The Economic Possibilities
John Maynard Keynes and Joseph Schumpeter were in many ways the most influential academic economists of the twentieth century During what is customarily regarded as a crucial period of innovation, criticism, and transition in economic theory, each of the discipline’s two great centers of teaching in the English-speaking world, Cambridge and Harvard, was dominated by a single and powerful intellectual influence. They were both engaged in an attempt to bring the contributions of the masters of late nineteenth-century economic theory up to date so as to arrive at a better understanding of the conditions that industrialized market economies were beginning to encounter.
Although Keynes was rather more critical of his own theoretical upbringing than was Schumpeter,1 in one key way they took up strikingly similar positions with respect to their predecessors. Each seems to have been driven by a desire to qualify, with a degree of realism previously neglected in orthodox circles, the rather too optimistic conclusions they felt earlier theorists had drawn concerning the probable futurity and long-run efficacy of the system of free-market capitalism. This involved them in a project of reform and revision that was carried forward on two fronts—in theoretical writings, and in social and political criticism—and this feature brings out a connection between the two of some importance. Keynes and Schumpeter occupy prominent positions in the history of that broad tendency that emerged in the first half of the twentieth century that was to culminate in the replacement of nineteenth-century liberalism with twentieth-century social democracy.