Heterogeneity of habits as a foundation for Schumpeterian economic policy

Abstract

In this paper, we highlight the heterogeneity of agents in Schumpeter’s theory. Because of its centrality in Schumpeter’s theory, we argue that agent heterogeneity should also be a key element for economic policy informed by Schumpeter’s theory. Schumpeter considered agents’ habits as a particularly important source of heterogeneity. We show how Schumpeter’s notion of habits is closely related to modern work on habits, and draw on recent research to elaborate theory that can provide the foundation for Schumpeterian economic policy. We argue that heterogeneity of habits can be a crucial building block and foundation of Schumpeterian economic policy: it offers a target for policy interventions that is different from incentives or information. This target is potentially as powerful as incentives or information, which only influence intentions rather than influencing behavior directly.

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Notes

  1. 1.

    After Schumpeter’s time, heterogeneity of agents has been discussed and incorporated in the economics literature, for instance in the course of the endeavor of lifting the representative agent assumption and of trying to show that heterogeneity (e.g. regarding the income of agents) could produce stability of economic equilibrium (Hildenbrand 1983, 1994). A further stream of research introduced heterogeneity in habits in macroeconomic models (Abel 1990; Constantinides 1990; Campbell and Cochrane 1999; Lettau and Uhlig 2000; Boldrin et al. 2001; Ravn et al. 2006), while other research introduced heterogeneity in beliefs in economic models, for instance, in finance (see Hommes 2013, for an overview). As these examples show, heterogeneity has entered the economics literature in several ways since Schumpeter wrote, confirming the important role that Schumpeter awarded the topic.

  2. 2.

    The notion of habit did, of course, not originate with Schumpeter. Classic authors of Antiquity such as Epictetus as well as Aristotle already mention habit. For a review on the concept of habit and its history, see Camic (1986).

  3. 3.

    The idea of habits as drivers of entrepreneurs’ behavior was already contained in Schumpeter (1911) – even though the idea of personality types heavily overlaid it in the book. In Schumpeter’s reply to Böhm-Bawerk’s (1913) critique of his 1911 book that Schumpeter had focused only on extreme cases of the entrepreneur, Schumpeter (1913: 632) already softened up the idea of inborn personality types by arguing that there is a gradual transition between the two types.

  4. 4.

    Similar ideas were later invoked by authors such as Selznick and Cohen in the notion of character as a bundle of dispositions, e.g. Birnholtz et al. 2007.

  5. 5.

    Schumpeter also used the related term ‘routine’ (Becker et al. 2006).

  6. 6.

    While the term habit refers to the individual level, the term organizational routines refers to the group level (Dosi et al. 2000; Hodgson 2008; Winter 2013). Accordingly, organizational routines are ‘organizational dispositions to energize conditional patterns of behavior within organizations, involving sequential responses to cues that are partly dependent on social positions in the organization’ (Hodgson and Knudsen 2010: 140). Such dispositions then give rise to ‘repetitive, recognizable patterns of interdependent actions, carried out by multiple actors’ (Feldman and Pentland 2003: 95). Organizational routines are built from individual-level habits (Cohen and Bacdayan 1994; Cohen 2007; Hodgson and Knudsen 2010; Winter 2013).

  7. 7.

    The original text in German is as follows: ‘Erfahrung und Analyse vereinigen sich uns zu lehren, dass die Veränderungen des Kreislaufs, soweit sie aus der Wirtschaft selbst heraus geschehen, Übergänge also von einem Kreislauf zum anderen, ein Problem sui generis sind, das besonderer theoretischer Einstellungen bedarf; dass wir dabei auf neue, d.h. nicht im Bilde des Kreislaufs als solchen enthaltene Erscheinungen stossen; dass ein Grund dafür in einer Verschiedenheit des Verhaltens der Wirtschaftssubjekte neuen Möglichkeiten gegenüber liegt. Weil diese Verschiedenheit z.B. in der verschiedenen Macht der Gewohnheit über verschiedene Wirtschaftssubjekte begründet ist, können wir dieses Moment hier nicht entbehren.’ (Schumpeter n. d.)

  8. 8.

    The original text in German is as follows: ‘… dass der Kreislauf, aus dem sich die Welle hebt, sowohl gewohnheitsmässig als auch „angepasst“ sei im Momente, in dem neue Möglichkeiten erfasst werden, deren reibungslose Einbeziehung u.a. das Moment der Gewohnheit – auch anderes natürlich – verhindert.’ (Schumpeter n. d.)

  9. 9.

    As Dopfer (2012: 147) writes, such an account ‘relies crucially on the premise of heterogeneity of agents. Schumpeter’s distinction between the entrepreneur and the ‘statische Wirte’ (e.g. managers) is an examplar for this essential kind of heterogeneity…’

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Correspondence to Markus C. Becker.

Appendix

Appendix

Table 1 Occurrences of ‘habit’ in Theorie der wirtschaftlichen Entwicklung (1911)
Table 2 Occurrences of ‘disposition’ in Theorie der wirtschaftlichen Entwicklung (1911)
Table 3 Occurrences of ‘habit’ in other work by Schumpeter
Table 4 Characteristics of habits and dispositions in Schumpeter’s work

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Becker, M.C., Knudsen, T. Heterogeneity of habits as a foundation for Schumpeterian economic policy. J Evol Econ 27, 43–62 (2017). https://doi.org/10.1007/s00191-016-0463-7

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Keywords

  • Habits
  • Heterogeneity
  • Economic policy
  • Schumpeter

JEL Classification

  • D04
  • D03
  • D02
  • B15
  • B25
  • B52
  • B31