Capitalism, Socialism, and Democracy | Study Guide

Joseph A. Schumpeter

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Capitalism, Socialism, and Democracy | Part 4, Chapter 23 : Socialism and Democracy (The Inference) | Summary



Schumpeter proceeds to consider the implications of what he has argued so far. In particular he considers whether socialism is compatible or incompatible with democracy. He identifies no necessary affinity or incompatibility. He notes, however, that this judgment rests on the particular types of socialism and democracy one considers.

Schumpeter reiterates his believe that in a democracy, the people do not actually rule at all. Rather, a democracy often functions like an oligarchy. What matters is free competition among prospective leaders. He identifies a weakness in democracy, however, in that the need of leaders to continually compete for votes precludes them from effective long-term planning or considerations of wider interests than what might help get them re-elected. Dealing with critics of democracy, Schumpeter notes that the less-efficient government of a democracy may in fact be a virtue. Another measure that might alleviate the strain on the prime minister is the separation of powers, as in the American system. Despite this, Schumpeter notes that the qualities of a skilled politician are not necessarily the qualities of a skilled administrator.

Next, Schumpeter considers in what conditions democracy can thrive. He believes there are certain situations in which it can thrive and others in which it will fail. To survive, democracy first needs "sufficiently high quality" people, a subjective description, to run the democratic institutions. Second, the range of possible political decisions should be sufficiently constrained. Third, a democracy in an industrial society must be able to command a "well-trained bureaucracy of good standing and tradition." Fourth is "democratic self-control." That is, all actors in a democracy must agree to abide by the democratic process and its outcomes. Schumpeter concludes the discussion of conditions for a thriving democracy by stating that the democratic method "will be at a disadvantage in troubled times."

Finally, Schumpeter considers democracy in "the socialist order." Schumpeter argues that bourgeois democracy and capitalism are closely linked and that capitalist society is well qualified to foster the success of a democracy. The requirements of laissez-faire capitalism condition a sense of democratic self-restraint, just as market competition echoes the competition for political power. However, capitalism is "losing the advantages it used to possess."

For socialism Schumpeter has other remarks. He disdains the extension of politics to cover all economic affairs but points out that a socialist society may not take this approach anyway. However, the inefficiencies of a central board could not be blamed on the kinks of democracy in such a system. Ultimately, Schumpeter agrees that a socialist society could indeed use the democratic method.


Schumpeter goes into admirable depth to summarize his answer to the question of democracy's compatibility with socialism. But he has already cautioned the reader in the earliest chapters that his conclusions will not be so interesting as the methods used to arrive at them. It is clear, nevertheless, that Schumpeter thinks that capitalism and democracy are closely interlinked. While a socialist system could be democratic, he thinks it less likely than for a capitalist system to be democratic. Capitalism and democracy grew together and work via similar mechanisms, such as competition and the selection of "the best" to fill vital positions.

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