Preface

Schumpeter’s 1930 “Preface” to F. Zeuthen’s Problems of Monopoly and Economic Warfare is a short prefatory essay and disciplinary intervention, not a standalone treatise or multi-author volume. Its scope is the condition of economic theory as revealed by a single pressure point: markets between perfect competition and pure monopoly, especially monopolistic competition, bilateral monopoly, and economic warfare.

He begins by comparing recent theory to the period after Mill. Many economists, especially around Marshall and Pareto, had begun to speak as though the fundamentals were settled. Schumpeter concedes that this confidence rested on real achievement: the inherited apparatus had to be defended, taught, and applied. His objection is to finality. A theory that refuses further questioning risks petrification and provokes anti-theoretical reaction. The preface’s main thesis is therefore methodological: keep the theoretical engine, but let it be altered by use, new materials, and unsolved problems.

Monopoly theory is the exemplary unsolved problem. Pure monopoly—one seller facing competitive buyers—has been treated with great rigor; the unresolved field is everything between that limiting case and perfect competition, which is practically the reality of markets. Schumpeter is careful: competition remains a valid analytical starting point even if it is not empirically normal. But when economists discuss policy while brushing aside noncompetitive facts, criticisms of unreality become partly justified. Theory must aid factual research rather than drive it away.

Zeuthen’s book is important because it enters this neglected middle terrain. Schumpeter recommends it as both monograph and textbook, original yet introductory, technical yet readable. Its value is not simplification but disciplined usefulness; economics cannot serve practical readers by pretending difficult cases have easy answers.

Even so, of course, the general reader will have to make up his mind, whether he wants simple answers to his questions or useful ones—in this as in other economic matters he cannot have both.

The preface then maps Zeuthen’s structure. The opening chapter refreshes familiar material; the second and third chapters treat “Monopolistic Competition” and “Bilateral Monopoly,” where disagreements often arise because economists fail to specify the hypotheses under which conclusions hold. Schumpeter presents Zeuthen’s core move as a taxonomy of assumptions and behavior rather than a search for one universal monopoly formula.

Dr. Zeuthen goes to the root of the perplexities by stressing the importance of clearly distinguishing the hypotheses peculiar to every one of the many possible cases and of working out a great number of possible types of behaviour.

The fundamental analytical contrast is between competitive compulsion and strategic discretion. In competition, agents accept the data of the situation because deviation is punished; in monopoly-like cases, actors may change those data, bargain, threaten, consider distant futures, or act from non-economic motives. Indeterminacy is thus not a failure of thought alone, but a consequence of market power enlarging possible conduct.

In a competitive market people not only have a motive to act as they do, but they cannot, without incurring heavy penalty, act differently.

Schumpeter nevertheless rejects the conclusion that intermediate markets must dissolve into Edgeworthian “chaos.” Even simple monopoly is not determined with the strictness of perfect competition, yet economists still speak meaningfully of monopoly price. The relevant question is whether specified, reasonable assumptions yield determinate results in that qualified sense. Zeuthen, Schumpeter argues, shows that many cases do.

A large group of cases emerges, for various reasons not without claim to the epitheton ornans »normal«, which undoubtedly yield »determinateness« of equilibrium.

The final section concerns Zeuthen’s chapter on “Economic Warfare,” where parties try to force terms by withdrawing, or threatening to withdraw, what they control. Schumpeter is cautious about quantifying strikes and similar conflicts, since irrational elements may be too prominent. Yet he admires the attempt to analyze bargaining ranges, costs, and chances of success, because economic conflict may itself become more rationalized.

And if so, is it not the duty of science to try to precede practice rather than follow it?

The preface’s relevance lies in this balanced program: against anti-theoretical empiricism, Schumpeter defends rigorous theory; against complacent formalism, he demands that theory confront strategic, institutionally consequential market forms where real economic life most often occurs.