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Abstract
The Visionary Realism of German Economics forms a collection of Erik S. Reinert’s essays bringing the more realistic German economic tradition into focus as an alternative to Anglo-Saxon neoclassical mainstream economics. Together the essays form a holistic theory explaining why economic development—by its very nature—is a very uneven process. Herein lie the important policy implications of the volume.
Erik S. Reinert is Professor of Technology Governance and Development Strategies at Tallinn University of Technology, Estonia, and also Chairman of the Other Canon Foundation in Norway. He holds a BA from Hochschule St. Gallen, Switzerland, an MBA from Harvard University, and a PhD in economics from Cornell University. For almost 20 years he ran a manufacturing company producing in three European countries. This background brought Reinert close to economics as a “science of practice” (Erfahrungswissenschaft). Lecturing in five languages, Reinert’s work has taken him to more than 65 different countries. His book How Rich Countries Got Rich … and Why Poor Countries Stay Poor, published in more than 20 languages, was shortlisted by the World Economics Association in 2016 for inclusion among the 10 most important economics books of the last 100 years.
“Erik Reinert’s 20 essays on three centuries of German economics are a remarkable work of scholarship by an outside observer. They highlight the focus on the role of the state and on development as well as the less abstract methodology and the interdisciplinary tradition as distinguishing characteristics. The book is strongly recommended to every reader longing for an economics which is not only rigorous but also relevant for solving the problems of the real world.”
—Harald Hagemann, Professor of Economic Theory, University of Hohenheim, Germany
"Almost but not quite alone, Erik Reinert has for decades tended the flame of an economics based on history and the urban, industrial, developmental state. These essays assemble his prodigious scholarship on the German tradition, a labor of love and dedication with enduring relevance, especially in today's Europe, dominated by a Germany alienated from centuries of her own ideas.”
—James K. Galbraith, Lloyd M. Bentsen Jr. Chair in Government/Business Relations, LBJ School of Public Affairs, and Professor of Government, University of Texas at Austin, USA, and Author of The End of Normal: The Great Crisis and the Future of Growth
“If Standard Textbook Economics does not work (and it doesn’t), then the classic older German tradition, with its committed insistence on realism rather than on self-referential modeling, is one of the best alternatives to check out. Erik Reinert, one of the most distinguished, erudite and solution-focused experts on the topic today, presents us here with this cornucopia of usable knowledge for the 21st century.”
—Wolfgang Drechsler, Professor of Governance, Ragnar Nurkse Department of Innovation and Governance, TalTech, Estonia, and Associate, Davis Center, Harvard University, USA
‘The Visionary Realism of German Economics’ forms a collection of Erik S. Reinert’s essays bringing the more realistic German economic tradition into focus as an alternative to Anglo-Saxon neoclassical mainstream economics. Together the essays form a holistic theory explaining why economic development––by its very nature––is a very uneven process. Herein lie the important policy implications of the volume.
“This important book reveals how the Anglocentric approach has impoverished both recognized economic thought and the profession of economics. Over three centuries, writers of the German Historical School made relevance (not available tools) the starting point for economic analysis and so incorporated insights from many other fields of knowledge. Reinert’s wisdom and erudition showcased here have immense methodological significance not just for economists but for all social scientists.”
—Jayati Ghosh, Professor of Economics, Jawaharlal Nehru University, India
Table of Contents
Section Title | Page | Action | Price |
---|---|---|---|
Cover | Cover 1 | ||
Front Matter | i | ||
Half-title | i | ||
Title page | iii | ||
Copyright information | iv | ||
Table of contents | v | ||
Chapter Int-chapter 20 | 1 | ||
Introduction | 1 | ||
List of (Mostly) Forgotten German-Language Economists33 | 10 | ||
Chapter One German Economics as Development Economics: From the Thirty Years' War to World War II | 15 | ||
Permanent Characteristics of the German Economic Tradition | 17 | ||
Cameralist Economic Policy: From Veit von Seckendorff (1626–1692) to Wilhelm von Hörnigk (1640–1714) | 20 | ||
The Eighteenth Century: The Birth of Academic Economics and of Specialization in the Field | 24 | ||
The ‘Historical Schools’ of the Nineteenth and Twentieth Centuries | 26 | ||
The Social Problem and the Verein für Sozialpolitik | 29 | ||
1945–47: The Morgenthau Plan Validates the German Economics Tradition | 32 | ||
References | 33 | ||
Chapter Two The role of the state in economic growth | 37 | ||
1. Introduction: ‘‘The Renaissance State’’ vs ‘‘Natural Harmony’’ | 38 | ||
2. Mechanisms causing and diffusing economic growth and welfare: the view of the production-based... | 42 | ||
2.1. Assumptions about the causes of economic growth | 43 | ||
2.2. Assumptions about the mechanisms which diffuse growth and welfare | 44 | ||
2.3. The different philosophical underpinnings of the activistic-idealistic tradition | 45 | ||
3. The three roles of the State | 48 | ||
4. New knowledge, systemic effects and positive feedback-loops in Renaissance... | 54 | ||
4.1. The size and density of the population | 56 | ||
4.2. The different ‘‘qualities’’ of economic activities | 56 | ||
4.3. Diversity, synergies and positive feed-back mechanisms in Renaissance economics | 59 | ||
Particular factors | 61 | ||
General factors | 62 | ||
5. The role of the Renaissance State in the light of recent economic theory | 63 | ||
6. The two canons of economic theory | 68 | ||
7. ‘‘United by a common misconception about our past’’ – the decline and fall of Renaissance economics | 72 | ||
8. The role of public enterprises in this system | 75 | ||
9. Exogenizing the engines of growth: Adam Smith and the loss of knowledge, institutions... | 78 | ||
10. The loss of the state and the revenge of the centaur | 82 | ||
Appendix 1 | 89 | ||
Appendix 2 | 90 | ||
References and further reading | 91 | ||
Chapter Three A Brief Introduction to Veit Ludwig von Seckendorff (1626–1692) | 95 | ||
1. Introduction | 95 | ||
2. The Thirty Years’ War and the context of Seckendorff’s writings | 96 | ||
3. Secckendorff’s life | 98 | ||
4. Seckendorff’s writings | 100 | ||
5. Seckendorff as a mercantilist/cameralist | 102 | ||
6. Conclusion: The right to rule becomes the duty to develop the nation | 103 | ||
References | 104 | ||
Chapter Four Exploring the Genesis of Economic Innovations: The Religious Gestalt-Switch... | 107 | ||
Introduction | 107 | ||
1. The tension between creativity and formalism in economics | 113 | ||
2. Exploring the sources of growth and forever finding new ones | 114 | ||
3. Evolutionary vs. neoclassical economics—the historical roots of the conflict | 119 | ||
4. The religious gestalt-switch: From religion as a deterrent, to religion as a promoter of economic growth | 124 | ||
5. The gestalt-switch and the industrialization of England | 130 | ||
6. Leibniz’ and Wolff’s system: Monads, duties and the holistic attitude to economics | 138 | ||
7. Man’s will, invention, and creativity in Wolff’s ‘System of Duties’ | 142 | ||
8. Conclusion. Understanding Growth: Wolff and the duty to venture beyond a barter-centered economic theory | 146 | ||
Chapter Five Johann Heinrich Gottlob von Justi (1717–1771): The Life and Times of an Economist Adventurer | 163 | ||
Introduction: ‘State Adventurers’ in English and German Economic History | 163 | ||
1. Justi’s Life | 166 | ||
2. Justi’s Influence in Denmark-Norway | 174 | ||
3. Systematizing Justi’s Writings | 177 | ||
4. Justi as the Continuity of the Continental Renaissance Filiation of Economics | 181 | ||
5. Economics at the Time of Justi: ‘Laissez-faire with the Nonsense Left out’ | 184 | ||
6. What Justi knew, but Adam Smith and David Ricardo later left out of Economics | 188 | ||
Geography | 189 | ||
International Trade Theory and Uneven Economic Development | 189 | ||
The Reason for the Urban Bias of Early Economic Development | 190 | ||
How Economic Activities Differ & The Role of Skills and Human Learning | 191 | ||
Context Matters | 192 | ||
Agriculture & Forestry | 192 | ||
The Size of the Population & Population Density | 192 | ||
The Limitations to the Power of the Nobility | 193 | ||
Inventions, Innovations and Technological Change | 193 | ||
Colonies | 193 | ||
‘Dutch Disease’, or, How Too Much Unearned Wealth Destroys an Economy | 194 | ||
7. Conclusion: Lost Relevance that Could be Regained | 195 | ||
Bibliography | 197 | ||
Chapter Six Jacob BIELFELD’S “ON the Decline of States” (1760) and its Relevance for Today | 203 | ||
German Economics: Jacob Bielfeld and his contemporaries | 205 | ||
Jacob Bielfeld – a brief account of life and work | 207 | ||
The Chapter ‘On the Decline of States’ | 210 | ||
E-1. Migration | 211 | ||
E-2. War | 212 | ||
E-3. Excessive demands from neighbouring states | 212 | ||
E-4. Imperial over-extension | 213 | ||
E-5. Dependency | 213 | ||
E-6. Grandiosity of Independence | 213 | ||
E-7. Division of Empire (or “Balkanisation”) | 214 | ||
E-8. Single sovereign (or Sovereignty is indivisible) | 215 | ||
I-1. Unwise Constitutions leading to inequity | 215 | ||
I-2. Insane Sovereign | 215 | ||
I-3. Requirements of state (Public Administration) | 215 | ||
I-4. Relaxation of morals (importance of morals and Rule of Law) | 216 | ||
I-5. Excessive Religion | 216 | ||
I-6. Oppression / Limits on Liberty (or Despotism) | 217 | ||
I-7. Excess of liberty | 217 | ||
I-8. Decline of Production. Neglect of agriculture, commerce, sciences, useful arts and passion... | 217 | ||
I-9. Arrogance, pride, and idleness | 217 | ||
I-10. Senseless laws | 218 | ||
I-11. Excessively large colonies | 218 | ||
I-12. Epidemics and occupational Health | 219 | ||
I-13. Abuse of Spirits and Strong Liquors | 219 | ||
I-14. Relaxation of military discipline | 219 | ||
I-15. Debt | 219 | ||
I-16. Constant internal wrangling | 220 | ||
I-16. Interfering with fundamental laws of government | 220 | ||
I-17. Regicide or assassination of the sovereign | 221 | ||
Bielfeld, Institutions Politiques, volume 2 | 221 | ||
Ch. XV. On the Decline of States36 | 221 | ||
Chapter Seven Raw Materials in the History of Economic Policy; Or, Why List (The Protectionist)... | 243 | ||
Production-Centred vs. | 244 | ||
Barter-Centred Economic Theory | 244 | ||
On ‘good’ and ‘bad’ trade | 247 | ||
On the differing capacity of economic activities to absorb skills and capital | 249 | ||
The ‘Raw and the ‘Cooked’ – The Different Philosophical Underpinnings of Barter-Centred and Production-Centred Economics | 250 | ||
Economic Theory: From ‘Physics Envy’ to ‘Biology Envy’ and From ‘Matter’ to ‘Mind’ | 252 | ||
Cobden and List: The Repeal of the Corn Laws in King’s Taxonomy | 257 | ||
Cobden: free trade in corn in order to achieve cheapness of manufactures | 259 | ||
List: why protecting agriculture is entirely different from protecting industry | 262 | ||
Chapter Eight Compensation Mechanisms and Targeted Economic Growth: Lessons from the History of Economic Policy | 267 | ||
8.1 Introduction | 267 | ||
8.2 The invention of innovation and the targeting of economic growth | 269 | ||
8.3 The activity-specific nature of economic growth and of the possibility for creating compensation mechanisms | 273 | ||
8.4 Technological unemployment in early economic thought | 280 | ||
8.5 Unemployment and the death of Fordism in a historical perspective | 281 | ||
8.6 The future: innovations or a backward-bending supply curve of labour? | 285 | ||
References | 286 | ||
Chapter Nine Karl Bücher and the Geographical Dimensions of Techno-Economic Change: Production-Based... | 289 | ||
1. The Idea of Stages — from Tacitus to Karl Bücher and Carlota Perez | 289 | ||
2. Stages, Postmodernity, and Harmony in Economic Theory | 293 | ||
3. Anthropocentric Economics: Man and his Needs as the core of Economics | 298 | ||
4. Stage Theories and Economic Development: An Overview | 301 | ||
4.1 Early Theories – from Cycles to Stages | 301 | ||
4.2 Friedrich List and Bruno Hildebrand – the First Modern Stage Theories (1840’s) | 304 | ||
4.3 Richard Ely – the Main US Stage Theorist – and his Comparison of Stages (1903) | 305 | ||
4.4 Oppenheimer’s Typology of Typologies | 306 | ||
4.5 Rostow’s Non-communist Manifesto (1960) | 306 | ||
4.6 Porter and the Possibility of Regression (1990) | 307 | ||
4.7 Techno-economic Paradigms – Perez and Freeman (1983/1991) | 307 | ||
5. Bücher’s Four Techno-Geographic Economic Stages | 309 | ||
5.1 Family Economy (Hauswirtschaft) | 310 | ||
5.2 Town Economy (Stadtwirtschaft) | 311 | ||
5.3 National Economy (Volkswirtschaft) | 311 | ||
5.4 The Global Economy | 312 | ||
6. Income Distribution Issues in the Four Stages | 312 | ||
7. Are Stages ‘Obligatory Passage Points’ – or are Short-cuts Possible? | 313 | ||
8. Conclusions and Brief Policy Implications | 316 | ||
References | 318 | ||
Chapter Ten: Austrian Economics and the Other Canon: The Austrians between the Activistic-Idealistic... | 321 | ||
1. Typologies of Economic Theory and the Two Canons | 322 | ||
2. The Two Canons Contrasted as Ideal Types | 333 | ||
3. Canonical Battles: The Head- on Confrontations | 334 | ||
Canonical Methodenstreit 1: Misselden vs. Malynes (1622– 23) | 334 | ||
Canonical Methodenstreit 2: Anti- physiocracy vs. Physiocracy & Adam Smith (ca. 1770– 1830) | 335 | ||
Canonical Methodenstreit 3: The American System vs. The British System (19th Century United States) | 337 | ||
Canonical Methodenstreit 4: The Historical School vs. Marginalism (1883– 1908) | 338 | ||
Canonical Methodenstreit 5. The US Institutional vs. The Neoclassical School (20th Century) | 340 | ||
4. The Austrians and The Other Canon | 341 | ||
5. The 20th Century Closing of the Economic Mind | 348 | ||
6. Understanding Human Cognition: Carl Menger and the King Who Wanted to Make the Perfect Map | 356 | ||
7. Relevance Lost: The Parallel Paths of Austrian and Neo-Classical Economics | 361 | ||
Chapter Eleven Nietzsche and the German Historical School of Economics Neo-Classical Economics | 365 | ||
1. Preface: Nietzsche and the late 19th Century Economic Agenda | 365 | ||
2. The Kathedersozialist Program | 368 | ||
3. Nietzsche and Renaissance Individualism | 370 | ||
4. Nietzsche and the German Economic Tradition | 371 | ||
5. Nietzsche: Social Justice and Welfare | 374 | ||
6. Nietzsche: Entrepreneurship, Gradualism and Uniqueness | 376 | ||
7. Nietzsche in the Middle: Kathedersozialismus and the True Third Way | 379 | ||
8. Conclusion and Notes on Further Research | 381 | ||
Bibliography | 382 | ||
Chapter Twelve Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter | 385 | ||
1. Creative Destruction in Vogue | 386 | ||
2. Creative Destruction before Nietzsche | 388 | ||
2.1. Creative Destruction as a Universal Idea | 388 | ||
2.2. Creative Destruction as a ‘German’ Idea: From Goethe to Nietzsche and Sombart | 389 | ||
2.3. Creative Destruction, Cyclicality, and German Economics | 391 | ||
3. Nietzsche and Creative Destruction | 392 | ||
1st Principle: Creation and Destruction | 394 | ||
2nd Principle: The Opposite of Creation and Destruction is Stagnation | 395 | ||
3rd Principle: The Will to Power | 397 | ||
4th Principle: Life is that which Constantly Overcomes Itself | 398 | ||
5th Principle: Warfare is a Form of Therapy | 400 | ||
Summary and Concluding Remarks about the Principles | 402 | ||
4. Nietzsche in Economics: From Sombart to Schumpeter | 403 | ||
5. Nietzsche and Economics at the Centenary of his Death | 406 | ||
5.1. Methodology | 406 | ||
5.2. Schumpeterian and Evolutionary Economics | 409 | ||
Bibliography | 410 | ||
Chapter Thirteen Schumpeter in the Context of two Canons of Economic Thought | 413 | ||
Schumpeter and Marx: Lost Sailors in a Sea of Anglo-Saxon Economics | 414 | ||
The ‘‘Schizophrenia’’ of Schumpeter’s Thought | 416 | ||
Typologies of Economic Theory and Schumpeter’s Duality | 418 | ||
Schumpeter and the Other Canon at Harvard | 421 | ||
Herbert Somerton Foxwell (1849– 1936): The spirit of Kress Library | 421 | ||
Edwin Francis Gay (1867–1946): Gustav Schmoller and the Harvard ‘‘case method’’ | 423 | ||
Fritz Redlich (1892–1978): The Center for Entrepreneurial Studies at Harvard | 424 | ||
Concluding Remarks: Schumpeter Ascending and in Context | 427 | ||
References | 427 | ||
Chapter Fourteen The Role of Technology in the Creation of Rich and Poor Nations: Underdevelopment... | 431 | ||
Introduction | 431 | ||
Anglo- Saxon vs German economics: theories of even vs theories of uneven growth | 432 | ||
Technological change and Schumpeterian underdevelopment | 437 | ||
The uneven advances of the ‘technological frontier’ | 438 | ||
The two ways in which the benefits from technical change spread | 438 | ||
Three cases of Schumpeterian underdevelopment in the Caribbean | 443 | ||
Cuban counterpoint of tobacco and sugar | 444 | ||
Haiti — economic counterpoint in baseballs and golf balls | 446 | ||
The Dominican Republic and technological change in pyjama production | 446 | ||
The circular flow and the two economic roles of man | 447 | ||
Conclusion: Schumpeterian underdevelopment — policy conclusions past and present | 451 | ||
References | 454 | ||
Chapter Fifteen Towards an Austro– German Theory of Uneven Economic Development? A Plea for Theorising by Inclusion | 457 | ||
1 Introduction | 457 | ||
2 Economics as theorising by exclusion | 459 | ||
3 A study in the history of theorising by inclusion: why economic development requires ‘manufacturing’ | 461 | ||
4 Increased poverty as the result of the break-down of the Fordist wage regime | 469 | ||
5 Conclusion – creating an Austro–German development economics | 471 | ||
References | 473 | ||
Chapter Sixteen The Qualitative Shift in European Integration: Towards Permanent Wage Pressures... | 477 | ||
Introduction: Types of Economic Integration and Definitions of Capitalism | 477 | ||
1. Causes of Uneven Growth as the Basis for a Theory of Types of Economic Integration | 479 | ||
2. From an Understanding of Uneven Development to a Taxonomy of Economic Integration | 481 | ||
I. Symmetrical Free Trade Areas | 484 | ||
A. Listian Integration (From Friedrich List) | 484 | ||
B. Peripheral Symmetrical Integration | 484 | ||
II. Asymmetrical Free Trade Areas | 485 | ||
A. ‘Colonial’ and Non- Integrative | 485 | ||
B. Flying Geese, or Sequential Technological Upgrading | 486 | ||
C. Welfare Colonialism | 487 | ||
D. Integrative and Asymmetrical Integration | 487 | ||
3. The New Europe: Cost and Nature of the Integration | 488 | ||
3.1 Characteristics of Transition | 488 | ||
3.2 Quality of Industrial Change | 491 | ||
3.3 International Trends and Regional Diversity add to the Problems | 498 | ||
4. Conclusion | 502 | ||
Appendix 1: The Flying Geese Pattern of Sequential Economic Development | 508 | ||
Bibliography | 509 | ||
Chapter Seventeen Primitivization of the EU Periphery: The Loss of Relevant Knowledge | 513 | ||
1 Introduction | 513 | ||
Knowledge Lost: A Brief Aside on the Financial Crisis | 514 | ||
2 The Ignored Knowledge of von Thünen, List and Schumpeter | 514 | ||
2.1 Von Thünen’s Model of Concentric Circles | 515 | ||
2.2 Friedrich List’s Economic Principles | 518 | ||
2.3 Schumpeter’s Concept of Innovation and Creative Destruction | 520 | ||
3 Europe’s Failed Response: The Lisbon Strategy as a List of Good Intentions | 522 | ||
4 Conclusion | 524 | ||
References | 527 | ||
Chapter Eighteen Mechanisms of Financial Crises in Growth and Collapse: Hammurabi, Schumpeter, Perez, and Minsky | 529 | ||
Introduction | 529 | ||
Financial Crises were understood from left to right – but unlearned all along the political axis | 530 | ||
The Hammurabi Effect and ‘Debt Deflation’ | 532 | ||
Hyman Minsky | 535 | ||
Carlota Perez: Financial Crises and Technological Change | 538 | ||
Save the Financial Economy or Save the Real Economy? | 540 | ||
The Growth of the FIRE Sector Displaces the Real Economy | 542 | ||
The FIRE Sector Takes Over: The Third World | 543 | ||
The FIRE Sector Takes Over: The Second World | 545 | ||
The FIRE Sector Takes Over: The First World | 547 | ||
Conclusion: The Mentality that Created the Crisis, its Consequences and Possible Remedies | 548 | ||
Chapter Nineteen Full Circle: Economics From Scholasticism Through Innovation and Back... | 555 | ||
The schoolmen as a prototype of success and decay of science | 557 | ||
The start of a new scientific trajectory: Meyen’s 1769 price essay, ‘‘Why is it that economics so far... | 559 | ||
Meyen on the relationship between agriculture and manufacturing | 562 | ||
Meyen on technology, science and innovations | 563 | ||
Meyen on resistance to change | 563 | ||
Meyen on ‘‘synergies’’ | 564 | ||
Meyen on types of nations | 564 | ||
Conclusion: history as the way out of scholasticism | 565 | ||
References | 566 | ||
Chapter Twenty Werner Sombart (1863–1941) and the Swan Song of German Economics | 569 | ||
End Matter | 577 | ||
Index | 577 |