"Reflections on Stolper and Schumpeter"

Michael Perelman recalls his time as a student of Wolfgang Stolper:

Two Degrees of Separation: Reflections on Stolper and Schumpeter, by Michael Perelman : A few months ago, I was asked to write an article about my experiences as an undergraduate student of Wolfgang Stolper, probably based on a conversation that I had with Mike Scherer. After I submitted it, the editors told me that they wanted details about Stolper’s relationship with Schumpeter, when my conversation with Mike had concerned my lack of any real knowledge of the subject — as the following note will prove.

Two Degrees of Separation: Reflections on Stolper and Schumpeter First of all, I am flattered to be even vaguely associated with such world-class intellectuals as Mark Perlman, Wolfgang Stolper, and Joseph Schumpeter.

I learned about the relationship between Wolfgang Stolper and Joseph Schumpeter as a very young, naïve, and certainly unpromising student. I switched majors every year, a symptom of both my entirely unsystematic manner of learning and my hunger for new ideas.

I only took one international economics class with Professor Stolper in 1959. The course was the most unique educational experience of my life. More often than not he would begin class by handing out papers, explaining that if he were actually going to talk about economics, this is what you would say today. Instead, he would tell us about an upcoming event on campus, whether it was E. Power Biggs, who was going to play Bach on the great organ, or Paul Tillich, who was going to lecture on theology. The rest of the class would be devoted to alerting us to the fine points of the forthcoming presentation ‑‑ its context, its importance, and most important what to look for while attending.

Someone told us that Professor Stolper had made his living for awhile writing Ph.D. theses for wealthy students in various disciplines. I have no idea if this story was true, but judging from his performance, I would not doubt it for a minute. In any case, this class was ideally suited for an enthusiastic student like me.

Needless to say, virtually everything in his lectures was over our heads, yet we were keenly interested in what he said, realizing that it was significant. Although I was not a bashful student by any means and I found his information fascinating, for some reason the idea never entered my head to approach him to ask for elaboration or clarification of any of his classes. I do not recall any of the other students talking with him after class either.

Perhaps, he just seemed to be too important to be approachable, even though he never projected any Old World standoffishness. Months later, and sometimes even after years, students from the class would encounter each other with the greeting, “I finally figured out what Stolper was saying about X.”

However, one recurrent theme in the class is etched in my memory. Professor Stolper often spoke of one person of great importance about whom none of us had ever heard. He probably wrongly assumed that students educated enough to be admitted to the University of Michigan would certainly be familiar with the name Joseph Schumpeter. Of course, we were not. I have no recollection of any theoretical analysis of Schumpeter ‑‑ only that he was a denizen of Old Europe who led a remarkable life.

Professor Stolper told us riveting anecdotes about Schumpeter, including his three great ambitions to be the greatest economist, the greatest horseman, and the greatest lover. Something that sounded so outlandish was sure to capture undergraduates’ attention. One particular story that was firmly imprinted in my mind concerned Professor Stolper’s departure from Europe with Schumpeter. He told us that when Schumpeter was about to depart for Harvard, a man limped up to embrace him, telling him something like, “I can never thank you enough Professor Schumpeter. You, a captain in the cavalry, were willing to duel with me, only a lieutenant in the infantry.” Professor Stolper explained that Schumpeter had made some disparaging remarks about the service that the librarian had given his students, so the librarian challenged him to a duel.

I later read accounts of the duel, but nothing about either the wound or the final embrace. Maybe Professor Stolper embellished a bit, but it was certainly an excellent teaching technique to make students take an interest in more important matters. I suspect all the other students in the class would also still have a strong memory of the story.

If you were to ask me what, in particular, we learned in the class, I would not be able to offer you much. Yet I feel confident that like other fellow students I benefited by unconsciously soaking up ideas, without any recollection of their source.

For example, I have absolutely no recollection about any of Schumpeter’s theories being discussed in class. Yet, decades later, I found strong parallels between Schumpeter’s way of looking at the world and my own.

For example, I became fascinated by the way that the leading economists in the United States analyzed railroads, and other capital-intensive industry. Afterwards, I realized that their analysis was almost identical to that of Schumpeter, especially the Schumpeter of Capitalism, Socialism, and Democracy ‑‑ so much so that I was led to believe that they may have been an unacknowledged source of his work. Of course, both Schumpeter and the American economists were well schooled in the work of the German historical school, which may just as well explain the commonality.

I did find that one of these economists, David A. Wells, a name well known at Harvard, did clearly anticipate the theory of creative destruction (see Perelman 1995, p. 192). For Wells, the measure of success of an invention is the extent to which it can destroy capital values. He offered as an example “[t]he notable destruction or great impairment in the value of ships consequent upon the opening of the [Suez] Canal” (Wells 1889, p. 30). Wells asserted that each generation of ships becomes obsolete in a decade. From here, he concluded, “nothing marks more clearly the rate of material progress than the rapidity with which that which is old and has been considered wealth is destroyed by the results of new inventions and discoveries” (Ibid., p. 31). Wells claimed no originality for his work, writing:

by an economic law, which Mr. [Edward] Atkinson, of Boston, more than others, has recognized and formulated, all material progress is affected through the destruction of capital by invention and discovery, and the rapidity of such destruction is the best indicator of the rapidity of progress. [Wells 1885, p. 146; see also, p. 238; and Atkinson 1889]

Of course, Schumpeter may well have unconsciously assimilated Wells’s notions just as I have done with those of Schumpeter and Professor Stolper.

A few years ago, Professor Stolper stopped by the History of Economics Conference. I told him how inspiring his class was. He seemed a bit embarrassed, or even puzzled, telling me that my response was surprising because people had told him that his teaching was not very good. How wrong he was!

I like to imagine that if Stolper imbued the essence of Schumpeter, my brief and distant encounter with Stolper while sitting in the second or third row of a dingy room in Ann Arbor provided a vague and distant relationship with both great economists.
[References ...]

Comments

[himagine]

FYI, link to "Greg Mankiw's Blog" in "Blogs" area on the right-hand side of the page seems to be invalid (has an extra "/" at the end).

(Sorry for the comment irrelevant to the entry.)

[Thanks - should work now. MT]

[Lafayette]

WP: Although Schumpeter encouraged some young mathematical economists and was even the president of the Econometric Society (1940-41), Schumpeter was not a mathematician but rather an economist and tried instead to integrate sociological understanding into his economic theories.

I was personally more fascinated by Schumpeter's emphasis on the entrepreneur . The word literally means "undertaker" -- not at all, in English, what is intended to be meant.

The word is French and comes from entreprendre , which means to "undertake" which, Roget's Thesaurus says, is synonymous with

Approach, begin, commence, embark, enter, get off, inaugurate, initiate, institute, launch, lead off, open, set about, set out, set to, take on, take up,

So, what would it have meant to an Austrian, long before he came to America and wrote his seminal book (The Theory of Economic Development)?

It meant "the vision thing". Literally, it means that a person perceives a problem (blockage, lack of something, way around, even a finagle) and figures a way to solve it. It is, in fact, just problem solving. But, in business terms it also means to have the courage to assume the risk and implement the solution, thereby meriting the rewards of their effort.

It is at the very basis of capitalism. At the heart of which is the willingness to risk, for without risk there is no return on investment. (When we buy stocks, we expect return for the risk premium that we assume.)

From there to Creative Destruction is just a hop, skip and a jump. Whether Schumpeter thought it up himself, or whether he read it in someone else's work, we shall never know. But, for sure, he was able to make the connection with "the vision thing".

Anyone who sees the season of the earth's cycle, senses or understands it's perennial creative destruction. Anyone who witnessed a horseless motorized carriage (which would have been possible by Schumpeter in the late 1800s -- see here) would have clearly understood that the fabrication of the horse-drawn carriage was doomed as an industry.

I do not wish to diminish Schumpeter's contribution to Economic Thought. I want only to refocus it. His best work was to marry Creative Destruction with Entrepreneurial Vision, to understand capitalist Economic Development.

That was no mean feat, methinks.

[Jas Jain]

--
I think that Schumpeter was the greatest American economist, even though he wasn’t an America-born. Anyone who doesn't study Business Cycles (I don't mean someone who has read) doesn't much understand the working of the American economic system.

Most economists, IMO, are ignorant of the true nature of the `economic system in America to-day:

A system of the crooks, by the crooks, and for the crooks! What is good for the crooks is good for America!!

Jas

[Jas Jain]

--
According to Schumpeter, economic "catastrophes" (depressions) are caused by "bankers' mischief."

Have bankers, both private and Central, misbehaved or what!

Jas

[anne]

Jas Jain

"I think that Schumpeter was the greatest American economist, even though he wasn’t an America-born. Anyone who doesn't study Business Cycles (I don't mean someone who has read) doesn't much understand the working of the American economic system."

Explain further, nicely.

[Lafayette]

And getting back to invention vs. innovation, was replacing the horse-draw carriage with the horse-less carriage the former or the latter?

Any takers?