Joseph A. Schumpeter: Review of Carl Landauer’s Grundprobleme der funktionellen Verteilung des wirtschaftlichen Wertes (1928)

Schumpeter’s review of Landauer’s 1923 book presents the clarification of economic theory’s elementary apparatus as a substantive scientific achievement. Its enthusiastic assessment rests on a diagnosis of the discipline: renewed theoretical interest lacks a reliable shared tradition, while even elementary questions remain controversial. Patient exposition therefore establishes the common ground necessary for further inquiry. Landauer’s contribution combines this pedagogical task with corrections and extensions of distribution theory.

The review follows the book’s two-part structure. The first part defends functional distribution within the controversy over power and economic law. Schumpeter particularly values Landauer’s distinction between economic and extra-economic power, his account of their relationship, and his treatment of aggregate value complexes—an expression Schumpeter considers more precise than many uses of “monopoly.” These distinctions promise to reconcile a confused controversy. Here he credits Landauer with advancing beyond both his own position and Böhm-Bawerk’s.

The second part, organized around imputation—the attribution of value to productive factors—constitutes the book’s principal achievement. Schumpeter distinguishes inquiry into the working details of theoretical analysis from methodological and philosophical preliminaries, which he finds disproportionately abundant and insufficiently productive. Landauer’s concentration on German theory, supplemented by Clark, has pedagogical advantages, although Marshall could have simplified parts of the argument and Pareto’s treatment of the utility unit deserved consideration.

Schumpeter recommends the introductory and critical sections for seminar teaching. Their importance lies in disentangling physical from value imputation and ethical from economic attribution, confusions perpetuated partly by older expositions themselves:

Wer sich da schnell zurechtfinden will, kann kaum Besseres tun, als den erwähnten ersten Abschnitt vornehmen.

English translation: Anyone wishing to find their bearings here quickly can hardly do better than take up the aforementioned first section.

The subsequent discussions of Liefmann, Mohrmann, O. Conrad, and Davenport serve as exercises in value-theoretical reasoning. Their educational force is inseparable from their scientific purpose: working through objections trains readers to avoid recurrent conceptual traps.

Schumpeter singles out Landauer’s argument that correct imputation is conceptually possible in a non-monetary economy and yields fundamentally the same results as in a monetary economy. He stresses its contemporary significance against the differing views of Mises, Cassel, and Neurath, but distinguishes conceptual possibility from practical measurement. Landauer does not pursue the latter difficulty far enough:

Aber unsere Maßeinheit laboriert eben an der Tatsache, daß sie sich nicht nur bei den, sondern auch infolge der Veränderungen selbst ändert, die sie messen soll, von der Schwierigkeit ihrer eindeutigen Bestimmung gar nicht zu reden.

English translation: But our unit of measurement suffers precisely from the fact that it changes not only during, but also as a consequence of, the very changes it is supposed to measure, quite apart from the difficulty of determining it unambiguously.

The objection concerns an unstable measure, not merely a lack of observations. Even the statistical construction of a utility unit, which Schumpeter anticipates from Irving Fisher, must confront this problem. Establishing the possibility of measuring satisfaction does not by itself supply an operational method.

The review then identifies concrete gains in imputation theory. Landauer resolves the objection that the values attributed to the elements of a productive combination must exceed the product’s value. His concept of negative complementarity also connects imputation with accounting and with the mutual influence on value among similar units of a stock. Schumpeter prizes precisely such generalizations because they become practically fruitful once understood.

The final discussion addresses marginal productivity:

Der vierte Abschnitt sei als Einführung in den gedanklichen Apparat der Grenzproduktivitätstheorie dringend empfohlen.

English translation: The fourth section is strongly recommended as an introduction to the conceptual apparatus of marginal productivity theory.

Schumpeter nevertheless doubts that Landauer’s problem of small increments poses especially grave difficulties. For particular problems, sufficiently small units will usually suffice without being infinitesimal; elsewhere, distinctions between tendency and deviation and Marshall’s quasi-rent offer assistance. He still recognizes Landauer’s treatment as a pioneering systematic investigation. The review’s lasting relevance lies in this discriminating standard of theoretical progress: conceptual clarification, teachable analytical procedures, and useful corrections deserve strong praise without removing the need to test their practical limits.