William Baumol, RIP
William Baumol, former professor of economics at Princeton and NYU, has passed away at the age of 95. Throughout his long career he contributed to many fields in economics, and he leaves behind an influential body of research on numerous topics relating to innovation and economic growth. He will mostly likely be remembered by Austrians, however, for his repeated calls to economists for more research on the role of the entrepreneur—calls that, sadly, have gone mostly unanswered.
Baumol was not an Austrian as such, but he did make a number of contributions to economics that Austrians take seriously, especially in the field of entrepreneurship. In particular, his 1990 paper, “Entrepreneurship: Productive, Unproductive, and Destructive” is commonly cited in Austrian circles, and remains one of the most influential contributions to the field of economics and institutions. In it, Baumol provides a concise explanation of how institutions channel entrepreneurial talent in society. As he explains, for many centuries and in many different countries, poor institutions, especially in government, rewarded “unproductive” entrepreneurship in areas like politics while penalizing “productive” entrepreneurship in service to consumers. As a result, innovation and growth were uncommon and standards of living were low for most of human history. (For those interested in exploring this work further, I’ve written a survey of Baumol’s argument and its influence, which can be found here, and I’ve also applied his argument to an entrepreneurial episode in economic history, here.)
In addition, much of Baumol’s other research is also relevant in one way or another for contemporary Austrians, including his work on “contestable markets,” which he developed as a more realistic alternative to the perfect competition model. As Mateusz Machaj explains, there are opportunities for Austrians to revise and refine Baumol’s theory of contestable markets in order to use it as a basis for understanding entrepreneurial competition and the effects of government intervention.
On another note, Austrians have often suggested Baumol as a potential contender for the Nobel Prize, an award he never managed to receive. In fact, many argued that the prize would be jointly award to Baumol and Israel Kirzner for their individual contributions on the topic of entrepreneurship. Now that Baumol has passed away, however, this particular pairing is not to be. Yet it’s worth noting that Baumol’s chances of receiving a Nobel, at least in the past few years, were increasingly slim. At the age of 95, he was already older than any previous winner, including economist Leonid Hurwicz, who, at 90, remains the oldest Nobel laureate in any category. It’s therefore likely that Baumol’s moment had passed.
In any case, Baumol will surely be remembered as a lively voice in the economics profession, especially through his vital role in supporting the study of entrepreneurship, not to mention his original contributions to that study. He deserves to be listed among the most influential entrepreneurship scholars in the history of economics, along with Richard Cantillon, Jean-Baptiste Say, Frank Knight, Ludwig von Mises, and, especially in Baumol’s case, Joseph Schumpeter.