The Uncertain Triumph of Democratic Capitalism

In the half-century since it first appeared, Joseph Schumpeter's Capitalism, Socialism and Democracy has attained the status of a minor classic, an odd fate given that almost every one of its main propositions has been empirically falsified. I do not know whether the intent behind this symposium is to bury Schumpeter, to praise him, or perhaps to do both. For the most part, I will do none of these, but rather will comment directly on the questions that were posed to the contributors to this volume, questions that can be usefully discussed without particular reference to Schumpeter. Yet I do want to venture one interpretation of this book by an author who, despite his erroneous predictions, continues to be well worth reading. This interpretation, I think, is not without relevance to our present intellectual and political situation.

The interpretation rests upon a simple fact that is often overlooked when Schumpeter's contributions are discussed namely, that the man was an Austrian to the core, not only by birth but by temperament and world view. His parental home is located in what subsequently became Czechoslovakia, but Schumpeter was born a German-speaking subject of the Habsburg monarchy. That political entity constituted much more than an empire; it comprised a very distinctive civilization whose special character was most strongly manifested by its educated urban classes. A central trait of this civilization was a deep-seated pessimism, frequently verging on melancholia and even masochism. Schumpeter was very much a child of this civilization, notwithstanding the fact that he spent most of his professional life in the United States. The book under consideration here sharply illustrates this pessimism. Schumpeter was anything but a socialist; he would have been delighted to predict that capitalism was the wave of the future. In the book, of course, he predicted the opposite. Capitalism, he thought, would be done in not by its failures, as Marxists believed, but by its very successes (the irony of this view is very Austrian too). The economic mechanisms of capitalism would continue to work well, giving rise to social and cultural byproducts that would subvert the capitalist order from within: The "creative destruction" of capitalism (his phrase) would dissolve the moral basis of society, stifle the entrepreneurial spirit, smother the economy in bureaucracy, and bring forth a resentful intelligentsia bent on biting the capitalist hand that feeds it.

To be sure, all of these developments did occur to an extent, but so far capitalism has been eminently successful in surviving them and even in turning them to its own advantage. As to socialism, Schumpeter believed both that it could work economically and that it could be reconciled with democratic forms of government. It is now fairly clear that he was wrong on both counts, at least as the empirical record so far indicates.

I suppose that one could apply the term "cognitive masochism" to an intellectual posture that defines integrity as predicting that course of events which one least desires. (It is no accident that the Baron von Sacher-Masoch, whose name simultaneously evokes one of the world's most delicious pastries and one of its most complicated neuroses, was also an Austrian.) This posture is well exemplified by an episode in Schumpeter's early career. Just after World War I, he was invited to join the commission planning the nationalization of industries in Germany. A friend asked him how he could have accepted this invitation, since as an economist he was strongly opposed to nationalization. He replied: "If a person wants to commit suicide, it is good to have a physician in attendance." While there is surely a certain grandeur in such an attitude—a stoic fortitude that looks without flinching at the world as it is and not as one would like it to be—we should also remember that no special epistemological privilege attaches to pessimism.

Still, Schumpeter's attitude can serve as a useful corrective to the current mood, which is one of triumphalism as far as capitalism and democracy are concerned. It is not only the Soviet empire that has collapsed, but, or...