January | 2009 | Organizations and Markets

Schumpeter on Methodological Individualism

| Peter Klein |

Via Lani Elliott, here’s a PDF excerpt from Joseph Schumpeter’s first book, Das Wesen und Hauptinhalt der theoretischen Nationalokonomie (The Nature and Essence of Theoretical Economics), published in 1908. The book made quite a splash in the German-speaking world and Schumpeter received many requests for an English translation, but he wouldn’t allow it, or to have the book reprinted in German. In 1980 a single chapter, “Methodological Individualism,” was translated and published in pamphlet form, with a short introduction by Hayek (which I included here). The pamphlet has been very difficult to get until now. Thanks to Lani for tracking it down and Jeff Tucker for hosting a copy.

Hayek remarked:

Many of [Schumpeter’s] students will be surprised to learn that the enthusiast for macroeconomics and co-founder of the econometrics movement had once given one of the most explicit expositions of the Austrian school’s “methodological individualism.” He even appears to have named the principle and condemned the use of statistical aggregates as not belonging to economic theory.

That this first book of his was never translated is, I believe, due to his understandable reluctance to see a work distributed which, in part, expounded views in which he no longer believed.

On Schumpeter’s changing views see also Thorbjørn Knudsen and Markus C. Becker’s “The Entrepreneur at a Crucial Juncture in Schumpeter’s Work: Schumpeter’s 1928 Handbook Entry Entrepreneur,” Advances in Austrian Economics 6 (2003): 199–234.

3 January 2009 at 10:28 am Peter G. Klein 5 comments

Sentences to Ponder

| Peter Klein |

[A] firm’s internal organization is not fully reducible to routines, norms, and firm-specific customs. The element of command — emphasized rightly by Coase and Williamson — is of great importance as well. A firm is neither reducible to custom and norms, nor to hierarchy and command. All elements interact strongly, and monetary incentives play a role as well.

That’s from Ekkehart Schlicht’s “Consistency in Organization,” in the December 2008 issue of JITE (not yet online; SSRN version here). Schlicht argues that the exercise of authority in organizations establishes precedent — commands to do this or that become routines or customs that are embedded into the organization’s culture — and that authority must be used consistently within the organization, suggesting limits to firm size and scope. Interesting read. Some similarities to Nickerson and Zenger’s envy theory.