38 pages • 1 hour read

Capitalism, Socialism and Democracy

Nonfiction | Book | Adult | Published in 1942

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Key Figures

Joseph A. Schumpeter

Joseph A. Schumpeter (1883-1950) was an Austrian born economist and author of Capitalism, Socialism and Democracy (1942). Schumpeter served for a short time in 1919 as the finance minister for Austria. In 1932, he emigrated to the United States and became a professor at Harvard University. Schumpeter authored several other works including Methodological Individualism (1908), The Sociology of Imperialisms (1919), Social Classes in an Ethnically Homogeneous Environment (1927), Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (1939), and Ten Great Economists: From Marx to Keynes (1951).

Schumpeter’s main thesis in Capitalism, Socialism and Democracy, that socialism will replace capitalism due to the growing bureaucratization of industry and the death of the entrepreneurial function, has not been borne out by history. Nevertheless, this work continues to be relevant in economics. This is due to its analysis of monopolies, which are influenced by the process of “creative destruction,” and its criticisms of the concept and model of perfect competition.

Karl Marx

Karl Marx (1818-1883) was a German philosopher, economist, and social theorist. Marx’s sociological and economic thought provides the main foil for Schumpeter in Capitalism, Socialism and Democracy. Schumpeter accepts and adopts Marx’s insight that capitalism will eventually collapse due to processes essential to its development and functioning. However, he rejects Marx’s claim that this will come about due to the increasing impoverishment of workers and subsequent class conflict. In contrast, Schumpeter argues that capitalism will fall due to the automation of the entrepreneurial function, which demoralizes the capitalist class and makes them redundant. While he shows respect for Marx, Schumpeter is highly critical of later Marxists and socialists, especially those who interpreted his thought in Russia and the Soviet Union.