Financial History 100th Edition Double Issue (Spring/Summer 2011) | Page 12

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[