Thursday, June 13, 2019

Joseph Schumpeter, Capitalism and Intellectuals

See Socialists, Knowledge of History and Agency. These are letters to the editor of The WSJ in response to an article about socialism by Joseph Epstein. The one below reminded me of a 1992 article by Robert Samuelson in Newsweek.
"Joseph Epstein’s “Socialists Don’t Know History” (op-ed, May 30) on the abysmal historical knowledge of young people brings to mind the prophesy of the keenest of economists, Joseph Schumpeter, in 1942 when he said that capitalism would destroy itself by breeding a “new class: bureaucrats, intellectuals, professors, lawyers, journalists, all of them beneficiaries and, in fact, parasitical on them and yet, all of them opposed to the ethos of wealth production, of saving and of allocating resources to economic productivity.” The 77 years since then has proven Schumpeter a major prophet.

Larry W. White
See also Schumpeter: The Prophet by Robert Samuelson. Excerpts:
"He is best known for his evocative phrase "creative destruction." Schumpeter saw capitalism as a system that produces material progress-rising living standards, more creature comforts-through the turmoil of new technologies and business methods. The "entrepreneur," a man of great vision and energy (in his day, there were few women in business), was the driving force of change. Sam Walton and Wal-Mart fit his theory perfectly."

"It is precisely because the "gale" (his term) of creative destruction seems so ferocious that Schumpeter has enjoyed a revival. But he had a second stunning insight that also is relevant. He argued that capitalism's vast economic success generates popular dissatisfaction with capitalism. As prosperity increases, progress is taken for granted. Capitalism's remaining shortcomings-including the disruption caused by creative destruction-become increasingly intolerable. Finally,, prosperity expands the class of intellectuals who are contemptuous of capitalism."

""[C]apitalism ... creates, educates and subsidizes a vested interest in social unrest," Schumpeter wrote. Popular discontent and intellectual hostility would, he thought, doom capitalism and lead to socialism."

"capitalist economic success, because it is incomplete and interrupted, breeds its own backlash. The sour public reaction to the present slow economic recovery only highlights a longstanding trend. The growth of Big Government-here, in Europe and in most advanced market societies-has aimed to placate popular discontent without undermining capitalism's ability to raise living standards."

"Its [his book Capitalism, Socialism and Democracy] genius is to explain why capitalism succeeds as Adam Smith imagined, even though modern economies lack Smith's perfect competition with hordes of tiny companies. In today's industries, big firms often dominate and enjoy monopoly profits. But most monopolies are temporary, Schumpeter argued. Their high profits, far from stifling competition, inspire more innovation from entrepreneurs and big companies alike. Cable TV assaults the networks; fax machines replace mail; McDonald's invents fast food.

But the drawn-out nature of this process makes capitalism hard to defend politically, Schumpeter said. The argument for it "must rest on long-run considerations." The "unemployed [worker] of today [has] to forget his personal fate and the politician of today his personal ambition." This was not likely."

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