* This is a long review, if you would not like to read it all you may skip to the last paragraph *
** Additionally, the large strength of this book is its defense and description of modern capitalist development and progress. Part II of the book, that is. The rest is actually not very good. So, buy this book because 1. Capitalism's best description/defense in both a socioeconomic and political context 2. Schumpeter is one of the most important economists to know of if you want to take the subject matter seriously. **
Schumpeter opens part II of Capitalism, Socialism, and Democracy, after a lengthy bit pertaining to Karl Marx `the Prophet, the Sociologist, the Economist, the Teacher' wherein he graces us with his knowledge of Marx's major strengths and flaws (sometimes correct and incorrect himself, and sometimes degenerating into complete fiction), with an ominous sentence - `Can Capitalism survive? No, I do not think it can' (p. 61). Later, in part III of the book, he opens with another - `Can Socialism work? Of course it can.' (p. 167). To unravel these two seemingly complementary statements, we must first investigate the capitalist mode of production as according to Schumpeter, how it came to fruition, and investigate what processes, either endogenous or exogenous, he believes will be the cause of its purported demise and replacement by a `socialist' mode of production.
Schumpeter believed that the most essential feature of the capitalist mode of production was to be found in the constant revolutionizing of the productive forces; a `perennial gale of creative destruction', as he said, that comes about through the introduction of new technologies and, with them, the obsolescence of the old. Without this feature, he claimed that Capitalism "would be like Hamlet without the Danish price" (p. 86). He was naturally highly critical of the neoclassical economic doctrine which purported to explain capitalist production through `perfect competition' paradigms. To Schumpeter, perfect competition was not only a myth but a dangerous one at that.
For Schumpeter then, the idea that competition in capitalist production existed only as a quantitative relationship between firms, finding its vehicle in price, was fantasy. Atomistic competition, even if it ever had existed (which is in itself not so clear) would simply be unable to reach the level of accumulation needed to both survive the `perennial gale' and reproduce itself. An economy characterized by atomistic competition would be in a constant state of flux, with firms (or `individual producers') too rapidly exiting and entering the market and profit rates being driven down to the point that the negation of the crucial role of firms - the ability to accumulate to the point necessary for reinvestment - would be the ultimate cost of such `free' competition. This economy would in the short run be unstable and in the long run stagnant due to the lack of new methods and technologies being introduced for continual reinvestment. Instead, Schumpeter saw competition as a qualitative relationship - one which firms large enough to maintain a profit rate that allowed for reinvestment in strategic and technical improvements and competition in the sphere of research and development, in addition to being able to build up strong reserves for lifesaving mechanisms, would ultimately triumph.
Schumpeter did not believe that capitalist production could be adequately defended on the grounds of short-run considerations. Within the economic system, as a byproduct of quality competition and strategic planning, was taking place a process which revealed itself only through intervals of time in quality improvements and the application of technological innovation. Therefore, holding time as a constant was in effect blinding one of this crucial aspect. This process drove innovations that contributed to higher productivity and lower costs, making the formerly inaccessible accessible to the masses. In this respect, efficiency for Schumpeter was a long run concept that was more related to efficiency of the system as a whole than to productive efficiency at a given point in time. This process took place, as Marx would have said, `behind our backs'. And, accordingly, focusing on short run resource utilization, or full employment as was becoming quite the trend in Keynesian economics, was for Schumpeter even more than what focusing on supply and demand was for Marx - not only misguided but ruinous to long term systemic efficiency. The kind of activity responsible for reoccurring technological revolutions and subsequent relative prosperity was not compatible with equilibrium. Indeed, it had a tendency toward, if not only functional with, a state of disequilibrium.
Mature capitalist production, as depicted above, was for Schumpeter a product of a historically specific process. The main actor in this process was a specific group of people not belonging to any specific class in particular; entrepreneurs. The dynamic nature of the capitalist mode of production was simply a byproduct of the entrepreneur's thirst for individual achievement, which in turn created whole new industries through sheer force of will and determination, simultaneously sweeping away the old order of things (p. 132). These `movers' built the foundations of the mature capitalist system through individual achievement in innovation - the only way possible to rise to a bourgeois standing in a bourgeois world.
This depiction of the entrepreneur has no regard for one's social class, standing, or means in determining who would rise to the challenge of fulfilling the entrepreneurial function. The siren call of wealth and the fostering of a culture of meritocracy thereby pulled people from all walks of life to fill the role of the entrepreneur. The rationalization of all elements of life, fostered by capitalist production, further spurred individuals of exceptional intelligence and drive from all strata to fill this role through the rejection of metaphysical explanations of events and extra worldly existence; furthermore, an atmosphere that imbued them with a belief in individual merit and achievement and an acceptance of the material world as final put individuals in the position to discard notions of heavenly intervention and design, replacing them with a conscience belief in their own abilities to do the same. In this regard, Schumpeter explained the huge leaps in technology and the masses of commodities being made available during and after the industrial revolution both by the growing relative freedom with which the entrepreneur was able to perform his or her social function and an atmosphere conducive to individual achievement.
At its height, the Schumpeterian entrepreneur represented an extension of the notion that clusters of talented people have been the driving force behind history, thereby itself occupying a historic position in social organization quite similar to that held by the stratum formerly populated with owners and masters. The owner of men, whipping his lazy property towards production and progress; the feudal lord, so graciously giving the means to the lower classes of society to survive, not to mention provide for the landed class; and finally the entrepreneur rising to the bourgeois ranks, putting the toiling masses to productive work through the implementation of his or her `vision of things'. The belief in the inability of the masses of people to produce (to Schumpeter's liking) or to maintain political and social order (in Schumpeter's conception) runs straight through this in perfect sequence, with the difference being, of course, that the bourgeois way of imposing oneself in the middle of the production process is much less `physical' - As Marx would say, its true nature is concealed.
This relation, however, is similar only to the extent that the entrepreneur is both an essential part of a specific mode of production - thereby in his or her present obtaining the status tied to this role - and bound to be replaced when that mode becomes outdated - thereby in the future being seen as the remnant of an outdated and forgotten past. The political stratum of elites, as mentioned earlier, was of an altogether different breed than the bourgeoisie - the bourgeoisie budded from merchant and middle classes of society whereas the political elite, or aristocracy, carried on from landed owners and nobility for centuries past. Unlike the former `movers' of society, who played an important ruling role in addition to others, Schumpeter's soon-to-be bourgeoisie had little interest in the heroic or romantic and little interest or skill in the leading and ruling of men 9. Their interest and ambition, according to Schumpeter, went as far as their pocketbooks could take them confined, of course, to bourgeois commercial and productive endeavors - what their `normal work and mentality fit into' (p. 128).
It is of importance to note here what is lacking in Schumpeter's glorious conception of capitalist production. We have, I think, established that the system as a whole is akin to the machine and the budding bourgeois entrepreneur the engine, but we have not yet provided the fuel. Nor did Schumpeter feel inclined to dirty himself with this task. We must therefore turn to someone who was more at home in the industrial factories and coal mines of the world than the thin upper layer of social `movers' - As Marx would have reminded us, the fuel is of course the laborer. The toiling masses, however, could not be a part of this picture, less they would detract from its immutable splendor. Schumpeter offers an original solution to this problem. He simply erased the toiling masses, or, in effect, depicted their part in the `perennial gale' as that of a mere nuisance; An insect being blown about only to crash on a windshield and constrict ones view of the beautiful road in front of him; An undisciplined, inferior being, unable to climb the ladder of success. In the working masses was to be found the problem - a fetter on the class that always looked to the long run - not the solution 10. Workers, those who produced the objects dreamt up by the entrepreneur - the mass of people everywhere - were indebted to the entrepreneur for the vision of the thing, for that is what would, if only the process could continue, "lift poverty from the shoulders of mankind" (p. 129). We will return to this creature soon enough, for as much as Schumpeter tries to avoid it, it does rise from its irrelevance and come to play an important - though limited - role in the `crumbling walls of the bourgeois fortress. Even Schumpeter must recognize that the long run is too far away for the unfortunate that must live in the short run.
The bourgeoisie as a class and the entrepreneurial function are inexorably bound. It is the best and brightest of all lower strata of society that `free' themselves through this function, and from there it is but a step - a matter of success for the inherently successful - to bourgeois life. A successful entrepreneur, like a caterpillar, comes out of the cocoon as a different creature. This process is the lifeblood of the bourgeoisie both in the sense that the entrepreneur embodies the strength of the individualist creed - its strength therefore being the foundation of laissez faire - and because the bourgeoisie replenish their ranks - constantly falling through concentration of capitals - through it. The bourgeoisie as a class are therefore able to see what their future holds by looking at the state of entrepreneurship - its social standing, its political clout, its growth or decline.
Though the entrepreneur was not per se part of the bourgeois as a class, he or she had every intention and aspiration of becoming a part, and indeed their main purpose was to become bourgeois. This is a major point of contention in the Schumpeterian schema of things because once this goal has been achieved, once the butterfly emerges, the whole of economic organization begins to shift with it. Through his or her success, the entrepreneur contributes to the changing of the technological superstructure that provided for his or her functionality within the framework of a historically specific mode of production. As Schumpeter was pained to point out, both objective and subjective developments caused by this group's very success would spell the end of `individual achievement' as the driving force of social reproduction. Wrapped in Marxian historical necessity, the entrepreneurial function served its specific function in time by filling the open wound left from the removal of the fetters of former modes of production and, at its highest point, began revealing the fetters inherent in itself. Similar with former social roles and functions, the entrepreneurial function slowly begins to lose the weight that it once carried in economic and social affairs, while both objective and subjective factors begin to impede on its relevance. Through innovative success the entrepreneur essentially creates the conditions for his or her own irrelevance - the mechanization of innovation replacing individual drive and risk with a corporate structure that no longer lives and dies by individual achievement but by bureaucratic efficiency and managerial oversight and the position of the individual whose social role was to better him or herself through improvement of man's material existence becomes the position of the board of directors and managers who compete with other board of directors and managers. Once this process takes hold, the owning of one's own business or property - the success of which is tied to the individual - withers away as the institution morphs into a form of social ownership accountable to and run by myriad different actors.
The entrepreneurial function, as any historically specific process, then had both a time and place. For the innumerable personal strengths and virtues of a person are as much a product of the institutions and social existence he or she was nurtured in as anything else. When the planets and stars aligned - when the objective and subjective technological and social conditions were in place - the individualist spirit propelled by the entrepreneurial function and materializing
in the bourgeoisie as a class was unleashed to its historically necessary role. Bourgeois values attacked the old order of things - the irrationality, the heroics and romance, the Belief as opposed to the Fact. All were subject to the critical eye of rationalization. Their values simultaneously `freed' both the mind of the intellectual and the body of the slave. However, just as the breaking of so many fetters and the changing of so many traditions and beliefs was necessary before the bourgeoisie would be able to flourish, so were they the only forces maintaining the framework within which the bourgeois way of life was possible. The tragedy is that by lifting these barriers and tearing down these false Gods and natural Rights of the past they were actually destroying the framework within which their own interests were best served and, worse yet, spurring on a process the end result of which would be their own functional obsolescence. Their rationality and creed stretched as far as the individual, and in that sense they were both unable to defend their greater class interest and destroying the only class that could. The concept of something greater than one was completely alien to their scripture.
In the end, then, the entrepreneur was replaced by the bureaucrat and manager, who by virtue of the formers technological success was now able to automize his or her social function; the institutional framework within which the bourgeoisie developed was, from relentless bourgeois attack, forced to transformed from one in which the aristocracy both fed on bourgeois wealth to maintain itself and in turn championed bourgeois principles and legal requirements to one in which the `new' aristocracy - the aristocracy and elite morphed into the politicians, the bureaucrats, the military officers - were at best apathetic and at worst hostile to the individualistic creed; and, perhaps the greatest surprise to the bourgeoisie mind but not for hindsight, the rationalizing and critical mindset fostered by bourgeois values turned upon itself. No longer suspended through threats of physical harm or death; no longer subject to witchcraft `trials' or heretic damnation, it turned its blade towards the father that unwittingly made its existence possible. The intellectual turned a critical eye to the bourgeois way of life and bourgeois institutions, and in doing so gave a new lease on life to that pitiful creature we alluded to earlier. The working masses of the world, unable just the same as their social forefathers to think and act for themselves, and without the fetters of the ancien régime to legitimize their obedience by metaphysical bondage, found their new social `leaders' in the intellectual.
We can identify certain key factors in Schumpeter's conception of the birth and death of capitalist production and the extent to which it is really socialism which he is predicting. Economically, he clearly believed that the functionality of advanced economies had long passed what bourgeois economic theory - `free' market theory - purported it to be, and readily defended concentration and `restrictive' practices as the new order of progress. He even went so far as to call private property a fetter on development, or in his words there were "obstacles that the institution of private property puts in the path of progress (p. 89). Socially, he viewed the situation as extremely precarious. The masses, spurred by intellectuals, were developing a deep seated hatred for the `private' control of production and bourgeois lifestyles in particular. The social role of the entrepreneur was being eroded by his or her own successes, and with its obsolescence bourgeois values were being picked apart. Politically, he saw it as hopeless that the bourgeoisie would be able to fill the role of the nobility or clergy that they themselves had forced out of custom, both because they did not know how to fill this role and because it was outside of their realm of interest.
That the capitalist order was in his eyes essentially the framework of a process not only of economic but social change is not disputed. However, his conception of `social change' seems to apply only to a higher stratum of society. While the upper echelons of society change, there seems to be little to no movement in the position of the mass of people on the bottom. The whole historical framework is essentially run by elite groups and subgroups of people - the entrepreneur, the bourgeois, the intellectual, the nobility. Nowhere does actual `rationalized' society come into play. Essentially, Schumpeterian socialism consists not of the majority of people having ownership of any means of production or even a say in the production process, but of formerly `individual' ownership becoming `joint' ownership by a board of directors or other socially superior elements. His socialism recognizes that there is society - a large leap for many of the bourgeois intellectual type - however only seems to care much for it to the extent that the social function of the unproductive class, in a material sense, maintains its intermediary role. In my opinion, though he claims it, he is completely misguided in the labeling of his future fantasy world as socialist. State-capitalist seems perhaps more appropriate. Schumpeter does, however, score largely when it comes to explaining the functionality of mature capitalist production at the highest level and identifying various trends and happenings within it. Most interesting in this regard, though said in passing, is his notion that the whole of the capitalist socioeconomic system was simply the final stage of the decomposition of feudalism - perhaps not even an independent social form at all (p 139).
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