Joseph A. Schumpeter: Joint Review of Bernhard Rost and Otto Karmin (1906)

Schumpeter’s 1906 joint review, Bernhard Rost: Über das Wesen und die Ursachen unserer heutigen Wirtschaftskrisis; Otto Karmin: Zur Lehre von den Wirtschaftskrisen, evaluates two approaches to an unresolved theoretical problem. Its guiding distinction is between describing economic disturbances, identifying conditions that aggravate them, and explaining their causes.

Die Lösung des Krisenproblems steht noch aus, obwohl gerade in letzter Zeit eine überaus große Zahl von größeren und kleineren Arbeiten sich damit beschäftigte.

English translation: The solution of the problem of crises is still outstanding, although precisely in recent times an exceedingly large number of works, larger and smaller, have occupied themselves with it.

Despite the classical economists’ contributions and advances associated with Juglar, Schumpeter finds no satisfactory crisis theory. He considers the view, associated with von Boehm, that crises must be understood through the totality of economic phenomena, while leaving open whether retreat from explanations through specific causes is justified.

Man wird heute daher nicht mehr so leicht versuchen, für die Krisenerscheinung eine einfache Formel zu finden.

English translation: Today, therefore, one will no longer so readily attempt to find a simple formula for the phenomenon of crises.

This caution frames both assessments. Schumpeter remains receptive to focused causal inquiry but demands more than an attractive formula or an inventory of economic grievances.

Rost’s definition of crises as acute diseases of the economic organism, caused by insufficient physical or value productivity of land and capital, strikes Schumpeter as unsuccessful. The accompanying classification likewise offers little theoretical gain. His judgment becomes more favorable toward the historical account before turning critical again at the diagnosis:

Im zweiten Kapitel ist ein — soweit ich überblicke — korrekter Abriß der deutschen Wirtschaftsgeschichte von 1890 herwärts gegeben: im dritten an die Diagnose der deutschen Krisis schreitend, erklärt er sie als eine Spekulationskrisis.

English translation: In the second chapter there is given a — so far as I can survey the matter — correct outline of German economic history from 1890 onward; in the third, proceeding to the diagnosis of the German crisis, he explains it as a crisis of speculation.

Schumpeter regards the emphasis on speculation as one-sided. His principal objections concern Rost’s five proposed causes: Caprivi’s trade policy, debt conversion, weakened agricultural purchasing power, cartel pricing, and stock-exchange legislation. The contrast with Karmin is revealing: trade treaties blamed by Rost are credited by Karmin with limiting the crisis’s damage.

Schumpeter repeatedly separates adverse conditions from adequate causal explanations. Rost exaggerates the significance of income losses from debt conversion. Agricultural weakness matters but cannot bear the explanatory weight assigned to it. Criticism of the coal cartel has some justification, yet its pricing policy also supported its survival as a stabilizing industrial organization. Condemning lower export prices as unjust does not establish them as a cause of crisis. Similarly, Schumpeter regards German stock-exchange policy as seriously misguided while distinguishing its aggravating effects from the origins of the disturbance. Rost’s remedies—commercial autarky, intervention in cartels, and palliatives—do not overcome these weaknesses.

Karmin’s inquiry concerns disturbances that significantly reduce mass economic welfare, particularly consumption, excluding financial crises without such consequences. Schumpeter finds the definition through incongruences between production and consumption useful, but insists that identifying a discrepancy does not explain its causes or effects. Comparison with Pareto’s treatment of disturbed economic equilibrium suggests a potentially fruitful return to specific causes using modern theoretical tools. Whether this approach can outperform explanation through the economic system as a whole remains unresolved.

Karmin’s second thesis distinguishes predominantly production crises before mechanization and improved transport from consumption crises afterward. Schumpeter judges the argument partly obvious and partly unsupported. Better transport can alleviate shortages, and production for known customers can reduce mismatches; neither establishes a categorical historical division. Scarcity of evidence about ancient and medieval consumption crises does not demonstrate their absence.

Schumpeter broadly accepts Karmin’s third thesis that capitalism cannot substantially restrict consumption crises, but questions its derivation from private landed property after economic dynamics has been declared inadequate. He considers simpler theoretical reasoning possible. Karmin’s fourth thesis proposes that socialist coordination would prevent incongruence and that eliminating entrepreneurial profit and ground rent would make consumption rise with productive capacity. Schumpeter treats these as consequences of earlier premises rather than independently demonstrated solutions; their institutional feasibility remains unexamined.

The review’s unifying contribution is methodological. Definitions, historical descriptions, harmful policies, and reform proposals must be distinguished from causal explanation. Schumpeter leaves competing approaches open while requiring them to demonstrate mechanisms rather than merely redescribe disturbances or prescribe institutional change.