Capitalism, Socialism, and Democracy | Study Guide

Joseph A. Schumpeter

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Capitalism, Socialism, and Democracy | Part 2, Chapter 6 : Can Capitalism Survive? (Plausible Capitalism) | Summary

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Summary

Schumpeter acknowledges a rejoinder, or reply, to his argument in the previous chapter, that projecting the production rate of an earlier age into the future from 1928 is not a tenable, or defensible, basis for an argument. Schumpeter suggests that his illustration is intended only to give a "quantitative idea" of what capitalism might accomplish in the future if it "repeated past performance." He proceeds to consider what circumstances would need to be in place for capitalism to repeat past performance, as well as the problems in answering this question. One major problem is whether the type of economy that occurred in the period in question was favorable, neutral, or unfavorable to produce the growth that ensued. He answers the question as follows:

  1. The "industrial bourgeoisie" (capitalists) rose through business success. The capitalist system and its structure of rewards attract "the large majority of supernormal brains" (people with the skill, vigor, and aptitude for work) and equate personal success with success in business. The largest prizes are given to only a few, which leads to intense competition among the majority. Thus, capitalism "chains the bourgeois stratum to its tasks."
  2. Answering the charge that economic success is not geared to "social service," Schumpeter notes that classical economists believed self-interest to be the root of "maximum performance in the interest of all." The profit motive alone does not mean that no social good accrues from capitalist excellence.
  3. Schumpeter suggests that the classical economists did not succeed in providing a theory that backed up their vision. He suggests that more modern economists like Alfred Marshall (1842–1924) of England and Knut Wicksell (1851–1926) of Sweden have succeeded in bridging the gap. Their theories demonstrate how firms will "produce as much as they can without running into loss."
  4. Building on the previous conclusions, he notes that "monopolistic competition" describes how monopolistic economies might actually lead to more beneficial social production than does "cut-throat" competition.

Analysis

Many times Schumpeter sets up his own arguments by anticipating (or perhaps repeating) criticisms of what he has said previously. He takes that approach here. It is important to Schumpeter that his argument be "plausible," to use the phrase from the chapter title. He has committed himself to scientific rigor and to avoiding prophecies and flights of fancy. To project growth into the future, he must demonstrate that it is reasonable to use such growth as a fair reading of capitalism's prospects. He spends a good deal of time considering the value of that approach. In this chapter Schumpeter also argues with other economists through his own arguments. The point about monopolistic competition, which is one he reconsiders throughout the text, is a major point of contention between Schumpeter and many of his peers.

A modern reader may find Schumpeter's offhand comment about "supernormal brains" odd. In Schumpeter's time and circumstances, it was quite ordinary to describe human capabilities in such terms, according to theories of biological determinism, or the idea that individuals' activity is determined by their genetics, not their environments.

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