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Schumpeter on Keynesians

While searching through Thomas McCraw’s superb 2007 biography of Joseph Schumpeter (Prophet of Innovation) for a passage I recall in which McCraw mentions that Schumpeter’s teaching load at Harvard included Saturday classes (!) – a passage that I’ve yet to find – I reread McCraw’s treatment of Schumpeter’s reaction to Keynes’s General Theory.

Schumpeter disliked Keynes’s book.  McCraw unconvincingly attributes much of Schumpeter’s negative reaction to The General Theory to the alleged fact that Schumpeter envied Keynes (an envy that intensified, we are told, with the relative failure of Schumpeter’s own 1939 book Business Cycles).

I suspect that Schumpeter reacted negatively to The General Theory because it’s a book that deserved a negative reaction, especially from an economist as insightful as Schumpeter – an economist who, quite the opposite from Keynes, understood that the capitalist economies were not in the 1930s (and would not be in the future) exhausted of opportunities for innovation and investment.

Quoting from Schumpeter’s 1948 presidential address to the American Economic Association, McCraw writes on page 481 of his biography of Schumpeter:

But their [the young economists of the late 1930s and 1940s] focus on the techniques of Keynesian macroeconomics – which are amenable to mathematical modeling and very useful in the new methods of national income accounting – had diverted attention from the vision that underlay the whole apparatus.  Even though the Keynesian creed of stagnationism “has petered out with the situation that had made it convincing” – the Great Depression having given way to unprecedented prosperity – most economists had remained so enthralled with Keynesian technique that they seemed “bound to drift into one of those positions of which it is hard to say whether they involve renunciation, reinterpretation, or misunderstanding of the original message.”  And in taking this tack, as Schumpeter had said many times before, most economists had lost sight of the heart of the capitalist process, which in its endless dynamism was the opposite of Keynesian stagnationism.