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''Capitalism, Socialism, and Democracy'' is a book on economics, sociology, and history by Joseph Schumpeter, arguably his most famous, controversial, and important work. It's also one of the most famous, controversial, and important books on social theory, social sciences, and economics—in which Schumpeter deals with
capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private pr ...
, socialism, and
creative destruction Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics which since the 1950s is the most readily identified with the Austrian-born economist Joseph Schumpeter who derived it from the work of Karl Marx and po ...
. It is the third most cited book in the social sciences published before 1950, behind Marx's ''
Capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used fo ...
'' and '' The Wealth of Nations'' by
Adam Smith Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——� ...
.


Introduction


Part I: The Marxian Doctrine

Schumpeter devotes the first 56 pages of the book to an analysis of Marxian thought and the place within it for entrepreneurs. Noteworthy is the way that Schumpeter points out the difference between the capitalist and the entrepreneur, a distinction that he claims Marx would have been better served to make (p. 52). The analysis of
Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
is broken down into four roles that Schumpeter ascribes to the writer (prophet, sociologist, economist, and teacher). The section Marx the Prophet explains that if nothing else Marx would have been received well by people who needed a theory to explain what was happening in their society. The section Marx the Sociologist focuses on how Marx's theory of class fits in with the larger intellectual traditions of the day and how it superseded them in at least its ability to synthesize sociological thought. The section Marx the Economist focuses on Marx's economic theory and judges it excessively "stationary" (pp. 27, 31). He also deals with the concept of crisis and business cycle, two economic theories that Marx pioneered (p. 39). The last section, Marx the Teacher, evaluates the usefulness of Marx's thought to interpret the events of his time and those between his death and Schumpeter's time. Schumpeter claims that any theory of crisis gains support when crises occur, and points to some developments that Marx's theories have failed to predict. On page 53 he argues that Marx's theory better predicts English and Dutch colonial experiences in the tropics, but fails when applied to New England for example.


Part II: Can Capitalism Survive?

Schumpeter answers "no" in the prologue to this section. But he says, “If a doctor predicts that his patient will die presently,” he wrote, “this does not mean that he desires it.” The section consists of 100 pages with the following ten topics: The Rate of Increase of Total Output, Plausible Capitalism, The Process of Creative Destruction, Monopolistic Practices, Closed Season, The Vanishing of Investment Opportunity, The Civilization of Capitalism, Crumbling Walls, Growing Hostility, and Decomposition. Of these,
creative destruction Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics which since the 1950s is the most readily identified with the Austrian-born economist Joseph Schumpeter who derived it from the work of Karl Marx and po ...
has been absorbed into standard economic theory. This section constructs a view of capitalism which ultimately tends toward
corporatism Corporatism is a collectivist political ideology which advocates the organization of society by corporate groups, such as agricultural, labour, military, business, scientific, or guild associations, on the basis of their common interests. The ...
which, he suggests, will be its own undoing.


Part III: Can Socialism Work?

In this section comparative analysis of known theories of socialism are explored. The five sections in this Part are: Clearing Decks, The Socialist Blueprint, Comparison of Blueprints, The Human Element, and Transition. Although some readers have expressed surprise at what they see as Schumpeter's excessively rosy appraisal of a hypothetical future socialist republic and its chances of success, others disagree. Thomas K. McCraw, Schumpeter's biographer, saw Schumpeter's analysis of socialism in this section as almost satirical, observing that Schumpeter stipulated so many unrealistic preconditions for the future success of socialism, that he was essentially saying that it couldn't possibly succeed under any circumstances.


Part IV: Socialism and Democracy

This section debates how well democracy and socialism will fit together. The four sections of this Part include, The Setting of the Problem, The Classical Doctrine of Democracy, Another Theory of Democracy, and The Inference.


Part V: A Historical Sketch of Socialist Parties

This part develops five periods of socialist thought. Before Marx, Marx's time, 1875 to 1914 (Prior to WWI), The interwar period, and Schumpeter's contemporary post-war period.


Capitalism and socialism

Schumpeter's theory is that the success of capitalism will lead to a form of
corporatism Corporatism is a collectivist political ideology which advocates the organization of society by corporate groups, such as agricultural, labour, military, business, scientific, or guild associations, on the basis of their common interests. The ...
and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form. There will not be a revolution, but merely a trend for social democratic parties to be
elected Elected may refer to: * "Elected" (song), by Alice Cooper, 1973 * ''Elected'' (EP), by Ayreon, 2008 *The Elected, an American indie rock band See also *Election An election is a formal group decision-making process by which a populatio ...
to parliaments as part of the democratic process. He argued that capitalism's collapse from within will come about as majorities vote for the creation of a welfare state and place restrictions upon entrepreneurship that will burden and eventually destroy the capitalist structure. Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy (more precisely, he was engaging in political advocacy for the contrary). In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong. One of the great advantages of capitalism, he argues, is that as compared with pre-capitalist periods, when education was a privilege of the few, more and more people acquire (higher) education. The availability of fulfilling work is however limited and this, coupled with the experience of unemployment, produces discontent. The intellectual class is then able to organise protest and develop critical ideas against
free market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ...
s and
private property Private property is a legal designation for the ownership of property by non-governmental legal entities. Private property is distinguishable from public property and personal property, which is owned by a state entity, and from collective or c ...
, even though these institutions are necessary for their existence.This analysis is similar to that of the philosopher
Robert Nozick Robert Nozick (; November 16, 1938 – January 23, 2002) was an American philosopher. He held the Joseph Pellegrino University Professorship at Harvard University,
, who argued that intellectuals were bitter that the skills so rewarded in school were less rewarded in the job market, and so turned against
capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private pr ...
, even though they enjoyed vastly more enjoyable lives under it than under alternative systems. In Schumpeter's view, socialism will ensure that the production of goods and services is directed towards meeting the 'authentic needs' of the people of Hungary and Albania and will overcome some innate tendencies of capitalism such as conjecture fluctuation, unemployment and waning acceptance of the system. According to some analysts, Schumpeter's theories of the transition of capitalism into socialism were ‘nearly right’
Where Schumpeter was Nearly Right - The Swedish Model and Capitalism, Socialism and Democracy
'', Magnus Henrekson, Ulf Jakobsson, S-WoPEc - Scandinavian Working Papers in Economics, Working Paper Series, April 3, 2000
except that he did not anticipate the collapse of socialism in Eastern Europe nor the role of technology to foster innovation and entrepreneurship in Western society beginning in the 1980s. This was in contrast to Schumpeter's theory that technology would only serve to concentrate ownership and wealth towards large corporations. Other prominent economists do not share this post- Cold war triumphalism. Amongst them is the Nobel Prize laureate Edmund Phelps, as well as his reviewer
Arnold Kling Arnold Kling (born 1954) is an American economist, scholar, and blogger known for his writings on EconLog, an economics blog, along with Bryan Caplan and David R. Henderson. Kling also has his own blog, askblog, which carries the motto: "takin ...
, economist at
MIT The Massachusetts Institute of Technology (MIT) is a private land-grant research university in Cambridge, Massachusetts. Established in 1861, MIT has played a key role in the development of modern technology and science, and is one of the m ...
, have expressed that Schumpeter was right about corporatism. They echo an economic history of corporations steadily rising to ever more prominence and power since at least the 1970s to the 2010s. Phelps analysis of corporatism is pro-open market as he describes large corporations working in tandem with "corporatists" policies from the State, and its relationship to ''the congressional-banking complex''. Thus it is corporatism, not socialism, which is the undoing of free-market capitalism.


Creative destruction

The book also introduced the term 'creative destruction' to describe innovative entry by entrepreneurs as the force that sustains long-term
economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
, even as it destroys the value of established companies that have enjoyed some degree of monopoly power. Because of the significant barriers to entry that monopolies enjoy, new entrants have to be radically different: ensuring fundamental improvement is achieved, not a mere difference of packaging. The threat of market entry keeps monopolists and oligopolists disciplined and competitive, ensuring they invest their profits in new products and ideas. Schumpeter believed that it is this innovative quality that makes capitalism the best economic system.


See also

*
Capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private pr ...
*
Creativity techniques Creativity techniques are methods that encourage creative actions, whether in the arts or sciences. They focus on a variety of aspects of creativity, including techniques for idea generation and divergent thinking, methods of re-framing problems, ...
*
Disruptive technology In business theory, disruptive innovation is innovation that creates a new market and value network or enters at the bottom of an existing market and eventually displaces established market-leading firms, products, and alliances. The concept w ...
* Socialism


References


External links

*
Summary of the book
{{DEFAULTSORT:Capitalism, Socialism And Democracy Books about capitalism 1942 non-fiction books 1942 in economics Books about socialism Books about democracy Joseph Schumpeter