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 7: The Socialist Economy

David Reisman

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


The future is unknowable. Probability is less uncooperative. Schumpeter as an institutional economist identified a ‘tendency toward socialism’ (Schumpeter, 1942a:309) which suggested to him that the age of the capitalist might be nearing its end: ‘Things and souls shape themselves for socialism automatically, i.e. independently of anyone’s volition.’ (Schumpeter, 1942a:220). Tomorrow or the next day we are all likely to be making our living under socialism. This chapter explores the nature of the economic reality that never-chosen evolution is imposing upon us and is making our own. Socialism builds on capitalism. Section 1, State socialism, returns to Chapter 5 to show that the business corporation is at once the harbinger and the exemplar of the bureaucratic State that will take over the reins. Section 2, From corporation to state, explains that socialism enjoys a high incomeelasticity not because under-performing capitalism spells misery and Marxian impoverishment but rather because welfare-enhancing capitalism must paradoxically ‘break to pieces under the pressure of its own success’ (Schumpeter, 1942a:134). Section 3, Countervailing forces, ends the chapter on a hesitant note. The track record of the corporate sector, the healthy contribution of small business, principled resistance from people who do not want the change, all will work against the inevitable. Perhaps it is they that will have the last word. 7.1 STATE SOCIALISM The essence of socialism is that it ‘turns on an exclusively economic point’ (Schumpeter, 1942a:169). The attraction of socialism is that it is the better tool: ‘There is a...

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