Capitalism, Socialism and Democracy
Category: Science
Level 12.96 21:05 h 483.3 mb
Capitalism, Socialism, and Democracy is one of the most essential social theory and economics texts. Joseph Schumpeter debates sociology and history regarding capitalism and socialism in the book. The approach to the study is unique compared to many of the other works of the time as it focuses on entrepreneur-driven growth. Schumpeter was an Austrian immigrant and political economist who became a writer and professor at Harvard.

Capitalism, Socialism and Democracy

Joseph A. Schumpeter

Capitalism, Socialism and Democracy


This is a book to be read not for the agreement or disagreement it provokes but for the thought it invokes.

John Kenneth Galbraith

Capitalism, Socialism and Democracy is one of the great classics in twentieth century social science. What makes Schumpeter’s book so brilliant are three things in particular: its novel view of democracy; its heretic analysis of the workings of the capitalist economy; and its provocative argument that capitalism is bound to disappear — not because of its failure, but because of its success. Schumpeter’s style, it should be emphasized, also makes the book a pleasure to read: “Even if, in places, you may dislike what Schumpeter says”, as one reviewer put it, “you will like the way he says it”.

In this introduction I shall say, first, a few words about the writing of Capitalism, Socialism and Democracy and its place in Schumpeter’s output as a whole (Part I). I shall provide then a reader’s guide to Schumpeter’s book, which may be of assistance to those who are approaching it for the first time. This will also enable the hurried reader to go straight to the most important parts of Capitalism, Socialism and Democracy (Part II). The third and final part of the introduction deals with the contemporary relevance of Schumpeter’s work. Schumpeter, for example, argued that socialism is about to replace capitalism — an opinion that seems totally wrong today, especially after the disintegration of state socialism in the Soviet Union and East-Central Europe (Part III).

I. The Making of Capitalism, Socialism and Democracy and Its Place in Schumpeter’s Work as a Whole

The story of how Schumpeter came to write Capitalism, Socialism and Democracy can be sketched in a few lines. Towards the end of the 1930s, Schumpeter decided to write a small book on socialism. To cite his wife, Elizabeth Boody Schumpeter: “J.A.S. had finished his monumental Business Cycles in 1938 and sought relaxation in Capitalism, Socialism and Democracy, which he regarded as a distinctly ‘popular’ offering that he expected to finish in a few months.” Schumpeter’s book, however, took longer to complete than he had expected, and it was not published until 1942. It was very well received, both in England and in the United States, and its reputation grew as further editions were published in 1947 and 1950. Today, according to John Kenneth Galbraith, Capitalism, Socialism and Democracy is the main work by which Schumpeter is remembered.

A summary account of this type fails, however, to do justice to the making of Capitalism, Socialism and Democracy in at least two important ways. First, Schumpeter’s work draws very much on his earlier research and personal experience. In the preface to the first edition, Schumpeter says that his book was the result of “almost forty years’ thought, observation and research on the subject of socialism”. Gottfried Haberler — one of the foremost authorities on Schumpeter — has added that the book “sums up, brings up-to-date and slightly modifies the result of Schumpeter’s life-long work and study [not only of socialism but of economic theory as well]”. There is also the fact that the period during which Capitalism, Socialism and Democracy was written was a particularly turbulent and dramatic one in Schumpeter’s life. He was, for example, investigated during these years by the FBI for possible espionage, and there were rumours, (as there still are), that he was pro-Nazi. He was also going through a personal crisis — reevaluating himself and his work. Through its exuberant style, Capitalism, Socialism and Democracy may give the impression that it was written by someone who was happy and carefree, but that was far from the case.

If Schumpeter’s book has its origin in events “almost forty years ago”, we need to know more about Schumpeter around the year 1900. At this time the young Schumpeter, (who was born in 1883 in the small town of Triesch, the son of a textile manufacturer), was about to enter the University of Vienna. He had just finished his studies at Theresianum, an exclusive private school for the elite of the Austro-Hungarian Empire. It might be that he felt out of place at this school as he came from the provinces, and had been admitted only because of his stepfather’s connections. In any case, he received excellent grades at Theresianum and was eager to begin his university studies. From early on Schumpeter had been interested in economics and his ambition was to become an important economist.

With Carl Menger at the University of Vienna, economics was a very exciting topic to study there around the turn of the century. Schumpeter had excellent teachers, among them Eugen von Boehm-Bawerk and Friedrich von Wieser. There was also a number of brilliant Marxist students at the university who forced the other students — including Schumpeter — to take Marxism and socialist economics seriously. Schumpeter was happy to debate them, but he made it clear that he was sceptical of Marxism. He received his doctorate in 1906, and by this time, had made the acquaintance of several Marxist students who soon were to hold prominent positions in the socialist movement, among them Otto Bauer and Rudolf Hilferding.

After some years abroad — mainly in England and Egypt — Schumpeter settled down to a conventional career as an economist. During the years 1908–1914 he published three brilliant books in economics and advanced to full professor at the University of Graz, after some time at the University of Czernowutz. The most important of these books was the second, The Theory of Economic Development (1911). Schumpeter’s ambition with this work was to complement Walras’ economic theory with one where economic change was analyzed in a stringent, analytical manner. Schumpeter’s theory was centered around the entrepreneur: he argued that change in economic life always starts with the actions of a forceful individual and then spreads to the rest of the economy.

As Schumpeter’s professional success grew, so did his personal ambitions. A number of prominent economists in the Austro-Hungarian Empire had held high political positions, and Schumpeter was clearly interested in getting one of these. During the First World War he approached a number of people he thought could further his political career, including former professors and ministers. He also wrote secret memoranda, which he hoped would influence the Emperor and the circles surrounding the Emperor. From these writings, which were discovered some years ago, a picture emerges of Schumpeter’s political ideas when he was in his early thirties. He was firmly conservative as a young man: he supported the Emperor, though he also felt that some form of tory-democracy would be suitable for Austria-Hungary. He did not believe in democracy for its own sake, but rather saw it as a means to modernize the Empire.

After the First World War the Austro-Hungarian Empire disintegrated — and with it Schumpeter’s hope for a high position. To his surprise, however, he was asked by the Social Democrats in 1919 to become finance minister in a coalition government. He accepted — immediately — and it seemed he had reached one of his most cherished goals. But his joy was to be shortlived — he was forced to resign after little more than half a year in office. The main reason for his dismissal was his inability to get along with the Social Democrats, especially Otto Bauer. Why the Social Democrats had thought that Schumpeter, who was a convinced conservative, would be eager to carry out a reformist policy of the type that Otto Bauer and his colleagues favored, is something of a mystery. In any case, his resignation in October 1919 represents the end of his political career.

Having served as a minister Schumpeter was reluctant to return to academic teaching in Graz, so he stayed in Vienna. Soon an opportunity arose: he was offered a high position in a small but respected banking firm, the Biedermann Bank. The reason for the offer was that Schumpeter had been allotted a banking permit for his political service to the Austrian state, which the Biedermann Bank needed in order to become a public corporation. He was given a high salary and a nice title but was not expected to interfere in the bank’s everyday transactions. Schumpeter, however, kept busy in other ways, mainly as a private investor and speculator. Initially he was quite successful and even made a small fortune. In 1924, however, his luck ran out: he went bankrupt and was fired later from the Biedermann Bank because of the dubious reputation he had acquired in the business world.

During his years as a financial entrepreneur Schumpeter had little time to write. Nonetheless he produced a few articles that are of interest in this context. Of particular importance is the main theme of Capitalism, Socialism and Democracy that now appears for the first time in his writings, namely that capitalism will undo itself ultimately through its own success. The more capitalism advances, Schumpeter argued, the more entrepreneurs will be replaced by bureaucratically-minded managers. The sense of property, which is so central to capitalist society, will also grow weaker as solid property is replaced by mere shares.

By the mid-1920s Schumpeter was in a terrible state; he had failed in politics as well as in business; he had lost his job; and he had huge debts. In 1925, however, his luck changed and he was offered a good academic position at the University of Bonn. Around this time also he fell in love and got married. His first marriage (to a mysterious English woman called Gladys Ricarde Seaver) had been a failure, but this time he felt that he had met the love of his life. Her name was Annie Reisinger; she was twenty years younger than Schumpeter; and she was the daughter of the concierge in the house of Vienna where he had grown up.

For a brief time in Bonn Schumpeter was extremely happy. But in 1926 disaster struck, and in one stroke his whole family was eliminated: his mother, his wife and his newborn son all died. He was devastated by the loss. For a long time he was unable to work, and for comfort he often retreated into a kind of communion with his wife and mother. He called them die Hasen (roughly, my beloved) and he communicated with them in his mind and in his diary. From now on, Annie and Schumpeter’s mother would be the object of a kind of private cult from Schumpeter’s side. When he was tired or in need of help, he would pray to die Hasen.

When, in 1924, Schumpeter decided to resume his career as an economist, he knew that he had to produce books as brilliant as his three books from 1908–1914. This, however, turned out to be harder than he thought, and it was not until 1939 that his fourth book — Business Cycles — was published. By this time Schumpeter was working in the United States, at Harvard University, where he had moved permanently in 1932. During the years 1924–1939 Schumpeter would several times try to produce a book, but each time he failed. There was first and foremost a projected book on the theory of money, on which Schumpeter worked extremely hard but which never materialized.

Then there were a number of minor projects which he tried his hand at, but quickly let die. Among the latter was a book on socialism, a topic that held his fascination. Schumpeter continued to follow political events very closely, even though he had promised himself never to get involved in politics again. He was, for example, greatly annoyed that he had been unable to predict Hitler’s succession to power in 1933. He was incidentally also unsure whether Hitler would be good or bad for Germany. “Recent events”, he wrote in a letter dated March 1933, “may mean a catastrophe but they also may mean salvation”. When news reached Schumpeter in 1934 about the recent successes of the Austrian Nazis, he worried that his native country would be governed from Berlin. According to available information, Schumpeter detested the Austrian Nazis and was very upset by the Anschluss of 1938.

It was at this time, 1938, that Schumpeter decided to write Capitalism, Socialism and Democracy. As the giant manuscript for Business Cycles was coming to finish, Schumpeter began to contemplate a couple of other projects. For a while he thought of reviving the book on money, which he had worked very hard on earlier. Other candidates were a book on economic theory and a revised edition of his history of economic thought from 1914. He finally decided however to write a small book on socialism; and for a long time he referred to what was to become Capitalism, Socialism and Democracy as his “book on socialism”. By June 1939 he had prepared a rough outline for his new project that included the argument that capitalism is about to fail because of its very success. He was still unsure about the last part of the book, but finally decided to devote it to a history of socialist parties. The whole project turned out to be much more time consuming than Schumpeter had initially thought, and the book was not published until the fall of 1942.

The years 1938–1942, during which Capitalism, Socialism and Democracy was conceived and executed, were very difficult for Schumpeter on a personal level. As always, he taught and lectured to excess, which made him irritable and gave him little time to write. He was also very annoyed with Harvard for a number of reasons. For one thing, he had very few students left after Keynes’ General Theory (1936) had been discovered at Harvard. He was also on a collision course with his own department. Its chairman — Harold Burbank — was antisemitic and a mediocre figure; and his decision in 1940 to deny an appointment to Paul Samuelson, the department’s star student, infuriated Schumpeter. The same year he began to negotiate with Yale University, which had extended a very favorable offer to him. In the last hand, however, Schumpeter decided to stay at Harvard — only to complain again soon about “[the] stifling atmosphere at Harvard”.

There was also the issue of politics. Schumpeter detested everything that Roosevelt stood for and was convinced that he would ruin the United States in one way or another. Once the Second World War broke out in 1939, he feared the President would drag the United States into the war, and, using the war as a pretext, would then extend the grip of Washington over the economy with disasterous consequences. “A ten-year’s war and a ten-year’s Roosevelt dictatorship”, he wrote in 1941, “will completely upset the social structure”. Schumpeter’s hatred of Roosevelt reached such proportions that people around him, shocked by his verbal attacks on the President, began to avoid him. This tendency was strengthened by what Schumpeter said about Nazi Germany and Japan. Schumpeter basically despised and disliked Hitler — but he feared Stalin and “the Slavs” much more. During the early stages of the war he suggested that Nazi Germany could keep its conquered territories since a change in Europe was long overdue anyway. Incidentally it was this opinion — publicly expressed in a talk in Cambridge in October 1939 — that led the FBI to decide to investigate Schumpeter. Schumpeter was unable to understand why everyone around him was so hostile to Hitler but not to Stalin. As the war continued, and as Schumpeter began to realize that Hitler would lose the war, he became increasingly obsessed with the idea that Stalin must be stopped. After the Allies had defeated Hitler, he felt they should attack the Soviet Union. “A job half done”, as he put it, “is worse than nothing”.

Schumpeter basically despised and disliked Hitler — but he feared Stalin and “the Slavs” much more. During the early stages of the war he suggested that Nazi Germany could keep its conquered territories since a change in Europe was long overdue anyway. Incidentally it was this opinion — publicly expressed in a talk in Cambridge in October 1939 — that led the FBI to decide to investigate Schumpeter. Schumpeter was unable to understand why everyone around him was so hostile to Hitler but not to Stalin. As the war continued, and as Schumpeter began to realize that Hitler would lose the war, he became increasingly obsessed with the idea that Stalin must be stopped. After the Allies had defeated Hitler, he felt they should attack the Soviet Union. “A job half done”, as he put it, “is worse than nothing”.

Maybe it was Schumpeter’s difficulties at Harvard and the ostracism he experienced in the social circles of Cambridge that led to Schumpeter’s difficult personal crisis during the years when he wrote Capitalism, Socialism and Democracy. He began to scrutinize himself and the way he had lived his life, and he did not like what he saw: he was “worthless”, “frivolous”, “vain” and a “snob”. His life had been “a failure”, and so had his work. He prayed increasingly to his mother and his beloved second wife for support. Sometimes he lashed out in anger, and wrote hateful statements in his diary about the blacks, the Jews and Roosevelt. While earlier he had vented his anger only in private (primarily, it seems, in his diary), he now had outbursts in public also. This dark side of Schumpeter was very difficult for those of his friends who were still loyal to him. While it is the scholarly consensus that Schumpeter was basically not pro-Nazi, some of his statements from these years were nonetheless perceived as pro-Hitler. According to one of Schumpeter’s favorite students at Harvard, for example, “in the Second World War [Schumpeter] was pro-Hitler, saying to anyone who cared to listen, that Roosevelt and Churchill had destroyed more than Genghis Khan”.

II. A Reader’s Guide to Schumpeter’s Book

Capitalism, Socialism and Democracy consists of around 400 pages of dense text and would take the average reader around twenty hours of concentrated reading. For those who can ill afford to invest this amount of time, the following selection is recommended: Chs. XI–XIV, which give the essence of the argument why capitalism cannot survive; Chs. XV–XVI, where Schumpeter explicates why socialism can indeed work; the important Chs. XX–XXIII in which different theories of democracy are discussed; and the famous chapters on the way that contemporary capitalism works (Ch. VII, “The Process of Contemporary Capitalism” and Ch. VIII, “Monopolistic Practices”).

Capitalism, Socialism and Democracy is divided into five distinct parts, which are loosely connected. In the preface to the first edition the author talks about “the heterogeneous material” of his book and describes its five parts as “almost self-contained pieces of material”, connected to one another through “links” and “bridges”.

The book starts with a long and brilliant section on Marx, which is instructive and enjoyable but not essential for the main argument of the book (Part I, “The Marxian Doctrine”). The basic innovation in Schumpeter’s analysis of Marx is the consistent manner in which he separates Marx’s thought into “sociology” and “economics”. Schumpeter admired Marx’s sociology very much (Ch. II), but was more sceptical of his economics (Ch. III). However, he credited Marx very highly for having tried to introduce a dynamic element into economic analysis — something that Schumpeter himself had tried to do through his theory of the entrepreneur.

The main argument of the book begins with Part II, entitled “Can Capitalism Survive?” The first chapters of this part are devoted to an analysis of the way that contemporary capitalism works, and the reader should pay especial attention to Chs. VII and VIII with their famous analysis of “creative destruction” and “monopolistic practices”. Woven through the first chapters of Part II also is an interesting critique of mainstream economics for being non-dynamic in general and for lacking a realistic concept of competition in particular. The last chapters of Part II are devoted to a discussion of why capitalism, in Schumpeter’s opinion, cannot survive (Chs. XI–XIII): capitalist civilization is falling apart, the bourgeoisie lacks faith in itself, and so on. These chapters are witty and entertaining, though ultimately not very convincing, as many critics have pointed out. (See also later in this introduction).

Part III (“Can Socialism Survive?”) is likewise entertaining. Schumpeter argues that socialism may be superior to capitalism in some aspects (Ch. XXVII); he discusses whether human nature precludes a socialist society (Ch. XXVIII); and he tries to establish when a transition from capitalism to socialism can take place (Ch. XXIX). Of particular interest is Ch. XXVI in which he explains why a socialist economy is a feasible proposition, which is in contrast to the arguments of Ludwig von Mises and others.

Part IV (“Socialism and Democracy”) represents one of the high points in Capitalism, Socialism and Democracy. All the chapters are succinctly argued and free from the excessive detours that mar some of the other parts of the book. Chs. XXI and XXII, in which Schumpeter presents and confronts two different theories of democracy, are especially brilliant (“The Classical Doctrine of Democracy” and “Another Theory of Democracy”). Part IV also contains an interesting sketch of what a socialist democracy might look like (Ch. XXIII, Section III).

The last part of Capitalism, Socialism and Democracy (Part V, “A Historical Sketch of Socialist Parties”) is clearly the most expendable. Schumpeter himself said that his history of socialist parties was only “a sketch” and “woefully incomplete”, both of which are true. The reader will find some interesting details on the Austrian Marxists (many of whom Schumpeter knew), the Bolshevik leaders, and so on — but not much more. Some editions of Capitalism, Socialism and Democracy (including this one) also contain an appended talk that Schumpeter gave in 1949, just before his death, entitled “The March into Socialism”. The talk shows that towards the end of his life Schumpeter was still convinced that the main thesis of Capitalism, Socialism and Democracy was correct: capitalism was about to be replaced by socialism.

III. The Current Revelance of Schumpeter’s Book

All three editions of Capitalism, Socialism and Democracy (1942, 1947, 1950) that Schumpeter himself oversaw were very well received by the economics profession as well as elsewhere. It has been translated into more than a dozen languages, including Chinese and Japanese, and has spawned a huge number of articles and a couple of books. Capitalism, Socialism and Democracy is clearly Schumpeter’s most popular book and there are no signs that interest in it is waning. Still, it was written more than fifty years ago and events have changed enormously since it was first published: socialism has collapsed — not capitalism, as Schumpeter predicted. Is Schumpeter’s analysis in Capitalism, Socialism and Democracy still relevant today?

There are, as I see it, a number of reasons why Schumpeter’s book deserves to be read as widely today as yesterday. Some of these can be stated in a few lines while others require more elaboration. Let me start with a simple case: Schumpeter’s analysis of Marx. The swing to conservatism during the 1980s, in combination with the dramatic collapse of socialism, has practically wiped out interest in Marxism and also threatens existing knowledge of it. This represents a major loss as Marx is one of the most important Western thinkers. Schumpeter’s analysis of Marx in Capitalism, Socialism and Democracy is important in this situation as it represents a well-balanced attempt to sort out what remains valuable in Marx’s thought. Part I of Schumpeter’s book (“The Marxian Doctrine”) can be recommended as an excellent introduction to Marxism. This section is also of interest to those who are familiar already with Marx since it contains a sophisticated and innovative interpretation of Marx’s ideas.

Schumpeter’s argument about capitalism is considerably more complex and contradictory than his reading of Marx. It consists principally of two parts which should be kept separate: an analysis of the way the capitalist economy works, and the argument that capitalism will fail due to its very success. Schumpeter’s analysis of the way the capitalist economy works consists of a sharp polemic with mainstream economics, which he considered lacking on a number of points. His main assertion was that mainstream economics had failed to understand that basically capitalism consists of change and cannot be analyzed in static terms. “Capitalist reality is first and last a process of change”, as he phrased it. It is in this context that Schumpeter introduces his concept of “creative destruction”.

He was also very critical of the current (and present) tendency among economists to operate with a formalistic and non-realistic concept of competition. Schumpeter was convinced that perfect competition had never existed; that it never would exist; and that if it ever came into existence, it would be harmful to the economy. Big business and monopolies, he pointed out, are to a large extent responsible for the high standard of living. “Monopolistic practices” are healthy in that they facilitate expenses on research as well as huge investments. When Capitalism, Socialism and Democracy was published, Joan Robinson wrote that “Professor Schumpeter is at his most brilliant [when he discusses competition and monopoly], and his argument blows like a gale through the dreary pedentry of static analysis”. Quite a few economists, however, were deeply offended by Schumpeter’s defense of monopoly.

The situation is somewhat different with respect to Schumpeter’s famous argument that capitalism is bound to go under, due to a number of institutional changes: the entrepreneur is vanishing with the emergence of the modern corporation; intellectuals are always hostile to capitalism; the old sense of property is being eroded; and so on. The problem with Schumpeter’s analysis on this score is that he is contradicted by reality on most points. In short, in areas where Schumpeter perceived a threat to capitalism, there is no apparent threat at all or, alternatively, a very minor one.

To illustrate this, let us look at two of the alleged causes for the demise of capitalism: the role of intellectuals in capitalist society and the relationship of property owners to their property. According to Schumpeter, as capitalism develops it gives rise to an increasing number of intellectuals who are basically resentful and hostile to capitalism. The argument, however, does not accord well with our observations; rather, most intellectuals appear fairly well integrated into the various institutions in which they work, and the vocal intelligentsia changes its political opinions at regular intervals, usually oscillating between pro-capitalism and indifference to economic questions, and only rarely lapsing into anti-capitalism. In any case, it is simply not correct to state that Western intellectuals in general have been hostile to capitalism and that they are likely to be hostile also in the future.

Likewise the sense of property is not being eroded, as Schumpeter claimed, by the shift from owning physical property (say a factory building) to having shares in a corporation. Evidence indicates rather that shareholders are as eager to defend their property as owners of physical property. During the 1980s, for example, shareholders in the United States reasserted their right to control directly, and sometimes even to manage, various huge corporations through take-overs and similar maneouvres. The growth of institutional investors, which because of the very size of their holdings are more prone to “voice” than to “exit” in the stock market, is another indicator that Schumpeter was wrong in this matter. It is of course true that managers in a shareholding corporation have interests that are not identical to those of the owners. Owning shares, however, does not seem to change one’s attitude to property any more than having bills, as opposed to gold coins, changes one’s attitude to money.

Schumpeter’s analysis of socialism similarly has its strong and its weak points. Personally an inveterate foe of socialism, Schumpeter should be applauded for his objectivity in recognizing that socialism can be democratic. The part of Capitalism, Socialism and Democracy in which he outlines the structure of a socialist democracy, is usually forgotten but deserves a better fate (see Ch. XXIII, Part III). It should also be pointed out that Schumpeter thought that a socialist democracy might be inherently unstable since socialist society — as opposed to capitalist society — lacks a strong separation of powers. In socialist society, Schumpeter pointed out, it would be much easier for the politicians to seize power of the economy than in capitalist society with its independent private sector. “As a matter of practical necessity”, Schumpeter said, “socialist democracy may eventually turn out to be more of a sham than capitalist democracy ever was”.

Schumpeter’s analysis of socialism is also dubious in other ways. Take, for example, his analysis of the workings of a socialist economy, as presented most fully in Ch. XVI. Schumpeter argues here that von Mises is wrong in asserting that socialism cannot have a rational economy since it lacks markets. The price mechanism can work in an equally efficient manner in a socialist society as in a capitalist society, Schumpeter says. This would be the case — theoretically — if all the citizens in a socialist society received vouchers (representing claims on the overall production of goods and services) and used these to shop in state-run shops. These shops, Schumpeter says, would then regulate the price in accordance with the demand of the consumers. Similarly, a central board would post “prices” in response to the demand by industrial boards for the various factors of production. A system of this type, Schumpeter states, would work perfectly well — in theory as well as in practice.

It is clear that Schumpeter’s model of the socialist economy differs from the way that the socialist economies of the Soviet Union and East-Central Europe operated. The latter failed to produce efficient prices and were plagued by constant political interference in the economy, by corruption among the managers and by general inefficiency in the labor force. One is tempted to pose the question as to whether Schumpeter’s model of the socialist economy would have worked more efficiently than the economies of the socialist states, could it ever have been implemented. A question of this type is, of course, impossible to answer. Since Schumpeter, however, does not even discuss a number of difficulties that are likely to beset his system — such as the failure of the central board to come up with correct prices and of the state-run shops to regulate their prices in response to consumer demand — one is justified in rejecting his proposal as utopian and naïve.

Finally, one part of Schumpeter’s book that is as much to the point today as when it was originally written, is the section on democracy (Part IV). This is where Schumpeter makes his famous distinction (borrowed from Weber) between, on the one hand, democracy as a supreme value in itself (“the Classical Doctrine of Democracy”), and, on the other hand, democracy as a method for the selection of leaders (“Democracy as Competition for Political Leadership”). While the former approach views democracy as a metaphysical value to be realized (“the Will of the People”), the latter sees it as a way for the citizenry to select its leaders. What is especially valuable with Schumpeter’s discussion of democracy as a value in itself, is the firmness with which he attacks various illusions, such as the notion that the only task of the politician is to carry out the alleged will of “the people”. For one thing, as Schumpeter makes clear, politicians have their own distinct interests, and these must be borne in mind in order to get a realistic picture of the way a democracy works. And, for another, the majority does not represent “the people” — only the majority.

Through his splendid discussion of democracy, Schumpeter joins the small number of thinkers who have made seminal contributions to its theory. Granted this, the question must nonetheless be raised if Schumpeter does not overdo his attack on “the Classical Doctrine of Democracy”, and end up with far too negative, not to say cynical, a view of democracy. He may well have been right to emphasize democracy as a means for the selection of leaders — but can it not simultaneously be recognized as a value in itself? Indeed, the more strongly democracy is valued in a population, the more eager, (one would presume), people would be to challenge the hierarchical and authoritarian kind of democracy that Schumpeter (again following Weber) had in mind. One also wonders how much Schumpeter’s attacks on “the Classical Doctrine of Democracy” had to do with his ill-concealed contempt for the masses. Is it, for example, true that the typical citizen “becomes a primitive again” as soon as “he enters the political field”?

Schumpeter’s analysis of democracy deserves a more thorough discussion than is possible here. Our final judgment of Schumpeter’s book, is that it always inspires discussion, whether one agrees or disagrees with the author’s point of view. Schumpeter’s main ambition in writing Capitalism, Socialism and Democracy, he says, was to shake up the reader and make him or her think. “We resent a call to thinking and hate unfamiliar argument that does not tally with what we already believe or would like to believe”, Schumpeter wrote in the preface to the second edition. “Now this is precisely where I wanted to serve the reader. I did want to make him think”.

Part I: The Marxian Doctrine


MOST of the creations of the intellect or fancy pass away for good after a time that varies between an after-dinner hour and a generation. Some, however, do not. They suffer eclipses but they come back again, and they come back not as unrecognizable elements of a cultural inheritance, but in their individual garb and with their personal scars which people may see and touch. These we may well call the great ones — it is no disadvantage of this definition that it links greatness to vitality. Taken in this sense, this is undoubtedly the word to apply to the message of Marx. But there is an additional advantage to defining greatness by revivals: it thereby becomes independent of our love or hate. We need not believe that a great achievement must necessarily be a source of light or faultless in either fundamental design or details. On the contrary, we may believe it to be a power of darkness; we may think it fundamentally wrong or disagree with it on any number of particular points. In the case of the Marxian system, such adverse judgment or even exact disproof, by its very failure to injure fatally, only serves to bring out the power of the structure.

But there is an additional advantage to defining greatness by revivals: it thereby becomes independent of our love or hate. We need not believe that a great achievement must necessarily be a source of light or faultless in either fundamental design or details. On the contrary, we may believe it to be a power of darkness; we may think it fundamentally wrong or disagree with it on any number of particular points. In the case of the Marxian system, such adverse judgment or even exact disproof, by its very failure to injure fatally, only serves to bring out the power of the structure.

The last twenty years have witnessed a most interesting Marxian revival. That the great teacher of the socialist creed should have come into his own in Soviet Russia is not surprising. And it is only characteristic of such processes of canonization that there is, between the true meaning of Marx’s message and bolshevist practice and ideology, at least as great a gulf as there was between the religion of humble Galileans and the practice and ideology of the princes of the church or the warlords of the Middle Ages.

But another revival is less easy to explain — the Marxian revival in the United States. This phenomenon is so interesting because until the twenties there was no Marxian strain of importance in either the American labor movement or in the thought of the American intellectual. What Marxism there was always had been superficial, insignificant and without standing. Moreover, the bolshevist type of revival produced no similar spurt in those countries which had previously been most steeped in Marxology. In Germany notably, which of all countries had the strongest Marxian tradition, a small orthodox sect indeed kept alive during the post-war socialist boom as it had during the previous depression.

But the leaders of socialist thought (not only those allied to the Social Democratic party but also those who went much beyond its cautious conservatism in practical questions) betrayed little taste for reverting to the old tenets and, while worshiping the deity, took good care to keep it at a distance and to reason in economic matters exactly like other economists. Outside of Russia, therefore, the American phenomenon stands alone. We are not concerned with its causes. But it is worth while to survey the contours and the meaning of the message so many Americans have made their own.

Chapter I.
Marx the Prophet

WholeReader. Empty coverWholeReader. Book is closedWholeReader. FilterWholeReader. Compilation cover