Capitalism, Socialism and Democracy

by Joseph A. Schumpeter

Capitalism, Socialism and Democracy remains one of the greatest works of social theory written this century. When it first appeared the New English Weekly predicted that 'for the next five to ten years it will cetainly remain a work with which no one who professes any degree of information on sociology or economics can afford to be unacquainted.' Fifty years on, this prediction seems a little understated.

Why has the work endured so well? Schumpeter's contention that the seeds of capitalism's decline were internal, and his equal and opposite hostility to centralist socialism have perplexed, engaged and infuriated readers since the book's publication. By refusing to become an advocate for either position Schumpeter was able both to make his own great and original contribution and to clear the way for a more balanced consideration of the most important social movements of his and our time.

Genres: Economics, Politics, Nonfiction, Philosophy, History, Sociology, Political Science

460 pages, Paperback

First published January 1, 1942

About the author

Joseph Alois Schumpeter was an Austrian American economist and political scientist. He briefly served as Finance Minister of Austria in 1919. One of the most influential economists of the 20th century, Schumpeter popularized the term "creative destruction" in economics.

Reviews

[Joe · Rating 5 out of 5]

Comment:

In the end it will be seen that the greatest enemy of capitalism was always democracy, i.e. the will of the people. Once the people turn anti-capitalistic, under the influence of a disaffected intelligencia, there is absolutely nothing that can stand against them. Schumpeter at one and the same time believes that Capitalism is the most adequate description of economic reality and that it is doomed. How is this possible? - But it is exactly as the Savior of the Christians said so long ago: 'Man does not live by bread alone.' Capitalism provides bread but lacks drama, romance, myth; that is why economic 'irrelevancies' and 'irrationalities' like (say) Communism and Christianity can never be (entirely) won over or destroyed. - What Capitalism cannot deliver will be discovered, or created, somewhere else. Eventually, one of these discoveries or creations will end the Capitalist era.

[E. G. · Rating 4 out of 5]

Introduction

--Capitalism, Socialism and Democracy

Prefaces and Comments on Later Developments:
Preface to the First Edition, 1942
Preface to the Second Edition, 1946
Preface to the Third Edition, 1949
The March into Socialism

Notes
Index

[Jim Puskas · Rating 2 out of 5]

Schumpeter is best remembered for having coined the term "creative destruction" a process well understood today whereby entire industries and the jobs that go with them are continually rendered obsolete as new products, new technologies, new ways to make money emerge. Schumpeter speculates about the possibility of a democratic socialist utopia, but he unconvincingly discounts the reality of human acquisitiveness and the desire for upward mobility. Further, he naïvely discounted the authoritarian nature of the Russian experiment of his day, suggesting that the degree of coercion in the soviet model would be relaxed as conditions improved, which they did not. The book is colored very much by the widespread debate of his day (WW2 era) as to whether capitalism or socialism would prevail. Lost in the titanic struggle between those two competing ideologies is democracy which, as it turns out today, cannot truly survive under either regime. With the benefit of hindsight I'm perhaps being unfair in judging the book on its merits, since Schumpeter could not have foreseen the calamitous outcome of the Soviet "planned economy". Nor could he have foreseen today's dilemma in America where a few billionaires have become so powerful that they are able to subvert the democratic process (ref. "Dark Money" by Jane Meyer). It seems to me that Schumpeter was no democrat. An interesting work from an historical perspective but certainly neither prophetic nor very useful in addressing the issues of our day when democracy has failed to take root in much of the world and is at risk almost everywhere that it has been instituted.

[Dan · Rating 5 out of 5]

Schumpeter was probably the best Marxist - as he truly stayed within the original and wide-ranging project initiated by Marx. In this book, Schumpeter goes back to economics and keeps everything anchored in it. Then there are all the sociological, political, historical, prophetical, educational, and so on implications of this economic fundamentalism. As a true and non-dogmatic follower, Schumpeter dismisses Marx in several important respects, while retaining and developing him further in others. Fundamentally and like Marx, Schumpeter believes that capitalism will inevitably lead to communism/socialism because of its economic dynamics and contradictions. Democracy, mainly a product of capitalism, is also turning against capitalism and towards communism according to Schumpeter. This book is extremely rich in ideas; but the sections about the role of the intellectuals in society, the rationality of capitalism, along with the sections about the dynamism, entrepreneur, and self-adaptation of capitalism are amazing. It is quite depressing to witness that these days Marx is reduced to a critical theory in the literature departments - theory that only moves within the domain of representation and language; but in the end, probably this is the current capitalism defense against Marxism as it reinterprets and neutralizes it in the framework of the impotent and fashionable postmodernism.

[Marks54 · Rating 4 out of 5]

This is a classic of economics and of entrepreneurship that lots of people have read in their undergraduate economics or business classes. It is worth reading to get the full perspective of Schumpeter's view of how the economy works. This is perhaps the most articulate statement on the role of of "creative destruction" and innovation as critical to the success of capitalism. It is also also very cynical of Marxist approaches to economics. Strangely enough, the section on socialism suggests that socialism may be the coming reality for Europe and America, and in this Schumpeter was accurate for Europe and America. This is perhaps that he is writing at a time when free market capitalism had not acquitted itself well and government intervention seemed increasingly worthwhile. This seems at odds with his emphasis on innovation and entrepreneurship and does create somewhat of a tension that is not well resolved in the book. Schumpeter's thinking on innovation and entrepreneurship has fared better over time than his positive views on socialism, although I am still not sure of his real tone.

[Andrew]

In the wake of the Second World War, Joseph Schumpeter wrote an exceptionally intriguing book that everyone, capitalist or socialist in persuasion, should read, and will probably enjoy reading. Heavily inspired by Marx and especially his theory of history, as much a sociological as an economic text, and broad-ranging in its analysis of the relationship between capital and society, it's a difficult book to pin down, and clearly the product of a remarkable thinker.

The question-- which all prophetic works beg-- is why Schumpeter's vision hasn't come to life. Rather than paving the way for a humane socialism, we have been left with an especially cruel form of neoliberal capitalism.

I'd also like to question his views on the role of intellectuals. And his rather narrow view of what socialism is. But hey, as I said, I sought out Schumpeter more to provoke myself out of the dogmatic slumbers that I periodically feel myself falling into, and he made a more than decent intellectual sparring partner.

[Richard Thompson · Rating 4 out of 5]

I was surprised to find in Wikipedia that this is the third most cited book in the social sciences published before 1950 following only The Wealth of Nations and Das Kapital. I had no idea that it was so influential.

There are things here to like and hate and things to agree with or reject for people in every part of the political and intellectual spectrum. In commentaries that I have read a lot of people criticized Mr. Schumpeter as conservative and elitist. I can see those strains in his thought, but he also sees a lot of wisdom in Marx and seems convinced of the ultimate triumph of socialism, though he is largely neutral as to whether that would be a good or bad thing.

In analyzing capitalism, Mr. Schumpeter comes to the conclusion that perfect competition is not only impossible, but is even overrated and undesirable. In his view, price stability, big business and a certain amount of monopoly power are necessary for the functioning of a capitalist economy and bring some benefits that could not be achieved under perfect competition. Wow. These are not things that you usually hear even from the Chicago Boys. But this part of the book comes right after his initial discussion of Karl Marx where he finds error in the labor theory of value and in the concept of exploitation, but also finds much wisdom. By this point my head was spinning. Is this guy on the left or the right or what?

Next he gets into his famous theory of creative destruction so beloved by Silicon Valley entrepreneurs (though often for the wrong reasons). He sees the process of creative destruction where new businesses with better products and processes drive out the old as the principal mechanism of progress and improving standards of living for all. My main gripe with this part of his analysis is that it is deeply rooted in the idea that more output and more efficiency in making and distributing products is always a good thing without putting much weight on the disruption and suffering that are an inevitable part of the creative destruction process in a capitalist economy.

Despite the many good aspects of capitalism that he sees, he also expects capitalism to run its course and to evolve into socialism. He rejects Marx' notions of historical materialism and class struggle, but he still sees capitalism as sowing the seeds of its own destruction, particularly through the agency of disaffected intellectuals and circumstances that cause entrepreneurship and creative destruction to run out of steam. I expected that his next move was going to be to tell us why socialism couldn't work, but he didn't do that at all. To the contrary, his position as an economist is that there is no reason why a centrally planned socialist state could not operate with an efficiency approximately equal to our imperfect market economy. I'm not sure that was true when he published this book in 1943, but in today's world of high-speed networked computing and big data analysis I think we probably could devise a reasonably efficient centrally planned economy along the lines that Mr. Schumpeter proposes.

The next part of the book is a discussion of democracy. I think that Mr. Schumpeter is right in his conclusion that there is nothing about capitalism or socialism that necessarily implies a democratic or undemocratic government. In the end Mr. Schumpeter comes out in favor of democracy, though his version of democracy is a bit more elitist than a lot of us might like. At this point, I thought that I began to see where to put Mr. Schumpeter on the political spectrum - he's a realist; he's interested in how political and economic systems can and do work in the real world. He doesn't try to jam facts into a theoretical framework whether it is a framework of the left of the right. Instead, he examines how things really work and thinks about how theories need to be adjusted to accommodate reality. I liked that about him.

[Otto Lehto · Rating 3 out of 5]

Schumpeter was a fascinating character, and his essays and books are fascinating to read. They seem to elude easy categorization. This particular book evinces an almost Hegelian dialectical method, whereby socialism and capitalism are seen as two sides of the same modernist coin.

The section on capitalism contains the analysis of "creative destruction", which is justifiably well-known. But that only takes up a few pages, whereas the rest is devoted to a historical analysis of the conditions under which socialism seems to arise as a viable, almost inevitable, successor, to it.

Although a bourgeois economist, out of the three things he covers, capitalism seems to be the least important - at least for the argument he wants to make. And as he allows the market society to take the back seat, he allows the promise of socialism to bear its full weight as the next stage in the evolution.

The sections on socialism rely on a notion of socialism that seems very curious to us today. He seems to think there are no fundamental problems with organizing a society through a central planning board. Partially outdated, partially all over the place, partially just crazy, the book is nonetheless a fascinating read, since Schumpeter is such a unique thinker, even though the book's value as a lasting contribution - outside of the tremendously important notion of "creative destruction" (which seems to have achieved a life of its own) - to the field of economics is dubious.

The chapter on democracy, I should say, contains a brilliant and almost entirely distinct analysis on democracy, which is almost Machiavellian in its exposé of the power-hungry nature of politics. It bears very little immediate relevance for his further argument on the relationship between capitalism and socialism, but it provides very definite proof of the occasional genius of Schumpeter.

At 400 pages, it is too long. There is almost no reason to read the whole book. The gist of his historical argument for the inevitability of the transition from capitalism to socialism can be gained by skimming through a couple of the central chapters. His charitable analysis of the positive potential of centralized socialism as a method of efficient economic management has been completely disproved both theoretically and empirically (which unfortunately makes the middle part of the book almost valueless, aside from its occasionally brilliant observations). The last 100 pages that deal with the history of socialist parties is entirely superfluous (I admit to skipping it). So, I would say the book could be condensed to about a 100-150 pages without losing anything.

As such, I cannot entirely recommend reading the book, unless you are interested in the history of state socialism as a cause célèbre among intellectuals. I would, however, recommend reading the sections on "creative destruction" and his brilliantly caustic (and spot on) analysis of democracy.

[Daddy-O · Rating 3 out of 5]

Schump being a rationalist among rationalists, his long-term straight-line projections based in a Marx-like economic determinism of his own devising are flawed from the get-go. But that perspective also keeps him dogmatically undogmatic, and he makes sure to constantly acknowledge the relative improbability of his rationally conjured future, his “schema,” like Hari Seldon leaving some room in his calculations for a Mule event. Schump's invested in conjuring this future anyway: capitalism (d)evolving into a central planner's dream of a fine-tuned-by-committee, mechanized economy, evidently inspired by the contemporary illusions of an economic miracle underway in Stalinist Russia. Somewhat alarming, to say the least.

Unlike most technocratic dreamers (Schump isn't a technocratic dreamer, but he is dreaming technocratically), he's quite happy to concede the point that the socialist order can only maintain stability and efficiency by brutal autocracy (whether democratic or not) along with transformation of the citizenry into something equivalent to the New Soviet Man. Under rationalism, he imagines “there is nothing sinister in what [he is] trying to convey,” as these inevitable "cruelties" are “largely attributable to the unripeness of the situation, to the circumstances of the country, and to the quality of its ruling personnel,” giving away the game that, for all his insights into human nature, he does believe in some version of the “malleability of human nature,” a belief he's happy to mock in romantic socialists. But the situation is never ripe enough and there is no personnel rational enough for your subjugation of the citizenry into brainless, soulless cogs to be accomplished without a little torture here and a little genocide there, Schump.

In spite of all this, the central planner's conceit you get from him isn't as frustrating as others', as he doesn't presume to advocate and remains entirely honest about what it would take, allowing any reasonable reader to recoil from the dystopian Babel/Hell he's laid out. Socialists will recoil as well, as Schump lays out the rational advantages of socialism. When everything is subsumed in the State (in that stage, he says, there technically is no State, making sense of the libertarian-sounding rhetoric you'll find in Marx and Lenin), “attempts at paralyzing operations and at setting people against their work will amount to attacking the government.” An efficiency of socialism over capitalism, then, is the comparative lack of labor rights/power. Whoops. The romantics aren't reading Schumpeter, though—no worries for their platform.

As he makes more and more room for subtle alternatives, it's hard to disagree with the basic thesis. The wonders of “creative destruction” that have raised living standards at a ridiculous rate (given the previous millennia of human history), making a mockery of “inequality” and “big business” based grievances for any reasonable observer, also clearly undermine every institution including itself—that's that “destruction” part. While I don't quite follow that logic to Schump's End of History—socialism is undermined by these forces too, it's basically a consumerized fashion statement at this point, like everything else—there's no doubt that “piecemeal socialization” is still making good progress. One simple assertion he makes, reworded and repeated throughout the later chapters, overshadows most of the rest of his large-scale political analysis: “the remedy for unsuccessful socialization which will suggest itself, will be not less but more socialization.” This should be Rule #2 of politics, next to Rule #1 of course: politics is vanity and chasing after the wind. And Schump knows that well enough, just read his analysis of democracy.

In the decades following Capitalism, Socialism, and Democracy, the Reagan Revolution, Thatcherism, liberalizing movements of a similar bent, and their enduring political force (always mutating with the current fashion), while still meager in the face of "piecemeal socialization," is a direct rebuke to Schump's firm belief that bourgeoisie interests were politically dead and buried. The failures of socialization sometimes actually do provoke a reaction the other way. Still, as I'm sure the man would immediately respond, it doesn't change the overwhelming tide; perpetual expansion of the State is only slowed, never halted. Even so, I'll allow myself some amount of hope. “The stock exchange is a poor substitute for the Holy Grail,” to be sure, but capitalist innovation can achieve electoral success with the right rhetorician at hand; Reagan's hard to believe yet noble sentiment, “America’s best days are yet to come. Our proudest moments are yet to be. Our most glorious achievements are just ahead.” But even if capitalism technically endures, the form it takes may just as well prove the Schump thesis, as “capitalism does not merely mean that the housewife may influence production by her choice between peas and beans.” A future of Deng Xiaoping capitalism is not exactly a refutation of a socialist future.

Leaving aside our supposedly socialized fate, the greatest insights of Capitalism, Socialism and Democracy are in the tangential sub-arguments. Innovation (also referred to as Social Darwinism by hacks) is the primary, perpetual driving force of economic progress, apparently an uncommon notion in the age of Lord Keynes, but something you can pull right out of The Communist Manifesto of all places. Marxism is characterized as a religion “which promises paradise on this side of the grave,” and Schump offers all reverence due to the founder of a major world religion while he dismantles it. Assuming motivations is usually poor form, but Schump so beautifully describes the vanity of any and every all-knowing, good-versus-evil (Proletariat versus Bourgeoisie, Real America versus Global Elite, Social Justice versus Fascism, Volkisch versus International Jew) sort of catastrophist activist's “synthesis” that it's worth reproducing several lines:

“Panting with impatience to have their innings, longing to save the world from something or other, disgusted with textbooks of un-describable tedium, dissatisfied emotionally and intellectually, unable to achieve synthesis by their own effort, they find what they crave for in Marx. There it is, the key to all the most intimate secrets, the magic wand that marshals both great events and small. They need no longer feel out of it in the great affairs of life—all at once they see through the pompous marionettes of politics and business who never know what it is all about. And who can blame them, considering the available alternatives.”

Mention of that temptation pairs well with a phenomenon that Schump prophesies all to perfectly: the university graduate who is both overqualified and underqualified in his job market. This ever-increasing supply of “unemployed or unsatisfactorily employed” happens to “swell the host of intellectuals.” Big surprise, “they [they/them pronouns of course] enter it in a thoroughly discontented frame of mind. Discontent breeds resentment,” so on and so forth. This brand of subsidized social unrest is more convincing as to Schump's thesis than any amount of impersonal theorizing; a reader's firsthand evidence does wonders. Then again, the haze of the digital age didn't factor into his calculations, so this new class being relegated to Twitter screeching may cancel out the revolution—burning cities aside.

As Capitalism, Socialism, and Democracy has been my most thought-provoking read since the secondhand Rieff and Taylor I got from The Rise and Triumph of the Modern Self (“In a world of empathy-based ethics, the moral sense is ultimately the aesthetic sense,”) and as Schump's projections are far looser than they first appear, most of my frustration with the over-rationalized central planning “schema” of Part III is canceled out. It's especially forgiven for a likelier alternative he proposes for this ultimate socialist conclusion: “failure not so complete which political psycho-technics could make people believe to be a success.” In a few decades, when the major economic debate may well be between nationalization and socialization (they're synonyms), that doesn't seem unlikely. But trajectories are fake, everything can change in a week, there's nothing new under the sun, and Karl Marx sucks. Thanks for the fascinating read anyway, Schump.

[Eric Baldwin]

It shows how democracy is a vast conspiracy, elections are fraudulent, individual votes are useless, and human nature is corrupt.

[Marcel Santos · Rating 3 out of 5]

The ambitious mission Schumpeter assigned to himself— to write about themes as vast and complex as Capitalism, Socialism and Democracy in a single book — explains the great variation in quality with which such themes are addressed.

The main thesis of the book — that Capitalism has a tendency to destroy itself and that Socialism would have all the conditions to thrive — would not sound that interesting and could even sound rhetorical when compared to the brilliant topic on Capitalism’s inner process of “creative destruction” he so well describes and by which he became so famous. “Would not sound that interesting” because China insists on putting Communism back in the game so many years after the fall of the Soviet Union with perspective of taking over the World’s economy. The author’s thesis though may be read as a heads up for those who wish to understand the processes that can lead to both phenomena, which Schumpeter illustrates with plenty of examples of the History throughout the book.

Some arguments he uses to demonstrate the thesis in a nutshell: Capitalism may be a victim of its own success, reaching a point at which the process of creative destruction and production of wealth cannot go forward; the spreading of better life conditions produced by Capitalism would make people claim for even more equality, opening the space for Socialism; Capitalism is not good at producing intellectual supporters as Socialism is — intellectuals tend to be employed in different activities and make a satisfying living, unlike what happens in socialist or prone-to-socialist countries, as was Russia. My read is that he is ironic: it’s not that he supports Socialism as a superior system, but he is disappointed by the lack of Capitalism supporters. Finally, Democracy is a system characterized by competition for the power.

In fact, as the author himself points out clearly, the process of “creative destruction” was first described in essence by Karl Marx in the Communist Manifesto as follows:

“The bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and thereby the relations of production, and with them the whole relations of society. Conservation of the old modes of production in unaltered forms, was, on the contrary, the first condition of existence for all earlier industrial classes. Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation, distinguish the bourgeois epoch from all earlier ones. All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away; all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life and his relations with his kind”.

Schumpeter developed this concept with mastery in a short chapter which is really clear and engaging, unlike almost all the rest of the book.

Clearly, the book was written when Economics was still more a Philosophy (1942-50), when authors did not have access to massive data as their heirs have today. Economists thus competed on who had better intelectual resources when observing and describing reality, had good insights and proposed clever and ingenious solutions often using complex language and erudition. Economists can now rely much more on numbers, so there is even a tendency for them to strive to be readable by the greater public with the use of simple and direct language. On the other hand, the excess of mathematization we see now has certainly occupied the space of the erudition in language of that time with regards to keeping the greater public away.

This is a hard read and can be put down easily without resilience or academic obligation due to the extensive variety of issues covered and irregularity in quality in how they are covered. It is not for nothing that the book — and the author — became so famous for one small but very powerful topic in it.

[Tyler · Rating 4 out of 5]

I am finished with this book finally and I think I have read a glimpse into Marx a little more. I have read Marx's Communist Manifesto before, believe it or not, and it was one of the first books on economics I've read. Well that state of mind was very similar to many others in the early 20th century as they read the pamphleteering of various political party interests.

This work discounts some of the more radical notions but retains some of the core tenets of Marxist communism. A thorough look at some of the more finer kinds of socialism is a little wanting, but their history is not. He will simply lump all forms of older socialism like Fourierism into 'Orthodox socialism'. Every shape and kind of socialism is in here, St. Simon, Plato, everyone. You could hardly think of a type of society not mentioned. This is a must read for the political theorist.

As an economist though, I am lukewarm. I think that his analysis of economic conditions is interesting at times, but choppily made. I have just started Morgenstern's book on accuracy in economic investigations, so I am no pro, but I don't think you should ever 'roughly' compute figures while dropping entire numbers off of both sides of the eventual estimate. For instance, if you're going to have a liberal or conservative estimate that's fine, but I can think of at least one time whilst in Part II (where the unbelievably atrocious statistical estimates occur) that he just leaves off entire numbers on both sides, so that the answer is both conservative and liberal... I mean that's just not right, nor is it accurate.

Now to speak of his economic terminology. If he isn't a good quantitative economist, surely he must be a good qualitative one? Wrong. I was first struck with difficulty when he wasn't including 'wages to employees' in his term 'prime cost'. I assumed it was because he hadn't read Keynes yet. I was right. I still think he should have defined that particular term before he used it in the footnote. The issue I have starts at the last chapter, as you can imagine. It seems he finally did his homework and read Keynes' General Theory of Employment, Interest, and Money, and while I did not enjoy many of Keynes' conclusions or his solutions to those conclusions either, I must admit I am at once struck with how he grossly misinterpreted him. At some point in the book, he essentially equates consumption with saving. This would be the same as saying consumption = investment under the Keynesian system because savings and investment are used interchangeably throughout. So either he didn't read the book or just didn't understand it. He also failed to use any of its important concepts like marginality or elasticity and just decided to drone on and on incorrectly about Keynes.

But. That was one chapter. He kept himself within the sphere of history of political science and political philosophy mostly the entire time, so I cannot complain with his ability to deftly explain these concepts in a way which was coeval with some of the greater political scientists like Tocqueville or Burke (the latter of whom is specifically referenced at least three times).

This was a good read overall by what can only be described as an 'Austrian socialist'. A socialist, because he believed in socialism and wasn't a Marxist, and an Austrian, because he didn't understand the quantitative side of economics. 4/5 stars though, because he's a way better read than Hayek.

[کافه ادبیات · Rating 3 out of 5]

کتاب کاپیتالیسم، سوسیالیسم و دموکراسی، اثر جوزف شومپیتر، اقتصاددان بزرگ قرن بیستم، در پی ارائه نگاهی تازه به مف��هیمی همچون ظهور و سقوط سرمایه‌داری، بازنگری در تعریف دموکراسی و سوسیالیسم است .
نویسنده در این کتاب، ابتدا نگاهی به آراء و نظرات کارل مارکس متفکر شهیر آلمانی دارد و نظرات او در خصوص نظام سرمایه‌داری را بررسی و نقد می‌کند. سپس در ادامه به نگاهی به نظام‌های سرمایه‌داری دارد و برخی از مهم‌ترین و بهترین ویژگی‌های نظام سرمایه‌داری را شرح می‌دهد و به اصطلاحات مهمی همچون «تخریب سازنده» در خصوص حیات نظام سرمایه‌داری اشاره می‌کند.

در نهایت، به چگونگی افول سرمایه‌داری، لزوم بازنگری در تعریف دموکراسی و ارائه تعریفی جدید از آن می‌پردازد و با ذکر دلایل خود، چنین استدلال می‌کند که نظام سوسیالیسم می‌تواند با دموکراسی همخوانی داشته باشد.

[Patrick · Rating 2 out of 5]

Schumpeter lived a very, well, Schumpeterian lifestyle, battered up and down and around the world by the winds of economic turmoil. He argues that this undulating dynamism is in fact the defining attribute of capitalism and the reason it has been so undeniably successful at achieving economic growth. Unlike most economists he defends capitalism warts-and-all: He fully recognizes that we have never lived in anything like a perfectly-competitive efficient market, and goes on to say that we wouldn't even want to in the first place. He explicitly defends monopoly and speculation, and honestly makes a surprisingly good case.

Where he begins to lose me is in his defense of depressions; he seems to think that a depression is a necessary corrective for the excesses of the boom, an attitude that Krugman aptly dubbed "sado-monetarism". No, a depression is a mistake, an error that can be corrected relatively easily by sound policy.

And then near the end of the book he goes completely off the deep end, going on a long rant about how it is "obvious" that rich people are superior beings and anyone who would doubt this is foolish or evil. (To be fair, he would never have met Paris Hilton or Donald Trump.) In his long discussion of socialism he actually he seems to think that the tyranny of Mao and Stalin were essential—even laudable—because there is simply no other way of keeping the masses in line. It was so sickening I had to simply give up on the book at that point.

[Stevenglinert · Rating 5 out of 5]

Schumpeter must have been a really shitty human being to hang out with. And his dating profile must have been intolerable to even read. Schumpeter does a better take-down of socialism and Marx than Hayek or Von Mises, but never gets into any libertarian sounding nonsense and his shtick about capitalism is the best pitch I've heard for it in awhile. Also for a book about economics, it's written in like, the most bitchy tone.

[Nicole Scavino · Rating 5 out of 5]

¿Puede sobrevivir el capitalismo? No, no creo que pueda. _

En síntesis, mi cita de frase textual impregnada, con la que me quedo.

[Whitlaw Tanyanyiwa Mugwiji · Rating 4 out of 5]

It is a great read, especially for those interested in the political economy. It is Schumpeter’s best book, which is famous for popularising his acclaimed theory on capitalism, "creative destruction". Definitely not a light read, it took me forever to finish. But it was worth the read. I must confess, it is a difficult read even for those with an economics background, or those who have read Hegel’s dialectics or Karl Marx’s interpretation of history through dialectic materialism, as these theories or their interpretation features quite a lot.

By and large Schumpeter agrees with Karl Marx that socialism will ultimately follow after capitalism but they differ fundamentally on how that will come about. Karl Marx believed that socialism would come at the behest of the proletariat through revolutions, whereas Schumpeter believes that capitalism by its very nature of creative destruction, it will cause its own destruction.

[Ryan · Rating 4 out of 5]

Language made me want to scrape my eyes out x

[Todd · Rating 5 out of 5]

Joseph Schumpeter gives a penetrating, critical review of both capitalism and socialism. I daresay he provides the most useful analysis of Karl Marx, Marxism, and Marxists I have ever read. His grasp of economic realities gives the lie to Friedrich Hayek’s claim that “If socialists understood economics they wouldn’t be socialists,” because, in fact, Schumpeter considered himself an “orthodox socialist” (as opposed to a communist or any other sort). What astounded me was that, in spite of his clear-eyed perception of the realities of both systems and his own rigorous analysis in terms of what could be expected of them, that he proceeded to conclude, in good orthodox socialist manner, the inevitability of not only the collapse of capitalism, but its transformation into socialism. The collapse of capitalism he makes a good case for, and has ample empirical historical evidence from which to draw, but the inability for socialism to actually take its place for more than a brief transition period he both foresaw and overlooked.
Schumpeter notes that “capitalism is being killed by its achievements.” (location 168) In this, he need not look further than the harbinger of modern liberalism, Holland. It briefly rose to power and wealth through the application of a more liberal system than had been seen up to that point or employed by its contemporary peers. But those who gained under the system of relative freedom sought to protect those gains from the vagaries of such a system and quickly fettered the goose laying the golden eggs. In many respects, more modern capitalist countries have been doing the same thing in slower motion, through adopting socialist principles or opting for a “mixed” system, the welfare state.
So why shouldn’t socialism be expected to replace capitalism? Schumpeter correctly understood that the “true psychology of the workman…centers in the wish to become a small bourgeois and to be helped to that status by political force.” (location 259) In the small addendum Schumpeter wrote after World War II, he even expressed the fear that American laborers would be so well off as to supersede the need to turn to socialism. Fast forward to my own childhood, growing up among men who worked at General Motors in Detroit—they owned their own homes, perhaps modest, but not bad, typically had two cars, and at least one of them was usually a Suburban, had a boat for fishing and/or skiing, and often had a cabin “up north” (in northern Michigan) to which they could vacation, summer and winter. Marx would not have recognized these people or the lives they lived as proletariat. They were bourgeois through and through.
For all his excellence in economic analysis, Schumpeter seems to adopt a few small errors. First, he seems to uncritically accept the notion of economies of scale, pretty much without limit. Therefore, he saw capitalism as inevitably producing ever larger factories owned by ever larger companies with ever more capital, etc. Yes his own conclusion about the creative destruction associated with capitalism, the fact that capitalism is never static, should have warned him off the idea that stodgy oversized publicly-traded corporations would crowd out the innovators and entrepreneurs. On that last point, Schumpeter overestimated the tendency for capitalism to answer all needs and wants so exactly as to squeeze out new ideas, not to mention reach a standard of living that was “enough” and that people would be disincentivized from seeking more than that. So while capitalism still contained seeds aplenty for its own destruction, Mark Zuckerberg, Jeff Bezos, Bill Gates, Steve Jobs and many others are testament that innovation would not cease and people would not stop seeking to become ever more prosperous.
While Schumpeter’s analysis of capitalism and socialism is clear-eyed and hard-nosed, his analysis of democracy comes off as disingenuous at best. By focusing on the “democracy” (representative government) part of it alone and divorcing it from the larger liberal system (one of negative individual rights), he has a field day criticizing it and its proponents. But America’s founders, for instance, did not set about founding “democracy” as such in and of itself. They were more concerned with defending their individual rights, maintaining a system of liberty, than any particular government form, evidenced by their wide disagreements as to that final form and adopting the Articles of Confederation prior to reassembling and putting together today’s Constitution.
His grossest straw man with respect to democracy is that there is an agreed-upon Common Good that democracy is used to obtain. In fact, representative government accepts the inability of people to agree even upon this, but provides a peaceful means for disagreements about this to be aired and for at least provisional solutions to be tried. It is socialism that presumes much more as to the obvious nature of the Common Good and the ability for one or a few to impose it upon the many.
Schumpeter’s confidence that socialism is compatible with democracy is questionable at best. When the ruling clique controls the airwaves, the press, the internet, all the public space to demonstrate or assemble in, etc., how can any loyal opposition ever hope to prevail? Furthermore, the ruling clique is responsible for employing everyone and allocating necessary resources. A person who risked losing her job in a place with only one employer risks a lot indeed.
His more useful contribution to the understanding of the political situation with capitalism is the fact that the main drivers and beneficiaries of capitalism are skeptical of government and government intervention. They are not themselves the charismatic, swashbuckling sorts to lead the masses or influence public opinion in bold strokes. Therefore, capitalism grew up comfortably in the ashes of the old system, with enough of a skeleton left of the old guard to do the necessary ruling, while permitting the businesspeople the latitude to cause the explosive growth of food supply, industrial production, consumer goods, scientific discoveries, the expansion of human knowledge, etc. Once that old guard expired, those from the capitalist set were unfit or uninterested in taking up their own protection, and they found themselves in a world full of would-be rulers who fully intended on the destruction of the capitalist order. Hence the political problem. Schumpeter does not really consider the possibility of establishing a sufficiently liberal system with a large enough body of adherents that it could survive through representative government, etc. Given the rise of Stalin, Hitler, and Mussolini around the time Schumpeter was writing this, perhaps one cannot blame him.
As to the transition to socialism. Schumpeter saw the devolution from free market capitalism to fettered big business capitalism as inevitable, which is unsurprising given his unquestioning faith in the economies of scale. Inevitable or not, it certainly described the historical context in most capitalist countries. Schumpeter mocks the executives of such big businesses as being little more effective than government bureaucrats. Then he turns around and, with a straight face, assures the reader how socialist bureaucrats will be so much better than any of those businessmen who were almost as bad as they were… In his post-WWII addendum, he admits the most atrocious mismanagement in the United States comes not from the fettered big business sector, but government. (see location 8462) But at least dissent will quiet, once everyone is socialist, all those socialist agitators will go away, and there will be nobody making everybody unhappy with the current situation. Except that Schumpeter allows that socialists don’t agree with one another and, in fact, for many socialists, they don’t care about the ideas or practices so much as whether or not they are personally in charge:

the individual socialist looks upon the advent of socialism, naively but naturally, as synonymous with his advent to power…in conversing with militant socialists I have often felt some doubt as to whether some or even most of them would care for a socialist regime, however perfect in other respects, if it were to be run by other people. (location 4534)

So how is it we’re to expect a lack of discontent, after all…?
Schumpeter breaks from communists and more radical socialists in expecting most of the transition from capitalism to socialism to be almost a non-event, vice violent revolution. He used especially post-World War I England as his chief example, and followed up in his post-WWII note to say that all was proceeding exactly as he had foreseen. And so England continued until it had practically devolved into a third world country in the 1970s, at which point it did a radical jump back toward liberalism, even taking the Labour Party with it, in terms of the evolution of “New Labour.”
Which focuses on the real problem of socialism actually replacing capitalism. As Schumpeter and so many others, proponents and opponents alike, have pointed out ad nauseum, the vast expansion in population and production since circa 1800 onward was the product of capitalism. No other system yet tried has even come marginally close. Schumpeter did not have the advantage of 1990 to see the collapse of socialism globally, nor to look back from that vantage to see how badly served those formerly socialist populations had been between WWII and the final collapse. As Isabel Paterson correctly noted, those socialist systems only went on that long based on the surpluses produced by the capitalist countries, often in direct aid as “credits” or similar support, shocking considering the lethal confrontation of the Cold War. Should there be a large movement away from capitalism, one can only expect starvation, privation, and want, as any replacement would be unable to maintain the present standard of life, much less continue to push back the boundaries. I would forecast a return to tribalism and systems far less organized and artificial as either capitalism or socialism. See Jonah Goldberg’s Suicide of the West: How the Rebirth of Tribalism, Populism, Nationalism, and Identity Politics Is Destroying American Democracy for a much more compelling alternative to Schumpeter’s (by-now) quaint-looking one.
After all, the collapse of socialism did not spell The End of History and the Last Man. Schumpeter in his own time noted that “As regards economic performance, it does not follow that men are ‘happier’ or even ‘better off’ in the industrial society of today than they were in a medieval manor or village.” (location 2927) Rutger Bregman develops this same idea with some acuity in his Utopia for Realists: How We Can Build the Ideal World: “To the good life, where almost everyone is rich, safe, and healthy. Where there’s only one thing we lack: a reason to get out of bed in the morning” (location p 10) and, “But the real crisis of our times, of my generation, is not that we don’t have it good, or even that we might be worse off later on. No, the real crisis is that we can’t come up with anything better.” (p 11) The decomposition of bourgeois family and values that Schumpeter perceived, apart from the contentment with a fixed standard of life (how could a man who brought us creative destruction really fall for this?!), certainly has come about in many ways, although not evenly: “the bourgeois order no longer makes any sense to the bourgeoisie itself.” (location 3635)
Which raises the question of how did a person of Schumpeter’s perception and intelligence, whose own analytic constructs correctly highlighted the problems, contradictions, and fallacies of socialism itself, not see the inability of socialism to replace capitalism long-term? For one, he appears to have accepted a good deal of Soviet propaganda uncritically. He vastly overestimated the ability of a handful of “experts” to rationally order an entire economy. He also reduced the running of “socialism” to be almost indistinguishable from the fettered big business capitalism he saw it replacing. He turned a tin ear toward the atrocities, at least some of which he was aware of, that came part-and-parcel with socialism. For instance, “The cruelties to individuals and whole groups are largely attributable to the unripeness of the situation,” (location 4787) “A strike would be mutiny,” (location 4737) and “threat of dismissal by the socialist management may mean the threat of withholding sustenance that cannot be secured by an alternative employment.” (location 4729) Or how about, “the really terrible point about the Stalin regime is not what it did to millions of victims but the fact that it had to do it if it wished to survive. In other words, those principles and that practice are inseparable.” (location 8261) How could he really believe that “the socialist order presumably will command that moral allegiance which is being increasingly refused to capitalism”? (location 4656)
Schumpeter accidentally stumbles into something when he muses that the future socialism “is much more likely to present fascist features.” (location 8209) In fact, it was the increasing intervention of government in terms of legislation, regulation, and taxation, without the overt abolition of private property, ala fascism’s corporatism, that led to the rise and sustainment of fettered big business capitalism. And Schumpeter’s rationalized socialism looked little different from that reality. It seems far more likely that people around the world would embrace the comfort of socialist promises without having to (openly) pay the price of losing their cherished private property, even should the very term “private property” be rendered nearly meaningless through ever-increasing government control.
Really the only suggestion I have is to read Jacques Ellul Propaganda: The Formation of Men's Attitudes for an understanding of how a person of Schumpeter’s abilities continued to swallow the socialist historical inevitability bit in spite of himself.
There are a handful of people, no matter how often you see them referenced, or how many summaries or critiques of their works by others you may have read, that you still need to go back and read them in their own words. Schumpeter is clearly one of these. His examination of both capitalism and socialism is as penetrating as it is provocative. Even when you don’t find yourself agreeing with everything he says, he will have your mental juices flowing and will inspire no end of your own thoughts. He gets a little technical here and there, but in the main, it is very readable. For all of its flaws, it really is a must-read.

[Pavelas · Rating 4 out of 5]

Schumpeteris praeito šimtmečio 4-ame dešimtmetyje prognozavo kapitalizmo žlugimą ir socializmo įsiviešpatavimą. Tiesa, anot jo, tai turėtų įvykti ne kruvinos revoliucijos keliu, o nuosekliais nedideliais žingsniais, kuriuos žengdami pamažu artėtume prie naujos santvarkos.

Po Sovietų Sąjungos fiasko daugelis nurašė Schumpeterio pranašystes kaip nepagrįstas, bet žvelgdamas iš dabarties perspektyvų, taip griežtai jo įžvalgų neatmesčiau.

Schumpeteris sakė, kad verslas nuolat stambės, ir tas stambėjimas nėra blogas reiškinys, nes stambusis verslas gali skirti daugiau išteklių investicijoms į mokslinius tyrimus ir naujų prekių kūrimą. Naujos prekės naikina senas rinkas ir kuria naujas, šį procesą Schumpeteris vadina kūrybine destrukcija (creative destruction). Pagalvokite, kaip pavežėjai naikina klasikinį taksi verslą ir turėsite labai šviežią kūrybinės destrukcijos pavyzdį.

Visus mūsų poreikius (ypač karantino laikotarpiu) tenkina vos kelios kompanijos - google, fb, amazon (siūlydamas, tarp kitko, ir goodreads), netflix ir dar gal viena kita. Kiekviena iš šių kompanijų savo rinkoje konkurentų beveik neturi, o vartotojams irgi patinka turėti vieną patikimą tiekėją, kuris vis tobulina paslaugą ir neverčia nuolat ieškoti alternatyvų. O pagalvokime - jei jie visi susilietų į vieną kompaniją - gal būtų dar patogiau, viskas efektyvumo vardan? Tik paskui reikia, aišku prižiūrėti, kad nepažeistų mūsų asmens duomenų ir kitų teisių, kad neužkeltų kainų iki nepriimtino lygio. Tam tikslui pajungiam valstybę. Na, ir toliau jau suprantame, kad čia toks stumdymasis tarp tos megakompanijos ir valstybės tik kainuoja daug išteklių, todėl apjungiam viską į vieną. Ir gauname Schumpeterio socializmą.

Fainai tikrai neskamba, bet gali būti, kad tokia yra natūrali istorinė raida. Kažkada feodalizmą pakeitė kapitalizmas, tad tikrai įmanoma, kad ir kapitalizmas užleis kam nors vietą.

Atskiro dėmesio verta Schumpeterio “intelektualų” teorija. Schumpeteris sako, kad dabartinė sistema kuria aukštąjį mokslą turinčių žmonių perteklių. Tačiau mažiau gabūs intelektualai negauna normalaus darbo, nes tų intelektualų tiesiog per daug. Tada tie intelektualai tampa nepatenkinti esma sistema, ją kritikuoja ir bando pakirsti rašydami laikraščiuose (Schumpeterio laikais). Mūsų laikais intelektualu tapti dar papraščiau - demokratinis fb viską spausdina.

Bet Schumpeteris neapsiribojo tik distopinėm pranašystėm, knygoje yra ir kur kas žemiškesnių dalykų. Pavyzdžiui, pasak Schumpeterio, visuotinė racionalizacija kapitaizmo laikais potencialius tėvus ir motinas verčia išsikelti tokį klausimą:
“Ar turiu atsisakyti savo ambicijų ir skurdinti savo gyvenimą, kad po to senatvėje būčiau įžeidinėjamas ir niekinasmas?”

[Garth · Rating 2 out of 5]

Wow. This guy was broken.Schumpeter never intended to offer a landmark definition of democracy. It was an accident of fortune. In the preface to the first edition he admits, “The problem of democracy forced its way into the place it now occupies in this volume because it proved impossible to state my views on the relation between the socialist order of society and the democratic method of government without a rather extensive analysis of the latter.” Indeed, he found himself challenging the foundations which underpin what he described as the Classical Theory of Democracy. But like his ideas about capitalism and socialism, his ideas about democracy have been challenged by an evolution in the political order. Nonetheless, it is impossible to have a firm grasp on theories of democracy without the study of what has become known as the Schumpeterian theory of democracy.

Schumpeter deserves credit for redefining democracy as a form of government rather than an ideal of governance. The Classical Theory was largely based on ideas derived from Rousseau’s Social Contract, yet they were shaped and molded over two hundred years of political thought to expand beyond the nebulous “general will” to establish elections as the expression as the will of the people. Schumpeter removes the ideals and reclassifies democracy simply as “that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote.” Huntington simplified the definition to “the selection of leaders through competitive elections by the people they govern.”

Participation has become a fundamental aspect of democracy. But Schumpeter diverges from this approach because he allows the commonwealth to define “the people.” The consequences are simply incompatible with the popular notion of democracy today. He allows for “disqualifications on grounds of economic status, religion and sex” which others may not “consider compatible with democracy.” He goes so far as to apologize for the racism which was America’s great challenge to democratization as he explains that “a race-conscious nation may associate fitness with racial considerations.” Ultimately, the composition of the electorate is inconsequential to Schumpeter. A political system can limit its electorate to a small minority and still claim a democratic form of government. Indeed, it is unclear how small the electorate can become before Schumpeter might consider its reclassification into oligarchy, aristocracy or some other form of government. Schumpeter seems to have defined the earliest forms of democratization where less than a single percent of the population had a right to vote as comparable to the fully realized liberal democracies which emerged after World War II.

Over the past thirty years his ideas have faced significant challenges as governments introduced elections which were only nominally competitive. Fareed Zakaria recognized this transition in his article “The Rise of Illiberal Democracy” but it was the seminal work of Levitsky and Way which gave a name to competitive authoritarianism. Their research effectively destroyed the foundations of the Schumpeterian definition of democracy. The mere presence of competitive elections was no longer an indication of democratic governance. Even a competitive election may establish rules which become neither free nor fair for the political opposition. Indeed, it is the emphasis on competition within elections which has ultimately undermined the electoral process in so many countries. Incumbents are encouraged to enact laws and procedures aimed to favor their own political faction. Over time the rules which undermine democracy can become the norms of elections. And the political process may descend from a competitive form of authoritarianism into a less subtle form referred to as hegemonic authoritarianism.

The book Capitalism, Socialism and Democracy is primarily about the sustainability or rather the inevitability of the socialism. He saw the ultimate success of capitalism as the cause of its own destruction. There is a parallel between his idea of the creative destruction of companies and a different sort of creative destruction of the economic order. According to Schumpeter, capitalist economies encouraged the development of monopolies which became vulnerable as new technologies emerged to threaten their economic model. In the same manner, he envisioned the success of the capitalistic system to bring about its own destruction through its natural dominance over the economic system. The bureaucratization of business was a part of the natural evolution. It eased the transition toward its incorporation as a public bureaucracy under the auspices of a democratic government. He was unable to distinguish between the professional class of managers in business and the professional bureaucrats which managed the government. Ultimately, his economic predictions were quite wrong.

But I bring up his concept of creative destruction because it is never completely applied to democracy. No this is not completely true. He just simply does not care. He acknowledges “whenever these principles are called in question and issues arise that rend a nation into two hostile camps, democracy works at a disadvantage. And it may cease to work at all as soon as interests and ideals are involved on which people refuse to compromise.” He recognized how a growth in polarization allows the competitive nature of elections to undermine democracy. But he simply acknowledges the necessity of authoritarianism. But he holds out a false hope that “the democratic principle of competitive leadership is merely suspended.” Of course, these suspensions may last decades or generations. His own example of the Roman dictatorship culminated in an imperial era which lasted over four hundred years.

It is impossible to develop mature ideas about democracy without a firm grasp of Schumpeter’s sense of democracy. Huntington was right when he described it as a step forward in the theoretical understanding of democracy. Yet it leaves many aspects of democracy incomplete and is challenged with its own inconsistencies. But every scholar of democratic ideas needs to take enough time to recognize its contributions to the study of democracy and offer a logical response. In many ways, Schumpeter’s notion of democracy has become the perspective of the general public. Horizontal forms of accountability like the courts and the professional bureaucracy have come under attack when they challenge the behavior or decisions of elected officials. It is easy to perceive them as obstacles to a democratic form of government. But their role is meant to intensify the democratic experience through its commitment to the rule of law. The Schumpeter description of democracy overlooks this complex interplay between different institutions. In the end, Schumpeter approaches political institutions as an economist rather than a sociologist. This perspective limits his ability to recognize critical aspects necessary for democratic governance.

[Curtis · Rating 5 out of 5]

Excellent. An Austrian economist I can read and agree with most of the time. One of the best analysts since Weber.

[Buck · Rating 4 out of 5]

For someone who criticizes others for being prolix, he sure can ramble. Visionary economic foresight though.

[Guido Calderini · Rating 4 out of 5]

An excellent book, if a bit dense. Every section is filled with interesting ideas that are still relevant today. I particularly enjoyed his analysis of the social changes that capitalism entails, and how they inadvertently corrode the very ideas that support it.

[James Rimmer · Rating 1 out of 5]

One of the dumbest books I’ve ever read. Barely parseable ramblings of a fool.

[Richard Haynes · Rating 4 out of 5]

Democracy and Socialism. Can they coexist? This book was written in the 60's and offers structured thoughts based on philosophy and history. The bias of the writer is towards socialism, but he is fair with his arguments.

[Elari]

I stopped reading The Sociological Imagination for now because I knew I was in over my head (can't fully understand a critique of sociology if you don't understand sociology), and I'm pretty sure I'm repeating the same mistake here. But I can't resist, it seems better than any other book I found. Cheers to foolish mistakes and lovely encounters.

_________________________

This still here? Nope. Nope. Maybe in a few years.

[Adam · Rating 4 out of 5]

I only read the first part about Marx, as part of my project reading Marx and reactions to him.

In many ways, Schumpeter approaches Marx in a way very similar to Bohm-Bawerk's Marx and the Close of His System. He treats him as a titan in the history of economic thought, someone with a genuine interest in economic history and theory who read thoroughly and thought deeply, with an often brilliant mind. He also considers his ideas decisively wrong and sets out to sharply, ruthlessly demonstrate that. The biggest difference is that while B-B limits his scope to the narrow empirical validity of Marx's incarnation of the LTV and the model of profit rates he derives from it, Schumpeter tackles Marx as a complete thinker, taking seriously the protestation that his ideas are carefully fitted together and can't be adequately critiqued as independent units. There are a few remarks here on Marx's followers as economic thinkers (usually brutal ones made by very pointed contrasts with the man himself), as political activists (judgment suspended!) and as what you might anachronistically think of as "posters"--people who use Marx's words not to understand society but simply to win arguments. But mostly it's narrowly focused on Marx's work, discussed relative to Schumpeter's own positions on the economy and social science.

Schumpeter starts with social science. He claims that Marx's broad approach--to use material conditions and economic mechanisms to understand history--is brilliant and crucial, and that his focus on social class as a variable that skews economics is important and often overlooked by economists of his day. But he sees Marx's specific claims about how social classes came to be and how exclusively they explain social dynamics are wildly overstated. "Primitive accumulation," Schumpeter argues, is not sufficient to explain why some people are capitalists and the rest are not, because it provides no mechanism by which some people "primitively accumulated" and other people were "primitively accumulated" from. Schumpeter joins Marx in sneering at the "bourgeois nursery tale" that says the rich became rich through pure meritocratic hard work and wise choices, but simply finds no way to reason around the conclusion that some individual differences must be relevant here, even if they amount to "who is the best at stealing." And if individual differences can be responsible for primitive accumulation, why can't they also be responsible for social mobility in general, after the age of PA? Or where Marx claims that class struggle is the exclusive driver of human history, Schumpter points out that most social relations in history seem much better (or at least as well) characterized as cooperative than antagonistic. It all boils down to the accusation that Marx's obsession with class conflict prevents him and his followers from keeping an open mind about the complexity of their subject matter.

For better or worse, the thing that made this such a joy for me to read was the fact that Schumpeter constantly echoes my own reactions to Marx and the Marxist reading I've been doing. He notes, for instance, that Marx has constructed his analysis in such a way that "socialism, which in reality has nothing to do with the presence or absence of social classes, became, by definition, the only possible kind of classless society." His points on the LTV itself are the standard critiques: that it fails to predict prices but pretending it secretly measures some hidden, more important variable, is untenable, that you can't reduce one kind of labor to another, that the conditions that make it true are a narrow special case of economic circumstances, and that if we have a theory that is both simpler and more general, we ought to embrace it. He makes the same point I did that if the "special case" notion is even mostly true, then marginalism was already implicit in the LTV and can't be rejected by Marxists anyway, but that the LTV is "dead and buried" but can't be called "wrong." He also points that the marginal value theory causes "the whole difficulty" that prompted most of Marx's convoluted analytical apparatus to exist to simply "vanish."

His discussion of surplus value is quite interesting. He claims that Marx designed this theory to accomplish a very specific political purpose: to make the exploitation of workers by capitalists universally and thus completely independent from the specifics of any given situation. Whether a worker felt taken advantage of by their employer (or vice versa!) was thus irrelevant. He didn't want to rely on special cases that would strike activists as obviously unjust--strong bargaining power, cheating, theft, etc. It had to be inherent. So he constructed an objective analysis of the economy in which this was the case. Schumpeter's paragraph on this bears quoting in full:

"Let us admire, in passing, the pedagogics of it: however special and removed from its ordinary sense the meaning might be which the word Exploitation now acquires, however doubtful the support which it derives from the Natural Law and the philosophies of the schoolmen and the writers of the Enlightenment, it is received into the pale of scientific argument after all and thus serves the purpose of comforting the disciple marching on to fight his battles."

It captures so perfectly the fundamental issue that makes this conversation so annoying to this day. Marx *intentionally* crossed two wires, and did so with such subtlety that most Leftists, even if they aren't Marxists, still view them as inextricable.

He never makes directly the point that to me seemed most damning about surplus value (that the separate negotiation of wages by day and hour is contradictory to his premises), but he does point out that Marx treats labor as a commodity but provides no mechanism to assure that labor is "produced according to rational cost calculations" as he assumes all commodities are, and that at perfect market equilibrium (an assumption of the surplus value theorem) surplus value is actually impossible, which I guess gets close to the same point. This undertheorized point leads directly to Marx's worst prediction: that increasing exploitation would decrease the standard of living of the working class. Surplus value can exist before equilibrium arrives, but understanding profits this way "strips them of the specifically Marxian connotation." He adds that Marx's lack of an "adequate theory of enterprise" "accounts for many mistakes."

He does make what I take to be more or less the same argument (about wages by hour/day) in a footnote, though. He points out that Marx absolutely wrecks Nassau Senior for arguing that capitalists only make profit in the last hour of the working day, etc, but that Marx's own case is transparently identical, a contradiction Marx never seems aware of.

It sometimes feels like Marx's modern followers lean almost entirely on the idea that Marx's analysis leads necessarily to capitalist crises, while neo-classical economics is constantly taken off guard by them. The continued occurrence of such crises thus "proves" Marx's theory is superior. But per Schumpeter, Marx had no theory of the business cycle at all! The presumption that even if Marx's basic theory is dubious in some way, the most macro-scale implications could validate them was always dubious, but Schumpeter doesn't think Marx even made such a connection in the first place. I never got far enough in Capital to judge this for myself but Schumpeter is being pretty generous and careful to Marx otherwise so I can't imagine he's wildly off here. Either way it's funny.

He concludes by addressing the proposition that "the whole is more than the sum of its parts"--that Marx could be right even after being wrong about so much. I guess it's nice of him to try but it's not at all surprising the verdict is mostly negative. Marx unites "political facts and economic theorems" but combines them with such violence that "neither of them can breathe." His analysis solves complex problems "only by emasculating them." His theory acquires its continued appeal not from any explanatory power but by presuming to "teach humanity the hidden meaning of its struggles." In reference to the notion that historical facts, personal experience, or modern crises prove Marx right, he notes that such evidence has the virtue "of being superficially known to everyone and of being thoroughly understood by very few." It is, in short, a framework for understanding economics and politics that obscures more than it illuminates.

[Zo · Rating 4 out of 5]

This book was a mix of brilliant insights and feeling quite confused. Schumpeter writes in a style where he assumes a fair amount of prior knowledge, which makes parts where one does have that knowledge feel jam-packed with thought-provoking comments, but other parts (particularly the beginning and ending sections focused on Marx and specific historical developments) hard to follow. I also definitely struggled to follow some of his economic arguments, and need to read more about how his analysis of different phenomena is generally regarded. I found his comments on the nature of big business, "creative destruction," and the way innovation works in the capitalist economy all perceptive, but I am unsure whether the historical reality of what has occurred refutes or affirms some of his arguments. Has business continued to concentrate in a way that displays the tendencies he argues for? Or have innovations in sectors he didn't anticipate (and political contingencies) undermined his argument? Obviously, he is wrong about the occurrence of socialism, but he is a careful enough writer about the indeterminacy of his predictions and his work being an assessment of tendencies/patterns that I think he still might be largely right. I also had a tough time evaluating his sections on the feasibility of socialism. They seemed naive/wrong without assuming an incredible amount of top-down information organization efficiency, but maybe we are heading in that direction? (Gwern has a blog post about this). What made this book so impressive to me are some of the more sociological/psychological bits. His sections on the sociology of the intellectual and his analysis of democracy are both superb, and he has a number of passing comments about attitudes/psychology that seem to forerun a number of later psychological findings (e.g. mini-comments on why people don't like capitalism and don't acknowledge its successes both contain and get ahead of Pinker in certain ways). I also find myself agreeing with his more moral convictions about socialism/capitalism, but am somewhat tentative in that assessment, because I'm not sure I understand his exact positions. Anyway, excited to read more secondary literature about this and hope to gain a greater understanding of its place in economic thought over time.

[O_O · Rating 3 out of 5]

Having heard of Schumpeter mostly from conservative authors, and this book in particular for the introduction of the idea of “creative destruction”, I was tempted to read “Capitalism, Socialism and Democracy” after also finding out that in it, someone affiliated with the Austrian School was anticipating an upcoming end of capitalism.

The book has five major parts: Marx, capitalism, socialism, and democracy, plus a brief history of socialist parties. Having only negligible familiarity with Marx’s work, and that from secondary sources, the first part was—to me—irrelevant, but I guess serves as an introduction and disclaimer of sorts.

The second part about capitalism, on the other hand, assuming some familiarity with classical economics, appears very interesting and I assume to a large extent still original to most readers: the near-universal absence of perfect competition, the desirability of mono- and oligopolies for economic growth and efficiency, the dissipation of attentive proprietors through diluted ownership, the intellectuals’ critique of capitalism and bourgeoisie as their sole raison d’être and their solicitation of all non-bourgeois elements of society, the gradual irrelevance of entrepreneurship, and the “automation” and on-demand production of research and innovation. All these are to Schumpeter signs of a mature capitalist economy that is ripe for harvest by socialism.

The third part about future socialism describes, according to Schumpeter, the only viable implementation of socialism. It is defined as the management of the means of production by a central authority according to rational/utilitarian economic principles. There is deliberately no speculation on elements that are not immediately relevant to the mechanics of production—most importantly—politics. Hence Schumpeter describes an economy that operates in the mode of “big business” with the bourgeois managerial class, and their excesses, having being replaced by bureaucrats of a socialist persuasion. The success of such an endeavour is argued to depend on the maturity of the capitalist economy it succeeds. Centralized control of the economy could be feasible, since there is no need of the new managerial bureaucracy taking over a mature capitalist economy to be constantly adapting production to the creative destruction of a developing and dynamic economy. The bottom line being that Schumpeter’s socialism and mature capitalism differ mainly on the make-up of the managerial class which in both cases presides over a static economy.

The fourth part is about representative democracy both historically and in Schumpeter’s socialism. Hastily he makes away both with the “will-of-the-people” tropes and the “bill-of-rights” overwhelmingly concomitant with democracy, to define democracy as: “the institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote”. He credits the bourgeois class with limiting the economic power of the political authorities (à la laissez-faire liberalism) and argues that a similar organization is possible in a socialist economy with a well-developed managerial bureaucracy independent of political authority, and a liberal dose of curtailment of human rights. Human rights, of the fair trial and free speech type, being sine qua non to the economic self-interest of the bourgeois class but not that much in socialism.

The final part describes the history and speculates on the future of socialist parties, their policies and idiosyncrasies according to the particularities of the respective economic and political development of their countries. Sweden for example, being a country with an advanced capitalist economy, placing socialists in positions of power gradually and democratically, juxtaposed to the history of the Bolsheviks.

The thesis of the book, in summary, is that a hypothetical mature capitalism differs from Schumpeter’s socialism in its economic organization only in appearances but not at all in function. At a state of maturity the economic engine of capitalism has reached near-peak efficiency but also a static equilibrium. There is nothing more to be gained by maintaining the status-quo, but, crucially, also nothing (or very little) to be lost in economic terms by transitioning to socialism.

Although the book is not technical, Schumpeter assumes an economically literate audience, which might be the reason he generally glosses over and hand-waves important parts of his arguments. In his defense, explaining the workings and arguing the merits of two economic systems and one political system in a couple hundred pages is no easy task. So, the book reads like a hurried sketch of his thoughts on these matters.

Especially the speculative parts about socialism very much resemble wishful thinking. Schumpeter raises potential objections to and criticisms of his statements, only to do away with them with mere affirmations and assertions. Though being aware of the work of Hayek and von Mises he barely mentions their arguments. This makes the book very demanding to the reader, who has to reconstruct Schumpeter’s line of arguments if he is to be convinced of anything—and that only if he has the ability, knowledge and time.

Adding to these a peculiar and convoluted syntax and style (multitude of secondary clauses; pronouns with no clear reference; excessive footnotes etc.) makes the book a very dry and demanding read.

Despite this, it is full of original thoughts, unusual opinions and less known facts, even if not always well argued, presented or supported. For example: the bourgeoisie cannot produce a successful ruling class and has often allied with the scions of nobility or other authoritarians who are better at government (Schumpeter’s “protective strata”); the motivational role of “the family” in bourgeois activities; the ability of individuals like Gladstone to single-handedly win elections (the Midlothian Campaign) etc.

What might be of value to modern readers with classical or marxist notions of capitalism (and ownership, the bourgeoisie etc.) is the description of mature capitalism. There, even innovation and creative destruction can be decreed to the R&D department. Even the haute bourgeoisie owns only a small percentage in individual companies to be actively involved and interested in their affairs, which are left to a multitude of disinterested managerial bureaucracies. Investment opportunities are vanishing and interest rates declining. Oligopolies are providing for the masses with an unprecedented efficiency, while the intellectuals agitate a working class (white and blue collar) that is increasingly disenchanted both with capitalism and democracy… To what extent are these true today? If they are true, does this imply stasis and equilibrium? And if yes, is socialism a desirable and feasible way out?