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Eugen Schmalenbach, Austrian economics, and German business economics

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Michael Olbrich
Michael Olbrich
Michael Olbrich
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David J. Rapp at ISG Business School
David J. Rapp
Florian Follert at Seeburg Castle University
Florian Follert
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Abstract

Eugen Schmalenbach was one of the founding fathers of business economics theory in the German-speaking world in the first half of the twentieth century. While Mises mentions or discusses Schmalenbach’s work several times and Schmalenbach refers to, for example, Menger and Böhm-Bawerk, his opus and its significance for Austrian theorizing is largely ignored by today’s Austrian scientific community. This fact is astonishing given that Schmalenbach’s work smoothly integrates with and, even more importantly, enhances the reach of Austrian theory into the field of business economics, particularly with regard to the vast field of economic calculation. Based on Austrian insights, Schmalenbach published extensive approaches to both retrospective and anticipatory monetary calculation that serve the entrepreneur in making decisions on the use of scarce resources and in assessing the success of such decisions ex post. Hence, he operationalized Austrian economic calculation to enable the individual entrepreneur to concretely exercise it in his routine course of business. The conceptual ideas of Schmalenbach are cornerstones of Prussian-German business economics (Betriebswirtschaftslehre) which has been taught in universities and business schools in German-speaking countries for more than a century now. This paper, therefore, aims to introduce the Austrian community to Schmalenbach’s work, to emphasize its significance for the advancement of Austrian theorizing, and to illustrate the close relations between Austrian economics and German business economics.
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Eugen Schmalenbach, Austrian economics,
and German business economics
Michael Olbrich
1
&David J. Rapp
2,3
&Florian Follert
1
#Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract
Eugen Schmalenbach was one of the founding fathers of business economics
theory in the German-speaking world in the first half of the twentieth century.
While Mises mentions or discusses Schmalenbach’s work several times and
Schmalenbach refers to, for example, Menger and Böhm-Bawerk, his opus and
its significance for Austrian theorizing is largely ignored by today’s Austrian
scientific community. This fact is astonishing given that Schmalenbach’swork
smoothly integrates with and, even more importantly, enhances the reach of
Austrian theory into the field of business economics, particularly with regard to
the vast field of economic calculation. Based on Austrian insights,
Schmalenbach published extensive approaches to both retrospective and antici-
patory monetary calculation that serve the entrepreneur in making decisions on
the use of scarce resources and in assessing the success of such decisions ex
post. Hence, he operationalized Austrian economic calculation to enable the
individual entrepreneur to concretely exercise it in his routine course of busi-
ness. The conceptual ideas of Schmalenbach are cornerstones of Prussian-
German business economics (Betriebswirtschaftslehre) which has been taught
in universities and business schools in German-speaking countries for more
than a century now. This paper, therefore, aims to introduce the Austrian
community to Schmalenbach’s work, to emphasize its significance for the
advancement of Austrian theorizing, and to illustrate the close relations between
Austrian economics and German business economics.
Keywords Eugen Schmalenbach .Austrian economics .German business economics .
Economic calculation .Capital accounting .Cost accounting
JEL classification B25 .M21 .M41
https://doi.org/10.1007/s11138-020-00520-x
*David J. Rapp
david.rapp@imt–bs.eu
Extended author information available on the last page of the article
Published online: 6 July 2020
The Review of Austrian Economics (2022) 35:205–233
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
... We do the same for the relationship between prospective calculation and Schumpeter's approach to the entrepreneur in section 4. In this regard, we build on "investment theory," a stream of business economics literature that has several intellectual connections to the work of the Austrian school and has developed particularly in the Germanspeaking world. It deals primarily with the appraisal of investment options under conditions of imperfect markets, uncertainty, and subjective preferences (see Olbrich et al., 2015Olbrich et al., , 2022. In this approach, prospective calculation is shown to support entrepreneurial judgment à la Foss and Klein (2012) in actual business practice (e.g., Rapp & Olbrich, 2023). ...
... There is a related literature that approaches entrepreneurship and economic calculation from a different angle. Olbrich et al. (2015), Herbener and Rapp (2016), Rapp, Haßlinger, and Olbrich (2018), and Olbrich et al. (2022) go into the details of accounting and investment appraisal. However, they do not integrate their insights systematically into the theory of the entrepreneur. ...
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... This comment aims to uncover the misconceptions inherent in Kruk's argument and to present alternative ways of addressing uncertainty when using the NPV as a tool to support entrepreneurial decision-making. To do so, we build on Prussian-German business economics, especially investment theory, which has been developed in the German-speaking world based on Austrian economics (Schmalenbach 1919, 334;Mises 1933, 9;[1960] 2003Schmidt 1933, 106;Herbener and Rapp 2016, 13;Olbrich, Rapp, and Follert 2020) and which fully adopts the perspective of the acting individual rather than building on the well-known escapist assumptions of neoclassicism. Kruk's (2020, 138) diagnosis is that "wealth maximizing investors are evaluating projects only using risk-free NPV [and that, hence,] they may underestimate the risk associated with their investment decisions." ...
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... Hier dominiert ein Gleichgewichtsdenken, auf dessen Basis ein hypothetischer Marktwert ermittelt werden soll (Hering, 2021;Matschke & Brösel, 2013). Die Investitionstheorie, welche sich heute in der Funktionalen Schule manifestiert (auch "deutsche Schule" Hering (2004)), fußt hingegen auf der Österreichischen Schule der Nationalökonomie und fundiert ihre Entscheidungsmodelle insbesondere durch die Wiener Grenznutzenschule (Hering, 2004;Olbrich et al., 2015Olbrich et al., , 2022Quill, 2016). Obwohl sich ein wissenschaftlicher Erkenntnisprozess in den seltensten Fällen nach Mehrheiten richtet, kann die auf der Neoklassik basierende marktwertorientierte Bewertung derzeit als sogenannter "mainstream" und die auf der Marginalanalyse fußende investitionstheoretische Bewertung als Mindermeinung eingestuft werden., was sich für das Schrifttum im deutschen Sprachraum auch empirisch zeigt (Follert, 2020b). ...
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... Some other works in this area include books like Spitznagel's The Dao of Capital (Spitznagel, 2013), Austrian School for Investors by Taghizadegan et al. (2016), Calandro Jr.'s Applied Value Investing (Calandro Jr., 2009), and Skousen's A Viennese Waltz Down Wall Street (Skousen, 2013) as well as papers such as Grimm's (2012) "Fundamental Analysis as a Traditional Austrian Approach to Common Stock Selection." Those contributions fundamentally differ from Herbener and Rapp (2016) and related papers (e.g., Follert et al., 2018;Olbrich et al., 2022;Olbrich et al., 2015). To a great degree, they embrace a particular investing heuristic, namely the value investing paradigm, and essentially claim that value investing provides a genuinely Austrian investment framework (Rapp et al., 2017). ...
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