If there was ever an economist who merits the overused description “brilliant,” it is Joseph A. Schumpeter (1883–1950). The author of classics like The Theory of Economic Development (1911) and Capitalism, Socialism, and Democracy (1942) and popularizer of the phrase “creative destruction,” Schumpeter’s place among the economic greats is assured. But even beyond these considerable achievements, Schumpeter’s writings also contain important messages that simultaneously inform and challenge economists and students of political economy in our time.

This legacy owes much to the fact that Schumpeter’s intellectual interests always extended beyond economics. Educated at the Theresianum, one of Imperial Austria’s most prestigious schools, and then at the University of Vienna where he acquired a doctorate in law with a specialization in economics, Schumpeter was as versed in topics like classical languages, French literature, and canon law as he was in evolutionary theory, mathematics, sociology, and the philosophy of science.

Such breadth of knowledge helps explain why Schumpeter defies easy classification as an economist. Though he had studied under Eugen von Böhm-Bawerk and Friedrich von Wieser, Schumpeter declined the “Austrian economist” label. Indeed, some of his ideas were influenced by the Austrian school’s great rival, the Historical School of Economics. In later life, Schumpeter became interested in corporatist ideas, and critical of utilitarianism’s sway over British economics. As a Harvard professor in the 1930s, Schumpeter urged his students to read John Maynard Keynes’s books, despite his deep reservations about Keynes’s ideological commitments and theoretical foundations.

Both Schumpeter’s complexities and erudition are on full display in his masterful 1954 book History of Economic Analysis (HEA). Published seventy years ago, four years after Schumpeter died in 1950, and edited by his wife, the economist Elizabeth Boody Schumpeter (who herself died one year before its publication), HEA was the fruit of a decade of sustained work on Schumpeter’s part. It still looms large in the study of the history of economic ideas today.

An Ambitious Endeavor

Consisting of five parts and 31 chapters totaling over 1,200 pages, HEA’s first part discusses the nature of economic analysis and its relationship to statistics, history, sociology, logic, psychology, and philosophy. In the subsequent parts, Schumpeter explains and critiques the development of economic analysis. Starting with Plato, Aristotle, and Roman jurists, the book concludes with an assessment of the impact of Keynesian theory.

In between Plato and Keynes, Schumpeter’s sweep of history embraces a galaxy of characters. These range from sixteenth-century economic pamphleteers to mercantilists, physiocrats, Marxists, and Marshallians. Schumpeter’s focus on individuals goes together with detailed coverage and critique of the theoretical treatment of topics like money, credit, utility, equilibrium, capital, and profit over more than two millennia. Accompanying this is careful attention to how political and economic developments like the emergence of “bourgeois civilization,” and changes in fields like philosophy and physics shaped economic analysis over the centuries.

By any measure, HEA was a massive endeavor. The Chicago economist Jacob Viner was correct to describe the text in an influential review as an “over-ambitious book.” That tends to go with the territory of any effort to cover the entire history of a subject. Viner went on to claim, less plausibly, that HEA reflected “a vein of pretentiousness and of intellectual arrogance towards the common run of economists.”

I say “less plausibly” because I have yet to encounter a statement in HEA that betrays genuine conceit. Schumpeter was certainly a proud man. Yet even when discussing the ideas of people with whom he fundamentally disagrees, Schumpeter is never contemptuous. It is, however, easy to mistake public displays of breadth and depth of knowledge across multiple fields for mere egoism.

In a sense, Viner concedes the distinction because, in the very next sentence of his review, he acknowledges that “Schumpeter did possess learning and skills manifestly exceeding in range those displayed by any other economist of his or our time.” He adds, “In this book he applied these endowments to the enlightenment of his readers with a brilliance and a virtuosity which excite and dazzle even when they fail wholly to persuade.” I suspect most economists would agree that their profession always needs more thinkers of this caliber.

Recoveries and Controversies

At the beginning of HEA, Schumpeter states that one reason for writing his huge tome was to identify where economic analysis experienced growth but also where genuine advancements were “lost on the way or remained in abeyance for centuries.” One of his central propositions is that there have been many occasions where this occurred in the development of economics, including “instances that are little short of appalling.”

One example of such forgetfulness, Schumpeter argues, is the economic insights realized by those he calls “Scholastic Doctors and the Philosophers of Natural Law.” Contributions by thinkers like Thomas Aquinas, Luis de Molina, and Hugo Grotius, he maintains, had been downplayed by too many surveyors of economic thought on the grounds that their “acceptance of ecclesial authority” unduly inhibited their exploration of topics with important economic dimensions like usury. But, Schumpeter contends, this ignores these scholars’ insistence that there were limits to the claims of such authority upon their inquiries. Here he points to Aquinas’ statement that in the sphere of what we would call “economics,” arguments that drew heavily upon authority were “extremely weak.”

Schumpeter proceeds to examine scholastic texts from the ninth century until the early 1700s. As they studied normative and legal questions surrounding topics like interest, property, and money, scholastic writers unearthed important economic truths about subjects such as utility, capital, interest, and value. Schumpeter does not anachronistically present these thinkers as proto-economists or market liberals. He does, however, hold that they produced “more correct formulations of fundamentals” (e.g., the subjective theory of value) for sound economic analysis which had to be re-discovered centuries later by another Austrian economist, Carl Menger, after having been eclipsed by labor theories of value.

Schumpeter’s positions on this and other topics were contested by eminent economists like Viner, George Stigler, and Lionel Robbins. Viner affirmed Schumpeter’s thesis about scholastic accomplishments in “monetary and value doctrines.” But, he countered, Schumpeter underestimated the stultifying effects of the scholastics’ deference to ecclesial authority upon their writings about topics like interest. It wasn’t for trivial reasons, Viner notes, that usury laws remained in place for so long throughout Europe. Viner goes so far as to speculate that Schumpeter’s contentions owe something to the fact that Schumpeter’s own “theory of interest has some affinity to that of the scholastics.”

Schumpeter’s commentary on scholastic economic thought found validation in earlier work undertaken by one of his students at Harvard, the Jesuit economist Bernard W. Dempsey, and later research pursued by scholars like Jesús Huerta de Soto. Viner’s critique of Schumpeter’s treatment of Adam Smith, however, has more staying power.

Though Schumpeter does not explicitly say so, one of HEA’s objectives was to force what he regarded as a highly self-referential Anglo-American economics profession to acknowledge that many crucial developments in economic thought did not originate in Britain or North America. Smith’s Wealth of Nations (WN), Schumpeter held, “does not contain a single analytic idea, principle, or method that was entirely new in 1776.” Indeed, HEA leaves readers with the impression that Smith was essentially a master synthesizer of existing ideas.

Certainly, Schumpeter contextualizes Smith and WN in the broader flow of ideas in the seventeenth and eighteenth centuries. He also highlights gaps in WN’s coverage that should not be there: most notably the “distinctive function of the entrepreneurs.” It remains, however, that HEA is insufficiently attentive to how WN grounded economic analysis in a broader theory of commercial society, complexity, civilizational change, and the phenomenon of unintended consequences that developed during the Scottish Enlightenment. This outlook infuses WN and injects a particular analytical edge into the book that is unmatched, I would suggest, by anything in the preceding economics literature.

Economics and History

One can only speculate how Schumpeter might have revised his unfinished manuscript and the ways in which this could have differed from his wife’s edits. We do know, however, that HEA was intended to be a comprehensive reference text rather than a book to be read cover-to-cover. HEA continues to serve that purpose and, in that regard, has stood the test of time.

There is, however, something else for which HEA should be remembered. This concerns how Schumpeter frames the relationship between economic analysis and the historical study of economic ideas.

At the beginning of HEA, Schumpeter stresses that he regards economic analysis as a technique. It is what he calls “tooled knowledge”: a set of concepts and techniques that permit us to understand and potentially shape economic reality.

Grasping the capacity of economic analysis to perform this task in the present, Schumpeter holds, is enhanced by knowledge of the “previous problems and methods to which they are a tentative response.” For example, if we want to fully comprehend the character and limitations of contemporary macroeconomics, it helps to understand 1) the specific challenges that Keynes’ General Theory sought to address and 2) how these shaped Keynes’ conception of total spending in the economy and its effects on employment, inflation, and economic output.

This is not a covert endorsement of historicism on Schumpeter’s part. Nor is it to assert that the development of sound economic analysis is subordinate to, or somehow replaceable by, the study of history, let alone the endless complication of data. For Schumpeter, only theory can provide the logical structure needed to organize and comprehend such information. Rather, it is to say that, in Schumpeter’s words, “the state of any science at any given time implies its past history and cannot be satisfactorily conveyed without making this implicit history explicit.”

Schumpeter v. Samuelson

This is why Schumpeter’s book can be read as an implied critique of the immensely influential Foundations of Economic Analysis (1947), written by yet another of Schumpeter’s doctoral students, Paul A. Samuelson. Published seven years before HEA appeared, the words “Mathematics is a language” serve as the text’s frontispiece. Samuelson’s book played a major role in the postwar transformation of so much economics, especially Keynesian economics, into mathematical constructions.

Mathematics is indeed a language insofar as it employs symbols to communicate and explain concepts that can be given a quantifiable form. Yet no mode of communication and understanding can explain or encapsulate everything. Moreover, overreliance on any one mode of inquiry can narrow the scope of analysis deployed by any natural or social science, including economics, and often results in important reference points and data going unnoticed. Few understood this as well as Schumpeter, described by Viner as “perhaps the last of the great polymaths,” who possessed an unparalleled comprehension of the history of ideas, as even heavily critical reviews of HEA acknowledged.

Therein lies the enduring importance of Schumpeter’s never-completed text. It reminds today’s economists that growth in the explanatory power of economic analysis can sometimes occur via a deeper appreciation of the past. The preoccupations and intellectual trends of the present are not always a reliable guide for fruitful inquiry into economic phenomena.

Postwar economic modeling and econometrics have made significant contributions to the development of economic analysis, but they do not inevitably make redundant the achievements of long-dead economic thinkers. As Schumpeter wrote, progress in thought is not necessarily a straight line between primitive notions of the past towards an ever more enlightened future. True arrogance lies in imagining that we have nothing to learn from the great minds that have gone before us. That is Schumpeter’s message for us today.