Capitalism, Socialism and Democracy by Schumpeter - Book Report/Review Example

CAPITALISM, SOCIALISM AND DEMOCRACY: WHAT IS INSIDE Review to the book "Capitalism, Socialism and democracy" written by Joseph A. Schumpeter 2007 CAPITALISM, SOCIALISM AND DEMOCRACY: WHAT IS INSIDE In 1942, soon after the great depression during and during the World War II years Joseph Schumpeter published his famous book "Capitalism, Socialism and Democracy". That was a book written by an economist that applied all his expertise and experience to this work. Even today this book is of great value to those simply interested in the complex science of economics, specialists, and students. The most interesting chapters of the first part are chapters 2 and 3 where the author explains sociological and economic views of Marx. The criticism of Schumpeter is reasoned and well-informed. His views in sociology are similar to Weber's. In "Marx the Economist" Schumpeter provides critique of the labor theory of value from the point of modern economic theory. His critics boils down to that the "labor theory does not account for values in exchange except on special and unrealistic assumptions; if those assumptions are made, then the propositions of the labor theory follow from the modern theory, which can thus explain all the labor theory can explain; and the modern theory can explain things the labor theory cannot explain" (Schumpeter: 24). Also Schumpeter discusses a number of other aspects of Marx's theory and composes a list of advantages and disadvantages. However, while he criticizes Marx's position that capitalism will eventually self-destroy, the reader may notice that his own views in this regard do not differ much from those of Marx's: Schumpeter believes that capitalism bears the seed of its own destruction. In the second part titled "Can Capitalism Survive" Schumpeter continues to argue that Marx is right in a way. He believes that Capitalism transform into socialism but the process of transformation will not occur in the way envisaged by Marx. There will be no economic crises and instead of it will be a growing crisis of legitimacy that caused by the progress of rationalization - the view that reflects the essence of Weber's teaching. He insists on that capitalist societies will become socialistic because intellectuals will persistently protect change in a socialistic direction. Simultaneously, Schumpeter underlines the great strength of capitalism which he believes lies in a very simple and powerful schema of motivators. The promises of wealth, coupled with the threats of poverty are powerful enough to attract the majority of normal people and leave those whom reject them in the minority. They are addressed to ability, energy and capacity for work; but if there were a way of measuring either that ability in general or the personal achievement that goes into any particular success, the premiums actually paid out would probably not be found proportional to either. Impressive rewards are thrown to a small minority of winners, thus " propelling much more efficaciously than a more equal distribution would, the activity of that large majority of businessmen who receive in return a very modest compensation or nothing or less than nothing, and yet do their utmost because they have the big prizes before their eyes and overrate their chances of doing equally well... both business success and business failure are ideally precise. Neither can be talked away. (Schumpeter: 73). Also Schumpeter maintains certain modern developments that have reduced the competitiveness of the capitalist economy. The neo-classical economists' analyses of the capable distribution of resources in an equilibrium state are not of much practical interest, since conditions change so rapidly that the system will never come into equilibrium. The capitalist economy will disappear because of gale of innovation. "A system - any system, economic or other - that at every given point of time fully utilizes its possibilities to the best advantage may yet in the long run be inferior to a system that does so at no given point of time, because the latter's failure to do so may be a condition for the level or speed of long-run performance" (Schumpeter: 83). But even with all its strength capitalism will be destroyed and will be replaced by some form of Socialism as Schumpeter says in his book in chapters 11-14. At the beginning he discusses the connections between rationalism and capitalism. He gives some arguments and the first is that the origin of capitalism was urged in order to rationalize economic activities and its success gave the further life to rationalism and it gives some branches in certain directions. Rationality gained the meaning of thinking for yourself, calculation, self-interest, positivism and so on. Then, to his mind, rationality undermines some traditional values and institutions, bourgeois values and institutions and by all this undermines the legacy of capitalism itself. As the development of capitalism proceeds small companies becomes needless and new modern giant corporations will replace them. The next point is the obsolescence of protective state. Schumpeter suggests that capitalism has benefited from the survival of older, feudal, social classes, which provided political support. Here Schumpeter takes the notion of Weber about a status group. The old aristocracy gave their prestige to capitalists. As samples we can take members of the boards of directors, but also, and more importantly, as proving the personnel and culture of government, the diplomatic service, the magistrates and judges, the army. To his mind the bourgeois class has no equipment good enough to face both domestic and international problems that county of any importance have normally to be faced. "Without protection by some non-bourgeois groups, the bourgeoisie is politically helpless and unable not only to lead its nation but even to take care of its own class interest" (Schumpeter: 138). Capitalism breaks these status groups because the need for money undermines their prestige. While breaking down the framework of society that was before them capitalism thus broke not only barriers that impeded its progress but also it breaks those columns that are to prevent its collapse. Bourgeois motivations also are doomed for dying because of internal causes. Schumpeter mentions them and one is the disappearing of the substance of property. Another is the disintegration of the bourgeois family - unwillingness to sacrifice career and comfort to parenthood that causes lack of interest to keep a home in its old type. "The family and the family home used to be the mainspring of the typically bourgeois kind of profit motive; without that motive the bourgeois loses the capitalist ethics that enjoins working for the future irrespective of whether or not one is going to harvest the crop oneself" (Schumpeter:160). So by these statements he fully supports Marx's vision. So Schumpeter has come to a Marxian conclusion, but in a Weberian way. Because Weber never said that capitalism would be replaced by socialism; he thought that the safest prediction was of increasing bureaucratization, in both private and public sectors. For Weber survival of capitalism was desirable in order to keep some openness by balancing one bureaucracy against the other private firms balancing government. And the theme that Schumpeter touches is socialism. "Will socialism work" is the main question and also he puts a question whether socialism can take a democratic form. To these questions he gives positive answers. The most important chapter of this part is chapter 16 "The Socialist Blueprint". In this chapter Schumpeter show himself as an economist. He says that Socialism could adopt the market as the planning mechanism. For example means of production that belong to public are ruled by managers who are trying to reach the aim at making a profit for their community and then the central board organizing the distribution of productive factors will auction them off to factories etc. according to their offer. Factories etc. will produce products according to what customer will buy, and income of customer depends on employment, employees will seek for good wages so firms will offer wages according to suppose profitability, and so on as in the capitalist economy. By this argument we see that from the economist's point of view a market economy can exist the same as in private enterprise where means of production are private and also in socialism where means of production are socially owned. The conclusion is that socialism is as workable economically as capitalism is. The next question of Part 4 is very important and it sounds whether a socialist society can be a democracy Will the change for capitalism to socialism mean the end of democracy Most of Americans at that time would have said that capitalism and democracy are always go close to each other and socialistic state can not to be democratic so as an argument always Soviet Union was mentioned. But Schumpeter replies that the answer to the question depends on what you mean by democracy. In different societies capitalist or socialist democracy is impossible in one sense. This argument we can find in chapter 21 of the book and it is reminiscent of Weber and Michels. But there are different senses of democracy and in one in one of them democracy is possible, and in that sense a socialist society can be a democracy. In chapter 22 called "The Classical Doctrine of Democracy" we can find this second sense. In chapter 21 at the beggining Schumpeter defines what he calls the concept of democracy of eighteenth century. The main idea of it is that the main arrangement for arriving at political decisions which realizes the common good by making the people itself decides issues through the election of individuals who are to assemble in order to carry out its will. Here we can find three key terms. The first one is the common good. The next is the will of the people. And the last one is the notion that the people itself decide issues. Michels denies the third point and he says that people itself won't decide and that is the will of its leaders. Schumpeter does not support the other two, the idea of a common good and the notion of the will of the people. To his view there is no general definition to such thing as common good. He says that all people could be brought by rational argument to agree on. To different individuals and groups the common good has different meanings. The will of people can not exist without common good. Next thing he argues that the classical theory supposes is that citizens do not make political decisions in the rational way. Schumpeter insists that democracy as a method, is only instrumentally valued. "Democracy cannot, any more than can any other method, be an end in itself" (Schumpeter: 242). He immediately admits that methods, logically, can be ends in themselves. He evaluates the democratic method by the quality of its outcomes: whether they promote justice, efficiency, liberty, equality, or the common good. And people evaluate the democratic method by the quality of its procedure: whether it is inclusive and fair. In practice the democratic method is not a guarantee the best outcome, either in any one instance or in all instances taken together, but generally with procedurally fair methods it may lead to the best outcome. But we can say that Schumpeter is wrong that democracy can only be of instrumental value; it is also of internal value. So, his argument that everyone is exactly an opportunist about democracy does not go through. By practical consideration, it may be true that everyone is an opportunist about democracy in periods of overpassing to democratic rule, but it does not have to be true. And, it does not seem to be true of the leading forces in established democracies. Schumpeter's modern doctrine is as follows: "the democratic method is that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people's vote" (Schumpeter: 260). The primary aim of classical doctrine is to vest in the electorate, decide political issues and the less important purpose is the selection of representatives, says Schumpeter. And for the modern doctrine the most important purpose is to elect the representatives and only after that goes deciding issues by electorate. His modern doctrine has very interesting formulation, its bounce calling to our attention what might be a neglected difference between direct and representative democracy. The value of democracy only when it as a means to some end, but the end, whether the common good, the common will, or the individual will, does not exist. To define a democracy as a regime we can name four points: that sponsors free and fair competitive elections for the legislature and executive that allows for inclusive adult citizenship; that protects civil liberties and political rights; and in which the elected governments really govern and the military is under civilian control. As a conclusion we must say that in this book the author tries to explain forms of government and to show how they could work. He tries to chose the most ideal one and to find resemblance in every of them. Schumpeter's heritage is important in political thought. His definition of democracy appealed to the scientific ambitions of the behaviorists. The procedural approach proved useful to practical investigators, because it is easier to measure democratic procedures than democratic outcomes. "Capitalism, Socialism, and Democracy" continues to puzzle and provoke readers, make them think, question their own perceptions measured against their own ideologies and to wonder about the author's thoughts. References: Joseph A. Schumpeter, Capitalism, Socialism and Democracy. New York: Harper Perennial, 1962, 448 pp. Read More