Joseph Alois Schumpeter was certainly from a time and place much different than our own, but he understood and anticipated much of the economic and social phenomena we see all around us. Born on this date in 1883 in what was then Austria-Hungary, Schumpeter spent his life devoted to the study of economics.
Briefly serving as finance minister for the short-lived Republic of German-Austria in 1919, Schumpeter would later teach at Harvard University and would go on to become an American citizen in 1939.
Schumpeter’s signature work is his book “Capitalism, Socialism and Democracy,” published in 1942. In it, Schumpeter makes his case that the great success of capitalism will ultimately be its own undoing.
The vast wealth and prosperity brought about by the capitalist system is by no means perfect. Businesses fail, innovation brings with it “creative destruction” — a concept popularized by Schumpeter — as old ways of doing things, old lines of work, are destroyed to give way to new and ultimately more fruitful ways of doing them. In the long-run, innovations may be appreciated, but often not in the short-term.
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The vast wealth brought by capitalism helps sustain an intellectual class to critique the capitalist order, while the uncertainty of the capitalistic process provides a basis for anti-capitalist ideas to flourish. “Secular improvement that is taken for granted and coupled with individual insecurity that is acutely resented is of course the best recipe for breeding social unrest,” observed Schumpeter.
“Public opinion has by now so thoroughly grown out of humor with [capitalism] as to make condemnation of capitalism and all its works a foregone conclusion — almost a requirement of the etiquette of discussion,” he observed. “[Every writer or speaker hastens to conform to this code and to emphasize his critical attitude…his belief in the inadequacies of capitalist achievement, his aversion to capitalist and his sympathy with anti-capitalist interests.”
Look around at our politics today. Both major parties at the national level cater to anti-capitalist sentiments, whether by demonization of corporations or the profit motive or globalization and free trade.
We must heed Schumpeter’s warnings and defend the free enterprise system, before it is too late.