[Review] Stephan Schulmeister - The Road to Prosperity

Addendum 2026-06-09:

The Review has been updated.

Siehe auch:
[Rezension] Stephan Schulmeister - Der Weg zur Prosperität - Das Widerlegen von Mythen

Stephan Schulmeister is an economist and lawyer from Austria who has little in common with the economically liberal so-called Austrian school. The economist born on August 26, 1947 was a research assistant at the Austrian Economic Research Institute (Österreichisches Institut für Wirtschaftsforschung/WIFO) for forecasts, economic development, financial markets and international trade from 1972 to 2012. The focus of his work is on the conflicts of interest between employees, employers from the real economy and the financial markets or financial capital.
According to Schulmeister the orientation of the economic order fluctuates permanently between real capitalism and financial capitalism. Long upswings are caused by an alliance of interests between employees and real capital and long downswings are caused by an alliance of interests between real capital and the financial markets or financial capital.

According to Schulmeister bad economic policy decisions are often made through the manufacturing of consent or misinformation. Thus in order to change the prevailing conditions this manufacturing of consent or misinformation must be clarified. For this Schulmeister wrote about many claims in "The Road to Prosperity" from 2028.

The Market Regulates That
The Agenda 2010 was a Success
Let Money Work
Austerity or Saving Helps

The Market Regulates That

Schulmeister refutes the common claim that that the market leads to the most efficient use of resources or the market regulates everything. He differentiates and between the thinking of idealistic and realistic economics. The way of thinking of the idealistic economy assumes that humans are only individual, only rational, only selfish beings with identical preferences and perfect information. The market balance therefore leads to the most efficient use of resources. The mindset of realistic economics on the other hand assumes that people are both rational and emotional beings. The market balance therefore depends on the preferences and information of the participants. So whoever claims that that the market leads to the most efficient use of resources or the market regulates everything omits whose interests are served. [1, p.18-23]
Examples are:

Labor Market
Efficient Market Hypothesis
Sef-Regulation of Markets

An obvious example of the fact that not all economic dynamics fit the market concept is the so called labor market. Unemployment is not simply the result of excessively high wages. Nor can the demand for labor be regulated simply by the price of labor—that respectively the wages. Consequently, the labor market is not a market, because the rules of supply and demand do not apply there. Wages represent not only costs for companies but also revenue for other companies. Therefore, wages contribute to the overall demand for goods and, by extension, for labor. [1, p.18-23 , p.23-25]

The dynamics on the financial markets are of particular importance for Schulmeister. The financial markets should in theory be the most complete market because personal or spatial preferences largely disappear and all participants can get extensive information. Nevertheless the dynamics on the financial markets follow the pattern of the bull or bear market. Instead of working towards the ideal balance the participants behave like a herd. [1, p.18-23 , p.25-32]

Schulmeister sees the reinterpretation of the statements of the very well-known and much-quoted economist Adam Smith as the origin for this worldview. According to Schulmeister however Smith did not intend to do this or expressed it in this way. [1, p.48-50]

By prefering the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its procedure may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.

Adam Smith [1, p.374(60)]

Schulmeister writes that Smith's metaphor of the invisible hand refered only to trading of British merchants who because of the uncertainty preferred British trading partners over those from the British colonies. This reinterpretation meant that markets and the symbol of the invisible hand along with its balance are increasingly perceived as subjects. Schulmeister attests religious traits to this market fundamentalism and its leading organ of the invisible hand. [1, p.48-50]

Smith has a fundamentally different understanding of science than the neoclassicals; He seeks to explain the actual economic and social behavior of people, whereas neoclassical economics derives how people would behave if they were purely rational and exclusively self-interested individuals. [1, p.54]

The Agenda 2010 was a Success

Politicians and economists regularly believe that unemployment can be reduced by lowering the price of work in the form of wages. Accordingly cutting unemployment benefits and reducing workers' rights can reduce unemployment. In some cases the additional promises is made that government debt will be reduced this way directly by cutting social benefits and indirectly by allegedly reducing unemployment. Following this pattern the laws for the labor market in Germany and then for various member-states in the south of the EU were reformed. [1, p.23-25 , p.228-229 , p.232-241 , p.259]

In practice the policy of wage restrain have done tremendous harm by cutting social benefits and reducing workers' rights and failed to deliver on its promises. The consequences for Germany are the working poors and an unbalanced foreign trade balance. As a result of the loss of purchasing power domestic demand fell compared to exports and Germany built up enormous export surpluses. The consequences for the member-states in the south of the EU are their recession due to a lack of demand for goods and services from the local economies and import surpluses since they still have not yet reached the quotient between wages and labor productivity in Germany. It is open for Germany whether the outstanding accounts receivable will be settled or devalued by a currency reform. [1, p.228-229 , p.232-241 , p.259]

[1, PLCD]

Let Money Work

When selling investment opportunities sellers like to promise that one can let ones money work for them. Schulmeister fundamentally refutes this promise. On the one hand he clarifies that ultimately the work always has to be done by humans and that it is only an investment. Added to this is the fact that disposable income rises with the level of income. This creates a dynamic in which the growing focus on financial-capitalist investments further exacerbates inequality. [1, p.151-158]

Amateurspekulanten lassen sich davon faszinieren, dass Optionspreise manchmal an einem Tag um 30 Prozent oder sogar 50 Prozent steigen. Allerdings sind Amateure nicht in der Lage, das Risiko von Optionsgeschäften abzuschätzen. Erstens ist die auf der Wahrscheinlichkeitstheorie basierende Bestimmung des "fairen" Optionspreises mathematisch anspruchsvoll. Zweitens hält sich die Realität häufig nicht an die Wahrscheinlichkeitstheorie. Amateur speculators are fascinated by the fact that option prices sometimes rise by 30 percent or even 50 percent in a day. However amateurs are not able to estimate the risk of options trades. First determining the "fair" option price based on probability theory is mathematically demanding. Second reality often does not adhere to probability theory. [1, 164]

On the other hand he warns that the promise is all too often merely a tool to getting as much money as possible from small investors. On the one hand, this process lures the savings of uninformed investors typically retail investors to serve as buyers for poor-quality securities (stupid money). Furthermore increased demand for financial-capitalist investments drives up the prices of those investments (asset price inflation) as well as the costs of the resulting goods and services (e.g., rising housing costs and rents). [1, p.163-166]

Austerity or Saving Helps

Austerity policy defines cuts in the state budget and tax increases during a recession. This is intended to prevent the state's insolvency and safeguard the state's room for maneuvers. With this investor confidence is supposed to increase and the economic situation recovers.

According to Schulmeister the austerity policy does not delivers on this promise. He only leads this to a major recession by not increasing demand and even reducing it by cutting the government budget. This then leads to an increase in the ratio of GDP to government debt and a decrease in tax revenue. For Schulmeister as a Keynesian the state has to pursue a real capitalist and demand-oriented economic policy. According to Schulmeister the state has to take on more debt and invest it in the local economy through public demand. And Schulmeister names the local central bank as a creditor with whom the state should borrow without interest payments. [1, p.242-251]

Schulmeister attributes the belief in the benefits of austerity, among other things, to Say's Law. According to Say's Law (named after Jean-Baptiste Say) every supply generates an equivalent level of demand through the price mechanism. This implies that an economy would never operate below capacity due to a lack of demand.
In reality however cutting government spending tends to cause the economy to contract as the financial position of private households and businesses deteriorates. Paradoxically this economic contraction then results in government spending exceeding revenue (paradox of thrift/saving).
Furthermore the price mechanism is not the sole process governing supply and demand. Instead human behavior within an economy is also influenced by expectations and individual circumstances. [1, p.63-65]

Preview:

Src:
[1] Stephan Schulmeisters Buch - Der Weg zur Prosperität- ISBN 978-3711001481
[2] AMECO - annual macroeconomic database / jährliche makroökonomische Datenbank
https://economy-finance.ec.europa.eu/economic-research-and-databases/economic-databases/ameco-database_en
[3] Welche Aufgaben kommen für die Sozialdemokratie? Schulmeister und Max Lercher 2018-05-07
https://youtu.be/iJzheZwCtV0
[4] Der Weg zur Prosperität Stephan Schulmeister Buchvorstellung WU in Wien 2018-06-08
https://youtu.be/_s2SJIKk204
[5] „Wir sind in gefährlicher Nähe zu den 1930er-Jahren.“ Stephan Schulmeister im Gespräch 2018-06-18
https://youtu.be/tL0kaHQTByA
[6] Stephan Schulmeister - Europas Weg in die Krise und zurück zur Prosperität 2018-06-22
https://youtu.be/cKy4Y5Zk8ig
[7] Märkte als Religionsersatz? | Stephan Schulmeister bei quer.denken. 2019-02-07
https://youtu.be/EUCGzOkfBtc

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