[lbo-talk] Joseph Schumpeter

Jim Farmelant farmelantj at juno.com
Thu Nov 28 12:20:06 PST 2019

Here is Schumpeter on the socialist calculation problem. in his History of Economic Analysis. Notice, that unlike other members of the Austrian School, like Ludwig von Mises and Friedrich Hayek, Schumpeter did not think that rational economic planning was impossible under socialism:

"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, and that this set enjoys similar maximum properties. Less technically, this means that so far as its pure logic is concerned the socialist plan makes sense and cannot be disposed of on the ground that it would necessarily spell chaos, waste, or irrationality. This is no small thing and we are within our rights when we emphasize again the importance of the fact that this service to socialist doctrine has been rendered by writers who, since they were not socialists themselves, thereby victoriously vindicated the independence of economic analysis from political preference or prejudice. But, at the same time, this is all. 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. In particular, the proposition about the maximum properties of the solution that characterizes the equilibrium of a socialist economy is of course relative to its institutional data, and avers nothing concerning the question whether this purely formal maximum is higher or lower than the corresponding maximum of the competitive economy—especially if we refuse to go into the further questions, whether the one or the other institutional set-up is less exposed to deviations from its own ideal or more favorable to ‘progress.’ These questions are so much more important in practice than is the question of determinateness or ‘rationality’ per se, that it is sometimes not easy to tell whether the later critics of the socialist plan, especially von Mises, really meant to deny the validity of the Pareto-Barone result. For it is quite possible to accept it 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’ in the sense that it cannot be expected to work with an efficiency comparable to the efficiency of capitalist society as revealed by the index of total output. But although pure theory contributes little to the solution of these problems, it helps us to posit them correctly and to narrow the range of justifiable difference of opinion. We thus arrive at the same conclusion as in the case of nonsocialist planning; ever since Marshall, the theoretical possibility of improving the purely competitive mechanism by public policy should no longer be a matter of controversy; but it is of course still possible—as Marshall well understood—to criticize either particular measures or even the whole idea of planning on such grounds as lack of confidence in the political or administrative organs that are available for the task. (It seems as if Marshall had been alone in understanding this situation.) "

Back in 1969, Paul Samuelson wrote in his Newsweek column an account the great debate between Joseph Schumpeter and Paul Sweezy that took place in 1947 at Harvard. ------------------------------------------------------------------- When Diaghilev revived his ballet company he had the original Bakst sets redone in even more vivid colors, explaining, “so they would be as brilliant as people remember them.” Recent events on college campuses have recalled to my inward eye one of the great happenings of my own lifetime.

Joseph Schumpeter, Harvard’s brilliant economist and social prophet, was to debate with Paul Sweezy on “The Future of Capitalism.” Wassily Leontief was in the chair as moderator, and the Littauer Auditrium could not accommodate the packed house.

Let me set the stage. Schumpeter was a scion of the aristocracy of Franz Josef’s Austria. It was Schumpeter who had confessed to three wishes in life: to be the greatest lover in Vienna, the best horseman in Europe, and the greatest economist in the world. “But unfortunately,” as he used to say modestly, “the seat I inherited was never of the topmost caliber.” enfant terrible of the Austrian school of economists. Steward to an Egyptian princess, owner of a stable of race horses, onetime Finance Minister of Austria, Schumpeter could look at the prospects for bourgeois society with the objectivity of one whose feudal world had come to an end in 1914. His message and vision can be read in his classical work of a quarter-century ago, Capitalism, Socialism, and Democracy.

Whom the Gods Envy

Opposed to the foxy Merlin was young Sir Galahad. Son of an executive of J.P. Morgan’s bank, Paul Sweezy was the best that Exeter and Harvard can produce…[and] had early established himself as among the most promising economists of his generation. But tiring of the conventional wisdom of his age, and spurred on by the events of the Great Depression, Sweezy became one of America’s few Marxists. (As he used to say, you could count the noses of U.S. academic economists who were Marxists on the thumbs of your two hands: the late Paul Baran of Stanford; and, in an occasional summer school of unwonted tolerance, Paul Sweezy.)

Unfairly, the gods had given Paul Sweezy, along with a brilliant mind, a beautiful face and wit. With what William Buckley would desperately wish to see in the mirror, Sweezy faced the world. If lightning had struck him that night, people would truly have said that he had incurred the envy of the gods.

So much for the cast. I would have to be William Hazlitt to recall for you the interchange of wit, the neat parrying and thrust, and all made more pleasurable by the obvious affection that the two men had for each other despite the polar opposition of their views. -------------------------------------------------------------------

Compare Samuelson's account with the Harvard Crimson's somewhat dry and colorless account of that same event. https://tinyurl.com/rzxbu5r

When Schumpeter died, his book, History of Economic Analysis, was left unfinished. Schumpeter's widow (Elizabeth Boody Schumpeter, who was also an economist) engaged Paul Sweezy to work on the manuscript with her to put it into publishable shape.

Schumpeter seems to have been regarded as a kind of renegade by other Austrian School economists. I think there are least a couple of reasons for that. The first one is, I think, that his own views were rather idiosyncratic in comparison with other Austrian School economists. Schumpeter, while not a Marxist, did see some value in Marxist analysis when applied to certain topics. The second reason, I think, is that nowadays when people refer to the Austrian School, they have in mind the economics of the later Austrian School (that is the economics of Ludwig von Mises, Friedrich Hayk, and their disciples) as opposed to the economics of the earlier Austrian School of Carl Menger, Eugen Böhm von Bawerk, and Friedrich von Wieser. Also, in the case of von Mises and Hayek, there are plenty of economists around who consider themselves to be disciples of either man, and who would style themselves as being either Miseans or Hayekians. But while Schumpeter certainly had an impact on the economics profession, I am not aware of any prominent economists who would call themselves Schumpeterians. And Friedrich Hayek always took exception to Schumpeter's dismissive stance towards his views on the socialist calculation problem.

On a side not concerning the Austrian School: The Bolshevik, Nikolai Bukharin, while living in exile in Austria, attended Böhm-Bawerk's lectures and seminars, so he became familiar with the work of the early Austrian School. Later on, he wrote a famous critique of the Austrians, Econonic Theory of the Leisure Class. In that book, attempted to accomplish several things. (1) He wanted to provide a good rebuttal to Böhm-Bawerk's critique of Marx's labor theory of value. (2) He wanted to provide a critique of the marginal theory of utility which was embraced not only by the Austrian School, but by all the other marginalist schools too. For Bukharin, the notion of marginal utility was fundamentally unscientific and incoherent. In fact, during the 20th century, neoclassical economists would put much effort into placing the concept of marginal utility on a sounder basis. (3) Bukharin attempted to provide a sociological analysis of Austrian School economics and other forms of marginalism. For Bukharin, these schools represented the world view of the rentier class. https://tinyurl.com/t8d522r

Jim Farmelant http://independent.academia.edu/JimFarmelant http://www.foxymath.com Learn or Review Basic Math

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