Abstract
When Joseph Schumpeter and Ragnar Frisch first met in the autumn of 1927 at Harvard, both the ensuing personal friendship and the intense academic and institutional cooperation were highly unlikely. Schumpeter, who was by then preparing to leave Germany for his American life-long exile, was twelve years older than Frisch and had a previous intense career as the most frequently quoted economist in the first decades of the century, only to be shadowed later by the glittering triumph of Keynes’s ‘General Theory’. Comparatively, Frisch was just a young economist with no publications. Furthermore, Frisch invited his colleague to the most daring adventure: to create econometrics as the tool to reconstruct economics as a mathematically based social science. Surprisingly, Schumpeter, who was totally innocent of mathematics, embarked and enthusiastically supported the construction and workings of the Econometric Society, which would become the Olympus of economics since those frightful years of what a novelist called the “midnight of the century”. This paper presents some evidence on this improbable econometric connection.
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Notes
The election of the first twenty-nine Fellows demonstrates the scope of the Society since its inception: they were Amoroso, Anderson, Aupetit, Boninsegni, Bowley, Colson, Gini, Haberler, Hotelling, Keynes, del Vecchio, Divisia, Evans, Fisher, Frisch, Kondratiev, Mitchell, Moore, Ricci, Roos, Rueff, Schneider, Schultz, Schumpeter, Tinbergen, Vinci, Wilson, Zawadzki and Zeuthen. There was an intense debate between the econometricians and Keynes, though (Louçã 1999a).
Frisch noted Schumpeter’s opposition as being politically biased: ‘I take it that your reference to Marschak being biased in his selection of Fellows means that Marschak is a Socialist and that he therefore is trying to get Socialists into the picture. I knew that Marschak is a Socialist, but I have a very strong impression that in the matters of the Econometric Society he is guided uniquely by scientific motives’ (Frisch to Schumpeter, November 12, 1932). Schumpeter responded very soon afterwards: ‘No. You do me an injustice: I am not so narrow as to object to anyone because he is a socialist or anything else in fact. If I did take political opinion into consideration I should be much in favour of including socialists in our list of Fellows. In fact, I should consider it good policy to do so. Nor am I or have I ever been an anti-Semite. The trouble with Marschak is that he is both a Jew and a socialist of a type which is probably unknown to you; his allegiance to people answering these two characteristics is so strong that he will work and vote for a whole tail of them and not feel satisfied until we have a majority of them, in which case he will disregard all other qualifications. This is in the nature of a difficulty. But personally I like him immensely and I think a lot of him’ (Schumpeter to Frisch, December 3, 1932). This was not satisfactory for Frisch: ‘I must admit that I am very surprised about your views on Marschak’ (Frisch to Schumpeter, January 11, 1933). After the first selection of Fellows, Frisch insisted on including Marschak in the next group to be elected and he won the day.
Schumpeter to Cowles, May 6, 1937. As he was quarrelling with Frisch over the nomination of Marschak, Keynes asked Schumpeter’s opinion about the suitability of Lederer for the job of correspondent of the Economic Journal. Schumpeter advised against him: ‘Now you have asked about him I find it much easier to do so: he is a party man of a type which obeys orders without asking a question. And in all matters which can be brought into any relation at all with politics he is absolutely unable to see except through party glasses. I hope you will believe me if I say that it is not his belonging to the socialistic party which caused my qualms. I should have felt exactly the same difficulty about any other strong party man who reacted on the party type in this particular manner’ (Schumpeter to Keynes, December 3, 1932).
It is fair to say that this was not the end of the story: later on, when Marschak could not find a suitable job, Schumpeter wrote letters of recommendation to Columbia (March 12, 1939) and Berkeley (April 6, 1939).
Schumpeter to Mitchell, April 19, 1933.
Schumpeter to Day, May 2, 1933. In spite of his anti-Semitism, in practical matters Schumpeter often rejected the discrimination against Jews: for instance he supported the appointment of Samuelson against the opposition of an anti-Semitic head of department, even if his tortured private diary included several anti-Jewish and very racist remarks.
Schumpeter to Frisch, February 25, 1933.
Schumpeter to Haberler, March 20, 1933.
Schumpeter to Day, May 2, 1933.
It is fair to say that none of his students rallied the Nazis and his former secretary and mistress in Germany, Maria Stockel Bicanski, joined the underground. She was shot by the Nazis.
Schumpeter’s last years were marked by long periods of depression, probably motivated by the turn of world events, namely the Second World War which was destroying Europe, and mainly by the dramatic loss of his second wife and child in 1926 (Allen, 1991-I: 236).
Schumpeter to Frisch, November 2, 1934.
This friendly relationship would continue throughout their collaboration: ‘I have never met a person with your ability to and eagerness to understand the other fellow’s point of view and to do him justice’ (Frisch to Schumpeter, October 13, 1939).
Frisch to Schumpeter, November 19, 1934.
Schumpeter to Frisch, January 14, 1935.
The epilogue to this discussion and diplomatic activity came much later, in 1970, when Lundberg asked Frisch for advice on the candidates for the next Nobel Prizes, and Frisch suggested Leontief for his Input-Output contributions. Although given to creating controversy, Frisch was still able to do justice to his previous adversary, who was nonetheless an impressive contributor to the construction of modern economics (Frisch to Lundberg, August 15, 1970).
References to Frisch’s 1933 paper can be found in ‘Business Cycles’ (171fn, 181 fn, 189) and in ‘History of Economic Analysis’ (1162 fn). Schumpeter never made any direct criticism of the paper in public, although he discussed its major features in private letters, as we shall see.
Fernão de Magalhães (1480-1521) was a Portuguese navigator who led the first expedition circumnavigating the world, although he was killed before it returned home.
This difference in conceptualisation already suggests their alternative approaches: invention could eventually be considered as exogenous and as part of the scientific system, whereas innovation was precisely described as the result of the market selection process of invention, i.e. of the specific economic system. Innovation could never be described as a purely exogenous variable in the Schumpeterian model.
References
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Acknowledgments
Research Unit on Complexity and Economics, ISEG (School of Economics and Management), University of Lisbon. Financial support from national funds by FCT (Fundac¸ao para a Ciência e Tecnologia). This article is part of the Strategic Project Pest OE/EGE/UI0436/2014. First draft 2007, revised 2011 and 2014.
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Louçã, F. The improbable econometric connection - Schumpeter and Frisch at the midnight of the century. J Evol Econ 25, 173–184 (2015). https://doi.org/10.1007/s00191-014-0359-3
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DOI: https://doi.org/10.1007/s00191-014-0359-3