take extreme positions for the sake of argument, and often seized the chance to irritate people. But he was also a giant on whose shoulders many later scholars contributing to economic science stood. As


(Heertje, 1987, at p. 266).


5.1 What is outstanding in this work in my estimation is first the scope of Schumpeter’s vision and secondly the evidence of breadth of execution. I believe that since its publication, two, perhaps three, other books offering a vision of comparable (but not necessarily of equal) scope have appeared. They are works by Ben B.Seligman (1962), Wesley Clair Mitchell (1967, 1969), and Karl Pribram (1983). The latter two were also published posthumously, but the material they were based upon was more complete than was the case here.

5.2 The Seligman book studies the history of economics from the standpoint of an increasing emphasis on analytical (meaning generally geometric and algebraic) technique. As a study, I think it reflects a dismay (perhaps even a disillusionment) about the directions that economics has taken, particularly since the dominant influence of Paul A.Samuelson’s 1947 The Foundations of Economic Analysis. It is a readable book, but its vision is narrowly reactive, and I think that the mere mention of it suffices for our purposes.

5.3 The Mitchell study, Types of Economic Theory: From Mercantilism to Institutionalism, on the other hand, is magisterial. In its form it is a well-revised transcript of a student’s shorthand transcription of several sets of Mitchell’s lecture notes by Joseph Dorfman, the noted historian of American economics.28 Mitchell’s approach, reduced here almost to the point of triviality, is an interpretation of how economic thinking mirrored society’s adaptation principally to the phenomena of modern (post-Industrial Revolution) industrialization and modern industrialized urban life.29 Economic theory, in Mitchell’s mature and considered judgement, was essentially a set of somewhat idiosyncratic explanations by a group of bright economists seeking to explain in terms familiar to themselves empirical phenomena associated with the aforementioned social processes. In common with Schumpeter, Mitchell thought theory was about meanings, usually of observable phenomena.

5.4 I believe that Pribram’s book, A History of Economic Reasoning, is another example of a magisterial interpretation. Pribram’s approach, also reduced to something


I have not included any discussion of Dorfman’s five-volume encyclopedic masterpiece, The

Economic Mind in American Civilization, principally because it deals only with the evolution of

thought within a geographically determined framework. Nonetheless, it serves as the prototypical factual summary of the evolution of the discipline.


Mitchell, himself, did not focus consciously on the process of modern urbanization, but I believe that a sophisticated reading of what he covered also included that phenomenon, even if not consciously articulated.


empiricism. Such was the problem faced by Aristotle in contemplating Plato’s essences; such was the problem faced by the Franciscan, Roger Bacon,30 in facing the Dominicans and what later became the Cartesian influence; such was the division between the 19th-century Kantians and the Hegelians, the division between the Communists and the Fascists during the 1930s, and such has been the division between the internationalists (the American post-World War II Free Traders) and the ‘autarkic nationalists’ (meaning the Keynesian-influenced British).

5.5 What Schumpeter offered in the History of Economic Analysis, again reduced to something almost approaching triviality, is the view that understanding economic phenomena, after abstracting what one understood from ideological preferences, depends in large part on the epistemological methods one employs, but that each of these methods has its own historico-sociological experience. He came, particularly in his later years, to the view that one has to appreciate the way that what one borrows affects whatever one has. As I interpret this point my example is that in employing the calculus, economists borrowed a method originally designed for physical mechanics, and that the physics discipline’s fascination with explaining the equilibrium of forces was translated in economics into a fascination with a static equilibrium, not at all suited for a process which was essentially biological, organic, and ever-mutating.31 When Schumpeter wrote of dynamic general equilibrium he had in mind something quite different from a ‘Newtonian’-Golden Fleece. Pribram, also educated at the University of Vienna (he was von Wieser’s principal assistant), like Schumpeter expressed the view that British and American economics was seriously constrained by the influence of Benthamite utilitarianism.

5.6 I come now to my own principal criticism of what Schumpeter offered us, namely his vision. Blaug’s careful reading of what Schumpeter promised and what he delivered shows that they were not the same. Query, if one is the more important than the other, is the delivery necessarily the basis for the ultimate assessment? If so, then one does not understand the unique place of visions. But, will any dream do? Not likely! What sets Schumpeter’s dream above the others’ is the multiplicity and complexities of its parts.

But, assuming that Schumpeter sought to offer a vision, how can his vision be judged? Hayek, in some senses a product of the same Viennese Gymnasium-mold which produced Schumpeter, offers the beginnings of an interesting comparison and ultimate criticism.


Perhaps because I am better versed in English secular literature than I am in Latin theological literature, I prefer as the prototype not Roger Bacon (1214–94) but Francis Bacon (1561–1626).


There are several ways of viewing the process of looking for equilibrium. One, the Newtonian, is

determinate: if Jupiter wobbles, one can ultimately not only figure out why, but should be able to

confirm the source through cognition (albeit with a better telescope). The second one, which can be termed agricultural, postulates that by controlling the inputs, the outpt can be determined within limits (e.g. change the temperature, and the tomatoes will come to market sooner or later). The third approach, the Shackelian, suggests that there is no way to determine equilibrium; in the struggle between well-matched adversaries there is no way to predict whether there will be an outcome, much less what it involves.


doubt politely) that Schumpeter had it wrong.

But Hayek’s enthusiasm for the individualism-utilitarianism paradigm, emphasizing in his economics the centrality of Mandeville (Hayek, 1967a), Smith, J.S.Mill and personal liberty, brings to my mind the question of various possible alternative paradigms. I mention but three: the centrality of scarcity, the centrality of uncertainty, and the centrality of essential (i.e. stable) moral imperatives (i.e. values).

As we have seen, Schumpeter rejected the paradigm of individualism-utilitarianism (and personal liberty). He did not seriously consider the paradigm of uncertainty. But, in the absence of any other specification, it seems to me he was groping for some paradigm of fundamental social morality. He was easily sidetracked, and spent too much effort decrying ideology (although he never decried theology).

Ronald Meek noted in his Marxian interpretation that prior to the classical tradition, economics dealt with social (by which I suspect he might have meant stable imperatives) issues32 like the relationship between workers and their lords. He went on to say that during the classical period that paradigmatic interest shifted away from a historically appropriate discussion about classes, people and social organization to an historically inappropriate nexus between producers and goods. My suggestion is that the vision that Schumpeter really sought was one involving something akin to a theological paradigm— integrating fundamental, non-changing, ethical and social values and the dynamic workings of an evolutionary economy.

By fundamental human and social values, I mean an absolute, true system which was exogenous to time and place. It was for this reason that so much of Schumpeter’s interest focussed on medieval writers and Natural Law, but his own remarriage after his divorce alienated him from the religion of his ancestors. Loring Allen asserts that while Schumpeter seemed to believe that conventional religious beliefs were for mortals lesser than he, he became increasingly mystical as he grew older—to the point of writing to and talking with his dead mother and his dead second wife (Allen, 1991, I, pp. 223–7; II 58– 9). My own assessment differs from Allen’s, who like many modern scientists offer their discussions and judgements of concepts of religion and religiosity on narrow, somewhat formalistic and institutionalized planes. Schumpeter, in my view, had a strong religious nature, albeit one not categorized among the ‘going-organized’ religions. His second marriage after a divorce may have put him outside of the Roman Catholic flock, but his devotion to the souls of his dead mother and second wife are considerable evidence that something of his earlier religious conditioning remained.

When he was a younger man he had thought of science as furnishing answers covering all topics. By the time he had gotten to this work, he had less faith in science (note his bow to Hayek’s crusade against Scientism: Schumpeter 1954, p. 17), replacing it with an interest in historical sociology. My point is simply that his sense of vision, great by comparative standards, was nonetheless admittedly incomplete. On the one hand there was from his religiosity a sense of timeless all-encompassing truth which included but transcended science, for science was the name given to marvelous sets of analytical tools,



the bodies of material, including methods of exposition, relating to ever-changing societies.

I think there was genius in Schumpeter’s linkage of science and greater truth, but he knew of a flaw as well. He was aware that scientific advance in one area not only could be translated to work in other areas, but that in the process mor was transferred than merely the scientific method. The original area had its own Gestalt, and the transference often brought along pieces of that original Gestalt, which could be essentially alien to the new area. Newton, one of the inventors of the calculus, was a physicist interested in mechanics and therefore concerned with equilibrium. Economists, appreciating the potential of the calculus, often were unaware that they were applying a physics-derived technique to a socio-biological type discipline, where the one important truth was not equilibrium but constant mutation.33

Thus, I conclude that Schumpeter wanted a vision which embraced and bound together the permanent and exogenous with the sociological-transitory and indigenous, and he failed to find it. Had he chosen to build on the American Institutionalist writers like Commons and Mitchell as exemplars of the sociological-transitory with their inability to find the timeless truth, he could have shown the dilemma from the non-‘theoretical’ side.34 Unlike many of the theorists of his time, Schumpeter expressed some, if limited, respect for what they were trying to do; but, he did not go on to say what should have been said: (a) that they did not see beyond the Hobbes-Locke individualist-utilitarian paradigm, and (b) that their ignorance of Pareto’s work on non-rational systems made their work far more barren theoretically than it should have been.

Perhaps had Schumpeter lived longer, he might have tidied up his presentation. But, as it was published, it is that incompleteness of his vision, rather than Blaug’s ‘inadequate-delivery’ criticisms, which is the critical one. Like many Old Testament figures, Schumpeter was magnificent, but flawed; like them, he had a great vision, but only of less than perfect proportions. As with Einstein, Schumpeter failed to find his unified theory, but like Einstein he believed that there must be one somewhere.

I once described the Schumpeter, Mitchell and Pribram treatments thus:


This is Perlman’s example, not Schumpeter’s. But, I have found it pedagogically useful when explaining how Schumpeter’s broader vision as put forth in Part I of the HEA went beyond the earlier lesser vision found in EDM.


Schumpeter’s neglect of the American Institutionalists may have had any number of causes: (1) His department at Harvard was divided between the ‘mid-westerners’ and the ‘Europeans.’ He was a principal among the latter, and his Harvard ‘mid-western’ colleagues were, by and large, Institutionalists. (2) Part of the ‘in-snobbery’ or ‘intellectually-correct’ professional posturing of that and many other periods was to deprecate sociology and historico-political analysis. (3) He might have gotten around to this material had he lived longer. (4) Not having read the material in detail or having had the time to integrate it (the Institutional writers were poor at integration), Schumpeter concluded (I would say erroneously) that the American Institutional analysis was likely provincial or perhaps, if one wanted to be generous, pretty much limited to societies embracing the Utilitarian paradigm.


one can be authoritative without always being accurate…. To be magisterial is to be authoritative, and each [of the three authors, Schumpeter, Mitchell, and Pribram] achieves magisterial status because of the distinctive and comprehensive originality of…perception of intellectual evolution, rather than of chronological scope, accuracy, even polish.

(Perlman, 1986, p. 9) Schumpeter’s was the bravest of those visions; the most comprehensive of those dreams.

Why? Because, as Robbins and virtually everyone else wrote, Schumpeter had read more, more widely, and more imaginatively than had any of the others. In the words of Viner:

This is a book written in the polymath manner by perhaps the last of the great polymaths. …Schumpeter did possess learning and skills manifestly exceeding in range those displayed by any other economist of his or our time, and that in this book he applied these endowments to the enlightenment of his readers with a brilliance and a virtuosity which excite and dazzle even when they fail wholly to persuade.

(1954, p. 894)


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