Schmoller and Pareto

8 October 2006 at 11:47 pm 6 comments

| Peter Klein |

Tim Swanson reminds me of a funny Schmoller story told by Vilfredo Pareto:

Vilfredo Pareto, the influential Italian economist, while giving a talk in the early 1900s at an economics conference in Geneva, was repeatedly and noisily interrupted by his powerful colleague Gustav von Schmoller. Von Schmoller, who from his throne at the University of Berlin ruled the German academic world, apparently kept shouting in patronizing tone, “But are there laws in economics?” Despite his aristocratic upbringing Pareto had little respect for appearances, reportedly having written his monumental work Trattato di Sociologia Generale while owning a single pair of shoes and one suit. It was therefore easy for him to transform himself into a beggar the next day and approach von Schmoller on the street. “Please, sir,” Pareto said, “can you tell me where I can find a restaurant where you can eat for nothing?” “My dear man,” replied van Schmoller, “there are no such restaurants, but there is a place around the corner where you can have a good meal very cheaply.” “Ah,” said Pareto, laughing triumphantly, “so there are laws in economics!”

This version is in Albert-Laszlo Barabasi, Linked: The New Science of Networks (2002). The original source is Pareto’s The Mind and Society (1916).

Pareto, by the way, is an extremely interesting, and neglected, social theorist, whose contributions go far beyond the ubiquitous “Pareto optimality.”

Entry filed under: - Klein -, Methods/Methodology/Theory of Science.

Great Online Langlois Slides for Org Econ Course Berkeley Puts Class Lectures on Google Video

6 Comments Add your own

  • 1. JC  |  9 October 2006 at 11:28 am

    Hi Peter, great story.

    But some of the action may have been lost in translation. If you go to http://cepa.newschool.edu/het/profiles/schmoller you’ll see they report that Schmoller was shouting “There are no laws in economics!”. This was because he was a principal in the Methodenstreit – arguing predominantly with Menger about whether history followed discoverable laws. Schmoller’s position was a resounding “No”. This has grave implications for economists seeking such laws. Pareto, of course, was in Menger’s camp.

    The division between those who see economics as law-like and those who see it as grounded in historical facts is still present in our discourse in many different ways. I would argue that Commons’s institutional economics was born in Schmoller’s arguments and that has implications for what people think of ‘transactions’.

    At the same time we should realize that the distinction also ricochets through our teaching practices. Schmoller had a direct impact on these through Edwin Gay, who got his PhD in Berlin under Schmoller and came back to found HBS (you can find all this stuff on my website). Gay learned the case method during his Berlin studies – they focused on gathering facts and presenting them to the researcher in the ways that are now called ‘grounded theorizing’.

    Curiously Wharton also has Schmoller in its history. After Joe W founded the school and tried to run it himself, he was eventually persuaded to hire Edmund James, recently back after two years at the University of Halle with a PhD taken under Johannes Conrad. Conrad was a significant and famous student of Schmoller’s, but clearly not such a devotee of the case method as his mentor. Conrtad was more of a statistician.

    James, who went on to establish the AEA with Ely, was more interested in what he called the ‘comparative method’, which I guess can be taken as a variant of the case method (or more properly the German Historical Method).

  • 2. Peter Klein  |  9 October 2006 at 11:37 am

    JC, you’re quite right, Schmoller’s legacy is far from dead. The connection to the early American institutionalists was noted in the previous Schmoller post. Ely is important too, not only as a scholar but as an institution builder. The AEA was modeled by its founders (Ely, Seligman, Adams) after Schmoller’s Verein für Sozialpolitik and designed not only as a scholarly professional association, but as a political body to promote social reform.

    Plus, some of our sociologically inclined readers might find Schmoller’s position in the Methodenstreit more compelling than Menger’s!

  • 3. JC  |  9 October 2006 at 1:48 pm

    Yep. Of course Richard Ely also got his PhD in Germany.

    Plus you might edit and correct my spelling of ‘ricochets’.

  • 4. Peter Klein  |  9 October 2006 at 3:19 pm

    Gladly!

  • 5. Test of Humanity | Common Sense with Paul Jacob  |  8 February 2019 at 2:48 am

    […] Once upon a time, the great economist Vilfredo Pareto, during a lecture, was repeatedly interrupted by one Gustav von Schmoller, who denied that economists had discovered any enduring principles, especially ones that would undermine his beloved socialism. So Pareto dressed down as a bum and approached Schmoller on the streets, inquiring about a restaurant that served meals for free. When Schmoller told him that there were only cheap, but no free meals, at restaurants, Pareto stood up with the ultimate gotcha:  […]

  • […] For the Pareto-Schmoller tale, you could read Vilfredo Pareto’s Mind and Society. Or just check out this blogpost. […]

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