Schumpeter on the Future of Socialism

by Lyubov Zhabskaya, April 2002



One of the central topics in Joseph Schumpeter’s Capitalism, Socialism and Democracy is the gradual overtake of capitalism by socialism.  Schumpeter believed that capitalism will bring about its own demise; however, unlike Marxian theorists, he believed that this change is likely to be gradual and that it will not be caused by the traditional Marxist class struggle.

Capitalism, Socialism and Democracy begins with a section dedicated to critique of Marx’s theory. Although Schumpeter agrees with Marx’s vision of the eventual replacement of capitalism by socialism, he views Marx’s theory to be faulty in its reasons for such a replacement. According to Schumpeter, one of the major flaws of Marx’s theory is his oversimplified division of the social classes into owners and non-owners and his exaggeration of the existing antagonism between them (p.19). 

“To any mind not warped by the habit of fingering the Marxian rosary it should be obvious that their relations are, in normal times, primarily one of cooperation and in that any theory to the contrary must draw largely on pathological cases for verification.” (p.19)

Schumpeter argues that this division was necessitated by the logic of the argument Marx was trying to make, rather then it was an observation of the existing status quo. Consequently, Marx’s view of capitalism was flawed, because the economic workings of capitalism were dictated by the social tension he describes, which Schumpeter believes is exaggerated; therefore, the supposed self-destruction of capitalism caused by class tensions coming through the economic medium, was also not a logical consequence, provided that the principal arguments were somewhat out of touch with reality (p.20).

 Schumpeter does not fully support Marx’s reasons for the eventual triumph of socialism, yet he does support that capitalism will be overtaken by socialism as a superior system. Capitalism is a “revolutionary process”, where there exists a need for constant improvement (entrepreneurship) in order to increase capacity of production; eventually, it would reach a point where no further improvement can be made (p.131). At that point capitalism as we know becomes extinct, because all functions initially associated with entrepreneurship become unnecessary in their original form and profits no longer exist to motivate the bourgeois. A perfect state is achieved in which nothing is wanted in larger quantities than are available, and thus none of the skills valued in businesspeople are needed. Their positions become purely administrative and bureaucracy takes place of innovation; people will turn their efforts and energy away from business and socialism will almost automatically come into existence, as economic management becomes perfunctory, and the majority of the population shifts their creativity to other areas (p.

Schumpeter believes that although the point where entrepreneurship becomes extinct is far in the distant future, we are already entering a stage where innovation associated with entrepreneurship becomes mundane and standard (p.132). In the past, it was much harder to do things in ways that were not standard business practice; by contrast, it is now expected that one does something completely new in order to excel in business, and innovation itself becomes routine. The “romance” of adventure that used to be business is wearing out, and it is being replaced by teams of specialists, trained in the art of finding new ways of conducting business; cold and simple calculations are replacing instinct and other qualities that were traits of the select few “business geniuses” in the past (p.132). Resistance of consumers and producers to use new technology has already been eliminated, and resistance due to conflict of interests caused by the improvements in the productive process is the only thing that remains in the way of the economy’s achieving the point of its full capacity (p.133).

It is precisely the immense success of capitalism that is going to undermine its foundation later on: the removal of the magic, which occurs as we become more and more efficient, will eventually remove the need for having a bourgeois class, who traditionally has been in charge of the entrepreneurial activities (p.139). The concept of importance of “private” property will also lose its significance, because the mundane nature of production of this property and the ease with which it can be replaced will lessen the importance of it (p.142). Finally, the bourgeois class becomes somewhat unnecessary, because there is nothing that cannot be done by someone else: their business expertise is no longer needed (p.143). The traditional prestige and support of the old bourgeois class in the political arena wanes with their decreased influence in the economic sector, and what Schumpeter calls a “protecting strata” slowly disintegrates, causing lack of political influence of the bourgeois class, thus decreasing the reasons for the necessity of their existence (p.135). All of these reasons add up to dismantle the essential supports of capitalism, and instill doubt in the necessity of the system as a whole.

Schumpeter also notes that it is the intellectual and not the Marxian worker who is likely to initiate the change (p.146). Dissatisfaction with the existing conditions, or a mere existence of the opportunity for change are not enough to challenge the status quo; it is the intellectual, trained by the opportunities presented to him by the capitalism, to question and analyze every aspect of life, who will stand up and protest (p.148). Thus, unlike in Marx’s theory, it isn’t the tension between the owners and the non-owners that contribute to the eventual triumph of socialism, but rather the success of capitalism as a system, which will make it obsolete. The capitalist process creates the conditions favorable for another system as it is destroying those, necessary for its own existence (p.162).

Capitalism, Socialism and Democracy was published in 1942, before the end of World War II and the beginning of the socialist experiment in Eastern Europe, and long before the collapse of communism in the Soviet Union. Schumpeter therefore specifies that we cannot be sure of the way the transformation to socialism and socialism itself will take (p. 163). Because the capitalist society is only on its way to the point where the transformation to socialism becomes imminent, we cannot even be sure if it will linger after it replaces capitalism (p. 163). Schumpeter apparently did not view the Soviet Union experiment as that of pure socialism, and throughout the book he refers to the “blueprint socialism”, which for the duration of the book remains a theory yet to be put into practice (p.172). It appears, however, that we are yet to reach Schumpeter’s point of an ideal state when the economy is producing at its full capacity; the currently recovering from a recession economy is a clear indicator of that capitalism, at least in the United States, is here to stay at least for a while. Although it is possible that the future will prove him right, it is yet to happen.

Books used: Schumpeter, Joseph A. Capitalism, Socialism and Democracy. New York: Harper & Row, 1962.


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