Abstract
Joseph A. Schumpeter and Ludwig von Mises were both Austrian-born economists, both were students of Böhm-Bawerk and von Wieser, yet whether they both may be classified as ‘Austrian economists’ is a controversial issue. This paper takes a closer look at the mixture of commonalities and disagreements in their writings that have given rise to the ambivalent assessments of their ‘Austrian’ credentials.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Mises (1978a: 39f.) reports on the seminar that “the discussion between Bauer and Böhm-Bawerk filled the whole winter semester. Bauer’s brilliant intellect was very impressive; he was a worthy opponent of the great master.”
Böhm (1990: 209) speaks of “Mises’ lifelong crusade against everything that smacked of socialism” and “his uncompromising championship of libertarianism.”
To his above quoted view on the differences between Mises and Schumpeter, Hayek (1992: 157) adds the comment: “In fact, it appeared to me as if these two most important representatives of the third generation of leading Austrian economists (one can hardly consider Schumpeter a member of the Austrian school in the narrower sense), despite all mutual intellectual respect, both got on each other’s nerves.”
The chapter was published by the Institutum Europaeum, Brussels, under the title “Methodological Individualism.”
Hayek (1992: 160): “Many of his students will be surprised to learn that the enthusiast for macroeconomics and co-founder of the econometrics movement had once given one of the most explicit expositions of the Austrian school’s ‘methodological individualism’.”
A reprint of the 1908 book by the original publisher, Duncker & Humblot, appeared in 1970 (Schumpeter 1970).—On recommendation by Wieser and Böhm-Bawerk the book had been accepted as Schumpeter’s habilitation-thesis at the Unversity of Vienna, even though both, Wieser and Böhm-Bawerk, had some misgivings about its contents (Perlman 2003: 167).—Indeed, as Salerno (1999: 41) reports, “Böhm-Bawerk did not have anything good to say about Das Wesen, because he correctly perceived how profoundly anti-Mengerian its theoretical method was.” Of particular prominence is Böhm-Bawerk’s later controversy with Schumpeter over the nature of interest (Swedberg 1991: 14; Salerno 1999: 41).
According to Perlman (2003: 176) Schumpeter later admitted that “the book caused him much embarrassment.”—See also Swedberg (1991: 31).—About Schumpeter’s 1914 book Perlman (2003: 174) notes that when it “was published, others in the Vienna economics community likely viewed it as Schumpeter’s breaking with the Menger tradition as it had become identified with Böhm-Bawerk.
Schumpeter (1908: 607): “Sagen wir gleich, worum es sich handelt: Um den Anschluss der theoretischen Ökonomie an die technischen Wissenschaften im weitesten Sinne des Wortes.”—See also ibid.: 611ff..
Hayek (1948: 90) notes about Schumpeter’s ‘positivistic’ outlook at economic phenomena: “To him these phenomena accordingly appear as objectively given quantities and commodities impinging directly upon each other, almost, it would seem, without any intervention of human minds.”
As Kirzner (1976: 69) comments: “Whereas his immediate predecessors had been gradually advancing towards the conception of economics as precisely an aspect of human behavior, Schumpeter found it necessary to carefully exclude human activity from economic investigation. Schumpeter’s view of economics was a conscious effort to see economic affairs from the point of view of mechanics. … In economics, Schumpeter explains, we have ‘economic quantities’ of goods undergoing mutually determined changes that admit of being expressed by means of mathematical functions. … It is the existence of these functional relationships between all these quantities that makes economic science possible.”
Swedberg (1991: 15): “In Schumpeter’s eyes, Walras was always ‘the greatest of all theorists’ and he considered Walras’ general equilibrium theorem to be one of the finest achievements ever made in economic theory.”
This is already a theme in Schumpeter’s first book (1908: 614ff.) where, on p. 621, he notes: “Economics as in fact it only exists today provides us with a system, like mechanics, but does not talk about development, like biology” (“die Ökonomik, die wir heute allein wirklich besitzen, gibt uns ein System, wie die Mechanik, erzählt aber nicht von Entwicklung, wie die Biologie”).
Kirzner (1976: 70): “Schumpeter’s outlook is, of course, consistent with his wish to ignore human behavior as a factor in economics. Leaving human behavior to the psychologists, the economist is merely to examine the results of behavior in terms of related variations in the quantities of goods and prices.”
The following quotations from Mises’ Human Action (1949) characterize his view of economics as a praxeological science: “The starting point of all praxeological and economic reasoning is the category of human action” (ibid.: 67). “The scope of praxeology is the explication of the category of human action. All that is needed for the deduction of all praxeological theorems is knowledge of the essence of human action” (ibid.: 64). “Its statements … are, like those of logic and mathematics, a priori.”—For a critical discussion of Mises’ arguments on the aprioristic status of ‘praxeology’ and his methodological views more generally see Vanberg (1975: 85ff.; 2004 158ff.).
The original German article appeared in Archiv für Sozialwissenschaft und Sozialpolitik (Mises 1920). The English translation appeared in F.A. Hayek (ed.) 1935: 87–130.
With this claim Mises begins a follow-up article “New Contributions to the Problem of Socialist Economic Calculation,” originally published in German in 1923. In an editorial footnote to the English version of this article, published in Mises (2002: 351ff.), R.M. Ebeling (ibid.: 351) notes: “In correspondence at the time when this article was in galleys, Mises accused Joseph A. Schumpeter, who was one of the editors of the Archiv, of attempting to change a part of the text without Mises’s permission.”
Mises (1935: 130) explicitly notes that his argument cannot decide the political question of whether or not socialism should be adopted, since it may be defended for other reasons, e.g on “ethical grounds.” But, so Mises (ibid.) concludes his article, “he who expects a rational economic system from socialism will be forced to re-examine his views.”
März (1983: 62) notes in reference to Schumpeter’s (1921) article that at the time it must have come as a surprise to Otto Bauer to get support from somebody whom he used to count within the opposite camp. – In Das Wesen des Geldes Schumpeter (1970: 104) asserts that, “at least as a matter of logic,” rational calculation in the socialist commonwealth is possible (“Wir sehen also, dass rationale Wirtschaftsrechnung … auch im sozialistischen Gemeinwesen, zum mindesten logisch, durchaus möglich ist.”).
Enrico Barone’s article “Il Ministro della produzione nello stato collectivista” appeared in 1908 in the Giornale degli Economisti. An English version, “The Ministry of Production in the Collectivist State,” has been published in F.A. Hayek (ed.) 1935.—In his History of Economic Analysis Schumpeter (1954: 987ff.) comments on Barone’s contribution: “Barone’s performance consists in a nutshell in this: after having presented on Walrasian lines the system of equations that describes economic equilibrium under conditions of pure competition in a private-property economy he wrote down the analogous system of equations for a socialist economy of a certain type. … The essential result of Barone’s or any similar investigation is that there exists for any centrally controlled socialism a system of equations that possess a uniquely determined set of solutions, in the same sense and with the same qualifications as does perfectly competitive capitalism.”
Swedberg (1991: 215) cites a letter to Gottfried Haberler in which Schumpeter notes: “I am not astonished that you begin to find fault with the Mises-Hayek theory. What I was astonished about is that you ever had a taste for it.”
As Kirzner (1981: 54) notes, what Mises’s critics “failed to recognize … was that for Mises the results achieved through market prices are inseparable from the profit-motivated endeavors of competing entrepreneurs that drive the market.”
März (1983: 61) repeats the myth when he comments on the Austrians’ response to the Barone-line of argument: “Was nun folgte, waren Rückzugsgefechte, die allerdings nicht Mises selbst, sondern hauptsächlich von seinem Jünger, Friedrich von Hayek, bestritten wurden. Die unmittelbare Reaktion Hayeks auf die schon von Barone herrührende Argumentationsführung war die, dass er einem sozialistischen Gemeinwesen wohl die theoretische, aber nicht die praktische Fähigkeit zusprach, seine Ressourcen optimal einzusetzen.”
Summarizing Mises’s views Lavoie (1985: 24) notes: “The entrepreneurial market process … generates the continuously changing structure of knowledge about the more efficient ways of combining factors of production. … There is no way, Mises claimed, in which this knowledge can be generated without rivalry … Market prices are seen as both the consequences of this entrepreneurial rivalry and as the guides … for decisions that are made to achieve a more rational use of scarce resources.”
Even though in his History of Economic Analysis Schumpeter (1954: 987ff.) repeats his arguments why, in terms of Barone’s analysis, “so far as its pure logic is concerned the socialist plan makes sense” (ibid.: 989) he adds there on a more cautious note: “We must not forget that, just like the pure theory of the competitive economy, the pure theory of socialism moves on a very high level of abstraction and proves much less for the ‘workability’ of the system than laymen (and sometimes theorists also) think. … For it is quite possible to accept it (the Barone result, V.V.) and yet to hold that the socialist plan, owing to the administrative difficulties involved or for any other of a long list of reasons, is ‘practically unworkable”’ (ibid.).
Keizer (1997: 91): “Schumpeter’s greatest contribution to economics was his destruction of the static framework of neoclassical orthodoxy. . . . His defense of socialist economics with the arguments of static neoclassical equilibrium theory is therefore paradoxical.”
Quoted in Medearis (2001: 103).
In a footnote Schumpeter (1950: 186) comments on the role of ‘concerted action’: “So far as this is being done in capitalist economies, it is a most important step toward socialism. In fact, it progressively reduces the difficulties of transition and is in itself a symptom of the advent of the transitional stage. To fight this tendency unconditionally is tantamount to fighting socialism.”
Kirzner (1981: 53): “For Schumpeter, in fact, the essence of entrepreneurship is that it consists in disrupting existing equilibrium states.”
About the stage of capitalist development at which the transition to socialism may occur Schumpeter (1950: 178) notes, that it is “important for the success of a socialist society that it should embark upon its career not only as richly endowed as possible by its capitalist predecessor—with experience and techniques as well as with resources—but also after the latter has sown its wild oats, done its work and is approaching a stationary state.”—As Swedberg (1991: 159) comments: “Schumpeter emphasized very strongly that socialism is possible only if the capitalist system has exhausted itself. … The economy now consists of a small number of giant corporations, which run everything in a very efficient but mechanical manner. Entrepreneurs have become ordinary managers and innovations are mainly carried out within the giant corporations.”
As Perlman (2003: 168) puts it, for Schumpeter the specific significance of the innovator-entrepreneur’s role was his ,,coming forth with a product line that was so different as to create a permanent change in the market system, a change that erased the previous efforts at marketisation through equilibrium-focused price adjustments.”
Böhm (1990: 228) notes that Israel Kirzner’s work “represents a consistent elaboration and extension of Mises’ ideas” and that “most of the literature on Mises’ theory of the entrepreneur is really a discussion of Kirzner’s work.”
Kirzner (1979: 128): “For us entrepreneurship is manifested in short-run movements fully as much as in long-run developmental changes, and is exercised by the imitators (who move in to exploit the opportunities exposed by the activities of the innovators) fully as much as by the innovators themselves.”
Such reading my be invited, for instance, when Kirzner (1981: 53) notes that Mises’ and Schumpeter’s positions need “to be sharply distinguished,” when he emphasizes that in the Mises–Kirzner perspective “entrepreneurship is an equilibrating force in the economy, not the reverse” (Kirzner 1979: 115), or when he speaks of the contrast “between Schumpeter’s vision of the entrepreneur as a spontaneous force pushing the economy away from equilibrium and (the Mises–Kirzner, V.V.) view of the entrepreneur as the prime agent in the process from disequilibrium to equilibrium” (ibid.: 112).—See also Kirzner (1973: 81).
In the Misesian perspective, so Kirzner (1981: 54f.) argues, the market process is driven by “the profit-motivated endeavors of competing entrepreneurs … who tend to notice where and how the resources can be reallocated to more socially valuable uses. … It is in this way that the entrepreneurs, besides being responsible for the equilibrating forces in the market, are also the ‘leaders on the way toward material progress’.”
Kirzner (1979: 119): “What Schumpeter’s picture of innovational development fails to explain is that the existence of a possibility is not enough, that a social mechanism is needed to ensure that possibilities are perceived and embraced. Schumpeter fails to show how the nonmarket economy can grapple with this central problem.”—Pointing to the relevance of Mises’ “view of the entrepreneurial market process” for his stance in the socialist calculation debate Böhm (1990: 229f.) notes: “The problem with market socialism, as Mises saw it, is that it does not provide a mechanism for the correction of maladjustments. … Schumpeter turned a blind eye to the need for such a mechanism.”—As Böhm (ibid.: 229) rightly points out, the essential point about the Mises–Kirzner theory of entrepreneurship “is that it aspires to be much more than another view of the role of the entrepreneur; it really is a theory about how a market economy is supposed to work.”
Keizer (1997: 92) points to the paradoxical fact that Schumpeter “spent his energy arguing the case for a static equilibrium theory that his own theories had already demolished.”—In the same spirit Kirzner (1990: 247) comments: “Despite his own fascination with the Walrasian vision, Schumpeter continued to emphasize his appreciation for the dynamics of markets.”
References
Allen RL (1991) Opening doors—the life and work of Joseph Schumpeter, vol 1. Transaction Publishers, Europe, New Brunswick and London
Böhm S (1990) The Austrian tradition: Schumpeter and Mises. In: Hennings K, Samuels WJ (eds) Neoclassical economic theory 1870 to 1930. Kluwer Academic Publishers, Boston, Dordrecht, London, pp 201–241
Caldwell B (1997) Introduction. In: Hayek FA (ed) Socialism and war. Essays, documents, reviews (The Collected Works of F.A. Hayek), vol 10. The University of Chicago Press, Chicago, pp 1–50
Chaloupek G (2003) The second cleavage of the Austrian school: Schumpeter’s German writings on economic systems and economic policy in comparison whit Mises/Hayek. In: Backhaus J (ed) Joseph Schumpeter. Kluwer, Boston, Dordrecht, London, pp 245–260
Festré A (2002) Money, banking and dynamics: the Wicksellian Routes from Mises to Hayek and Schumpeter. Am J Econ Sociol 61:439–480
Hayek FA (ed) (1935) Collectivist economic planning. Routledge & Kegan Paul, London
Hayek FA (1948) The use of knowledge in society. In: Hayek FA (ed) Individualism and economic order. The University of Chicago Press, Chicago, pp 77–91
Hayek FA (1992) The fortunes of liberalism—essays on Austrian economics and the ideal of freedom (The Collected Works of F.A. Hayek), vol 4. The University of Chicago Press, Chicago
Hébert RF (1990) Commentary. In: Hennigs K, Samuels WJ (eds) pp 190–200
Keizer W (1997) Schumpeter’s Walrasian stand in the socialist calculation debate. In: Keizer W, Tieben B, van Zijp R (eds) Austrian economics in debate. Routledge, London and New York, pp 75–94
Kirzner IM (1973) Competition and entrepreneurship. The University of Chicago Press, Chicago and London
Kirzner IM (1976) The economic point of view—an essay in the history of economic thought. Sheed and Ward, Kansas City
Kirzner IM (1979) Perception, opportunity and profit—studies in the theory of entrepreneurship. The University of Chicago Press, Chicago and London
Kirzner IM (1981) Mises on entrepreneurship. Wirtsch Blätter 28:51–57
Kirzner IM (1990) Commentary. In: Hennings K, Samuels WJ (eds) Neoclassical economic theory 1870 to 1930. Kluwer Academic Publishers, Boston, Dordrecht, London, pp 242–249
Lavoie D (1985) Rivalry and central planning. The socialist calculation debate reconsidered. Cambridge University Press, Cambridge
März E (1983) Joseph Alois Schumpeter–Forscher, Lehrer und Politiker. R. Oldenbourg Verlag, München
Medearis J (2001) Joseph Schumpeter’s two theories of democracy. Harvard University Press, Cambridge and London
Mises L. von (1920) Die Wirtschaftsrechnung im sozialistischen Gemeinwesen. Archiv Sozialwissenschaft und Sozialpolitik 47:86–120
Mises L. von (1923) Neue Beiträge zum Problem der sozialistischen Wirtschaftsrechnung. Archiv Sozialwissenschaft und Sozialpolitik 51:488–500
Mises L. von (1935) Economic calculation in the socialist commonwealth. In: Hayek FA (ed) Collectivist economic planning. Routledge & Kegan Paul, London, pp 87–130
Mises L. von (1949) Human action—a treatise on economics. Yale University Press, New Haven
Mises L. von (1978a) Notes and recollections. Libertarian Press, South Holland
Mises L. von (1978b) The ultimate foundations of economic science—an essay on method, 2nd edn. Sheed Andrews and McMeel, Kansas City
Mises L. von (1990) Money, method, and the market process. Essays by Ludwig von Mises. Selected by Margit von Mises. Edited with an introduction by Richard M. Ebeling. Kluwer, Norwell
Mises L. von (2002) Selected writings of Ludwig von Mises. In: Ebeling RM (ed) Between the two world wars: monetary disorder, interventionism, socialism, and the great depression. Liberty Fund, Indianapolis
Perlman M (2003) Schumpeter and schools of economic thought. In: Backhaus J (ed) Alois Schumpeter. Kluwer, Boston, Dordrecht, London, pp 163–178
Salerno JT (1999) The place of Mises’s Human Action in the development of modern economic thought. Q J Austrian Econ 2:35–65
Schumpeter J (1908) Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie. Duncker & Humblot, Berlin
Schumpeter JA (1921) Sozialistische Möglichkeiten von heute. Archiv Sozialwissenschaft und Sozialpolitik 48:305–360
Schumpeter JA (1950) Capitalism, socialism and democracy. (orig. 1942). Harper & Row, New York
Schumpeter JA (1954) History of economic analysis. Oxford University Press, New York
Schumpeter JA (1970) Das Wesen des Geldes. Vandenhoeck & Ruprecht, Göttingen
Swedberg R (1991) Joseph A. Schumpeter—his life and work. Polity Press, Cambridge
Vanberg V (1975) Die zwei Soziologien. Individualismus und Kollektivismus in der Sozialtheorie, Tübingen
Vanberg VJ (2004) Austrian economics, evolutionary psychology and methodological dualism: subjectivism reconsidered. Advances in Austrian Economics 7 (on Evolutionary Psychology and Economic Theory, ed. By R. Koppl), pp 155–199
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Vanberg, V.J. Schumpeter and Mises as ‘Austrian Economists’. J Evol Econ 25, 91–105 (2015). https://doi.org/10.1007/s00191-013-0330-8
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00191-013-0330-8