Appendix: Wieser's Influence on Schumpeter.
by László Csontos
Stephan Boehm, in his Introduction to Schumpeter's Beitraege zur Sozialoekonomik (Boehlau Verlag, Wien-Koeln-Graz, 1987) claims (p. 23) that Schumpeter might have been heavily influenced by the ideas of his teacher, Friedrich von Wieser. This claim is based on two citations from Wieser's opus magnum, Theorie der Gesellschaftlichen Wirtschaft.(1)
First: "In der kapitalistischen Unternehmung sind die groessen Unternehmerpersoenlichkeiten zu ihren vollen Hoehe emporgewachsen, die kuehnen technischen Neuerer, die menschenkundigen Organisatoren, die weitblickenden Bankiers, die ruecksichtslosen Spekulanten, die welterobernden Leiter der Trustverbaende" (p. 354 in the first German edition). The English version of this statement is this. "In capitalistic enterprise the great personalities of entrepreneurs have risen to their full stature: bold technical innovators, organizers with a keen knowledge of human nature, farsighted bankiers, reckless speculators, the world-conquering directors of the trusts" (p.327 in the English translation). Secondly: "Die Summe aller Wirkung zusammengenommen, hat aber die Grossunternehmung die Unternehmerstellung zersetzt und sie wird sie ... noch weiter zersetzen" (ibid). The English version of this statement is the following. "However, considering all the effects of mammoth enterprise, it is safe to say that it has encroached upon the influence of the entrepreneur and that it is destined to do so still further ..." (op. cit., p. 327). In Boehm's view, this proposition is nothing but the thesis on the obsolescence of the entrepreneur. (Cf. p. 24 of his Introduction, op. cit.)
Boehm's claim, however, has to be rejected for the following reasons. First, Schumpeter's Theory of Economic Development was first published in 1912, that is, two years before the publication of Wieser's work. Although this fact in itself does not exclude the possibility of Schumpeter's being influenced by Wieser, this claim clearly cannot be based on citations taken from Wieser's book. Secondly, and more importantly, there is a basic difference between Wieser's and Schumpeter's version of the thesis on the obsolescence of the entrepreneur. Wieser's argument is best captured by the following passage from his book.
In later periods when the opportunities for capitalistic enterprise have been discovered and seized upon to a great extent, the established enterprise provided with a large capital obtains a supremacy against which the gifts of the new-comer cannot easily prevail. Then too the problems of leadership are simpler. Actions are taken according to rules which experience has already established with tolerable definiteness. There has also arisen a new class, a well-trained personnel; schooled in the new methods, they are ready to aid the entrepreneur in his problems of leadership at a wage-rate by no means exorbitant. In the end the prospects of profit for even the older established enterprises will become less favorable. The organization of the workers and their compulsory insurance has even now increased the costs of operation in many localities. The abundance of accumulated capital will ultimately assert itself by crowding all opportunities for business enterprise; the increased competition will force upward the prices of cost goods.(Theory of Social Economy, p. 357.)
Hence, in Wieser's view, the obsolescence of the entrepreneur follows from (1) the accumulation of capital and (2) the nature of competition in increasing cost industries. ("Cost-goods" in his terminology are what we call now "input goods.")
Ironically enough, Boehm does not seem to have realized -- though it would have made his claim slightly more credible -- that the obsolescence thesis appears only in the second German edition of Schumpeter's Theory of Economic Development.(2)
The English translation of Schumpeter's book(3) was based on the second German edition. There are striking and significant differences between the first and second German editions, on the one hand, and between the second German edition and the English text of 1934 on the other.
(1`) Chapter Seven of the first German edition was omitted from the second German edition. This chapter contained a rough outline, founded on rather sweeping generalizations, of Schumpeter's sociology of culture and cultural development. The omission of this chapter is completely in line with the new -- more sober and "professional" -- tone of the second German edition.
(2) The key chapter of the whole book (Chapter Two "Das Grundphaenomen der wirtschaftlichen Entwicklung"; in English "The Fundamental Phenomenon of Economic Development") was substantially shortened and completely rewritten.
As the footnote to the opening sentence of Chapter Two indicates, Schumpeter's new (!) theory of economic development is clearly connected to Max Weber's idea of rationalization. Rationalization in Weber's sense ("the disenchantement of the world") plays a double role in Schumpeter's theory. First, it is the rationalization of "our life and thought" that makes the scientific (as opposed to metaphysical) treatment of economic development possible (see p. 57 of the English text). Secondly, the progressive rationalization of economic conduct bears the ultimate responsibility for the obsolescence of the entrepreneur. The following passage seems to be crucial in this context. "The more accurately ... we learn to know the natural and social world, the more perfect our control of facts becomes; and the greater the extent, with time and progressive rationalization, within which things can be simply calculated, and indeed quickly and reliably calculated, the more the significance of this function [viz., the function of genuine leadership -- L.C.] decreases. Therefore the importance of the entrepreneur type must diminishjust as the importance of the military commander has already diminished."(pp.85-86.)
The analysis of the unavoidable rationalization of social and economic life is so strikingly similar to Weber's theory. Schumpeter's indebtedness to Weber, however, goes further than this. Schumpeter's "new" theory is based on the methodological requirement of Verstehen or understanding. In his strictures against psychologism,(4)
Schumpeter makes it perfectly clear that Verstehen in Weber's sense or a "meaningful interpretation" ("sinnhafte Deutung") of motives is indispensable for a full explanation of the entrepreneurs' action.
(3) It is a characteristic fact, however, that all these allusions to
Weber's methodology are missing from the English text. It may be even more
significant that the other major difference between the 2nd German edition and
the English translation thereof is the omission of Schumpeter's discussion of
socialism and of the relationship between entrepreneurship and socialism.(5)
The reasons for these deviations of the English text from that of the second
German edition, I would argue, may lie in the different cultural and
methodological context of the publication of the second German and the American
edition. Whereas the methodological program advocated by Weber seems to have
been the accepted view on the proper methods of social and economic inquiry in
(4) So far as Schumpeter's real indebtedness to Wieser is concerned, the facts appear to be the following. Schumpeter developed his theory of endogeneous (!) economic change against the background of what he called "Wieser's principle of continuity" (Schumpeter 1934, p. 9). In Wieser's view, the glue that holds economic systems together is made up of habits, routines, and long experience. It was Wieser, argued Schumpeter (op. cit., pp. 5-6), who first realized the full importance of habitual and traditional behavior in economic life.(6)
Strict reliance on habits and tradition, however, does not preempt the possibility of change. If the initial conditions underlying the circular flow of economic activity(7) change, people will try to adapt their behavior. "But," argues Schumpeter, "everyone will cling as tightly as possible to habitual economic methods and only submit to the pressure of circumstances as it becomes necessary. Thus the economic system will not change capriciously on its own initiative but will be at all times connected with the preceding state of affairs. This may be called Wieser's principle of continuity."(Schumpeter, op. cit., pp. 8-9.) This principle had not only been "expounded in the work on the problem of the value of money, Schriften des Vereins fuer Sozialpolitik, Reports of the Session of 1909" (Schumpeter, op. cit., p .9., Note 1) but had also been at the core of Wieser's theory of social economy. Schumpeter, I would argue, basically agreed with this characterization of day-to-day economic decisions, and the function he assigned to the entrepreneur can be properly understood only if it is contrasted to the "iron fetters" that hold the average economic actor "fast in his tracks" (Schumpeter, op. cit., p. 6.). The entrepreneur, in Schumpeter's view, breaks the crust of habits, traditions and routines, and thus becomes the engine of abrupt, discontinous and endogeneous economic change.
Notes.
1The bibliographical data relating to this work of Wieser are the following. First edition: Grundriss der Sozialoekonomik, I. Abteilung: Wirtschaft und Wirtschaftswissenschaft, Tübingen, 1914(!); second edition: 1924; English translation: Social Economics, New York, Greenberg Publisher Inc., 1927.
2 Theorie der wirtschaftlichen Entwicklung, Verlag von
Duncker & Humblot, Muenchen und
3The Theory of Economic Development, first published by the
Department of Economics of
4 Cf. second German edition, pp. 131-133. and footnotes to these pages.
5 See pp. 138-39 in the second German edition.
6 He refers to Wieser's "Der natuerliche Wert" [English translation: Natural Value, New York, G.E. Stechert & Co., 1930] "...where this point was worked out and its meaning elucidated for the first time"; see Schumpeter, op. cit., p. 6., Note 1).
7 The term "circular flow" seems to have been introduced into English professional usage by R. Opie in his translation of Schumpeter's book; see "Translator's Note," Schumpeter, op. cit.
· Return to “Schumpeter and the Obsolescence
of the Entrepreneur.”