A Vision for a Dynamic World: Reading Capitalism, Socialism and Democracy for Today.

AuthorDalton, John T.

Published in 1942, Capitalism, Socialism and Democracy ([1942] 1950, hereafter CSD) represented the culmination of a lifetime of scholarly activity by one of history's most erudite social scientists, Joseph A. Schumpeter. Ranging from economics, Schumpeter's home discipline, to history to sociology to political science to law to philosophy to business and entrepreneurship to seemingly everything else in between, CSD is a masterwork dealing with questions surrounding the logic of economic, social, and political change and organization.

This essay attempts the impossible task of trying to do justice to such a work. We begin by briefly offering some background on Schumpeter and the context in which CSD was written. Then we summarize the book, which Schumpeter divided into five separate parts on Marx, capitalism, socialism, democracy, and a history of socialist parties. Throughout our summary, we highlight the key arguments and touch on many ideas in the book, such as Schumpeter's description of socialism and his theory of democracy. Instead of tackling all these ideas in depth, we discuss the book's usefulness for readers today by focusing on Schumpeter's Big Idea--creative destruction. We conclude by discussing how influential CSD has been and continues to be in the social sciences and then provide suggestions for those interested in reading CSD today. We argue that reading CSD remains essential for understanding the world.

Background and Context of the Book

By the time Schumpeter began writing CSD in 1939, he was a fifty-six-year-old Harvard professor and world-famous economist. He was in the "American" phase of his career, having already held academic positions in Europe as well as brief stints in government and business in Vienna. Schumpeter achieved lasting fame early in his career with the publication of Theorie der wirtschaftlichen Entwicklung in 1911, which was translated into English as The Theory of Economic Development (hereafter TED) in 1934. Dissatisfied with existing economic theories relying on static analysis, Schumpeter set out to describe a theory of economic change or development. The result was a novel theory based on entrepreneurship. In Schumpeter's theory, entrepreneurs, funded by credit from the banking sector, produce innovation, which fuels the dynamics of capitalism. TED remains a powerful introduction to the study of entrepreneurship to this day.

TED's importance for putting CSD into context is twofold. First, it provided Schumpeter with a specific theory of economic development based on entrepreneurship, which he would use and expand upon in CSD. Second, TED highlights the central feature of Schumpeter's approach to economics and the social sciences more broadly: an emphasis on dynamics. Schumpeter was obsessed with understanding the logic undergirding change, first in TED in terms of economic change and then later expanded in CSD to include not only economic but also social and political change. TED represented Schumpeter's early vision of the economic world, which provided the foundation for his vision of the social world as a whole that he would describe in CSD.

Why the concern with dynamics? One likely explanation is that Schumpeter grew up and began his career during a time of immense social and economic change and as a social scientist sought to explain the world around him. Schumpeter was born in 1883 in the town of Triesch, located in the area of the Austro-Hungarian Empire that is now the Czech Republic. After the death of Schumpeter's father, Schumpeter's mother remarried, and the family moved to Vienna in 1893. Vienna would be the backdrop for much of Schumpeter's life before his permanent departure for the United States in 1932. His formative years were spent in fin de siecle Vienna, a time of flourishing culture, modernism, and technological change that inevitably came into conflict with the existing order of monarchy, aristocracy, and the last remnants of the feudal world. One of Schumpeter's biographers describes the city in this period as "techno-romantic Vienna," a phrase designed to capture the time of transformation in which Schumpeter grew up (McCraw 2007, 34). As the new ways of being encroached upon and replaced the old, Vienna in the last days of the Austro-Hungarian Empire provided Schumpeter with a laboratory of creative destruction, a notion he would later introduce in CSD to describe the incessant change taking place in the economy as old ways are replaced by new.

Schumpeter's vision of a dynamic and ever-changing economy fueled by entrepreneurs and innovation would not necessarily have given rise to the writing of CSD if it had not been for the tragedies and horrors of the twentieth century--World War I, the Great Depression, and World War II. The social changes these events wrought, from the collapse of empires to the rise of socialism and fascism, very much called into question the future of the capitalist world Schumpeter so much admired. With the rise of Hitler and the outbreak of World War II, Schumpeter began working on CSD in 1939. The future was uncertain. But Schumpeter would attempt to describe the dynamics of the capitalist world, whether those dynamics would ultimately tend toward socialism, and how democracy, if at all, would fit into such a system. CSD would be the result of the collision of Schumpeter's vision and what was happening in the world at large. As a result of that collision, his vision of a dynamic economy needed to be expanded beyond economics to include a much broader view of the social world. Schumpeter would need to wrestle with laws to describe the trajectory not just of the economy but of history and of the future. And so he began CSD by considering Karl Marx.

A Summary of Capitalism, Socialism and Democracy

Schumpeter begins CSD by addressing Marx because Marx's theory about the evolution of capitalism into communism was the most prominent at the time. Schumpeter needs to address first the inadequacies of Marx's theory in order to clear the way for his own theory. Over the course of four chapters, he offers Marx a healthy degree of respect while still managing to contest the validity of many of his arguments. In the chapter "Marx the Prophet," Schumpeter identifies scientific socialism as a set of beliefs that its followers must embrace uncompromisingly and wholeheartedly--much like the system of organized religion it seeks to replace. The chapter "Marx the Sociologist" celebrates Marx's ability to tie together sociology and economics and discusses the intellectual currents from which his theory of class warfare flowed. "Marx the Economist" analyzes and criticizes Marx's economic arguments, such as the labor theory of value, and Marx's inability to distinguish between capitalists and...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT