The failed Austrian Swedish school connection

During the late 19^th and early 20^th centuries Europe saw the development of three competing schools of economics; the Austrian, the Swedish (Stockholm) and the French, with their respective founding fathers; Menger/ Schumpeter, Wicksell and   Walras. The winner at the time, the Walrasian , or neoclassical model,  is currently subjected to competitive pressure from Austrian/ Schumpeterian  economists for its lack of dynamic content, and its incompatibility with a meaningfully defined entrepreneur. While Schumpeter verbally gave the entrepreneur a role in economic development, the concept of ex ante and ex post of the Stockholm school economists defined an opening for modeling the entrepreneur, which they missed by refusing to take their analysis down to the micro level. The followers of Walras, however, soon eclipsed the two alternative schools, which therefore failed to connect. Instead the world got the general equilibrium model, that still fails to recognize a meaningfully defined entrepreneur

So during the early post WWII years Walrasian minded  economists managed to disconnect a promising merge of the Schumpeterian and Stockholm  schools, and for decades more or less block the development of evolutionary economics. This paper is a fresh start of what should then have been done in the form of a synthesis of the two schools. I first take my analysis down to the micro level, where differing and inconsistent ex ante plans of individual behaving actors are confronted in markets to result in systematic differences between individual plans and realizations. With short run dynamics in the form of such individual differences allowed to influence long term macro developments in what I call an Experimentally Organized Economy (EOE), I am addressing Schumpeter´s (1939) original problem in Business Cycles.  I use a quantitative micro  based model approximation  of the EOE to study this dynamics, with special reference to Wicksell´s cumulative process.

Dynamic coordination of economic activities over markets and through hierarchies is the main theme of this essay. Coordination failure engaged the great names of economics in the discussion of the 1930s. I therefore link my discussion to Loasby´s (1998) two forms of coordination failure; (1) failure of economists to model the coordination of an economy “out of equilibrium,” and (2) failure of economists of competing schools to understand, to learn, and to benefit from each other. Had the second failure not occurred, neither would the first, and the theory of economic dynamics might have looked very different today.