Capitalism, Socialism, and Democracy | Study Guide

Joseph A. Schumpeter

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Capitalism, Socialism, and Democracy | Part 2, Chapter 10 : Can Capitalism Survive? (The Vanishing of Investment Opportunity) | Summary

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Summary

Schumpeter discusses the "unusual severity and duration" of the Great Depression. He notes also that most economists disagree with him about whether the depression indicated a break with "capitalist evolution." Some, he says, have come to believe that the depression shows a "permanent loss of vitality" in capitalism, meaning its past performance cannot be projected into the future. According to the Marxian argument, in its final stage, capitalism enters a "permanent crisis." This crisis would be marked by the tendency of the rate of profit to fall and an accompanying reduction of investment opportunity.

Although Schumpeter does not think the "vanishing of investment opportunity" will kill capitalism, it offers him an opportunity to discuss whether it has really been the cause of the problems of the past decade. He needs to show whether those problems can be expected to persist into the next 40 years.

Schumpeter considers the vanishing of investment opportunity in a structured argument:

  1. To the question of whether human wants can be "so completely satisfied" that investment opportunities freeze, he answers that the dwindling of investment opportunity would occur only in circumstances of birth rate or population decline.
  2. To the point that there are fewer new lands to exploit, he says it is unlikely that new exploitative methods or discoveries will dry up. What an entrepreneur needs is opportunities. New lands are one kind of opportunity, but so are many other things.
  3. To the idea that technological advance will slow or end, he argues instead that technological possibilities are an "uncharted sea." Even so, there is no reason to suspect it will cause a "slackening of the rate of output."
  4. Schumpeter considers the argument that the labor forces of all countries had been outfitted with the "necessary equipment" in the 19th century and that the demand for capital goods is in the present era reduced to that for replacement, not expansion and outfit. Schumpeter thinks this idea is ridiculous. He also considers the argument that technological progress means that capital outlay for construction has decreased in importance, limiting the prospects for the short bursts of intense activity that shaped previous capitalist development. Schumpeter does not think the empirical basis for this claim is well founded.
  5. Regarding the idea that future prospects for investment are more suited to public rather than private activity, Schumpeter thinks it is true to an extent. However, the idea is not particularly significant, and it does not posit a "vanishing of investment opportunity."

Analysis

Schumpeter's discussions of Marx suggest he did not think much of economic arguments for capitalism's demise. He deals in detail with a major one here, the vanishing of economic opportunity. His treatment of that argument is important for setting up the subsequent chapter. Schumpeter does not believe capitalism's demise is a result of economic failure—quite the opposite.

In this chapter, Schumpeter also demonstrates fully his dedication to a strong rhetorical argument. He considers the main idea and then lays out its elements and his responses to them in well-structured fashion, ultimately reaching a conclusion that leads to his next point.

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