The Oxford historians' discovery of Vienna

Schumpeter: An Austrian Economist at Harvard

Joseph Schumpeter (1883-1950), the famous Austrian economist, who spent most of his life teaching at Harvard, was and has remained something of a celebrity. One wonders, though, if the section in the Economist, which bears his name would have been flattering enough for a man, who seemed to know no moderation in his ambitions.  As he would tell his rapt listeners: “Early in my life I had three ambitions: to be the greatest economist in the world, the greatest horseman in Austria, and the best lover in Vienna.” He continued, rather enigmatically, that “in one of those goals I have failed.” We are left, no doubt intentionally, to wonder which one.

The University of Vienna, the place to be if you studied economics in the early 20th century

If we look at Schumpeter the economist – Schumpeter the lover and the horseman are, for obvious reasons, much more difficult to assess – what he is mostly known for is his glorification of the entrepreneur, the heroic figure of an assertive capitalist society. One sometimes forgets that Schumpeter’s position was much more nuanced than a wholehearted celebration of liberal capitalism. In fact, his most famous book, Capitalism, Socialism, and Democracy, includes a chapter under the once again relevant title: “Can Capitalism Survive?” (1936). The author’s answer is that this would be highly unlikely. The institutions of capitalism are going through a radical change of a kind which threatens to destroy the entire system.

At the same time, Schumpeter also believed that it was perfectly possible to have a rational socialist economic system. Already in 1919, he told Max Weber, with whom he had gone to one of Vienna’s cafes, that he was quite pleased with the experiment of the Russian Revolution. Weber got extremely agitated and said angrily that at this stage of Russia’s development, the revolution could only lead to unparalleled human tragedy. “Very likely,” Schumpeter responded, “but what a fine laboratory.” Weber became so furious that he created quite a scene – not the sort of thing to do in an elegant Viennese café. Schumpeter simply shrugged his shoulders and said: “How can a man shout like that in a coffeehouse?”

For someone who had extremely expensive tastes – horsemanship is hardly a proletarian pastime – Schumpeter couldn’t have been thrilled at the prospect of socialism. One suspects that he imagined that he could both have his cake and eat it. While a Finance Minister of the Social Democratic government in 1919, Schumpeter rented a castle, fully equipped with stables for his horses and was often seen, riding in his carriage in the company of prostitutes, up and down the Kärnetstrasse, the central street in Vienna. He lasted for six months in the job. He then became Director of a bank and made various investments with money borrowed from the bank. He lost the money and was, once again, dismissed and ended up with enormous debts.

Schumpeter at Harvard in the 1940s

When one had been Minister and bank director, becoming a university professor could feel as quite a downgrade. Besides, when one was living in one of the grandest cities in Europe, one didn’t immediately warm to the idea of moving to America, “an incredibly uncongenial country,” in Schumpeter’s view. Conceivably, Harvard didn’t provide much furtile ground for the talents of a horseman and – one suspects – even less so for the gifts of a Casanova, but it was the perfect place for a great economist and scholar.

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