Capitalism, Socialism, and Democracy | Study Guide

Capitalism, Socialism, and Democracy, published in 1942, is Joseph Schumpeter's attempt to analyze the competing economic systems of capitalism and socialism and to predict how the competition between the two would evolve. Schumpeter argues that capitalism is successful because it empowers private entrepreneurs to produce innovations and drive the production of greater wealth. However, he also argues that capitalism's success tends to undermine the social systems that support it, so its replacement by socialism—public control of the economy—is inevitable.

Schumpeter's book was widely read and discussed upon its release and in the following years. His keen analysis and bold predictions captured a central tension of the time, the contest between capitalist and socialist systems and the fear of Western leaders of the 1930s and 1940s that capitalism was doomed. However, Schumpeter's predictions did not come to pass. Nevertheless, his work is well regarded for its emphasis on the role of the entrepreneur in capitalism, the centrality of innovation to a successful capitalist system, and the idea of "creative destruction," in which business failures and recessions sweep away the old and failed ideas and allow the new to grow. These ideas, more than Schumpeter's analysis or predictions about socialism, have been influential on the growth of entrepreneurial capitalism in the late 20th and early 21st centuries.