Modern Prophets: Schumpeter or Keynes?

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The two greatest economists of this century, Jospeh A. Schumpeter and John Maynard Keynes, were born, only a few months apart, a hundred years ago: Schumpeter on February 8, 1883, in a provincial Austrian town; Keynes on June 5, 1883, in Cambridge, England. (And they died only four years apart - Schumpeter in Connecticut on January 8, 1950, Keynes in southern England on April 21, 1946.) The centenary of Keynes's birth is being celebrated with a host of books, articles, conferences, and speeches. If the centenary of Schumpeter's birth were noticed at all, it would be in a small doctoral seminar. And yet it is becoming increasingly clear that it is Schumpeter who will shape the thinking and inform the questions on economic policy for the rest of this century, if not for the next thirty or fifty years.

The two men were not antagonists. Both challenged longstanding assumptions. The opponents of Keynes were the very "Austrians" Schumpeter himself had broken away from as a student, the neoclassical economists of the Austrian School. And although Schumpeter considered all of Keynes's answers wrong, or at least misleading, he was a sympathetic critic. Indeed, it was Schumpeter who established Keynes in America. When Keynes's masterpiece, The General Theory of Employment, Interest and Money, came out in 1936, Schumpeter, by then the senior member of Harvard economics faculty, told his students to read the book and told them also that Keynes's work had totally superseded his own earlier writings on money.

Keynes, in turn, considered Schumpeter one of the few contemporary economists worthy of his respect. In his lectures he again and again referred to the works Schumpeter had published during World War I, and especially to Schumpeter's essay on Rechenpfennige (that is, money of account) s the initial stimulus for his on thoughts on money. Keynes's most successful policy initiative, the proposal that Britain and the United States finance World War II by taxes rather than by borrowing, came directly out of Schumpeter's 1918 warning of the disastrous consequences of the debt financing of World War I.