Joseph A. Schumpeter (1883–1950)

This has long been one of the must-read books on my list, but it has taken me a long time to getting round to it. Half-way through it, my main sense is of an exasperating, even frustrating work. The style is mostly lofty, making it difficult to grasp what he is getting at; sometimes bombastic, often dogmatic: the author knows best. Frequently, he sets up straw men to strike down. He describes rival theories in great detail, so that sometimes it is difficult to see whether he is trying to be more than scrupulously fair, praising them, or whether he is actually caricaturing them in order the better to demolish them. Sometimes, he takes back all his dire predictions in the last paragraph or two, which means he is hedging his bets both ways. He is best known for his theory of creative destruction in the capitalist economy, as new technologies and businesses supplant old ones. Contemporary policy makers seem to be highly enamoured of this, but repose a blind faith in the destruction part without sufficient attention to the creative part: it seems our governments are reposing blind faith in the power of "shaking up the status quo", in the "game-changer" or "killer" new technology or institutional set-up, in the "silver bullet" to solve all problems, in "chaos theory" and the "great disruption", or the "shake up the parts in a box and come out with a jumbo-jet" strategy. Obviously the real economy does not oblige. However, the author is better in describing the sociology of the modern world, the change in attitudes to family and children, the growth of self-centered individualism, the nature of intellectuals, businessmen, bureaucrats, and politicians, the democratic system, etc. He is good when he drops his lofty, lecturing tone for a more human and down-to-earth approach.… (more)

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?… (more)

Schumpeter's Capitalism, Socialism and Democracy is a classic of political and economic philosophy. Although written with a dated and dry prose style it remains relevant for today and can be very much recommended.

This particular Kindle edition should, however, be avoided. The good news was that this edition is cheap. The bad news is that it is an irritation to read because of the way that footnotes are handled. The original footnotes in the book were located at the bottom of the page. In this Kindle edition, they are jumbled into the middle of the text. There is also no way to jump to a footnote and then back again. My suggestion is to spend slightly more to get a better e-book version of the book… (more)

This is one strange book. It's in part a great work by a first rate mind brimming with wise insights in economics, political theory, history and sociology. But other parts of the book made me shake my head and wonder why they have been included at all. I have to admit, I did not read this book all the way to the end. Some of the arguments about the demise of capitalism (part 2) and the inevitable rise of socialism (part 3) are so absurd, even when discounted to 1942, that I must assume that Schumpeter was jesting. For example, he writes that socialism is superior because it will experience no cyclical ups and downs, improvements can be spread by decree, the division between private and public will no longer exist and because useless vocations such as lawyers will no longer be needed (pages 193-199).

Indeed, the introduction (not written by Schumpeter) states that Schumpeter's argument drifts into irony and satire. It's a mystery to me what message he sought to convey satirically. By far the most interesting part of the book was part 4. It contains Shumpeter's insightful theory of democracy, which came to be quite influential in the 20th century. In my opinion this book deserves to be studied primarily for its political theory, not so much for its satirical analysis of capitalism. The other parts of the book are Part 1, which is about Marx, and part 5 which is a history of socialist parties. I presume that Schumpeter's intention was to illustrate his theories with a study of recent political history. To me part 5 seemed uninteresting and totally irrelevant in relation to the preceding parts of the work. The final 50 pages of the book (2008 Harper edition) contain some kind of a running commentary on postwar international politics, which I pretty much skipped. As I said, it's a strange, even incoherent book, but for the most part an intellectual ride worth taking.… (more)