Capitalism, Socialism, and Democracy: Third Edition

Economist Joseph A. Schumpeter's keen intellect makes some of today's scholarship sound like the spouting of ideology on talk shows. Some consider him the greatest economist of the twentieth century. Only an intellect of his towering stature would be able to present a case that while Marx was wrong about how capitalism would collapse, he was probably correct that it eventually would. Schumpeter also contends that socialism may eclipse free-market economies, news he feels society should greet with angst. He believed that capitalism's doom would proceed not from a revolution by an angry proletariat, but rather as a result of successes that would give rise to a class of elites who would gradually institute systems of central control. Fully understanding this complex, although non-mathematical, treatise may require some background; it is not a book for the novice. While this 1942 classic may seem dated in spots, those who conclude that it is time to tap dance on socialism's grave should consider that Schumpeter expected socialism's dominance to take a century or more. We recommend this classic to anyone seeking a deeper understanding of the historic, economic case for the rise of socialism.

Many summers ago while I was taking supplementary graduate courses in comparative literature, a classmate suggested that I read this book. I had not previously heard of it. It was somewhat tough going, in part because I lacked understanding of an appropriate frame-of-reference within which to absorb and digest Schumpeter's ideas. Recently, I re-read it. To paraphrase Mark Twain, it is amazing how much Schumpeter has learned over the years. I strongly recommend that Tom Bottemore's excellent Introduction be read and then re-read at least once more before anyone proceeds into the Schumpeter text. It certainly would have been very helpful to my first reading. The 28 chapters are organized as follows:Part I: The Marxian DoctrinePart II: Can Capitalism Survive?Part III: Can Socialism WorkPart IV: Socialism and DemocracyPart V: A Historical Sketch of Socialist PartiesObviously, the world which Schumpeter surveyed more than 50 years ago has undergone significant changes. (This book was first published in the US in 1942; a revised second edition appeared in 1957; and an expanded third edition appeared in 1950, the year in which he died.) Nonetheless, after a recent re-reading of the book, I am amazed at how stable its intellectual infrastructure remains. Bottomore explains the book's continuing appeal to readers "by the fact that it undertakes a serious and thorough examination of the great social transition of the present age, from capitalism to socialism, (and prefaces this with an illuminating critical appraisal of Marx's theory, as the only social analysis of the transition that merits attention) rather than by the kind of judgement that it makes about the consequences of this process of social transformation." Bottomore then quite correctly notes that, in this book, Schumpeter also examines "carefully and dispassionately" the difficulties and dangers presented by certain forms of socialism "which socialist thinkers themselves,,, after so many deceptions, can now more readily appreciate." Granted, at least some of Bottomore's discussion of Schumpeter is itself dated. Nonetheless, Schumpeter's ideas are carefully developed; moreover, he explores all manner of connections between and among those with other ideas, including those he rejects.

This is one of the most important books on Capitalism ever written. Unlike most economists, Schumpeter's knowledge and understanding of the sociological & political sides of the capitalist process was just as profound as was his knowledge and understanding of the economic side. Consequently, he presents a more well-rounded view of Capitalism than we usually get from the typical one-dimensional type of economist.Most economists commit the fatal error of regarding capitalism as a mere economic phenomenon, explicable by economic laws alone. But this view is palpably erroneous. Capitalism both influences and is influenced by political and sociological factors. Any account of the Capitalist system which ignores these non-economic factors must be regarded as short-sighted and incomplete.This book is probably most famous (or most infamous, depending on your point of view) for its prediction (circa. 1942) that capitalism would eventually be replaced by some form of socialism. With the collapse of communism in Eastern Europe and the revival of market economics in East Asia and South America, it might appear that Schumpeter's prediction has been refuted. But this conclusion would be premature and superficial. Keep in mind Schumpeter's broad vision of capitalism. For Schumpeter, capitalism is much more than a free market acting under the guidance of supply and demand and consumer sovereignty. In Schumpeter's vision, capitalism is entire order of civilization, embracing the old-fashioned "bourgeois" code of ethics (see Thomas Mann's "Buddenbrooks" for a concrete illustration of bourgeois civilization) and entrepreneurial innovation (or "creative destruction," as Schumpeter calls it in his famous theory of the business cycle). When Schumpeter predicted that socialism would ultimately triumph over capitalism, he did not mean that a perfectly controlled economy would replace a perfectly free market, but that a "socialist" civilization would replace the capitalist civilization of the 19th century. His prediction, although not correct in all respects, is nevertheless prescient in a number of important ways. The social order prominent in the first world today is capitalist more in form than in substance. The corporation, which is regarded as a public institution by the law, is the dominant economic unit. Privately owned businesses have less and less power in the market. Regulation and state involvement in business are more and more common. Schumpeter once said that when socialism came to America, it would not be called socialism. This remark comes uncomfortably close to hitting the nail on the head.

This was the first book I read when I did my study political sience in the Netherlands. Schumpeter writes a brilliant explanation how politics works. The elites competes with each other for the votes of the public. He compares the economic market with the political market and analysis the trends with amazing relevance for our current system. Further his analysis of Kapitalism is so interesting and thought provocing. He states that Kaptialism is the most efficient and effective system of production but that it will go under by the lack of political, emotional and moral support of the masses once it is incredible succesfull. Now that Capitalism has won everywhere on this earth it is interesting if his theory will come to life. Very readable and billiant book.