A short note on Skidelsky’s interpretation of Schumpeter

Yesterday I enjoyed reading and then retweeted the newest piece that the grand Robert Skidelsky has written on the (sad) state of economics today. It is an extraordinary tough and accusatory piece and while the accusations may be at times slightly overdone, Skidelsky’s last sentence that “the economists are the idiot savants of our time” can be I think reasonably thought to apply to many of us (economists). Moreover, Skidelsky’s position is supported by the views of the profession’s greatest minds, men who were without fail, men of erudition and multiple talents, often involved in politics, journalism and quotidian rough-and-tumble.

Dismissing this as having been the product of economics’ infancy where Renaissance spirits could prosper while today’s economics has advanced so much that specialization is unavoidable is not a sensible defense of fach-idioten. It is not because economics by its very nature is a social science that must, in order to be relevant and to contribute to its key objective, namely to the improvement of people’s ordinary lives, include the knowledge of, and display familiarity with, all the neighboring disciplines, primarily history, economic history, philosophy, sociology and psychology. Thus, as I think Keynes is supposed to have said (or at least this is implied in the introduction to his essay on Marshall) that “one is  bound to be a poor economist is he/she is only an economist”.

There is one point however where I think Skidelsky’s overstretches his case. It relates to Schumpeter and Skidelsky’s claim that Schumpeter “also attacked the view of the economy as a machine. Schumpeter argued that a capitalist economy develops through unceasing destruction of old relationships.”  While the second sentence is, I think, accurate especially if we think of Schumpeter’s key contribution to economics (written when he was a young man) “Theory of Economic Development”, the previous sentence about Schumpeter being a critic of those who see the economy as a machine is more controversial. In fact, in his monumental “History of Economic Analysis” (HEA) no economist gets as much praise as Walras for his general equilibrium.  Here is Schumpeter (HEA, Chapter V, $1, p. 827, 1980 edition):

[Walras’] system of economic equilibrium, uniting, as it does the quality of revolutionary creativeness with the quality of classic synthesis, is the only work by  an economist that will stand comparison with the achievements of theoretical physics. Compared with it, most of the theoretical writings of that period—and beyond—however valuable in themselves and however original subjectively, look like boats beside a liner…it is the outstanding landmark on the road that economics travelled toward the status of a rigorous exact science.

And Schumpeter then goes on to criticize Walras for paying as much attention to his applied economics dealing with social justice as to his general equilibrium masterpiece.

Now, to the extent that modern economic analysis has grown out of Walras’ general equilibrium (and I think that it seems a pretty uncontestable proposition) it is wrong to enlist Schumpeter among those who would have necessarily disagreed with the direction taken by modern economics.  It is quite possible, of course, that Schumpeter might still disagree, believing that what was useful as a theoretical  construct, ended up being interpreted by the epigones as an accurate representation of reality. But this is obviously something that is just a matter of speculation.

Why do we have this “problem” with Schumpeter? Because in his own work, Schumpeter shows a duality, or even a contradiction, between his often unquestionable endorsement of “economics as physics” in HEA where it is hailed as an unambiguous progress toward economics becoming an exact science, and scarce use of this approach in Schumpeter's own work. His “Theory of Economic Development” is indeed in its structure very abstract and arid, somewhat similar to Ricardo’s “Principles” (of  whose methodology, by the way, Schumpeter was very critical in HEA), but is not mathematical at all. His “Business Cycles” is heavily empirical but shows scant relationship to Walras and is generally anti-theoretical. (I have to confess that I tried three times to read his “Business Cycles” and that I always failed. It seems almost unbelievable that such a splendid writer and beautiful mind produced a work--which moreover he originally saw as a competitor to “The General Theory”—of, yes, such messiness and unreadability.)

The bottom line is, in my opinion, that Schumpeter’s positon is at least ambiguous. He was at the same time a great admirer of the very abstract general equilibrium approach, and his own practice of economics paid no attention to it at all.