The German economist Arthur Spiethoff was born in Dusseldorf in 1873.

He studied economics and politics in Berlin and was an assistant of Gustav Schmoller between 1899 and 1908. In 1905 he received a PhD for his work on economic crises. After finishing his habilitation in 1907 Spiethoff became full professor at the German University of Prague in 1908.

Arthur Spiethoff is known for his work on economic methodology and business cycles. In the History of Economic Analysis Joseph A. Schumpeter notes that Spiethoff is one of “most eminent members” of “a ‘youngest’ historical school” and that “[t]he international reputation of Arthur Spiethoff... rests upon his outstanding performance in the field of business cycle research” (Schumpeter 1954: 815-16).

Between Spiethoff and Schumpeter there is both a personal and intellectual connection. As noted by Kurz (2013), they were not only friends but also shared similar methodological positions. Schumpeter was influenced by what Spiethoff termed “historical” or “observational theory”. Observational theory building starts with empirical and historical investigations of the phenomenon under consideration in order to identify and isolate its essential regularities. Then it tries to provide a causal explanation of the essential regularities using theoretical concepts and tools (see Spiethoff 2002a: 109-12). In his later methodological work, Spiethoff further aimed at reconciling pure theory and historical studies by developing a theory of “economic styles” (see, for example, Gioia 1997). Two of Spiethoff’s methodological publica­tions in English are “The ‘historical character’ of economic theories” (Spiethoff 1952) and in 1953 “Pure theory and economic Gestalt theory: ideal and real types” (Spiethoff 1953).

Moreover, both Spiethoff and Schumpeter studied business cycles and “were con­vinced of the endogenous nature of the ups and downs of economic activity and sought to understand the ‘beat of the heart’ of the capitalist economy” (Kurz 2013: 152, origi­nal emphasis). Spiethoff’s most important work on business cycles is his famous essay “Krisen” (“Business cycles”) published in 1925 in German (Spiethoff 1925). The English translation was published as Business Cycles in 1953 (see Spiethoff 2002a). The essay builds on his 1902 article “Vorbemerkungen zu einer Theorie der Uberproduktion” (“Preliminary remarks to a theory of overproduction”) (see Spiethoff 2002b), which marks the beginning of Spiethoff’s analysis of crises and cycles. The follow-up book Die wirtschaftlichen Wechsellagen. Aufschwung, Krise, Stockung (Economic Cycles. Upswing, Crisis and Stagnation) was published in 1955 (Spiethoff 1955). The two volumes include both a reprint of his 1925 essay and the large amount of statistical material on which his theory of the business cycle is based.

For Spiethoff, the endogenous business cycle is a relatively new phenomenon but nonetheless a very significant one: “The ‘normal state’ is neither the upswing, nor the downswing, nor, least of all, the crisis. What is normal in a free, highly capitalist market system based on money, is the business cycle” (Spiethoff 2002a: 200). This view on economic fluctuations was shared by Schumpeter, who states that “with the possible exception of Marx, Spiethoff was the first to recognize explicitly that cycles are not

merely a non-essential concomitant of capitalist evolution but that they are the essential form of capitalist life” (Schumpeter 1954: 1127).

Spiethoff’s explanation of endogenous business cycles rests on three elements: (1) the profit motive as the driver of the system, (2) a distinction between the role of invest­ment and consumption goods in explaining business cycles and (3) overproduction as an unavoidable consequence of any upward movement.

The upswing consists of two phases: revival and expansion. The revival is a child of the slump, in which interest rates and wages are low due to capital laying idle and owing to high unemployment. However, these circumstances alone do not suffice to bring about an upswing, but profit expectations must turn positive to induce an expansion of economic activity: “The ultimate cause of the upward movement is of a psychological rather than of an economic nature” (Spiethoff 2002a: 181). The psychological momen­tum facilitating the upswing is provided by pioneers, who engage in risky investment projects. If they succeed their high profit margins induce others to revise their profit expectations for the better in the light of promising investment opportunities. What is needed are “brave, enterprising men... willing to risk a large part of their fortune... They can, however, set the pace for investment and for the upswing only to the extent to which they are blessed with a success which will be as visible as a beacon” (Spiethoff 2002a: 182-3).

Spiethoff argues that the success of the pioneers is mostly due to their conquest of “fields of new profits” (2002a: 183) and that rising expected profitability “appears to have originated chiefly in two wide fields: the expansion of world trade, i.e. the opening up of fresh markets, and technical development” (ibid.: 183). A higher expected profit­ability leads to an increase in real capital formation and therefore an increase in the demand for investment goods.

After a successful take-off, the economy expands and booms. The boom is character­ized by a “chain of upswing phenomena”. Spiethoff explains: “As with a rolling snow­ball, each turn expands the sphere: increased investment, increased consumption, rising prices and profits, together with the expansion of production and of capital formation and then again increased investment etc....

The essential feature of the upswing are rising consumption of certain capital goods and rising prices of those goods. In his empirical studies, Spiethoff singled out iron con­sumption per capita as a good indicator of economic fluctuations.

The end of every boom is brought about by overproduction of durable capital goods. Spiethoff emphasizes disproportions between different spheres of production owing to uneven expansion of different sectors and time lags in the adjustment of capacity and production to demand as the main source of the slow-down. This idea is captured by the concept of disproportionate production:

The means of production may be wrongly distributed, so that overproduction in one place cor­responds to insufficient production in another (disproportionate production). Recent research has shown overinvestment to be the most important form. This kind of overproduction is concentrated in indirect consumption goods and is caused by an excess of investment for the construction of industrial plant and long-term public utilities (investment goods) over both demand and disposable savings. (Spiethoff 2002a: 113-14, original emphasis)

Moreover, the shortage of complementary input factors like working capital and labour of certain skills induces an upward pressure on wages and interest rates. This squeezes profit margins, frustrates investors and further decelerates expansion. Then, “self­propagating downswing forces” (Spiethoff 2002a: 196) unfold and lead the system into a crisis in which prices, interest rates and wages move down, re-establishing favourable conditions for an new upswing.

David Haas

See also:

Business and cycles and growth (III); German and Austrian schools (II); Historical economics (II); Joseph Alois Schumpeter (I).

References and further reading

Clausing, G. (1958), ‘Arthur Spiethoff ’s wissenschaftliches Lebenswerk’, Schmollers Jahrbuch fur Gesetzgebung, Verwaltung und Volkswirtschaft, 78, 257-90.

Gioia, V. (1997), ‘Historical changes and economics in Arthur Spiethoff’s theory of Wirtschaftsstil (style of an economic system)’, in P. Koslowski (ed.), Methodology of the Social Sciences, Ethics, and Economics in the Newer Historical School. From Max Weber and Rickert to Sombart and Rothacker, Berlin and Heidelberg: Springer, pp. 168-90.

Kamp, M.E. (1969), ‘Arthur Spiethoff’, in M.E. Kamp and F.H. Stamm (eds), Bonner Gelehrte. Beitrage zur Geschichte der Wissenschaften in Bonn. Staatswissenschaften, Bonn: H. Bouvier und Co. Verlag - Ludwig Rohrscheid Verlag, pp. 26-44.

Kurz, H.D. (2013), ‘The beat of the economic heart. Joseph Schumpeter and Arthur Spiethoff on business cycles’, Journal of Evolutionary Economics, 25 (1), 147-62.

Schumpeter, J.A. (1954), History of Economic Analysis, London: Allen & Unwin.

Spiethoff, A. (1902), ‘Vorbemerkungen zu einer Theorie der Uberproduktion’, Schmollers Jahrbuchfur Gesetztgebung, Verwaltung und Volkswirtschaft im Deutschen Reiche, 26, 721-59.

Spiethoff, A. (1925), ‘Krisen’, Handworterbuch der Staatswissenschaft, 6, 8-91.

Spiethoff, A. (1952), ‘The “historical” character of economic theories’, Journal of Economic History, 12 (2), 131-9.

Spiethoff, A. (1953), ‘Pure theory and economic Gestalt theory: ideal types and real types’, in F.C. Lane and J.C. Riemersma (eds), Enterprise and Secular Change: Readings in Economic History, London: George Allen & Unwin, pp. 444-63.

Spiethoff, A. (1955), Die wirtschaftlichen Wechsellagen. Aufschwung, Krise, Stockung, with a preface by Edgar Salion, 2 vols, Tubingen and Zurich: Polygraph.

Spiethoff, A. (2002a), ‘Business cycles’, in H. Hagemann (ed.), Business Cycle Theory. Selected Texts 1860­1939, II, Structural Theories of the Business Cycle, London: Pickering & Chatto, pp. 109-205, paper first published 1953.

Spiethoff, A. (2002b), ‘Preliminary remarks to a theory of overproduction’, in H. Hagemann (ed.), Business Cycle Theory. Selected Texts 1860-1939, II, Structural Theories of the Business Cycle, London: Pickering & Chatto, pp. 45-76, paper first published 1902.