Capitalism, Socialism, and Democracy | Study Guide

Joseph A. Schumpeter

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Capitalism, Socialism, and Democracy | Part 2, Chapter 9 : Can Capitalism Survive? (Closed Season) | Summary



Schumpeter asks readers to make up their own minds about whether what he has said in the previous chapter is convincing. He notes that economics rests only on observation, which means that differences of opinion are possible. He returns to an earlier question about whether earlier time periods were conducive to capitalist development, answering that in his view, the pre-1928 economic performance did exist in a favorable form of capitalism. He notes, however, that even so, that favorable form of capitalism might have been the result of exceptional circumstances. He considers five potential sources of exceptional circumstances:

  1. Government action. Schumpeter argues that from 1870 to 1914 capitalism existed almost entirely free from "either the stimuli or the depressants" that might result from political activity.
  2. Gold. A glut of gold entered the world supply beginning around 1890. Because this glut occurred in the second half of the period in question and was scarce in the first half, it cannot be taken as a major factor in the productive performance of capitalism in the period.
  3. Population increase. Whether it was the cause or effect of economic growth, population increase was certainly a factor in economic performance.
  4. Land. A wide expanse of land entered the "Americo-European" sphere during the period in question, which increased access to raw materials and agricultural production.
  5. Technological progress. Such progress is, in Schumpeter's view, one and the same thing as capitalist enterprise.

Considering the fourth and fifth candidates, Schumpeter notes that they may indeed pose problems for a forward projection of economic growth, if they proved to be one-off achievements. Schumpeter turns to consider in more detail how likely it is that capitalism will continue to perform positively in the next 40 years (or would continue to perform, "if allowed to do so" by governments).


Having broadly praised capitalism in the previous chapters, in this chapter Schumpeter begins his turn toward explaining his thesis that it will destroy itself. To begin doing so, he recaps the discussion about whether the preceding economic performance took place in special circumstances. He considers those circumstances here in more detail, and armed with his previous analysis.

Schumpeter's real argument is that the circumstances of the period from 1870 to 1928 should be allowed to resume because they were "ideal" for capitalist progress. His cutoff for his basis of future projections is 1929—the year of the stock market crash and the onset of the Great Depression. However, one might argue in response to Schumpeter that it does not serve his long-term analysis well to ignore the 10 years of grinding depression from 1929 to 1939. The "favorable circumstances," after all, also produced the depression.

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