Capitalism, Socialism, and Democracy | Study Guide

Joseph A. Schumpeter

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Capitalism, Socialism, and Democracy | Part 5, Chapter 28 : A Historical Sketch of Socialist Parties (The Consequences of the Second World War) | Summary



From the perspective of 1946, Schumpeter adds an analysis of trends that have developed since the end of World War II. In the first section he discusses England and "orthodox socialism" as represented by the electoral success of the Labour Party, which achieved a parliamentary majority in 1945's elections. He considers this success a mark of "England's political maturity." He notes England's strides towards socialism are being taken "responsibly." In the rest of Europe, Schumpeter notes that the political situation has broadly reverted to support for social democratic or Catholic parties, at least where they are not dominated by Russia.

Discussing the United States, Schumpeter first notes that the effect on the social structure of the war were "much the same" as in England. He marvels at the "colossal industrial success" of the United States at that time which was on pace, in his view, to "eliminate anything that could possibly be described as suffering or want." Of course, he foresees a problem in the form of "short or atrocious mismanagement." He believes that the United States is mismanaging its national resources.

With some venom he argues against the prevailing regime of taxation, which "portends nothing but evil for public management of finance and industry." He laments the pace of the growth of government and of the rise of social welfare benefits, which is odd considering he argues that socialism could work. He concludes by considering the problem of how to secure "adequate consumption." A failure would cause stagnation. High income and high savings is potentially storing up a problem. Despite including modifying details, Schumpeter does not believe his overall predictions in the book need to be changed.

Schumpeter then considers "Russian imperialism and communism." He notes that Russia emerged as the main victor of World War II and suggests that Russia's power will require a policy of appeasement by the United States. He warns against "confusing the Russian with the socialist issue." Russia's new empire and the rise of socialism are to be kept distinct in Schumpeter's view.


With the hindsight of a few years—and, crucially, the conclusion of World War II—Schumpeter revisited a few of his predictions and updated them with his new data. He considers the three most important developments as he saw them: the landslide victory of the British Labour Party and its democratic socialist platform in the 1945 election (which Schumpeter huffily notes was not a proportionally fair result); the further expansion of the Soviet Union's empire; and the changing economic situation in the United States.

Perhaps strangely (or not, given it was by then his home country) Schumpeter seems most incensed about the state of affairs in the United States. He positively rages against the high-tax regime and the growth of social welfare programs. Schumpeter was an ardent believer that the economy worked best when it was left alone. His tone here, even as he marvels at the massive increase in industrial output, somewhat gives lie to his claims, elsewhere in the book, that he is ambivalent about social programs and specific interventions in the economy to redistribute wealth and provide social security

The final note in the book is a fairly mournful one: Russia's power means it cannot be challenged, and the prevailing situation in the world of exhausted powers means there is no stomach for a challenge. This means that the future of socialism is potentially in the hands of an authoritarian state that is not even really socialist in Schumpeter's view. Schumpeter cautions that Russia and socialism were distinct, but they would become intensely linked in the Cold War that was brewing even as Schumpeter wrote.

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