Capitalism, Socialism and Democracy

Capitalism is being killed by its achievements.

If Marx had not been more than a purveyor of phraseology, he would be dead by now.

Capitalism, Socialism and Democracy is a book on economics (and in other levels, on sociology and history) by Joseph Schumpeter.

Quotes

• I felt it my duty to take, and to inflict upon the reader, considerable trouble in order to lead up effectively to my paradoxical conclusion: capitalism is being killed by its achievements.
  • Preface to the first edition, 1942

• Love and hate have so blurred the results of such serious work as has so far been done on this question—it is not much—that even mere restatement of widely accepted views seemed justified here and there.
  • Preface to the first edition, 1942

• The classical theory of monopolistic pricing (the Cournot-Marshall theory) is not entirely valueless, especially when overhauled so as to deal not only with the instantaneous maximization of monopoly gain but also with maximization over time. But it works with assumptions that are so restrictive as to exclude its direct application to reality. In particular it cannot be used for what it is being used in current teaching, namely, for a comparison between the way in which a purely competitive economy functions and the way in which an economy functions that contains substantial elements of monopoly.
  • Preface to the second edition, 1946

• Current economic theory is almost wholly a theory of the administration of a given industrial apparatus. But much more important than the manner in which capitalism administers given industrial structures is the manner in which it creates them.
  • Preface to the second edition, 1946

• Frank presentation of ominous facts was never more necessary than it is today because we seem to have developed escapism into a system of thought.
  • Preface to the second edition, 1946

Part I: The Marxian Doctrine

• Most of the creations of the intellect or fancy pass away for good after a time that varies between an after-dinner hour and a generation. Some, however, do not. They suffer eclipses but they come back again, and they come back not as unrecognizable elements of a cultural inheritance, but in their individual garb and with their personal scars which people may see and touch. These we may well call the great ones—it is no disadvantage of this definition that it links greatness to vitality. Taken in this sense, this is undoubtedly the word to apply to the message of Marx.
  • Prologue

• However, if Marx had not been more than a purveyor of phraseology, he would be dead by now.
  • Chapter I: Marx the Prophet

• Geniuses and prophets do not usually excel in professional learning, and their originality, if any, is often due precisely to the fact that they do not.
  • Chapter III: Marx the Economist

• As a matter of fact, capitalist economy is not and cannot be stationary. Nor is it merely expanding in a steady manner. It is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure as it exists at any moment.
  • Chapter III: Marx the Economist

• For one thing, to predict the advent of big business was considering the conditions of Marx's day an achievement in itself.
  • Chapter III: Marx the Economist

• Any existing structures and all the conditions of doing business are always in a process of change. Every situation is being upset before it has had time to work itself out. Economic progress, in a capitalist society, means turmoil.
  • Chapter III: Marx the Economist

• Lack of outlets, excess capacity, complete deadlock, in the end regular recurrence of national bankruptcies and other disasters-perhaps world wars from sheer capitalist despair-may confidently be anticipated. History is as simple a that.
  • Chapter IV: Marx the Teacher

Part II: Can Capitalism Survive?

• As soon as we go into details and inquire into the individual items in which progress was most conspicuous, the trail leads not to the doors of those firms that work under conditions of comparatively free competition but precisely to the door of the large concerns--which, as in the case of agricultural machinery, also account for much of the progress in the competitive sector--and a shocking suspicion dawns upon us that big business may have had more to do with creating that standard of life than with keeping it down.
  • Chapter VII: The Process of Creative Destruction

• Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers.
  • Chapter VII: The Process of Creative Destruction

• The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.
  • Chapter VII: The Process of Creative Destruction

• The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation-if I may use that biological term-that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.
  • Chapter VII: The Process of Creative Destruction

• Situations emerge in the process of creative destruction in which many firms may have to perish that nevertheless would be able to live on vigorously and usefully if they could weather a particular storm.
  • Chapter VIII: Monopolistic Practices

• Nothing is so retentive as a nation's memory.
  • Chapter VIII: Monopolistic Practices

• Want and effective demand are not the same thing. If they were, the poorest nations would be the ones to display the most vigorous demand.
  • Chapter X: The Vanishing of Investment Opportunity

• We have seen that the function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry and so on. ...To undertake such new things is difficult and constitutes a distinct economic function, first, because they lie outside the routine tasks... and secondly, because the environment resists in many ways... from simple refusal either to finance or to buy a new thing, to physical attack on the man who tries to produce it. To act with confidence beyond the range of familiar beacons and to overcome that resistance requires aptitudes that are present in only a small fraction of the population and that define the entrepreneurial type as well as the entrepreneurial function. This function does not essentially consist in either inventing anything or otherwise creating the conditions which the enterprise exploits. It consists of getting things done.
  • Chapter XII: Crumbling Walls

• The stock exchange is a poor substitute for the Holy Grail.
  • Chapter XII: Crumbling Walls

• Capitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the defense they may hear; the only success victorious defense can possibly produce is a change in the indictment.
  • Chapter XIII: Growing Hostility

• Capitalism inevitably and by virtue of the very logic of its civilization creates, educates and subsidizes a vested interest in social unrest.
  • Chapter XIII: Growing Hostility

Part III: Can Socialism Work?

• It is quite possible that future generations will look upon arguments about the inferiority of the socialist plan as we look upon Adam Smith's argument about joint stock companies which, also, were simply false.
  • Chapter XVII: Comparison of Blueprints

• The capitalist process shapes things and souls for socialism.
  • Chapter XIX: Transition

Part IV: Socialism and Democracy

• Nothing is so treacherous as the obvious.
  • Chapter XX: The Setting of the Problem

• To realize the relative validity of one's convictions and yet stand for them unflinchingly is what distinguishes a civilized man from a barbarian.
  • Chapter XX: The Setting of the Problem

• In economic life competition is never completely lacking, but hardly ever is it perfect.
  • Chapter XXII: Another Theory of Democracy

Part V: A Historical Sketch of Socialist Parties

• The trouble with Russia is not that she is socialist but that she is Russia.
  • Chapter XXVIII: The Consequences of the Second World War

Quotes about Capitalism, Socialism and Democracy

• In his great work, Capitalism, Socialism and Democracy, Schumpeter speculated that the utilitarian turn of mind required and promoted by capitalism would, over time, corrode the practices central in bourgeois civilization. He suggested that the practice of long-term saving depended on a degree of marital and family stability that the habits of mind encouraged by advanced capitalist economies made unsustainable. Here Schumpeter advanced in its canonical form the argument that late modern capitalism expresses and aggravates cultural contradictions which make the free market unviable in political terms. By contrast with Schumpeter, Hayek celebrated the powers of creative destruction of capitalism without ever grasping that the traditional bourgeois social order he sought to preserve was among the cultural residues of the past that a late modern free market economy consigns to oblivion.
  • John N. Gray, Hayek on Liberty (3rd ed., 1998), Postscript: Hayek and the dissolution of classical liberalism

• Schumpeter’s work, his dynamic view of the entrepreneur and creative destruction has had a great impact on me. He indeed wrote a book, Capitalism, Socialism and Democracy, which intended to give a complex analysis of the two systems. But these two books, and a few others (e.g., some of Mises’s and Hayek’s works) are rather exceptional. A typical American textbook on economic systems is not written with the same ambition about capitalism with which I wrote about socialism. It doesn’t give you a general model of capitalism, including the characterization of the political, ideological, and social spheres.
  • János Kornai, in "An Interview with János Kornai : Interviewed by Olivier Blanchard", Macroeconomic Dynamics, 1999

• A final aspect of all open access orders is Schumpeter’s notion of creative destruction, one of the most powerful descriptions of a competitive, open access economy. When Schumpeter wrote Capitalism, Socialism, and Democracy in the early 1940s, the economic theory of perfect competition among atomistic firms (i.e., firms too small to have market power) had come under sustained attack as unrealistic. Large and powerful economic organizations dominated the new economy, and their behavior did not match the textbooks. Despite this dominance, the economy produced historically unprecedented, sustained economic development. Schumpeter asked, How could large businesses that were supposed to choke off competition and growth nonetheless generate such spectacular productivity increases in a world that seemed ever more competitive?
  • Douglass C. North, John Joseph Wallis, and Barry R. Weingast, Violence and Social Orders (2009), Ch. 4 : Open Access Orders

• Paradoxically, however, the very greatest contribution that the economist Schumpeter made to the history of ideas was not strictly in the field of economics but had to do with the evolutionary trends in the post-capitalistic order. Capitalism, Socialism and Democracy reads better 40 years after its publication than it did in 1942 or 1950.
  It is a great book. And this despite the fact that its main thesis does not quite convince. The demise of capitalism is not really speeded up the more successfully it fills its economic mission. That is not plausible in terms of logic; and the facts of 1900-1942, or for that matter 1942-1983, do not make it plausible.
  • Paul Samuelson, "1983: Marx, Keynes and Schumpeter",Eastern Economic Journal, Vol. 9, No. 3 (Jul. - Sep., 1983)

• Towards the end of his life, Schumpeter re-painted his picture of capitalist development on an even broader canvas. In Capitalism, Socialism and Democracy (Schumpeter 1950), he offered a complex, multifaceted argument that the type of capitalism he had earlier described might be passing from the historical scene, morphing by small degrees into some variety of socialism.
  • Sidney G. Winter, "Dynamic Capability as a Source of Change" in Alexander Ebner, Nikolaus Beck, eds. The Institutions of the Market: Organizations, Social Systems, and Governance (2008)

External links

• Capitalism, Socialism, and Democracy (1950) @Archive.org