Capitalism, Socialism and Democracy

At first glance, Schumpeter’s discussion of Marx seems puzzling. Why spend so much time refuting a thinker with whom he shares so little? Not just that, but one whose ideas he views as clearly flawed. The answer is that he wishes to use a key Marxist insight. As he says, Marx’s “result might nevertheless be true so far as it simply avers that capitalist evolution will destroy the foundations of capitalist society” (42). In other words, Schumpeter wants to adopt what he calls Marx’s “profound vision” (42). This is the idea that capitalism will inevitably destroy itself by dint of its own inner logic. Marx was the first to see this because he was able to marry economics and history. As Schumpeter says, “he was the first economist of top rank to see and to teach systematically how economic theory may be turned into historical analysis” (44). Unlike previous thinkers who separated historical narratives and economics, and thus understood capitalism in static terms, Marx recognized the essential dynamism of the capitalist system. Schumpeter finds this vital. By understanding capitalism in terms of an evolving historical process, Marx gained a deeper grasp of what capitalism is and grasped what it will become.

However, this is why Schumpeter criticizes Marx on other grounds. He rejects Marx’s explanation of why capitalism “is incessantly being revolutionized from within” (31), by new products, markets, and methods and that this “means turmoil” (32). He has his own theory of capitalism’s self-destruction and attacks Marx’s sociology of class. According to Marx, one reason why capitalism will collapse is because it systematically creates its own “gravediggers” in the proletariat. This is the class of individuals forced to sell their labor to those who own the means of production, the capitalist class or bourgeoisie.

As capitalism develops, in Marx’s view, the proletariat grows in number and becomes more starkly distinguished from the capitalist class. Growth occurs as capitalist industry expands and more people in an intermediary position are forced into the proletariat. For example, small and medium scale industrialists, unable to compete with larger enterprises, are put out of business and compelled to work for large-scale owners. Meanwhile, the capitalist class itself becomes sharply distinguished. An ever-diminishing number of capitalists become richer and more dislocated from the lives of the now vast majority who work for them. Eventually this situation becomes intolerable. The proletariat realize that they can take control of the means of production, which they do through revolution. Thus, capitalism is ended and socialism, where the means of production are controlled in common, is initiated.

Schumpeter argues that Marx’s view is too simplistic. While wealth has in some cases become concentrated, and industrial workers have become more significant than small-scale farmers, the class system has not been simplified in the way Marx envisaged. Instead, it has become more complex. Capitalist development and the increased range of technologies and products, as well as the growth of big business itself, has spawned numerous technical, managerial, and bureaucratic roles. These do not fit neatly into the “proletariat” designation. Consider, for example, someone working in human resources for a multinational company or a pilot for a commercial airline. Such workers do not necessarily identify as part of an oppressed class. Nor do they automatically feel solidarity with a worker in a factory, Marx’s archetypal proletarian.

Such workers do not feel there is an “impassable gulf” (19), as Marx thought there would be, between themselves and the owners of capital. Of course, huge differences of wealth and income persist across and within societies. Significant ownership of capital, to the extent where this provides a source of income, is still beyond the vast majority. However, suggests Schumpeter, there are many “white collar” workers whose standard of living puts them as close to the owners as it does to those from the traditional working class. For this reason, “their relation is, in normal times, primarily one of cooperation” with capitalists (19). Thus, Marx’s vision of capitalism’s demise fails.