Capitalism, Socialism, and Democracy.

AuthorBecker, Gary S.

In 1942 Joseph Schumpeter, the outstanding Austrian economist, published Capitalism, Socialism, and Democracy, a collection of loosely connected essays. The book is justifiably considered a classic. His analysis of political democracy in terms of competition for political leadership was profound, and it influenced my approach and that of many others to this important subject. The book also contains many other insights.

But two major themes not only have turned out to be wrong but have had a pernicious influence on subsequent discussions of capitalism. The more important is Schumpeter's claim that capitalism was doomed--not by its failures, as in Marxian analysis, but by its successes. For according to Schumpeter, capitalism alienated intellectuals, who were unhappy because they are not important players in a decentralized free-market system. Moreover, intellectuals do not like the profit motive that drives this system. But Schumpeter greatly exaggerated the long-run influence of intellectuals on public policy.

Schumpeter joined his pessimism about the future of capitalism with unwarranted optimism about the economic potential of socialist and communist economic systems. That a great economist believed socialism might work successfully gave much reassurance to the many intellectuals attracted to socialism during the middle of this century.

He apparently believed that weak individual incentives under socialism would be compensated for by stronger group incentives: "The socialist order presumably will command that moral allegiance which is being increasingly refused to capitalism"; "there might be more self-discipline and more group discipline in socialist society, hence less need for authoritarian discipline than there is in a society of fettered capitalism"; "the vested interest...

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