Capitalism, Socialism and Democracy

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Capitalism, Socialism and Democracy is the most famous book by Joseph Schumpeter in which he deals with capitalism, socialism and creative destruction. First published in 1942, it is largely unmathematical, compared with neoclassical works, focusing on the unexpected, rapid spurts of entrepreneur-driven growth instead of static models^[1].

Contents 1 Introduction 2 Capitalism and socialism 3 Creative destruction 4 See also 5 Notes 6 External links

[edit] Introduction

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The book is unusual insomuch as it was written to appear sympathetic to socialism, beginning with an account of Karl Marx, in order to encourage socialists to read it. Schumpeter hoped they would achieve self-recognition of the problems with socialism in the light of the book, without having to be explicitly told: if the book appeared to be favourible to capitalism, he feared socialists, his target audience, would not bother to read it.

[edit] Capitalism and socialism

Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and eventually destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. “If a doctor predicts that his patient will die presently,” he wrote, “this does not mean that he desires it.”

In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong. One of the great advantages of capitalism, he argues, is that as compared with pre-capitalist periods, when education was a privilege of the few, more and more people acquire (higher) education. The availability of fulfilling work is however limited and this, coupled with the experience of unemployment, produces discontent. The intellectual class is then able to organise protest and develop critical ideas against free markets and private property, even though these institutions are necessary for their existence.^[2] This analysis is similar to that of the philosopher Robert Nozick, who argued that intellectuals were bitter that the skills so rewarded in school were less rewarded in the job market, and so turned against capitalism, even though they enjoyed vastly more enjoyable lives under it than under alternative systems.^[3]

In Schumpeter's view, socialism will ensure that the production of goods and services is directed towards meeting the 'authentic needs' of people^{[citation needed]} and will overcome some innate tendencies of capitalism such as conjecture fluctuation, unemployment and waning acceptance of the system.^{[citation needed]} It is interesting to note that Schumpeter's theories of the transition of capitalism into socialism is, according to some analysts, ‘nearly right’.^[4]

[edit] Creative destruction

The book also introduced the term 'creative destruction' to describe innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power. Because of the significant barriers to entry that monopolies enjoyed, new entrants would have to be radically different: ensuring fundamental improvement was achieved, not a mere difference of packaging. The threat of market entry would keep monopolists and oligiopolists' disciplined and competitive, ensuring they invest their profits in new products and ideas. Schumpeter believed that it was this innovative quality that made Capitalism the best economic system.^[5]

[edit] See also

• Capitalism
• Socialism
• Creativity techniques
• Disruptive technology
• Atlas Shrugged, a novel where Capitalism's demise by similar means is portrayed.

[edit] Notes

[edit] External links

• (English)Summary of the book
• (French)Detailed presentation of the book