I’ve always viewed Schumpeter as the bogeyman of economics. Not Keynes. Not Samuelson. Not Frank Knight. More than anyone I’ve blamed Schumpeter for making a positivist approach to economics the de facto “scientific” conception of the discipline and for making Walrasian economics the paradigm for how to model economic phenomena “scientifically”. Schumpeter is the Austrian who rejected Menger’s explanatory strategy and embraced Mach’s vision of science. Schumpeter is the Austrian who brought Mach with him to Harvard, and derided “old fashioned” Austrian economists among his grad students. Without Schumpeter you don’t get Samuelson — and the rivals to Keynes and Knight get taken seriously in America.
That, at least, is the cartoon of Schumpeter I like to imagine. So I was shocked to find Hulsmann crediting Schumpeter with the insight that when we express our economic valuations in action this can best be understood as an “exchange”.
Let me explain. One of the things I’ve always liked about this notion is that it moves choice theory out of the realm of the “introspection” of inner states and inner magnitudes, and it brings it out into the public realm of interpersonal experience. It’s the sort of move the later Wittgenstein would approve — we’re no longer gazing at our own private “util” in a box and we’re no longer trying to measure a private “util” with a private “util” measuring stick. We’re using a well-established social tool — the shared language and experience of public exchange and all that goes with it — and we’re using that common public thing to talk to ourselves and others about a real fact about our inner lives as acting beings. We’re not spinning a phantom 5th wheel, we’re turning a door on real hinges. A “util” is a phantom, a 5th wheel — but like the magician waving his cape, this 5th wheel often bewitches economists. An “exchange” however, is no phantom. It’s something we’re all familiar with and it’s something even a 1st grader could tell about.
What shocked me is that I’ve always attributed the “exchange” insight to Mises, and I never would have imagined that that an economist working under the influence of Mach — the very king of “perceiving” the contents ones own little boxes — would have first made the decisive move outside the marginal economist’s private little boxes full of “utils” and into the publicly shared language of “exchange” as a way to think and speak about private economic action. Schumpeter did it before Mises, and Mises developed the idea from Schumpeter. And I’m just astounded.
Note to self — you really do need to read Schumpeter’s Nature and Essence.