Capitalism, Socialism, and Democracy | Study Guide

Joseph A. Schumpeter

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Capitalism, Socialism, and Democracy | Part 2, Chapter 12 : Can Capitalism Survive? (Crumbling Walls) | Summary



Schumpeter considers the ways in which capitalism will destroy itself:

  1. Schumpeter considers a case in which the wants of humanity would be perfectly satisfied. Such a situation would cause the entrepreneurial function of capitalism to become obsolete and for capitalism itself to become "atrophic," starved of the possibility of evolution. Schumpeter uses this theoretical example to emphasize that capitalism delivers only when entrepreneurs are free to work. He believes the social function of entrepreneurship is already being broken down, partly because capitalist development means economic progress becomes "depersonalized" and "automatized." The entrepreneurial class is thus absorbed by the bourgeoisie. Schumpeter concludes by suggesting that the automation of progress makes capitalist enterprise itself "superfluous."
  2. Schumpeter states that capitalism destroyed the feudal world and its institutions. This destruction freed the bourgeoisie to profit through capitalist enterprise. Unfortunately for the bourgeoisie, it also destroyed many institutions that protected that class. Capitalist progress also fed the rise of a bureaucracy that owed capitalism no special loyalty. The rationalist and unheroic bourgeoisie has only its economic performance to distinguish itself. Thus, the bourgeoisie is ill-equipped to defend itself from domestic and international problems. Schumpeter sums up this section by saying that capitalism broke down both barriers and "the flying buttresses that prevented its collapse."
  3. Capitalist processes attack the standing of "the small producer and trader," that is, small capitalists. These processes break down the institutional framework at all levels. Even property ownership has been diminished in favor of "big stockholders" and "salaried managers." In place of the vitality of real property (like machines) is only the "parcel of shares" that ultimately diminishes interest in defending the institutions of property capitalism requires.


Schumpeter directly addresses the factors which mean capitalism will undermine itself. These are, as has been previously noted, sociological factors, not economic ones. These sociological factors can be compared with those he described in his Marxist analysis in Part 1. While they echo Marx in some ways, there is otherwise little in common. Schumpeter does not consider there to be a class struggle as Marx does, but Schumpeter does think that technological developments will ultimately be a detriment to entrepreneurs. That element is a distinct echo of Marx's immiseration theory of capitalism, in which businesses chase technological development at the expense of workers.

Creative destruction proves to be a blessing and a curse. Capitalism sees nothing that it cannot destroy and remake to capitalist ends, unfortunately including the foundations and support structures of capitalism. This important element of Schumpeter's argument is a result of his insistence on considering the historical and social circumstances of capitalist development. Capitalism did not arrive in a vacuum, and capitalism as an economic model cannot be fully distinguished from the culture it created.

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