Will I love Capitalism, Socialism, and Democracy?

I love this book, first published in 1942, because it coins the now famous term “Creative Destruction”–the constant innovation in the economy’s means of production that drives capitalism’s prosperity.

In the process the book gives us an alternative to the too-often-deployed Keynesian policy of deficit spending. And, still, provocatively Schumpeter explains how socialism may undermine capitalism in the long run if we are not careful.

A renowned economist and Harvard professor with a bit of a cult following, Schumpeter provides a realistic evaluation of what capitalism is and whether it can survive if it does not do more to help a wider range of people.

First published in 1942, Schumpeter’s fear was the rise of socialism, but what he had to say about the failings of capitalism back then applies with equal force today.

Schumpeter was the originator of the term “creative destruction” to describe how capitalism works, and Part II of the book was the inspiration for my paper, “Can Liberal Capitalism Survive?”

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Schumpeter describes capitalism as an ever-evolving economic system driven by entrepreneurship and characterized by creative destruction.

New and improved goods and services are created by entrepreneurs and displace the old. His discussion of capitalism is very insightful, but his discussion socialism is somewhat dated.

I recommend skipping ahead to read his discussion of capitalism first.

Schumpeter’s book is not only a classic, but explains what we are experiencing and need to focus upon.

He argues that in the ‘creative destruction’ of capitalism, the entrepreneurs are the vanguard of economic growth. But the late stages of capitalism lead to so much focus upon efficiency that leisure overwhelms the motive to work (French society where less than a third in polls believe work to be important and there are mass protests against pension reform??).

This, in turn, leads to social movements against capitalist efficiencies which inevitably result in socialism replacing capitalism and undermining sustainable democracy.