Abstract
This paper compares the essential theoretical works of Joseph Schumpeter and Richard Goodwin. Though it also describes some biographical details of their overlapping lifetimes, the main focus is on the relation between their theoretical contributions. It is concluded that their role as theoretical mavericks challenging mainstream economics mirrors the methodological approach of evolutionary economics: progress needs the singular and unconventional challenge of innovators. Their long-lasting influence still is exerted by the scholars they influenced during their last period of activity. As well as showing several similarities the paper also discusses the essential differences between Schumpeter’s and Goodwin’s theoretical positions – in particular with respect to the works of Marx and Keynes.
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Notes
Still an assistant professor at Harvard, Richard Goodwin in private lessons tried to teach Schumpeter some mathematics. Though Schumpeter was extremely fond of mathematics Richard Goodwin once told me that he was a very untalented pupil. When Goodwin later tried to get tenure at Harvard Schumpeter strongly supported him, but failed – Goodwin left Harvard in 1950 and went to Cambridge (England).
As Schumpeter remarks, what he and Karl Marx have in common is to aim on theories derived from ‘Tatsachenbeobachtung’, from empirically observed facts. Compare (Schumpeter 1964 (1911), p. 196).
See (Hanappi 2003) for a more detailed treatment of Schumpeter’s position as an Austrian Economist.
The Theresianum is an Austrian Gymnasium, which in the 19th century could only be attended by children of the nobility. It provided a classical humanist education and less mathematics. Throughout his life Schumpeter admired the use of mathematics and regretted not to be able to use it adequately. Indeed Schumpeter was just the second pupil without noble descent allowed to attend the Theresianum – after his later teacher Böhm-Bawerk, who was the first.
Note that this is similar to the way in which Schumpeter glued together Marx’ and Walras’ older ideas (inventions) to produce his theoretical innovation. See [Hanappi and Hanappi-Egger 2004] for a detailed look on the innovation process.
To name just a few: Paul Samuelson, James Tobin, Richard Musgrave, Abram Bergson, Erich Schneider, Paul Sweezy, John Kenneth Galbraith – and Richard Goodwin.
Samuelson’s style of writing (and in particular of giving talks) reflected Schumpeter’s style: vivid, sharp, to the point, and always with a hint on a broader context. Just the superior mathematical skills of Samuelson differed markedly from Schumpeter’s possibilities.
I met Richard Goodwin several times, first when I was a student in a seminar Goodwin gave as visiting professor in Vienna in 1985 and later at workshops and conferences in Siena.
For the general political climate in the United States during these years Schumpeter’s drive to diversity was already suspicious: As much later was discovered, the Secret Service had a close watch on Schumpeter and spied out and documented each move, each letter he wrote or received.
When Goodwin was 16 years old the Great Depression was throwing the United States into a crisis that made any equilibrium-oriented economic theory look ridiculous. The necessity of a revolution or at least a fundamental redesign of market mechanisms that went far beyond Roosevelt’s block-busting efforts was evident.
The first approach to do that was the work of Paul Samuelson, Schumpeter’s other assistant, who set out to provide exactly that [Samuelson 1947].
In Goodwin’s case the tag ‚Marxist‘amplified this hostility. He once told me that the only appointments in the United States that were offered to him were teaching banking in universities in the Mid-West, because ‘with this dry subject even a Marxist can do no harm in the Mid-West’. Goodwin laughed and added: ‘They didn’t know.’. Nevertheless this never happened.
The one closest to him probably was Vela Vellupillai, see Velupillai’s obituary of Schumpeter [Velupillai 1996]. This, of course, is a topic which is hotly debated since more than hundred years (see e.g. (Weintraub 2002) or (Hendry 1980)). Another outstanding formal field related to innovation processes was game theory, see (Hanappi 2013).
As Nathan Rosenberg highlighted (see (Rosenberg 1994)), Schumpeter wanted to provide a picture of capitalism that Goodwin now with his modelling capabilities promised to build: ‘I felt very strongly that … there was a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained. If this is so, then there must be a purely economic theory of economic change which does not merely rely on external factors propelling the economic system from one equilibrium to another. It is such a theory that I have tried to build …’ (Schumpeter cited in Rosenberg (1994, p.42))
When Schumpeter towards the end of his life was asked which of the parts of his holistic approach he considers to be the most important one, he had a clear preference: economic history.
Goodwin writes: ‚By contrast the profit rate is equal to 1-u (u is the share of wages, H.H.) and therefore tends to constancy. We may look at this as standing Ricardo (and Marx) on his head. … Hence it (labor, H.H.) is the sole ultimate beneficiary from technical progress. By now there would, I suppose, be considerable agreement that what happened in history is: wage rates went up, profit rates stayed down. It is to the explanation of this that the present paper is addressed.’ (Goodwin 1967)
This attitude, namely to have the side of a bon-vivant, is also a feature he shared with Joseph Schumpeter; though they cultivated different tastes.
In the only book that Nobel-Prize winner Paul Krugman devoted to evolutionary economics, (Krugman 1996), he emphasizes the importance of Goodwin and regrets that these non-linear dynamic approaches to macroeconomics have not been further developed since.
The first version of John von Neumann’s model was published in 1938 in German with the title “Über ein ökonomisches Gleichungssystem und eine Verallgemeinerung des Brouwer’schen Fixpunktsatzes”. It is included in a volume called “Ergebnisse eines mathematischen Seminars” edited by Karl Menger (Menger 1938).
Von Neumann in his short paper mostly remains in the domain of advanced analytical mathematics, while Sraffa in his book uses an extreme form of a highly structured sequence of 96 statements (evidently resembling Wittgenstein’s Tractatus). The formal difference could hardly be stronger.
Goodwin’s youthful verve during his last years in Siena impressed us all. One could see him driving his sports car, a cabriole, with his long white hair waving on his way from the University of Siena through the vineyards of the Tuscany towards his picturesque home, where he spent his life with oil painting, economic theory building, and wine tasting.
Schumpeter could not publish the fruits of his last years of research. His ‘History of Economic Analysis’ was published by his wife after his death only (Schumpeter 1982 (1954)).
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Hanappi, H. Schumpeter and Goodwin. J Evol Econ 25, 277–291 (2015). https://doi.org/10.1007/s00191-014-0390-4
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DOI: https://doi.org/10.1007/s00191-014-0390-4