Abstract
The paper discusses the silimar, but in some respects different explanations of business cycles by Schumpeter and Arthur Spiethoff, his elderly friend and colleague. Spiethoff brought Schumpeter back into academics after the latter’s not very successful careers as a politician and a banker. Both insisted that cycles are endogenous and cannot possibly be eliminated without eliminating the dynamismof the capitalist economy. They thought that theoretical and historical studies were not mutually exclusive, but complementary. The gulf separating pure theory and historical studies since the so-called Methodenstreit was detrimental to the development of economics.
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Notes
Salin (1951: 159 and 157) evaluates Spiethoff’s work as a “full and living amalgamation of rational and historical theory”. Spiethoff is said to have been keen to bridge the gap between the “observational” (anschaulich) and the “rational” point of view (ibid.: 188–9). (Unless otherwise stated, translations from German texts are mine.)
In the preface to the English version of his essay on “Krisen”, Spiethoff stresses that “Unfortunately there is no generally accepted name for this method. Some call it ‘empirical-realistic’, others ‘concrete’, yet others ‘observational’ (anschaulich)” (Spiethoff 1953: 75).
He defined such styles in terms of five characteristics: economic spirit, natural and technical basis, economic constitution, social constitution and dynamism; see Schefold (1994).
Interestingly, Spiethoff was the only editor of a German economic journal whom the Nazis in 1933 permitted to stay in office. There is evidence that Spiethoff was also responsible for severe changes in an article by Keynes on “National Self-Sufficiency” that appeared in German in Schmollers Jahrbuch in 1933, changes obviously designed to please the Nazis. In a letter to Spiethoff Keynes protested against what he called “pure concessions to barbarism”, but in the end grudgingly accepted the publication of the distorted text. In regard to this event Borchardt speaks aptly of “cooperative self-censorship”. For details, see Borchardt (1988) and Hagemann (2008: 78–9); see also McCraw (2007: 288). Christian Scheer has drawn my attention to two interesting works: Höpfner (1999: 253–4) argues that Spiethoff cooperated with the Nazis in the hope and expectation that they would foster the revival of historicism. Blesgen (2001) provides additional evidence regarding the German “translation” of Keynes’s paper. He shows that Spiethoff, instigated by his brother, a professor of dermatology and member of the NSDAP, sent the correspondence with Keynes to the director of the Foreign Office of the Nazi party and proposed to reply harshly to Keynes’s accusations in Der Völkische Beobachter, the Nazi propaganda paper.
As early as February 1926 Schumpeter wrote to Gustav Stolper that the monitoring of business cycles published since January of the same year in Der Wirtschaftsdienst based on Spiethoff’s theory involved a big step forward (see Schumpeter 2000: 107; similarly: 123–4).
Schumpeter (1939: 224–5) basically agrees: “it is not only true but obvious that before and even during the eighteenth century crops, wars, plagues, and so on were absolutely and relatively very much more important. The impact of innovation will evidently be felt differently in a small capitalist milieu which is surrounded by a noncapitalist world of much greater quantitative importance, little affected by what happens in the former and acting as a cushion.” See also Schumpeter (1939: 254).
The idea of a co-evolution of both economic style (or “mode of production”) and cycle is foreshadowed in Marx.
This idea is foreshadowed in a letter to Spiethoff dated 8 January 1931, composed shortly after the foundation of the Econometric Society in Cleveland (see Schumpeter 2000: 183–4). He also stresses that to him “trend analysis” was becoming “more and more a quantitative theory of evolution” (ibid.: 184; emphasis added). (The idea of an “evolutionary schema” recurs in a letter written on 22 April:1949; see ibid.: 374.) See in this context also his letter to Wesley Clair Mitchell of 6 May 1937, in which Schumpeter informs him that “the longest cycle of my schema I call the Kondratieff.” For the U.S., the U.K. and Germany he dates the Kondratieff’s as follows: “1782–1842, 1843–1897, 1898–?.” This is said to agree “roughly, though not entirely,” with the periodisation suggested by others, including Kondratieff and Spiethoff (Schumpeter 2000: 301–302; for differences between them, see Schumpeter 1939: 164–5, 471n. and 475n.). On Spiethoff’s periodisation, see Haberler (1939: 272–4).
Employment and income are not counted among the relevant characteristic facts. They are considered derived facts.
To Spiethoff the circular flow or general equilibrium was a purely fictitious state; the actual system was never in such a state.
The first edition of the Theorie does not yet contain the disagreement, although Spiethoff’s papers to which Schumpeter refers were published two years earlier.
The question of which indicator should be used in order to forecast the economic development was one of the points in dispute between Spiethoff and several of his colleagues, including Ernst Wagemann, founder of the Berlin Institut für Konjunkturforschung (Institute of Business Cycle Research) in 1925; see Kulla (1996: 115–121).
Spiethoff was anticipated in this regard by Tugan-Baranovsky, who had investigated iron production in England over the cycle and had identified it as the leading sector (see also Spiethoff 1903, Hagemann and Landesmann 1998: 98–104 and Beckmann 2005). In his critical discussion of Marx’s analysis, Tugan had assumed with Marx a system composed of three departments, with department I producing means of production, department II wage goods and department III luxuries, on which capitalists live. Means of production, represented by iron, enter directly each department, wage goods enter each department via the employment of workers, whereas luxuries are pure consumption goods and are nowhere needed as inputs.
The mechanism Spiethoff sees at work is similar to the one contemplated by Richard Goodwin in his famous Marx inspired predator-prey model.
As several financial crises in more recent times, including the current one, show, Spiethoff was unduly optimistic in this regard. Speeding up the flow of information may also increase the vulnerability of the financial system.
Spiethoff’s idea of disproportionalities derives from Marx and Tugan-Baranovsky; he actually illustrates it with the help of Marx’s schemes of reproduction.
Some of Spiethoff’s reasoning may be said to foreshadow somewhat Irving Fisher’s concept of debt deflation.
The question of whether or not the business cycle is obsolete has cropped up repeatedly in the history of economics; see, for example, Bronfenbrenner (1969) and the recent talk about the “Great Moderation”.
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Acknowledgments
I am grateful to Ingo Barens, Daniele Besomi, Stephan Böhm, Knut Borchardt, Kurt Dopfer, Christian Gehrke, Harald Hagemann, Geoff Harcourt, Ulrich Hedtke, Hauke Janssen, Heinz Rieter, Christian Scheer, Bertram Schefold and Christian Seidl for useful comments on an earlier draft of this paper. Any remaining errors and omissions are, of course, entirely my responsibility.
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Kurz, H.D. The beat of the economic heart. J Evol Econ 25, 147–162 (2015). https://doi.org/10.1007/s00191-013-0329-1
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DOI: https://doi.org/10.1007/s00191-013-0329-1
Keywords
- Business cycle
- Creative destruction
- Economic development
- Economic dynamics
- Innovation
- Historical School
- Schumpeter, Joseph
- Spiethoff, Arthur