Capitalism, Socialism and Democracy


Probably one of the most important influential books you have never heard of. It’s fascinating because it’s very much of its time, and yet very much of our time as well. Here’s what I mean. The meat of the book was written, or at least intellectually developed before WWII (published during) in the late ’30s. However, this is also one of the key texts of the triumph of neoliberalism. This book never seemed more prophetic then in the ’90s with the technology explosion and corresponding economic growth.

Of course, of our vantage point here in 2016, that pendulum has swung completely in the other direction. I would love (love love love) to bring Joseph Schumpeter to our present day and show him around the global poverty, environmental destruction, and insane inequality explained away in moralistic tones. Because it’s all kinda his child.

How should I say this? Schumpeter is never wrong – on the contrary, he is highly logical and rigourous. He’s cosmopolitan. He loves Latin phraseology. But it’s what he leaves out. It’s in what he brushes aside or discounts due to “space considerations”. I’ll come back to this.

Schumpeter is one of the large exodus of German intellectuals driven out by Hitler in the 30’s, who came to settle in America and became profoundly influential, in deep, long lasting ways. It’s one of the more interesting and unpredictable effects of WII. Schumpeter, along side von Hayek and Richard Strauss represent the more traditionally conservative political perspectives. While the Frankfurt School of Marxists were going around inventing postmodernism and influencing the counterculture of the ’60s, these handful of thinkers were busy building their own intellectual dynasties which would come back with a vengeance in the 80’s; their peak being the Bush/Cheney/Rove Administration.

In a nutshell, it is these three German intellectuals who provide the intellectual fodder (eyewash?) for the modern American conservative movement. When a conservative attacks a liberal for being either a Bleeding Heart or a Secret Stalinist, it is the work of Sumpter, Von Hayek and Strauss which provide the intellectual justification for this view.

I think that if Schumpeter was alive today and looking out over our economic and cultural landscape, he would probably vote Democrat. I doubt he would go for Bernie Sanders, but he would definitely feel comfortable with Hilary Clinton. And this is why his book is so very much of it’s time in the late ’30s. It’s not of ours; his views have been superseded (and yet they still form the rational basis for pretty much any sort of neoliberal economic view).

Between National Socialist Germany and Marxist-Leninist Russia, and the decline of the traditional capitalist democracies (England and France), it seemed in the 1930s, that socialism was pretty much bound to triumph all over the world. Intellectuals ranging from serious academics to cafe dilettantes all espoused some kind of socialism. In a nutshell, socialism and the phraseology of socialism was IN in a big way. Hardly anyone could make any sort of pronouncement without making certain comments of a socialist shade.

Joseph Schumpeter thus feels like the “lone voice crying in the wilderness” in support of capitalism. He’s very annoyed by people who make irrational arguments or silly assumptions. And this book is his massive rant against both socialism and the “cafe socialists” which he has had to tolerate. He writes like a man who assumes that his cause is lost. He attributes the unpopularity and failures of capitalism to essentially the fact that it gets bad press.

But here his brilliance – and I do not say that sarcastically – emerges. He writes for a public which he assumes is to a man in some bent pro-socialist. To keep people reading – instead of throwing down the book in disgust – he maintains a rather impressive tongue-in-cheek tone that lasts for a solid half of the work.

He opens with a discussion of Marx and the theoretical underpinnings of socialism. Even as he rips apart Marx and his ideas, he maintains a tone and certain sentences which make it seem that he is actually in support of Marx and or socialism, but is just making fine-tuning remarks or reworking some of Marx’s ideas to make them better. It’s actually really  well done and definitely worth a read.

This book is also famous for the idea of “creative destruction”; the idea that growth is takes place over the bodies of outdated industries or techniques, IE, vinyl being replaced by CDs, etc. He also makes a strong pitch for capitalism being in the long run more compatible with democracy than socialism (which he points out is not necessarily a democratic form of government.


But here is my actual problem with Schumpeter’s reasoning (and again it’s more of what he leaves out or ignores). In one of the opening chapters he defines the best economy as the one that maximises production/output. It’s literally just a sentence that he’s thrown in. And that’s really the whole trick. Once he has made that assumption, he can easily prove that capitalism is the system that maximises production, and is therefore the best.

He seemingly remains oblivious to the massive flaws in this assumption. I won’t ding him for not being concerned with the environment because I suppose nobody was at this time. But he ignores the true complexity of our individual lives and our societies and saves his argument be hiding behind “maximum production”. He fails to see the great contours of capitalism – a system of exploration that feeds off of population growth and environmental destruction. He categorically refuses to recognise the massive aid that governments have to lend to “capitalism” to keep it going.

Schumpeter, borrowing and building off of Max Weber, subscribes to the moralistic Predestination view of capitalism, i.e., those that are successful have done something to deserve it. They have saved or invested wisely or worked hard or been more smart than the next guy. He waxes poetically about the virtues and mindset of the businessman or the “bourgeoisie” which he finds to be hard working and sober and sensible.

He savours describing capitalism as an unceasing maelstrom of competition that even the biggest companies must weather. And this is the big secret of capitalism – it’s superiority. He’s blind to how far governments have to bend to keep the damn thing going. He’s blind to how rare it is for the system to work in the moralistic and efficient way that he suggests that it does.

And I think that if he were alive today I think we would see a Peter Schumpeter much less enthusiastic about laissez-faire economics and centre-right politics. With the threat of global Communism being definitely gone for a while now, with Marxist phraseology being well out of style, with an economy that depends on government propping up most of the major industries in one way or an other, with systematic global poverty, with environmental destruction and massive inequality, and with the link between war and Big Business definitely established, he would have to yield on a few points. For sure.

It’s a fascinating book and a monument to it’s time and place. That being said, unless you want to understand neoliberal rationalisations, it’s probably not worth your time.


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