Schumpeter’s Market

Schumpeter’s Market

Enterprise and Evolution

David Reisman

Schumpeter was an interdisciplinary political economist who made institutional transformation the centrepiece of his theory of supply and demand. This comprehensive monograph reconstructs and assesses Schumpeter’s contribution to the restless economics of entrepreneurship, disequilibrium and search. Examining the evidence from all of Schumpeter’s published work, the book fills a significant gap in the literature of economic thought. Partly because Schumpeter was so prolific, partly because he touched on so many interrelated topics, there have been few books that have sought to span the whole of this important author's influential insights.

Chapter 4: The Capitalist Economy

David Reisman

Subjects: business and management, entrepreneurship, economics and finance, methodology of economics


The vision is clear: market capitalism which enhances the wealth of nations will evolve into economical socialism which will perform at least as well. Initially capitalism is competitive. Later it becomes ‘trustified’, ‘regulated’, ‘organised’, ‘managed’. At the end of the day it will be controlled by the State. This chapter is concerned with the transition from Adam Smith through Standard Oil to the National Board. It pays tribute to the old-style coordination of the butcher, the brewer and the baker who used to bargain and swap. It says that the giant corporation succeeded by the governmental bureau has nonetheless closed a door that can never again be re-opened. The chapter is divided into three parts. The first, The definition of capitalism, examines what Schumpeter believed to be the unique characteristics of the historical transition that follows feudalism and gives way to Plan. The second, The entrepreneur, shows that Schumpeter looked to the high-powered explosive of the world-historical individual for the mouldbreaking initiative that shakes up the circular flow. The third, Entrepreneurship – what it is not, nets out invention, risk-taking, errorcorrection and administration to demonstrate that Schumpeter’s entrepreneurship is vigour, innovation and the implementation of the new. 4.1 THE DEFINITION OF CAPITALISM Max Weber had emphasised the cultural binding in shared ought-to-bes like calculative rationality. Marx had concentrated on the labour–capital dialectic that divides the classes by surplus value. Schumpeter, in the Economic Journal in 1928, provided a slim, spare definition of his own. By capitalism, he wrote, ‘we mean...

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