Educators’ Perspective
Can Capitalism Survive?
Joseph Schumpeter’s Ironic Answer
By Dan Cooper and Brian Grinder
In October of 2008, a Washington Post
staff writer wrote, “The worst financial crisis since the Great Depression is claiming
another casualty: American-style capitalism.” Since the financial meltdown, many
have questioned the viability of the capitalist system, and some have wondered
if Joseph A. Schumpeter’s reply to the
question “Can capitalism survive?” was
right after all. Schumpeter’s answer, “No,
I do not think it can,” has kept economists
scratching their heads in puzzlement
since his book Capitalism, Socialism and
Democracy was first published in 1942.
Schumpeter was born in 1883 in Moravia and was educated in Vienna and Berlin. For a time he lived in Cairo where he
worked in a law firm and managed the
financial affairs of an Egyptian princess.
In 1911, he began his teaching career at a
university in Czernowitz, which was then
part of the Hapsburg Empire but is now
part of Ukraine. In 1919, he temporarily
left academia for a turbulent but brief stint
as minister of finance in the new socialist
government of Austria. Schumpeter left
Europe in 1932 to teach at Harvard University where he continued to teach until
his death in 1950.
Capitalism, Socialism and Democracy
(CSD hereafter), Schumpeter’s bestknown work, was written in the United
States during the Great Depression and
published in the midst of World War II.
It begins with an insightful analysis of
Marxism, and then turns to a masterful
defense of capitalism. “Radicals,” Schumpeter notes, “may insist that the masses are
crying for salvation from intolerable sufferings and rattling their chains in darkness and despair, but of course there was
never so much personal freedom of mind
and body for all, never so much readiness to bear with and even to finance the
mortal enemies of the leading class, never
so much active sympathy with … sufferings, never so much readiness to accept
burdens, as there is in modern capitalist
society.” He also contends that capitalist
nations tend to be more pacifistic than
non-capitalist nations and that the arts
and culture overall have benefitted tremendously from capitalism. But Schumpeter takes an unexpected turn when he
concludes that although the capitalist process has the potential “to lift poverty from
the shoulders of mankind,” this in and of
itself is not sufficient grounds for allowing
the process to continue.
According to Schumpeter, two forces
are at work in capitalism. The first force
is that of the entrepreneurial elite. These
are the people who make capitalism work
as they develop new and innovative ways
of doing things. These new processes and
products create wealth for the entrepreneur, but ^H[